20-22

Chap20, Ch20 Master Budgets and Planning

Chapter 20 Master Budgets and Performance Planning

Chapter 20 Master Budgets and Performance Planning

True / False Questions [Question]

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

Answer: TrueBlooms Taxonomy: Understand

AACSB: Communication AICPA BB: Resource ManagementAICPA FN: Reporting Difficulty: 2 MediumLearning Objective: 20-C1

Topic: Budgeting[Question]

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



Topic: Budgeting[Question]3. Budgets are normally more effective when all levels of management are involved in the budgeting process.


AACSB: Communication AICPA BB: Resource ManagementAICPA FN: ReportingDifficulty: 2 MediumLearning Objective: 20-C1


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


AACSB: Communication AICPA BB: Resource ManagementAICPA FN: Reporting Difficulty: 2 MediumLearning Objective: 20-C1Topic: Budgeting[Question]

5. Budgeting is an informal plan for future business activities.

Answer: FalseBlooms Taxonomy: Remember

AACSB: Communication AICPA BB: Resource ManagementAICPA FN: Reporting Difficulty: 1 EasyLearning Objective: 20-C1


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

Answer: TrueBlooms Taxonomy: Remember



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

Answer: FalseBlooms Taxonomy: Understand



8. The process of evaluating performance can be improved by using budgets.




9. 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.


AACSB: Communication AICPA BB: Resource ManagementAICPA FN: Reporting Difficulty: 1 EasyLearning Objective: 20-C1Topic: Continuous Budgeting[Question]

10. Budget preparation is best determined in a top-down managerial approach.



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


AACSB: Communication AICPA BB: Resource ManagementAICPA FN: Reporting Difficulty: 1 EasyLearning Objective: 20-C1Topic: Rolling Budgets[Question]

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



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



14. 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.


AACSB: Communication AICPA BB: Resource ManagementAICPA FN: Reporting Difficulty: 2 MediumLearning Objective: 20-C1Topic: Budgeting [Question]

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


AACSB: Communication AICPA BB: Resource ManagementAICPA FN: Reporting Difficulty: 2 MediumLearning Objective: 20-C2Topic: Master Budget[Question]

16. The purchases budget depends on information provided by the sales budget.


AACSB: Communication AICPA BB: Resource ManagementAICPA FN: Reporting Difficulty: 2 MediumLearning Objective: 20-C2Topic: Purchases Budget[Question]

17. The master budget is a small component of the comprehensive budget.


AACSB: Communication AICPA BB: Resource ManagementAICPA FN: Reporting Difficulty: 1 EasyLearning Objective: 20-C2Topic: Master Budget[Question]

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


AACSB: Communication AICPA BB: Resource ManagementAICPA FN: Reporting Difficulty: 2 MediumLearning Objective: 20-C2Topic: Purchases Budget[Question]

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



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



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



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



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


AACSB: Analytic AICPA BB: Resource ManagementAICPA FN: Measurement Difficulty: 1 EasyLearning Objective: 20-A1

Topic: Activity Based Budgeting[Question]

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


AACSB: Analytic AICPA BB: Resource ManagementAICPA FN: Measurement Difficulty: 2 MediumLearning Objective: 20-A1

Topic: Activity Based Budgeting[Question]

25. The sales budget is derived from the production budget.


AACSB: Analytic

AICPA BB: Resource ManagementAICPA FN: Measurement

Difficulty: 2 MediumLearning Objective: 20-P1

Topic: Sales Budget[Question]

26. A capital expenditures budget is prepared before the operating budgets.


AACSB: Analytic AICPA BB: Resource ManagementAICPA FN: Measurement Difficulty: 2 MediumLearning Objective: 20-P1

Topic: Capital Expenditures Budget[Question]

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



Topic: Selling Expenses Budget[Question]

28. 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.



Topic: Manufacturing Budget[Question]

29. 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.

Answer: False

Feedback: Budgeted purchases = $9,400 + $10,260 - $8,300 = $11,360

Blooms Taxonomy: Apply AACSB: Analytic AICPA BB: Resource ManagementAICPA FN: Measurement Difficulty: 3 HardLearning Objective: 20-P1Topic: Purchases Budget[QUESTION]

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



Topic: Cash Budget[Question]

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


AACSB: Analytic AICPA BB: Resource ManagementAICPA FN: Measurement Difficulty: 1 EasyLearning Objective: 20-P2


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



Topic: Budgeted Balance Sheet[Question]

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



Topic: Financial Budgets[Question]

34. The financial budgets include the cash budget and the capital expenditures budget.


AACSB: Analytic AICPA BB: Resource ManagementAICPA FN: Measurement Difficulty: 1 EasyLearning Objective: 20-P2

Topic: Financial Budgets[Question]

35. 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.

Answer: FalseFeedback:

Budgeted Cash Collections for March

March cash sales$60,000 * 20%$12,000

March credit sales collected in March($60,000 * 80%) * 20% 9,600

February credit sales collected in March($92,000 * 80%) * 50%36,800

January credit sales collected in March($75,000 * 80%) * 30%18,000

Total$76,400

Blooms Taxonomy: Apply

AACSB: Analytic AICPA BB: Resource ManagementAICPA FN: Measurement Difficulty: 3 HardLearning Objective: 20-P2

Topic: Cash Receipts[Question]

36. Merchandising companies prepare the production budget after preparing the sales budget.



Topic: Production Budget[Question]

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



Topic: Manufacturing BudgetMultiple Choice Questions[Question]

38. A formal statement of future plans, usually expressed in monetary terms, is a:A. Variance reportB. Position statement C. BudgetD. ProspectusE. Variance analysisAnswer: CBlooms Taxonomy: Remember

AACSB: Communication AICPA BB: Resource ManagementAICPA FN: Reporting Difficulty: 1 EasyLearning Objective: 20-C1Topic: Budget[Question]

39. The process of planning future business actions and expressing them as a formal plan is called:A. BudgetingB. Cost accountingC. Managerial accountingD. Variance analysisE. Standard cost analysis Answer: ABlooms Taxonomy: Remember



40. 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. Answer: BBlooms Taxonomy: Understand



41. 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. Answer: DBlooms Taxonomy: Understand



42. 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. Answer: EBlooms Taxonomy: Understand



43. 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. Answer: EBlooms Taxonomy: Understand



44. 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. Answer: ABlooms Taxonomy: Remember


Topic: Budget[Question]

45. 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. Answer: CBlooms Taxonomy: Understand


46. 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. Answer: BBlooms Taxonomy: Understand


47. The overall coordinating activity of the budget process is the responsibility of the:A. Chief accounting officerB. Chief executive officer (CEO)C. Chief financial officer (CFO)D. Budget committeeE. Board of directors Answer: DBlooms Taxonomy: Remember

