Budgeting

Chapter 08 Budgetary Planning

1.

Control is forward looking while planning is backward looking.

True

False

2. The budget translates a company's objectives into financial terms.

True

False

3. A short-term objective is a specific action managers use to reach their long term goals.

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False

4. The strategic plan is management's vision of what they desire the organization to achieve over the long term.

True

False

5. An advantage of budgeting is that it requires managers to evaluate why things did not progress according to the plan.

True

False

8-1 © 2014 by McGraw-Hill Education. This i s proprietary material solely for authorized instructor use. Not authorized for sale or dist ribution in any manner. This document may not be copied, scanned, duplicated, forwarded, distributed, or posted on a website, in whole or part.

6. One advantage of participative budgeting is managers can build in budgetary slack.

True

7.

False

Participative budgeting allows employees throughout the organization to have input into the budget-setting process.

True

False

8. Top-down budgeting is when the local managers impose a budget on the top management.

True

False

9. Budgets that are tight but attainable are less likely to motivate people than budgets that are easy to achieve.

True

False

10. Participative budgeting is more likely to motivate people to work toward the organization's goals than is a top-down approach.

True

False

11. Operating budgets focus on the financial resources needed to support o perations.

True

False

12. The production budget must be prepared before the sales budget can be prepared.

True

False

8-2 © 2014 by McGraw-Hill Education. This i s proprietary material solely for a uthorized instructor use. Not authorized for sale or di stribution in any manner. This document may not be copied, scanned, duplicated, forwarded, distributed, or posted on a website, in whole or part.

13. Preparing the sales budget includes calculating the revenues to be earned from units sold in addition to the number of units to be sold.

True

False

14. If a company produces and sells goods to order, the sales budget and production budget are identical.

True

False

15. Manufacturing firms prepare a separate raw materials purchases budget for each material used in production.

True

False

16. The direct labor budget is based on budgeted sales levels.

True

False

17. Budgeted manufacturing overhead includes indirect manufacturing costs, but not selling or administrative administrative costs.

True

False

18. Budgeted cost of goods sold reflects all the costs required to manufacture and sell the product.

True

False

19. The selling and administrative expense budget is related to the production budget.

True

False


20. Budgeted cash collections are based on the sales budget.

True

False

21. Which of the following is the forward-looking phase of the planning and control cycle?

A. Planning B. Directing/Leading C. Organizing D. Control

22. Creating a budget is an important part of which phase of the planning and control process?

A. Planning B. Organizing C. Directing/Leading D. Control


23. A detailed plan that translates the company's objectives into financial terms, identifying the resources and expenditures that will be required over the planning horizon is a

A. Strategic plan B. Budget C. Tactic D. Long-term objective

24. Which of the following is the backward-looking phase of the planning and control cycle?

A. Planning B. Directing/Leading C. Organizing D. Control

25. ____________ ____________ are the specific actions managers use to achieve their objectives.

A. Strategic plans B. Long-term objectives C. Short-term objectives D. Tactics

26. _____________ _____________ are the specific goals that managers want to achieve over a 5 to 10 year horizon.

A. Strategic plans B. Long-term objectives C. Short-term objectives D. Tactics


27. A _____________ is the vision of what management wants the organization to achieve over the long term.

A. Strategic plan B. Long-term objective C. Short-term objective D. Tactic

28. Which of the following is

a benefit of budgeting?

A. It forces managers to look to the future B. It plays an important role in communication within the organization C. It serves an important role in motivating and rewarding employees D. It builds organizational slack

29. A top-down approach to budgeting is one that is

A. participative. B. motivational. C. imposed. D. tight.


30. Participative budgeting budgeting is an approach to budgeting that

A. is top-down in nature. B. allows top management to set the budget. C. discourages budget slack. D. is more likely to motivate people to work towards the organization's goals than a top -down approach.


a way to reduce the dysfunctional behaviors associated with

budgeting?

A. Create budget slack. B. Use different budgets for planning and for performance evaluation. C. Use a continuous or rolling budget approach. D. Use a zero-based budgeting approach.

32. Which of the following statements about employee motivation is true?

A. A budget that is too easy to achieve is more likely to motivate than a budget that is too difficult or that is tight but b ut attainable. B. A budget that is too difficult to achieve is more likely to motivate than a budget that is too easy or that is tight but attainable. C. A budget that is tight but attainable is more likely to motivate than a budget that is too easy or too difficult to achieve. D. Budgets are difficult to use for motivation.



a component of the master budget?

A. Operating budget B. Budgeted income statement C. Budgeted balance sheet D. Statement of return on investment


included in the operating budget?

A. Budgeted balance sheet B. Sales budget C. Selling and administrative budget D. Raw materials purchases budget

35. The starting point for preparing the master budget is the

A. inventory policy. B. sales budget. C. production budget. D. budgeted balance sheet.

36. Which of the following budgets shows how many units will be produced each period?

A. Direct materials budget B. Direct labor budget C. Sales budget D. Production budget


37. A primary financial budget is the

A. Production budget. B. Cash budget. C. Inventory budget. D. Selling and administrative budget.

38. Which of the following sequences is correct?

A. Sales budget - production budget - direct materials budget - budgeted income statement B. Budgeted income statement - direct materials budget - production budget - sales budget C. Cash receipts budget - sales budget - production budget - budgeted income statement D. Inventory budget - production budget - sales budget - selling and administrative budget


a source that can be used in preparing the sales budget?

A. Prior sales. B. The production budget. C. Industry trends. D. Marketing activities.


40. Parker Corp expects to sell 4,000 units in October, and expects sales to increase 20% each month thereafter. Sales price is expected to stay constant at $8 per unit. What are budgeted revenues for the fourth quarter?

A. $32,000 B. $96,000 C. $115,200 D. $116,480

41. Budgeted production is calculated by

A. adding budgeted unit sales to budgeted beginning finished goods inventory, and subtracting budgeted ending finished goods inventory. B. adding budgeted unit sales to budgeted beginning work in process inventory, and subtracting budgeted ending work in process inventory. C. adding budgeted unit sales to budgeted ending finished goods inventory, and subtracting budgeted beginning finished goods inventory. D. adding budgeted unit sales to budgeted ending work in process inventory, and subtracting budgeted beginning work in process inventory.

42. If a company is planning to build inventory,

A. production should exceed sales. B. sales should exceed production. C. production should equal sales. D. production should equal inventory.


43. Lea Company produces hand tools. Budgeted sales for March are 10,000 units. Beginning finished goods inventory in March is budgeted to be 1,300 units, and ending finished goods inventory is budgeted to be 1,400 units. How many units will be produced in March?

A. 9,900 B. 10,000 C. 10,100 D. 12,700

44. Meadow Company produces hand tools. A sales budget for the next four months is as follows: March 10,000 units, April 13,000, May 16,000 and June 21,000. Meadow Company's ending finished goods inventory policy is 10% of o f the following month's sales. What is budgeted ending finished goods inventory for May?

A. 1,000 B. 1,300 C. 1,600 D. 2,100

45. Meadow Company produces hand tools. A sales budget for the next four months is as follows: March 10,000 units, April 13,000, May 16,000 and June 21,000. Meadow Company's ending finished goods inventory policy is 10% of the following month's sales. March 1 inventory is projected to be 1,400 units. How many units will be produced in March?

A. 10,000 B. 9,900 C. 13,000 D. 10,100


46. Meadow Company produces hand tools. A sales budget for the next four months is as follows: March 10,000 units, April 13,000, May 16,000 and June 21,000. Meadow Company's ending finished goods inventory policy is 10% of the following month's sales. March 1 inventory is projected to be 1,400 units. How many units will be produced in April?

A. 13,300 B. 15,900 C. 12,700 D. 13,000

47. Marlow Company produces hand tools. A production budget for the next four months is as follows: March 10,300 units, April 13,300, May 16,500, and June 21,800. Marlow Company's ending finished goods inventory policy is 10% of the following month's sales. Meadow plans to sell 16,000 1 6,000 units in May. How many units will be sold in April?

A. 12,380 B. 13,000 C. 13,570 D. 13,620

48. Marlow Company produces hand tools. A production budget for the next four months is as follows: March 10,300 units, April 13,300, May 16,500, and June 21,800. Marlow Company's ending finished goods inventory policy is 10% of the following month's sales. Marlow plans to sell 16,000 units in May. What is budgeted ending inventory for March?

A. 1,030 B. 1,300 C. 1,330 D. 1,650


49. The formula for budgeted raw materials purchases is

A. Budgeted production units + Ending raw materials inventory - Beginning raw materials inventory. B. Budgeted production units + Beginning raw materials inventory - Ending raw materials inventory. C. Materials needed for production + Ending raw materials inventory - Beginning raw materials inventory. D. Materials needed for production + Beginning raw materials inventory - Ending raw materials inventory.

50. When calculating raw materials purchases, the starting point should be

A. actual materials purchases from the previous year. B. budgeted sales. C. budgeted production. D. budgeted cost of raw materials.

51. Jeremy Inc. produces leather handbags. The production budget for the next four months is: July 5,000 units, August 7,000, September 7,500, October 8,000. Each handbag requires 0.5 square meters of leather. Jeremy Inc.'s leather inventory policy is 30% of next month's production needs. If the leather policy is met, what will the July 1 inventory be?

A. 750 square meters B. 1,050 square meters C. 1,825 square meters D. 300 square meters


52. Johnson Inc. produces leather handbags. Johnson Inc. estimates it will use 3,500 square meters of leather in production in August, and 3,750 square meters of leather in production in September. Johnson Inc.'s leather inventory policy is 30% of next month's production needs. What will leather purchases be in August?

A. 3,425 square meters B. 3,500 square meters C. 3,575 square meters D. 4,625 square meters

53. Jackson Inc. produces leather handbags. The production budget for the next four months is: July 5,000 units, August 7,000, September 7,500, October 8,000. Each handbag requires 0.5 square meters of leather. Jackson Inc.'s leather inventory policy is 30% of next month's production needs. On July 1 leather inventory was expected to be 1,000 square meters. What will leather purchases be in August?



54. Jackson Inc. produces leather handbags. The production budget for the next four months is: July 5,000 units, August 7,000, September 7,500, October 8,000. Each handbag requires 0.5 square meters of leather. Jackson Inc.'s leather inventory policy is 30% of next month's production needs. On July 1 leather inventory was expected to be 1,000 square meters. What will leather purchases be in July?


55. Jackson Inc. produces leather handbags. The production budget for the next four months is: July 5,000 units, August 7,000, September 7,500, October 8,000. Each handbag requires 0.5 square meters of leather. Jackson Inc.'s leather inventory policy is 30% of next month's production needs. On July 1 leather inventory was expected to be 1,000 square meters. Leather is expected to cost $5.00 per square meter in June, but go up to $6.00 per square meter in July. What is the expected cost of leather purchases in July?

A. $13,800 B. $15,300 C. $16,200 D. $16,300


56. Jared Inc. produces leather handbags. The sales budget for the next four months is: July 5,000 units, August 7,000, September 7,500, October 8,000. Each handbag requires 0.5 square meters of leather. Jared Inc.'s finished goods inventory policy is 10% of next month's sales needs. Jared Inc.'s I nc.'s leather inventory policy is 30% of next month's production needs. What will leather purchases be in August?


57. Budgeted direct labor hours are calculated as

A. Budgeted production units × Direct labor requirements per unit + Ending inventory - Beginning inventory. B. Budgeted production units × Direct labor requirements per unit + Beginning inventory - Ending inventory. C. Budgeted production units × Direct labor requirements per unit. D. Budgeted sales units × Direct labor requirements per unit.

58. When calculating the direct labor budget, the starting point should be

A. actual direct labor hours from the previous year. B. budgeted sales. C. budgeted production. D. budgeted cost of direct labor.


59. Jillian Inc. produces leather handbags. The production budget for the next four months is: July 5,000 units, August 7,000, September 7,500, October 8,000. Each handbag requires 1.3 hours of unskilled labor (paid $8 per hour) and 2.2 hours of skilled labor (paid $15 per hour). How many unskilled labor hours will be budgeted for August?

A. 7,000 B. 9,100 C. 15,400 D. 24,500

60. Jillian Inc. produces leather handbags. The production budget for the next four months is: July 5,000 units, August 7,000, September 7,500, October 8,000. Each handbag requires 1.3 hours of unskilled labor (paid $8 per hour) and 2.2 hours of skilled labor (paid $15 per hour). How many total labor hours will be budgeted for September?

A. 7,500 B. 9,750 C. 16,500 D. 26,250

61. Jillian Inc. produces leather handbags. The production budget for the next four months is: July 5,000 units, August 7,000, September 7,500, October 8,000. Each handbag requires 1.3 hours of unskilled labor (paid $8 per hour) and 2.2 hours of skilled labor (paid $15 per hour). How much will be paid to skilled labor during the three months July through September?

A. $742,500 B. $643,500 C. $4,387,500 D. $292,500


62. Jillian Inc. produces leather handbags. The production budget for the next four months is: July 5,000 units, August 7,000, September 7,500, October 8,000. Each handbag requires 1.3 hours of unskilled labor (paid $8 per hour) and 2.2 hours of skilled labor (paid $15 per hour). What will be the total labor cost for the month of August?

