Problem:
Crimson Company, a producer of aftermarket automobile products, has just completed its master budget process for the next fiscal year. With three weeks remaining before the new period begins, you are reviewing the budget spreadsheets to make sure they contain the most up-to-date information.
I. The initial estimate of unit sales of leather Miata seat covers was too optimistic. Updated forecasts from the Marketing Department indicate that units sold will be 40% lower than previously anticipated. Discuss how the budgeted balance sheet is affected by the updated sales forecast.
Balance Sheet Account Direction of Change (increase/decrease) Reason (briefly)
II. The master budget does not reflect the recent efficiency training that production-line workers received. Crimson anticipates that the new cutting methods the workers learned will reduce the scrap waste of leather, resulting in a 10% decrease in the usage of this direct material. Discuss how the cash budget is affected by the expected scrap reduction.
Cash Budget Item Direction of Change (increase/decrease)
Reason (briefly)