BUSN 5200

Homework Assignment for Week 5:

For Week 5, please turn in the answers to the following questions:

Question 1. Prepare 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          $75,000          2% increase                          ___________

           Stationary      $    900          1% decrease                          ___________

           Telephone      $ 2,000          3% increase                          ___________

           Electricity      $ 3,000          2.5% increase                       ___________

           Office Rent    $12,000          2% increase                          ___________

           Depreciation  $ 4,000          no change                              ____________

                       Total: $96,900                                              

Question 2. Define a “Static Budget.”

Question 3. Define a “Flexible Budget.”

Question 4. Define the term “Zero-based Budgeting.”

Question 5. Define “Period Budgets.”

Question 6. Define “Rolling Budgets.”

Question 7. Webster’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, Webster let’s all customers buy on credit, and all do so. In the past, 15% of Big Bob’s sales have been collected during the month of sale, 70% are collected the following month, and 10% the month after that. If this trend continues, what will be Webster’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.


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

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