AACSB: Communication AICPA BB: Resource ManagementAICPA FN: Reporting Difficulty: 1 EasyLearning Objective: 20-C1Topic: Budgeting[Question]

48. The set of periodic budgets that are prepared and periodically revised in the practice of continuous budgeting is called:A. Production budgetsB. Sales budgetsC. Cash budgetsD. Rolling budgetsE. Capital expenditures budgets Answer: DBlooms Taxonomy: Remember

AACSB: Communication AICPA BB: Resource ManagementAICPA FN: Reporting Difficulty: 1 EasyLearning Objective: 20-C1Topic: Rolling Budgets[Question]

49. 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 budgetingB. Capital budgetingC. Balanced budgetingD. Continuous budgetingE. Primary budgeting Answer: DBlooms Taxonomy: Remember

AACSB: Communication AICPA BB: Resource ManagementAICPA FN: Reporting Difficulty: 1 EasyLearning Objective: 20-C1Topic: Continuous Budgeting[Question]

50. 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. Answer: EBlooms Taxonomy: Understand


51. 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. Answer: CBlooms Taxonomy: Remember

AACSB: Communication AICPA BB: Resource ManagementAICPA FN: Reporting Difficulty: 1 EasyLearning Objective: 20-C2Topic: Operating Budgets[Question]

52. Which of the following is a financial budget?A. Sales budget.B. Budgeted balance sheet.C. Production budget.D. Capital expenditure budgetE. Merchandise purchasing budget. Answer: BBlooms Taxonomy: Understand

AACSB: Communication AICPA BB: Resource ManagementAICPA FN: Reporting Difficulty: 2 MediumLearning Objective: 20-C2Topic: Financial Budgets[Question]

53. 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. Answer: EBlooms Taxonomy: Understand


54. The usual starting point for preparing a master budget is forecasting or estimating:A. ExpendituresB. SalesC. ProductionD. IncomeE. Cash payments Answer: BBlooms Taxonomy: Understand


55. 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. Answer: ABlooms Taxonomy: Remember

AACSB: Communication AICPA BB: Resource ManagementAICPA FN: Reporting Difficulty: 1 EasyLearning Objective: 20-C2Topic: Master Budget[Question]

56. 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. Answer: DBlooms Taxonomy: Understand

AACSB: Communication AICPA BB: Resource ManagementAICPA FN: Reporting Difficulty: 2 MediumLearning Objective: 20-C2Topic: Master Budget[Question]57. 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. Answer: BBlooms Taxonomy: Understand

AACSB: Communications AICPA BB: Resource ManagementAICPA FN: Reporting Difficulty: 2 MediumLearning Objective: 20-C2Topic: Operating Budget[Question]

58. 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. Answer: DBlooms Taxonomy: Remember

AACSB: Analytic AICPA BB: Resource ManagementAICPA FN: Measurement

Difficulty: 1 EasyLearning Objective: 20-A1

Topic: Activity-Based Budgeting[Question]

59. 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.Answer: ABlooms Taxonomy: Remember


Difficulty: 1 EasyLearning Objective: 20-P1

Topic: General And Administrative Budget[Question]

60. 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. $63,000B. $67,500C. $61,250D. $74,250E. $60,000 Answer: A

Feedback: 6,000 x $10.50 = $63,000Blooms Taxonomy: Apply

AACSB: Analytic




61. 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 unitsB. 6,150 unitsC. 5,850 unitsD. 7,150 unitsE. 6,500 units

Answer: B

Feedback: 6,000 + (1,000 x 1.15) 1,000 = 6,150 unitsBlooms Taxonomy: Apply




62. 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 unitsB. 1,240 unitsC. 6,840 unitsD. 4,000 unitsE. 5,800 units Answer: A

Feedback: 2,840 units + 4,000 units - 1,800 units = 5,040 unitsBlooms Taxonomy: Apply


Difficulty: 3 HardLearning Objective: 20-P1

Topic: Purchases Budget[Question]

63. A plan that lists dollar amounts to be received from disposing of plant assets and dollar amounts to be spent on purchasing additional plant assets is called a:

A. Cash budgetB. Capital expenditures budgetC. Rolling budgetD. Sales budgetE. Production budgetAnswer: B

Blooms Taxonomy: Remember




64. A plan that reports the units or costs of merchandise to be purchased by a merchandising company during the budget period is called a:A. Selling expenses budgetB. Merchandise purchases budgetC. Sales budgetD. Cash budgetE. Capital expenditures budget Answer: BBlooms Taxonomy: Remember




65. A plan showing the units of goods to be sold and the revenue to be derived from sales, that is the usual starting point in the budgeting process, is called the:A. Operating budgetB. Business planC. Income statement budgetD. Merchandise purchases budgetE. Sales budget Answer: EBlooms Taxonomy: Remember




66. A plan that lists the types and amounts of selling expenses expected during the budget period is called a(n):A. Sales budgetB. Operating budgetC. Capital expenditures budgetD. Selling expense budgetE. Purchases budget Answer: DBlooms Taxonomy: Remember



Topic: Selling Expense Budget[Question]

67. Which of the following factors is least likely to be considered in preparing a sales budget?A. Plant capacity.B. General economic and industry conditions.C. Past sales volume.D. The capital expenditures budget.E. Proposed selling expenses, such as advertising. Answer: DBlooms Taxonomy: Apply




68. A department store has budgeted sales of 12,000 men's suits in September. Management wants to have 6,000 suits in inventory at the end of the month to prepare for the winter season. Beginning inventory for September is expected to be 4,000 suits. What is the dollar amount of purchase of suits? Each suit has a cost of $75.A. $750,000B. $900,000C. $1,050,000D. $1,200,000E. $1,350,000Answer: C

Feedback: Budgeted purchases = 6,000 + 12,000 - 4,000 = 14,000 suits14,000 suits x $75/suit = $1,050,000


AACSB: Analytic




69. A sporting goods store purchased $7,000 worth of ski boots in October. The store had $3,000 of ski boots in inventory at the beginning of October and expects to have $2,000 of ski boots in inventory at the end of October to cover part of anticipated November sales. What is the budgeted cost of goods sold for October?A. $5,000B. $7,000C. $8,000D. $9,000E. $10,000Answer: C

Feedback: Cost of goods sold = $3,000 + $7,000 - $2,000 = $8,000Blooms Taxonomy: Apply

AACSB: Analytic




70. Ecology Co. sells a biodegradable product called Dissol and has predicted the following sales for the first four months of the current year:

Jan.Feb.MarchApril

Sales in units 1,7001,9002,1001,600

Ending inventory for each month should be 20% of the next month's sales, and the December 31 inventory is consistent with that policy. How many units should be purchased in February?A. 1,860B. 1,900C. 1,940D. 1,980E. 2,320Answer: C

Feedback: February purchases = 1,900 + (2,100 x .20) - (1,900 x .20) = 1,940 unitsBlooms Taxonomy: Apply

