Chap 009

Chapter 009, Profit Planning Key

9-1


26. Parlee Company's sales are 30% in cash and 70% on credit. Sixty % of the credit sales are collected in the month of sale, 25% in the month following sale, and 12% in the second month following sale. The remainder are uncollectible. The following are budgeted sales data:

Total cash receipts in April would be budgeted to be: A. $38,900B. $47,900C. $27,230D. $36,230

AACSB: AnalyticAICPA BB: Critical ThinkingAICPA FN: MeasurementLearning Objective: 2Level: Medium

9-2


27. The PDQ Company makes collections on credit sales according to the following schedule:

25% in month of sale70% in month following sale4% in second month following sale1% uncollectible

The following sales have been budgeted:

Cash collections in June would be: A. $113,400B. $110,000C. $111,000D. $115,500


9-3


28. Tolla Company is estimating the following sales for the first six months of next year:

Sales at Tolla are normally collected as 70% in the month of sale, 25% in the month following the sale, and the remaining 5% being uncollectible. Also, those customers paying in the month of sale are given a 2% discount. Based on this information, how much cash should Tolla expect to collect during the month of April? A. $281,260B. $361,260C. $366,010D. $393,760

AACSB: AnalyticAICPA BB: Critical ThinkingAICPA FN: MeasurementLearning Objective: 2Level: Hard

9-4


29. Orion Corporation is preparing a cash budget for the six months beginning January 1. Shown below are the company's expected collection pattern and the budgeted sales for the period. Expected collection pattern:65% collected in the month of sale20% collected in the month after sale10% collected in the second month after sale4% collected in the third month after sale1% uncollectibleBudgeted sales:

The estimated total cash collections during April from sales and accounts receivables would be: A. $155,900B. $167,000C. $171,666D. $173,400

AACSB: AnalyticAICPA BB: Critical ThinkingAICPA FN: MeasurementLearning Objective: 2Level: MediumSource: CMA, adapted

9-5


30. Pardee Company plans to sell 12,000 units during the month of August. If the company has 2,500 units on hand at the start of the month, and plans to have 2,000 units on hand at the end of the month, how many units must be produced during the month? A. 11,500B. 12,500C. 12,000D. 14,000

Units produced = Ending inventory + Units sold - Beginning inventory= 2,000 + 12,000 - 2,500 = 11,500

AACSB: AnalyticAICPA BB: Critical ThinkingAICPA FN: MeasurementLearning Objective: 3Level: Easy

31. Modesto Company produces and sells Product AlphaB. To guard against stockouts, the company requires that 20% of the next month's sales be on hand at the end of each month. Budgeted sales of Product AlphaB over the next four months are:

Budgeted production for August would be: A. 62,000 unitsB. 70,000 unitsC. 58,000 unitsD. 50,000 units

Units produced = Ending inventory + Units sold - Beginning inventory= (20% x 50,000) + 60,000 - (20% x 60,000)= 10,000 + 60,000 - 12,000 = 58,000


9-6


32. Friden Company has budgeted sales and production over the next quarter as follows:

The company has 20,000 units of product on hand at April 1. A minimum of 20% of the next month's sales needs in units must be on hand at the end of each month. July sales are expected to be 140,000 units. Budgeted sales for June would be (in units): A. 188,000B. 160,000C. 128,000D. 184,000

Units produced in June = Ending inventory + Units sold - Beginning inventory156,000 = (140,000 x 20%) + X - (X x 20%)where X = June sales in units156,000 = 28,000 + 0.8 XX = 160,000


9-7


33. Fab Manufacturing Corporation manufactures and sells stainless steel coffee mugs. Expected mug sales at Fab (in units) for the next three months are as follows:

Fab likes to maintain a finished goods inventory equal to 30% of the next month's estimated sales. How many mugs should Fab plan on producing during the month of November? A. 23,200 mugsB. 26,800 mugsC. 25,900 mugsD. 34,300 mugs

Units produced = Ending inventory + Units sold - Beginning inventory= (30% x 31,000) + 25,000 - (25,000 x 30%)= 9,300 + 25,000 - 7,500 = 26,800


9-8


34. Superior Industries' sales budget shows quarterly sales for the next year as follows:

Company policy is to have a finished goods inventory at the end of each quarter equal to 20% of the next quarter's sales. Budgeted production for the second quarter should be: A. 7,200 unitsB. 8,000 unitsC. 8,800 unitsD. 8,400 units

Units produced = Ending inventory + Units sold - Beginning inventory= (12,000 x 20%) + 8,000 - (8,000 x 20%)= 2,400 + 8,000 - 1,600 = 8,800

AACSB: AnalyticAICPA BB: Critical ThinkingAICPA FN: MeasurementLearning Objective: 3Level: MediumSource: CMA, adapted

9-9


35. The Waverly Company has budgeted sales for next year as follows:

The ending inventory of finished goods for each quarter should equal 25% of the next quarter's budgeted sales in units. The finished goods inventory at the start of the year is 3,000 units. Scheduled production for the third quarter should be: A. 17,500B. 18,500C. 22,000D. 13,500

Units produced = Ending inventory + Units sold - Beginning inventory= (16,000 x 25%) + 18,000 - (18,000 x 25%)= 4,000 + 18,000 - 4,500 = 17,500


9-10


36. The Tobler Company has budgeted production for next year as follows:

Four pounds of raw materials are required for each unit produced. Raw materials on hand at the start of the year total 4,000 pounds. The raw materials inventory at the end of each quarter should equal 10% of the next quarter's production needs. Budgeted purchases of raw materials in the third quarter would be: A. 63,200 poundsB. 62,400 poundsC. 56,800 poundsD. 50,400 pounds

Materials to be purchased = Ending inventory + Materials used - Beginning inventory = (14,000 x 10%) + 16,000 - (16,000 x 10%) = 1,400 + 16,000 - 1,600= 15,800 units15,800 units x 4 pounds per unit = 63,200 pounds


9-11


37. Marple Company's budgeted production in units and budgeted raw materials purchases over the next three months are given below:

Two pounds of raw materials are required to produce one unit of product. The company wants raw materials on hand at the end of each month equal to 30% of the following month's production needs. The company is expected to have 36,000 pounds of raw materials on hand on January 1. Budgeted production for February should be: A. 105,000 unitsB. 82,500 unitsC. 150,000 unitsD. 75,000 units

Budgeted raw material purchases for February (in pounds) = [30% x (100,000 x 2 lbs)] + (February production x 2 lbs) - [30% x (February production x 2 lbs)165,000 = 60,000 + (1.4 x February production)February production = 75,000 units


9-12


38. Yumm Dairy Corporation manufactures carrot-flavored ice cream. Yumm's production budget indicated the following units to be produced for the upcoming months:

Four (4) ounces of carrots are needed for each gallon of ice cream. Yumm also likes to have enough carrots on hand to cover 5% of the next month's production needs for carrots. How many ounces of carrots should Yumm plan on purchasing during the month of February? A. 474,000 ouncesB. 486,000 ouncesC. 490,000 ouncesD. 510,000 ounces

Carrots purchased (ounces) = Ending inventory + Carrots used - Beginning inventory = [5% x (150,000 x 4)] + (120,000 x 4) - [5% x (120,000 x 4)]= 30,000 + 480,000 - 24,000 = 486,000 ounces


9-13


39. Brummitt Corporation is working on its direct labor budget for the next two months. Each unit of output requires 0.05 direct labor-hours. The direct labor rate is $7.50 per direct labor-hour. The production budget calls for producing 9,100 units in May and 8,800 units in June. If the direct labor work force is fully adjusted to the total direct labor-hours needed each month, what would be the total combined direct labor cost for the two months? A. $3,300.00B. $3,412.50C. $6,712.50D. $3,356.25

May: 9,100 units x 0.05 direct labor-hours x $7.50 per direct labor-hour= $3,412.50June: 8,800 units x 0.05 direct labor-hours x $7.50 per direct labor-hour= $3,300.00Total direct labor cost = $6,712.50


9-14


40. The following are budgeted data:

Each unit requires 0.75 hours of direct labor at a cost of $6.50 per hour. What is the cost of direct labor for May? A. $73,125B. $82,875C. $63,375D. $78,000

Budgeted direct labor cost = Units produced x Direct labor-hours per unit x Budgeted direct labor cost per unit = 16,000 x 0.75 direct labor-hours x $6.50 per direct labor-hour = $78,000


41. Mouw Inc. bases its manufacturing overhead budget on budgeted direct labor-hours. The direct labor budget indicates that 5,400 direct labor-hours will be required in January. The variable overhead rate is $4.40 per direct labor-hour. The company's budgeted fixed manufacturing overhead is $77,220 per month, which includes depreciation of $9,720. All other fixed manufacturing overhead costs represent current cash flows. The January cash disbursements for manufacturing overhead on the manufacturing overhead budget should be: A. $67,500B. $91,260C. $100,980D. $23,760

Variable overhead = 5,400 direct labor-hours x $4.40 = $23,760Cash portion of fixed manufacturing overhead = $77,220 - $9,720 = $67,500Total cash disbursement for overhead in January = $23,760 + $67,500 = $91,260


9-15


42. Golebiewski Inc. bases its manufacturing overhead budget on budgeted direct labor-hours. The direct labor budget indicates that 4,900 direct labor-hours will be required in November. The variable overhead rate is $8.40 per direct labor-hour. The company's budgeted fixed manufacturing overhead is $78,400 per month, which includes depreciation of $10,290. All other fixed manufacturing overhead costs represent current cash flows. The company recomputes its predetermined overhead rate every month. The predetermined overhead rate for November should be: A. $22.30B. $16.00C. $24.40D. $8.40


9-16


43. The manufacturing overhead budget at Formica Corporation is based on budgeted direct labor-hours. The direct labor budget indicates that 4,400 direct labor-hours will be required in October. The variable overhead rate is $8.90 per direct labor-hour. The company's budgeted fixed manufacturing overhead is $86,680 per month, which includes depreciation of $16,280. All other fixed manufacturing overhead costs represent current cash flows. The company recomputes its predetermined overhead rate every month. The predetermined overhead rate for October should be: A. $19.70B. $24.90C. $8.90D. $28.60


9-17


44. The manufacturing overhead budget at Ferrucci Corporation is based on budgeted direct labor-hours. The direct labor budget indicates that 1,600 direct labor-hours will be required in December. The variable overhead rate is $4.40 per direct labor-hour. The company's budgeted fixed manufacturing overhead is $25,120 per month, which includes depreciation of $5,440. All other fixed manufacturing overhead costs represent current cash flows. The December cash disbursements for manufacturing overhead on the manufacturing overhead budget should be: A. $7,040B. $19,680C. $26,720D. $32,160

Cash disbursements for April = (Variable overhead rate x Number of direct-labor hours) + (Fixed manufacturing overhead less depreciation)= ($4.40 x 1,600) + ($25,120 - $5,440)= $7,040 + $19,680 = $26,720


45. Roufs Inc. bases its selling and administrative expense budget on budgeted unit sales. The sales budget shows 7,800 units are planned to be sold in April. The variable selling and administrative expense is $3.20 per unit. The budgeted fixed selling and administrative expense is $95,160 per month, which includes depreciation of $9,360 per month. The remainder of the fixed selling and administrative expense represents current cash flows. The cash disbursements for selling and administrative expenses on the April selling and administrative expense budget should be: A. $85,800B. $24,960C. $120,120D. $110,760

Cash disbursements for December = (Variable selling and administrative cost x Number of direct-labor hours) + (Fixed manufacturing overhead less depreciation) = (7,800 x $3.20) + ($95,160 - $9,360) = $24,960 + $85,800 = $110,760


9-18


46. The selling and administrative expense budget of Spurlock Corporation is based on budgeted unit sales, which are 6,300 units for February. The variable selling and administrative expense is $9.30 per unit. The budgeted fixed selling and administrative expense is $118,440 per month, which includes depreciation of $19,530 per month. The remainder of the fixed selling and administrative expense represents current cash flows. The cash disbursements for selling and administrative expenses on the February selling and administrative expense budget should be: A. $98,910B. $157,500C. $58,590D. $177,030

