Chapter 9 Quiz Info

Managerial Accounting, 3e (Braun/Tietz) Chapter 9 The Master Budget 1) Strategic planning involves setting short-term goals extending three to four months into the future. Answer: FALSE Dif: 1 LO: 9-1 EOC: S9-2 AACSB: Refective Thinking Learning Outcome: Discuss basic budgeting concepts and identify and prepare the budgets that comprise the master budget 2) Budgeting is helpful to plan for cash infows and outfows. Answer: TRUE Dif: 1 LO: 9-1 EOC: S9-2 AACSB: Refective Thinking Learning Outcome: Discuss basic budgeting concepts and identify and prepare the budgets that comprise the master budget 3) A budget is a quantitative expression of a plan that helps managers coordinate and implement the plan. Answer: TRUE Dif: 1 LO: 9-1 EOC: S9-2 AACSB: Refective Thinking Learning Outcome: Discuss basic budgeting concepts and identify and prepare the budgets that comprise the master budget 4) Budgets do not provide benchmarks to help managers evaluate performance. Answer: FALSE Dif: 1 LO: 9-1 EOC: S9-2 AACSB: Refective Thinking Learning Outcome: Discuss basic budgeting concepts and identify and prepare the budgets that comprise the master budget 5) Budgets communicate fnancial plans throughout the company. Answer: TRUE Dif: 1 LO: 9-1 EOC: S9-2 AACSB: Refective Thinking Learning Outcome: Discuss basic budgeting concepts and identify and prepare the budgets that 1 Copyright © 2013 Pearson Education, Inc. publishing as Prentice Hall comprise the master budget 6) One of the key benefts of budgeting is that it forces managers to plan. Answer: TRUE Dif: 1 LO: 9-1 EOC: S9-2 AACSB: Refective Thinking Learning Outcome: Discuss basic budgeting concepts and identify and prepare the budgets that comprise the master budget 7) The capital expenditures budget is not part of the operating budget. Answer: TRUE Dif: 1 LO: 9-1 EOC: S9-2 AACSB: Refective Thinking Learning Outcome: Discuss basic budgeting concepts and identify and prepare the budgets that comprise the master budget 8) The master budget is the set of budgeted fnancial statements and supporting schedules for the entire organization. Answer: TRUE Dif: 1 LO: 9-1 EOC: S9-2 AACSB: Refective Thinking Learning Outcome: Discuss basic budgeting concepts and identify and prepare the budgets that comprise the master budget 9) The master budget includes both the operating budgets and the fnancial budgets. Answer: TRUE Dif: 1 LO: 9-1 EOC: S9-2 AACSB: Refective Thinking Learning Outcome: Discuss basic budgeting concepts and identify and prepare the budgets that comprise the master budget 10) Management uses budgeting to express its plans and to assess how well it's reaching its goals. Answer: TRUE Dif: 1 LO: 9-1 EOC: S9-2 AACSB: Refective Thinking Learning Outcome: Discuss basic budgeting concepts and identify and prepare the budgets that comprise the master budget 2 Copyright © 2013 Pearson Education, Inc. publishing as Prentice Hall 11) Strategic planning involves setting long-term goals that extend 5-10 years into the future. Answer: TRUE Dif: 1 LO: 9-1 EOC: S9-2 AACSB: Refective Thinking Learning Outcome: Discuss basic budgeting concepts and identify and prepare the budgets that comprise the master budget 12) A rolling budget is a budget that is continuously updated so that the next 12 months of operations are always budgeted. Answer: TRUE Dif: 1 LO: 9-1 EOC: S9-2 AACSB: Refective Thinking Learning Outcome: Discuss basic budgeting concepts and identify and prepare the budgets that comprise the master budget 13) The fnancial budgets project the collection and payment of cash, as well as forecast the company's budgeted balance sheet. Answer: TRUE Dif: 1 LO: 9-1 EOC: S9-2 AACSB: Refective Thinking Learning Outcome: Discuss basic budgeting concepts and identify and prepare the budgets that comprise the master budget 14) Budget committees most often would include all of the following people except A) CEO B) Research and development manager C) Shareholder D) Marketing manager Answer: C Dif: 1 LO: 9-1 EOC: S9-2 AACSB: Refective Thinking Learning Outcome: Discuss basic budgeting concepts and identify and prepare the budgets that comprise the master budget 3 Copyright © 2013 Pearson Education, Inc. publishing as Prentice Hall 15) Budgets are used for all of the following, except A) planning for the future. B) controlling operations. C) recording actual results. D) directing operations. Answer: C Dif: 1 LO: 9-1 EOC: S9-2 AACSB: Refective Thinking Learning Outcome: Discuss basic budgeting concepts and identify and prepare the budgets that comprise the master budget 16) Strategic planning involves A) setting long-term goals that extend 5-10 years into the future. B) setting short-term goals that extend one year into the future. C) setting goals for next month. D) executing directives from the board of directors. Answer: A Dif: 1 LO: 9-1 EOC: S9-2 AACSB: Refective Thinking Learning Outcome: Discuss basic budgeting concepts and identify and prepare the budgets that comprise the master budget 17) A rolling budget is a budget that A) extends 5-10 years into the future. B) is continuously updated, so that the next 12 months of operations are always budgeted. C) begins with zero for each expense, and then amounts are added in. D) is rolled out by upper management. Answer: B Dif: 1 LO: 9-1 EOC: S9-2 AACSB: Refective Thinking Learning Outcome: Discuss basic budgeting concepts and identify and prepare the budgets that comprise the master budget 4 Copyright © 2013 Pearson Education, Inc. publishing as Prentice Hall 18) Most companies use ________ when developing the budgets each year. A) a top-down approach B) zero-based budgets C) slack-based budgets D) participative budgeting Answer: D Dif: 1 LO: 9-1 EOC: S9-2 AACSB: Refective Thinking Learning Outcome: Discuss basic budgeting concepts and identify and prepare the budgets that comprise the master budget 19) Which of the following is a potential disadvantage of participative budgeting? A) Managers are more likely to be motivated by budgets they helped to create. B) Managers may build slack into the budget. C) Managers should have more detailed knowledge for creating realistic budgets. D) None of the above are true. Answer: B Dif: 1 LO: 9-1 EOC: S9-2 AACSB: Refective Thinking Learning Outcome: Discuss basic budgeting concepts and identify and prepare the budgets that comprise the master budget 20) Managers may intentionally build slack into the budget A) to have the resources they need in the event of budget cuts. B) to make their performance look worse. C) because of certainty about the future. D) because of all of the above. Answer: A Dif: 1 LO: 9-1 EOC: S9-2 AACSB: Refective Thinking Learning Outcome: Discuss basic budgeting concepts and identify and prepare the budgets that comprise the master budget 5 Copyright © 2013 Pearson Education, Inc. publishing as Prentice Hall 21) Managers may intentionally build slack into the budget A) because of uncertainty about the future. B) to make their performance look better. C) to have the resources they need in the event of budget cuts. D) because of all of the above. Answer: D Dif: 1 LO: 9-1 EOC: S9-2 AACSB: Refective Thinking Learning Outcome: Discuss basic budgeting concepts and identify and prepare the budgets that comprise the master budget 22) The budget committee A) rarely has the fnal say on the budget. B) usually is made up of the accounting staf. C) usually is made up of managers from all areas of the value chain. D) usually is made up of the Board of Directors. Answer: C Dif: 1 LO: 9-1 EOC: S9-2 AACSB: Refective Thinking Learning Outcome: Discuss basic budgeting concepts and identify and prepare the budgets that comprise the master budget 23) All of the following are functions of the budget committee except A) reviews submitted budgets. B) determines the bonuses awarded to those who achieve budget targets. C) approves the fnal budget. D) removes unwarranted slack. Answer: B Dif: 1 LO: 9-1 EOC: S9-2 AACSB: Refective Thinking Learning Outcome: Discuss basic budgeting concepts and identify and prepare the budgets that comprise the master budget 6 Copyright © 2013 Pearson Education, Inc. publishing as Prentice Hall 24) Which of the following is the starting place for budgeting? A) Last year's budget B) Last year's actual amounts C) Zero D) Any of the above Answer: D Dif: 1 LO: 9-1 EOC: S9-2 AACSB: Refective Thinking Learning Outcome: Discuss basic budgeting concepts and identify and prepare the budgets that comprise the master budget 25) Which of the following is an advantage of zero-based budgeting? A) It is time consuming. B) It forces managers to justify every dollar put in the budget, so some expenses may be lower than they were in previous years. C) It is labor intensive. D) All of the above are advantages. Answer: B Dif: 1 LO: 9-1 EOC: S9-2 AACSB: Refective Thinking Learning Outcome: Discuss basic budgeting concepts and identify and prepare the budgets that comprise the master budget 26) The ________ budget is part of the fnancial budgets. A) cash B) sales C) direct materials D) operating expense Answer: A Dif: 1 LO: 9-1 EOC: S9-2 AACSB: Refective Thinking Learning Outcome: Discuss basic budgeting concepts and identify and prepare the budgets that comprise the master budget 7 Copyright © 2013 Pearson Education, Inc. publishing as Prentice Hall 27) The ________ budget is part of the fnancial budgets. A) direct labor B) capital expenditure C) budgeted income statement D) manufacturing overhead Answer: B Dif: 1 LO: 9-1 EOC: S9-2 AACSB: Refective Thinking Learning Outcome: Discuss basic budgeting concepts and identify and prepare the budgets that comprise the master budget 28) The ________ budget is part of the fnancial budgets. A) production B) budgeted income statement C) budgeted balance sheet D) sales Answer: C Dif: 1 LO: 9-1 EOC: S9-2 AACSB: Refective Thinking Learning Outcome: Discuss basic budgeting concepts and identify and prepare the budgets that comprise the master budget 29) The ________ budget is part of the operating budgets. A) capital expenditure B) budgeted balance sheet C) production D) cash Answer: C Dif: 1 LO: 9-1 EOC: S9-2 AACSB: Refective Thinking Learning Outcome: Discuss basic budgeting concepts and identify and prepare the budgets that comprise the master budget 8 Copyright © 2013 Pearson Education, Inc. publishing as Prentice Hall 30) Which of the following alternatives refects the proper order of preparing components of the master budget? 1. Production budget 2. Sales budget 3. Direct materials budget A) 2, 3, 1 B) 1, 3, 2 C) 3, 1, 2 D) 2, 1, 3 Answer: D Dif: 1 LO: 9-1 EOC: S9-2 AACSB: Refective Thinking Learning Outcome: Discuss basic budgeting concepts and identify and prepare the budgets that comprise the master budget 31) Which of the following is an advantage of the budgeting process? A) Coordinates the activities of the organization B) Assures that the lowest cost materials will be obtained C) Assures the company will achieve its objectives D) Guarantees that a proft will be achieved Answer: A Dif: 1 LO: 9-1 EOC: S9-2 AACSB: Refective Thinking Learning Outcome: Discuss basic budgeting concepts and identify and prepare the budgets that comprise the master budget 32) Regarding the budgeting process, which of the following statements is true? A) The budget should always be designed by top corporate management. B) The budget should be approved by the company's external auditors. C) The budget should be designed from the bottom up, with input from employees at all levels. D) All of the listed statements are true regarding the budgeting process. Answer: C Dif: 1 LO: 9-1 EOC: S9-2 AACSB: Analytical Thinking Learning Outcome: Discuss basic budgeting concepts and identify and prepare the budgets that comprise the master budget 9 Copyright © 2013 Pearson Education, Inc. publishing as Prentice Hall 33) Which of the following is a beneft of budgeting? A) Focuses management's attention on the future B) Improved decision-making processes C) Improved motivation by employees D) All of the above Answer: D Dif: 1 LO: 9-1 EOC: S9-2 AACSB: Refective Thinking Learning Outcome: Discuss basic budgeting concepts and identify and prepare the budgets that comprise the master budget 34) Which of the following statements about budgeting is not true? A) Budgeting is an aid to planning and control. B) The operating budget should be prepared by top management, rather than mid-management personnel, because they have the overall objectives of the company in mind. C) Budgets help to coordinate the activities of the entire organization. D) Budgets promote communication and coordination between departments. Answer: B Dif: 1 LO: 9-1 EOC: S9-2 AACSB: Refective Thinking Learning Outcome: Discuss basic budgeting concepts and identify and prepare the budgets that comprise the master budget 35) Which of the following alternatives refects the proper order of preparing components of the master budget? 