Seminar 11Answer Group 11.pptx

7/27/2019 Seminar 11Answer Group 11.pptx

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Lecture 11

Budgeting

Group 9

Lew Kar Cheng

Chow Wan Xuan

Natelie Lim Xiu Wei

Aaron Ho Kiu Hieng


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Definition of Budgeting

A comprehensive financial plan that specifies

how resources will be acquired and used during

a specified period of time.


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Management Process

Planning

Controlling

Decision Making


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The Sales Budget

Forecasts of customer needs from marketingpersonnel

Analysis of economic and market conditions

Estimated

Unit Sales

Estimated

Unit Price

Sales Budget


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Sales Budget

Production Budget

DM Budget DL Budget MOH Budget

S & A

Budget

* Do not include non-cash outflow(ex: depreciation)

Cash Budget

Units to be produced

Computation Process

Budgeted Income Statement Budgeted Balance Sheet

Direct

Labor

Cost

MOHMaterial

PurchasesS&A expense

Budgeted Unit Sales

Cash Receipts

Budget

Cash Receipts


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Question 1


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Question 1

Pearl Products Limited of Shenzhen, China,manufactures and distributes toys throughout

South East Asia. Three cubic centimeters (cc) of

solvent H300 are required to manufacture eachunit of Supermix, one of the company's products.The company is now planning raw materials needs

for the third quarter, the quarter in which peak

sales of Supermix occur. To keep production andsales moving smoothly, the company has thefollowing inventory requirements


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Question 1

a. The finished goods inventory on hand at the end of

each month must be equal to 3,000 units of Supermix

plus 20% of the next month's sales. The finished goods

inventory on June 30 is budgeted to be 10,000 units.

EI = 3000 units + 20% of next monthss sales


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Question 1

b. The raw materials inventory on hand at the

end of each month must be equal to one-half of

the following month's production needs for raw

materials. The raw materials inventory on June30 is budgeted to be 54,000 cc of solvent H300.

EI = (next months production needs for raw materials)


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Question 1

c. The company maintains no work in process

inventories. A sales budget for Supermix for the

last six months of the year follows.

Month Budgeted Sales in Units

July 35,000

August 40,000

September 50,000October 30,000

November 20,000

December 10,000


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1-1. Prepare a production budget for Supermix for the

months July, August, September, and October.

COGS = COGM + Beginning Finished Goods

Inventory Ending Finished Goods Inventory

Goods Sold (Unit) = Goods to be manufactured (Unit) + Beginning

Finished Goods Inventory Ending Finished Goods Inventory

Goods to be manufactured (Unit) = Goods Sold (Unit) - Beginning

Finished Goods Inventory + Ending Finished Goods Inventory


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Question 1-1Jul Aug Sept Oct Nov

Budgeted

Sales(Unit)

35,000 40,000 50,000 30,000 20,000

Desired EI(Units) 11,000 13,000 9,000 7,000 5,000

Total Unitsneeded

46,000 53,000 59,000 37,000 25,000

Less: BI(Units) 10,000 11,000 13,000 9,000 7,000

Units to produce 36,000 42,000 46,000 28,000 18,000

EI = 3000 + 20% of next monthss sales

The Ending Inventory on June 30 = 10,000 units

Budgeted Sales in December = 10,000 units


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Question 1-2

Examine the production budget that you

prepared in (1) above. Why will the company

produce more units than it sells in July andAugust, and fewer units than it sells in

September and October?

In Jul and Aug,

Units to produce > Budgeted Sales

In Sept and October,

Units to produce < Budgeted Sales

WHY???


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Question 1-2

EI > BI UTP > BS(Unit)

EI < BI UTP < BS(Unit)


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1-3. Prepare a direct materials budget showing the

quantity of solvent H300 to be purchased for July,

August, and September, and for the quarter intotal.