AACSB: Analytic




71. Tannwin Co. sells a new product called Accountomatic and has predicted the following sales for the first four months of the current year:

Jan.Feb.MarchApril

Sales in units 1,7001,9002,1001,600

Ending inventory for each month should be 20% of the next month's sales, and the prior December 31 inventory is consistent with that policy. How many units should be purchased in the first quarter of the year?A. 5,100B. 5,680C. 6,300D. 6,000E. 5,700

Answer: B

Feedback: purchases = (1,700 + 1,900 + 2100) + (1,600 x .20) - (1,700 x .20) = 5,680 unitsBlooms Taxonomy: Apply




72. Fairway's April sales forecast projects that 6,000 units will sell at a price of $10.50 per unit. The desired ending inventory is 30% higher than the beginning inventory, which was 1,000 units. Budgeted purchases of units in April would be:A. 6,000 unitsB. 7,000 unitsC. 6,300 unitsD. 7,300 unitsE. Some other amountAnswer: C

Feedback: April purchases = 6,000 + (1,000 x 1.30) - 1,000 = 6,300 unitsBlooms Taxonomy: Apply



Topic: Purchases BudgetReference: 20_01Next year's sales forecast shows that 20,000 units of Product A and 22,000 units of Product B are going to be sold for prices of $10 and $12, respectively. The desired ending inventory of Product A is 20% higher than its beginning inventory of 2,000 units. The beginning inventory of Product B is 2,500 units. The desired ending inventory of B is 3,000 units.

[Question]

73. Total budgeted sales of both products for the year would be:A. $42,000B. $200,000C. $264,000D. $464,000E. $500,000Answer: D

Feedback: (20,000 x $10) + (22,000 x $12) = $464,000Reference: 20_01


AACSB: Analytic



Topic: Sales BudgetRefer To: 20_01[Question]

74. Budgeted purchases of Product A for the year would be:A. 22,400 unitsB. 20,400 unitsC. 20,000 unitsD. 19,500 unitsE. 12,200 unitsAnswer: B

Feedback: Purchases of A = (120% x 2,000) + 20,000 - 2,000 = 20,400Reference: 20_01




Topic: Purchases BudgetRefer To: 20_01[Question]

75. Budgeted purchases of Product B for the year would be:A. 24,500 unitsB. 22,500 unitsC. 16,500 unitsD. 26,500 unitsE. 20,500 units Answer: B

Feedback: Purchases of B = 3,000 + 22,000 - 2,500 = 22,500Reference: 20_01




Topic: Purchases BudgetReference To: 20_01[Question]

76. A quantity of merchandise or materials over the minimum needed reduce the risk of running short is called:A. Just-in-time inventory.B. Budgeted stock.C. Continuous inventory.D. Capital stock.E. Safety stock. Answer: E




Topic: Safety Stock[Question]

77. Stritch Company is trying to decide how many units of merchandise to order each month. The company's policy is to have 20% of the next month's sales in inventory at the end of each month. Projected sales for August, September, and October are 30,000 units, 20,000 units, and 40,000 units, respectively. How many units must be purchased in September?A. 14,000B. 20,000C. 22,000D. 24,000E. 28,000Answer: D

Feedback: Purchases = (20% x 40,000) + 20,000 - (20% x 20,000) = 24,000Blooms Taxonomy: Apply




78. Lingstat Company is trying to decide how many units of merchandise to order each month. The company's policy is to have 15% of the next month's sales in inventory at the end of each month. Projected sales for August, September, and October are 5,000 units, 6,000 units, and 4,000 units, respectively. How many units must be purchased in September?A. 6,600B. 6,150C. 5,850D. 5,700E. 6,300

Answer: D

Feedback: Purchases = (15% x 4,000) + 6,000 - (15% x 6,000) = 5,700Blooms Taxonomy: Apply




79. Barrett's Fashions forecasts sales of $125,000 for the quarter ended December 31. Its gross profit rate is 20% of sales, and its September 30 inventory is $32,500. If the December 31 inventory is targeted at $41,500, budgeted purchases for the fourth quarter should be:A. $134,000B. $109,000C. $91,500D. $25,000E. $91,000Answer: B

Feedback: Budgeted purchases = $41,500 + (80% x $125,000) - $32,500 = $109,000Blooms Taxonomy: Apply




80. A Company forecasts sales of $91,500 for the quarter ended December 31. Its gross profit rate is 18% of sales, and its September 30 inventory is $25,000. If the December 31 inventory is targeted at $7,500, budgeted purchases for the fourth quarter should be:A. $57,530B. $107,530C. $0D. $82,530E. $91,000

Answer: AFeedback: Budgeted purchases = $7,500 + (82% x $91,500) - $25,000 = $57,530Blooms Taxonomy: Apply




81. A companys gross profit rate is 30% of sales. Expected January sales are $78,000 and desired January 31st inventory is $7,500. Assuming the December 31st inventory is $6,200 what amount of purchases should this company budget for the month of January?A. $53,300B. $55,900C. $24,700D. $22,100E. $79,300Answer: B

Feedback: Budgeted purchases = $7,500 + (70% x $78,000) - $6,200 = $55,900Blooms Taxonomy: Apply


Difficulty: 3 HardLearning Objective: 20-P1Topic: Purchases Budget[Question]

82. Kabuki Companys policy is to have 16% of the next months sales as desired ending inventory. Estimated sales are shown in the following table. Given this data, what are Kabukis estimated purchases for March?

MarchAprilMay

Expected sales units9,4008,9007,300

A. 9,400B. 9,320C. 8,900D. 8,644 E. 8,820

Answer: B

Feedback: Budgeted purchases = 9,400 + (16% x 8,900) (16% x 9,400) = 9,320 unitsBlooms Taxonomy: Apply

AACSB: Analytic


Difficulty: 3 HardLearning Objective: 20-P1[Question]

83. Kabuki Companys policy is to have 16% of the next months sales as desired ending inventory. Estimated sales are shown in the following table. Given this data, what are Kabukis estimated purchases for April?