1. Financial budget 2. Operating budget 3. Capital expenditures budget A) 1, 3, 2 B) 2, 3, 1 C) 1, 2, 3 D) 3, 1, 2 Answer: B Dif: 2 LO: 9-1 EOC: S9-2 AACSB: Refective Thinking Learning Outcome: Discuss basic budgeting concepts and identify and prepare the budgets that comprise the master budget 10 Copyright © 2013 Pearson Education, Inc. publishing as Prentice Hall 36) Which of the following budgets is a major part of the master budget and focuses on the income statement and its supporting schedules? A) cash B) operating C) capital expenditures D) fnancial Answer: B Dif: 1 LO: 9-1 EOC: S9-2 AACSB: Refective Thinking Learning Outcome: Discuss basic budgeting concepts and identify and prepare the budgets that comprise the master budget 37) Which of the following budgets is the cornerstone of the master budget? A) sales B) cash C) budgeted balance sheet D) operating expense Answer: A Dif: 1 LO: 9-1 EOC: S9-2 AACSB: Refective Thinking Learning Outcome: Discuss basic budgeting concepts and identify and prepare the budgets that comprise the master budget 38) "Sets the targeted revenue and expenses for the period" is best described by which of the following terms? A) Responsibility center B) Capital budget C) Operating budget D) Sensitivity analysis Answer: C Dif: 1 LO: 9-1 EOC: S9-2 AACSB: Refective Thinking Learning Outcome: Discuss basic budgeting concepts and identify and prepare the budgets that comprise the master budget 11 Copyright © 2013 Pearson Education, Inc. publishing as Prentice Hall 39) "The comprehensive budget" is best described by which term below? A) Operating budget B) Sensitivity analysis C) Responsibility center D) Master budget Answer: D Dif: 1 LO: 9-1 EOC: S9-2 AACSB: Refective Thinking Learning Outcome: Discuss basic budgeting concepts and identify and prepare the budgets that comprise the master budget 40) List and describe three reasons why a company and its managers could beneft from the use of budgeting. Answer: 1. Planning: The budgeting process forces managers to spend time planning for the future, rather than only concerning themselves with daily operations. 2. Coordination and Communication: The budget coordinates a company's activities. It forces managers to consider relations among operations across the entire value chain. 3. Benchmarking: Budgets provide a benchmark that motivates employees and helps managers evaluate performance. The budget provides a target that most managers will try to achieve, especially if they participated in the budgeting process and the budget has been set at a realistic level. Dif: 2 LO: 9-1 EOC: S9-2 AACSB: Refective Thinking Learning Outcome: Discuss basic budgeting concepts and identify and prepare the budgets that comprise the master budget 41) When creating the sales budget, management simply takes the sales from the year before and divides that total by 12 months. Thus, each month will always predict the same amount of budgeted sales. Answer: FALSE Dif: 1 LO: 9-2 EOC: E9-16 AACSB: Refective Thinking Learning Outcome: Discuss basic budgeting concepts and identify and prepare the budgets that comprise the master budget 42) The frst component of the operating budget is the production budget. Answer: FALSE Dif: 1 LO: 9-2 EOC: E9-16 AACSB: Refective Thinking Learning Outcome: Discuss basic budgeting concepts and identify and prepare the budgets that 12 Copyright © 2013 Pearson Education, Inc. publishing as Prentice Hall comprise the master budget 43) The three components of the operating budget are the sales budget; inventory, purchases and cost of goods sold budget; and the cash budget. Answer: FALSE Dif: 1 LO: 9-2 EOC: E9-23 AACSB: Refective Thinking Learning Outcome: Discuss basic budgeting concepts and identify and prepare the budgets that comprise the master budget 44) The sales budget must be prepared after every other component of the operating budget. Answer: FALSE Dif: 1 LO: 9-2 EOC: E9-16 AACSB: Refective Thinking Learning Outcome: Discuss basic budgeting concepts and identify and prepare the budgets that comprise the master budget 45) Budgeting includes planning for ending inventory. Answer: TRUE Dif: 1 LO: 9-2 EOC: E9-18 AACSB: Refective Thinking Learning Outcome: Discuss basic budgeting concepts and identify and prepare the budgets that comprise the master budget 46) The sales budget is the cornerstone of the master budget. Answer: TRUE Dif: 1 LO: 9-2 EOC: E9-23 AACSB: Refective Thinking Learning Outcome: Discuss basic budgeting concepts and identify and prepare the budgets that comprise the master budget 13 Copyright © 2013 Pearson Education, Inc. publishing as Prentice Hall 47) On the production budget, the number of units to be produced is computed as A) unit sales + desired end inventory + beginning inventory. B) unit sales + desired end inventory - beginning inventory. C) unit sales - desired end inventory - beginning inventory. D) unit sales - desired end inventory + beginning inventory. Answer: B Dif: 1 LO: 9-2 EOC: E9-18A AACSB: Refective Thinking Learning Outcome: Discuss basic budgeting concepts and identify and prepare the budgets that comprise the master budget 48) On the direct labor budget, the total quantity of direct labor hours needed is computed as A) units to be produced × direct labor hour per unit. B) quantity needed for production + indirect labor hours - direct labor hours. C) units to be produced - indirect labor hours × cost per labor hour. D) estimated direct labor hours needed × cost per hour. Answer: A Dif: 1 LO: 9-2 EOC: E9-18A AACSB: Refective Thinking Learning Outcome: Discuss basic budgeting concepts and identify and prepare the budgets that comprise the master budget 49) On the direct materials budget, the total quantity of direct materials needed is computed as A) quantity needed for production + desired end inventory of DM - beginning inventory of DM. B) units to be produced + desired end inventory of DM - beginning inventory of DM. C) units to be produced - desired end inventory of DM + beginning inventory of DM. D) quantity needed for production - desired end inventory of DM + beginning inventory DM. Answer: A Dif: 1 LO: 9-2 EOC: E9-18A AACSB: Refective Thinking Learning Outcome: Discuss basic budgeting concepts and identify and prepare the budgets that comprise the master budget 14 Copyright © 2013 Pearson Education, Inc. publishing as Prentice Hall 50) The ________ budget is the only budget stated ONLY in units, not dollars. A) production B) sales C) direct materials D) manufacturing overhead Answer: A Dif: 1 LO: 9-2 EOC: E9-18A AACSB: Refective Thinking Learning Outcome: Discuss basic budgeting concepts and identify and prepare the budgets that comprise the master budget 51) The ________ budget starts with the number of units to be produced. A) production B) operating expense C) direct materials D) All of these choices start with the number of units to be produced. Answer: C Dif: 1 LO: 9-2 EOC: E9-23A AACSB: Refective Thinking Learning Outcome: Discuss basic budgeting concepts and identify and prepare the budgets that comprise the master budget 52) The ________ budget begins with the number of units to be sold. A) manufacturing overhead B) direct materials C) production D) capital expenditures Answer: C Dif: 1 LO: 9-2 EOC: E9-16A AACSB: Refective Thinking Learning Outcome: Discuss basic budgeting concepts and identify and prepare the budgets that comprise the master budget 15 Copyright © 2013 Pearson Education, Inc. publishing as Prentice Hall 53) Which of the following budgets usually shows separate sections for fxed and variable costs? A) Direct materials and manufacturing overhead budget B) Manufacturing overhead budget and production budget C) Production budget and manufacturing overhead budget D) Operating expense budget and manufacturing overhead budget Answer: D Dif: 1 LO: 9-2 EOC: E9-23A AACSB: Refective Thinking Learning Outcome: Discuss basic budgeting concepts and identify and prepare the budgets that comprise the master budget 54) Which of the following budgets or fnancial statements is part of the operating budget? A) Sales budget B) Budgeted balance sheet C) Capital expenditures budget D) Cash budget Answer: A Dif: 1 LO: 9-2 EOC: E9-16 AACSB: Refective Thinking Learning Outcome: Discuss basic budgeting concepts and identify and prepare the budgets that comprise the master budget 55) The ________ is a plan that shows the units to be sold and the projected selling price and is also the starting point in the budgeting process. A) cash budget B) budgeted statement of cash fows C) budgeted income statement D) sales budget Answer: D Dif: 1 LO: 9-2 EOC: E9-16 AACSB: Refective Thinking Learning Outcome: Discuss basic budgeting concepts and identify and prepare the budgets that comprise the master budget 16 Copyright © 2013 Pearson Education, Inc. publishing as Prentice Hall 56) Which of the following is not part of the operating budget? A) Inventory, purchases and cost of goods sold budget B) Cash budget C) Sales budget D) Budgeted income statement Answer: B Dif: 1 LO: 9-2 EOC: E9-23 AACSB: Refective Thinking Learning Outcome: Discuss basic budgeting concepts and identify and prepare the budgets that comprise the master budget 57) Which of the following is not included in the operating budget? A) Budgeted income statement B) Sales budget C) Inventory budget D) Budgeted balance sheet Answer: D Dif: 1 LO: 9-2 EOC: E9-23 AACSB: Refective Thinking Learning Outcome: Discuss basic budgeting concepts and identify and prepare the budgets that comprise the master budget 58) In preparing the operating budget, the frst step is preparing the A) cash budget. B) sales budget. C) budgeted income statement. D) purchases budget. Answer: B Dif: 1 LO: 9-2 EOC: E9-23 AACSB: Refective Thinking Learning Outcome: Discuss basic budgeting concepts and identify and prepare the budgets that comprise the master budget 17 Copyright © 2013 Pearson Education, Inc. publishing as Prentice Hall 59) Desired ending inventory is 20% of next month's sales. If cost of goods sold is $300,000 and next month's sales is $900,000, which of the following statements is true regarding purchases? A) Purchases will be more than cost of goods sold. B) Purchases cannot be predicted from the information given. C) Purchases will be less than cost of goods sold. D) Purchases will equal cost of goods sold. Answer: B Dif: 2 LO: 9-2 EOC: E9-18 AACSB: Analytical Thinking Learning Outcome: Discuss basic budgeting concepts and identify and prepare the budgets that comprise the master budget 60) Desired ending inventory is 25% more than beginning inventory. If purchases total $160,000, which of the following statements is true regarding cost of goods sold (COGS)? A) COGS will exceed cost of goods available for sale. B) COGS will be less than purchases. C) COGS will exceed purchases. D) COGS will equal $55,000. Answer: B Dif: 3 LO: 9-2 EOC: E9-18 AACSB: Analytical Thinking Learning Outcome: Discuss basic budgeting concepts and identify and prepare the budgets that comprise the master budget 61) Loyal Pet Company expects to sell 5,000 beefy dog treats in January and 9,000 in February for $3 each. What will be the total sales revenue refected in the sales budget for those months? A) January $15,000; February $27,000 B) January $1,667; February $3,000 C) January $3,000; February $1,667 D) January $27,000; February $15,000 Answer: A Explanation: A) January 5000 × $3 = $15,000; February 9000 × $ 3 = $ 27,000 Dif: 1 LO: 9-2 EOC: E9-16 AACSB: Analytical Thinking Learning Outcome: Discuss basic budgeting concepts and identify and prepare the budgets that comprise the master budget 18 Copyright © 2013 Pearson Education, Inc. publishing as Prentice Hall 62) Mockingbird Company expects to sell 5,200 bird perches in January and 9,500 in February for $3 each. What will be the total sales revenue refected in the sales budget for those months? A) January $1,733; February $3,167 B) January $15,600; February $28,500 C) January $3,167; February $1,733 D) January $28,500; February $15,600 Answer: B Explanation: B) January 5,200 × $3 = $15,600; February 9,500 × $ 3 = $ 28,500 Dif: 1 LO: 9-2 EOC: E9-16 AACSB: Analytical Thinking Learning Outcome: Discuss basic budgeting concepts and identify and prepare the budgets that comprise the master budget 63) Hewitt Company expects cash sales for July of $15,000, and a 22% monthly increase during August and September. Credit sales of $10,000 in July should be followed by 30% increases during August and September. What are budgeted cash sales and budgeted credit sales for September respectively? A) $19,500 and $12,200 B) $25,350 and $14,884 C) $22,326 and $16,900 D) $18,300 and $13,000 Answer: C Explanation: C) Cash sales $ 15,000 × 1.22% = $ 18,300 × 1.22% = $ 22,326; Credit sales $ 10,000 × 1.30% = $ 13,000 × 1.30 % = $ 16,900 Dif: 2 LO: 9-2 EOC: E9-16 AACSB: Analytical Thinking Learning Outcome: Discuss basic budgeting concepts and identify and prepare the budgets that comprise the master budget 64) Piatt Company expects cash sales for July of $15,000, and a 26% monthly increase during August and September. Credit sales