Beginning Ending Materials

Materials + Purchases - Materials = Used inInventory Inventory Production

Materials Ending Beginning

Purchases = Required in + Materials - MaterialsProduction Inventory Inventory


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Question 1-3

Jul Aug Sept Oct

Units to produce 36,000 42,000 46,000 28,000

cc per unit 3 3 3 3

Material needs(cc) 108,000 126,000 138,000 84,000

Desired EI(cc) 63,000 69,000 42,000

Total Material needs(cc) 171,000 195,000 180,000

Less: BI(cc) 54,000 63,000 69,000

Material purchases(cc) 117,000 132,000 111,000

EI = (next months production needs for raw materials)

For the quarter year, the quantity of solvent H300 to be purchased

= 117,000 + 132,000 + 111,000 = 360,000 cc


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Question 2


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Qn 2


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Cash Budget Divided into four sections

Cash receipts which lists all cash inflows

except financing

Cash payments except repayments ofprincipal and interest

Cash excess/deficiency that determines

whether there is a need to borrow or repay

Financing section which details borrowings

and repayments projected to take place


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a) Compute budgeted cash receipts for

the quarter

Budgeted cash receipts for quarter

=

receipts from previous quarter

+

receipts from current quarter


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250,000 + (0.70 x 700,000) = $740,000

Previousquarter,

found in

accountsreceivable

Only 70

percent is

collected


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b) Compute payments of current payables

budgeted for the quarter

Beginning balance

+

Amount financed by current payables-

Ending balance of current payables


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c) Compute cash prepayments budgeted

for the quarter

$ 18,000.

Since ending balance equals to beginning

balance which is $18,000.


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d) Prepare cash budget for the quarter

How cash budget looks like:


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Beginning cash balance $10,000

Cash receipts 740,000

Total cash receipts $750,000

Cash payments:

Payments of current payables $427,000

Tax liability payment 50,000

Prepayments 18,000

Total cash payments $495,000

Balance before financing $255,000

Borrowing 0

Debt service payment 260,000

Ending cash balance ($5,000)


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e) Estimate short term borrowing

requirements for the quarter

$ 15,000 as the ending cash balance is

($5,000) and to meet the minimum cashbalance of $10,000 :

$5,000 + $10,000 = $15,000


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f) Discuss problems Peter might

encounter in obtaining short term

financingLooking at Peter Corporations debt ratio which

is 0.9 is close to 1 indicates that banks may

not be so willing to offer short term finance asthe company is nearing to the point where

debts are more than assets.

Thus the interest given to Peter could be high(cost of borrowing high) which is not favorable

for the company.


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Static vs. Flexible Budgets

Static Budgets

prepared for a fixed activity level.

Flexible Budgets

prepared formultiple activity levels


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Static Budgeting

Original Budget Actual Results Variances

Units of Activity 10,000 8,000 2000

Variable costsIndirect labor 40,000$ 34,000$ $6,000 F

Indirect material 30,000 25,500 4,500 F

Power 5,000 3,800 1,200 F

Fixed Costs

Depreciation 12,000$ 12,000$ 0

Insurance 2,000 2,000 0

Total overhead costs 89,000$ 77,300$ $11,700 F


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Original Budget Actual Results Variances


Variable costs

Indirect labor 40,000$ 34,000$ $6,000 F

Indirect material 30,000 25,500 4,500 F

Power 5,000 3,800 1,200 F

Fixed Costs

Depreciation 12,000$ 12,000$ 0Insurance 2,000 2,000 0

Total overhead costs 89,000$ 77,300$ $11,700 F

Static Budgeting

Favorable variance: actual costs

less than budgeted costs.

Qn: Since cost

variances are

favorable, has the

company done a

good job incontrolling costs?


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1)Note that variable costs will vary with the

volume of production.

2)Since the actual volume of production is lowerthan the budgeted volume of production, then

we can conclude that the actual variable costs is

lowerthan the budgeted variable costs.

3)Therefore, it is difficult to ascertain that the

favorable variance cost is due to lower activity

of production or due to good cost control.

4)Hence, we have to flex the budget to the actual

level of activity.


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Limitation of Static Budgets

Performance evaluation is difficult when actual

activity differs from activity originally budgeted.

Comparing apples with oranges.


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Flexible Budgeting

May be prepared forany activity level in the

relevant range.

