Q&A Hero

Q: Bentels Co. desires a December 31 ending inventory of 2,840 units. Budgeted sales for December are 4,000 units. The November 30 inventory was 1,800 units. Budgeted purchases are: A. 5,040 units B. 1,240 units C. 6,840 units D. 4,000 units E. 5,800 units

Q: A June sales forecast projects that 6,000 units are going to be sold at a price of $10.50 per unit. The desired ending inventory of units is 15% higher than the beginning inventory of 1,000 units. Merchandise purchases for June are projected to include how many units? A. 6,000 units B. 6,150 units C. 5,850 units D. 7,150 units E. 6,500 units

Q: A June sales forecast projects that 6,000 units are going to be sold at a price of $10.50 per unit. The desired ending inventory of units is 15% higher than the beginning inventory of 1,000 units. Total June sales are anticipated to be: A. $63,000 B. $67,500 C. $61,250 D. $74,250 E. $60,000

Q: A plan that lists the types and amounts of general and administrative expenses expected during the budget period is referred to as a: A. General and administrative expense budget. B. Sales budget. C. Cash payments budget. D. Overhead budget. E. Selling expense budget.

Q: A budget system based on expected activities and their levels that enables management to plan for resources required to perform the activities is: A. Traditional budgeting. B. Management budgeting. C. Master budgeting. D. Activity-based budgeting. E. Cash budgeting.

Q: Which of the following budgets is not an operating budget? A. Sales budget. B. Cash budget. C. General and administrative expense budget. D. Selling expenses budget. E. Merchandise purchases.

Q: The master budget process usually ends with: A. The production budget. B. The sales budget. C. The selling expense budget. D. The budgeted balance sheet. E. The overhead budget.

Q: A comprehensive or overall formal plan for a business that includes specific plans for expected sales, the units of product to be produced, the merchandise or materials to be purchased, the expense to be incurred, the long-term assets to be purchased, and the amounts of cash to be borrowed or loans to be repaid, as well as a budgeted income statement and balance sheet, is called a: A. Master budget. B. Cash budget. C. Capital expenditures budget. D. Rolling budget. E. Production budget.

Q: The usual starting point for preparing a master budget is forecasting or estimating: A. Expenditures B. Sales C. Production D. Income E. Cash payments

Q: The master budget includes: A. Only operating budgets and financial budgets. B. Only a capital expenditures budget and a cash budget. C. Only a budgeted income statement and a budgeted balance sheet. D. Only a cash budget and operating budgets. E. Operating budgets, a capital expenditure budget, and financial budgets.

Q: Which of the following is a financial budget? A. Sales budget. B. Budgeted balance sheet. C. Production budget. D. Capital expenditure budget E. Merchandise purchasing budget.

Q: Operating budgets include all the following budgets except the: A. Sales budget. B. Selling expense budget. C. Cash budget. D. Merchandise purchases budget. E. General and administrative expense budget.

Q: The usual budget period is: A. An annual period of 250 working days. B. A monthly period separated into daily budgets. C. A quarterly period separated into weekly budgets. D. An annual period separated into weekly budgets. E. An annual period separated into quarterly and monthly budgets.

Q: The practice of preparing budgets for each of several future periods and revising those budgets as each period is completed, adding a new budget each period so that the budgets always cover the same number of future periods, is called: A. Participatory budgeting B. Capital budgeting C. Balanced budgeting D. Continuous budgeting E. Primary budgeting

Q: The set of periodic budgets that are prepared and periodically revised in the practice of continuous budgeting is called: A. Production budgets B. Sales budgets C. Cash budgets D. Rolling budgets E. Capital expenditures budgets

Q: The overall coordinating activity of the budget process is the responsibility of the: A. Chief accounting officer B. Chief executive officer (CEO) C. Chief financial officer (CFO) D. Budget committee E. Board of directors

Q: The most useful budget figures are developed: A. From the top down. B. From the bottom up following a participatory process. C. Solely by the budget committee. D. By the CEO. E. After the accounting period has begun.

Q: Preparing a master budget is usually the responsibility of: A. The company CEO. B. The marketing department. C. A budget committee. D. The chief financial officer. E. Lower level management.

