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What are the primary benefits that Angelini's will gain from preparing and using a budget?

What are the primary benefits that Angelini's will gain from preparing and using a budget?

FINANCIAL ACCOUNTING
FINANCIAL ACCOUNTING
10th Edition
ISBN:9781259964947
Author:Libby
Publisher:Libby
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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Angelini's has been in business since January of the current year. The company buys fresh pasta and resells it to large supermarket chains. The following information pertains to Angelini's first four months of operations: Purchases $50,000 January February March April 40,000 55,000 25,000 Sales $80,000 60,000 90,000 40,000 Angelini's expects to open several new sales territories in May. In anticipation of increased volume, management forecasts May sales at $100,000. To meet this demand, purchases in May are budgeted at $60,000. The company maintains a gross profit margin of approximately 40 percent. All of Angelini's sales are on account. Due to strict credit policies, the company has no bad debt expense. The following collection performance is anticipated for the remainder of the year: Percent collected in month of sale Percent collected in month following sale Percent collected in the second month following sale 40% 50 10 Angelini's normally pays for 75 percent of its purchases in the month that the purchases are made. The remaining amount is paid in the following month. The company's fixed selling and administrative expenses average $10,000 per month. Of this amount, $3,000 is depreciation expense. Variable selling and administrative expenses are budgeted at 5 percent of sales. The company pays all of its selling and administrative expenses in the month that they are incurred. Angelini's debt service is $4,000 per month. Of this amount, approximately $3,000 represents interest expense, and $1,000 is payment on the principal. The company's tax rate is approximately 25 percent. Quarterly tax payments are made at the end of March, June, September, and December. Instructions: : What are the primary benefits that Angelini's will gain from preparing and using a budget?
Transcribed Image Text:Angelini's has been in business since January of the current year. The company buys fresh pasta and resells it to large supermarket chains. The following information pertains to Angelini's first four months of operations: Purchases $50,000 January February March April 40,000 55,000 25,000 Sales $80,000 60,000 90,000 40,000 Angelini's expects to open several new sales territories in May. In anticipation of increased volume, management forecasts May sales at $100,000. To meet this demand, purchases in May are budgeted at $60,000. The company maintains a gross profit margin of approximately 40 percent. All of Angelini's sales are on account. Due to strict credit policies, the company has no bad debt expense. The following collection performance is anticipated for the remainder of the year: Percent collected in month of sale Percent collected in month following sale Percent collected in the second month following sale 40% 50 10 Angelini's normally pays for 75 percent of its purchases in the month that the purchases are made. The remaining amount is paid in the following month. The company's fixed selling and administrative expenses average $10,000 per month. Of this amount, $3,000 is depreciation expense. Variable selling and administrative expenses are budgeted at 5 percent of sales. The company pays all of its selling and administrative expenses in the month that they are incurred. Angelini's debt service is $4,000 per month. Of this amount, approximately $3,000 represents interest expense, and $1,000 is payment on the principal. The company's tax rate is approximately 25 percent. Quarterly tax payments are made at the end of March, June, September, and December. Instructions: : What are the primary benefits that Angelini's will gain from preparing and using a budget?
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