Show expenses that should have occurred at the

actual level of activity.

Reveal variances due to good cost control orlack

of cost control.

Improveperformance evaluation.


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Fixed costs Variable costs

Constant at total unit

basis

Constant at per unit basis

Amount does not varywith changes in activity

Amount vary withchanges in activity


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Flexible budgeting

Cost TotalFormula Fixed Flexible Actual

Per Hour Costs Budget Results Variances


Variable costsIndirect labor 4.00$ 32,000$ 34,000$ $ 2,000 U

Indirect material 3.00 24,000 25,500 1,500 U

Power 0.50 4,000 3,800 200 F

Total variable costs 7.50$ 60,000$ 63,300$ $ 3,300 U

Fixed CostsDepreciation 12,000$ 12,000$ 12,000$ 0

Insurance 2,000 2,000 2,000 0

Total fixed costs 14,000$ 14,000$ 0

Total overhead costs 74,000$ 77,300$ $ 3,300 U

Variable rate= originalbudget variable cost/

original budget unit of

activity

Flexible budgetvariable cost=variable

rate x flexible budget

units of activity

Fixed costs areexpressed as a total

amount that does

not change within

the relevant range of

activity.


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Flexible budgeting

Cost TotalFormula Fixed Flexible Actual

Per Hour Costs Budget Results Variances


Variable costsIndirect labor 4.00$ 32,000$ 34,000$ $ 2,000 U

Indirect material 3.00 24,000 25,500 1,500 U

Power 0.50 4,000 3,800 200 F

Total variable costs 7.50$ 60,000$ 63,300$ $ 3,300 U

Fixed CostsDepreciation 12,000$ 12,000$ 12,000$ 0

Insurance 2,000 2,000 2,000 0


Total overhead costs 74,000$ 77,300$ $ 3,300 U

Now, indirect labor and indirect material

have unfavorable variances because actual

costs are more than the flexible budget

costs.


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Question 3


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Tutorial Qn 3

A few years ago, Eastern Digital Corporationimplemented a systematic budgeting process forprofit planning and control purposes. While the

majority of departmental managers are happywith the new process, the factory manager hasexpressed his unhappiness with the informationbeing generated by the system.

A typical departmental cost report for a recentperiod follows:


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Assembly Department

Cost Report

for the month ended 31

March, 2012Planning Actual Variance

Budget Results

Machine hours 40,000 35,000

Variable costs:

Supplies $ 32,000 $ 29,700 $ 2,300 F

Scrap $ 20,000 $ 19,500 $ 500 F

Indirect materials $ 56,000 $ 51,800 $ 4,200 F

Fixed costs:

Wages and salaries $ 80,000 $ 79,200 $ 800 F

Equipment depreciation $ 60,000 $ 60,000 --

Total Cost $ 248,000 $ 240,200 $ 7,800 F


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(a) The companys CEO is uneasy about the cost


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(a) The companys CEO is uneasy about the cost

reports and would like you to evaluate their usefulness

to the company.

The reports as prepared are oflittle use to the

company.

This is because the company is using a static budget

to compare budgeted performance at one level ofactivity to actual performance at another level of

activity.

Although the reports do a good job of showing

whether or not the budgeted level of activity was

attained, they do not tell whether costs were

controlled for the activity level that was actually

worked during the period.

(b)Wh t h if h ld b d i th


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(b)What changes, if any, should be made in the

reports to give better insight into how well

departmental supervisors are controlling costs?

The company should use a flexible budget

approach to evaluate control over costs.

Under the flexible budget approach, the actualcosts incurred in working 35,000 machine

hours should be compared tobudgeted costs at

that activity level.