Q: A budget is best described as: A. A formal statement of a company's future plans usually expressed in monetary terms. B. A master control device. C. An informal statement of company future plans usually expressed in monetary terms. D. The most crucial component of a company evaluation process. E. The minimum acceptable performance level.

Q: Which of the following statements about budgeting is false? A. Budgeting is an aid to planning and control. B. Budgets create standards for performance evaluation. C. Budgets help coordinate the activities of the entire organization. D. Budgeting forces managers to think ahead and formalize long-range objectives. E. The master budget should only be prepared by top management.

Q: Which of the following is not a benefit derived from budgeting? A. Budgeting focuses management's attention on the future. B. Budgeting provides coordination of departments. C. Budgeting provides a basis for evaluating performance. D. Budgeting provides motivation for managers and employees. E. Budgeting ensures the achievement of all goals.

Q: Which of the following is not a benefit of following a well-designed budgeting process? A. Improved decision-making processes. B. Improved performance evaluations. C. Improved coordination of business activities. D. Assurance of future profits. E. Improved commitment to meet expected performance by those affected.

Q: Effective budgeting requires all of the following except: A. Attainable goals. B. Determination of budgets by top levels of management. C. Evaluation processes that provide opportunities to explain any failures. D. Clear communication of all budgets. E. Adequate supporting documentation for the budget.

Q: The process of planning future business actions and expressing them as a formal plan is called: A. Budgeting B. Cost accounting C. Managerial accounting D. Variance analysis E. Standard cost analysis

Q: A formal statement of future plans, usually expressed in monetary terms, is a: A. Variance report B. Position statement C. Budget D. Prospectus E. Variance analysis

Q: The manufacturing budget shows only the direct materials needed for production.

Q: Merchandising companies prepare the production budget after preparing the sales budget.

Q: A company's history indicates that 20% of its sales are for cash and the rest are on credit. Collections on credit sales are 20% in the month of the sale, 50% in the next month, and 30% the following month. Projected sales for January, February, and March are $75,000, $92,000, and $60,000, respectively. The March expected cash receipts from all current and prior credit sales are $80,500.

Q: The financial budgets include the cash budget and the capital expenditures budget.

Q: Financial budgets are normally completed after preparation of operating and capital expenditure budgets.

Q: The budgeted balance sheet is prepared with data contained in the previously prepared components of the master budget.

Q: A cash budget is a plan that includes the expected cash receipts and cash expenditures during each of the periods that it covers.

Q: Part of the cash budget is based on information drawn from the capital expenditures budget.

Q: If budgeted beginning inventory is $8,300, budgeted ending inventory is $9,400, and cost of goods sold is expected to be $10,260, then budgeted purchases should be $9,160.

Q: A manufacturing budget should include a list of equipment to be scrapped and additional equipment to be purchased if the proposed production budget is carried out.

Q: The selling expenses budget is normally prepared before the sales budget because selling expenses affect the amount of sales.

Q: Traditional budgeting is generally better than activity-based budgeting when attempting to reduce costs by eliminating nonvalue-added activities.

Q: Activity-based budgeting is a budget system based on expected activities and their activity levels, which helps management plan for the resources required.

Q: A master budget refers to a company's sales budget that includes all of its segments or departments.

Q: The budget process is a continuous activity of planning, revising, and evaluating business activities.

Q: The financial budgets of a business include the cash budget, the budgeted income statement, and the budgeted balance sheet.

Q: The master budget consists of three major groups of budget components: the operating budgets, the capital expenditures budgets, and the financial budgets.

Q: The merchandise purchases budget is the starting point for preparing the master budget.

Q: The budgets within the master budget must be prepared in a definite sequence as dictated by GAAP.

Q: Larger, more complex organizations usually require a longer time to prepare their budgets than smaller organizations because of the considerable effort to coordinate the different units within the business.

Q: The responsibility for coordinating the preparation of a master budget should be assigned to the chief executive officer.

Q: The task of preparing a budget should be the sole task of the most important department in an organization.

Q: A rolling budget is a specific budget application relevant only to a merchandising company.

Q: Continuous budgeting is the practice of preparing a new budget for a selected number of future periods and revising those budgets as each period is completed.