A. $303,800 B. $231,000 C. $121,500 D. $161,000

63. Jaybird Inc. produces leather handbags. The sales budget for the next four months is: July 5,000 units, August 7,000, September 7,500, October 8,000. Jaybird Inc.'s ending finished goods inventory policy is 10% of the following month's sales. Each handbag requires 1.3 hours of unskilled labor (paid $8 per hour) and 2.2 hours of skilled labor (paid $15 per hour). What will be the total labor cost for the month of August?

A. $24,675 B. $225,680 C. $303,800 D. $305,970


64. Jaybird Inc. produces leather handbags. The sales budget for the next four months is: July 5,000 units, August 7,000, September 7,500, October 8,000. Jaybird Inc.'s ending finished goods inventory policy is 10% of the following month's sales. Each handbag requires 1.3 hours of unskilled labor (paid $8 per hour) and 2.2 hours of skilled labor (paid $15 per hour). How much is total labor cost during the three months July through September?

A. $69,300 B. $327,670 C. $846,300 D. $859,320

65. Skylark has forecast production for the next three months as follows: July 4,900 units, August 6,600 units, September 7,500 units. Monthly manufacturing manufacturing overhead is budgeted to be $17,000 plus $6 per unit produced. What is budgeted manufacturing manufacturing overhead for July?

A. $29,400 B. $47,000 C. $46,400 D. $17,000

66. Skylark has forecast production for the next three months as follows: July 4,900 units, August 6,600 units, September 7,500 units. Monthly manufacturing manufacturing overhead is budgeted to be $17,000 plus $6 per unit produced. What is budgeted manufacturing overhead overhead for August?

A. $56,600 B. $17,000 C. $39,600 D. $62,000


67. Larken has forecast sales for the next three months as follows: July 4,000 units, August 6,000 units, September 7,500 units. Larken's policy is to have an ending inventory of 40% of the next month's sales needs on hand. July 1 inventory is projected to be 1,500 units. Monthly manufacturing manufacturing overhead is budgeted to be $17,000 plus $6 per unit produced. What is budgeted manufacturing manufacturing overhead for July?

A. $29,400 B. $41,000 C. $46,400 D. $17,000

68. Larken has forecast sales for the next three months as follows: July 4,000 units, August 6,000 units, September 7,500 units. Larken's policy is to have an ending inventory of 40% of the next month's sales needs on hand. July 1 inventory is projected to be 1,500 units. Monthly manufacturing manufacturing overhead is budgeted to be $17,000 plus $6 per unit produced. What is budgeted man ufacturing overhead for August?

A. $56,600 B. $17,000 C. $53,000 D. $38,600


69. Skybird has forecast sales for the next three months as follows: July 4,000 units, August 6,000 units, September 7,500 units. Skybird's policy is to have an ending inventory of 40% of the next month's sales needs on hand. July 1 inventory is projected to be 1,500 units. Monthly costs are budgeted as follows:

What is budgeted manufacturing overhead cost for July?

A. $32,000 B. $41,000 C. $46,400 D. $17,000


70. Pacific has forecast sales for the next three months as follows: July 4,000 units, August 6,000 units, September 7,500 units. Pacific's policy is to have an ending inventory of 40% of the next month's sales needs on hand. July 1 inventory is projected to be 1,500 units. Monthly costs are budgeted as follows:

What is budgeted manufacturing overhead cost for August?

A. $50,000 B. $47,000 C. $33,000 D. $32,000

71. Budgeted cost of goods sold should include which of the following?

A. Raw materials and direct labor. B. Raw materials, direct labor, and manufacturing manufacturing overhead. C. Raw materials, direct labor, manufacturing overhead, and selling expenses. D. Raw materials, direct labor, manufacturing overhead, selling expenses, and administrative administrative expenses.


72. Harney, Inc. has prepared the following budgets for March. In March, budgeted production equals budgeted sales, and raw materials inventory will stay constant.

What is budgeted cost of goods sold for March?

A. $14,560 B. $24,960 C. $27,560 D. $37,960

73. Atlantic, Inc. has prepared the following budgets for March. In March, budgeted production equals budgeted sales of 1,000 units, and raw materials inventory will stay constant.


A. $16,800 B. $24,300 C. $31,800 D. $43,800


74. Crystal, Inc. has prepared the following budgets for March. In March, budgeted production is 1,000 units, budgeted sales is 1,200 units, and raw materials inventory will stay constant.


A. $20,367 B. $21,200 C. $25,440 D. $35,040

75. Crystal, Inc. has prepared the following budgets for March. In March, budgeted production is 1,000 units, budgeted sales is 1,200 units, and raw materials inventory inventory unit costs will stay c onstant.


A. $30,551 B. $31,800 C. $36,660 D. $38,160


76. Lemon, Inc. has prepared the following budgets for March. In March, budgeted production is 1,000 units, budgeted sales is 1,200 units, and raw materials inventory and unit costs will stay constant.


A. $40,734 B. $42,400 C. $48,880 D. $50,880

77. Which of the following would

be an example of a cost to include in a selling and administrative administrative

expense budget?

A. Legal expenses B. Accounting services C. Fixed manufacturing overhead D. Franchise fees


78. Walnut has forecast sales for the next three months as follows: July 4,000 units, August 6,000 units, September 7,500 units. Walnut's policy is to have an ending inventory of 40% of the next month's sales needs on hand. July 1 inventory is projected to be 1,500 units. Selling and administrative costs are budgeted to be $15,000 per month plus $5 per unit sold. What are budgeted selling and administrative expenses for July?

A. $24,500 B. $39,500 C. $35,000 D. $30,500

79. Walnut has forecast sales for the next three months as follows: July 4,000 units, August 6,000 units, September 7,500 units. Walnut's policy is to have an ending inventory of 40% of the next month's sales needs on hand. July 1 inventory is projected to be 1,500 units. Selling and administrative costs are budgeted to be $15,000 per month plus $5 per unit sold. What are budgeted selling and administrative expenses for September?

A. $30,000 B. $67,500 C. $32,500 D. $52,500

80. The budgeted income statement is a combination of

A. All the operating budgets. B. All the operating o perating budgets plus the budgeted balance sheet. C. The direct materials budget, the direct labor budget, and the manufacturing overhead budget. D. The production budget, the cost of goods sold budget, and the selling and administrative administrative expense budget.


81. The purpose of the cash budget is to

A. be used as a basis for the operating op erating budgets. B. provide external users with an estimate of future cash flows. C. help managers plan ahead to make certain they will have enough cash on o n hand to meet their operating needs. D. summarize the cash flowing into and out o ut of the business during the past period.

82. The basic form of the cash budget is:

A. Budgeted cash collections - Budgeted cash payments +/- Cash borrowed or repaid = Ending cash balance B. Beginning cash balance + Budgeted cash collections - Budgeted cash payments +/- Cash borrowed or repaid = Ending cash balance C. Beginning cash balance - Budgeted cash collections + Budgeted cash payments +/- Cash borrowed or repaid = Ending cash balance D. Beginning cash balance + Budgeted cash collections - Budgeted cash payments = Cash borrowed or repaid


a component of the cash budget?

A. Budgeted cash collections B. Budgeted cash payments C. Depreciation expense D. Cash borrowed or repaid


84. Which component of the cash budget is shown as a line item on the budgeted balance sheet?

A. Budgeted cash collections B. Budgeted cash payments C. Cash repaid D. Ending cash balance

85. Grover has forecast sales to be $125,000 in February, $135,000 in March, $150,000 in April, and $140,000 in May. The average cost of goods sold is 70% of sales. All sales are on made on credit and sales are collected 60% in the month of sale, and 40% the month following. What are budgeted cash receipts in March?

A. $131,000 B. $135,000 C. $94,500 D. $91,700

86. Grover has forecast sales to be $125,000 in February, $135,000 in March, $150,000 in April, and $140,000 in May. The average cost of goods sold is 70% of sales. All sales are made on credit and sales are collected 60% in the month of sale, and 40% the month following. What are budgeted cash receipts in April?

A. $105,000 B. $141,000 C. $150,000 D. $144,000


87. Dayton has forecast sales to be $205,000 in February, $270,000 in March, $290,000 in April, and $310,000 in May. The average cost of goods sold is 60% of sales. All sales are made on credit and sales are collected 50% in the month of o f sale, 30% the month following and the remainder two months after the sale. What are budgeted cash receipts in May?

A. $267,000 B. $296,000 C. $161,250 D. $241,500

88. Blue has forecast sales to be $410,000 in February, $540,000 in March, $580,000 in April, and $620,000 in May. The average cost of goods sold is 60% of sales. All sales are made on credit and sales are collected 50% in the month of o f sale, 30% the month following and the remainder two months after the sale. What are budgeted cash receipts in May?

A. $592,000 B. $620,000 C. $310,000 D. $483,334

89. Dane Inc. has forecast purchases on account to be $465,000 in March, $555,000 in April, $630,000 in May, and $735,000 in June. Seventy percent of purchases are paid for in the month of purchase, the remaining 30% are paid in the following month. What are budgeted cash payments for April?

A. $528,000 B. $577,500 C. $388,500 D. $189,000


90. Ivory Inc. has forecast fo recast purchases on account to be $310,000 in March, $370,000 in April, $420,000 in May, and $490,000 in June. Seventy percent of purchases are paid for in the month of purchase, the remaining 30% are paid in the following month. What are budgeted cash payments for June?

A. $441,000 B. $469,000 C. $343,000 D. $294,000

91. Cedar Co. has forecast purchases p urchases to be $330,000 in June, $375,000 in July, $310,000 in August, and $270,000 in September. Purchases average 30% paid in cash, 70% are on credit. Credit purchases are paid 60% in the month of purchase, 30% during the month following, and 10% the second month following the purchase. Cash disbursements in September would be

A. $113,400. B. $204,750. C. $261,450. D. $285,750.

92. Arbor Co. has forecast sales to be $400,000 in May, $475,000 in June, $575,000 in July and $700,000 in August. Forty percent of sales are cash, the remainder is on o n credit. Credit sales are collected 60% in the month of sale, the remaining the following month. What are budgeted cash collections for July?

A. $230,000 B. $334,000 C. $459,000 D. $551,000


93. Ebony Co. has forecast sales to be $300,000 in May, $375,000 in June, $475,000 in July and $600,000 in August. Forty percent of sales are cash, the remainder is on account. Credit sales are partially collected in the month of sale, with all collections completed completed by the end of the month following the sale. The August 31 accounts receivable is budgeted to be $108,000. What are budgeted cash collections for July?

A. $389,500 B. $267,000 C. $457,000 D. $415,000

94. Which of the following budgets do

provide information needed for the budgeted b alance

sheet?

A. Materials purchases budget B. Production budget C. Selling and administrative administrative expense budget D. Cash budget

95. Orchard has forecast sales to be $250,000 in February, $270,000 in March, $300,000 in April, and $280,000 in May. The average cost of goods sold is 70% of sales. All sales are made on credit and sales are collected 60% in the month of o f sale, and 40% the month following. What is the budgeted Accounts Receivable balance on May 31?

A. $196,000 B. $117,600 C. $112,000 D. $168,000


96. Boxwood Inc. has forecast purchases on account to be $620,000 in March, $740,000 in April, $840,000 in May, and $980,000 in June. Seventy percent of purchases are paid for in the month of purchase, the remaining 30% are paid in the following month. What is the budgeted Accounts Payable balance for June 30?

A. $588,000 B. $686,000 C. $294,000 D. $252,000

97. Audrey has forecast sales to be $205,000 in February, $270,000 in March, $290,000 in April, and $310,000 in May. The average cost of goods sold is 60% of sales. All sales are made on credit and sales are collected 50% in the month of sale, 30% the month following and the remainder two months after the sale. What is the budgeted Accounts Receivable balance on May 31?

A. $155,000 B. $213,000 C. $127,800 D. $186,000

98. Which of the following budgets would not exist for a merchandising firm?

A. Sales budget B. Purchases budget C. Production budget D. Selling and administrative expense budget


99. Clare purchases a single product for $15 and sells it for $30. Forecasted sales for the next three months are July 4,000 units, August 6,000 units, September 7,500 units. Clare's policy is to have an ending inventory of 40% of the next month's sales needs on hand. July 1 inventory is projected to be 1,500 units. What are budgeted purchases in units for August?

A. 6,600 units B. 10,400 units C. 5,400 units D. 600 units

100. Parsley Inc, a merchandising firm, has forecasted sales to be $125,000 in February, $135,000 in March, $150,000 in April, and $140,000 in May. The average cost of goods sold is 60% of sales. The merchandise inventory inventory policy is to carry 50% of next month's sales needs. If actual February 1 inventory is $40,000, what will the cost of March purchases be?

A. $58,500 B. $142,500 C. $81,000 D. $85,500


101. Mango Place has forecast its sales for the coming months as follows:

The standard unit sells for $200, the deluxe unit sells for $350. Required: Prepare a sales budget for each of the three months April through June as well as the total for the quarter. Present the budget for each product as well as total sales.


102. Edna Inc. has forecast its sales for the coming months as follows:

The standard model sells for $28, the economy model sells for $21, and the deluxe model sells for $49. Required: Prepare a sales budget for each of the three months July through September as well as the total for the quarter. Present the budget for each product as well as total sales.