(c) Prepare a new performance report


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(c) Prepare a new performance report,

incorporating any changes you suggested in

question (b) above.Assembly Department

Cost Report

for the month ended 31 March, 2012

Cost Formula Total Flexible Actual Variance

per hour fixed costs Budget Results

Machine hours 35,000 35,000 0

Variable costs:

Supplies $0.80 28,000$ 29,700$ 1,700$ U

Scrap $0.50 17,500$ 19,500$ 2,000$ U

Indirect materials $1.40 49,000$ 51,800$ 2,800$ U

Total variable costs $2.70 94,500$ 101,000$ 6,500$ U

Fixed costs:

Wages and salaries 79,200$ 79,200$ 79,200$ 0

Equipment depreciation 60,000$ 60,000$ 60,000$ 0


Total overhead costs $233,700 $240,200 $6,500 U

Variable rate= original

budget variable cost/


activity


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Variable rate= original

budget variable cost/


activity

Variable rate for supplies= $32,000/40,000 = $0.8

Variable rate for scrap= $20,000/40,000=$0.5

Variable rate for indirect materials=

$56,000/40,000= $1.4

Assembly DepartmentCost Report


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Cost Report


Cost Formula Total Flexible Actual Variance

per hour fixed costs Budget Results


Variable costs:

Supplies $0.80 28,000$ 29,700$ 1,700$ U

Scrap $0.50 17,500$ 19,500$ 2,000$ U



Fixed costs:Wages and salaries 79,200$ 79,200$ 79,200$ 0




Flexible budget

variable cost=variable

rate x flexible budget

units of activity

Tutors Comments:

Note that for wages and salaries, the Budgeted Cost is $80,000, so there is a

800 Favourable variance. Final answer is $5,700 U


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Flexible budget variable

cost=variable rate x flexible

budget units of activity

Flexible budget:

Variable costs:

Supplies ($0.8 x 35,000=$28,000)

Scrap ($0.5 x 35,000=$17,500)

Indirect materials ($1.4 x 35,000=$$49,000)


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Assembly Department

Cost Report


Cost Formula Total Flexible Actual Varianceper hour fixed costs Budget Results


Variable costs:

Supplies $0.80 28,000$ 29,700$ 1,700$ U

Scrap $0.50 17,500$ 19,500$ 2,000$ U



Fixed costs:

Wages and salaries 79,200$ 79,200$ 79,200$ 0




Fixed costs are expressed as a total

amount that does not change within the

relevant range of activity.

(d) H ll t t ll d i th A bl


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(d) How well were costs controlled in the Assembly

Department in March?

Supplies, scrap and indirect materials haveunfavorable variances as actual costs are more

than the flexible budget costs.

The unfavorable cost variance indicates that there

ispoor cost control in the Assembly Department

in March.


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Question 4(Financial Accounting)


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Question 1

An accountant forgot to record four

adjustments during 2010.

Which one of the following omissions of

adjustments will

overstate assets?


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Question 1

(A) Unearned revenue is not reduced for the

portion that has been earned.

(B) Interest on fixed deposits has not yet

been recorded.

(C) Office supplies are not reduced for the

portion that has been used.

(D) Income taxes owed but not yet paid are

ignored.


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Question 1

(A) Unearned revenue is not reduced for the

portion that has been earned.

Debit. Unearned RevenueCredit. Sales Revenue

Liabilities

Revenues

- Overstates Liabilities- Understates Revenue Understates Net Income

Understates Stockholders Equity


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Question 1

(B) Interest on fixed deposits has not yet

been recorded.

Debit. Cash/Interest ReceivablesCredit. Interest Received

Assets

Revenues

- Understates Assets- Understates Revenue Understates Net Income

Understates Stockholders Equity


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Question 1

(C) Office supplies are not reduced for the


Debit. Office Supplies ExpenseCredit. Office Supplies

Expenses

Assets

- Overstates Assets- Understates Expenses Overstates Net Income

Overstates Stockholders Equity


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Question 1

(D) Income taxes owed but not yet paid are

ignored.

Debit. Income Tax Expense

Credit. Income Tax Payable

Expenses

Liabilities

- Understates Liabilities- Understates Expenses Overstates Net Income

Overstates Stockholders Equity


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Question 1

An accountant forgot to record four adjustments

during 2010. Which one of the following omissions of

adjustments will overstate assets?