Cash disbursements for December = (Variable selling and administrative cost x Number of direct-labor hours) + (Fixed manufacturing overhead less depreciation) = (6,300 x $9.30) + ($118,440 - $19,530) = $58,590 + $98,910 = $157,500


47. ABC Company has a cash balance of $9,000 on April 1. The company must maintain a minimum cash balance of $6,000. During April expected cash receipts are $45,000. Expected cash disbursements during the month total $52,000. During April the company will need to borrow: A. $2,000B. $4,000C. $6,000D. $8,000

Excess cash available over disbursements = Beginning cash balance + Budgeted cash receipts - Budgeted cash disbursements = $9,000 + $45,000 - $52,000 = $2,000Borrowing = Desired ending cash balance - Excess cash available over disbursements = $6,000 - $2,000 = $4,000


9-19


48. Thiel Inc. is working on its cash budget for October. The budgeted beginning cash balance is $35,000. Budgeted cash receipts total $166,000 and budgeted cash disbursements total $162,000. The desired ending cash balance is $50,000. The excess (deficiency) of cash available over disbursements for October will be: A. $31,000B. $39,000C. $4,000D. $201,000

Excess cash available over disbursements = Beginning cash balance + Budgeted cash receipts - Budgeted cash disbursements = $35,000 + $166,000 - $162,000 = $39,000


49. Guthridge Inc. is working on its cash budget for February. The budgeted beginning cash balance is $26,000. Budgeted cash receipts total $104,000 and budgeted cash disbursements total $100,000. The desired ending cash balance is $40,000. To attain its desired ending cash balance for February, the company needs to borrow: A. $0B. $10,000C. $40,000D. $70,000

Excess cash available over disbursements = Beginning cash balance + Budgeted cash receipts - Budgeted cash disbursements = $26,000 + $104,000 - $100,000 = $30,000Borrowing = Desired ending cash balance - Excess cash available over disbursements = $40,000 - $30,000 = $10,000


9-20


50. The Stacy Company makes and sells a single product, Product R. Budgeted sales for April are $300,000. Gross Margin is budgeted at 30% of sales dollars. If the net income for April is budgeted at $40,000, the budgeted selling and administrative expenses are: A. $133,333B. $50,000C. $102,000D. $78,000

* Solve backwards for this figure: $90,000 - $40,000 = $50,000


Noskey Corporation is a merchandising firm. Information pertaining to the company's sales revenue is presented in the following table.

Management estimates that 5% of credit sales are uncollectible. Of the credit sales that are collectible, 60% are collected in the month of sale and the remainder in the month following the sale. Purchases of inventory are equal to next month's cost of goods sold. The cost of goods sold is 70% of the selling price. All purchases of inventory are on account; 25% are paid in the month of purchase, and the remainder is paid in the month following the purchase.

9-21


51. Noskey Corporation's budgeted cash collections in July from June credit sales are: A. $144,000B. $136,800C. $96,000D. $91,200

Cash collections in July from June credit sales= ($240,000 x 95% collectible portion) x 40% = $91,200


52. Noskey Corporation's budgeted total cash receipts in August are: A. $240,000B. $294,000C. $299,400D. $239,400


9-22


53. Noskey Corporation's budgeted total cash payments in July for inventory purchases are: A. $405,000B. $283,500C. $240,000D. $168,000

Purchases of inventory for June = Next month's total sales x 70% cost of goods sold = $460,000 x 70% = $322,000Purchases of inventory for July = Next month's total sales x 70% cost of goods sold = $240,000 x 70% = $168,000July cash payments for inventory purchases:June purchases: $322,000 x 75% = $241,500July purchases: $168,000 x 25% = $42,000Total cash payments in July for inventory = $283,500

AACSB: AnalyticAICPA BB: Critical ThinkingAICPA FN: MeasurementLearning Objective: 2Learning Objective: 3Learning Objective: 4Level: Hard

Justin's Plant Store, a retailer, started operations on January 1. On that date, the only assets were $16,000 in cash and $3,500 in merchandise inventory. For purposes of budget preparation, assume that the company's cost of goods sold is 60% of sales. Expected sales for the first four months appear below.

The company desires that the merchandise inventory on hand at the end of each month be equal to 50% of the next month's merchandise sales (stated at cost). All purchases of merchandise inventory must be paid in the month of purchase. Sixty percent of all sales should be for cash; the balance will be on credit. Seventy-five percent of the credit sales should be collected in the month following the month of sale, with the balance collected in the following month. Variable selling and administrative expenses should be 10% of sales and fixed expenses (all depreciation) should be $3,000 per month. Cash payments for the variable selling and administrative expenses are made during the month the expenses are incurred.

9-23


54. In a budgeted income statement for the month of February, net income would be: A. $9,000B. $1,800C. $0D. $4,200


55. In a budgeted balance sheet, the Merchandise Inventory on February 28: A. $4,800B. $7,500C. $9,600D. $3,200

Merchandise Inventory on February 28 = 50% of next month's sales at cost= 50% x ($16,000 x 60%) = $4,800

AACSB: AnalyticAICPA BB: Critical ThinkingAICPA FN: MeasurementLearning Objective: 10Learning Objective: 2Level: Medium

9-24


56. The Accounts Receivable balance that would appear in the March 31 budgeted balance sheet would be: A. $15,000B. $16,000C. $8,800D. $12,400

AACSB: AnalyticAICPA BB: Critical ThinkingAICPA FN: MeasurementLearning Objective: 10Learning Objective: 2Learning Objective: 8Level: Medium

57. In a cash budget for March, the total cash receipts would be: A. $17,800B. $8,200C. $20,200D. $16,000

Cash receipts in March:


9-25


58. In a cash budget for March, the total cash disbursements would be: A. $11,200B. $13,900C. $22,300D. $16,900

Cash disbursements in March:

AACSB: AnalyticAICPA BB: Critical ThinkingAICPA FN: MeasurementLearning Objective: 3Learning Objective: 8Level: Hard

9-26


Dilom Farm Supply is located in a small town in the rural west. Data regarding the store's operations follow:

Sales are budgeted at $260,000 for November, $230,000 for December, and $210,000 for January. Collections are expected to be 55% in the month of sale, 40% in the month following the sale, and 5% uncollectible. The cost of goods sold is 80% of sales. The company purchases 50% of its merchandise in the month prior to the month of sale and 50% in the month of sale. Payment for merchandise is made in the month following the purchase. Other monthly expenses to be paid in cash are $21,700. Monthly depreciation is $17,000. Ignore taxes.

