Question

Question 14 Management Accounting - Budgeting: Megatron Sports Company (MSC hereafter) is a retailer and sells basketball sneakers in Cybertan City. The company is preparing budgets for the fourth quarter of 2020. For budgeting purposes, MSC estimates that cost of goods sold is 70% of sales. The following information has been provided: Month October November December January 2021 Sales Volume (unit) 3,000 4,000 3,500 3,800 Sales Revenue ($) 900,000 1,200,000 1,050,000 1,140,000 Cash Collection ($) 780,000 1,080,000 1,110,000 1,104,000 Inventory purchase: The inventory policy indicates that the desired ending inventory for each month should be sufficient to cover 60% of the next month's sales. The amount of inventory on hand on 30 September 2020 is exactly 60% of next month's sales. The company has a current payment policy for inventory purchase as follows: • 60% of each month's purchases are cash purchase. 30% of each month's purchases will be paid in the following month. 10% of each month's purchases will be paid in the second month following. On 30 September 2020, the accounts payable balance was $256,200 (of which $37,800 is from August), which will be paid out to the supplier in October and November. Selling and administration: The selling and administrative expense includes a depreciation expense of $50,000 each month. The selling and administrative expenses are paid for in the month incurred. The cash payment for selling and administrative expense is $125,000 for October, $135,000 for November and $145,000 for December. Required: a) Prepare an inventory purchase budget in dollars for the fourth quarter of 2020 using the template in the Answer Booklet (Round your answers to the nearest whole number). (5 marks) b) Prepare a projected income statement for the fourth quarter of 2020 using the template in the Answer Booklet (Round your answers to the nearest whole number). (2 marks) c) The CEO of MSC, Fallen, recently told the sales & marketing department that the budget for sales would be increased by 20% for the coming year (i.e., 2021) and the department manager's bonus would be based on achieving the sales target. (1) What budgeting style is MSC adopting? (1 mark) (1) What is one potential behavioural effect of setting the sales target in this way? (2 marks - max 50 words) (Total for question: 10 marks)

Answer 1

File Home Insert Page Layout Formulas Data Review View Help Tell me what you want to do Share Calibri 11 VA A == ab Wrap Text General * Cut CO Copy - Format Painter Paste BIU- A- EESE Merge & Center 6. % Insert Delete Format Conditional Format as Cell Formatting Table Styles Styles AutoSum - A Z Fill- Sort . Find Clear Filter. Select Editing Clipboard Font Alignment Number Cells B31 > ✓ A D E F G H 14 15 16 B Cost of Goods Sold = 70% of Sales Sales for October = 900,000 Units Sold = 3,000 Selling Price per Unit = 900,000 / 3,000 Selling Price per Unit = $ 300 Cost of Goods Sold or Purchase Price per Unit = 70%* 300 = $ 210 17 18 19 20 21 22 Closing Stock For October Closing Stock = 60% of November Sales = 60% of 4,000= 2,400 Units For November Closing Stock = 60% of December Sales = 60% of 3,500 = 2,100 Units For December Closing Stock = 60% of January 2021 Sales = 60% of 3,800 = 2,280 Units 23 24 25 26 27 For July Opening Stock = 60% of October Sales = 60% of 3,000 = 1,800 Units Closing Stock of October is Opening Stock for November. Closing Stock of November is Opening Stock for December 28 29 31 Sheet 542 Sheet 543 Working Sheet 531 Sheets Sheet 48012) Ready

Calibri V11 VRA == 4 Share X Cut E Copy Format Painter a Wrap Text General AutoSum - A Paste BIU- D-A- AY Merge & Center - S. % €0.00 000 Fill - Insert Delete Format Clipboard Font Conditional Format as Cell Formatting Table Styles Styles Clear Alignment Number Sort & Find & Filter - Select - Editing Cells J11 : * A B H - K 2. 4 C D E F G Budgeted Income Statement for Quarter 4 Particulars Amount Sales Revenue 31,50,000 Less: Cost of Goods Sold 22,05,000 Contribution Margin 9,45,000 Less: Selling and Administrative Expenses 4,05,000 Depreciation Expenses 1,50,000 Net Profit 3,90,000 5 6 7 8 9 Notes:- 10 1 11 -2 12 Sales Revenue = 900,000 + 1,200,000 + 1,050,000 = $ 3,150,000 Cost of Goods Sold = 70% of Sales Revenue Cost of Goods Sold = 70% of 31,50,000 = $ 22,05,000 Depreciation = 50,000 * 3 = $ 150,000 Selling and Administrative Expenses = 125,000 + 135,000 + 145,000 Selling and Administrative Expenses = $ 405,000 13 3 14 4 15 16 17 1 Sheet 542 Sheet 543 Working Sheet 531 (2) Sheet 480 (2) Sheets Ready a 1403

File Home Insert Page Layout Formulas Data Sign in Review View Help Tell me what you want to do % Cut Calibri 2 Share Es Copy Α Α΄ ab Wrap Text D-A- EE E Merge & Center - General Paste AutoSum B I U - Format Painter WE - % ) 4 .00 Fill - Insert Delete Format Clipboard Font Conditional Format as Cell Formatting Table Styles Styles Clear Alignment Number Sort & Find & Filter - Select Editing Cells C5 Х A B С D E F G H 1 K - M N O 2. 1 3 MSC is adopting a model of Incremental Budgeting by looking at previous year figures and adding a percentage based on it to the actual sales and making a plan to achieve them in future. 4 Сл 6 2 7 8 When Sales Target are set in a way that MSC has decided it works as a motivation for the employees of the organisation as they are encouraged because there incentives are directly linked with the optimum result achievement of the organisation and it results in achievement of budgeted targets set by the organisation. 9 10 11 12 13 14 15 16 17 Sheet 542 Sheet 543 Working Sheet 531 (2) Sheet 480 (2) Sheets + Ready 1409