Ans: (C) Office supplies are not reduced for the



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Question 2

In October, an inexperienced book-keeper

capitalized the

cost of replacing the car batteryof a 5-year old companys car to an

asset account.This entry


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Question 2

(A) overstates the total book value of plant assets onthe Octobers balance sheet, but has no effect onthe amount of net income reported duringOctober.

(B) overstates the total book value of plant assets onthe Octobers balance sheet and understatesamount of net income reported during October.

(C) overstates the total book value of plant assetsreported on the Octobers balance sheet and the

amount of net income reported during October.(D) has no effect on the book value of plant assets on

the Octobers balance sheet or the amount of netincome reported during October.


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Question 2

How does this affect

Total book value of plant assetsand

Net Income?


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Question 2

Cost of replacing

the car battery Expenses

- Overstates Assets (Book value of plant assets)

- Understates Expenses Overstates Net Income


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Question 2

In October, an inexperienced book-keeper capitalized

the cost of replacing the car battery of a 5-year old

companys car to an asset account. This entry

Ans: (C) overstates the total book value of plant

assets reported on the Octobers

balance sheet and the amount of netincome reported during October.


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Question 3

Unison Company reported net credit sales of

$2,800,000 and cost of goods sold of

$1,800,000 for 2010. Its beginning balance of

accounts receivable was $320,000. During2010, the accounts receivable balance

decreased by $60,000. What is Unisons

accounts receivable turnover rate for 2010(rounded to two decimal places)?


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Question 3

Net Credit Sales = $2,800,000

COGS = $1,800,000

Beginning Accounts Receivable = $320,000

Ending Accounts Receivable

= $320,000 - $60,000

= $260,000


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Question 3

Accounts Receivable Turnover Rate

=


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Question 3

Average Accounts Receivable

= +

=$,+$,

= $290,000


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Question 3

Accounts Receivable Turnover Rate

=$,,$,

= 9.66


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Question 3

Unison Company reported net credit sales of $2,800,000 andcost of goods sold of $1,800,000 for 2010. Its beginning balance

of accounts receivable was $320,000. During 2010, the accounts

receivable balance decreased by $60,000. What is Unisons

accounts receivable turnover rate for 2010 (rounded to twodecimal places)?

Ans: (B) 9.66


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Question 4

Art & Co. sold goods to Party House on 28

December 2009, with shipping terms of

FOB destination point.Party House received the goods on 3 January

2010. Which of the following is true?


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Question 4

Recall:


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Question 4

28 December 2009

3 January 2010

Art & Co. Party House


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Question 4

(A) Art & Co. should record the sales revenueon 28 December 2009.

28 December 2009

3 January 2010



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Question 4

(B) Party House should pay thetransportation costs.

28 December 2009

3 January 2010



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Question 4

(C) Party House should include the goods inits inventory at 31 December 2009.

28 December 2009

3 January 2010



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Question 4

(D) Party House should record a liability forthe purchase on 3 January 2010.

28 December 2009

3 January 2010



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Question 4 (4)

Art & Co. sold goods to Party House on 28 December2009, with shipping terms of FOB destination point.

Party House received the goods on 3 January 2010.

Which of the following is true?

Ans: (D) Party House should record a liability

for the purchase on 3 January 2010.


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Question 5

For the most recent year, DC Banks current

ratio was significantly lower than that for

the industry.What is the best possible explanation for this

situation?


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Question 5

=

Lower:

- Current Assets

- Current Liabilities


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Question 5

(A) The other companies in the industry wereprofitable.

Net Income?

(B) DC Banks liquidity has improved.


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Question 5

(C) DC Bank has less equity than the rest ofthe industry.

(D) DC Banks liquidity is worse than the rest

of the industry.


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Question 5

For the most recent year, DC Banks current ratio was

significantly lower than that for the industry. What is

the best possible explanation for this situation?

Ans: (D) DC Banks liquidity is worse than the

rest of the industry.


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Question 6

Logistics Transport purchased a truck on 1January 2008 for $40,000.

The truck had an estimated life of5 years and

an estimated residual value of$5,000.Logistics used the straight-line method to

depreciate the asset.

On 1 July 2010, the truck was sold for $7,000cash.