9-27


59. Expected cash collections in December are: A. $126,500B. $230,500C. $104,000D. $230,000


60. The cost of December merchandise purchases would be: A. $176,000B. $208,000C. $184,000D. $84,000


9-28


61. December cash disbursements for merchandise purchases would be: A. $184,000B. $196,000C. $176,000D. $84,000


9-29


62. The excess (deficiency) of cash available over disbursements for December would be: A. $12,800B. $8,600C. $17,000D. $4,200


9-30


63. The net income (loss) for December would be: A. $24,300B. $12,800C. ($4,200)D. $7,300


9-31


64. The cash balance at the end of December would be: A. $40,100B. $28,000C. $12,100D. $40,800


65. The accounts receivable balance, net of uncollectible accounts, at the end of December would be: A. $89,500B. $92,000C. $103,500D. $196,000

Sales in December not yet collected ($230,000 x 40%) = $92,000


9-32


66. Accounts payable at the end of December would be: A. $84,000B. $92,000C. $184,000D. $176,000

Merchandise purchases in December not yet paid [($230,000 x 50%) + ($210,000 x 50%)] x 80% = $176,000


9-33


67. Retained earnings at the end of December would be: A. $342,000B. $362,600C. $337,800D. $338,100


9-34


Braston Corporation is a small wholesaler of gourmet food products. Data regarding the store's operations follow:


9-35


68. Expected cash collections in December are: A. $91,000B. $330,000C. $322,000D. $231,000


69. The cost of December merchandise purchases would be: A. $231,000B. $119,000C. $245,000D. $234,500


9-36


70. December cash disbursements for merchandise purchases would be: A. $119,000B. $234,500C. $231,000D. $238,000


9-37


71. The excess (deficiency) of cash available over disbursements for December would be: A. $20,200B. $107,600C. $43,700D. $63,900

AACSB: AnalyticAICPA BB: Critical ThinkingAICPA FN: MeasurementLearning Objective: 8Level: HardSource: CMA, adapted

9-38


Super Drive is a computer hard drive manufacturer. The company's balance sheet for the fiscal year ended on November 30 appears below:

Additional information regarding Super Drive's operations appear below: Sales are budgeted at $520,000 for December and $500,000 for January. Collections are expected to be 60% in the month of sale and 40% in the month following sale. There are no bad debts. 80% of the disk drive components are purchased in the month prior to the month of the sale, and 20% are purchased in the month of the sale. Purchased components comprise 40% of the cost of goods sold. Payment for components purchased is made in the month following the purchase. Assume that the cost of goods sold is 80% of sales.

9-39


72. The budgeted cash collections for the upcoming December should be: A. $208,000B. $520,000C. $402,000D. $462,000


73. The balance in accounts payable on the budgeted balance sheet for December 31 should be: A. $161,280B. $326,400C. $165,120D. $403,200

* 32% = Cost of goods sold percent for purchases. If the overall cost of goods sold is 80% of sales and purchased components are 40% of the total cost of goods sold, then the cost of goods sold percentage for the purchased components must be 40% x 80%, or 32%.


9-40


74. The budgeted gross margin for the month ending December 31 would be: A. $416,000B. $104,000C. $134,000D. $536,000


Richards Company has the following budgeted sales for the first half of next year:

The company is in the process of preparing a cash budget and must determine the expected cash collections by month. To this end, the following information has been assembled:

Collections on credit sales:60% in month of sale30% in month following sale10% in second month following sale

9-41


75. Assume that the accounts receivable balance on January 1 is $70,000. Of this amount, $60,000 represents uncollected December sales and $10,000 represents uncollected November sales. Given these data, the total cash collected during January would be: A. $270,000B. $420,000C. $345,000D. $360,000

* December credit sales must be calculated as follows: $60,000 = (30% + 10%) x November sales, or $150,000.


76. What is the budgeted accounts receivable balance on May 31? A. $81,000B. $68,000C. $60,000D. $141,000


9-42


The LaGrange Company had the following budgeted sales for the first half of the current year:

The company is in the process of preparing a cash budget and must determine the expected cash collections by month. To this end, the following information has been assembled:

Collections on sales: 60% in month of sale30% in month following sale10% in second month following sale

The accounts receivable balance on January 1 of the current year was $70,000, of which $50,000 represents uncollected December sales and $20,000 represents uncollected November sales.

9-43


77. The total cash collected during January by LaGrange Company would be: A. $410,000B. $254,000C. $344,000D. $331,500

* December credit sales must be calculated as follows: $50,000 = (30% + 10%) x November sales, or $125,000.


78. What is the budgeted accounts receivable balance on June 1 of the current year? A. $56,000B. $64,000C. $76,000D. $132,000

AACSB: AnalyticAICPA BB: Critical ThinkingAICPA FN: MeasurementLearning Objective: 2Level: HardSource: CMA, adapted

9-44


Pardise Company plans the following beginning and ending inventory levels (in units) for July:

Two units of raw material are needed to produce each unit of finished product.

79. If Pardise Company plans to sell 480,000 units during July, the number of units it would have to manufacture during July would be: A. 440,000 unitsB. 480,000 unitsC. 510,000 unitsD. 450,000 units


9-45


80. If 500,000 finished units were to be manufactured during July, the units of raw material needed to be purchased would be: A. 1,000,000 unitsB. 1,020,000 unitsC. 1,010,000 unitsD. 990,000 units


Sarrazin Corporation is in the process of preparing its annual budget. The following beginning and ending inventory levels are planned for the year.