103. Willow Products expects the following sales of its single product:

Willow Products desires an ending finished goods inventory to be equal to 30% of the next month's sales needs. Actual March 1 inventory is projected to be 1,300 units. Required: Prepare a production budget for Willow Products for as many months as is possible.


104.Heather 104. Heather Products expects the following sales of its single p roduct:

Heather desires an ending finished goods inventory to be equal to 20% of the next month's sales needs. Actual May 1 inventory will be 3,300 units. Required: Prepare a production budget for Heather for as many months as is possible.


105. Wheat Inc. has forecast its sales for fo r the coming months as follows:

Wheat maintains finished goods inventory equal to 20% of the next month's sales requirements. April 1 inventories were 14 standard units and 10 deluxe. Required: Prepare a production schedule for April through June.


106. Cherry Inc. has forecast its sales for the coming months as follows:

Cherry maintains finished finished goods inventory equal to 40% of the next month's sales requirements. April 1 inventories were 74 standard units and 72 deluxe. Required: Prepare a production schedule for April through June.


107. Gertrude Products expects the following sales of its single product:

Gertrude desires an ending finished goods inventory to be equal to 10% of the next month's sales needs. July 1 inventory is projected to be 800 units. Each unit requires 5 pounds of Chemical A and 14 pounds of Chemical B. July 1 materials inventory includes 8,600 pounds of Chemical A and 76,000 pounds of Chemical B. Gertrude desires to maintain a Chemical A inventory equal to 20% of next month's production needs and a Chemical B inventory equal to 100% of next month's production needs. a. Prepare a production budget for Gertrude for as many months as is possible. b. Prepare a raw materials purchases budget for both Chemical A and Chemical B f or the months of July through September.


108. Crest Products expects the following sales of its single product:

Crest desires an ending finished goods inventory to be b e equal to 30% of the next month's sales needs. August 1 inventory is projected to be 7,800 units. Each finished unit requires 2 units of component X and 11 units of component Z. August 1 materials inventory includes 5,000 units of component X and 184,000 units of component Z. Crest desires to maintain a component X inventory equal to 10% of next month's production needs and a component Z inventory equal to 70% of next month's production needs. a. Prepare a production budget for fo r Crest for as many months as is possible. b. Prepare a raw materials purchases budget for both bo th Component X and Component Z for the months of August through October.


109. Honeysuckle Inc. produces canvas bags. The production budget for the next four months is: July 5,000 units, August 7,000, September 7,500, October 8,000. Each bag requires 2.6 hours of unskilled labor (paid $8 per hour) and 4.4 hours of skilled labor (paid $15 per hour). Required: Prepare a labor budget for the three months July through September. Provide the labor requirements according to skill level in hours and in labor cost as well as in total. Provide the budget monthly as well as a total for the quarter.

110. Maple Inc. produces wooden boxes. The production budget for the next four months is: July 15,000 units, August 17,000, September 17,500. Each box requires three skill levels: 1.0 hours of unskilled labor (paid $8 per hour), 1.5 hours of semi-skilled labor (paid $10) and 2.0 hours of skilled labor (paid $15 per hour). Required: Prepare a labor budget for the three months July - September. Provide the labor requirements according according to skill level in hours and in labor cost as well as in total. Provide the budget monthly as well as a total for the quarter.


111. Sugar has forecast sales for the next three months as follows: July 4,000 units, August 6,000 units, September 7,500 units, and October 8,000 units. Sugar's policy is to have an ending inventory of 40% of the next month's sales needs on hand. July 1 inventory is projected to be 1,500 units. Manufacturing overhead is budgeted to be $17,000 plus $5 per unit produced. a. Prepare a production budget for Sugar for as many months as is possible. b. Prepare a manufacturing overhead budget for the three months July - September. Be sure to include a total for the quarter as well.


112. Butler has forecast sales for the next three months as follows: July 14,000 units, August 16,000 units, September 17,500 units, October 18,000 units. Butler's policy is to have an ending inventory of 20% of the next month's sales needs on hand. July 1 inventory is projected to be 2,500 units. Manufacturing overhead is budgeted to be $18,000 (depreciation $2,000, supervision supervision $7,000, factory lease $1,500, maintenance $4,000, training $3,500) plus $5 per unit produced ($3 indirect materials, $2 utilities). a. Prepare a production budget for Butler for as many months as is possible. b. Prepare a manufacturing overhead budget for the three months July through September. Be sure to include a total for the quarter as well.


113. Bear Corp. sells its product for $120. Forecast sales are 1,200 units in October, 1,500 in November, and 1,600 in December. Variable costs are based on sales, and consist of commissions (7% of sales), advertising (3%) and shipping (5%). Fixed costs per month are $4,000 sales salaries, $3,300 office salaries, $2,000 depreciation, $1,800 office rent, $750 insurance and $900 utilities. Required: Prepare Bear Corp's selling and administrative expense budget for the period October through December. Present monthly totals as well as a 3 -month total.

114. Rapid Corp. sells its product fo r $200. Forecast sales are 1,500 units in January, 1,800 in February, and 1,600 in March. Variable costs are based on sales, and consist of commissions (6% of sales), cooperative advertising (2%) and shipping (6%). Monthly fixed costs are $7,000 sales salaries, $6,500 office salaries, $2,500 depreciation, $1,800 office rent, $900 insurance and $1,200 utilities. a. Prepare Rapid's selling and administrative expense budget for the period January through March. Present monthly totals as well as a 3-month 3 -month total.


115. Meredith Company has budgeted sales for the upcoming months as follows:

Forty percent of the sales are credit sales, the remainder are cash sales. Credit sales are collected 50% in the month of sale, 40% in the month following the sale, and 8% in the second month following the sale. a. Compute Meredith Company's cash receipts for June. b. Compute Meredith Company's cash receipts for July. c. Compute Meredith Company's cash receipts for August.


116. Spencer Company has budgeted sales for the upcoming months as follows:

Seventy percent of the sales are credit sales, the remainder are cash sales. Credit sales are collected 40% in the month of sale, 50% in the month following the sale, and 10% in the second month following the sale. a. Compute Spencer's cash receipts for April. b. Compute Spencer's cash receipts for May. c. Compute the accounts receivable balance for May 31.


117. Blair is a retailer of assorted baby products. The sales forecast for the coming months is:

All sales are credit sales. The cash collection pattern is 20% in the month of sale, 70% in the month following the sale, and the remainder in the second month following the sale. Accounts receivable on June 1 were $177,500. a. Prepare a cash receipts schedule for the period June through August (by month). b. What will the Accounts Receivable balance be on August 31?


118. Portia is a retailer of scrapbooking products. The sales forecast for the coming months is:

Portia's sales are all credit. The collection pattern is 60% in the month of sale, 35% the following month and the remainder in the second month following the sale. Accounts receivable on April 1 were $122,500. a. Prepare a cash receipts schedule for the period June through August (by month). b. What will the Accounts Receivable balance be on August 31?


119. Young is a retailer of assorted baby products. The sales forecast for the coming months is:

Young's cost of sales averages 60% of revenues. The inventory policy is to carry 30% of next month's sales needs. April 1 inventory will be as expected under the policy. Young pays for purchases 80% in the month of purchase and 20% the following month. month. Accounts payable on o n April 1 is $22,400. a. Prepare a purchases budget for as many months as is possible. b. Prepare a cash payments budget for April through June.


120. Carmen is a retailer of scrapbooking products. The sales forecast for the coming months is:

Carmen's sales are 70% cash and 30% store credit. The credit sales are collected 60% in the month of sale, the remainder the following month. Accounts receivable on April 1 are $32,000. Carmen's cost of sales averages 65% of revenues. The inventory policy is to carry 40% of next month's sales needs. April 1 inventory will be as expected under the policy. Carmen pays for purchases 30% in the month of purchase and 70% the following month. Accounts payable on April 1 is $125,000. a. Prepare a purchases budget for as many months as is possible. b. Prepare a cash payments budget for April through June. c. Prepare a cash receipts budget for April through June.


Chapter 08 Budgetary Planning Answer Key

1.

Control is forward looking while planning is backward backward looking.

Control is backward looking while planning is forward looking.

AACSB: Reflective Thinking AICPA FN: Measuremen Blooms: Remembe Difficulty: 1 Eas Learning Objective: 08-01 Describe (a) how and why organizations use budgets for planning and control and (b) potentia behavioral issues to consider when implementing a budget. Topic: Planning and control cycle

2.

The budget translates a company's objectives into financial terms.

The budget's role in the organizing o rganizing process is to translate the company's objectives into financial terms.

AACSB: Reflective Thinking AICPA FN: Measuremen Blooms: Remembe Difficulty: 1 Eas Learning Objective: 08-01 Describe (a) how and why organizations use budgets for planning and control and (b) potentia behavioral issues to consider when implementing a budget. 8-52 © 2014 by McGraw-Hill Education. This i s proprietary material solely for a uthorized instructor use. Not authorized for sale or di stribution in any manner. This document may not be copied, scanned, duplicated, forwarded, distributed, or posted on a website, in whole or part.

Topic: Planning and control cycle

3.

A short-term objective is a specific action managers use to reach their long term goals.

A short-term objective is a specific goal that managers need to achieve in no more than a year to reach their long-term goals.

AACSB: Reflective Thinking AICPA FN: Measuremen Blooms: Understan Difficulty: 2 Medium Learning Objective: 08-01 Describe (a) how and why organizations use budgets for planning and control and (b) potential behavioral issues to consider when implementing a budget. Topic: Planning and control cycle

4.

The strategic plan is management's vision of what they desire the organization to achieve over the long term.

This is the definition of a strategic plan.



5.

An advantage of budgeting is that it requires managers to evaluate why things did not progress according to the plan.

This is not a requirement of budgeting, although managers can use budgets in this way.

AACSB: Reflective Thinking AICPA FN: Measuremen Blooms: Understan Difficulty: 1 Eas Learning Objective: 08-01 Describe (a) how and why organizations use budgets for planning and control and (b) potentia behavioral issues to consider when implementing a budget. Topic: Benefits of budgeting

6.

One advantage of participative budgeting is managers can build in budgetary slack.

Budgetary slack is a drawback to participative budgeting, not an advantage.

AACSB: Reflective Thinking AICPA FN: Measuremen Blooms: Remembe Difficulty: 1 Eas Learning Objective: 08-01 Describe (a) how and why organizations use budgets for planning and control and (b) potentia behavioral issues to consider when implementing a budget. Topic: Behavioral effects of budget


7.

Participative budgeting allows employees throughout the organization to have input into the budget-setting process.

This is the main purpose of participative budgeting.


8.

Top-down budgeting is when the local managers impose a budget on the top management.

Top-town budgeting is when top management sets the budget and imposes it on lower levels of the organization.



9.

Budgets that are tight but attainable are less likely to motivate people than budgets that are easy to achieve.

Budgets that are tight but attainable are more likely to motivate people than budgets that are either too easy or too difficult to achieve.

AACSB: Reflective Thinking AICPA FN: Measuremen Blooms: Understan Difficulty: 1 Eas Learning Objective: 08-01 Describe (a) how and why organizations use budgets for planning and control and (b) potentia behavioral issues to consider when implementing a budget. Topic: Behavioral effects of budget

10.

Participative budgeting is more likely to motivate people to work toward the organization's goals than is a top-down approach.

This is one of the main advantages of participative budgeting.

AACSB: Reflective Thinking AICPA FN: Measuremen Blooms: Understan Difficulty: 1 Eas Learning Objective: 08-01 Describe (a) how and why organizations use budgets for planning and control and (b) potentia behavioral issues to consider when implementing a budget. Topic: Behavioral effects of budget


11.

Operating budgets focus on the financial resources needed to support operations.

Operating budgets cover the organization's planned operating activities for a particular period; financial budgets focus on the financial resources needed to support o perations.

AACSB: Reflective Thinking AICPA FN: Measuremen Blooms: Remembe Difficulty: 1 Eas Learning Objective: 08-02 Describe the major components of the master budget and their interrelationships. Topic: Components of the master budge

12.

The production budget must be prepared before the sales budget can be prepared.

The sales budget is the starting point for preparing the master budget.

AACSB: Reflective Thinking AICPA FN: Measuremen Blooms: Remembe Difficulty: 1 Eas Learning Objective: 08-02 Describe the major components of the master budget and their interrelationsh ips. Topic: Components of the master budge


13.

Preparing the sales budget includes calculating the revenues to be earned from units sold in addition to the number of units to be sold.

Preparation of the sales budget requires multiplying the number of units expected to be sold by the budgeted sales price.

AACSB: Reflective Thinking AICPA FN: Measuremen Blooms: Remembe Difficulty: 1 Eas Learning Objective: 08-03a Sales budget. Topic: Sales budge

14.

If a company produces and sells goods to order, o rder, the sales budget and production budget are identical.

A company that produces and sells goods to order would not carry a finished goods inventory, which is the difference between a sales budget and a production budget.

AACSB: Reflective Thinking AICPA FN: Measuremen Blooms: Understan Difficulty: 1 Eas Learning Objective: 08-03b Production budget. Topic: Production budge


15.

Manufacturing firms prepare a separate raw materials purchases budget for each material u sed in production.

Each material should have its own budget.

AACSB: Reflective Thinking AICPA FN: Measuremen Blooms: Remembe Difficulty: 1 Eas Learning Objective: 08-03c Raw materials purchases budget. Topic: Raw materials purchases budge

16.