of $12,000 in July should be followed by 30% increases during August and September. What are budgeted cash sales and budgeted credit sales for September respectively? A) $19,500 and $15,120 B) $25,350 and $19,051 C) $18,900 and $15,600 D) $23,814 and $20,280 Answer: D Explanation: D) Cash sales $ 15,000 × 1.26% = $ 18,900 × 1.26% = $ 23,814; Credit sales $ 12,000 × 1.30% = $ 15,600 × 1.30 % = $ 20,280 Dif: 2 LO: 9-2 EOC: E9-16 AACSB: Analytical Thinking Learning Outcome: Discuss basic budgeting concepts and identify and prepare the budgets that 19 Copyright © 2013 Pearson Education, Inc. publishing as Prentice Hall comprise the master budget 65) CatNap Company has two products: Kittyz and Katz. A March sales forecast projects 20,000 units of Kittyz and 15,000 units of Katz are going to be sold at prices of $15 and $12, respectively. The desired ending inventory of Kittyz is 20% higher than the beginning inventory, which was 2,000 units. How much are total March sales for Kittyz anticipated to be? A) $100,000 B) $180,000 C) $300,000 D) $240,000 Answer: C Explanation: C) 20,000 × $ 15 = $ 300,000 Dif: 1 LO: 9-2 EOC: E9-16 AACSB: Analytical Thinking Learning Outcome: Discuss basic budgeting concepts and identify and prepare the budgets that comprise the master budget 66) DogDayz Company has two products: Doggyz and Pupz. A March sales forecast projects 22,000 units of Doggyz and 15,000 units of Pupz are going to be sold at prices of $17.50 and $12.00, respectively. The desired ending inventory of Doggyz is 20% higher than the beginning inventory, which was 2,000 units. How much are total March sales for Doggyz anticipated to be? A) $180,000 B) $385,000 C) $264,000 D) $110,000 Answer: B Explanation: B) 22,000 × $ 17.50 = $ 385,000 Dif: 1 LO: 9-2 EOC: E9-16 AACSB: Analytical Thinking Learning Outcome: Discuss basic budgeting concepts and identify and prepare the budgets that comprise the master budget 20 Copyright © 2013 Pearson Education, Inc. publishing as Prentice Hall 67) Russell Company expects cash sales for July of $15,000, and a 22% monthly increase during August and September. Credit sales of $6,000 in July should be followed by 15% decreases during August and September. What are budgeted cash sales and budgeted credit sales for September? A) $18,300 and $5,100 B) $22,326 and $4,335 C) $12,750 and $7,320 D) $10,838 and $8,930 Answer: B Explanation: B) Cash $15,000 × 1.22% = $ 8,300 × 1.22% = $22,326; Credit $6,000 × 85% = $5,100 × 85 % = $4,335 Dif: 2 LO: 9-2 EOC: E9-16 AACSB: Analytical Thinking Learning Outcome: Discuss basic budgeting concepts and identify and prepare the budgets that comprise the master budget 68) Kotrick Company has beginning inventory of 15,000 units and expected sales of 23,000 units. If the desired ending inventory is 18,000 units, how many units should be produced? A) 20,000 B) 56,500 C) 10,000 D) 26,000 Answer: D Explanation: D) Sales 23,000 Less: BI 15,000 = Need to produce 8,000 + desired EI 18,000 = Total Production 26,000 Dif: 2 LO: 9-2 EOC: E9-18 AACSB: Analytical Thinking Learning Outcome: Discuss basic budgeting concepts and identify and prepare the budgets that comprise the master budget 21 Copyright © 2013 Pearson Education, Inc. publishing as Prentice Hall 69) McCoy Company wants to have an ending inventory of 7,000 units. McCoy Company has beginning inventory of 9,000 units and expects to sell 33,000 units. How many units should McCoy Company produce? A) 31,000 B) 35,000 C) 49,000 D) 40,000 Answer: A Explanation: A) Sales 33,000 Less: BI 9,000 = Need to produce 24,000 + desired EI 7,000 = Total Production 31,000 Dif: 2 LO: 9-2 EOC: E9-18 AACSB: Analytical Thinking Learning Outcome: Discuss basic budgeting concepts and identify and prepare the budgets that comprise the master budget 70) Rubino Corporation desires a December 31 ending inventory of 900 units. Budgeted sales for December are 2,650 units. The November 30 inventory was 850 units. What are budgeted purchases in units? A) 3,550 B) 2,600 C) 2,700 D) 4,400 Answer: C Explanation: C) Sales 2,650 Less: BI 850 = Need to produce1,800 + desired EI 900 = Total Production2,700 Dif: 2 LO: 9-2 EOC: E9-18 AACSB: Analytical Thinking Learning Outcome: Discuss basic budgeting concepts and identify and prepare the budgets that comprise the master budget 22 Copyright © 2013 Pearson Education, Inc. publishing as Prentice Hall 71) Bruner Stores wants to have 500 shovels in ending inventory on December 31. Budgeted sales for December are 1,950 shovels. The November 30 inventory was 320 shovels. How many shovels should Benson Stores purchase for December? A) 2,770 B) 1,770 C) 2,450 D) 2,130 Answer: D Explanation: D) Sales 1,950 Less: BI 320 = Need to produce 1,630 + desired EI 500 = Total Production 2,130 Dif: 2 LO: 9-2 EOC: E9-18 AACSB: Analytical Thinking Learning Outcome: Discuss basic budgeting concepts and identify and prepare the budgets that comprise the master budget 72) Crafty Carpentry Company produces and sells a shelf for $25 each. The beginning inventory is 2,000 shelves, and the desired ending inventory is 2,200 shelves. If budgeted production is 12,500 shelves, what is the forecasted sales revenue from the shelves? A) $417,500 B) $307,500 C) $317,500 D) $207,500 Answer: B Explanation: B) Production 12,500 + BI 2,000 Total Produced 14,500 Less: EI 2,200 Unit Sales 12,300 × $ 25 = $ 307,500 Dif: 2 LO: 9-2 EOC: E9-16 AACSB: Analytical Thinking Learning Outcome: Discuss basic budgeting concepts and identify and prepare the budgets that comprise the master budget 23 Copyright © 2013 Pearson Education, Inc. publishing as Prentice Hall 73) SportSupplies Corporation has budgeted purchases of inventory for December of $140,000. Expected beginning inventory on December 1 and ending inventory on December 31 are $90,000 and $120,000, respectively. If cost of goods sold averages 88% of sales, what are budgeted sales for December? A) $125,000 B) $96,800 C) $193,182 D) $397,727 Answer: A Explanation: A) BI $90,000 + Purchases 140,000 = Goods Available 230,000 Less : EI 120,000 = Cost of Goods Sold $110,000 Now 88% × (Sales) = $ 110,000 Sales = $ 125,500 Dif: 2 LO: 9-2 EOC: E9-18 AACSB: Analytical Thinking Learning Outcome: Discuss basic budgeting concepts and identify and prepare the budgets that comprise the master budget 74) Willard's Department Store has budgeted cost of goods sold of $42,000 for its men's shorts in March. Management also wants to have $7,600 of men's shorts in inventory at the end of March to prepare for the summer season. Beginning inventory of men's shorts for March is expected to be $5,500. What dollar amount of men's shorts should be purchased in March? A) $39,900 B) $44,100 C) $55,100 D) $29,900 Answer: B Explanation: B) Cost of Goods Sold $ 42,000 + EI 7,600 = Goods Available 49,600 Less BI 5,500 = Purchases 44,100 Dif: 2 LO: 9-2 EOC: E9-20 AACSB: Analytical Thinking Learning Outcome: Discuss basic budgeting concepts and identify and prepare the budgets that comprise the master budget 24 Copyright © 2013 Pearson Education, Inc. publishing as Prentice Hall 75) Goddard's Department Store has budgeted cost of goods sold of $44,000 for its men's shorts in March. Management also wants to have $8,000 of men's shorts in inventory at the end of March to prepare for the summer season. Beginning inventory of men's shorts for March is expected to be $5,500. What dollar amount of men's shorts should be purchased in March? A) $46,500 B) $41,500 C) $57,500 D) $30,500 Answer: A Explanation: A) Cost of Goods Sold $ 44,000 + EI 8,000 = Goods Available 52,000 Less BI 5,500 = Purchases 46,500 Dif: 2 LO: 9-2 EOC: E9-20 AACSB: Analytical Thinking Learning Outcome: Discuss basic budgeting concepts and identify and prepare the budgets that comprise the master budget 76) Thomas Corporation recorded sales of $200,000 during March. Management expects sales to increase 5% in April, another 2% in May, and another 10% in June. Cost of goods sold is expected to be 80% of sales. What is the budgeted gross proft for June? A) $47,124 B) $43,697 C) $235,620 D) $42,840 Answer: A Explanation: A) $ 200,000 × 1.05% = 210,000 × 1.02% = 214,200 × 1.10% = $ 235,620 Now Sales × 80% = Cost of Goods Sold - 188,496 = Gross Proft $ 47,124 Dif: 2 LO: 9-2 EOC: E9-16 AACSB: Analytical Thinking Learning Outcome: Discuss basic budgeting concepts and identify and prepare the budgets that comprise the master budget 25 Copyright © 2013 Pearson Education, Inc. publishing as Prentice Hall 77) Meers Corporation had beginning inventory of 21,000 units and expects sales of 76,500 units during the year. Desired ending inventory is 19,500 units. How many units should Meers Corporation produce? A) 78,000 units B) 36,000 units C) 75,000 units D) 117,000 units Answer: C Explanation: C) Sales $76,500 - BI 21,000 Total needed 55,500 + EI 19,500 = Production 75,000 Dif: 2 LO: 9-2 EOC: E9-18 AACSB: Analytical Thinking Learning Outcome: Discuss basic budgeting concepts and identify and prepare the budgets that comprise the master budget 78) Dallas Corporation had beginning inventory of 19,500 units and expects sales of 85,000 units during the year. Desired ending inventory is 18,500 units. How many units should Dallas Corporation produce? A) 84,000 units B) 47,000 units C) 86,000 units D) 123,000 units Answer: A Explanation: A) Sales $85,000 - BI 19,500 Total needed 65,500 + EI 18,500 = Production 84,000 Dif: 2 LO: 9-2 EOC: E9-18 AACSB: Analytical Thinking Learning Outcome: Discuss basic budgeting concepts and identify and prepare the budgets that comprise the master budget 26 Copyright © 2013 Pearson Education, Inc. publishing as Prentice Hall 79) Sam's Toys budgeted sales of $300,000 for the month of November and cost of goods sold equal to 80% of sales. Beginning inventory for November was $50,000 and ending inventory for November is estimated at $55,000. How much are the budgeted purchases for November? A) $245,000 B) $65,000 C) $235,000 D) $135,000 Answer: A Explanation: A) 80 % x $ 300,000 = $240,000 Cost of Goods Sold Less BI 50,000 = 190,000 + EI 55,000 = Purchases $ 245,000 Dif: 3 LO: 9-2 EOC: E9-18 AACSB: Analytical Thinking Learning Outcome: Discuss basic budgeting concepts and identify and prepare the budgets that comprise the master budget 80) Fosnight Enterprises prepared the following sales budget: Month Budgeted Sales March $6,000 April $13,000 May $12,000 June $14,000 The expected gross proft rate is 30% and the inventory at the end of February was $10,000. Desired inventory levels at the end of the month are 20% of the next month's cost of goods sold. What is the desired beginning inventory on June 1? A) $840 B) $1,680 C) $1,960 D) $9,800 Answer: C Explanation: C) Sales = 100% - 30% Gross Proft = 70% Cost of Goods Sold (CGS) Now: June Sales $14,000 × 70% = 9,800 (CGS) × 20% = $ 1,960 Dif: 2 LO: 9-2 EOC: E9-20A AACSB: Analytical Thinking Learning Outcome: Discuss basic budgeting concepts and identify and prepare the budgets that comprise the master budget 27 Copyright © 2013 Pearson Education, Inc. publishing as Prentice Hall 81) Fosnight Enterprises prepared the following sales budget: Month Budgeted Sales March $6,000 April $13,000 May $12,000 June $14,000 The expected gross proft rate is 30% and the inventory at the end of February was $10,000. Desired inventory levels at the end of the month are 20% of the next month's cost of goods sold. What is the desired ending inventory on May 31? A) $840 B) $9,800 C) $1,680 D) $1,960 Answer: D Explanation: D) Sales = 100% - 30% Gross Proft = 70% Cost of Goods Sold (CGS) Now: June Sales $14,000 × 70% = 9,800 (CGS) × 20% = $ 1,960 Dif: 2 LO: 9-2 EOC: E9-20A AACSB: Analytical Thinking Learning Outcome: Discuss basic budgeting concepts and identify and prepare the budgets that comprise the master budget 28 Copyright © 2013 Pearson Education, Inc. publishing as Prentice Hall 82) Fosnight Enterprises prepared the following sales budget: Month Budgeted Sales March $6,000 April $13,000 May $12,000 June $14,000 The expected gross proft rate is 30% and the inventory at the end of February was $10,000. Desired inventory levels at the end of the month are 20% of the next month's cost of goods sold. What is the budgeted cost of goods sold for May? A) $3,600 B) $4,200 C) $2,400 D) $8,400 Answer: D Explanation: D) $ 12.000 × 70% = $ 8,400 Dif: 2 LO: 9-2 EOC: E9-18 AACSB: Refective Thinking Learning Outcome: Discuss basic budgeting concepts and identify and prepare the budgets that comprise the master budget 29 Copyright © 2013 Pearson Education, Inc. publishing as Prentice Hall 83) Fosnight Enterprises prepared the following sales budget: Month Budgeted Sales March $6,000 April $13,000 May $12,000 June $14,000 The expected gross proft rate is 30% and the inventory at the end of February was $10,000. Desired inventory levels at the end of the month are 20% of the next month's cost of goods sold. What are the total purchases budgeted for April? A) $8,680 B) $10,920 C) $8,960 D) $9,240 Answer: C Explanation: C) Cost of Goods