Each unit of finished goods requires 8 grams of raw material.

9-46


81. If the company plans to sell 640,000 units during the year, the number of units it would have to manufacture during the year would be: A. 670,000 unitsB. 640,000 unitsC. 690,000 unitsD. 590,000 units


82. How much of the raw material should the company purchase during the year? A. 4,720,000 gramsB. 4,700,000 gramsC. 4,730,000 gramsD. 4,740,000 grams


9-47


LDG Corporation makes and sells a product called Product WZ. Each unit of Product WZ requires 2.0 hours of direct labor at the rate of $10.50 per direct labor-hour. Management would like you to prepare a Direct Labor Budget for June.

83. The budgeted direct labor cost per unit of Product WZ would be: A. $12.50B. $10.50C. $21.00D. $5.25

Budgeted direct labor cost per unit = Direct labor-hours per unit x Direct labor rate = 2.0 x $10.50 = $21.00

AACSB: AnalyticAICPA BB: Critical ThinkingAICPA FN: MeasurementLearning Objective: 3Learning Objective: 5Level: Easy

84. The company plans to sell 22,000 units of Product WZ in June. The finished goods inventories on June 1 and June 30 are budgeted to be 100 and 400 units, respectively. Budgeted direct labor costs for June would be: A. $234,150B. $468,300C. $462,000D. $455,700

Units produced = Ending inventory + Units sold - Beginning inventory= 22,000 + 400 - 100 = 22,300Budgeted direct labor cost per unit = Direct labor-hours per unit x Direct labor rate = 2.0 x $10.50 = $21.00Budgeted direct labor cost = Units produced x Budgeted direct labor cost per unit= 22,300 x $21.00 = $468,300


9-48


Detmer Enterprises has budgeted sales for the next five months as follows:

Past experience has shown that the ending inventory for each month should be equal to 10% of the next month's sales in units. The inventory on December 31 contained 400 units, which was in excess of the desired level of inventory. The company needs to prepare a Production Budget for the first quarter of the year.

85. The total number of units needed (i.e., unit sales plus desired ending inventory) in March is: A. 6,120 unitsB. 6,080 unitsC. 5,400 unitsD. 5,940 units

Total number of units needed = Ending inventory + Units sold = (7,200 x 10%) + 5,400 = 6,120


9-49


86. The total number of units to be produced in January is: A. 4,480 unitsB. 3,800 unitsC. 4,080 unitsD. 3,500 units

Units produced = Ending inventory + Units sold - Beginning inventory= (6,800 x 10%) + 3,800 - 400 = 4,080


87. The desired ending inventory for April is: A. 460 unitsB. 540 unitsC. 720 unitsD. 680 units

Desired ending inventory for April = 10% of May sales = 10% x 4,600 = 460 units


9-50


Roberts Enterprises has budgeted sales in units for the next five months as follows:

Past experience has shown that the ending inventory for each month must be equal to 10% of the next month's sales in units. The inventory on May 31 contained 410 units. The company needs to prepare a production budget for the second quarter of the year.

88. The beginning inventory in units for September is: A. 370 unitsB. 6,700 unitsC. 530 unitsD. 670 units

Beginning inventory for September = Ending inventory for AugustEnding inventory for August = 10% x September sales= 10% x 6,700 = 670 units


9-51


89. The total number of units to be produced in July is: A. 7,630 unitsB. 7,100 unitsC. 6,920 unitsD. 7,280 units

Units produced = Ending inventory + Units sold - Beginning inventory= (5,300 x 10%) + 7,100 - (7,100 x 10%) = 6,920 units


90. The desired ending inventory for August is: A. 530 unitsB. 670 unitsC. 710 unitsD. 370 units

Ending inventory for August = 10% of September sales = 10% x 6,700 = 670 units


Hardin, Inc, has budgeted sales in units for the next five months as follows:

Past experience has shown that the ending inventory for each month should be equal to 15% of the next month's sales in units. The inventory on May 31 contained 1,020 units. The company needs to prepare a production budget for the next five months.

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91. The beginning inventory for September should be: A. 900 unitsB. 1,035 unitsC. 1,020 unitsD. 1,050 units

Beginning inventory for September = Ending inventory for AugustEnding inventory for August = 15% x September sales = 15% x 7,000 = 1,050 units


92. The total number of units produced in July should be: A. 6,500 unitsB. 5,600 unitsC. 5,660 unitsD. 5,540 units

Units produced = Ending inventory + Units sold - Beginning inventory= (6,000 x 15%) + 5,600 - (5,600 x 15%) = 5,660


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Coles Company, Inc. makes and sells a single product, Product R. Three yards of Material K are needed to make one unit of Product R. Budgeted production of Product R for the next five months is as follows:

The company wants to maintain monthly ending inventories of Material K equal to 20% of the following month's production needs. On July 31, this requirement was not met since only 2,500 yards of Material K were on hand. The cost of Material K is $0.85 per yard. The company wants to prepare a Direct Materials Purchase Budget for the rest of the year.

93. The total cost of Material K to be purchased in August is: A. $40,970B. $48,200C. $33,840D. $42,300


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94. The desired ending inventory of Material K for the month of September is: A. 7,560 yardsB. 8,400 yardsC. 8,700 yardsD. 9,300 yards


95. The total needs (i.e., production requirements plus desired ending inventory) of Material K for the month of November are: A. 37,800 yardsB. 44,940 yardsC. 37,380 yardsD. 45,360 yards


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Castil Corporation makes and sells a product called a Miniwarp. One Miniwarp requires 2.5 kilograms of the raw material Jurislon. Budgeted production of Miniwarps for the next five months is as follows:

The company wants to maintain monthly ending inventories of Jurislon equal to 20% of the following month's production needs. On July 31, this requirement was not met since only 9,700 kilograms of Jurislon were on hand. The cost of Jurislon is $5.00 per kilogram. The company wants to prepare a Direct Materials Purchase Budget for the next five months.