MarchAprilMay

Expected sales units9,4008,9007,300

A. 8,584B. 9,176C. 8,644D. 9,256E. 9,000Answer: C

Feedback: Budgeted purchases = 8,900 + (16% x 7,300) (16% x 8,900) = 8,644 unitsBlooms Taxonomy: Apply




84. When preparing the cash budget, all the following should be considered except:A. Cash receipts from customers.B. Cash payments for merchandise.C. Depreciation expense.D. Cash payments for income taxes.E. Cash payments for capital expenditures.Answer: C





85. A plan that shows the expected cash inflows and cash outflows during the budget period, including receipts from loans needed to maintain a minimum cash balance and repayments of such loans, is called a(n):A. Capital expenditures budget.B. Operating budget.C. Rolling budget.D. Cash budget.E. Income statement.Answer: D





86. Which budget must be completed after a cash budget is prepared? A. Capital expenditures budget.B. Sales budget.C. Merchandise purchases budget.D. General and administrative expense budget.E. Budgeted income statementAnswer: E

Blooms Taxonomy: Understand




87. Which of the following would not be used in preparing a cash budget for October?A. Beginning cash balance on October 1.B. Budgeted sales and collections for October.C. Estimated depreciation expense for October.D. Budgeted salaries expense for October.E. Budgeted capital equipment purchases for October. Answer: C


AACSB: Analytic




88. A managerial accounting report that presents predicted amounts of the company's revenues and expenses for the budget period is called a:A. Budgeted income statement.B. Budgeted balance sheet.C. Master plan.D. Rolling income statement.E. Continuous income statement.Answer: ABlooms Taxonomy: Remember

AACSB: Communication AICPA BB: Resource ManagementAICPA FN: Report


Topic: Budgeted Income Statement[Question]

89. A managerial accounting report that presents predicted amounts of the company's assets, liabilities, and equity as of the end of the budget period is called a(n):A. Rolling balance sheet.B. Continuous balance sheet.C. Budgeted balance sheet.D. Cash balance sheet.E. Operating balance sheet.Answer: CBlooms Taxonomy: Remember

AACSB: Communication AICPA BB: Resource ManagementAICPA FN: Report



90. Northern Company is preparing a cash budget for June. The company has $12,000 cash at the beginning of June and anticipates $30,000 in cash receipts and $34,500 in cash disbursements during June. Northern Company has an agreement with its bank to maintain a cash balance of at least $10,000. As of May 31, the company owes $15,000 to the bank. To maintain the $10,000 required balance, during June the company must:A. Borrow $4,500B. Borrow $2,500C. Borrow $10,000D. Repay $7,500E. Repay $2,500Answer: B

Feedback: $12,000 + $30,000 - $34,500 = $7,500$10,000 - $7,500 = $2,500 to be borrowed


AACSB: Analytic




91. A Company is preparing a cash budget for June. The company has $67,000 cash at the beginning of June and anticipates $82,330 in cash receipts and $93,520 in cash disbursements during June. This company has an agreement with its bank to maintain a cash balance of at least $65,000. As of May 31, the company owes $25,000 to the bank. To maintain the $65,000 required balance, during June the company must:A. Borrow $9,190B. Repay $13,190C. Borrow $25,000D. Repay $25,000E. Repay $9,190Answer: AFeedback: $67,000 + $82,330 - $93,520 = $55,810$65,000 - $55,810 = $9,190 to be borrowedBlooms Taxonomy: Apply



Topic: Cash BudgetReference: 20_02

Julia's Candy Co. reports the following information from its sales account and sales budget:

SalesMay $105,000

June 93,000

Expected Sales:July $90,000

August 110,000

September 120,000

Cash sales are normally 25% of total sales and all credit sales are expected to be collected in the month following the date of sale. [Question]

92. Based on the information from Julias, the total amount of cash expected to be received from customers in September is:A. $30,000B. $82,500C. $112,500D. $120,000E. $202,500Answer: CFeedback: (.25 x $120,000) + (.75 x $110,000) = $112,500Reference: 20_02Blooms Taxonomy: Apply

AACSB: Analytic



Topic: Cash BudgetRefer To: 20_02[Question]

93. Based on the information from Julias, the total amount of cash expected to be received from customers in July is:

A. $69,750

B. $90,000

C. $92,250

D. $22,500

E. $115,500

Answer: C

Feedback: (.25 x $90,000) + (.75 x $93,000) = $92,250Reference To: 20_02





94. If Julias pays sales commission of 10% each month, in addition to monthly fixed costs of $4,000, what are selling expenses for the third quarter? A. $32,000

B. $36,000

C. $40,000

D. $44,000

E. $48,000

Answer: DFeedback: [($90,000 + $110,000 + $120,000)(.1)] + [3($4,000)] = $44,000Reference: 20_02




Topic: Selling Expenses BudgetRefer To: 20_02[Question]

95. A company reports the following information from its sales account and sales budget:

SalesMay $52,000

June 47,000

Expected Sales:July $45,000

August 55,000

September 60,000

Cash sales are normally 30% of total sales and all credit sales are expected to be collected in the month following the date of sale. The total amount of cash expected to be received from customers in September is:A. $58,500B. $56,500C. $60,000D. $80,500E. $55,000Answer: BFeedback: (.30 x $60,000) + (.70 x $55,000) = $56,500Blooms Taxonomy: Apply




96. Lara Company has budgeted the following credit sales during the current year: September, $25,000; October, $36,000; November, $30,000; December, $32,000. Experience has shown that payment for the credit sales is received as follows: 20% in the month of sale, 60% in the first month after sale, and 20% in the second month after sale. What will be the balance in Accounts Receivable at the end of November assuming the payment patterns have been as described?A. $26,600B. $31,200C. $33,800D. $39,600E. $25,200

Answer: BFeedback: (.80 x $30,000) + (.20 x $36,000) = $31,200Blooms Taxonomy: Apply




97. Lara Company has budgeted the following credit sales during the current year: September, $25,000; October, $36,000; November, $30,000; December, $32,000. Experience has shown that payment for the credit sales is received as follows: 15% in the month of sale, 60% in the first month after sale, 20% in the second month after sale, and 5% is uncollectible. How much cash can Lara Company expect to collect in November as a result of current and past credit sales?A. $19,700B. $28,500C. $30,000D. $31,100E. $33,900Answer: D

Feedback: ($30,000 x .15) + ($36,000 x .60) + ($25,000 x .20) = $31,100 Blooms Taxonomy: Apply




98. In preparing a budgeted balance sheet, the amount for Accounts Receivable is primarily determined from:A. The purchase budget.B. The sales budget.C. The capital expenditures budget.D. The budgeted income statement.E. The selling expenses budget.Answer: B





99. Long-term liability data for the budgeted balance sheet is derived from:A. The cash budget and capital expenditures budget.B. The cash budget and sales budget.C. The cash budget and budgeted income statement.D. The sales budget and production budget.E. The asset budget and debt budget.Answer: A





100. In preparing financial budgets:A. The budgeted balance sheet is usually prepared last.B. The cash budget is usually not prepared.C. The budgeted income statement is usually not prepared.D. The capital expenditures budget is usually prepared last.E. The merchandise purchases budget is key.Answer: A


AACSB: Analytic




101. Harold's expects its September sales to be 20% higher than its August sales of $150,000. Purchases were $100,000 in August and are expected to be $120,000 in September. All sales are on credit and are collected as follows: 30% in the month of the sale and 70% in the following month. Merchandise purchases are paid as follows: 25% in the month of purchase and 75% in the following month. The beginning cash balance on September 1 is $7,500. The ending cash balance on September 30 would be:A. $31,500B. $67,500C. $54,000D. $61,500E. $136,500Answer: D

