Professional Documents
Culture Documents
22
1 Calculate estimated cash receipts in October using an Excel spreadsheet:
incomplete
One can see from this that October collections are $84 400, collections in June, July and August
are understated due to the omission of sales in earlier months, and collections for the months of October, November and
December are understated due to collections in later months. We can also see that collections during the last quarter from
sales in the last quarter total $233 000. Note that where the collections are complete for one months sales, the total
collected will fall short of the sales amount by 1% (final two columns used as a check).
3 The revised spreadsheet can look like this. The shaded cells show where figures have changed. The collections
in October will now be $85 400.
Cash receipts
Sales June July August September October November December TOTAL
June 70 000 49 000 10 500 7000 2 800 69 300
July 85 000 59 500 12 750 8 500 3 400 84 150
August 70 000 49 000 10 500 7 000 2 800 69 300
September 80 000 56 000 12 000 8 000 3 200 79 200
October 90 000 63 000 13 500 9 000 85 500
November 100 000 70 000 15 000 85 000
December 85 000 59 500 59 500
TOTAL 49 000 70 000 68 750 77 800 85 400 94 300 86 700 531 950
EXERCISE 9.24
1 Budgeted cash receipts for December:
Cost of goods
Month Sales sold Amount purchased in December
December $440 000 $330 000 $330 000 20% = $ 66 000
January 400 000 300 000 300 000 80% = 240 000
Total December purchases $306 000
Therefore, the 31 December balance in accounts payable will be $306 000.
EXERCISE 9.25
Memorandum
Date: Today
Budgetary slack is the difference between the revenue or cost that a person provides and a realistic estimate of the
revenue or cost. The practice of creating budgetary slack is called padding the budget. The primary negative consequence
of slack is that it undermines the credibility and usefulness of the budget as a planning and control tool. When a budget
includes slack, the amounts in the budget no longer portray a realistic view of future operations.
The banks bonus system for the new accounts manager may encourage budgetary slack. Since the managers bonus is
determined by the number of new accounts generated over the budgeted number, there is an incentive for the manager to
understate her projection of the number of new accounts. There is evidence of this in the description of the new account
managers behaviour. A 10 per cent increase over the banks current 10 000 accounts would mean 1000 new accounts in
next year. Yet the new account managers projection is only 700 new accounts. This will make it more likely that the
actual number of new accounts will exceed the budgeted number, resulting in the manager obtaining a bonus for her
apparent good performance.
The bank could consider some alternative measures for balancing the dysfunctional aspects encouraged by the current
system. A bonus could be rewarded for any increase in new accounts above the 10 per cent increase that has occurred
over the past few years. Perhaps for every 1 per cent increase over the 10 per cent target, a bonus could be paid. New
account volumes should be calculated on a net basis; i.e. accounts that are closed during the year could be deducted from
the number of new accounts opened. This could encourage the manager to maintain customer satisfaction. Bonuses could
also be based on a range of performance targets, including the results of customer satisfaction surveys and reductions in
customer complaints.
PROBLEM 9.29
1 Revenue budget:
Current student enrolment 15 000
Add 5% increase in student enrolments 750
Total number of students 15 750
Less: Scholarship students 180
Fee-paying students 15 570
Subjects per student per year 8
Total enrolments in subjects 124 560
Fee per subject $3 000
Forecast revenue $373 680 000
4 No. While the number of staff may be a key driver, the number of staff is highly dependent on the number of
students. Students (and tuition revenue) are similar to salesthe starting point in the budgeting process.
PROBLEM 9.30
The amount of borrowing needed on 1 October to enable the purchase of the new equipment is $1 790 000.