Q: Past performance is the best overall basis for evaluating current performance and assessing the need for corrective action.

Q: A budget is a formal statement of future plans, usually expressed in monetary terms.

Q: One of the major benefits of formal budgeting is the positive effect it can have on employee attitudes.

Q: Budgets are normally more effective when all levels of management are involved in the budgeting process.

Q: A budget can be an effective means of communicating management's plans to the employees of a business.

Q: Consulting the persons affected by a budget when it is prepared can provide an effective means of motivation and cooperation.

Q: The ______________________________ shows the budgeted costs for direct materials, direct labor, and overhead based on the budgeted production volume from the production budget.

Q: The ___________________________ is prepared by manufacturing firms and takes the place of the purchases budget prepared by merchandising firms.

Q: The __________________________ shows expected cash inflows and outflows during the budget period.

Q: The budget that lists the dollar amounts to be both received from plant asset disposals and spent to purchase additional plant assets to carry out the budgeted business activities is the __________________________.

Q: ___________________________ is a budget system based on expected activities and their levels that enables management to plan for resources required to perform the activities.

Q: The master budget process nearly always begins with the preparation of the ___________________ and usually finishes with the preparation of the ______________________, the ________________, and the ______________________.

Q: A ________________________ is a continuously revised budget that adds future months or quarters to replace months or quarters that have lapsed.

Q: There are three major subgroups of the master budget. These are ________________________, ___________________, and _______________________.

Q: The budget process is usually administered by a _____________________.

Q: There are at least five benefits from budgeting. Identify two of these benefits: (1)_______________________________________ (2)_______________________________________

Q: Clic, Inc. provides the following data for the next four months: March April May June July Unit Sales 500 580 530 600 Ending Raw Materials Inventory 663 lbs. Ending Finished Goods Inventory 174 units Desired ending inventory: Raw materials = 30% of next month's production needs Finished goods = 20% of next month's sales Pounds of raw material required for each finished Unit = 5 lbs. Direct labor hours per unit = 0.5 hrs Direct labor rate = $12/hour Required: a. Calculate the budgeted production for April and May. b. Calculate the amount of purchases of raw materials in pounds for April and May. c. Calculate the cost of direct labor for May.

Q: David, Inc. is preparing its master budget for the second quarter. The following sales and production data have been forecasted: April May June July August Unit sales 400 500 520 480 540 Finished goods inventory on March 31: 120 units Raw materials inventory on March 31: 450 pounds Desired ending inventory each month: Finished goods:30% of next month's sales Raw materials:25% of next month's production needs Number of pounds of raw material required per finished unit: 4 lb. Number of direct labor hours to produce each unit: 3 hours Labor rate per hour: $10 (a) How many units should be produced during April and May? (b) How many pounds of raw materials should be purchased in April? (c) What is the budgeted labor cost for April?

Q: Assume the Freshii Company is preparing its master budget for the first quarter of its calendar year. The following forecasted data relate to the first quarter: Unit sales: January 40,000 February 60,000 March 50,000 Unit sales price $25 Cost of goods sold per unit $14 Expenses: Commissions 10% of sales Rent $20,000/month Advertising 15% of sales Office salaries $75,000/month Depreciation $50,000/month Interest 15% annually on a $250,000 note payable Tax rate 40% Prepare a budgeted income statement for this first quarter.

Q: Sweeny Co. is preparing a cash budget for the second quarter of the coming year. The following data have been forecasted: April May Sales $150,000 $157,500 Merchandise purchases 107,000 112,400 Operating expenses: Payroll 13,600 14,280 Advertising 5,400 5,700 Rent 1,500 1,500 Depreciation 7,500 7,500 End of April balances: Cash 40,000 Bank loan payable 16,000 Additional data: (1) Sales are 40% cash and 60% credit. The collection pattern for credit sales is 50% in the month following the sale and 50% in the month thereafter. Total sales in March were $125,000. (2) Purchases are all on credit, with 40% paid in the month of purchase and the balance paid in the following month. (3) Operating expenses are paid in the month they are incurred. (4) A minimum cash balance of $40,000 is required at the end of each month. (5) Loans are used to maintain the minimum cash balance. At the end of each month, interest of 1% per month is paid on the outstanding loan balance as of the beginning of the month. Repayments are made whenever excess cash is available. Required: Calculate the following items for May a. Cash collections from customers. b. Cash payments made for merchandise purchases. c. Cash paid for other operating expenses, including interest. d. What is the preliminary cash balance for May 31? e. What loan activity will take place at the end of May? f. What is the ending cash balance?