Sold = $ 13,000 × 70% = $ 9,100 Ending Inventory = $12,000 × 70% = 8,400 × 20% = $ 1,680 Beginning Inventory = $ 13,000 × 70% = 9,100 × 20% = $ 1,820 Now: CGS $ 9,100 + EI 1,680 - BI 1,820 = Purchases $ 8,960 Dif: 3 LO: 9-2 EOC: E9-18 AACSB: Analytical Thinking Learning Outcome: Discuss basic budgeting concepts and identify and prepare the budgets that comprise the master budget 30 Copyright © 2013 Pearson Education, Inc. publishing as Prentice Hall 84) Fosnight Enterprises prepared the following sales budget: Month Budgeted Sales March $6,000 April $13,000 May $12,000 June $14,000 The expected gross proft rate is 30% and the inventory at the end of February was $10,000. Desired inventory levels at the end of the month are 20% of the next month's cost of goods sold. What are the total purchases budgeted for May? A) $8,120 B) $8,960 C) $8,680 D) $10,080 Answer: C Explanation: C) May Beginning Inventory = $ 12,000 × 70% = 8,400 × 20% = $ 1,680May Ending Inventory = $ 14,000 × 70% = 9,800 × 20% = $ 1,960 May Cost of Goods Sold = $ 12,000 × 70% = $ 8,400 Now $ 8,400 + 1,960 - 1,680 = $ 8,680 Dif: 3 LO: 9-2 EOC: E9-18 AACSB: Analytical Thinking Learning Outcome: Discuss basic budgeting concepts and identify and prepare the budgets that comprise the master budget 31 Copyright © 2013 Pearson Education, Inc. publishing as Prentice Hall 85) Sander Enterprises prepared the following sales budget: Month Budgeted Sales March $8,000 April $13,000 May $12,000 June $14,000 The expected gross proft rate is 40% and the inventory at the end of February was $10,000. Desired inventory levels at the end of the month are 20% of the next month's cost of goods sold. What is the desired beginning inventory on June 1? A) $1,440 B) $1,680 C) $1,120 D) $8,400 Answer: B Explanation: B) Sales = 100% - 40% Gross Proft = 60% Cost of Goods Sold (CGS) Now: June Sales $ 14,000 × 60% = 8,400 (CGS) × 20% = $ 1,680 Dif: 2 LO: 9-2 EOC: E9-20A AACSB: Analytical Thinking Learning Outcome: Discuss basic budgeting concepts and identify and prepare the budgets that comprise the master budget 32 Copyright © 2013 Pearson Education, Inc. publishing as Prentice Hall 86) Sander Enterprises prepared the following sales budget: Month Budgeted Sales March $8,000 April $13,000 May $12,000 June $14,000 The expected gross proft rate is 40% and the inventory at the end of February was $10,000. Desired inventory levels at the end of the month are 20% of the next month's cost of goods sold. What is the desired ending inventory on May 31? A) $1,120 B) $1,440 C) $1,680 D) $8,400 Answer: C Explanation: C) Sales = 100% - 40% Gross Proft = 60% Cost of Goods Sold (CGS) Now: June Sales $14,000 × 60% = 8,400 (CGS) × 20% = $ 1,680 Dif: 2 LO: 9-2 EOC: E9-20A AACSB: Analytical Thinking Learning Outcome: Discuss basic budgeting concepts and identify and prepare the budgets that comprise the master budget 33 Copyright © 2013 Pearson Education, Inc. publishing as Prentice Hall 87) Sander Enterprises prepared the following sales budget: Month Budgeted Sales March $8,000 April $13,000 May $12,000 June $14,000 The expected gross proft rate is 40% and the inventory at the end of February was $10,000. Desired inventory levels at the end of the month are 20% of the next month's cost of goods sold. What is the budgeted cost of goods sold for May? A) $7,200 B) $4,800 C) $2,400 D) $8,400 Answer: A Explanation: A) $ 12,000 × 60% = $ 7,200 Dif: 2 LO: 9-2 EOC: E9-18 AACSB: Refective Thinking Learning Outcome: Discuss basic budgeting concepts and identify and prepare the budgets that comprise the master budget 34 Copyright © 2013 Pearson Education, Inc. publishing as Prentice Hall 88) Sander Enterprises prepared the following sales budget: Month Budgeted Sales March $8,000 April $13,000 May $12,000 June $14,000 The expected gross proft rate is 40% and the inventory at the end of February was $10,000. Desired inventory levels at the end of the month are 20% of the next month's cost of goods sold. What are the total purchases budgeted for April? A) $9,360 B) $7,440 C) $7,680 D) $7,920 Answer: C Explanation: C) Cost of Goods Sold = $ 13,000 × 60% = $ 7,800 Ending Inventory = $ 12,000 × 60% = 7,200 x 20% = $ 1,440 Beginning Inventory = $ 13,000 × 60% = 7,800 × 20% = $ 1,560 Now: CGS $ 7,800 + EI 1,440 - BI 1,560 = Purchases $ 7,680 Dif: 3 LO: 9-2 EOC: E9-18 AACSB: Analytical Thinking Learning Outcome: Discuss basic budgeting concepts and identify and prepare the budgets that comprise the master budget 35 Copyright © 2013 Pearson Education, Inc. publishing as Prentice Hall 89) Sander Enterprises prepared the following sales budget: Month Budgeted Sales March $8,000 April $13,000 May $12,000 June $14,000 The expected gross proft rate is 40% and the inventory at the end of February was $10,000. Desired inventory levels at the end of the month are 20% of the next month's cost of goods sold. What are the total purchases budgeted for May? A) $8,640 B) $7,680 C) $6,960 D) $7,440 Answer: D Explanation: D) May Beginning Inventory = $ 12,000 × 60% = 7,200 × 20% = $ 1,440 May Ending Inventory = $ 14,000 × 60% = 8,400 × 20% = $ 1,680 May Cost of Goods Sold = $ 12,000 × 60% = $ 7,200 Now $ 7,200 + 1,680 - 1,440 = $ 7,440 Dif: 3 LO: 9-2 EOC: E9-18 AACSB: Analytical Thinking Learning Outcome: Discuss basic budgeting concepts and identify and prepare the budgets that comprise the master budget 90) A lamp store purchased $3,800 of lamps in September. The store had $1,600 of lamps on hand at the beginning of September, and expected to have $1,300 of lamps at the end of September to cover part of anticipated October sales. What is the budgeted cost of goods sold for September? A) $5,400 B) $4,100 C) $6,700 D) $3,500 Answer: B Explanation: B) BI $ 1,600 + Purchases 3,800 = Goods Available 5,400 Less : EI 1,300 = Cost of Goods Sold $4,100 Dif: 2 LO: 9-2 EOC: E9-18 AACSB: Analytical Thinking Learning Outcome: Discuss basic budgeting concepts and identify and prepare the budgets that 36 Copyright © 2013 Pearson Education, Inc. publishing as Prentice Hall comprise the master budget 91) Warshaw Company budgets payroll at $3,600 per month plus a percentage of monthly sales. The June operating expense budget includes total payroll of $13,200 with budgeted sales of $160,000. Sales for July are budgeted at $180,000 while purchases of inventory for July are budgeted at $95,000. Depreciation and insurance for July are estimated at $1,000 and $600, respectively. Ofce and administrative expenses related to purchasing inventory are budgeted at 10% of purchases for the month. The purchase of $2,500 in equipment and $1,500 in furniture is expected in July. The July payroll should be budgeted at A) $14,400. B) $13,200. C) $22,500. D) $15,300. Answer: A Explanation: A) Total Payroll $ 13,200 - fxed payroll - 3,600 = variable payroll =$ 9,600 divided by Sales = 6% (payroll as a % of Sales) Now: $ 180,000 × 6% = $ 10,800 Variable Payroll + 3,600 Fixed = $ 14,400 Total Payroll Dif: 3 LO: 9-2 EOC: E9-21 AACSB: Analytical Thinking Learning Outcome: Discuss basic budgeting concepts and identify and prepare the budgets that comprise the master budget 37 Copyright © 2013 Pearson Education, Inc. publishing as Prentice Hall 92) Warshaw Company budgets payroll at $3,600 per month plus a percentage of monthly sales. The June operating expense budget includes total payroll of $13,200 with budgeted sales of $160,000. Sales for July are budgeted at $180,000 while purchases of inventory for July are budgeted at $95,000. Depreciation and insurance for July are estimated at $1,000 and $600, respectively. Ofce and administrative expenses related to purchasing inventory are budgeted at 10% of purchases for the month. The purchase of $2,500 in equipment and $1,500 in furniture is expected in July. The total operating expenses budgeted for July are A) $23,900. B) $14,800. C) $25,500. D) $14,400. Answer: C Explanation: C) Inventory $ 95,000 10% = $9,500 Ofce and Adm. Expense Total Payroll $13,200 - fxed payroll -3,600 = variable payroll = $ 9,600 divided by Sales = 6% (payroll as a % of Sales) Now: $ 180,000 × 6% = $ 10,800 Variable Payroll + 3,600 Fixed = $ 14,400 Total Payroll Finally Payroll $ 14,400 + Ofce and Adm. expense 9,500 + Depreciation 1,000 + Insurance 600 = Total Operating Expense $ 25,500 Dif: 3 LO: 9-2 EOC: E9-23 AACSB: Analytical Thinking Learning Outcome: Discuss basic budgeting concepts and identify and prepare the budgets that comprise the master budget 38 Copyright © 2013 Pearson Education, Inc. publishing as Prentice Hall 93) Warshaw Company budgets payroll at $3,600 per month plus a percentage of monthly sales. The June operating expense budget includes total payroll of $13,200 with budgeted sales of $160,000. Sales for July are budgeted at $180,000 while purchases of inventory for July are budgeted at $95,000. Depreciation and insurance for July are estimated at $1,000 and $600, respectively. Ofce and administrative expenses related to purchasing inventory are budgeted at 10% of purchases for the month. The purchase of $2,500 in equipment and $1,500 in furniture is expected in July. If the percentage of monthly sales used in budgeting payroll increases 25%, what would the total payroll budgeted for July be? A) $20,025 B) $17,100 C) $13,500 D) $14,400 Answer: B Explanation: B) June expense budget total payroll $ 13,200 Fixed payroll budget $ (3,600) June variable payroll budget $ 9,600 Divide by June budgeted sales $ 160,000 Old variable payroll budget (% of month's sales) 6% Increase in variable payroll expense 25% Add 1 125% Old variable payroll budget (% of month's sales) 6% New variable payroll budget (% of month's sales) 8% July budgeted sales $ 180,000 New variable payroll budget (% of month's sales) 8% July variable payroll budget $ 13,500 Fixed payroll budget $ 3,600 July payroll $ 17,100 Dif: 3 LO: 9-2 EOC: E9-21 AACSB: Analytical Thinking Learning Outcome: Discuss basic budgeting concepts and identify and prepare the budgets that comprise the master budget 39 Copyright © 2013 Pearson Education, Inc. publishing as Prentice Hall 94) At the beginning of the year, Patio Living Corporation has 550 planters in inventory. The company plans to sell 5,200 planters during the year and wants to have 1,200 planters in inventory at the end of the year. How many planters must Patio Living Corporation produce during the year? A) 5,850 B) 6,400 C) 3,450 D) 6,950 Answer: A Explanation: A) Sales $ 5,200 BI - 550 EI + 1,200 Production $ 5,850 Dif: 1 LO: 9-2 EOC: E9-18 AACSB: Analytical Thinking Learning Outcome: Discuss basic budgeting concepts and identify and prepare the budgets that comprise the master budget 95) At the beginning of the year, Lakeview Corporation has 660 life vests in inventory. The company wants to have 2,100 vests in inventory at the end of the year and plans to sell 6,400 life vests during the year. How many life vests must Lakeview Corporation produce during the year? A) 8,500 B) 3,640 C) 7,840 D) 9,160 Answer: C Explanation: C) Sales $ 6,400 BI - 660 EI + 2,100 Production $ 7,840 Dif: 1 LO: 9-2 EOC: E9-18 AACSB: Analytical Thinking Learning Outcome: Discuss basic budgeting concepts and identify and prepare the budgets that comprise the master budget 40 Copyright © 2013 Pearson Education, Inc. publishing as Prentice Hall 96) Totz Company produces jump ropes. Totz Company has the following sales projections for the upcoming year: First quarter budgeted jump rope sales in units 21,000 Second quarter budgeted jump rope sales in units 35,000 Third quarter budgeted jump rope sales in units 22,000 Fourth quarter budgeted jump rope sales in units 30,000 Inventory at the beginning of the year was 4,200 jump ropes. Totz Company wants to have 20% of the next quarter's sales in units on hand at the end of each quarter. How many jump ropes should Totz Company produce during the frst quarter? A) 16,800 B) 21,000 C) 23,800 D) 32,200 Answer: C Explanation: C) Unit Sales 2 nd Qtr 35,000 × 20% = 7,000 EI Sales $ 21,000 BI - 4,200 EI + 7,000 Production $ 23,800 Dif: 2 LO: 9-2 EOC: E9-18 AACSB: Analytical Thinking Learning Outcome: Discuss basic budgeting concepts and identify and prepare the budgets that comprise the master budget 41 Copyright © 2013 Pearson Education, Inc. publishing as Prentice Hall 97) Jolly Company produces hula hoops. Jolly Company has the following sales projections for the upcoming year: First quarter budgeted hula hoop sales in units 22,100 Second quarter budgeted hula hoop sales in units 28,000 Third quarter budgeted hula hoop sales in units 22,000 Fourth quarter budgeted hula hoop sales in units 30,000 Jolly Company wants to have 25% of the next quarter's sales in units on hand at the end of each quarter. Inventory at the beginning of the year was 5,525 hula hoops. How many hula hoops should Jolly Company produce during the frst quarter? A) 34,625 B) 23,575 C) 16,575 D) 22,100 Answer: B Explanation: B) Unit Sales 2 nd Qtr 28,000 × 25% = 7,000 EI Sales $ 22,100 BI - 5,525 EI + 7,000 Production $ 23,575 