Feedback: September sales: 1.2 x $150,000 = $180,000Cash inflows: [Beg. $7,500 + Aug. sales (.7 x $150,000) + Sept. sales (.3 x $180,000)] = $166,500Cash outflows: Aug. purch. (.75 x $100,000) + Sept. purch. ( .25 x $120,000)] = $105,000$166,500 - $105,000 = $61,500Blooms Taxonomy: Apply




102. A company expects its September sales to be 15% higher than its August sales of $140,000. Purchases were $75,000 in August and are expected to be $85,000 in September. All sales are on credit and are collected as follows: 30% in the month of the sale and 70% in the following month. Merchandise purchases are paid as follows: 25% in the month of purchase and 75% in the following month. The beginning cash balance on September 1 is $71,500. The ending cash balance on September 30 would be:A. $121,800B. $148,700C. $140,300D. $143,700E. $135,300Answer: CFeedback: September sales: 1.15 x $140,000 = $161,000Cash inflows: [Beg. $71,500 + Aug. sales (.7 x $140,000) + Sept. sales (.3 x $161,000)] = $217,800Cash outflows: [Aug. purch. (.75 x $75,000) + Sept. purch. ( .25 x $85,000)] = $77,500 $217,800 - $77,500 = $140,300





103. The Palos Company expects sales for June, July, and August of $48,000, $54,000, and $44,000, respectively. Experience suggests that 40% of sales are for cash and 60% are on credit. The company collects 50% of its credit sales in the month following sale, 45% in the second month following sale, and 5% are not collected. What are the company's expected cash receipts for August from its current and past sales?A. $29,160B. $46,760C. $61,160D. $66,200E. $78,800Answer: B

Feedback: = ($44,000 x .40) + ($54,000 x .60 x .50) + ($48,000 x .60 x .45) = $17,600 + $16,200 + $12,960 = $46,760Blooms Taxonomy: Apply



Topic: Cash BudgetReference: 20_03Berkley Co.'s sales are 10% for cash and 90% on credit. Credit sales are collected as follows: 30% in the month of sale, 50% in the next month, and 20% in the following month. On December 31, the accounts receivable balance includes $12,000 from November sales and $42,000 from December sales.

[Question]

104. Assume that total sales for January are budgeted to be $50,000. What are the expected cash receipts for January from the current and past sales? Round all calculations to full dollar amounts.A. $18,500B. $51,500C. $51,900D. $55,500E. $60,500Answer: E

Feedback: January cash sales.10 x $50,0000$ 5,000

January credit sales.30 x (.90 x $50,000) 13,500

December credit sales$42,000 = (total x.90) x .70$42,000 = (total x.63) $66,667 = total Dec Sales.50 x (.90 x $66,667)

30,000

November credit salesAll remaining receivables12,000

Total$60,500

Reference: 20_03





105. Assume that total sales for January and February are budgeted to be $50,000 and $100,000, respectively. What are the expected cash receipts for February from current and past sales? Round all calculations to full dollar amounts.A. $80,500B. $71,500C. $34,500D. $61,500E. $59,500

Answer: BFeedback:

February cash sales.10 x $100,0000$ 10,000

February credit sales.30 x (.90 x $100,000) 27,000

January credit sales.50 x (.90 x $50,000)22,500

December credit sales$42,000 = (total x .90) x.70$42,000 = (total x.63) $66,667 = total Dec. sales.20 x (.90 x $66,667)

12,000

Total$71,500

Reference: 20_03





106. Pecan Company had March sales and purchases of $63,000 and $47,000 respectively. The company expects April sales to increase 12% above March sales and purchases to stay consistent with March amounts. Twenty percent of the companys sales are for cash. Credit sales are collected 20% in the month of the sale and 80% in the following month. All purchases are paid for in the month following the purchase. The beginning cash balance on April 1 is $42,000. What is Pecan Companys expected cash balance on April 30?A. $46,609.60B. $105,880.00C. $70,801.60D. $60,721.60E. $49,432.00.Answer: D

Feedback: April sales = $63,000 x 1.12 + $70,560April cash receipts = ($70,560 x .20) + ($70,560 x .80 x .20) + ($63,000 x .80 x .80) $14,112 + $11,289.60 + $40,320 = $65,721.60April 30 cash balance = $42,000 (beg.) + $65,721.60 (receipts) - $47,000 (disbursements) = $60,721.60Blooms Taxonomy: Apply




107. To determine the production budget for an accounting period, consideration is not given to which of the following:A. Budgeted ending inventory.B. Budgeted beginning inventory.C. Budgeted sales.

D. Budgeted overhead.E. Required units of inventory available. Answer: DBlooms Taxonomy: Understand




108. A plan that shows the predicted costs for direct materials, direct labor, and overhead to be incurred in manufacturing the units in the production budget is called the:A. Sales budget.B. Merchandise purchases budget.C. Production budget.D. Rolling budget.E. Manufacturing budget.Answer: E




Topic: Manufacturing Budget[Question]

109. A plan that states the number of units to be manufactured during each future period covered by the budget, based on the budgeted sales for the period and the levels of inventory needed to support future sales, is the:A. Sales budget.B. Merchandise purchases budget.C. Production budget.D. Cash budget.E. Manufacturing budget.Answer: C




Topic: Production BudgetReference: 20_04Kyoto, Inc. predicts the following sales in units for the coming four months:

AprilMayJuneJuly

Sales in units 240280300240

Although each month's ending inventory of finished units should be 60% of the next month's sales, the March 31 finished goods inventory is only 100 units. A finished unit requires five pounds of raw material B. The March 31 raw materials inventory has 200 pounds of B. Each month's ending inventory of raw materials should be 30% of the following month's production needs.

[Question]

110. Kyotos budgeted production for May is:A. 200 unitsB. 212 unitsC. 268 unitsD. 280 unitsE. 292 unitsAnswer: E

Feedback: May production = 280 + (300 x .60) - (280 x .60)280 + 180 - 168 = 292 unitsReference: 20_04




Topic: Production BudgetRefer To: 20_04[Question]

111. Kyotos budgeted production for the second quarter is:A. 820 unitsB. 864unitsC. 492 unitsD. 449 unitsE. 878 units

Answer: B

Feedback: (240 + 280 + 300) + (.60)(240) 100 = 864 unitsReference: 20_04





112. If each unit of Kyotos product takes two hours to produce and the labor rate is expected to be $10 per hour, what is the budgeted labor cost for May?A. $4,000B. $4,240C. $5,360

D. $5,600E. $5,840

Answer: E

Feedback: May production = 280 + (300 x .60) - (280 x .60)280 + 180 - 168 = 292 units(292 units)(2 hr/unit)($10/hr) = $5,840Reference: 20_04