Q: Sweeny Co. is preparing a cash budget for the second quarter of the coming year. The following data have been forecasted: April May Sales $150,000 $157,500 Merchandise purchases 107,000 112,400 Operating expenses: Payroll 13,600 14,280 Advertising 5,400 5,700 Rent 1,500 1,500 Depreciation 7,500 7,500 End of April balances: Cash 40,000 Bank loan payable 16,000 Additional data: (1) Sales are 40% cash and 60% credit. The collection pattern for credit sales is 50% in the month following the sale and 50% in the month thereafter. Total sales in March were $125,000. (2) Purchases are all on credit, with 40% paid in the month of purchase and the balance paid in the following month. (3) Operating expenses are paid in the month they are incurred. (4) A minimum cash balance of $40,000 is required at the end of each month. (5) Loans are used to maintain the minimum cash balance. At the end of each month, interest of 1% per month is paid on the outstanding loan balance as of the beginning of the month. Repayments are made whenever excess cash is available. Prepare the company's cash budget for May. Show the ending loan balance at May 31.

Q: Del Carpio, Inc. sells two products, Widgets and Gadgets. The sales forecast in units for the first quarter of the coming year is: Widgets Gadgets January 20,000 36,000 February 28,000 60,000 March 36,000 64,000 Cash sales are 30% of each product's monthly sales. The remaining sales are credit sales that are collected as follows: 70% in the month of sale, 20% the next month, and 10% in the following month. Unit sale prices are $30 and $20 for Widgets and Gadgets, respectively. Determine the company's cash receipts for March from its current and past sales.

Q: Slim Corp. requires a minimum $8,000 cash balance. If necessary, loans are taken to meet this requirement at a cost of 1% interest per month (paid monthly). Loans are repaid at month's end from any excess cash. The cash balance on July 1 is $8,400. Cash receipts other than for loans received for July, August, and September are forecasted as $24,000, $32,000, and $40,000, respectively. Payments other than for loan or interest payments for the same period are planned at $28,000, $30,000, and $32,000, respectively. At July 1, there are no outstanding loans. Required: Prepare a cash budget for July, August, and September.

Q: Use the following data to determine the company's cash disbursements for the month of August and September: July August September Sales $24,000 $32,000 $36,000 Purchases 14,400 $19,200 $21,600 Payments for purchases One month after purchase Selling expenses 15% of sales, paid in the month of sale Administrative expenses 10% of sales, paid in the month of sale Rent expense $2,400 per month Equipment depreciation $1,300 per month

Q: Rich Company's experience shows that 20% of its sales are for cash and 80% are on credit. An analysis of credit sales shows that 50% are collected in the month following the sale, 45% are collected in the second month, and 5% prove to be uncollectible. Calculate items (1) through (10) below: August September October November Sales $500,000 $525,000 $535,000 $560,000 October November Receipts from cash sales (1) _______ (6) _______ Collections from August credit sales (2) _______ (7) _______ Collections from September credit sales (3) _______ (8) _______ Collections from October credit sales (4) _______ (9) _______ Total cash collections during the month (5) _______ (10) _______

Q: The Lamb Company budgeted sales for January, February, and March of $96,000, $88,000, and $72,000, respectively. Seventy percent of sales are on credit. The company collects 60% of its credit sales in the month following sale, 35% in the second month following sale, and 5% is not collected. What are Lamb's expected cash receipts for March related to all current and past sales?

Q: Airtex Company budgeted the following credit sales during the current year: September, $90,000; October, $123,000; November, $105,000; December, $111,000. Experience has shown that cash from credit sales is received as follows: 10% in the month of sale, 50% in the first month after sale, 35% in the second month after sale, and 5% is uncollectible. How much cash should Eastern Company expect to collect in November from all current and past credit sales?