Dif: 2 LO: 9-2 EOC: E9-18 AACSB: Analytical Thinking Learning Outcome: Discuss basic budgeting concepts and identify and prepare the budgets that comprise the master budget 42 Copyright © 2013 Pearson Education, Inc. publishing as Prentice Hall 98) Daisy Company manufactures dog collars. The following selected data relates to Daisy Company's budgeted sales and inventory levels of the dog collars for the upcoming quarter: October expected unit sales 2,000 November expected unit sales 2,600 December expected unit sales 2,200 October desired ending unit fnished goods inventory 850 November desired ending unit fnished goods inventory 720 December desired ending unit fnished goods inventory 520 How many dog collars should Daisy Company produce in November? A) 2,870 B) 3,320 C) 4,170 D) 2,470 Answer: D Explanation: D) Sales $ 2,600 BI - 850 EI + 720 Production 2,470 Dif: 2 LO: 9-2 EOC: E9-18 AACSB: Analytical Thinking Learning Outcome: Discuss basic budgeting concepts and identify and prepare the budgets that comprise the master budget 43 Copyright © 2013 Pearson Education, Inc. publishing as Prentice Hall 99) Victoria Corporation manufactures quality vases. Budgeted sales and production data for the vases are as follows: Month 1 budgeted unit sales 2,000 Month 2 budgeted unit sales 2,500 Month 3 budgeted unit sales 3,200 Month 1 budgeted unit production 2,400 Month 2 budgeted unit production 2,700 Month 3 budgeted unit production 3,400 Raw material required for each fnished unit (in pounds) 1 The ending inventory for each month should be equal to 20% of the next month's production needs. Each vase requires one pound of clay in its manufacture. Victoria Corporation has a policy that the inventory of clay at the end of each month needs to be equal to 20% of the production needs for the following month. At the beginning of January, 480 pounds of clay were in inventory. How many pounds of clay would Victoria Corporation need to purchase in February? A) 2,660 B) 2,940 C) 3,620 D) 2,840 Answer: D Explanation: D) Production Month 2 2,700 Less BI (2,700 × 20%) - 540 Plus EI (3,400 × 20%) +680 Equals Purchases 2,840 Dif: 2 LO: 9-2 EOC: E9-19 AACSB: Analytical Thinking Learning Outcome: Discuss basic budgeting concepts and identify and prepare the budgets that comprise the master budget 44 Copyright © 2013 Pearson Education, Inc. publishing as Prentice Hall 100) Terrifc Toys Company manufactures and sells children's skateboards. Each skateboard requires four bearings. For September, Terrifc Toys Company has budgeted skateboard sales of 530 skateboards, while 570 skateboards are scheduled to be produced. Terrifc Toys Company will begin September with 220 bearings in its beginning inventory. How many bearings should Terrifc Toys Company purchase for September? A) 310 B) 2,280 C) 2,500 D) 2,060 Answer: D Explanation: D) Production 570 × 4 = 2,280 - 220 (BI) = 2,060 Dif: 2 LO: 9-2 EOC: E9-19 AACSB: Analytical Thinking Learning Outcome: Discuss basic budgeting concepts and identify and prepare the budgets that comprise the master budget 101) Beloved Baby Company manufactures and sells children's strollers. Each stroller requires eight screws. For September, Beloved Baby Company will begin September with 380 screws in its beginning inventory. Beloved Baby Company has budgeted stroller sales of 530 strollers, while 570 strollers are scheduled to be produced. How many screws should Beloved Baby Company purchase for September? A) 150 B) 4,180 C) 4,940 D) 4,560 Answer: B Explanation: B) Production 570 × 8 = 4,560 - 380 (BI) = 4,180 Dif: 2 LO: 9-2 EOC: E9-19 AACSB: Analytical Thinking Learning Outcome: Discuss basic budgeting concepts and identify and prepare the budgets that comprise the master budget 45 Copyright © 2013 Pearson Education, Inc. publishing as Prentice Hall 102) The Porch Cushion Company manufactures foam cushions. The number of cushions to be produced in the upcoming three months follows: Number of foam cushions to be produced in July 12,000 Number of foam cushions to be produced in August 15,000 Number of foam cushions to be produced in September 10,000 Each cushion requires 2 pounds of the foam used as stufng. The company has a policy that the ending inventory of foam each month must be equal to 25% of the following month's expected production needs. How many pounds of foam does The Porch Cushion Company need to purchase in August? A) 27,500 B) 20,000 C) 22,500 D) 42,500 Answer: A Explanation: A) August Production 15,000 × 25% = 3,750 September Production 10,000 × 25% = 2,500 Now Production August15,000 Less BI - 3,750 Plus EI + 2,500 Equals Purchases 13,750 × 2 pounds = 27,500 Dif: 2 LO: 9-2 EOC: E9-19 AACSB: Analytical Thinking Learning Outcome: Discuss basic budgeting concepts and identify and prepare the budgets that comprise the master budget 103) Mighty Corporation manufactures end tables. Each end table requires .50 direct labor hours in its production. Mighty Corporation has a direct labor rate of $15 per direct labor hour. The production budget shows that Mighty Corporation plans to produce 1,000 end tables in March and 1,100 end tables in April. What is the total combined direct labor cost that should be budgeted for March and April? A) 8,250 B) 7,500 C) 15,750 D) 31,500 Answer: C Explanation: C) March production 1,000 + April production1,100 Total 2,100 × .5 = 1,050 hours × $ 15 = $ 15,750 Dif: 2 LO: 9-2 EOC: E9-21 AACSB: Analytical Thinking Learning Outcome: Discuss basic budgeting concepts and identify and prepare the budgets that 46 Copyright © 2013 Pearson Education, Inc. publishing as Prentice Hall comprise the master budget 104) Forty Winks Corporation manufactures night stands. The production budget shows that Forty Winks Corporation plans to produce 1,200 night stands in March and 1,050 night stands in April. Each night stand requires .50 direct labor hours in its production. Forty Winks Corporation has a direct labor rate of $12 per direct labor hour. What is the total combined direct labor cost that should be budgeted for March and April? A) 6,300 B) 7,200 C) 27,000 D) 13,500 Answer: D Explanation: D) March production 1,200 + April production1,050 Total 2,250 × .5 = 1,125 hours × $ 12 = $ 13,500 Dif: 2 LO: 9-2 EOC: E9-21 AACSB: Analytical Thinking Learning Outcome: Discuss basic budgeting concepts and identify and prepare the budgets that comprise the master budget 47 Copyright © 2013 Pearson Education, Inc. publishing as Prentice Hall 105) List the operating budgets. Describe the purpose of each of the budgets listed and the order in which they are prepared. Describe how the budgets are interrelated. Answer: The operating budgets are as follows: 1. Sales budget — shows the number of units to be sold and the total sales revenue. 2. Production budget — shows the number of units to be produced to support the sales to be made. 3. Direct materials budget — shows the amount and dollar amount of direct materials to be purchased to support the production budget. 4. Direct labor budget — shows the number of direct labor hours required to support the number of products to be purchased from the production budget. 5. Manufacturing overhead budget — shows the budgeted manufacturing overhead to be incurred to support the number of units being produced as denoted on the production budget. 6. Operating expenses budget — all research and development, design, marketing, distribution, and customer service costs will be shown on the operating expenses budget. 7. Budgeted income statement — is constructed after preparing all of the above budgets. The operating budgets are the budgets needed to run the daily operations of the company. The operating budgets culminate in a budgeted income statement. The starting point of the operating budgets is the sales budget, because it afects most other components of the master budget. After estimating sales, manufacturers prepare the production budget, which determines how many units need to be produced. Once production volume is established, managers prepare the budgets determining the amounts of direct materials, direct labor, and manufacturing overhead that will be needed to meet production. Next, managers prepare the operating expenses budget. After all of these budgets are prepared, management will be able to prepare the budgeted income statement. Dif: 2 LO: 9-2 EOC: E9-23 AACSB: Refective Thinking Learning Outcome: Discuss basic budgeting concepts and identify and prepare the budgets that comprise the master budget 48 Copyright © 2013 Pearson Education, Inc. publishing as Prentice Hall 106) Carlton Cookie Company produces a hand-processed gourmet cookie that is made with organic sugar. Five (5) pounds of organic sugar are required per batch of gourmet cookies. The organic sugar costs $2.40 per pound. The company needs to have 20% of the following month's production needs of organic sugar in ending inventory so it is on hand to start each month. A total of 120 pounds of organic sugar are expected to be on hand on April 1. 1. Budgeted production of the gourmet cookies for the frst four months of the upcoming year is as follows: Number of batches of cookies to be produced in January 600 Number of batches of cookies to be produced in February 750 Number of batches of cookies to be produced in March 800 Number of batches of cookies to be produced in April 700 Required: Prepare a direct materials budget for organic sugar for each of the months in the second quarter and for the second quarter in total. Include both the quantity of sugar to be purchased and the cost of the purchases in each month. Answer: Dif: 3 LO: 9-2 EOC: E9-21 AACSB: Refective Thinking Learning Outcome: Discuss basic budgeting concepts and identify and prepare the budgets that comprise the master budget 49 Copyright © 2013 Pearson Education, Inc. publishing as Prentice Hall 107) Frisbee Enterprises produces frisbees. Frisbee Enterprises has the following sales projections for the upcoming year: First quarter budgeted frisbee sales in units 20,000 Second quarter budgeted frisbee sales in units 35,000 Third quarter budgeted frisbee sales in units 22,000 Fourth quarter budgeted frisbee sales in units 30,000 Inventory at the beginning of the year was 6,000 frisbees. Frisbee Enterprises wants to have 30% of the next quarter's sales in units on hand at the end of each quarter. How many frisbees should Frisbee Enterprises produce during the frst quarter? Show your calculations. Answer: Finished goods inventory at end of each quarter, as percent of next quarter's budgeted unit sales 30% Second quarter budgeted frisbee sales in units 35,000 First quarter ending inventory 10,500 First quarter ending inventory 10,500 First quarter budgeted frisbee sales in units 20,000 Beginning frisbee inventory in units (6,000) Units to produce 24,500 Dif: 2 LO: 9-2 EOC: E9-18 AACSB: Analytical Thinking Learning Outcome: Discuss basic budgeting concepts and identify and prepare the budgets that comprise the master budget 50 Copyright © 2013 Pearson Education, Inc. publishing as Prentice Hall 108) Birch Company manufactures cofee makers. The following selected data relates to Birch Company's budgeted sales and inventory levels of the cofee makers for the upcoming quarter. How many cofee makers should Birch Company produce in November? Show your calculations. October expected unit sales 1,000 November expected unit sales 1,500 December expected unit sales 3,300 October desired ending unit fnished goods inventory 800 November desired ending unit fnished goods inventory 950 December desired ending unit fnished goods inventory 600 Answer: November desired ending unit fnished goods inventory 950 November expected unit sales 1,500 October desired ending unit fnished goods inventory (800) Units to produce 1,650 Dif: 2 LO: 9-2 EOC: E9-18 AACSB: Analytical Thinking Learning Outcome: Discuss basic budgeting concepts and identify and prepare the budgets that comprise the master budget 109) Sally Scooters manufactures and sells scooters. Each scooter requires two rear view mirrors. For September, Sally Scooters has budgeted sales of 415 scooters, while 450 scooters are scheduled to be produced. Sally Scooters will begin September with 220 rear view mirrors in its beginning inventory. How many rear view wheels should Sally Scooters purchase for September? Answer: 680 Budgeted number of scooters to be produced 450 Rear view mirrors per scooter 2 Mirrors to be used 900 Number of mirrors in beginning inventory (220) Rear view mirrors to purchase 680 Dif: 2 LO: 9-2 EOC: E9-18 AACSB: Analytical Thinking Learning Outcome: Discuss basic budgeting concepts and identify and prepare the budgets that comprise the master budget 51 Copyright © 2013 Pearson Education, Inc. publishing as Prentice Hall 110) Pristine Yards Manufacturing produces weed whackers. On March 31, Pristine Yards Manufacturing had 144 weed whackers in inventory. The company has a policy that the ending inventory in any month must be 12% of the following month's expected sales. Pristine