Unformatted text preview: BUSN 5200
Homework Assignment for Week 5:
For Week 5, please turn in the answers to the following questions:
Question 1. Prepare a budget for this year for the Administrative Department at Tom’s Toyota
Company based on the following information: Salaries
Total: Last Year Forecasting Assumption Budget for this Year $75,000
$96,900 2% increase
no change $76,500
$98,766 Question 2. Define a “Static Budget.”
A static budget is a budget prepared for one level of activity.
Question 3. Define a “Flexible Budget.”
A flexible budget is several static budgets covering a range of activity within which the
organization may operate.
Question 4. Define the term “Zero-based Budgeting.”
The normal approach to budgeting is to use historical figures and adjust these for
anticipated future events. Zero-based budgeting sets the initial figures for each activity to
zero. To receive funding from the budgeting process, each activity must be justified in
terms of its continued usefulness and the resources needed for that activity.
Question 5. Define “Period Budgets.”
Budgets are usually developed for a specified period of time. Short-range budgets cover a
month, a quarter or a year. Question 6. Define “Rolling Budgets.”
Rolling budgets are continually updated by periodically adding a new incremental time
period and dropping the period just completed.
Question 7. Webster’s Discount Appliances expects sales of $5,000, $5,000, and $10,000 during
April, May, and June (big sale in June). To build business, Webster let’s all customers buy on
credit, and all do so. In the past, 15% of Webster’s* sales have been collected during the month
of sale, 70% are collected the following month, and 10% the month after that. If this trend
continues, what will be Webster’s total cash collections in the month of June?
In month of
1st month after
2nd month after
$10,000 $750 $750 $1,500 $3,500 $3,500
$5,500 In June, Webster’s total cash collections will be $5,500 Question 8. Little Louie’s expects to have $100 in cash on hand at the beginning of June, and the
company's target cash balance is $100. Net cash flow for June is minus $300. Assuming that
Little Louie’s borrows to meet short-term cash needs and pays back as soon as surplus cash is
available, what will be the company's ending cash balance after financing at the end of June?
Net cash flow (receipts less disbursements)
= Ending cash before financing
Minimum cash balance desired
End cash balance after financing
The company’s ending cash balance in June, after financing, will be $100. Question 9. Ma & Pa Kettle’s Chili Company has begun selling a new chili recipe and they want
you to help them with next year’s budgeted financial statements. Using the worksheet below,
complete Ma & Pa’s forecast and answer the questions which follow.
To begin with, Ma & Pa are sure sales will grow 50% next year. Assume that is true. Then
assume that COGS, Current Assets, and Current Liabilities all vary directly with Sales (that means if sales grows a certain percentage, then the account in question will grow by that same
percentage). Assume that fixed expenses will remain unchanged and that $1,000 worth of new
Fixed Assets will be obtained next year. Lastly, the current dividend policy will be continued
Ma & Pa Kettle Chili Company, Inc.
Tax @ 33.3333%
for next year
$0 Current Assets
Net Fixed Assets
Total Assets $25,000
$53,500 Current Liabilities
Total Liabs & Eq $17,000
$48,500 Amount need to balance the balance sheet
(Projected total assets minus projected
total liabilities & equity *) $5,000 * If this number is positive it means Ma & Pa need additional external funding to finance
their projected asset growth. If this number is negative it means Ma & Pa have
programmed too much financing for the amount of assets they project. ...
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- Summer '16
- Balance Sheet, Generally Accepted Accounting Principles, cash balance, total cash collections