96. The desired ending inventory of Jurislon for the month of September is: A. $20,900B. $52,000C. $52,250D. $20,800


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97. The total cost of Jurislon to be purchased in August is: A. $302,250B. $451,500C. $250,000D. $253,750


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Smith Company makes and sells a single product called a Pod. Each Pod requires 1.4 hours of labor at a labor rate of $9.60 per hour. Smith Company needs to prepare a Direct Labor Budget for the second quarter of the year.

98. If the budgeted direct labor cost for April is $201,600, then the budgeted production of Pods for April would be: A. 21,000 unitsB. 29,400 unitsC. 18,273 unitsD. 15,000 units

Budgeted labor cost per Pod = Direct labor hours required per Pod x Direct labor rate per hour = 1.4 x $9.60 = $13.44Budgeted production in units = Total budgeted direct labor cost Per unit budgeted cost = $201,600 $13.44 = 15,000 units


99. The budgeted direct labor cost per Pod would be: A. $13.44B. $9.60C. $7.38D. $11.00

Budgeted labor cost per Pod = Direct labor hours required per Pod x Direct labor rate per hour = 1.4 x $9.60 = $13.44


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100. In June the company has budgeted to produce 22,000 Pods. The finished goods inventory on June 1 and June 30 were budgeted at 500 and 800 units, respectively. Budgeted direct labor costs incurred in June would be: A. $470,400B. $295,680C. $240,000D. $211,200

Budgeted labor cost per Pod = Direct labor hours required per Pod x Direct labor rate per hour = 1.4 x $9.60 = $13.44


The LFM Company makes and sells a single product, Product T. Each unit of Product T requires 1.3 hours of direct labor at a rate of $9.10 per direct labor-hour. LFM Company needs to prepare a Direct Labor Budget for the second quarter of next year.

101. The budgeted direct labor cost per unit of Product T would be: A. $9.10B. $11.83C. $7.00D. $10.40

Budgeted labor cost per Product T = Direct labor-hour required per T x Direct labor rate per hour = 1.3 x $9.10 = $11.83


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102. The company has budgeted to produce 25,000 units of Product T in June. The finished goods inventories on June 1 and June 30 were budgeted at 500 and 700 units, respectively. Budgeted direct labor costs for June would be: A. $293,384B. $304,031C. $295,750D. $227,500

Budgeted labor cost per Product T = Direct labor-hour required per T x Direct labor rate per hour = 1.3 x $9.10 = $11.83


The Culver Company is preparing its Manufacturing Overhead Budget for the third quarter of the year. Budgeted variable factory overhead is $3.00 per unit produced; budgeted fixed factory overhead is $75,000 per month, with $16,000 of this amount being factory depreciation.

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103. If the budgeted production for July is 6,000 units, then the total budgeted factory overhead for July is: A. $77,000B. $82,000C. $85,000D. $93,000


104. If the budgeted production for August is 5,000 units, then the total budgeted factory overhead per unit is: A. $15B. $18C. $20D. $22


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105. If the budgeted cash disbursements for factory overhead for September are $80,000, then the budgeted production for September must be: A. 7,400 unitsB. 6,200 unitsC. 6,500 unitsD. 7,000 units


The Charade Company is preparing its Manufacturing Overhead budget for the fourth quarter of the year. The budgeted variable factory overhead is $5.00 per direct labor-hour; the budgeted fixed factory overhead is $75,000 per month, of which $15,000 is factory depreciation.

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106. If the budgeted direct labor time for November is 7,000 hours, then the total budgeted factory overhead for November is: A. $95,000B. $110,000C. $75,000D. $125,000


107. If the budgeted cash disbursements for factory overhead for December total $105,000, then the budgeted direct labor-hours for December must be: A. 6,000 hoursB. 21,000 hoursC. 9,000 hoursD. 3,000 hours


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108. If the budgeted direct labor time for December is 8,000 hours, then total budgeted factory overhead per direct labor-hour is (rounded): A. $14.38B. $9.38C. $12.50D. $16.25


Davie Corporation is preparing its Manufacturing Overhead Budget for the fourth quarter of the year. The budgeted variable factory overhead rate is $6.00 per direct labor-hour; the budgeted fixed factory overhead is $92,000 per month, of which $16,000 is factory depreciation.

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109. If the budgeted direct labor time for October is 8,000 hours, then the total budgeted factory overhead for October is: A. $140,000B. $76,000C. $64,000D. $124,000


110. If the budgeted direct labor time for November is 9,000 hours, then the total budgeted cash disbursements for November must be: A. $130,000B. $146,000C. $70,000D. $76,000


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111. If the budgeted direct labor time for December is 4,000 hours, then the predetermined factory overhead per direct labor-hour for December would be: A. $6.00B. $29.00C. $25.00D. $10.00


Dano Inc. bases its manufacturing overhead budget on budgeted direct labor-hours. The variable overhead rate is $1.50 per direct labor-hour. The company's budgeted fixed manufacturing overhead is $110,200 per month, which includes depreciation of $28,880. All other fixed manufacturing overhead costs represent current cash flows. The direct labor budget indicates that 7,600 direct labor-hours will be required in December.

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112. The December cash disbursements for manufacturing overhead on the manufacturing overhead budget should be: A. $92,720B. $121,600C. $81,320D. $11,400


113. The company recomputes its predetermined overhead rate every month. The predetermined overhead rate for December should be: A. $14.50B. $12.20C. $16.00D. $1.50


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The manufacturing overhead budget at Waycaster Corporation is based on budgeted direct labor-hours. The direct labor budget indicates that 6,000 direct labor-hours will be required in February. The variable overhead rate is $3.40 per direct labor-hour. The company's budgeted fixed manufacturing overhead is $81,600 per month, which includes depreciation of $18,000. All other fixed manufacturing overhead costs represent current cash flows.