Yards Manufacturing expects to sell the following number of weed whackers in each of the next four months: Required: Prepare a production budget for the second quarter, with a column for each month and for the quarter. Answer: Dif: 2 LO: 9-2 EOC: E9-18 AACSB: Refective Thinking Learning Outcome: Discuss basic budgeting concepts and identify and prepare the budgets that comprise the master budget 52 Copyright © 2013 Pearson Education, Inc. publishing as Prentice Hall 111) Flawless Lawns Manufacturing produces lawn edgers. The company has a policy that the ending inventory in any month must be 10% of the following month's expected sales. On March 31, Flawless Lawns Manufacturing had 140 lawn edgers in inventory. Flawless Lawns Manufacturing expects to sell the following number of lawn edgers in each of the next four months: Required: Prepare a production budget for the second quarter, with a column for each month and for the quarter. Answer: Dif: 2 LO: 9-2 EOC: E9-18 AACSB: Refective Thinking Learning Outcome: Discuss basic budgeting concepts and identify and prepare the budgets that comprise the master budget 53 Copyright © 2013 Pearson Education, Inc. publishing as Prentice Hall 112) Timber Run Company has prepared the following forecasts of monthly sales: January February March April Sales (in units) 3,400 4,790 3,570 3,210 Timber Run Company has decided that the number of units in its inventory at the end of each month should equal 80% of next month's sales. The budgeted cost per unit is $10. How many units should be in January's beginning inventory? Answer: January unit sales 3,400 Ending inventory (% next month's sales) 80% January unit beginning inventory 2,720 Dif: 2 LO: 9-2 EOC: E9-18 AACSB: Refective Thinking Learning Outcome: Discuss basic budgeting concepts and identify and prepare the budgets that comprise the master budget 113) A cash collections budget is focused on the timing of cash receipts. Answer: TRUE Dif: 1 LO: 9-3 EOC: E9-31 AACSB: Refective Thinking Learning Outcome: Discuss basic budgeting concepts and identify and prepare the budgets that comprise the master budget 114) A company's plan for purchases of property, plant, equipment, and other long-term assets is part of the budgeted balance sheet. Answer: TRUE Dif: 1 LO: 9-3 EOC: E9-31 AACSB: Refective Thinking Learning Outcome: Discuss basic budgeting concepts and identify and prepare the budgets that comprise the master budget 54 Copyright © 2013 Pearson Education, Inc. publishing as Prentice Hall 115) The budgeted cash collections from credit customers generally only refect sales made in the current month. Answer: FALSE Dif: 1 LO: 9-3 EOC: E9-26 AACSB: Refective Thinking Learning Outcome: Discuss basic budgeting concepts and identify and prepare the budgets that comprise the master budget 116) The cash budget is prepared before the operating budget. Answer: FALSE Dif: 1 LO: 9-3 EOC: E9-26 AACSB: Refective Thinking Learning Outcome: Discuss basic budgeting concepts and identify and prepare the budgets that comprise the master budget 117) The cash budget is prepared before the budgeted balance sheet is prepared. Answer: TRUE Dif: 1 LO: 9-3 EOC: E9-26 AACSB: Refective Thinking Learning Outcome: Discuss basic budgeting concepts and identify and prepare the budgets that comprise the master budget 118) The cash budget helps managers determine whether or not the company will need fnancing in a given month. Answer: TRUE Dif: 1 LO: 9-3 EOC: E9-28 AACSB: Refective Thinking Learning Outcome: Discuss basic budgeting concepts and identify and prepare the budgets that comprise the master budget 119) Budget committee is a what-if technique that asks what a result will be if a predicted amount is not achieved or if an underlying assumption changes. Answer: FALSE Dif: 1 LO: 9-3 EOC: E9-26 AACSB: Refective Thinking Learning Outcome: Discuss basic budgeting concepts and identify and prepare the budgets that comprise the master budget 55 Copyright © 2013 Pearson Education, Inc. publishing as Prentice Hall 120) A company sells goods and ofers credit terms of "net 30 days." What does this mean for the company that sold the goods? A) It does not have to ship the goods for 30 days B) It cannot recognize the sales credit for 30 days C) It ofers a 30% discount for customers that use credit cards. D) The customer has up to 30 days to pay back the seller for the goods purchased without penalty. Answer: D Dif: 1 LO: 9-3 EOC: E9-26 AACSB: Refective Thinking Learning Outcome: Discuss basic budgeting concepts and identify and prepare the budgets that comprise the master budget 121) Which of the following items would be shown on a cash payments budget? A) Bad debt expense B) Depreciation expense C) Cash dividends D) Gains on sales of equipment Answer: C Dif: 1 LO: 9-3 EOC: E9-26 AACSB: Refective Thinking Learning Outcome: Discuss basic budgeting concepts and identify and prepare the budgets that comprise the master budget 122) Which of the following types of cash outlays has its own budget? A) Capital expenditures B) Dividends C) Income taxes D) All of the above Answer: A Dif: 1 LO: 9-3 EOC: E9-31 AACSB: Refective Thinking Learning Outcome: Discuss basic budgeting concepts and identify and prepare the budgets that comprise the master budget 56 Copyright © 2013 Pearson Education, Inc. publishing as Prentice Hall 123) All of the following are shown on the combined cash budget except A) projected cash balance at the end of the month. B) projected cash collections and cash payments. C) projected borrowings and repayments. D) All of the above are shown on the combined cash budget Answer: D Dif: 1 LO: 9-3 EOC: E9-28 AACSB: Refective Thinking Learning Outcome: Discuss basic budgeting concepts and identify and prepare the budgets that comprise the master budget 124) A company should ________ when projecting cash receipts for a given month. A) include only cash collections from sales made in that month B) only list COD sales made in that month C) only list credit sales made in that month D) include cash to be collected in that month regardless of when the sale was made Answer: D Dif: 1 LO: 9-3 EOC: E9-28 AACSB: Refective Thinking Learning Outcome: Discuss basic budgeting concepts and identify and prepare the budgets that comprise the master budget 125) "Financial budget" is best described by which of the following? A) A company's plan for purchases of property, plant and equipment, and other long-term assets B) A budget that projects cash infows and outfows and the end of period budgeted balance sheet C) A budget that shows projected sales, purchases and operating expenses D) A system for evaluating the performance of each responsibility center and its manager Answer: B Dif: 1 LO: 9-3 EOC: E9-30 AACSB: Refective Thinking Learning Outcome: Discuss basic budgeting concepts and identify and prepare the budgets that comprise the master budget 57 Copyright © 2013 Pearson Education, Inc. publishing as Prentice Hall 126) "Capital expenditures budget" is best described by which of the following? A) Details as to how the company expects to go from the beginning cash balance to the desired ending cash balance B) A system for evaluating the performance of each responsibility center and its manager C) A company's plan for purchases of property, plant and equipment, and other long-term assets D) A budget that projects cash infows and outfows and the end of period budgeted balance sheet Answer: C Dif: 1 LO: 9-3 EOC: E9-33 AACSB: Refective Thinking Learning Outcome: Discuss basic budgeting concepts and identify and prepare the budgets that comprise the master budget 127) The ________ technique asks what a result will be if a predicted amount is not achieved or if an underlying assumption changes. A) sensitivity analysis B) ratio analysis C) risk analysis D) strategic analysis Answer: A Dif: 1 LO: 9-3 EOC: S9-2 AACSB: Refective Thinking Learning Outcome: Discuss basic budgeting concepts and identify and prepare the budgets that comprise the master budget 128) "Cash budget" is best defned by which of the following? A) A company's plan for purchases of property, plant and equipment, and other long-term assets B) Details as to how the company expects to go from the beginning cash balance to the desired ending cash balance C) A system for evaluating the performance of each responsibility center and its manager D) A budget that projects cash infows and outfows and the end of period budgeted balance sheet Answer: B Dif: 1 LO: 9-3 EOC: E9-28 AACSB: Refective Thinking Learning Outcome: Discuss basic budgeting concepts and identify and prepare the budgets that comprise the master budget 58 Copyright © 2013 Pearson Education, Inc. publishing as Prentice Hall 129) Which of the following budgets projects cash infows and outfows and the budgeted balance sheet? A) Purchases budget B) Capital expenditures budget C) Financial budget D) Cash budget Answer: C Dif: 1 LO: 9-3 EOC: E9-28 AACSB: Refective Thinking Learning Outcome: Discuss basic budgeting concepts and identify and prepare the budgets that comprise the master budget 130) Which of the following is an example of a fnancial budget? A) Budgeted balance sheet B) Sales budget C) Budgeted income statement D) Operating expenses budget Answer: A Dif: 1 LO: 9-3 EOC: E9-31 AACSB: Refective Thinking Learning Outcome: Discuss basic budgeting concepts and identify and prepare the budgets that comprise the master budget 131) All of the following are considered when preparing the cash budget except A) payments for inventory. B) cash receipts from customers. C) depreciation expense. D) cash payments to suppliers. Answer: C Dif: 1 LO: 9-3 EOC: E9-28 AACSB: Refective Thinking Learning Outcome: Discuss basic budgeting concepts and identify and prepare the budgets that comprise the master budget 59 Copyright © 2013 Pearson Education, Inc. publishing as Prentice Hall 132) The fnal step in the preparation of the fnancial budget is the preparation of which of the following? A) Master budget B) Cash budget C) Operating budgets D) Budgeted balance sheet Answer: D Dif: 2 LO: 9-3 EOC: E9-28 AACSB: Refective Thinking Learning Outcome: Discuss basic budgeting concepts and identify and prepare the budgets that comprise the master budget 133) Distribution Corporation collects 40% of a month's sales in the month of sale, 55% in the month following sale, and 5% in the second month following sale. Budgeted sales for the upcoming four months are: April budgeted sales $100,000 May budgeted sales $150,000 June budgeted sales $230,000 July budgeted sales $180,000 The amount of cash that will be collected in July is budgeted to be A) $72,000. B) $179,500. C) $206,000. D) $195,500. Answer: C Explanation: C) May Sales $ 150,000 × 5% = $ 7,500 June Sales 230,000 × 55% = 126,500 July Sales 180,000 × 40% = 72,000 Total $ 206,000 Dif: 2 LO: 9-3 EOC: E9-26 AACSB: Analytical Thinking Learning Outcome: Discuss basic budgeting concepts and identify and prepare the budgets that comprise the master budget 60 Copyright © 2013 Pearson Education, Inc. publishing as Prentice Hall 134) Eastern Corporation collects 10% in the second month following sale, 55% in the month following sale and 35% of a month's sales in the month of sale. Budgeted sales for the upcoming four months are: April budgeted sales $100,000 May budgeted sales $150,000 June budgeted sales $230,000 July budgeted sales $180,000 The amount of cash that will be collected in July is budgeted to be A) $63,000. B) $204,500. C) $173,000. D) $197,000. Answer: B Explanation: B) May Sales $ 150,000 × 10% = $ 15,000 June Sales 230,000 × 55% = 126,500 July Sales 180,000 × 35% = 63,000 Total $ 204,500 Dif: 2 LO: 9-3 EOC: E9-26 AACSB: Analytical Thinking Learning Outcome: Discuss basic budgeting concepts and identify and prepare the budgets that comprise the master budget 61 Copyright © 2013 Pearson Education, Inc. publishing as Prentice Hall 135) Natcher Corporation collects 30% of a month's sales in the month of sale, 55% in the month following sale, and 10% in the second month following sale. The company has found that 5% of their sales are uncollectible. Budgeted sales for the upcoming four months are: August budgeted sales $300,000 September budgeted sales $280,000 October budgeted sales $330,000 November budgeted sales $260,000 The amount of cash that will be collected in November is budgeted to be A) $287,500. B) $283,000. C) $78,000. D) $291,500. Answer: A Explanation: A) Sept. Sales$ 280,000 × 10% =$28,000 Oct. Sales 330,000 × 55% = 181,500 Nov. Sales260,000 × 30% = 78,000 Total $ 287,500 Dif: 2 LO: 9-3 EOC: E9-26 AACSB: Analytical Thinking Learning Outcome: Discuss basic budgeting concepts and identify and prepare the budgets that comprise the master budget 62 Copyright © 2013 Pearson Education, Inc. publishing as Prentice Hall 136) Sharon Corporation collects 15% in the second month following sale, 45% in the month following sale and 35% of a month's sales in the month of sale. The company has found that 5% of their sales are