Assignment
1. Describe the benefits to an organization of preparing an operating budget.
2. Nittany Company sells three products with the following seasonal sales pattern:
Products
Quarter A B C
1 40% 30% 10%
2 30% 20% 40%
3 20% 20% 40%
4 10% 30% 10%
The annual sales budget shows forecasts for the different products and their expected selling price per unit as follows:
Product Units Selling Price
A 50,000 $ 8
B 125,000 20
C 62,500 12
Required:
Prepare a sales budget, in units and dollars, by quarters for the company for the coming year.
3. Christy Enterprises reports the year-end information from 2011 as follows:
Sales (100,000 units) $500,000
Less: Cost of goods sold 300,000
Gross profit 200,000
Operating expenses (includes $20,000 of Depreciation) 120,000
Net income $ 80,000
Christy is developing the 2012 budget. In 2012 the company would like to increase selling prices by 10%, and as a result expects a decrease in sales volume of 5%. Cost of goods sold as a percentage of sales is expected to increase to 62%. Other than depreciation, all operating costs are variable.
Required:
Prepare a budgeted income statement for 2012.
4. Explain the difference between a static budget and a flexible budget. Explain what is meant by a static budget variance and a flexible budget variance.
5. The textbook discusses three levels of variances, Level 0, Level 1, Level 2, and Level 3. Briefly explain the meaning of each of those levels and provide an example of a variance at each of those levels.