The direct labor budget is based on budgeted sales levels.

The direct labor budget is based on budgeted production levels.

AACSB: Reflective Thinking AICPA FN: Measuremen Blooms: Remembe Difficulty: 1 Eas Learning Objective: 08-03d Direct labor budget. Topic: Direct labor budge


17.

Budgeted manufacturing overhead includes indirect manufacturing costs, but not selling or administrative administrative costs.

Budgeted manufacturing overhead includes all indirect manufacturing manufacturing costs such as r ent, depreciation on equipment, and utilities.

AACSB: Reflective Thinking AICPA FN: Measuremen Blooms: Remembe Difficulty: 1 Eas Learning Objective: 08-03e Manufacturing overhead budget. Topic: Manufacturing overhead budge

18.

Budgeted cost of goods sold reflects all the costs required to manufacture and sell the product.

Budgeted cost of goods sold reflects all the costs required to manufacture the product, but not sell it.

AACSB: Reflective Thinking AICPA FN: Measuremen Blooms: Remembe Difficulty: 1 Eas Learning Objective: 08-03f Cost of goods sold budget. Topic: Budgeted cost of goods sol


19.

The selling and administrative expense budget is related to the production budget.

The selling and administrative expense budget includes all the costs related to selling the product and managing the business, not the costs of o f producing the product.

AACSB: Reflective Thinking AICPA FN: Measuremen Blooms: Remembe Difficulty: 1 Eas Learning Objective: 08-03g Selling and administrative expense budget. Topic: Selling and administrative expense budge

20.

Budgeted cash collections are based on the sales budget.

Budgeted cash collections translates the sales budget into when it is collected in cash.

AACSB: Reflective Thinking AICPA FN: Measuremen Blooms: Remembe Difficulty: 1 Eas Learning Objective: 08-04 Prepare the cash budget and describe the relationships among the operating budgets; cash budget; and budgeted balance sheet. Topic: Budgeted cash receipt


21.

Which of the following is the forward-looking phase of the planning and control cycle?

Planning B. Directing/Leading B. C. Organizing C. D. Control D. Planning is the forward-looking phase of the cycle; it involves setting long-term objectives and defining short-term tactics that will help achieve them.


22.

Creating a budget is an important part of which phase of the planning and control process?

A. Planning A. Organizing C. Directing/Leading C. D. Control D. A budget is a detailed plan that translates the company's objectives into financial terms. This aids in the organizing process, in which managers arrange for the necessary resources resources needed to achieve the plan.

AACSB: Reflective Thinking AICPA FN: Measuremen Blooms: Remembe 8-62 © 2014 by McGraw-Hill Education. This i s proprietary material solely for a uthorized instructor use. Not authorized for sale or di stribution in any manner. This document may not be copied, scanned, duplicated, forwarded, distributed, or posted on a website, in whole or part.

Difficulty: 2 Medium Learning Objective: 08-01 Describe (a) how and why organizations use budgets for planning and control and (b) potential behavioral issues to consider when implementing a budget. Topic: Planning and control cycle

23.

A detailed plan that translates the company's objectives into financial terms, identifying identifying the resources and expenditures that will be required over the planning horizon is a

A. Strategic plan Budget C. Tactic C. D. Long-term objective This is the definition of a budget.



24.

Which of the following is the backward-looking phase of the planning and control cycle?

A. Planning A. B. Directing/Leading B. C. Organizing C. Control This is the phase in which managers compare actual to budgeted results to determine whether the objectives set during the planning stage were met, and take corrective action where necessary.


25.

____________ ____________ are the specific actions managers use to achieve their objectives.

A. Strategic plans B. Long-term objectives C. Short-term objectives Tactics This is the definition of tactics.

AACSB: Reflective Thinking AICPA FN: Measuremen Blooms: Remembe Difficulty: 1 Eas


Learning Objective: 08-01 Describe (a) how and why organizations use budgets for planning and control and (b) potential behavioral issues to consider when implementing a budget. Topic: Planning and control cycle

26.

_____________ _____________ are the specific goals that managers want to achieve over a 5 to 10 year horizon.

A. Strategic plans Long-term objectives C. Short-term objectives D. Tactics D. This is the definition of long-term objectives.

AACSB: Reflective Thinking AICPA FN: Measuremen Blooms: Remembe Difficulty: 1 Eas Learning Objective: 08-01 Describe (a) how and why organizations use budgets for planning and control and (b) potential behavioral issues to consider when implementing a budget. Topic: The Planning and control cycle

27.

A _____________ is the vision of what management wants the organization to achieve over the long term.

Strategic plan B. Long-term objective C. Short-term objective D. Tactic D. This is the definition of a strategic plan.

AACSB: Reflective Thinking


AICPA FN: Measuremen Blooms: Remembe Difficulty: 1 Eas Learning Objective: 08-01 Describe (a) how and why organizations use budgets for planning and control and (b) potentia behavioral issues to consider when implementing a budget. Topic: Planning and control cycle

28.

Which of the following is

a benefit of budgeting?

A. It forces managers managers to look look to the future future B. It plays an important role in communication communication within within the organization organization C. It serves an important important role in in motivating and rewarding rewarding employees employees It builds organizational o rganizational slack Organizational slack is not a positive result of budgeting.

AACSB: Reflective Thinking AICPA FN: Measuremen Blooms: Understan Difficulty: 1 Eas Learning Objective: 08-01 Describe (a) how and why organizations use budgets for planning and control and (b) potentia behavioral issues to consider when implementing a budget. Topic: Benefits of budgeting


29.

A top-down approach to budgeting is one that is

A. participative. A. B. motivational. B. imposed. D. tight. D. A top-down approach is one in which top management sets the budget and imposes it on lower levels of the organization.

AACSB: Reflective Thinking AICPA FN: Measuremen Blooms: Remembe Difficulty: 1 Eas Learning Objective: 08-01 Describe (a) how and why organizations use budgets for planning and control and (b) potential behavioral issues to consider when implementing a budget. Topic: Behavioral effects of budget

30.

Participative budgeting is an approach to budgeting that

A. is top-down in nature. B. allows top management to set the budget. C. discourages budget slack. is more likely to motivate people to work towards the organization's goals than a top-down approach. One of the major advantages of participative budgeting is that it is motivational.



Learning Objective: 08-01 Describe (a) how and why organizations use budgets for planning and control and (b) potentia behavioral issues to consider when implementing a budget. Topic: Behavioral effects of budget

31.


a way to reduce the dysfunctional behaviors associated with

budgeting?

Create budget slack. B. Use different budgets for planning and for performance performance evaluation. C. Use a continuous or rolling budget approach. D. Use a zero-based budgeting budgeting approach. approach. Creating budget slack is a a dysfunctional behavior associated with budgeting.



32.

Which of the following statements about employee motivation is true?

A. A budget that is too easy to achieve is more more likely to motivate motivate than a budget that is too difficult or that is tight but attainable. B. A budget that is too difficult to achieve achieve is more likely likely to motivate than a budget that is too easy or that is tight but attainable. A budget that is tight but attainable is more likely to motivate than a budget that is too easy or too difficult to achieve. D. Budgets are difficult to use for motivation. Research suggests that budgets that are tight but attainable are more more likely to motivate people than budgets that are either too easy or too difficult to achieve.

AACSB: Reflective Thinking AICPA FN: Measuremen Blooms: Understan Difficulty: 2 Medium Learning Objective: 08-01 Describe (a) how and why organizations use budgets for planning and control and (b) potentia behavioral issues to consider when implementing a budget. Topic: Behavioral effects of budget


33.


a component of the master budget?

A. Operating budget B. Budgeted income statement C. Budgeted balance sheet Statement of return on investment The components of the operating budget, when combined, form the budgeted income statement. Together with the financial budgets, which combine to form the budgeted balance sheet, these comprise the master budget.


34.


included in the operating budget?

Budgeted balance sheet B. Sales budget C. Selling and administrative administrative budget D. Raw materials materials purchases budget The budgeted balance sheet is a financial budget, not an operating budget.

AACSB: Reflective Thinking AICPA FN: Measuremen Blooms: Remembe Difficulty: 1 Eas Learning Objective: 08-02 Describe the major components of the master budget and their interrelationships.


Topic: Components of the master budge

35.

The starting point for preparing the master budget is the

A. inventory policy. sales budget. C. production budget. D. budgeted balance sheet. The sales budget, an estimate of the number of units to be sold and total sales revenue, is the basis for all the other components of the operating budget.


36.

Which of the following budgets shows how many units will be produced each period?

A. Direct materials budget B. Direct labor budget C. Sales budget Production budget This is the purpose of the production budget.



Learning Objective: 08-02 Describe the major components of the master budget and their interrelationships. Topic: Components of the master budge

37.

A primary financial budget is the

A. Production budget. Cash budget. C. Inventory budget. D. Selling and administrative administrative budget. The cash budget is a component of the financial budgets. All others listed are operating budgets.


38.

Which of the following sequences is correct?

Sales budget - production budget - direct d irect materials budget - budgeted income statement B. Budgeted income statement - direct materials budget - production budget - sales budget C. Cash receipts budget budget - sales budget - production production budget - budgeted income statement D. Inventory budget - production production budget - sales budget - selling selling and administrative administrative budget The sales budget is needed to prepare the production budget, which is needed to prepare the direct materials budget, which is needed to prepare the budgeted income statement.

AACSB: Reflective Thinking AICPA FN: Measuremen


Blooms: Remembe Difficulty: 1 Eas Learning Objective: 08-02 Describe the major components of the master budget and their interrelationships . Topic: Components of the master budge

39.


a source that can be used in preparing the sales budget?

A. Prior sales. The production budget. C. Industry trends. D. Marketing activities. The sales department usually bases sales estimates on information such as prior sales, industry trends, and marketing activities. The production budget is based on the sales budget.

AACSB: Reflective Thinking AICPA FN: Measuremen Blooms: Remembe Difficulty: 1 Eas Learning Objective: 08-03a Sales budget. Topic: Sales budge


40.

Parker Corp expects to sell 4,000 units in October, and expects sales to increase 20% each month thereafter. Sales price price is expected to stay constant at $8 per unit. What are budgeted revenues for the fourth quarter?

A. $32,000 A. B. $96,000 B. C. $115,200 C. $116,480 [(4,000) + (4,000 × 1.2) + (4,000 × 1.2 × 1.2)] × $8.00 = $116,480.

AACSB: Analytic AICPA FN: Measuremen Blooms: Appl Difficulty: 2 Medium Learning Objective: 08-03a Sales budget. Topic: Sales budge


41.

Budgeted production is calculated by

A. adding budgeted unit unit sales to budgeted beginning finished finished goods inventory, inventory, and subtracting budgeted ending finished goods inventory. B. adding budgeted unit unit sales to budgeted beginning work work in process inventory, inventory, and subtracting budgeted ending work in process inventory. adding budgeted unit sales to budgeted ending finished goods inventory, and subtracting budgeted beginning finished goods inventory. D. adding budgeted unit sales to budgeted ending work in process inventory, inventory, and subtracting budgeted beginning work in process inventory. Budgeted production units = Budgeted unit sales + Budgeted ending finished goods inventory - Budgeted beginning finished goods inventory.

AACSB: Reflective Thinking AICPA FN: Measuremen Blooms: Remembe Difficulty: 1 Eas Learning Objective: 08-03b Production budget. Topic: Production budge

42.

If a company is planning to build inventory,

production should exceed sales. B. sales should exceed production. C. production should equal sales. D. production should equal inventory. inventory. To build inventory, production must be greater than sales.



AICPA FN: Measuremen Blooms: Understan Difficulty: 1 Eas Learning Objective: 08-03b Production budget. Topic: Production budge

43.

Lea Company produces hand tools. Budgeted sales for March are 10,000 units. Beginning finished goods inventory in March is budgeted to be 1,300 units, and ending finished goods inventory is budgeted to be 1,400 units. How many units will be produced in March?

A. 9,900 A. B. 10,000 B. 10,100 D. 12,700 D. 10,000 + 1,400 - 1,300 = 10,100.

AACSB: Analyti AICPA FN: Measuremen Blooms: Appl Difficulty: 1 Eas Learning Objective: 08-03b Production budget. Topic: Production budge


44.

Meadow Company produces hand tools. A sales budget for the next four months is as follows: March 10,000 units, April 13,000, May 16,000 and June 21,000. Meadow Company's ending finished goods inventory policy is 10% of o f the following month's sales. What is budgeted ending finished goods inventory for May?

A. 1,000 A. B. 1,300 B. C. 1,600 C. 2,100 (10% × 21,000) 21,000) - 2,100.

AACSB: Analytic AICPA FN: Measuremen Blooms: Appl Difficulty: 1 Eas Learning Objective: 08-03b Production budget. Topic: Production budge


45.

Meadow Company produces hand tools. A sales budget for the next four months is as follows: March 10,000 units, April 13,000, May 16,000 and June 21,000. Meadow Company's ending finished goods inventory policy is 10% of the following month's sales. March 1 inventory is projected to be 1,400 units. How many units will be produced in March?

A. 10,000 A. 9,900 C. 13,000 C. D. 10,100 D. 10,000 + 10% × 13,000 - 1,400 = 9,900.

AACSB: Analytic AICPA FN: Measuremen Blooms: Appl Difficulty: 2 Medium Learning Objective: 08-03b Production budget. Topic: Production budge


46.