uncollectible. Budgeted sales for the upcoming four months are: August budgeted sales $300,000 September budgeted sales $280,000 October budgeted sales $330,000 November budgeted sales $260,000 The amount of cash that will be collected in November is budgeted to be A) $286,500. B) $285,500. C) $91,000. D) $281,500. Answer: D Explanation: D) Sept. Sales$ 280,000 × 15% = $42,000 Oct. Sales 330,000 × 45% = 148,500 Nov. Sales260,000 × 35% = 91,000 Total $ 281,500 Dif: 2 LO: 9-3 EOC: E9-26 AACSB: Analytical Thinking Learning Outcome: Discuss basic budgeting concepts and identify and prepare the budgets that comprise the master budget 137) Einstein Company is preparing its cash budget for the upcoming month. The beginning cash balance for the month is expected to be $14,000. Budgeted cash receipts are $84,000, while budgeted cash disbursements are $72,000. Einstein Company wants to have an ending cash balance of $40,000. The excess (defciency) of cash available over disbursements for the month would be A) $170,000. B) $(26,000). C) $112,000. D) $26,000. Answer: D Explanation: D) Beginning Cash $ 14,000 Cash Receipts + 84,000 Cash Disbursements -72,000 Cash Available $ 26,000 Dif: 2 LO: 9-3 EOC: E3-28 AACSB: Analytical Thinking Learning Outcome: Discuss basic budgeting concepts and identify and prepare the budgets that comprise the master budget 63 Copyright © 2013 Pearson Education, Inc. publishing as Prentice Hall 138) Wriston Company is preparing its cash budget for the upcoming month. The beginning cash balance for the month is expected to be $12,000. Budgeted cash disbursements are $70,500, while budgeted cash receipts are $86,100. Wriston Company wants to have an ending cash balance of $40,000. The excess (defciency) of cash available over disbursements for the month would be A) $27,600. B) $168,600. C) $(27,600). D) $110,500. Answer: A Explanation: A) Beginning Cash $ 12,000 Cash Receipts + 86,100 Cash Disbursements -70,500 Cash Available $ 27,600 Dif: 2 LO: 9-3 EOC: E3-28 AACSB: Analytical Thinking Learning Outcome: Discuss basic budgeting concepts and identify and prepare the budgets that comprise the master budget 139) Roman Company is preparing its cash budget for the upcoming month. The budgeted beginning cash balance is expected to be $40,000. Budgeted cash receipts are $101,000, while budgeted cash disbursements are $123,000. Roman Company wants to have an ending cash balance of $45,000. How much would Roman Company need to borrow to achieve its desired ending cash balance? A) $18,000 B) $27,000 C) $23,000 D) $63,000 Answer: B Explanation: B) Beginning Cash $ 40,000 Cash Receipts +101,000 Cash Disbursements-123,000 Cash Available $ 18,000 Desired Balance -45,000 Borrow = 27,000 Dif: 2 LO: 9-3 EOC: E3-28 AACSB: Analytical Thinking Learning Outcome: Discuss basic budgeting concepts and identify and prepare the budgets that comprise the master budget 64 Copyright © 2013 Pearson Education, Inc. publishing as Prentice Hall 140) Brockman Company is preparing its cash budget for the upcoming month. The budgeted beginning cash balance is expected to be $35,000. Budgeted cash disbursements are $123,000, while budgeted cash receipts are $130,000. Brockman Company wants to have an ending cash balance of $48,000. How much would Brockman Company need to borrow to achieve its desired ending cash balance? A) $6,000 B) $90,000 C) $42,000 D) $55,000 Answer: A Explanation: A) Beginning Cash $ 35,000 Cash Receipts + 130,000 Cash Disbursements - 123,000 Cash Available $ 42,000 Desired Balance - 48,000 Borrow = 6,000 Dif: 2 LO: 9-3 EOC: E3-28 AACSB: Analytical Thinking Learning Outcome: Discuss basic budgeting concepts and identify and prepare the budgets that comprise the master budget 65 Copyright © 2013 Pearson Education, Inc. publishing as Prentice Hall 141) BusyBody Company expects its November sales to be 20% higher than its October sales of $180,000. Purchases were $110,000 in October and are expected to be $160,000 in November. All sales are on credit and are collected as follows: 35% in the month of the sale and 60% in the following month. Purchases are paid 40% in the month of purchase and 60% in the following month. The cash balance on November 1 is $13,500. The cash balance on November 30 will be A) $4,100. B) $53,600. C) $67,100. D) $40,100. Answer: C Explanation: C) Oct. Sales $ 180,000 × 60% = 108,000 Nov. Sales 180,000 × 1.2% = 216,000 × 35% = 75,600 Total Cash Receipts 183,600 Oct. Purchases $110,000 × 60% = 66,000 Nov. Purchases 160,000 × 40% = 64,000 Total Cash Disbursements $ 130,000 Beginning Cash $ 13,500 Cash Receipts + 183,600 Cash Disbursements- 130,000 Ending Cash $ 67,100 Dif: 3 LO: 9-3 EOC: E9-28 AACSB: Analytical Thinking Learning Outcome: Discuss basic budgeting concepts and identify and prepare the budgets that comprise the master budget 66 Copyright © 2013 Pearson Education, Inc. publishing as Prentice Hall 142) Romona Company expects its November sales to be 20% higher than its October sales of $165,000. All sales are on credit and are collected as follows: 35% in the month of the sale and 60% in the following month. Purchases were $110,000 in October and are expected to be $140,000 in November. Purchases are paid 40% in the month of purchase and 60% in the following month. The cash balance on November 1 is $13,500. The cash balance on November 30 will be A) $46,300. B) $59,800. C) $2,050. D) $32,800. Answer: B Explanation: B) Oct. Sales $ 165,000 × 60% = 99,000 Nov. Sales 165,000 × 1.2% = 198,000 × 35% = 69,300 Total Cash Receipts 168,300 Oct. Purchases $110,000 × 60% = 66,000 Nov. Purchases 140,000 × 40% = 56,000 Total Cash Disbursements $ 122,000 Beginning Cash $ 13,500 Cash Receipts + 168,300 Cash Disbursements - 122,000 Ending Cash $ 59,800 Dif: 3 LO: 9-3 EOC: E9-28 AACSB: Analytical Thinking Learning Outcome: Discuss basic budgeting concepts and identify and prepare the budgets that comprise the master budget 143) June sales were $5,000 while projected sales for July and August were $6,500 and $7,000, respectively. Sales are 35% cash and 65% credit. All credit sales are collected in the month following the sale. What are the expected collections for July? A) $7,975 B) $5,525 C) $6,825 D) $5,975 Answer: B Explanation: B) July Cash Sales $ 6,500 × 35% = $ 2,275 Cash Collections on account June 5,000 × 65% = 3,250 Total Collections $ 5,525 Dif: 2 LO: 9-3 EOC: E9-28 AACSB: Analytical Thinking Learning Outcome: Discuss basic budgeting concepts and identify and prepare the budgets that 67 Copyright © 2013 Pearson Education, Inc. publishing as Prentice Hall comprise the master budget 144) June sales were $6,000 while projected sales for July and August were $8,500 and $7,000, respectively. All credit sales are collected in the month following the sale. Sales are 75% credit and 25% cash. What are the expected collections for July? A) $8,375 B) $7,875 C) $7,375 D) $6,625 Answer: D Explanation: D) July Cash Sales $ 8,500 × 25% = $ 2,125 Cash Collections on account June 6,000 × 75% = 4,500 Total Collections $ 6,625 Dif: 2 LO: 9-3 EOC: E9-28 AACSB: Analytical Thinking Learning Outcome: Discuss basic budgeting concepts and identify and prepare the budgets that comprise the master budget 145) Purchases for May were $60,000, while expected purchases for June and July are $75,000 and $92,000, respectively. All purchases are paid 35% in the month of purchase and 65% the following month. At what amount are June payments for purchases budgeted? A) $69,750 B) $65,250 C) $86,050 D) $97,450 Answer: B Explanation: B) May $ 60,000 × 65% = $ 39,000 June 75,000 × 35% = 26,250 Total $ 65,250 Dif: 2 LO: 9-3 EOC: E9-28 AACSB: Analytical Thinking Learning Outcome: Discuss basic budgeting concepts and identify and prepare the budgets that comprise the master budget 68 Copyright © 2013 Pearson Education, Inc. publishing as Prentice Hall 146) Expected purchases for June and July are $80,000 and $92,000, respectively. Purchases for May were $60,000. All purchases are paid 45% in the month of purchase and 55% the following month. At what amount are June payments for purchases budgeted? A) $69,000 B) $71,000 C) $86,600 D) $110,400 Answer: A Explanation: A) May $ 60,000 × 55% = $ 33,000 June 80,000 × 45% = 36,000 Total $ 69,000 Dif: 2 LO: 9-3 EOC: E9-28 AACSB: Analytical Thinking Learning Outcome: Discuss basic budgeting concepts and identify and prepare the budgets that comprise the master budget 147) McEwen Company has budgeted the following credit sales during the last four months of the year: September, $16,000; October, $22,000; November $21,000; December, $24,000. Experience has shown that payment for the credit sales is received as follows: 20% in the month of sale, 55% in the frst month after sale, 20% in the second month after sale, and 5% uncollectible. How much cash can McEwen Company expect to collect in November as a result of credit sales? A) $15,300 B) $19,500 C) $16,300 D) $19,750 Answer: B Explanation: B) Sept. $ 16,000 × 20% = $ 3,200 Oct.22,000 × 55% =12,100 Nov.21,000 × 20% = 4,200 Total $19,500 Dif: 2 LO: 9-3 EOC: E9-28 AACSB: Analytical Thinking Learning Outcome: Discuss basic budgeting concepts and identify and prepare the budgets that comprise the master budget 69 Copyright © 2013 Pearson Education, Inc. publishing as Prentice Hall 148) For Dubinsky Company, experience has shown that payment for the credit sales is received as follows: 10% in the month of sale, 65% in the frst month after sale, 20% in the second month after sale, and 5% uncollectible. Dubinsky Company has budgeted the following credit sales during the last four months of the year: September, $20,000; October, $24,000; November $22,000; December, $28,000. How much cash can Dubinsky Company expect to collect in November as a result of credit sales? A) $17,800 B) $19,600 C) $21,800 D) $22,000 Answer: C Explanation: C) Sept. $ 20,000 × 20% = $ 4,000 Oct. 24,000 × 65% =15,600 Nov. 22,000 × 10% =2,200 Total $21,800 Dif: 2 LO: 9-3 EOC: E9-28 AACSB: Analytical Thinking Learning Outcome: Discuss basic budgeting concepts and identify and prepare the budgets that comprise the master budget 149) Kennedy Enterprises has budgeted sales for the months of September and October at $120,000 and $150,000, respectively. Monthly sales are 70% credit and 30% cash. Of the credit sales, 20% are collected in the month of sale and 80% are collected in the following month. What are the October cash collections from customers? A) $133,200 B) $66,000 C) $189,000 D) $88,200 Answer: A Explanation: A) Sept. Sales $ 120,000 × 70% = 84,000 × 80% = $67,200 Oct. Sales 150,000 × 70% = 105,000 × 20% = 21,000 Total collections on account Cash sales $ 150,000 × 30% = 45,000 Total Cash collected $ 133,200 Dif: 2 LO: 9-3 EOC: E9-28 AACSB: Analytical Thinking Learning Outcome: Discuss basic budgeting concepts and identify and prepare the budgets that comprise the master budget 70 Copyright © 2013 Pearson Education, Inc. publishing as Prentice Hall 150) Hammond's Cookie Toppings makes payments on its inventory purchases as follows: 25% in the month of purchase, 65% in the following month, and 10% in the second month following purchase. Budgeted inventory purchases for June, July, and August are $15,000, $19,000 and $24,000, respectively. At what amount are cash payments for inventory in August budgeted? A) $18,500 B) $7,850 C) $5,800 D) $19,850 Answer: D Explanation: D) June $ 15,000 × 10% $ 1,500 July 19,000 × 65 % 12,350 Aug. 24,000 × 25% 6,000 Total $ 19,850 Dif: 2 LO: 9-3 EOC: E9-28 AACSB: Analytical Thinking Learning Outcome: Discuss basic budgeting concepts and identify and prepare the budgets that comprise the master budget 151) Cave Hardware's forecasted sales for April, May, June, and July are $200,000, $230,000, $190,000, and $240,000, respectively. Sales are 65% cash and 35% credit with all accounts receivables collected in the month following the sale. Cost of goods sold is 75% of sales and ending inventory is maintained at $60,000 plus 10% of the following month's cost of goods sold. All inventory purchases are paid 22% in the month of purchase and 78% in the following month. What are the cash collections budgeted for June? A) $150,500 B) $193,500 C) $123,500 D) $204,000 Answer: D Explanation: D) May Sales$230,000 × 35% = 80,500 × 100% = $ 80,500 June 190,000 × 35% = 66,500 × 00 = 00000 Cash Sales June $190,000 × 65% 123,500 Total Cash Collected 204,000 Dif: 3 LO: 9-3 EOC: E9-28 AACSB: Analytical Thinking Learning Outcome: Discuss basic budgeting concepts and identify and prepare the budgets that comprise the master budget 71 Copyright © 2013 Pearson Education, Inc. publishing as Prentice Hall 152) Cave Hardware's forecasted sales for April, May, June, and July are $200,000, $230,000, $190,000, and $240,000, respectively. Sales are 65% cash and 35% credit with all accounts receivables collected in the month following the sale. Cost of goods sold is 75% of sales and ending inventory is maintained at $60,000 plus 10% of the following month's cost of goods sold. All