1. Lecture 21
Operational Budgeting
Operational Budgeting Exercises

2. Lecture 21
Operational Budgeting
Operational Budgeting Exercises

3. + + + + Start here Assumptions about cost behavior Sales Forecasts
Assumptions about inventory levels, collections of receiv-ables, & disburse-ments
pro forma income statement + +
Purchases and Production
Long-term financing & capital spending
Beg. Balance Sheet
Cash Bud-get & S-T Financing
pro forma balance sheet

4. + + + + Start here Assumptions about cost behavior Sales Forecasts
Assumptions about inventory levels, collections of receiv-ables, & disburse-ments
pro forma income statement + +
Purchases and Production
Long-term financing & capital spending
Beg. Balance Sheet
Cash Bud-get & S-T Financing
pro forma balance sheet

5. Willamette Widget Corp.
Sales Forecasts
JAN FEB MAR
Sales $ $ $800
This information comes from the sales force, merchandisers, marketing personnel, and possibly the finance & planning group.

6. + + + + Start here Assumptions about cost behavior Sales Forecasts
Assumptions about inventory levels, collections of receiv-ables, & disburse-ments
pro forma income statement + +
Purchases and Production
Long-term financing & capital spending
Beg. Balance Sheet
Cash Bud-get & S-T Financing
pro forma balance sheet

7. Pro Forma Income Statements
JAN FEB MAR
Sales $400 $ $800
Cost of Goods Sold
Gross Profit &
Contribution Margin
Fixed Costs
Income $ 10 $ $170
The Sales line comes from the previous schedule.
The Cost of Goods Sold line and Fixed Cost line come from assumptions about cost behavior (contribution margin is 40%).

8. + + + + Start here Assumptions about cost behavior Sales Forecasts
Assumptions about inventory levels, collections of receiv-ables, & disburse-ments
pro forma income statement + +
Purchases and Production
Long-term financing & capital spending
Beg. Balance Sheet
Cash Bud-get & S-T Financing
pro forma balance sheet

9. Beginning Balance Sheet
Dec 31
Assets
Cash $
Accounts Receivable
Inventory
Fixed Assets, net
Total $
Liabilities
Accounts Payable $
Stockholders’ Equity
Total $ 2510
This is all given.

10. + + + + Start here Assumptions about cost behavior Sales Forecasts
Assumptions about inventory levels, collections of receiv-ables, & disburse-ments
pro forma income statement + +
Purchases and Production
Long-term financing & capital spending
Beg. Balance Sheet
Cash Bud-get & S-T Financing
pro forma balance sheet

11. Purchases Budget
JAN FEB MAR
Cost of Goods Sold $240 $ $480
Budgeted ending inv
Total requirements
Beginning inventory
Purchases $480 $ $360
The COGS line comes from the pro forma income statement.
Budgeted ending inventory is a target.
Beginning inventory is given.

12. + + + + Start here Assumptions about cost behavior Sales Forecasts
Assumptions about inventory levels, collections of receiv-ables, & disburse-ments
pro forma income statement + +
Purchases and Production
Long-term financing & capital spending
Beg. Balance Sheet
Cash Bud-get & S-T Financing
pro forma balance sheet

13. Cash Budget
JAN FEB MAR
Beginning Balance $ 80 $ $ 50
Cash receipts
Total available
Cash disbursements
Indicated balance
Borrow
(Repay)
Ending balance $52 $50 $134
The beginning balance for January comes from the beginning balance sheet.

14. Cash Budget JAN FEB MAR Beginning Balance $ 80 $ 52 $ 50
Cash receipts
Total available
Cash disbursements
Indicated balance
Borrow
(Repay)
Ending balance $ $50 $134

15. Cash Receipts Budget
JAN FEB MAR
Sales for the month $400 $ $800
From prior mo., 30%
From current mo., 70%
Total Receipts $590 $470 $710
Note: 70% of sales are collected in the month sold, and the remaining 30% are collected in the subsequent month.

16. Cash Budget JAN FEB MAR Beginning Balance $ 80 $ 52 $ 50
Cash receipts
Total available
Cash disbursements
Indicated balance
Borrow
(Repay)
Ending balance $ $50 $134

17. Cash Disbursements Budget
JAN FEB MAR
For merchandise $483 $ $384
Other
Total $618 $ $519

18. Cash Disbursements Budget
JAN FEB MAR
For merchandise $483 $ $384
Other
Total $618 $ $519

19. Cash Disbursements Budget
for Purchases
JAN FEB MAR
From prior mo., 40% $195 $192 $168
From current mo., 60%
Total $483 $444 $384
Note: 60% of purchases are paid for in the month purchased, and the remaining 40% are paid in the subsequent month.