Meadow Company produces hand tools. A sales budget for the next four months is as follows: March 10,000 units, April 13,000, May 16,000 and June 21,000. Meadow Company's ending finished goods inventory policy is 10% of the following month's sales. March 1 inventory is projected to be 1,400 units. How many units will be produced in April?

13,300 B. 15,900 B. C. 12,700 C. D. 13,000 D. 13,000 + (10% × 16,000) - (10% × 13,000) = 13,300.



47.

Marlow Company produces hand tools. A production budget for the next four fo ur months is as follows: March 10,300 units, April 13,300, May 16,500, and June 21,800. Marlow Company's ending finished goods inventory policy is 10% of the following month's sales. Meadow plans to sell 16,000 units in May. How many units will be sold in April?

A. 12,380 A. 13,000 C. 13,570 C. D. 13,620 D. April sales + (16,000 × 10%) - (April sales × 10%) = 13,300. So April sales × 90% = 11,700, which means April sales is 13,000.

AACSB: Analytic AICPA FN: Measuremen Blooms: Appl Difficulty: 3 Har Learning Objective: 08-03b Production budget. Topic: Production budge


48.

Marlow Company produces hand tools. A production budget for the next four fo ur months is as follows: March 10,300 units, April 13,300, May 16,500, and June 21,800. Marlow Company's ending finished goods inventory policy is 10% of the following month's sales. Marlow plans to sell 16,000 units in May. What is budgeted ending inventory for March?

A. 1,030 A. 1,300 C. 1,330 C. D. 1,650 D. April sales + (16,000 × 10%) - (April sales × 10%) = 13,300. So April sales × 90% = 11,700, which means April sales is 13,000. March ending inventory is 10% × 13,000 = 1,300, which is the beginning inventory for April.

AACSB: Analytic AICPA FN: Measuremen Blooms: Appl Difficulty: 3 Har Learning Objective: 08-03b Production budget. Topic: Production budge


49.

The formula for budgeted raw materials purchases is

A. Budgeted production units units + Ending raw materials inventory inventory - Beginning raw materials materials inventory. B. Budgeted production units units + Beginning Beginning raw materials inventory - Ending raw materials materials inventory. Materials needed for production + Ending raw materials inventory - Beginning raw materials inventory. D. Materials needed for production production + Beginning raw materials materials inventory - Ending raw materials inventory. This is the formula for the raw materials purchases budget.

AACSB: Reflective Thinking AICPA FN: Measuremen Blooms: Remembe Difficulty: 1 Eas Learning Objective: 08-03c Raw materials purchases budget. Topic: Raw materials purchases budge

50.

When calculating raw materials purchases, the starting point should be

A. actual materials materials purchases purchases from the previous year. B. budgeted sales. budgeted production. D. budgeted cost cost of raw materials. materials. Raw materials to be purchased will be used in manufacturing the units to be produced.



Blooms: Remembe Difficulty: 1 Eas Learning Objective: 08-03c Raw materials purchases budget. Topic: Raw materials purchases budge

51.

Jeremy Inc. produces leather handbags. The production budget for the next four months is: July 5,000 units, August 7,000, September 7,500, October 8,000. Each handbag requires 0.5 square meters of leather. Jeremy Inc.'s leather inventory policy is 30% of next month's production needs. If the leather policy is met, what will the July 1 inventory be?

750 square meters B. 1,050 square meters C. 1,825 square meters D. 300 square meters 30% × (5,000 × 0.5) = 750.

AACSB: Analytic AICPA FN: Measuremen Blooms: Appl Difficulty: 1 Eas Learning Objective: 08-03c Raw materials purchases budget. Topic: Raw materials purchases budge


52.

Johnson Inc. produces leather handbags. Johnson Inc. estimates it will use 3,500 square meters of leather in production in August, and 3,750 square meters of leather le ather in production in September. Johnson Inc.'s leather inventory policy is 30% of next month's production needs. What will leather purchases be in August?

A. 3,425 square meters B. 3,500 square meters 3,575 square meters D. 4,625 square meters 3,500 + (0.30 × 3,750) - (0.30 × 3,500) = 3,575.

AACSB: Analytic AICPA FN: Measuremen Blooms: Appl Difficulty: 1 Eas Learning Objective: 08-03c Raw materials purchases budget. Topic: Raw materials purchases budge


53.

Jackson Inc. produces leather handbags. The production budget for the next four months is: July 5,000 units, August 7,000, September 7,500, October 8,000. Each handbag requires 0.5 square meters of leather. Jackson Inc.'s leather inventory policy is 30% of next month's production needs. On July 1 leather inventory was expected to be 1,000 square meters. What will leather purchases be in August?

A. 7,150 square meters 3,575 square meters C. 7,075 square meters D. 3,425 square meters (7,000 × 0.5) + (7,500 × 0.5 × 30%) - (7,000 × 0.5 × 30%) = 3,575.

AACSB: Analytic AICPA FN: Measuremen Blooms: Appl Difficulty: 2 Medium Learning Objective: 08-03c Raw materials purchases budget. Topic: Raw materials purchases budge


54.

Jackson Inc. produces leather handbags. The production budget for the next four months is: July 5,000 units, August 7,000, September 7,500, October 8,000. Each handbag requires 0.5 square meters of leather. Jackson Inc.'s leather inventory policy is 30% of next month's production needs. On July 1 leather inventory was expected to be 1,000 square meters. What will leather purchases be in July?

A. 2,300 square meters 2,550 square meters C. 2,700 square meters D. 3,575 square meters (5,000 × 0.5) + (7,000 × 0.5 × 30%) - 1,000 = 2,550.

AACSB: Analytic AICPA FN: Measuremen Blooms: Appl Difficulty: 2 Medium Learning Objective: 08-03c Raw materials purchases budget. Topic: Raw materials purchases budge


55.

Jackson Inc. produces leather handbags. The production budget for the next four months is: July 5,000 units, August 7,000, September 7,500, October 8,000. Each handbag requires 0.5 square meters of leather. Jackson Inc.'s leather inventory policy is 30% of next month's production needs. On July 1 leather le ather inventory was expected to be 1,000 square meters. Leather is expected to cost $5.00 per square meter in June, but go up to $6.00 p er square meter in July. What is the expected cost of leather purchases in July?

A. $13,800 A. $15,300 C. $16,200 C. D. $16,300 D. (5,000 × 0.5) + (7,000 × 0.5 × 30%) - 1,000 = 2,550 square meters to be purchased. 2,550 × $6.00 = $15,300.

AACSB: Analytic AICPA FN: Measuremen Blooms: Appl Difficulty: 3 Har Learning Objective: 08-03c Raw materials purchases budget. Topic: Raw materials purchases budge


56.

Jared Inc. produces leather handbags. The sales budget for the next four months is: July 5,000 units, August 7,000, September 7,500, October 8,000. Each handbag requires 0.5 square meters of leather. Jared Inc.'s finished goods inventory policy is 10% of next month's sales needs. Jared Inc.'s leather inventory policy is 30% of next month's production needs. What will leather purchases be in August?

A. 3,425 square meters B. 3,450 square meters C. 3,508 square meters 3,600 square meters Production in August is 7,000 + (7,500 × 10%) - (7,000 × 10%) = 7,050. Production in September is 7,500 + (8,000 × 10%) - (7,500 × 10%) = 7,550. Leather purchases in August are (7,050 × 0.50) + (7,550 × 0.50 × 30%) - (7,050 × 0.50 × 30%) = 3,600 square meters.

AACSB: Analytic AICPA FN: Measuremen Blooms: Appl Difficulty: 3 Har Learning Objective: 08-03c Raw materials purchases budget. Topic: Raw materials purchases budge


57.

Budgeted direct labor hours are calculated as

A. Budgeted production units × Direct labor requirements per unit + Ending inventory Beginning inventory. B. Budgeted production units × Direct labor requirements per unit + Beginning inventory Ending inventory. Budgeted production units × Direct labor requirements per unit. D. Budgeted sales units × Direct labor requirements per unit. This is the formula for budgeted direct labor hours.

AACSB: Reflective Thinking AICPA FN: Measuremen Blooms: Remembe Difficulty: 1 Eas Learning Objective: 08-03d Direct labor budget. Topic: Direct labor budge

58.

When calculating the direct labor budget, the starting point should should be

A. actual direct labor hours from the previous year. B. budgeted sales. budgeted production. D. budgeted cost cost of direct labor. labor. Direct labor will be used in manufacturing the units to be produced.

AACSB: Reflective Thinking AICPA FN: Measuremen Blooms: Remembe Difficulty: 1 Eas Learning Objective: 08-03d Direct labor budget.


Topic: Direct labor budge

59.

Jillian Inc. produces leather handbags. The production budget for the next four months is: July 5,000 units, August 7,000, September 7,500, October 8,000. Each handbag requires 1.3 hours of unskilled labor (paid $8 per hour) and 2.2 hours of skilled labor (paid $15 per hour). How many unskilled labor hours will be budgeted for August?

A. 7,000 A. 9,100 C. 15,400 C. D. 24,500 D. 7,000 × 1.3 = 9,100 hours.

AACSB: Analytic AICPA FN: Measuremen Blooms: Appl Difficulty: 1 Eas Learning Objective: 08-03d Direct labor budget. Topic: Direct labor budge


60.

Jillian Inc. produces leather handbags. The production budget for the next four months is: July 5,000 units, August 7,000, September 7,500, October 8,000. Each handbag requires 1.3 hours of unskilled labor (paid $8 per hour) and 2.2 hours of skilled labor (paid $15 per hour). How many total labor hours will be budgeted for September?

A. 7,500 A. B. 9,750 B. C. 16,500 C. 26,250 (7,500 × 1.3) + (7,500 × 2.2) = 26,250.

AACSB: Analytic AICPA FN: Measuremen Blooms: Appl Difficulty: 1 Eas Learning Objective: 08-03d Direct labor budget. Topic: Direct labor budge


61.

Jillian Inc. produces leather handbags. The production budget for the next four months is: July 5,000 units, August 7,000, September 7,500, October 8,000. Each handbag requires 1.3 hours of unskilled labor (paid $8 per hour) and 2.2 hours of skilled labor (paid $15 per hour). How much will be paid to skilled labor during the three months July through September?

A. $742,500 A. $643,500 C. $4,387,500 C. D. $292,500 D. (5,000 × 2.2 × $15) + (7,000 × 2.2 × $15) + (7,500 × 2.2 × $15) = $643,500.

AACSB: Analytic AICPA FN: Measuremen Blooms: Appl Difficulty: 2 Medium Learning Objective: 08-03d Direct labor budget. Topic: Direct labor budge


62.

Jillian Inc. produces leather handbags. The production budget for the next four months is: July 5,000 units, August 7,000, September 7,500, October 8,000. Each handbag requires 1.3 hours of unskilled labor (paid $8 per hour) and 2.2 hours of skilled labor (paid $15 per hour). What will be the total labor cost for the month of August?

$303,800 B. $231,000 B. C. $121,500 C. D. $161,000 D. (7,000 × 1.3 × $8) + (7,000 × 2.2 × $15) = $303,800.



63.

Jaybird Inc. produces leather handbags. The sales budget fo r the next four months is: July 5,000 units, August 7,000, September 7,500, October 8,000. Jaybird Inc.'s ending finished goods inventory policy is 10% of the following month's sales. Each handbag requires 1.3 hours of unskilled labor (paid $8 per hour) and 2.2 hours of skilled labor (paid $15 per hour). What will be the total labor cost for the month of August?

A. $24,675 A. B. $225,680 B. C. $303,800 C. $305,970 Production = (7,000 + 10% × 7,500) - (10% × 7,000) = 7,050. Cost = (7,050 × 1.3 × $8) + $8) + (7,050 × 2.2 × $15) = $305,970.

AACSB: Analytic AICPA FN: Measuremen Blooms: Appl Difficulty: 3 Har Learning Objective: 08-03d Direct labor budget. Topic: Direct labor budge


64.

Jaybird Inc. produces leather handbags. The sales budget for the next four months is: July 5,000 units, August 7,000, September 7,500, October 8,000. Jaybird Inc.'s ending finished goods inventory policy is 10% of the following month's sales. Each handbag requires 1.3 hours of unskilled labor (paid $8 per hour) and 2.2 hours of skilled labor (paid $15 per hour). How much is total labor cost during the three months July through September?

A. $69,300 A. B. $327,670 B. C. $846,300 C. $859,320 Production = (5,000 + 7,000 + 7,500) + (10% × 8,000) - (10% × 5,000) = 19,800. Labor cost = (19,800 × 1.3 × $8) + (19,800 × 2.2 × $15) = $859,320.

AACSB: Analytic AICPA FN: Measuremen Blooms: Appl Difficulty: 3 Har Learning Objective: 08-03d Direct labor budget. Topic: Direct labor budge


65.

Skylark has forecast production for the next three months as follows: July 4,900 units, August 6,600 units, September 7,500 units. Monthly manufacturing manufacturing overhead is budgeted to be $17,000 plus $6 per unit produced. What is budgeted manufacturing overhead overhead for July?

