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# Chapter 7 - C HAPTER 7 O PERATING BUDGETS BRIDGING PLANNING...

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Unformatted text preview: C HAPTER 7 O PERATING BUDGETS : BRIDGING PLANNING AND CONTROL SOLUTIONS 7.25 Some believe that budgets promote a financial emphasis in organizations. It is true that budgets are mostly financial plans of organizational activities. The reason for this is that ultimately the performance of a company is judged in terms of the financial returns it generates for its shareholders. But budgets need not necessarily be restricted to financial measures. Many firms are now benchmarking key non- financial measures to ensure organizational success. 7.28 Top-down budgeting is preferable when decisions need to be taken quickly, and time is of essence. Top- down budgeting is most suitable in smaller organizations with a narrow and manageable range of products and services, and centralized decision making. In these settings, top managers are likely to possess detailed enough information for budgeting purposes. 7.33 We can apply the inventory equation to find the missing data, as follows: Number of Windows April September December Desired ending inventory 1,800 2,000 3,200 + Budgeted sales 10,000 15,000 20,000 = Total requirements 11,800 17,000 23,200 - Beginning inventory 1,200 3,000 2,200 = Budgeted production 10,600 14,000 21,000 In each instance, we perform the suitable arithmetic to rearrange the terms and solve for the required item. 7.37 Let us begin by calculating the operating cash flow. Item Detail September Individual fees (690-180)× \$100 \$51,000 Family (300 – 60) × \$160 38,400 Prepaid (individual) (180/12) * (12 × 100 × 90%) 16,200 Prepaid (family) (60/12) × (12 × 160 × 90%) 8,640 Total inflows \$114,240 Purchase (current) 0.6 × \$13,000 \$ 7,800 Purchases (prior) 0.4 × \$13,600 5,440 Variable costs (690 × \$25) + (300 × \$45) 30,750 Fixed costs \$41,000 -\$12,500 28,500 Total outflows \$72,490 Operating cash flow \$41,750 We can now prepare the cash budget. Item September Beginning balance \$ 6,000 Operating cash flow 41,750 Special items - equipment (20,000) Amount taken out (15,000) Ending balance \$12,750 7.40 a. Once again, we apply the inventory equation to solve this problem. Using the information provided, we have (units in linear feet): March Detail Desired ending inventory (in linear feet) 75,840 40% of April needs = 0.40 × 15,800 boxes × 12 feet/box. + Needed for production 144,000 12,000 boxes to be produced × 12 feet/box. = Total requirements 219,840 - Beginning inventory 50,000 Given = Budgeted purchases (linear feet) 169,840 Purchases budget = budgeted purchases × \$0.75 per foot \$127,380 b. Bosworth would use 144,000 linear feet of cardboard strips to produce the boxes. The total materials cost = 144,000 × \$0.75 = \$108,000 . An inventory cost flow assumption is not required in this instance because the entire inventory (beginning inventory plus purchases) is valued at \$0.75 per linear foot....
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Chapter 7 - C HAPTER 7 O PERATING BUDGETS BRIDGING PLANNING...

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