The journal entry to record the sale of the truckin 2010


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Question 4 (6)

=

=$, $,

= $, /


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Question 6

Period Depreciation

1 Jan 31 Dec, 2008 $ 7,000

1 Jan 31 Dec, 2009 7,000

1 Jan 31 June, 2010 3,500

Total $17,500


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Question 6

Cost $ 40,000

- Accumulated Depreciation 17,500

Book Value 22,500

- Cash Received 7,000

Loss on Disposal $ 15,500


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Question 6

Account Titles Debit Credit

Cash $ 7,000

Loss on Disposal 15,500

Accumulated Depreciation: Truck 17,500

Assets: Truck $40,000


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Question 6

Change in Total Assets:

= $7,000 + $17,500 - $40,000 = ($15,500)

Total Assets decreased

Total Expenses increased by $15,500

Net Income decreased Total Stockholders Equity decreased


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Question 6

Logistics Transport purchased a truck on 1 January 2008 for$40,000. The truck had an estimated life of 5 years and an

estimated residual value of $5,000. Logistics used the straight-

line method to depreciate the asset. On 1 July 2010, the truck

was sold for $7,000 cash. The journal entry to record the sale ofthe truck in 2010

Ans: (A) decreases stockholders equity.


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Question 7

Energy Consultants had total assets of $750,000and total shareholders equity of $250,000 at the

beginning of the year.

During the year, total assets increased by $550,000and total liabilities increased by $200,000.

The company also paid $200,000 in dividends.

No other transactions occurred except revenuesand expenses. How much is net income for the

year?


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Question 7

Accounting Equation:

Assets = Liabilities + Shareholders Equity

A = L + OE

Capital + Net Income - Dividends


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Question 7

Beginning:Assets = $750,000

Shareholders Equity = $250,000

Liabilities = $750,000 $250,000 = $500,000

Changes:

Assets + $550,000

Liabilities + $200,000Paid dividend $200,000

i


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Question 7

Ending:Assets = $750,000 + $550,00

= $1,300,000

Liabilities = $500,000 + $200,000

= $700,000

Shareholders Equity = $1,300,000 - $700,000

= $600,000

Q i


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Question 7

OE = Capital Stock + Net Income Dividends

Since Capital Stock is a constant,

OE = Net Income Dividends paid

OE = $600,000 - $250,000

= $350,000Dividends paid= $200,000

Q i 7


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Question 7

Net Income = OE + Dividends paid

= $350,000 + $200,000

= $550,000

Q i 7


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Question 7

Energy Consultants had total assets of $750,000 and totalshareholders equity of $250,000 at the beginning of the year.

During the year, total assets increased by $550,000 and total

liabilities increased by $200,000. The company also paid

$200,000 in dividends. No other transactions occurred exceptrevenues and expenses. How much is net income for the year?

Ans: (D) $550,000

Q i 8


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Question 8

Fong Manufacturing has current assets (mainlycash) of $100,000, total assets of $250,000,

current liabilities of $20,000, and long-term

liabilities of $50,000.Fong wants to buy new plant assets.

How much of its existing cash can Fong use to

acquire plant assets without allowing itscurrent ratio to decline below 2.0 to 1?

Q ti 8


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Question 8

Current Assets = $100,000

Current Liabilities = $20,000

=

Q ti 8


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Question 8

When cash is used, current ratio decreases.

Current Ratio 2

$,

$,

Cash can to be used $60,000

Q ti 8


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Question 8

Fong Manufacturing has current assets (mainly cash) of$100,000, total assets of $250,000, current liabilities of

$20,000, and long-term liabilities of $50,000. Fong wants to buy

new plant assets. How much of its existing cash can Fong use to

acquire plant assets without allowing its current ratio todecline below 2.0 to 1?

Ans: (D) $60,000

Q ti 9


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Question 9

H & Co. has 5,000 3% cumulative preferenceshares of $5 each, outstanding and 25,000ordinary shares of $2 each, outstanding.

No dividends have been paid for the past twoyears.