113. If each unit of Kyotos product takes two hours to produce and the labor rate is expected to be $10 per hour, what is the budgeted labor cost for the second quarter?A. $16,400B. $17,280C. $9,840

D. $8,960E. $17,560

Answer: B

Feedback: Production: (240 + 280 + 300) + (.60)(240) 100 = 864 unitslabor cost: (864 units)(2 hr/unit)($10/unit) = $17,280Reference: 20_04





114. The budgeted purchases of pounds of raw material B during May should be:A. 1,418 poundsB. 1,460 poundsC. 1,502 poundsD. 264 poundsE. 283 pounds Answer: A

Feedback: May purchases of raw material B (pounds) = (280 x 5) + (300 x .60 x .30 x 5) - (280 x .60 x .30 x 5)1,400 + 270 - 252 = 1,418 poundsReference: 20_04



Difficulty: 3 HardLearning Objective: 20-P1Learning Objective: 20-P3

Topic: Purchases BudgetTopic: Production BudgetRefer To: 20_04[Question]

115. A companys data is presented below. Desired ending inventory is a consistent percentage of the next quarters sales and the previous year's fourth quarter ending inventory of 560 units meets this requirement. Compute the expected production in the third quarter of the current year.

Quarter1234

Expected sales units7,0005,0008,0006,000

Units produced6,840???

A. 7,840B. 8,160C. 8,000D. 8,480E. 7,360Answer: A

Feedback: 560/7,000 = .08 so desired ending inventory is 8% of next quarters salesUnits to produce:Sales 8,000 + Ending inventory (6,000 x .08) Beginning inventory (8,000 x .08)= 7,840 units to produceBlooms Taxonomy: Apply




116. Big Company manufactures keyboards. Management wishes to develop budgets for the upcoming quarter based on the following data:

Sales in units800 units

Selling price per unit$60

Inventory at beginning of the quarter (FG)80 units

Desired ending inventory (FG)130 units

Direct materials per unit:4 ounces plastic

Plastic inventory at beginning of quarter136 ounces

Desired ending inventory of plastic84 ounces

Plastic cost$.18 per ounce

Compute the budgeted quantity of plastic that needs to be purchased for the next quarter.A. 850 ouncesB. 3,348 ouncesC. 3,452 ouncesD. 798 ouncesE. 902 ouncesAnswer: B

Feedback: Finished goods required = 800 (sales) + 130 (ending inventory) - 80 (beginning inventory) = 850 units Next quarter purchases of plastic inventory = (850 x 4) + 84 -136 3,400 + 84 136 = 3,348 ouncesBlooms Taxonomy: Apply



Topic: Purchases BudgetTopic: Production Budget[Question]

117. Blaircraft Company manufactures a product that requires five pounds of raw material for each unit produced. For the next year, beginning inventory of raw materials is 8,000 pounds. The raw materials inventory at the end of each quarter should be 15% of the next quarters raw materials needed for production. Given the projected production in units below, what is the quantity of raw materials that needs to be purchased for the third quarter?

Quarter1234

Expected production Units7,0005,0008,0006,000

A. 41,500 poundsB. 40,000 poundsC. 38,500 poundsD. 7,7000 poundsE. 8,300 poundsAnswer: C

Feedback: Pounds of raw materials purchases for third quarter = (8,000 x 5) + (6,000 x 5 x .15) - (8,000 x 5 x .15) 40,000 + 4,500 - 6,000 = 38,500 poundsBlooms Taxonomy: Apply



Topic: Purchases BudgetTopic: Production BudgetMatching Questions[Question]

118. Match the definitions 1 through 9 with the term or phrase (a) through (i).(a) Master budget(b) General and administrative expense budget(c) Budget(d) Safety stock(e) Budgeted income statement(f) Budgeted balance sheet(g) Sales budget(h) Cash budget(i) Merchandise purchases budget______(1) A plan that shows the units or costs of merchandise to be purchased by a merchandising company during the budget period.______(2) An accounting report that presents predicted amounts of the company's assets, liabilities, and equity balances at the end of the budget period.______(3) A plan showing the units of goods to be sold and the sales to be derived; the usual starting point in the budgeting process.______(4) An accounting report that presents predicted amounts of the company's revenues and expenses for the budgeting period.______(5) A quantity of inventory or materials over the minimum to reduce the risk of running short.______(6) A comprehensive business plan that includes specific plans for expected sales, the units of product to be produced, the merchandise or materials to be purchased, the expenses 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.______(7) A formal statement of a company's future plans, usually expressed in monetary terms.______(8) A plan that shows predicted operating expenses not included in the selling expenses budget.______(9) A plan that shows the expected cash inflows and cash outflows during the budget period, including receipts from any loans needed to maintain a minimum cash balance and repayments of such loans. Answer: (1) i (2). f (3) g (4) e (5) d (6) a (7) c ( 8) b (9) h Blooms Taxonomy: Remember

AACSB: Communication

AICPA BB: Resource ManagementAICPA FN: Reporting

Difficulty: 1 EasyLearning Objective: 20-C1Learning Objective: 20-C2Learning Objective: 20-P1Learning Objective: 20-P2Topic: Master BudgetTopic: General and Administrative BudgetTopic: BudgetTopic: Safety StockTopic: Budgeted Income StatementTopic: Budgeted Balance SheetTopic: Sales BudgetTopic: Cash BudgetTopic: Purchases Budget[Question]

119. Presented below are terms or phrases preceded by letters (a) through (j) and followed by a list of definitions 1 through 10. Match the correct definitions with the terms or phrases by placing the letter of the term or phrase in the answer space provided at the beginning of the definition.(a) Budget(b) Capital expenditure budget(c) Manufacturing budget(d) Sales budget(e) Production budget(f) Cash budget(g) Budgeted balance sheet(h) Continuous budgeting(i) Selling expense budget(j) Rolling budgets_____ (1.) A plan that lists the types and amounts of selling expenses expected during the budget period._____ (2.) A plan that shows the predicted costs for direct materials, direct labor, and overhead costs to be incurred in manufacturing the units in the production budget._____ (3.) An accounting report that presents predicted amounts of the company's assets, liabilities, and equity as of the end of the budget period._____ (4.) A formal statement of future plans, usually expressed in monetary terms._____ (5.) A plan showing the units of goods to be sold and the sales to be derived; usually the starting point in the budgeting process._____ (6.) A plan that lists dollar amounts to be both received from disposing of plant assets and spent on purchasing additional plant assets to carry out the budgeted business activities.______ (7.) The practice of preparing budgets for a selected number of several periods and revising those budgets as each period is completed.______ (8.) A plan showing the number of units to be produced each month.______ (9) A plan that shows the expected cash inflows and outflows during the budget period, including receipts from loans needed to maintain a minimum cash balance and repayments of such loans.______ (10) A new set of budgets added to replace the ones that have lapsed as each budget period goes by. Answer: (1) i (2) c (3) g (4) a (5) d (6) b (7) h (8) e (9) f (10) jBlooms Taxonomy: Remember