Q: Miles Company is preparing a cash budget for February. The company has $30,000 cash at the beginning of February and anticipates $75,000 in cash receipts and $96,250 in cash disbursements during February. Miles Company has an agreement with its bank to maintain a cash balance of $10,000. What amount, if any, must the company borrow during February to maintain a $10,000 cash balance?

Q: Cambridge, Inc. is preparing its master budget for the quarter ended June 30. It sells a single product for $40 each. Sales are 60% cash and 40% on credit. All credit sales are collected in the month following the sale. At March 31, the balance in Accounts Receivable is $12,000, which represents the uncollected balance on March sales. Budgeted sales for the next four months follow: April May June July Sales in units 800 1,000 600 1,200 The product cost is $20 per unit, and desired ending inventory is 60% of the following month's sales in units. Inventory at March 31 is 480 units. Purchases are paid 50% in the month of purchase and 50% in the following month. At March 31, the balance in accounts payable is $11,000, which represents the unpaid purchases from March. Operating expenses are paid in the month incurred and consist of: Commissions (10% of sales) Shipping (3% of sales) Office salaries ($3,000 per month) Rent ($5,000 per month) Depreciation is $2,000 per month. Income taxes are 40% and will be paid on July 1. There are no taxes payable at March 31. A minimum cash balance of $12,000 is required, and the beginning cash balance is $12,000. Loans are obtained at the end of any month when a cash shortage occurs. Interest is 1% per month based on the beginning of the month loan balance and is paid at each month end. If an excess balance of cash exists, loans are repaid at the end of the month. At March 31, the loan balance is $2,000. Prepare the following master budget schedules (round all dollar amounts to the nearest whole dollar) for each of the months of April, May, and June that includes the: (a) Sales budget (b) Schedule of cash receipts (c) Merchandise purchases budget (d) Schedule of cash disbursements for purchases of merchandise (e) Schedule of cash disbursements for selling and administrative expenses (f) Cash budget, including information on the loan balance (g) Budgeted income statement

Q: Tappet Corporation is preparing its master budget for the quarter ending March 31. It sells a single product for $25 a unit. Budget sales are 40% cash and 60% on credit. All credit sales are collected in the month following the sales. Budgeted sales for the next four months follow: January February March April Sales in units 1,200 1,000 1,600 1,400 At December 31, the balance in Accounts Receivable is $10,000, which represents the uncollected portion of December sales. The company desires merchandise inventory equal to 30% of the next month's sales in units. The December 31 balance of merchandise inventory is 340 units, and inventory cost is $10 per unit. Forty percent of the purchases are paid in the month of purchase and 60% are paid in the following month. At December 31, the balance of Accounts Payable is $8,000, which represents the unpaid portion of December's purchases. Operating expenses are paid in the month incurred and consist of: Sales commissions (10% of sales) Freight (2% of sales) Office salaries ($2,400 per month) Rent ($4,800 per month) Depreciation expense is $4,000 per month. The income tax rate is 40%, and income taxes will be paid on April 1. A minimum cash balance of $10,000 is required, and the cash balance at December 31 is $10,200. Loans are obtained at the end of a month in which a cash shortage occurs. Interest is 1% per month, based on the beginning of the month loan balance, and must be paid each month. If an excess of cash exists, loan repayments are made at the end of the month. At December 31, the loan balance is $0. Prepare a master budget (round all dollar amounts to the nearest whole dollar) for each of the months of January, February, and March that includes the: Sales budget Table of cash receipts Merchandise purchases budget Table of cash disbursements for merchandise purchases Table of cash disbursements for selling and administrative expenses Cash budget, including information on the loan balance Budgeted income statement

Q: Pantheon Company has prepared the following forecasts of monthly sales: July August September October Sales (in units) 4,500 5,300 4,000 3,700 Pantheon has decided that the number of units in its inventory at the end of each month should equal 25% of the next month's sales. The budgeted cost per unit is $30. (1) How many units should be in July's beginning inventory? (2) What amount should be budgeted for the cost of merchandise purchases in July? (3) How many units should be purchased in September?