114. The company recomputes its predetermined overhead rate every month. The predetermined overhead rate for February should be: A. $17.00B. $13.60C. $14.00D. $3.40


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115. The February cash disbursements for manufacturing overhead on the manufacturing overhead budget should be: A. $20,400B. $63,600C. $102,000D. $84,000


Porus Corporation makes and sells a single product called a Yute. The company is in the process of preparing its Selling and Administrative Expense Budget for the last quarter of the year. The following budget data are available:

All of these expenses (except depreciation) are paid in cash in the month they are incurred.

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116. If the company has budgeted to sell 19,000 Yutes in November, then the total budgeted selling and administrative expenses for November would be: A. $529,100B. $189,000C. $340,100D. $528,100


117. If the company has budgeted to sell 20,000 Yutes in December, then the budgeted total cash disbursements for selling and administrative expenses for December would be: A. $546,000B. $547,000C. $189,000D. $358,000


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118. If the total budget for selling and administrative expense for October is $493,300, then how many Yutes does the company plan to sell in October? A. 17,500 unitsB. 17,000 unitsC. 17,200 unitsD. 16,700 units


The Adams Company, a merchandising firm, has budgeted its activity for November according to the following information:

Sales at $450,000, all for cash Merchandise inventory on October 31 was $200,000. The cash balance November 1 was $18,000. Selling and administrative expenses are budgeted at $60,000 for November and are paid for in cash. Budgeted depreciation for November is $25,000. The planned merchandise inventory on November 30 is $230,000. The cost of goods sold is 70% of the selling price. All purchases are paid for in cash.

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119. The budgeted cash receipts for November are: A. $315,000B. $450,000C. $135,000D. $475,000

Budgeted cash receipts for November:Sales = $450,000 (All sales are cash)


120. The budgeted cash disbursements for November are: A. $345,000B. $375,000C. $530,000D. $405,000


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121. The budgeted net income for November is: A. $50,000B. $68,000C. $75,000D. $135,000


Palmerin Corporation is preparing its cash budget for November. The budgeted beginning cash balance is $30,000. Budgeted cash receipts total $167,000 and budgeted cash disbursements total $171,000. The desired ending cash balance is $50,000.

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122. The excess (deficiency) of cash available over disbursements for November is: A. $34,000B. ($4,000)C. $26,000D. $197,000


123. To attain its desired ending cash balance for November, the company should borrow: A. $0B. $76,000C. $50,000D. $24,000


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Crose Inc. is working on its cash budget for November. The budgeted beginning cash balance is $22,000. Budgeted cash receipts total $118,000 and budgeted cash disbursements total $116,000. The desired ending cash balance is $40,000.

124. The excess (deficiency) of cash available over disbursements for November will be: A. $2,000B. $20,000C. $24,000D. $140,000


125. To attain its desired ending cash balance for November, the company needs to borrow: A. $16,000B. $40,000C. $0D. $64,000


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Carner Lumber sells lumber and general building supplies to building contractors in a medium-sized town in Montana. Data regarding the store's operations follow:


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126. The net income for December would be: A. $59,200B. $83,400C. $66,400D. $72,600


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127. The cash balance at the end of December would be: A. $91,600B. $205,500C. $186,500D. $19,000


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128. The accounts receivable balance, net of uncollectible accounts, at the end of December would be: A. $94,900B. $46,800C. $90,200D. $54,000

Sales in December not yet collected ($360,000 x 13%) = $46,800


129. Accounts payable at the end of December would be: A. $176,400B. $252,000C. $247,800D. $71,400

Merchandise purchases in December not yet paid [($340,000 x 30%) + ($360,000 x 70%)] x 70% = $247,800


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130. Retained earnings at the end of December would be: A. $224,500B. $147,900C. $88,700D. $209,900


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Essay Questions

131. Carter Company has projected sales and production in units for the second quarter of next year as follows:

Required:

a. Cash production costs are budgeted at $6 per unit produced. Of these production costs, 40% are paid in the month in which they are incurred and the balance in the following month. Selling and administrative expenses (all of which are paid in cash) amount to $120,000 per month. The accounts payable balance on March 31 totals $192,000, all of which will be paid in April. Prepare a schedule for each month showing budgeted cash disbursements for Carter Company.

b. Assume that all units will be sold on account for $15 each. Cash collections from sales are budgeted at 60% in the month of sale, 30% in the month following the month of sale, and the remaining 10% in the second month following the month of sale. Accounts receivable on March 31 totaled $510,000 $(90,000 from February's sales and the remainder from March). Prepare a schedule for each month showing budgeted cash receipts for Carter Company.

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AACSB: AnalyticAICPA BB: Critical ThinkingAICPA FN: MeasurementLearning Objective: 2Learning Objective: 3Learning Objective: 4Learning Objective: 7Level: Medium

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132. Weltin Industrial Gas Corporation supplies acetylene and other compressed gases to industry. Data regarding the store's operations follow:


Required:

a. Prepare a Schedule of Expected Cash Collections for November and December.

b. Prepare a Merchandise Purchases Budget for November and December.

c. Prepare Cash Budgets for November and December.

d. Prepare Budgeted Income Statements for November and December.

e. Prepare a Budgeted Balance Sheet for the end of December.

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AACSB: AnalyticAICPA BB: Critical ThinkingAICPA FN: MeasurementLearning Objective: 10Learning Objective: 2Learning Objective: 3Learning Objective: 8Learning Objective: 9Level: Hard

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133. TabComp Inc. is a retail distributor for MZB-33 computer hardware and related software. TabComp prepares annual sales forecasts of which the first six months of the coming year are presented below.

Cash sales account for 25% of TabComp's total sales, 30% of the total sales are paid by bank credit card, and the remaining 45% are on open account (TabComp's own charge accounts). The cash and bank credit card sale payments are received in the month of the sale. Bank credit card sales are subject to a 4 % discount which is deducted immediately. The cash receipts for sales on open account are 70% in the month following the sale, 28% in the second month following the sale, and the remaining are uncollectible.TabComp's month-end inventory requirements for computer hardware units are 30% of the next month's sales. The units must be ordered two months in advance due to long lead times quoted by the manufacturer.

Required:

a. Calculate the cash that TabComp can expect to collect during April. Show all of your calculations.

b. Determine the number of computer hardware units that should be ordered in January. Show all of your calculations.