AICPA BB: Resource ManagementAICPA FN: Reporting

Difficulty: 1 EasyLearning Objective: 20-C1Learning Objective: 20-P1Learning Objective: 20-P2Learning Objective: 20-P3Topic: BudgetTopic: Capital Expenditures BudgetTopic: Manufacturing BudgetTopic: Sales BudgetTopic: Production BudgetTopic: Cash BudgetTopic: Budgeted Balance SheetTopic: Continuous BudgetingTopic: Selling Expenses BudgetTopic: Rolling Budget

[Question]

120. Indicate the order in which the following budgets would be completed (1 = first and so on)

______ (A) Cash budget

______ (B) Budgeted income statement

______ (C) Sales budget

______ (D) Production budget

______ (E) Operating expense budget

Answer: (A) 4 (B) 5 (C) 1 (D) 2 (E) 3


AACSB: Communication AICPA BB: Resource ManagementAICPA FN: Reporting

Difficulty: 2 MediumLearning Objective: 20-C2Learning Objective: 20-P1Learning Objective: 20-P2Learning Objective: 20-P3Topic: Cash BudgetTopic: Budgeted Income StatementTopic: Sales BudgetTopic: Production BudgetTopic: Operating Expense Budget[Question]

121. Indicate the order in which the following budgets would be completed (1 = first and so on)

______ (A) Merchandise purchases budget

______ (B) Capital expenditures budget

______ (C) Selling expense budget

______ (D) Budgeted balance sheet

______ (E) Cash budget

Answer: (A) 1 (B) 3 (C) 2(D) 5 (E) 4Blooms Taxonomy: Understand


Difficulty: 2 MediumLearning Objective: 20-P1Learning Objective: 20-P2Topic: Purchases BudgetTopic: Capital Expenditures BudgetTopic: Selling Expenses BudgetTopic: Budgeted Balance SheetTopic: Cash BudgetEssay Questions[Question]

122. Describe at least five benefits of budgeting. Answer: Benefits of budgeting are:(1.) Budgeting promotes good decision-making processes, including analysis and research. (2.) Budgeting focuses management's attention on the future.(3.) Budgeting provides a basis for evaluating performance.(4.) Budgeting can be used as a motivator.(5.) Budgeting provides a means of coordinating business activities. (6.) Budgeting serves as a means of communicating plans and instructions.



Difficulty: 2 MediumLearning Objective: 20-C1


123. What are rolling budgets? Why are rolling budgets prepared? Answer: Each month, a company might revise its budgets to remove the month or quarter just passed and add new monthly or quarterly budgets to replace those that have lapsed. Generally, at any point in time, monthly or quarterly budgets are available for the next 12 months or four quarters. This is a rolling budget. Rolling budgets cause management to continuously plan ahead.



Difficulty: 2 MediumLearning Objective: 20-C1Topic: Rolling Budgets[Question]

124. Briefly describe the process by which budgets are developed and administered. Answer: Budgets are developed in a bottom-up process to ensure fullest input participation. Control is administered through a budget committee of department heads. The committee performs oversight and directs activities.



Difficulty: 2 MediumLearning Objective: 20-C1Topic: Budgeting[Question]

125. Briefly describe a master budget and the sequence in which the individual budgets within the master budget are prepared. Answer: The master budget is the comprehensive plan, expressed in monetary terms, for an entire organization for a given period. It is prepared from individual budgets of the various segments of the organization.The master budget usually starts with predictions of sales. Using the sales projection, the remaining operations budgets are prepared. Then, capital expenditures are budgeted. Using the information from the operations and capital expenditures budgets, the financial budgets can then be prepared, including the cash budget, budgeted income statement, and budgeted balance sheet.


AACSB: Communication AICPA BB: Resource ManagementAICPA FN: Measurement

Difficulty: 2 MediumLearning Objective: 20-C2Topic: Master Budget[Question]

126. Why is the sales budget usually prepared first? Answer: The sales budget is normally prepared first because the other operating and financial budgets depend on information provided by this particular budget. The plans of most departments are related to, and depend on, sales units and dollars.



Difficulty: 2 MediumLearning Objective: 20-C2Topic: Sales Budget[Question]

127. What is activity-based budgeting? Answer: Activity-based budgeting is a budget system based on expected activities. Knowledge of expected activities and their activity levels for the budget period enables management to plan for resources required to carry out their activities. Traditional budgeting lists items by the use of items (such as salaries, supplies, etc.). Activity-based budgeting requires management to list activities performed and their costs.



Difficulty: 2 MediumLearning Objective: 20-A1

Topic: Activity-Based Budgeting[Question]

128. What is a sales budget? How is the sales budget prepared? Answer: The sales budget shows planned sales units and the expected dollars from those sales. It is generally the starting point in the budgeting process. The sales budget is based on a careful analysis of forecasted economic and market conditions, business capacity, and proposed selling expenses such as advertising.





129. What is a merchandise purchases budget? How is the merchandise purchases budget constructed? Answer: A merchandise purchases budget is used to determine the number of units of merchandise inventory and the cost of merchandise inventory to be purchased. The amount to be purchased is equal to the budgeted ending inventory in units plus budgeted units to be sold less beginning inventory in units. The amount to be purchased is multiplied times the purchase price per unit to determine the dollar amount to be purchased.





Topic Purchases Budget[Question]

130. What is a capital expenditures budget? Answer: The capital expenditures budget lists the amounts to be both received from plant asset disposals and spent to purchase additional plant assets to carry out the budgeted business activities.





131. What is a cash budget? How can management use a cash budget? Answer: A cash budget shows expected cash inflows and outflows during the budget period. Management can prearrange loans to cover anticipated cash shortages before they are needed. The cash budget also helps avoid a cash balance that is too large.





132. What is a production budget? Answer: A production budget shows the number of units to be produced each month, based on budgeted sales, budgeted ending inventory of finished goods, and expected beginning inventory of finished goods. In a manufacturing firm, it takes the place of the purchases budget that would be prepared by a merchandising firm.





133. What is a manufacturing budget? Answer: A manufacturing budget shows the budgeted costs for direct materials, direct labor, and overhead. It is based on the production volume determined from the production budget.