A. $29,400 A. B. $47,000 B. $46,400 D. $17,000 D. Budgeted manufacturing overhead is (4,900 × $6) + $17,000 = $46,400.

AACSB: Analytic AICPA FN: Measuremen Blooms: Appl Difficulty: 1 Eas Learning Objective: 08-03e Manufacturing overhead budget. Topic: Manufacturing overhead budge

66.

Skylark has forecast production for the next three months as follows: July 4,900 units, August 6,600 units, September 7,500 units. Monthly manufacturing manufacturing overhead is budgeted to be $17,000 plus $6 per unit produced. What is budgeted manufacturing overhead for August?

$56,600 B. $17,000 B. C. $39,600 C. D. $62,000 D. Budgeted manufacturing overhead = (6,600 × $6) + $17,000 = $56,600.

AACSB: Analytic AICPA FN: Measuremen


Blooms: Appl Difficulty: 1 Eas Learning Objective: 08-03e Manufacturing overhead budget. Topic: Manufacturing overhead budge

67.

Larken has forecast sales for the next three months as follows: July 4,000 units, August 6,000 units, September 7,500 units. units. Larken's policy is to have an ending inventory of 40% of the next month's sales needs on hand. July 1 inventory is projected to be 1,500 units. Monthly manufacturing overhead is budgeted to be $17,000 plus $6 per unit produced. What is budgeted manufacturing overhead for July?

A. $29,400 A. B. $41,000 B. $46,400 D. $17,000 D. Production for July is 4,000 + (40% × 6,000) - 1,500 = 4,900. Budgeted manufacturing overhead is (4,900 × $6) + $17,000 = $46,400.

AACSB: Analytic AICPA FN: Measuremen Blooms: Appl Difficulty: 2 Medium Learning Objective: 08-03e Manufacturing overhead budget. Topic: Manufacturing overhead cost budge


68.

Larken has forecast sales for the next three months as follows: July 4,000 units, August 6,000 units, September 7,500 units. Larken's policy is to have an ending inventory of 40% of the next month's sales needs on hand. July 1 inventory is projected to be 1,500 units. Monthly manufacturing manufacturing overhead is budgeted to be $17,000 plus $6 per unit produced. What is budgeted manufacturing overhead for August?

$56,600 B. $17,000 B. C. $53,000 C. D. $38,600 D. Production = 6,000 + (40% × 7,500) - (40% × 6,000) = 6,600. Budgeted manufacturing overhead = (6,600 × $6) + $17,000 = $56,600.



69.

Skybird has forecast sales for the next three months as follows: July 4,000 units, August 6,000 units, September 7,500 units. Skybird's policy is to have an ending inventory of 40% of the next month's sales needs on hand. July 1 inventory is projected to be 1,500 units. Monthly costs are budgeted as follows:

What is budgeted manufacturing overhead cost for July ?

A. $32,000 A. B. $41,000 B. $46,400 D. $17,000 D. Production for July is 4,000 + (40% × 6,000) - 1,500 = 4,900. Budgeted manufacturing overhead is (4,900 × $6) + $17,000 = $46,400.



70.

Pacific has forecast sales for the next three months as follows: July 4,000 units, August 6,000 units, September 7,500 units. Pacific's policy is to have an ending inventory of 40% of the next month's sales needs on hand. July 1 inventory is projected to be 1,500 units. Monthly costs are budgeted as follows:

What is budgeted manufacturing overhead cost for August?

$50,000 B. $47,000 B. C. $33,000 C. D. $32,000 D. Production = 6,000 + (40% × 7,500) - (40% × 6,000) = 6,600. Budgeted manufacturing overhead = (6,600 × $5) + $17,000 = $50,000.



71.

Budgeted cost of goods sold should include which of the following?

A. Raw materials materials and direct direct labor. Raw materials, direct labor, and manufacturing overhead. C. Raw materials, direct labor, manufacturing manufacturing overhead, overhead, and selling selling expenses. D. Raw materials, direct direct labor, manufacturing manufacturing overhead, selling expenses, expenses, and administrative administrative expenses. Budgeted cost of goods sold should reflect all costs required to manufacture the product including raw materials, direct labor, and manufacturing overhead.

AACSB: Reflective Thinking AICPA FN: Measuremen Blooms: Remembe Difficulty: 1 Eas Learning Objective: 08-03f Cost of goods sold budget. Topic: Budgeted cost of goods sol


72.

Harney, Inc. has prepared the following budgets for March. In March, budgeted production equals budgeted sales, and raw materials inventory will stay constant.


A. $14,560 A. B. $24,960 B. $27,560 D. $37,960 D. $5,200 + $9,360 + $13,000.

AACSB: Analytic AICPA FN: Measuremen Blooms: Appl Difficulty: 1 Eas Learning Objective: 08-03f Cost of goods sold budget. Topic: Budgeted cost of goods sol


73.

Atlantic, Inc. has prepared the following budgets for March. In March, budgeted production equals budgeted sales of 1,000 units, and raw materials inventory will stay constant.


A. $16,800 A. B. $24,300 B. $31,800 D. $43,800 D. [($6.00 + $10.80 + $7.50) × 1,000] + $7,500 = $31,800.

AACSB: Analytic AICPA FN: Measuremen Blooms: Appl Difficulty: 1 Eas Learning Objective: 08-03f Cost of goods sold budget. Topic: Budgeted cost of goods sol


74.

Crystal, Inc. has prepared the following budgets for March. In March, budgeted production is 1,000 units, budgeted sales is 1,200 units, and raw materials inventory will stay constant.


A. $20,367 A. B. $21,200 B. $25,440 D. $35,040 D. ($4.00 + $7.20 + $10.00) × 1,200 = $25,440.

AACSB: Analytic AICPA FN: Measuremen Blooms: Appl Difficulty: 2 Medium Learning Objective: 08-03f Cost of goods sold budget. Topic: Budgeted cost of goods sol


75.

Crystal, Inc. has prepared the following budgets for March. In March, budgeted production is 1,000 units, budgeted sales is 1,200 units, and raw materials inventory unit costs will stay constant.


A. $30,551 A. B. $31,800 B. C. $36,660 C. $38,160 [($6.00 + $10.80 + $7.50) × 1,200] + [($7,500/1,000) × 1,200] = $38,160.



76.

Lemon, Inc. has prepared the following budgets for fo r March. In March, budgeted production is 1,000 units, budgeted sales is 1,200 units, and raw materials inventory and unit costs will stay constant.


A. $40,734 A. B. $42,400 B. C. $48,880 C. $50,880 ($8,000 + $14,400 + $20,000)/1,000 = $42.40 per unit. $42.40 × 1,200 = $50,880.



77.

Which of the following would

be an example of a cost to include in a selling and

administrative expense budget?

A. Legal expenses B. Accounting services Fixed manufacturing overhead D. Franchise fees The selling and administrative expense budget should include all the costs related to selling the product and managing the business, but not manufacturing manufacturing costs.

AACSB: Reflective Thinking AICPA FN: Measuremen Blooms: Remembe Difficulty: 1 Eas Learning Objective: 08-03g Selling and administrative expense budget. Topic: Selling and administrative expense budge


78.

Walnut has forecast sales for the next three months as follows: July 4,000 units, August 6,000 units, September 7,500 units. Walnut's policy is to have an ending inventory of 40% of the next month's sales needs on hand. July 1 inventory is projected to be 1,500 units. Selling and administrative administrative costs are budgeted to be $15,000 per month plus $5 per unit sold. What are budgeted selling and administrative expenses for July?

A. $24,500 A. B. $39,500 B. $35,000 D. $30,500 D. (4,000 × $5) + $15,000 = $35,000.

AACSB: Analytic AICPA FN: Measuremen Blooms: Appl Difficulty: 2 Medium Learning Objective: 08-03g Selling and administrative expense budget. Topic: Selling and administrative expense budge


79.

Walnut has forecast sales for the next three months as follows: July 4,000 units, August 6,000 units, September 7,500 units. Walnut's policy is to have an ending inventory of 40% of the next month's sales needs on hand. July 1 inventory is projected to be 1,500 units. Selling and administrative costs are budgeted to be $15,000 per month plus $5 per unit sold. What are budgeted selling and administrative expenses for September?

A. $30,000 A. B. $67,500 B. C. $32,500 C. $52,500 (7,500 × $5) + $15,000 = $52,500.

AACSB: Analytic AICPA FN: Measuremen Blooms: Appl Difficulty: 2 Medium Learning Objective: 08-03g Selling and administrative expense budget. Topic: Selling and administrative expense budge


80.

The budgeted income statement is a combination of

All the operating budgets. B. All the operating operating budgets plus the budgeted balance sheet. sheet. C. The direct materials budget, the direct labor budget, and and the manufacturing manufacturing overhead budget. D. The production budget, the cost cost of goods sold budget, and the selling and administrative administrative expense budget. The budgeted income statement combines all operating budgets.

AACSB: Reflective Thinking AICPA FN: Measuremen Blooms: Appl Difficulty: 2 Medium Learning Objective: 08-03h Budgeted income statement. Topic: Budgeted income statemen

81.

The purpose of the cash budget is to

A. be used as a basis for the operating operating budgets. B. provide external users users with an estimate of future future cash flows. flows. help managers plan ahead to make certain they will have enough cash on hand to meet their operating needs. D. summarize the cash cash flowing into and out of the business business during the past period. The cash budget helps managers plan ahead to make certain they will have enough cash on hand to meet their operating needs.



Blooms: Remembe Difficulty: 1 Eas Learning Objective: 08-04 Prepare the cash budget and describe the relationships among the operating budgets; cash budget; and budgeted balance sheet. Topic: Budgeted cash payment Topic: Budgeted cash receipt

82.

The basic form of the cash budget is:

A. Budgeted cash collections collections - Budgeted cash payments +/- Cash borrowed or repaid = Ending cash balance Beginning cash balance + Budgeted cash collections - Budgeted cash payments +/- Cash borrowed or repaid = Ending cash balance C. Beginning cash balance - Budgeted cash collections collections + Budgeted cash payments +/- Cash borrowed or repaid = Ending cash balance D. Beginning cash balance + Budgeted cash collections - Budgeted cash payments payments = Cash borrowed or repaid This is the formula for the cash budget.

AACSB: Reflective Thinking AICPA FN: Measuremen Blooms: Remembe Difficulty: 1 Eas Learning Objective: 08-04 Prepare the cash budget and describe the relationships among the operating budgets; cash budget; and budgeted balance sheet. Topic: Budgeted cash payment Topic: Budgeted cash receipt


83.


a component of the cash budget?

A. Budgeted cash collections B. Budgeted cash payments Depreciation expense D. Cash borrowed or repaid repaid Depreciation expense is a non-cash expense.

AACSB: Reflective Thinking AICPA FN: Measuremen Blooms: Remembe Difficulty: 1 Eas Learning Objective: 08-04 Prepare the cash budget and describe the relationships among the operating budgets; cash budget; and budgeted balance sheet. Topic: Cash budge

84.

Which component of the cash budget is shown as a line item on the budgeted balance sheet?

A. Budgeted cash collections B. Budgeted cash payments C. Cash repaid Ending cash balance The ending cash balance is an asset that would be shown on the budgeted balance sheet.

AACSB: Reflective Thinking AICPA FN: Measuremen Blooms: Remembe Difficulty: 1 Eas Learning Objective: 08-04 Prepare the cash budget and describe the relationships among the operating budgets; cash budget; and budgeted balance sheet.


Topic: Cash budge

85.

Grover has forecast sales to be $125,000 in February, $135,000 in March, $150,000 in April, and $140,000 in May. The average cost of goods go ods sold is 70% of sales. All sales are on made on credit and sales are collected 60% in the month of sale, and 40% the month following. What are budgeted cash receipts in March?

$131,000 B. $135,000 B. C. $94,500 C. D. $91,700 D. ($135,000 × 60%) + ($125,000 × 40%) = $131,000.

AACSB: Analytic AICPA FN: Measuremen Blooms: Appl Difficulty: 1 Eas Learning Objective: 08-04 Prepare the cash budget and describe the relationships among the operating budgets; cash budget; and budgeted balance sheet. Topic: Cash budge


86.

Grover has forecast sales to be $125,000 in February, $135,000 in March, $150,000 in April, and $140,000 in May. The average cost of goods sold is 70% of sales. All sales are made on credit and sales are collected 60% in the month of sale, and 40% the month following. What are budgeted cash receipts in April?

A. $105,000 A. B. $141,000 B. C. $150,000 C. $144,000 ($150,000 × 60%) + ($135,000 × 40%) = $144,000.



87.

Dayton has forecast sales to be $205,000 in February, $270,000 in March, $290,000 in April, and $310,000 in May. The average cost of goods sold is 60% o f sales. All sales are made on credit and sales are collected 50% in the month of sale, 30% the month following and the remainder two months after the sale. What are budgeted cash receipts in May?

A. $267,000 A. $296,000 C. $161,250 C. D. $241,500 D. ($310,000 × 50%) + ($290,000 × 30%) + ($270,000 × 20%) = $296,000.

AACSB: Analytic AICPA FN: Measuremen Blooms: Appl Difficulty: 2 Medium Learning Objective: 08-04 Prepare the cash budget and describe the relationships among the operating budgets; cash budget; and budgeted balance sheet. Topic: Cash budge


88.