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a. The cash that TabComp can expect to collect during April is calculated below.

b. The number of units that TabComp should order in January is calculated as follows.


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134. Capid Corporation is a wholesaler of industrial goods. Data regarding the store's operations follow: Sales are budgeted at $360,000 for November, $330,000 for December, and $320,000 for January. Collections are expected to be 60% in the month of sale, 36% in the month following the sale, and 4% uncollectible. The cost of goods sold is 75% of sales. The company purchases 40% of its merchandise in the month prior to the month of sale and 60% in the month of sale. Payment for merchandise is made in the month following the purchase. The November beginning balance in the accounts receivable account is $77,000. The November beginning balance in the accounts payable account is $271,000.

Required:

a. Prepare a Schedule of Expected Cash Collections for November and December.

b. Prepare a Merchandise Purchases Budget for November and December.


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135. Tilson Company has projected sales and production in units for the second quarter of the coming year as follows:

Cash-related production costs are budgeted at $7 per unit produced. Of these production costs, 40% are paid in the month in which they are incurred and the balance in the following month. Selling and administrative expenses will amount to $110,000 per month. The accounts payable balance on March 31 totals $193,000, which will be paid in April.All units are sold on account for $16 each. Cash collections from sales are budgeted at 60% in the month of sale, 30% in the month following the month of sale, and the remaining 10% in the second month following the month of sale. Accounts receivable on April 1 totaled $520,000 $(100,000 from February's sales and the remainder from March).

Required:

a. Prepare a schedule for each month showing budgeted cash disbursements for the Tilson Company.

b. Prepare a schedule for each month showing budgeted cash receipts for Tilson Company.

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Payments relating to the prior month (March) in April represent the balance of accounts payable at March 31.


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136. A sales budget is given below for one of the products manufactured by the Key Co.:

The inventory of finished goods at the end of each month must equal 20% of the next month's sales. On December 31, the finished goods inventory totaled 4,000 units.Each unit of product requires three specialized electrical switches. Since the production of these specialized switches by Key's suppliers is sometimes irregular, the company has a policy of maintaining an ending inventory at the end of each month equal to 30% of the next month's production needs. This requirement had been met on January 1 of the current year.

Required:

Prepare a budget showing the quantity of switches to be purchased each month for January, February, and March and in total for the quarter.

The company's production budget is as follows:

The materials purchases budget (based on the above production budget) would be as follows:

*69,000 x 0.30 =20,700**38,000 x 3 = 114,000; 114,000 x 0.30 = 34,200

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137. Glinski Corporation is working on its direct labor budget for the next two months. Each unit of output requires 0.29 direct labor-hours. The direct labor rate is $7.00 per direct labor-hour. The production budget calls for producing 5,600 units in June and 6,100 units in July.

Required:

Construct the direct labor budget for the next two months, assuming that the direct labor work force is fully adjusted to the total direct labor-hours needed each month.


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138. Deviney Corporation is working on its direct labor budget for the next two months. Each unit of output requires 0.86 direct labor-hours. The direct labor rate is $8.20 per direct labor-hour. The production budget calls for producing 6,500 units in July and 6,000 units in August. The company guarantees its direct labor workers a 40-hour paid work week. With the number of workers currently employed, that means that the company is committed to paying its direct labor work force for at least 5,600 hours in total each month even if there is not enough work to keep them busy.

Required:

Construct the direct labor budget for the next two months.


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139. Gokey Inc. bases its manufacturing overhead budget on budgeted direct labor-hours. The variable overhead rate is $5.10 per direct labor-hour. The company's budgeted fixed manufacturing overhead is $78,840 per month, which includes depreciation of $20,520. All other fixed manufacturing overhead costs represent current cash flows. The November direct labor budget indicates that 5,400 direct labor-hours will be required in that month.

Required:

a. Determine the cash disbursement for manufacturing overhead for November.

b. Determine the predetermined overhead rate for November.


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140. The manufacturing overhead budget of Inch Corporation is based on budgeted direct labor-hours. The September direct labor budget indicates that 4,400 direct labor-hours will be required in that month. The variable overhead rate is $5.00 per direct labor-hour. The company's budgeted fixed manufacturing overhead is $59,400 per month, which includes depreciation of $10,560. All other fixed manufacturing overhead costs represent current cash flows.

Required:

a. Determine the cash disbursement for manufacturing overhead for September. Show your work!

b. Determine the predetermined overhead rate for September. Show your work!


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141. Borling Inc. bases its selling and administrative expense budget on the number of units sold. The variable selling and administrative expense is $8.30 per unit. The budgeted fixed selling and administrative expense is $93,870 per month, which includes depreciation of $16,380. The remainder of the fixed selling and administrative expense represents current cash flows. The sales budget shows 6,300 units are planned to be sold in July.

Required:

Prepare the selling and administrative expense budget for July.


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142. The selling and administrative expense budget of Hiser Corporation is based on the number of units sold, which are budgeted to be 1,900 units in August. The variable selling and administrative expense is $6.10 per unit. The budgeted fixed selling and administrative expense is $22,420 per month, which includes depreciation of $5,130. The remainder of the fixed selling and administrative expense represents current cash flows.

Required:

Prepare the selling and administrative expense budget for August.


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143. Matuseski Corporation is preparing its cash budget for October. The budgeted beginning cash balance is $17,000. Budgeted cash receipts total $187,000 and budgeted cash disbursements total $177,000. The desired ending cash balance is $40,000. The company can borrow up to $120,000 at any time from a local bank, with interest not due until the following month.

Required:

Prepare the company's cash budget for October in good form.


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144. Payment Inc. is preparing its cash budget for February. The budgeted beginning cash balance is $27,000. Budgeted cash receipts total $136,000 and budgeted cash disbursements total $128,000. The desired ending cash balance is $50,000. The company can borrow up to $110,000 at any time from a local bank, with interest not due until the following month.

Required:

Prepare the company's cash budget for February in good form. Make sure to indicate what borrowing, if any, would be needed to attain the desired ending cash balance.


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Documents

Chap 009