1. Gig Harbor Boating is the wholesale distributor of a small recreational catamaran sailboat. Management has prepared the following summary data to use in its annual budgeting process:
   
   
   
   Budgeted unit sales 660
   Selling price per unit $ 2,050
   Cost per unit $ 1,480
   Variable selling and administrative expenses (per unit) $ 85
   Fixed selling and administrative expenses (per year) $245,000
   Interest expense for the year $ 21,000
   
   
   Required:
   Prepare the company's budgeted income statement using an absorption income statement format shown below.

Budgeted Income Statement
Sales $1,353,000
Cost of goods sold 976,800
Gross margin 376,200
Selling and administrative expenses 301,100
Net operating income 75,100
Interest expense 21,000
Net income $54,100

Explanation:

Sales: 660 units × $2,050 per unit = $1,353,000
Cost of goods sold: 660 units × $1,480 per unit = $976,800
Selling and administrative expenses: (660 units × $85 per unit) + $245,000 = $301,100.

2. The management of Mecca Copy, a photocopying center located on University Avenue, has compiled the following data to use in preparing its budgeted balance sheet for next year:
   
   
   Ending Balances
   Cash ?
   Accounts receivable $ 9,700
   Supplies inventory $ 3,800
   Equipment $ 42,000
   Accumulated depreciation $ 17,000
   Accounts payable $ 3,400
   Common stock $ 5,000
   Retained earnings ?
   
   
   
   The beginning balance of retained earnings was $33,000, net income is budgeted to be $16,900, and dividends are budgeted to be $3,500.
   
   Required:
   Prepare the company's budgeted balance sheet. (Amounts to be deducted should be indicated by a minus sign.)

Budgeted Balance Sheet
Assets
Current assets:
Cash $16,300 (-----)
Accounts receivable 9,700 (-----)
Supplies inventory 3,800 (-----)
Total current assets (-----) $29,800
Plant and equipment:
Equipment 42,000 (-----)
Accumulated depreciation (-17,000) (-----)
Plant and equipment, net (-----) 25,000
Total assets (-----) $54,800
Liabilities and Stockholders' Equity
Current liabilities:
Accounts payable (-----) $3,400
Stockholders' equity:
Common stock $5,000 (-----)
Retained earnings 46,400 (-----)
Total stockholders' equity (-----) 51,400
Total liabilities and stockholders' equity (-----) $54,800


Explanation:

Cash = Plug figure.

Retained earnings is computed as follows:


Retained earnings, beginning balance $33,000
Add net income 16,900
49,900
Deduct dividends 3,500
Retained earnings, ending balance $46,400

3. Which of the following is NOT an objective of the budgeting process?

To ensure that the company continues to grow.

4. Which of the following represents the normal sequence in which the below budgets are prepared?

Sales Budget, Budgeted Income Statement, Budgeted Balance Sheet

5. One disadvantage of a self-imposed budget is that budget estimates prepared by front-line managers are often less accurate and reliable than estimates prepared by top managers.

False

6. Planning involves gathering feedback to ensure that the plan is being properly executed or modified as circumstances change.

False

7. The cash budget is usually prepared after the budgeted income statement.

False

8. The cash budget is typically prepared before the direct materials budget.

False

9. The manufacturing overhead budget is typically prepared before the production budget.

False

10. The budget method that maintains a constant twelve-month planning horizon by adding a new month on the end as the current month is completed is called:

a continuous budget.