Question 1. Prepare a budget for this year for the Administrative Department at Tom’s Toyota Company based on the following information:

Last Year Forecasting Assumption Budget for this Year

Salaries $60,000 2% increase ___________
Stationary $ 900 1% decrease ___________
Telephone $ 2,500 3% increase ___________
Electricity $ 1,200 2.5% increase ___________
Office Rent $10,000 2% increase ___________
Depreciation $ 4,000 no change ___________
Total: $78,600 ___________

Question 2. Define a “Static Budget.”
A static budget is a budget that is prepared for one level of activity, for example a particular volume of production or level of sales.

Question 3. Define a “Flexible Budget.”
A flexible budget is several budgets covering a range of activity within which the organization may operate.

Question 4. Define the term “Zero-based Budgeting.”
Zero-based budgeting sets the intial figures for each activity in a budget to zero.

Question 5. Define “Period Budgets.”
Budgets are usually developed for a specified period of time. Short-range budgets cover a month, quarter, or year.

Question 6. Define “Rolling Budgets.”
Rolling budgets are continually updated by periodically adding a new incremental time period and dropping the period just completed. These budget types are oftentimes referred to as continuous budgets.

Question 7. Big Bob’s Discount Appliances expects sales of $5,000, $5,000, and $10,000 during April, May, and June (big sale in June). To build business, Big Bob lets all customers buy on credit, and all do so. In the past, 50% of Big Bob’s sales have been collected during the month of sale, 40% are collected the following month, and 10% the month after that. If this trend continues, what will be Big Bob’s total cash collections in the month of June?

Question 8. Little Louie’s expects to have $100 in cash on hand at the beginning of June, and the company’s target cash balance is $100. Net cash flow for June is minus $300. Assuming that Little Louie’s borrows to meet short term cash needs and pays back as soon as surplus cash is available, what will be the company’s ending cash balance after financing at the end of June?

Question 9. Ma & Pa Kettle’s Chili Company has begun selling a new chili recipe and they want you to help them with next year’s budgeted financial statements. Using the worksheet below, complete Ma & Pa’s forecast and answer the questions which follow.
Assumptions:

To begin with, Ma & Pa are sure sales will grow 50% next year. Assume that is true. Then assume that COGS, Current Assets, and Current Liabilities all vary directly with Sales (that means if sales grows a certain percentage, then the account in question will grow by that same percentage). Assume that fixed expenses will remain unchanged and that $1,000 worth of new Fixed Assets will be obtained next year. Lastly, the current dividend policy will be continued next year.

Ma & Pa Kettle Chili Company, Inc.

Financial Forecast

Estimated
This year for next year

Sales $10,000 ________
COGS 4,000 ________
Gross Profit 6,000 ________
Fixed Expenses 3,000 ________
Before Tax Profit 3,000 ________
Tax @ 33.3333% 1,000 ________
Net Profit $2,000 ________

Dividends $0 ________

Current Assets $25,000 ________
Net Fixed Assets 15,000 ________
Total Assets $40,000 ________

Current Liabilities $17,000 ________
Long term debt 3,000 ________
Common Stock 7,000 ________
Retained Earnings 13,000 ________
Total Liabs & Eq $40,000 ________

Amount need to balance the balance sheet ________
(Projected total assets minus projected
total liabilities & equity *)

* If this number is positive it means Ma & Pa need additional external funding to finance their projected asset growth. If this number is negative it means Ma & Pa have programmed too much financing for the amount of assets they project.

Case Study Tasks:

1. Revise your Financial Overview file based on your instructor’s feedback when received.

2. Begin working on the Ratio Analysis section of your report. Refer to the Case Study topic lecture for this week for specific guidelines.