Assignment: Budgets
Part A
1. Explain the differences between static budget and flexible budget.
2. What is budgetary slack? What methods do organisations use to minimise budgetary slack?
3. How are budgets related to organisational strategies?
Part B
Tomlinson Retail is preparing a cash budget for May 2016. The following information pertaining to sales and purchases information relates to Tomlinson:
Sales
• All sales are on credit.
• Customers are allowed a 2% discount if payment is made within the month of sale.
• Analysis of past records has shown that credit sales are collected over a three month period, with 50% being collected in the month of the sale, 30% in the next month, and 15% in the following month. The remainder proves to be uncollectible.
Purchases
• 54% of all purchases of inventory as well as selling, general and administrative (SGA) expenses are paid in the month purchased and the remainder in the following month.
• Tomlinson requires that each month's units in ending inventory is equal to 120% of the next month's units of sales.
• The cost of each unit of inventory is $10.
• Total SGA expenses are equal to 10% of the current month's sales and include $2500 of depreciation.
Actual and Projected sales are:
|
|
$
|
Units
|
|
March
|
177,000
|
11,800
|
|
April
|
181,500
|
12,100
|
|
May
|
178,500
|
11,900
|
|
June
|
171,000
|
11,400
|
|
July
|
180,000
|
12,000
|
|
August
|
183,000
|
12,200
|
Required:
1. Prepare a schedule of cash collections for May 2016.
2. Prepare the budgets for purchases of inventory in units and in dollars for the months of April and May 2016.
3. Prepare a schedule of cash payments for May 2016.