Blue has forecast sales to be $410,000 in February, $540,000 in March, $580,000 in April, and $620,000 in May. The average cost of goods sold is 60% of sales. All sales are made on credit and sales are collected 50% in the month of sale, 30% the month following and the remainder two months after the sale. What are budgeted cash receipts in May?

$592,000 B. $620,000 B. C. $310,000 C. D. $483,334 D. ($620,000 × 50%) + ($580,000 × 30%) + ($540,000 × 20%) = $592,000.

AACSB: Analytic AICPA FN: Measuremen Blooms: Appl Difficulty: 2 Medium Learning Objective: 08-04 Prepare the cash budget and describe the relationships among the operating budgets; cash budget; and budgeted balance sheet. Topic: Cash budge


89.

Dane Inc. has forecast purchases on account to be $465,000 in March, $555,000 in April, $630,000 in May, and $735,000 in June. Seventy percent of purchases are paid for in the month of purchase, the remaining 30% are paid in the following month. What are budgeted cash payments for April?

$528,000 B. $577,500 B. C. $388,500 C. D. $189,000 D. ($555,000 × 70%) + ($465,000 × 30%) = $528,000.



90.

Ivory Inc. has forecast fo recast purchases on account to be $310,000 in March, $370,000 in April, $420,000 in May, and $490,000 in June. Seventy percent of purchases are paid for in the month of purchase, the remaining 30% are paid in the following month. What are budgeted cash payments for June?

A. $441,000 A. $469,000 C. $343,000 C. D. $294,000 D. ($490,000 × 70%) + ($420,000 × 30%) = $469,000.



91.

Cedar Co. has forecast fo recast purchases to be $330,000 in June, $375,000 in July, $310,000 in August, and $270,000 in September. Purchases average 30% paid in cash, 70% are on credit. Credit purchases are paid 60% in the month of purchase, 30% during the month following, and 1 0% the second month following the purchase. Cash disbursements in September would be

A. $113,400. A. B. $204,750. B. C. $261,450. C. $285,750. ($270,000 × 30%) + ($270,000 × 70% × 60%) + ($310,000 × 70% × 30%) + ($375,000 × 70% × 10%) = $285,750.

AACSB: Analytic AICPA FN: Measuremen Blooms: Appl Difficulty: 3 Har Learning Objective: 08-04 Prepare the cash budget and describe the relationships among the operating budgets; cash budget; and budgeted balance sheet. Topic: Cash budge


92.

Arbor Co. has forecast sales to be $400,000 in May, $475,000 in June, $575,000 in July and $700,000 in August. Forty percent of sales are cash, the remainder is on credit. Credit sales are collected 60% in the month of sale, the remaining the following month. What are budgeted cash collections for July?

A. $230,000 A. B. $334,000 B. C. $459,000 C. $551,000 ($575,000 × 40%) + ($575,000 × 60% × 60%) + ($475,000 × 60% × 40%) = $551,000.



93.

Ebony Co. has forecast sales to be $300,000 in May, $375,000 in June, $475,000 in July and $600,000 in August. Forty percent of sales are cash, the remainder is on account. Credit sales are partially collected in the month of sale, with all collections completed by the end of the month following the sale. The August 31 accounts receivable is budgeted to be $108,000. What are budgeted cash collections for July?

A. $389,500 A. B. $267,000 B. $457,000 D. $415,000 D. For August, $600,000 × 60% = $360,000 of sales are on account. $108,000/$360,000 $108,000/$360,000 = 30% of credit sales are still not collected at the end of August, so 70% are collected in the month of sale. For July, then, collections will be $475,000 × 40% = $190,000 in cash, plus ($475,000 × 60% × 70%) + ($375,000 × 60% × 30%) = $267,000 in credit collections, for a total of $457,000.



94.

Which of the following budgets do

provide information needed for the budgeted balance

sheet?

A. Materials purchases budget B. Production budget Selling and administrative expense budget D. Cash budget The selling and administrative expense budget includes only expenses, which would not affect the balance sheet.

AACSB: Reflective Thinking AICPA FN: Measuremen Blooms: Understan Difficulty: 2 Medium Learning Objective: 08-04 Prepare the cash budget and describe the relationships among the operating budgets; cash budget; and budgeted balance sheet. Topic: Budgeted balance shee


95.

Orchard has forecast sales to be $250,000 in February, $270,000 in March, $300,000 in April, and $280,000 in May. The average cost of goods sold is 70% of sales. All sales are made on credit and sales are collected 60% in the month of sale, and 40% the month following. What is the budgeted Accounts Receivable balance on May 31?

A. $196,000 A. B. $117,600 B. $112,000 D. $168,000 D. $280,000 × 40% = $112,000.

AACSB: Analytic AICPA FN: Measuremen Blooms: Appl Difficulty: 2 Medium Learning Objective: 08-04 Prepare the cash budget and describe the relationships among the operating budgets; cash budget; and budgeted balance sheet. Topic: Budgeted balance shee


96.

Boxwood Inc. has forecast purchases on account to be $620,000 in March, $740,000 in April, $840,000 in May, and $980,000 in June. Seventy percent of purchases are paid for in the month of purchase, the remaining 30% are paid in the following month. What is the budgeted Accounts Payable balance for June 30?

A. $588,000 A. B. $686,000 B. $294,000 D. $252,000 D. $980,000 × 30% = $294,000.

AACSB: Analytic AICPA FN: Measuremen Blooms: Appl Difficulty: 2 Medium Learning Objective: 08-04 Prepare the cash budget and describe the relationships among the operating budgets; cash budget; and budgeted balance sheet. Topic: Budgeted balance shee


97.

Audrey has forecast sales to be $205,000 in February, $270,000 in March, $290,000 in April, and $310,000 in May. The average cost of goods sold is 60% of sales. All sales are made on credit and sales are collected 50% in the month of sale, 30% the month following and the remainder two months after the sale. What is the budgeted Accounts Receivable balance on May 31?

A. $155,000 A. $213,000 C. $127,800 C. D. $186,000 D. $310,000 × 50% + $290,000 × 20% = $213,000.

AACSB: Analytic AICPA FN: Measuremen Blooms: Appl Difficulty: 3 Har Learning Objective: 08-04 Prepare the cash budget and describe the relationships among the operating budgets; cash budget; and budgeted balance sheet. Topic: Budgeted balance shee

98.

Which of the following budgets would not exist for a merchandising firm?

A. Sales budget B. Purchases budget Production budget D. Selling and administrative administrative expense budget A merchandising firm does not produce the goods it sells, so it would not need a production budget.



AICPA FN: Measuremen Blooms: Understan Difficulty: 1 Eas Learning Objective: 08-05 Prepare a merchandise purchases budget for a merchandising firm. Topic: Budgeting in nonmanufacturing firm

99.

Clare purchases a single product for $15 and sells it for $30. Forecasted sales for the next three months are July 4,000 units, August 6,000 units, September 7,500 units. Clare's policy is to have an ending inventory of 40% of the next month's sales needs on hand. July 1 inventory is projected to be 1,500 units. What are budgeted purchases in units for August?

6,600 units B. 10,400 units C. 5,400 units D. 600 units (6,000 × 60%) + (7,500 × 40%) = 6,600 units.

AACSB: Analytic AICPA FN: Measuremen Blooms: Appl Difficulty: 2 Medium Learning Objective: 08-05 Prepare a merchandise purchases budget for a merchandising firm. Topic: Budgeting in nonmanufacturing firm


100.

Parsley Inc, a merchandising firm, has forecasted sales to be $125,000 in February, $135,000 in March, $150,000 in April, and $140,000 in May. The average cost of goods sold is 60% of sales. The merchandise inventory policy is to carry 50% of next month's sales needs. If actual February 1 inventory is $40,000, what will the cost of March purchases be?

A. $58,500 A. B. $142,500 B. C. $81,000 C. $85,500 ($135,000 × 60%) + ($150,000 × 60% × 50%) - ($135,000 × 60% × 50%) = $85,500.

AACSB: Analytic AICPA FN: Measuremen Blooms: Appl Difficulty: 3 Har Learning Objective: 08-05 Prepare a merchandise purchases budget for a merchandising firm. Topic: Budgeting in nonmanufacturing firm


101.

Mango Place has forecast its sales for the coming months as follows:

The standard unit sells for $200, the deluxe d eluxe unit sells for $350. Required: Prepare a sales budget for each of the three months April through June as well as the total for the quarter. Present the budget for each product as well as total sales.

Feedback: Preparation of the sales budget requires multiplying the number of units expected to be sold each period by the budgeted sales price.

AACSB: Analytic AICPA FN: Measuremen Blooms: Appl Difficulty: 1 Eas Learning Objective: 08-03a Sales budget. Topic: Sales budge


102.

Edna Inc. has forecast fo recast its sales for the coming months as follows:

The standard model sells for $28, the economy model sells for $21, and the deluxe model sells for $49. Required: Prepare a sales budget for each of the three months July through September as well as the total for the quarter. Present the budget for each product as well as total sa les.

Feedback: Preparation of the sales budget requires multiplying multiplying the number of units expected to be sold each period by the budgeted sales price.

AACSB: Analytic AICPA FN: Measuremen Blooms: Appl Difficulty: 1 Eas Learning Objective: 08-03a Sales budget. Topic: Sales budge


103.

Willow Products expects the following sales of its single product:

Willow Products desires an ending finished goods inventory to be equal to 30% of the next month's sales needs. Actual March 1 inventory is projected to be 1,300 units. Required: Prepare a production budget for Willow Products for as many months as is possible.

Feedback: Budgeted production units = Budgeted unit sales + Budgeted ending finished goods inventory - Budgeted beginning finished goods inventory



104.

Heather Products expects the following sales of its single product:

Heather desires an ending finished goods inventory to be equal to 20% of the next month's sales needs. Actual May 1 inventory will be 3,300 units. Required: Prepare a production budget for Heather for as many months as is possible.

Feedback: Budgeted production units = Budgeted unit sales + Budgeted ending finished goods inventory - Budgeted beginning finished goods inventory.



105.

Wheat Inc. has forecast its sales for the coming months as follows:

Wheat maintains finished goods inventory equal to 20% of the next month's sales requirements. requirements. April 1 inventories were 14 standard units and 10 deluxe. Required: Prepare a production schedule for April through June.




106.

Cherry Inc. has forecast its sales for fo r the coming months as follows:

Cherry maintains finished goods inventory equal to 40% of the next month's sales requirements. April 1 inventories were 74 standard units and 72 deluxe. Required: Prepare a production schedule for April through June.




107.

Gertrude Products expects the following sales of its single product:

Gertrude desires an ending finished finished goods inventory to be equal to 10% of the next month's sales needs. July 1 inventory is projected to be 800 units. Each unit requires 5 pounds p ounds of Chemical A and 14 pounds of Chemical B. July 1 materials inventory includes 8,600 pounds of Chemical A and 76,000 pounds of Chemical B. Gertrude desires to maintain a Chemical A inventory equal to 20% of next month's production needs and a Chemical B inventory equal to 100% of next month's production needs. a. Prepare a production budget for Gertrude for as many months as is possible. b. Prepare a raw materials purchases budget for both Chemical A and Chemical B f or the months of July through September.


Feedback: Budgeted production units = Budgeted unit sales + Budgeted ending finished goods inventory - Budgeted beginning finished goods inventory. Budgeted raw materials purchases = Materials needed for budgeted production needs + Budgeted ending raw materials materials inventory Budgeted beginning raw materials inventory.

AACSB: Analytic AICPA FN: Measuremen Blooms: Appl Difficulty: 3 Har Learning Objective: 08-03b Production budget. Learning Objective: 08-03c Raw materials purchases budget. Topic: Production budge Topic: Raw materials purchases budge


108.

Crest Products expects the following sales of its single product:

Crest desires an ending finished goods inventory to be equal to 30% of the next month's sales needs. August 1 inventory is projected to be 7,800 units. Each finished unit requires 2 units of component X and 11 units of component Z. August Au gust 1 materials inventory includes 5,000 units of component X and 184,000 units of component Z. Crest desires to maintain a component X inventory equal to 10% of next month's production needs and a component Z inventory equal to 70% of next month's production needs. a. Prepare a production budget for Crest for as many months as is possible. b. Prepare a raw materials purchases budget for both Component X and Component Z for the months of August through October.


Feedback: Budgeted production units = Budgeted unit sales + Budgeted ending finished goods inventory - Budgeted beginning finished goods inventory. Budgeted raw materials purchases = Materials needed for budgeted production needs + Budgeted ending raw materials materials inventory Budgeted beginning raw materials inventory.

AACSB: Analytic AICPA FN: Measuremen Blooms: Appl Difficulty: 3 Har Learning Objective: 08-03b Production budget. Learning Objective: 08-03c Raw materials purchases budget. Topic: Production budge Topic: Raw materials purchases budge


109.

Honeysuckle Inc. produces canvas bags. The production p roduction budget for the next four months is: July 5,000 units, August 7,000, September 7,500, October 8,000. Each bag requires 2.6 hours of unskilled labor (paid $8 per hour) and 4.4 hours of skilled labor (paid $15 per hour). Required: Prepare a labor budget for the three months July through September. Provide the labor requirements according to skill level in hours and in labor cost as well as in total. Provide the budget monthly as well as a total for the quarter.