20. Purchases Budget 60% of $480 is $288 40% of $480 is $192 JAN FEB MAR
Cost of Goods Sold $240 $ $480
Budgeted ending inv
Total requirements
Beginning inventory
Purchases $480 $420 $360
60% of $480 is $288
40% of $480 is $192

21. + + + + Start here Assumptions about cost behavior Sales Forecasts
Assumptions about inventory levels, collections of receiv-ables, & disburse-ments
pro forma income statement + +
Purchases and Production
Long-term financing & capital spending
Beg. Balance Sheet
Cash Bud-get & S-T Financing
pro forma balance sheet

22. Cash Budget The Cash Budget also indicates short-term financing needs.
JAN FEB MAR
Beginning Balance $ $ $ 50
Cash receipts
Total available
Cash disbursements
Indicated balance
Borrow
(Repay)
Ending balance $ $50 $134
The Cash Budget also indicates short-term financing needs.

23. + + + + Start here Assumptions about cost behavior Sales Forecasts
Assumptions about inventory levels, collections of receiv-ables, & disburse-ments
pro forma income statement + +
Purchases and Production
Long-term financing & capital spending
Beg. Balance Sheet
Cash Bud-get & S-T Financing
pro forma balance sheet

24. Pro Forma Balance Sheet
March 31
Assets
Cash $ 134
Accounts Receivable
Inventory
Fixed Assets, net
Total $ 2689
Liabilities
Accounts Payable $ 144
Stockholders’ Equity
Total $ 2689
Cash comes from the Cash Budget.
A/R is 30% of March sales.
Inventory is from Purchases Budget.
A/P is 40% of March purchases.

25. Cash Budget JAN FEB MAR Beginning Balance $ 80 $ 52 $ 50
Cash receipts
Total available
Cash disbursements
Indicated balance
Borrow
(Repay)
Ending balance $ $50 $134

26. Cash Receipts Budget Note: $800 - $560 = $240. JAN FEB MAR
Sales for the month $400 $ $800
From prior mo., 30%
From current mo., 70%
Total Receipts $590 $470 $710
Note: $800 - $560 = $240.

27. Purchases Budget
JAN FEB MAR
Cost of Goods Sold $240 $ $480
Budgeted ending inv
Total requirements
Beginning inventory
Purchases $480 $420 $360
Note: 60% of purchases are paid for in the month purchased, and the remaining 40% are paid in the subsequent month. So at the end of March, Payables are 40% of $360.

28. Lecture 21
Operational Budgeting
Operational Budgeting Exercises

29. 1. K-Mart expects sales of $100,000 in April, $145,000 in May and $250,000 in June. Sales are collected 30% in the month of sale with the remainder collected the month after sale. What will accounts receivable be on May 31?

30. 1. K-Mart expects sales of $100,000 in April, $145,000 in May and $250,000 in June. Sales are collected 30% in the month of sale with the remainder collected the month after sale. What will accounts receivable be on May 31?
70% of $145,000 = $101,500

31. 2. Sam’s Club expects to make purchases of $100,000 in April; $240,000 in May; $350,000 in June; and $230,000 in July. Purchases are paid 30% in the month of purchase and 70% in the month after purchase. What would accounts payable be at the end of May?

32. 2. Sam’s Club expects to make purchases of $100,000 in April; $240,000 in May; $350,000 in June; and $230,000 in July. Purchases are paid 30% in the month of purchase and 70% in the month after purchase. What would accounts payable be at the end of May?
70% of $240,000 = $168,000

33. 3. Costco expects sales of $100,000 in January, $150,000 in February, $180,000 in March, and $200,000 in April. Cost of Sales is 70% of sales. Ending inventory is expected to equal 40% of the next month's unit sales. How much inventory would be purchased in March?

34. 3. Costco expects sales of $100,000 in January, $150,000 in February, $180,000 in March, and $200,000 in April. Cost of Sales is 70% of sales. Ending inventory is expected to equal 40% of the next month's unit sales. How much inventory would be purchased in March?
In March Costco would purchase 60% of March cost-of-sales and 40% of April cost-of-sales.
(60% of $180,000 x .7)+(40% of $200,000 x .7)
= $75,600 + $56,000
= $131,600

35. 4. Price Club expects sales as follows:
January $100,000
February $150,000
March $180,000
April $200,000
Sales are made 20% for cash, and 80% on credit. Credit sales are collected 60% in the month of sale and 40% in the next month. What are collections for March?

36. 4. Price Club expects sales as follows:
January $100,000
February $150,000
March $180,000
April $200,000
Sales are made 20% for cash, and 80% on credit. Credit sales are collected 60% in the month of sale and 40% in the next month. What are collections for March?
20% + (60% of 80%) = 68%
(68% of $180,000) + (40% of 80% of $150,000)
= $122,400 + $48,000 = $170,400