54. a., b.

(Supporting calculations for these requirements are keyed to

the amounts and follow the cash budgets.)
CME, INC.
Cash Budgets
(Dollars in thousands)
For Year Ending For Month Ending
December 31, 2002 January 31, 2002
Cash balance,Jan.1 $ 750 $ 750
Cash receipts:
Program revenue 12,000 1,440 (3)
Membership income 10,000 (1) 0
Total cash available $22,750 $2,190
Cash outflows:
Seminar
Instruction fees $ 8,400(2) $ 0
Facilities 5,600 672 (4)
Promotion 1,000 100 (5)
Total $15,000 $ 772
Salaries 960 80 (6)
Benefits, staff 240 18 (7)
Office lease 240 20 (8)
Gen. admin. 1,500 125
Gen. promotion 600 50 (9)
Research grants 3,000 500
Cap. expenditures 510 102 (10)
Total (22,050) (1,667)
Ending cash balance $ 700 $ 523
Supporting calculations:
(1) 100,000 members × $100 = $10,000,000
(2) $12,000,000 × 70% = $8,400,000
(3) $12,000,000 × 12% = $1,440,000
(4) $5,600,000 × 12% = $672,000
(5) $1,000,000/10 = $100,000
(6) $960,000/12 = $80,000
(7) ($240,000 - $24,000)/12 = $18,000
(8) $240,000/12 = $20,000
(9) $600,000/12 = $50,000
(10) $510,000/5 = $102,000

c. The most important operating problem faced by CME, Inc. is the short-term
liquidity. During the first six months expenditures ($14.5 million) are forecasted
to be slightly more than double the revenue ($7.2 million). This will necessitate
short-term borrowing during the second and third quarters of the year. The
second most important problem is that the cash expenditures are forecasted
to exceed revenue by $50,000 and this could be further compounded by
interest for short-term borrowing, which apparently has not been forecasted.
The fees do not fully support the seminars. The total of the facility costs and
the faculty costs exceed the seminar revenue.
(CMA adapted)
55. a. The Mason Agency
 Revised Operating Budget
Fourth Quarter 2003
Revenues
Consulting fees
Management consulting $468,000
EDP consulting 478,125
Total consulting revenue 946,125
Other revenue 10,000
Total revenue $956,125
Expenses
Consulting salary expense $510,650
Travel and related expense 57,875
General and admin. expense 93,000
Depreciation expense 40,000
Corporate allocation 75,000
Total expenses 776,525
Operating income $179,600

Supporting computations:
Schedule of Projected Revenues for Fourth Quarter 2003
Mngmt Consulting EDP Consulting
Third Quarter
Revenues $315,000 $421,875
Divided by billing rate ÷ $90 ÷ $75
Billable hours 3,500 5,625
Divided by # of consultants ÷ 10 ÷ 15
Hours per consultant 350 375
Fourth Quarter
Planned increase 50 50
Billable hrs per consultant 400 425
# of consultants × 13 × 15
Billable hrs. 5,200 6,375
Billing rate × $90 × $75
Projected revenue $468,000 $478,125
Schedules of Projected Salaries, Travel, General and
Administrative, and Allocated Corporate Expenses
Mngmt Consulting EDP Consulting
Compensation
Existing consultants
Annual salary $ 50,000
($50,000 × 92%) $ 46,000
Quarterly salary 12,500 11,500
Planned increase (10%) 1,250 1,150
Total $ 13,750 $ 12,650
# of consultants × 10 × 15
Total $137,500 $189,750
New consultants (3) at old
salary (3 × $12,500) 37,500 0
Total $175,000 $189,750
Benefits (40%) 70,000 75,900
Total $245,000 $265,650
 Total compensation = $245,000 + $265,650 = $510,650
Travel expense
Management consultants (400 hrs. × 13) 5,200
EDP consultants (425 hrs. × 15) 6,375
Total hours 11,575
Rate per hour* × $5
Total travel expense $57,875
*Third-quarter travel expense divided by hours = rate per hour
($45,625/9,125 = $5).
General and administrative ($100,000 × 93%) $93,000
Corporate allocation ($50,000 × 150%) $75,000

b. An organization would prepare a revised forecast when the

assumptions underlying the original forecast are no longer valid. The
assumptions may involve factors outside or inside the company.
Changes in assumptions involving external factors may include
changes in demand for the company's products or services, changes in
the cost of various inputs to the company, or changes in the economic
or political environment in which the company operates. Changes in
assumptions involving internal factors may include changes in company
goals or objectives by management or stockholders.
c. Although management of General Services can do this using
an “ability-to-bear” basis, the increase can be
demoralizing to Mason Agency personnel unless the
increased activity can be shown to have caused an
increase in corporate expenses.