If H & Co. wishes to distribute $2 per share tothe ordinary shareholders, what is the total

amount of dividends to be declared in thecurrent year?

Q ti 9


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Question 9

Outstanding shares:

Shares Units Price

per unit

Total

Price

Dividends

per year3% Cumulative

Preference Shares

5,000 $5 $25,000 $750

Ordinary Shares 25,000 $2 $50,000 -

Q ti 9


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Question 9

Shares 1st Year 2nd Year 3rd Year

3% Cumulative

Preference Shares

$750 $750 $750

Ordinary Shares - - $2 x 25,000

= $50,000

Dividends paid:

Total Dividends paid = 3 x $750 + $50,000

= $52,250

Q ti 9


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Question 9

H & Co. has 5,000 3% cumulative preference shares of $5 each,outstanding and 25,000 ordinary shares of $2 each,

outstanding. No dividends have been paid for the past two

years. If H & Co. wishes to distribute $2 per share to the

ordinary shareholders, what is the total amount of dividends tobe declared in the current year?

Ans: (B) $52,250

Question 10


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Question 10

Which of the following will not cause a changein the owners equity of a business?

(A) Withdrawal of cash by the owner.

(B) Profit from sale of properties.

(C) Settlement of a note payable.

(D) Losses from discontinued operations.

Question 10


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Question 10

(A) Withdrawal of cash by the owner.

Debit. Capital Stock

Credit. Cash

Owners Equity

Assets

- Owners Equity decreased- Assets decreased

Question 10


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Question 10

(B) Profit from sale of properties.

Profit from sale of propertiesRevenues

- Revenues increased Net Income increased Owners Equity increased

Question 10


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Question 10

(C) Settlement of a note payable.

Debit. Note Payable

Credit. Cash

Liabilities

Assets

- Liabilities decreased- Assets decreased

Question 10


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Question 10

(D) Losses from discontinued operations.

Losses from discontinued operationsExpenses

- Expenses increased Net Income decreased Owners Equity decreased

Question 10


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Question 10

Which of the following will not cause a change

in the owners equity of a business?

Ans: (C) Settlement of a note payable.


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Review

Questions

1. You are responsible for preparing the following budgets:


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In which order should you prepare these budgets?

(a) D, B, A, C, E, F

(b) A, C, B, E, D, F

(c) D, B, C, E, A, F

(d) D, C, B, A, F, E

A Cash Budget

B Production BudgetC S&A Expense Budget

D Sales Budget

E Cash Receipts Budget

F Budgeted Balance Sheet

2. With a 1st May inventory of 12,000 units, how many units


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must be produced to provide an ending inventory of 8,000

units if the expected March sales to be 36,000 units?

(a) 56,000

(b) 32,000

(c) 48,000

(d) 20,000

Beginning Inventory = 12,000

Ending Inventory = 8,000

Budgeted unit of sales = 36,000

To be produced = Budgeted sales

+ Ending inventory

Beginning inventory

3. Budgeted Sales:


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The desired ending inventory is 10% of the budgeted unit

sales of the following month. How many units will beproduced in October?

(a) 11,900

(b) 13,100(c) 13,200

(d) 12,100

Periods Sept Oct Nov Dec

Budgeted UnitSales

12,000 13,000 15,000 10,000

Beginning Inventory = 13,000 x 10%

= 1,300

Ending Inventory = 15,000 x 10%= 1,500

To be produced = Budgeted sales

+ Ending inventory

Beginning inventory

4. Amounts budgeted for 10,000 units of planned production:


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12,000 units were produced, which is a level below full

capacity. The direct materials cost for the period were$96,850. How much was the actual cost of direct materialsover or under budget?

(a) $850 over budget(b) $850 under budget

(c) $16,850 over budget

(d) $16,850 under budget

Direct materials $ 80,000

Direct labor $ 120,000Variable manufacturing overhead costs $ 100,000

Fixed manufacturing overhead costs $ 50,000

Direct materials per unit

= $80,000/10,000

= $8

Budgeted DM = $8 x 12,000

= $96,000


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Thank You

Documents

Seminar 11Answer Group 11.pptx