Difficulty: 1 EasyLearning Objective: 20-P3Topic: Manufacturing BudgetShort Answer Questions[Question]

134. A department store has budgeted cost of goods sold for August of $60,000 for its women's coats. Management wants to have $12,000 of coats in inventory at the end of the month to prepare for the winter season. Beginning inventory in August was $8,000. What dollar amount of coats should be purchased to meet the above plans? Answer:

Required ending inventory $12,000

Sales 60,000

Less expected beginning inventory (8,000)

Amount to purchase $64,000



Difficulty: 2 MediumLearning Objective: 20-P1Topic: Purchases Budget[Question]

135. A sporting goods store budgeted August purchases of ski jackets at $140,000. The store had ski jackets costing $12,000 in its inventory at the beginning of August; and to cover part of anticipated September sales, they expect to have $25,000 of ski jackets in inventory at the end of the month of August. What is the budgeted cost of goods sold for August? Answer:

Beginning inventory $ 12,000

Budgeted purchases 140,000

Budgeted ending inventory (25,000)

Budgeted cost of goods sold $127,000





136. In preparing a budget for the last three months of the current year, Urban Company is planning the units of merchandise it must order each month. The company's policy is to have 15% of the next month's sales in its inventory at the end of each month. Projected sales for October, November, and December are 27,000 units, 29,500 units, and 32,500 units, respectively. How many units must be ordered in November? Answer:

Required ending inventory (15% x 32,500) 4,875 units

November sales 29,500 units

Less required beginning inventory (15% x 29,500) (4,425) units

Total purchases for November 29,950 units


AACSB: Analytic




137. Nano, Inc. is preparing its budget for the second quarter. The following sales data have been forecasted:

AprilMayJuneJulyAugust

Unit sales640720780620660

Additional information follows:

Inventory on March 31:192 units

Desired ending inventory each month:30% of next month's sales

How many units should be purchased in April, May, and June? How many units should be purchased in the second quarter in total? Answer:

AprilMayJuneQuarter

Sales in units 6407207802,140

Desired ending inventory* 216234186 186

Total 8569549662,326

Less: beginning inventory (192)(216)(234) (192)

Budgeted purchases 6647387322,134

* 30% of next month's sales Blooms Taxonomy: Apply

AACSB: Analytic




138. Pantheon Company has prepared the following forecasts of monthly sales:

JulyAugustSeptemberOctober

Sales (in units) 4,5005,3004,0003,700

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? Answer: (1) July's beginning inventory = 25% x 4,500 = 1,125 units

(2)Budgeted ending inventory (25% x 5,300) 1,325units

Budgeted sales for July 4,500units

Budgeted beginning inventory (part 1) (1,125)units

Budgeted purchases 4,700units

Cost per unit x $30

Cost of purchases for July $141,000

(3)Budgeted ending inventory (25% x 3,700) 925units

Budgeted sales for September 4,000units

Budgeted beginning inventory (25% x 4,000) (1,000)units

Budgeted purchases 3,925 units


AACSB: Analytic




139. 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: JanuaryFebruaryMarchApril

Sales in units 1,2001,0001,6001,400

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 budgetTable of cash receiptsMerchandise purchases budgetTable of cash disbursements for merchandise purchasesTable of cash disbursements for selling and administrative expensesCash budget, including information on the loan balanceBudgeted income statement

Answer:

Blooms Taxonomy: ApplyAACSB: Analytic AICPA BB: Resource ManagementAICPA FN: Reporting

Difficulty: 3 HardLearning Objective: 20-C2Learning Objective: 20-P1Learning Objective: 20-P2

Topic: Master BudgetTopic: Sales BudgetTopic: Purchases BudgetTopic: Cash BudgetTopic: Selling Expenses BudgetTopic: General And Administrative BudgetTopic: Budgeted Income Statement

[Question]

140. 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:

AprilMayJuneJuly

Sales in units 8001,0006001,200

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

Answer: (a) (d)

(e),(f)(g)CAMBRIDGE INC.Budgeted Income Statement

For the Three Months Ended June 30

Sales ($32,000 + 40,000 + 24,000) $96,000

Cost of goods sold [(800 + 1,000 + 600) x $20] 48,000

Gross profit $48,000

Operating expenses

Selling and administrative ($12,160 + 13,200 + 11,120)$36,480

Depreciation expense($2,000 x 3) 6,000

Total operating expenses 42,480

Operating income$5,520

Income expense ($20+32) 52

Income before income taxes $ 5,468

Income tax expense (40%) 2,187

Net income $ 3,281

Blooms Taxonomy: Apply AACSB: Analytic AICPA BB: Resource ManagementAICPA FN: Reporting

Difficulty: 3 HardLearning Objective: 20-C2

Learning Objective: 20-P1Learning Objective: 20-P2Topic: Master BudgetTopic: Sales BudgetTopic: Purchases BudgetTopic: Cash BudgetTopic: Selling Expenses BudgetTopic: General And Administrative BudgetTopic: Budgeted Income Statement[Question]

141. 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? Answer:

Cash balance, February 1 $30,000

Add budgeted cash receipts 75,000

Less budgeted cash disbursements (96,250)

Cash balance before financing $ 8,750

Required cash balance 10,000

Amount to be borrowed $ 1,250





142. 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? Answer:

10% of November sales (10% x $105,000) $ 10,500

50% of October sales (50% x $123,000) 61,500

35% of September sales (35% x $90,000) 31,500

Total cash collected in November $103,500





143. 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? Answer:

March cash sales (30% x $72,000) $21,600

60% of February credit sales (60% x 70% x $88,000) 36,960

35% of January credit sales (35% x 70% x $96,000) 23,520

Total cash collected in March $82,080





144. 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:

AugustSeptemberOctoberNovember

Sales $500,000$525,000$535,000$560,000

OctoberNovember

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) _______

Answer: (1) 20% x $535,000 = $107,000(2) 45% x 80% x 500,000 = $180,000(3) 50% x 80% x 525,000 = $210,000(4) $0 (5) $107,000 + $180,000 + $210,000 = $497,000(6) 20% x $560,000 = $112,000(7) $0(8) 45% x 80% x $525,000 = $189,000(9) 50% x 80% x $535,000 = $214,000(10) $112,000 + $189,000 + $214,000 = $515,000 Blooms Taxonomy: Apply



Topic: Cash Budget[QUESTION]

145. Use the following data to determine the company's cash disbursements for the month of August and September:

JulyAugustSeptember

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

Answer:

Cash disbursements:AugustSeptember

Purchases $14,400$19,200

Selling expenses 4,8005,400

Administrative expenses 3,2003,600

Rent expenses 2,400 2,400

Total disbursements $24,800$30,600



Difficulty: 3 HardLearning Objective: 20-P2Topic: Cash Budget[QUESTION]

146. 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.Answer:

JulyAugustSeptember

Cash balance:

Balance (beginning) $ 8,400$ 8,000$ 8,000

Cash receipts 24,00032,00040,000

Cash disbursements (28,000)(30,000)(32,000)

Interest paid 0 (36)* (16)

Preliminary balance $ 4,400$ 9,964$15,984

Loan 3,60000

Repaid 0 (1,964) (1,636)

Balance (ending) $ 8,000$ 8,000$14,348

* $3,600 x 1% = $36 ($3,600 - $1,964) x 1% = $16 Blooms Taxonomy: Apply

AACSB: Analy

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