Feedback: Budgeted direct labor cost = Budgeted production × Direct labor requirements per unit × Direct labor cost per hour.



110.

Maple Inc. produces wooden boxes. The production budget for the next four months is: July 15,000 units, August 17,000, September 17,500. Each box requires three skill levels: 1.0 hours of unskilled labor (paid $8 per hour), 1.5 hours of semi-skilled labor (paid $10) and 2.0 hours of skilled labor (paid $15 per hour). Required: Prepare a labor budget for the three months July - September. Provide the labor requirements according to skill level in hours and in labor cost as well as in total. Provide the budget monthly as well as a total for the quarter.

Feedback: Budgeted direct labor cost = Budgeted production × Direct labor requirements per unit × Direct labor cost per hour.



111.

Sugar has forecast sales for the next three months as follows: July 4,000 units, August 6,000 units, September 7,500 units, and October 8,000 units. Sugar's policy is to have an ending inventory of 40% of the next month's sales needs on hand. July 1 inventory is projected to be 1,500 units. Manufacturing overhead is budgeted to be $17,000 plus $5 per p er unit produced. a. Prepare a production budget for Sugar for as many months as is possible. b. Prepare a manufacturing overhead budget for the three months July - September. Be sure to include a total for the quarter as well.

Feedback: Budgeted production units = Budgeted unit sales + Budgeted ending finished goods inventory - Budgeted beginning finished goods inventory. Budgeted manufacturing overhead = Budgeted production × Variable overhead rate + Budgeted fixed manufacturing overhead.

AACSB: Analyti AICPA FN: Measuremen Blooms: Appl Difficulty: 2 Medium Learning Objective: 08-03b Production budget. Learning Objective: 08-03e Manufacturing overhead budget. Topic: Manufacturing overhead budge Topic: Production budge


112.

Butler has forecast sales for the next three months as follows: July 14,000 units, August 16,000 units, September 17,500 units, October 18,000 units. Butler's policy is to have an ending inventory of 20% of the next month's sales needs on hand. July 1 inventory is projected to be 2,500 units. Manufacturing overhead is budgeted to be $18,000 (depreciation $2,000, supervision $7,000, factory lease $1,500, maintenance $4,000, training $3,500) plus $5 per unit produced ($3 indirect materials, $2 utilities). a. Prepare a production budget for Butler for as many months as is possible. b. Prepare a manufacturing overhead budget for the three months July through September. Be sure to include a total for the quarter as well.

Feedback: Budgeted production units = Budgeted unit sales + Budgeted ending finished goods inventory - Budgeted beginning finished goods inventory. Budgeted manufacturing overhead = Budgeted production × Variable overhead o verhead cost per unit + Budgeted fixed manufacturing overhead.

AACSB: Analytic AICPA FN: Measuremen Blooms: Appl Difficulty: 2 Medium 8-141 © 2014 by McGraw-Hill Education. This i s proprietary material solely for authorized instructor use. Not authorized for sale or dist ribution in any manner. This document may not be copied, scanned, duplicated, forwarded, distributed, or posted on a website, in whole or part.

Learning Objective: 08-03b Production budget. Learning Objective: 08-03e Manufacturing overhead budget. Topic: Manufacturing overhead cost budge Topic: Production budge

113.

Bear Corp. sells its product for $120. Forecast sales are 1,200 units in October, 1,500 in November, and 1,600 in December. Variable costs are based on sales, and consist of commissions (7% of sales), advertising (3%) and shipping (5%). Fixed costs per month are $4,000 sales salaries, $3,300 office salaries, $2,000 depreciation, $1,800 office rent, $750 insurance and $900 utilities. Required: Prepare Bear Corp's selling and administrative expense budget for the period October through December. Present monthly totals as well as a 3-month total.

Feedback: Budgeted variable selling and administrative expenses are calculated by multiplying budgeted sales by the appropriate rate. Budgeted total selling and administrative expenses are calculated by adding budgeted variable to budgeted fixed selling and administrative administrative expenses.

AACSB: Analytic AICPA FN: Measuremen Blooms: Appl 8-142 © 2014 by McGraw-Hill Education. This i s proprietary material solely for a uthorized instructor use. Not authorized for sale or di stribution in any manner. This document may not be copied, scanned, duplicated, forwarded, distributed, or posted on a website, in whole or part.

Difficulty: 2 Medium Learning Objective: 08-03g Selling and administrative expense budget. Topic: Selling and administrative expense budge

114.

Rapid Corp. sells its product for $200. Forecast sales are 1,500 units in January, 1,800 in February, and 1,600 in March. Variable costs are based on sales, and consist of commissions (6% of sales), cooperative advertising (2%) and shipping (6%). Monthly fixed costs are $7,000 sales salaries, $6,500 office salaries, $2,500 depreciation, $1,800 office rent, $900 insurance and $1,200 utilities. a. Prepare Rapid's selling and administrative expense budget for the period January through March. Present monthly totals as well as a 3-month total.

Feedback: Budgeted variable selling and administrative expenses are calculated by multiplying budgeted sales by the appropriate rate. Budgeted total selling and administrative expenses are calculated by adding budgeted variable to budgeted fixed selling and administrative administrative expenses.

AACSB: Analytic AICPA FN: Measuremen Blooms: Appl


Difficulty: 2 Medium Learning Objective: 08-03g Selling and administrative expense budget. Topic: Selling and administrative expense budge

115.

Meredith Company has budgeted sales for the upcoming months as follows:

Forty percent of the sales are credit sales, the remainder are cash sales. Credit sales are collected 50% in the month of sale, 40% in the month following the sale, and 8% in the second month following the sale. a. Compute Meredith Company's cash receipts for June. b. Compute Meredith Company's cash receipts for July. c. Compute Meredith Company's cash receipts for August.

a. $384,640 = ($392,000 × .60) + ($392,000 × .40 × .50) + ($372,000 × .40 × .40) + ($360,000 × .40 × .08) b. $404,224 = ($412,000 × .60) + ($412,000 × .40 . 40 × .50) + ($392,000 × .40 × .40) + ($372,000 × .40 × .08) c. $398,464 = ($400,000 × .60) + ($400,000 × .40 × .50) + ($412,000 × .40 × .40) + ($392,000 × .40 × .08) Feedback: Cash collections for a month are calculated by multiplying sales revenue for that month by the percentage collected in cash, and also by the percentage of credit sales collected in the month of sale, and adding in the amount to be collected in cash from sales made in prior months.

AACSB: Analytic 8-144 © 2014 by McGraw-Hill Education. This i s proprietary material solely for a uthorized instructor use. Not authorized for sale or di stribution in any manner. This document may not be copied, scanned, duplicated, forwarded, distributed, or posted on a website, in whole or part.

AICPA FN: Measuremen Blooms: Appl Difficulty: 2 Medium Learning Objective: 08-04 Prepare the cash budget and describe the relationships among the operating budgets; cash budget; and budgeted balance sheet. Topic: Cash budge


116.

Spencer Company has budgeted sales for the upcoming months as follows:

Seventy percent of the sales are credit sales, the remainder are cash sales. Credit sales are collected 40% in the month of sale, 50% in the month following the sale, and 10% in the second month following the sale. a. Compute Spencer's cash receipts for April. b. Compute Spencer's cash receipts for May. c. Compute the accounts receivable balance for May 31.

a. $631,350 = ($645,000 × .30) + ($645,000 × .70 × . 40) + ($615,000 × .70 × .50) + ($600,000 × .70 × .10) b. $657,400 = ($670,000 × .30) + ($670,000 × .70 × .40) + ($645,000 × .70 × .50) + ($615,000 × .70 × .10) c. $326,550 = May ($670,000 × .70 × .60) + April ($645,000 × .70 × .10) Feedback: Cash collections for a month are calculated by multiplying sales revenue for that month by the percentage collected in cash, and also by the percentage of credit sales collected in the month of sale, and adding in the amount to be collected in cash from sales made in prior months. The accounts receivable balance in a month is calculated as the sales revenue earned to date that has not yet been collected in cash.

AACSB: Analytic AICPA FN: Measuremen Blooms: Appl Difficulty: 2 Medium Learning Objective: 08-04 Prepare the cash budget and describe the relationships among the operating budgets; cash budget; and budgeted balance sheet.


Topic: Budgeted balance shee Topic: Cash budge

117.

Blair is a retailer of assorted baby products. The sales forecast for the coming months is:

All sales are credit sales. The cash collection pattern is 20% in the month of sale, 70% in the month following the sale, and the remainder in the second month following the sale. Accounts receivable on June 1 were $177,500. a. Prepare a cash receipts schedule for the period June through August (by month). b. What will the Accounts Receivable balance be on August 31?

b. $208,000 = July ($240,000) × 10% + August ($230,000 × 80%) = $24,000 + $184,000 Feedback: Cash collections for a month are calculated by multiplying sales revenue for that month by the percentage collected in cash, and also by the percentage of credit sales collected in the month of sale, and adding in the amount to be collected in cash from sales made in prior months. The accounts receivable balance in a month is calculated as the sales revenue earned to date that has not yet been collected in cash.

AACSB: Analytic AICPA FN: Measuremen


Blooms: Appl Difficulty: 2 Medium Learning Objective: 08-04 Prepare the cash budget and describe the relationships among the operating budgets; cash budget; and budgeted balance sheet. Topic: Budgeted balance shee Topic: Cash budge


118.

Portia is a retailer of scrapbooking products. The sales forecast for the coming months is:

Portia's sales are all credit. The collection pattern is 60% in the month of sale, 35% the following month and the remainder in the second month following the sale. Accounts receivable on o n April 1 were $122,500. a. Prepare a cash receipts schedule for the period June through August (by month). b. What will the Accounts Receivable balance be on August 31?

b. $157,500 = July ($350,000 × 5%) + August ($350,000 × 40%) = $17,500 + $140,000 Feedback: Cash collections for a month are calculated by multiplying sales revenue for that month by the percentage collected in cash, and also by the percentage of credit sales collected in the month of sale, and adding in the amount to be collected in cash from sales made in prior months. The accounts receivable balance in a month is calculated as the sales revenue earned to date that has not yet been collected in cash.

AACSB: Analytic AICPA FN: Measuremen Blooms: Appl Difficulty: 2 Medium Learning Objective: 08-04 Prepare the cash budget and describe the relationships among the operating budgets; cash budget; and budgeted balance sheet.


Topic: Budgeted balance shee Topic: Cash budge

119.

Young is a retailer of assorted baby products. The sales forecast for the coming months is:

Young's cost of sales averages 60% of revenues. The inventory policy is to carry 30% of next month's sales needs. April 1 inventory will be as expected under the policy. Young pays for purchases 80% in the month of purchase and 20% the following month. Accounts payable on April 1 is $22,400. a. Prepare a purchases budget for as many months as is possible. b. Prepare a cash payments budget for April through June.

Feedback: Budgeted merchandise purchases = Budgeted sales + Budgeted ending finished goods inventory - Budgeted beginning finished goods inventory. Budgeted cash payments are calculated by multiplying purchases for the month by the percentage paid in cash, and adding add ing in the amounts to be paid in the current month from purchases made in prior p rior months.

AACSB: Analytic AICPA FN: Measuremen 8-150 © 2014 by McGraw-Hill Education. This i s proprietary material solely for a uthorized instructor use. Not authorized for sale or di stribution in any manner. This document may not be copied, scanned, duplicated, forwarded, distributed, or posted on a website, in whole or part.

Blooms: Appl Difficulty: 3 Har Learning Objective: 08-04 Prepare the cash budget and describe the relationships among the operating budgets; cash budget; and budgeted balance sheet. Learning Objective: 08-05 Prepare a merchandise purchases budget for a merchandising firm. Topic: Budgeting in nonmanufacturing firm Topic: Cash budge


120.

Carmen is a retailer of scrapbooking products. p roducts. The sales forecast for the coming months is:

Carmen's sales are 70% cash and 30% store credit. The credit sales are collected 60% in the month of sale, the remainder the following month. Accounts receivable on April 1 are $32,000. Carmen's cost of sales averages 65% of revenues. The inventory policy is to carry 40% of next month's sales needs. April 1 inventory will be as expected under the policy. Carmen pays for purchases 30% in the month of purchase and 70% the following month. Accounts payable on April 1 is $125,000. a. Prepare a purchases budget for as many months as is possible. b. Prepare a cash payments pay ments budget for April through June. c. Prepare a cash receipts budget for April through June.


Feedback: Budgeted merchandise purchases = Budgeted sales + Budgeted ending finished goods inventory - Budgeted beginning finished goods inventory. Budgeted cash payments are calculated by multiplying purchases for the month by the percentage paid in cash, and adding in the amounts to be paid in the current month from purchases made in prior months. Cash collections for a month are calculated by multiplying sales revenue for that month by the percentage collected in cash, and also by the percentage of credit sales collected in the month of sale, and adding in the amount to be collected in cash from sales made in prior months.

AACSB: Analytic AICPA FN: Measuremen Blooms: Appl Difficulty: 3 Har Learning Objective: 08-04 Prepare the cash budget and describe the relationships among the operating budgets; cash budget; and budgeted balance sheet. Learning Objective: 08-05 Prepare a merchandise purchases budget for a merchandising firm. Topic: Budgeting in nonmanufacturing firm Topic: Cash budge


Budgeting

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