inventory purchases are paid 22% in the month of purchase and 78% in the following month. What are the budgeted cash payments in June for inventory purchases? A) $495,000 B) $315,750 C) $164,385 D) $167,415 Answer: C Explanation: C) Ending Inventory April $60,000 + (10% × 172,500) = $77,250 May 60,000 + (10% × 142,500) = 74,250 June 60,000 + (10% × 180,000) = 78,000 Cost of Goods Sold May $230,000 × 75% = 172,500 June 190,000 × 75% = 142,500 July 240,000 × 75% = 180,000 May June Cost of Goods sold $ 172,500 142,500 +Ending Inventory 74,250 78,000 -Beginning Inventory 77,250 74,250 =Purchases 169,500 146,250 × 78% × 22% Cash Payments 132,210 + 32,175 = $ 164,385 Dif: 3 LO: 9-3 EOC: E9-28 AACSB: Analytical Thinking Learning Outcome: Discuss basic budgeting concepts and identify and prepare the budgets that comprise the master budget 72 Copyright © 2013 Pearson Education, Inc. publishing as Prentice Hall 153) Cave Hardware's forecasted sales for April; May; June; and July are $200,000; $230,000; $190,000; and $240,000; respectively. Sales are 65% cash and 35% credit with all accounts receivables collected in the month following the sale. Cost of goods sold is 75% of sales and ending inventory is maintained at $60,000 plus 10% of the following month's cost of goods sold. All inventory purchases are paid 22% in the month of purchase and 78% in the following month. What is the balance of accounts payable on the June 30 budgeted balance sheet? A) $32,175 B) $108,225 C) $146,250 D) $114,075 Answer: D Explanation: D) June sales 190,000 Cost of goods sold (% of sales) 75% June cost of goods sold $ 142,500 July sales $ 240,000 Cost of goods sold (% of sales) 75% July cost of goods sold $ 180,000 June cost of goods sold $ 142,500 Additional ending inventory (% of next month's cost of goods sold) 10% Additional ending inventory $ 14,250 Minimum ending inventory $ 60,000 June beginning inventory/May ending inventory $ 74,250 July cost of goods sold $ 180,000 Additional ending inventory (% of next month's cost of goods sold) 10% Additional ending inventory $ 18,000 Minimum ending inventory $ 60,000 July beginning inventory/June ending inventory $ 78,000 June cost of goods sold $ 142,500 July beginning inventory/June ending inventory $ 78,000 June beginning inventory/May ending inventory $ (74,250) June purchases $ 146,250 June purchases $ 146,250 Inventory payments month after purchase 78% Accounts payable balance at the end of June $ 114,075 73 Copyright © 2013 Pearson Education, Inc. publishing as Prentice Hall Dif: 3 LO: 9-3 EOC: E9-27 AACSB: Analytical Thinking Learning Outcome: Discuss basic budgeting concepts and identify and prepare the budgets that comprise the master budget 154) Two Brothers Moving prepared the following sales budget: Month Cash Sales Credit Sales March $20,000 $10,000 April $36,000 $16,000 May $42,000 $40,000 June $54,000 $48,000 Credit collections are 25% in the month of sale, 60% in the month following the sale, and 10% two months following the sale. The remaining 5% is expected to be uncollectible. What are the total cash collections in May? A) $62,600 B) $20,600 C) $65,000 D) $76,100 Answer: A Explanation: A) March Sales $ 10,000 × 10% = $1,000 April Sales 16,000 × 60% = 9,600 May Sales 40,000 × 25% = 10,000 Total $ 20,600 Plus May Cash Sales 42,000 Total $ 62,600 Dif: 2 LO: 9-3 EOC: E9-26 AACSB: Analytical Thinking Learning Outcome: Discuss basic budgeting concepts and identify and prepare the budgets that comprise the master budget 74 Copyright © 2013 Pearson Education, Inc. publishing as Prentice Hall 155) Two Brothers Moving prepared the following sales budget: Month Cash Sales Credit Sales March $20,000 $10,000 April $36,000 $16,000 May $42,000 $40,000 June $54,000 $48,000 Credit collections are 25% in the month of sale, 60% in the month following the sale, and 10% two months following the sale. The remaining 5% is expected to be uncollectible. What are the total cash collections in June? A) $37,600 B) $86,800 C) $91,600 D) $96,300 Answer: C Explanation: C) June credit sales $ 48,000 Credit collections month of sale 25% Collections from June credit sales $ 12,000 May credit sales $ 40,000 Credit collections month after sale 60% Collections from May credit sales $ 24,000 April credit sales $ 16,000 Credit collections 2 months after sale 10% Collections from April credit sales $ 1,600 June cash sales $ 54,000 Collections from June credit sales $ 12,000 Collections from May credit sales $ 24,000 Collections from April credit sales $ 1,600 Total June cash collections $ 91,600 Dif: 2 LO: 9-3 EOC: E9-26 AACSB: Analytical Thinking Learning Outcome: Discuss basic budgeting concepts and identify and prepare the budgets that comprise the master budget 75 Copyright © 2013 Pearson Education, Inc. publishing as Prentice Hall 156) Two Brothers Moving prepared the following sales budget: Month Cash Sales Credit Sales March $20,000 $10,000 April $36,000 $16,000 May $42,000 $40,000 June $54,000 $48,000 Credit collections are 25% in the month of sale, 60% in the month following the sale, and 10% two months following the sale. The remaining 5% is expected to be uncollectible. What is the total cash received in April from April sales? A) $40,000 B) $4,000 C) $38,500 D) $2,500 Answer: A Explanation: A) April credit sales $ 16,000 Credit collections month of sale 25% Collections from April credit sales $ 4,000 April cash sales $ 36,000 Collections from April credit sales $ 4,000 Total cash received from April sales $ 40,000 Dif: 2 LO: 9-3 EOC: E9-26 AACSB: Analytical Thinking Learning Outcome: Discuss basic budgeting concepts and identify and prepare the budgets that comprise the master budget 76 Copyright © 2013 Pearson Education, Inc. publishing as Prentice Hall 157) Feeney Furniture prepared the following sales budget: Month Cash Sales Credit Sales March $20,000 $10,000 April $36,000 $16,000 May $42,000 $40,000 June $54,000 $48,000 Credit collections are 15% two months following the sale, 50% in the month following the sale and 30% in the month of sale. The remaining 5% is expected to be uncollectible. What are the total cash collections in May? A) $21,500 B) $63,500 C) $65,900 D) $75,600 Answer: B Explanation: B) March Sales $ 10,000 × 15% = $1,500 April Sales 16,000 × 50% = 8,000 May Sales 40,000 × 30% = 12,000 Total $ 21,500 Plus May Cash Sales 42,000 Total $ 63,500 Dif: 2 LO: 9-3 EOC: E9-26 AACSB: Analytical Thinking Learning Outcome: Discuss basic budgeting concepts and identify and prepare the budgets that comprise the master budget 77 Copyright © 2013 Pearson Education, Inc. publishing as Prentice Hall 158) Feeney Furniture prepared the following sales budget: Month Cash Sales Credit Sales March $20,000 $10,000 April $36,000 $16,000 May $42,000 $40,000 June $54,000 $48,000 Credit collections are 15% two months following the sale, 50% in the month following the sale, and 30% in the month of sale. The remaining 5% is expected to be uncollectible. What are the total cash collections in June? A) $36,800 B) $90,800 C) $86,000 D) $96,600 Answer: B Explanation: B) June credit sales $ 48,000 Credit collections month of sale 30% Collections from June credit sales $ 14,400 May credit sales $ 40,000 Credit collections month after sale 50% Collections from May credit sales $ 20,000 April credit sales $ 16,000 Credit collections 2 months after sale 15% Collections from April credit sales $ 2,400 June cash sales $ 54,000 Collections from June credit sales $ 14,400 Collections from May credit sales $ 20,000 Collections from April credit sales $ 2,400 Total June cash collections $ 90,800 Dif: 2 LO: 9-3 EOC: E9-26 AACSB: Analytical Thinking Learning Outcome: Discuss basic budgeting concepts and identify and prepare the budgets that comprise the master budget 78 Copyright © 2013 Pearson Education, Inc. publishing as Prentice Hall 159) Feeney Furniture prepared the following sales budget: Month Cash Sales Credit Sales March $20,000 $10,000 April $36,000 $16,000 May $42,000 $40,000 June $54,000 $48,000 Credit collections are 15% two months following the sale, 50% in the month following the sale, and 30% in the month of sale. The remaining 5% is expected to be uncollectible. What is the total cash received in April from April sales? A) $4,800 B) $39,000 C) $3,000 D) $40,800 Answer: D Explanation: D) April credit sales $ 16,000 Credit collections month of sale 30% Collections from April credit sales $ 4,800 April cash sales $ 36,000 Collections from April credit sales $ 4,800 Total cash received from April sales $ 40,800 Dif: 2 LO: 9-3 EOC: E9-26 AACSB: Analytical Thinking Learning Outcome: Discuss basic budgeting concepts and identify and prepare the budgets that comprise the master budget 79 Copyright © 2013 Pearson Education, Inc. publishing as Prentice Hall 160) Goliath Company prepared the following purchases budget: Month Budgeted Purchases June $35,600 July $42,500 August $39,600 September $45,800 October $49,400 All purchases are paid for as follows: 30% in the month of purchase, 45% in the following month, and 25% two months after purchase. What are the cash disbursements in August for June purchases? A) $10,680 B) $20,610 C) $16,020 D) $8,900 Answer: D Explanation: D) $ 35,600 × 25% = $ 8,900 Dif: 1 LO: 9-3 EOC: E9-27 AACSB: Analytical Thinking Learning Outcome: Discuss basic budgeting concepts and identify and prepare the budgets that comprise the master budget 80 Copyright © 2013 Pearson Education, Inc. publishing as Prentice Hall 161) Goliath Company prepared the following purchases budget: Month Budgeted Purchases June $35,600 July $42,500 August $39,600 September $45,800 October $49,400 All purchases are paid for as follows: 30% in the month of purchase, 45% in the following month, and 25% two months after purchase. What are the cash disbursements in October for September purchases? A) $20,610 B) $11,450 C) $8,900 D) $152,667 Answer: A Explanation: A) $45,800 × 45% = $ 20,610 Dif: 1 LO: 9-3 EOC: E9-27 AACSB: Analytical Thinking Learning Outcome: Discuss basic budgeting concepts and identify and prepare the budgets that comprise the master budget 81 Copyright © 2013 Pearson Education, Inc. publishing as Prentice Hall 162) Goliath Company prepared the following purchases budget: Month Budgeted Purchases June $35,600 July $42,500 August $39,600 September $45,800 October $49,400 All purchases are paid for as follows: 30% in the month of purchase, 45% in the following month, and 25% two months after purchase. What are the total cash disbursements in August for the purchase of merchandise? A) $45,330 B) $31,005 C) $39,905 D) $11,880 Answer: C Explanation: C) August purchases $ 39,600 Payment month of purchase 30% Disbursements from August purchases $ 11,880 July purchases $ 42,500 Payment month after purchase 45% Disbursements from July purchases $ 19,125 June purchases $ 35,600 Payment 2 months after purchase 25% Disbursements from June purchases $ 8,900 Disbursements from August purchases $ 11,880 Disbursements from July purchases $ 19,125 Disbursements from June purchases $ 8,900 Total August cash disbursements $ 39,905 Dif: 2 LO: 9-3 EOC: E9-27 AACSB: Analytical Thinking Learning Outcome: Discuss basic budgeting concepts and identify and prepare the budgets that comprise the master budget 82 Copyright © 2013 Pearson Education, Inc. publishing as Prentice Hall 163) Goliath Company prepared the following purchases budget: Month Budgeted Purchases June $35,600 July $42,500 August $39,600 September $45,800 October $49,400 All purchases are paid for as follows: 30% in the month of purchase, 45% in the following month, and 25% two months after purchase. What are the total cash disbursements in October for the purchase of merchandise? A) $45,330 B) $39,905 C) $14,820 D) $35,430 Answer: A Explanation: A) Aug. Purchases $ 39,600 × 25% = $ 9,900 Sept. 45,800 × 45% = 20,610 Oct. 49,400 × 30% = 14,820 Total $ 45,330 Dif: 2 LO: 9-3 EOC: E9-27 AACSB: Analytical Thinking Learning Outcome: Discuss basic budgeting concepts and identify and prepare the budgets that comprise the master budget 83 Copyright © 2013 Pearson Education, Inc. publishing as Prentice Hall 164) Lough Company prepared the following purchases budget: Month Budgeted Purchases June $40,000 July $43,000 August $39,600 September $46,000 October $49,100 All purchases are paid for as follows: 20% two months after purchase, 55% in the following month, and 25% in the month of purchase. What are the cash disbursements in August for June purchases? A) $8,000 B) $25,300 C) $22,000 D) $10,000 Answer: A Explanation: A) $ 40,000 × 20% = $ 8,000 Dif: 1 LO: 9-3 EOC: E9-27 AACSB: Analytical Thinking Learning Outcome: Discuss basic budgeting concepts and identify and prepare the budgets that comprise the master budget 84 Copyright © 2013 Pearson Education, Inc. publishing as Prentice Hall 165) Lough Company prepared the following purchases budget: Month Budgeted Purchases June $40,000 July $43,000 August $39,600 September $46,000 October $49,100 All purchases are paid for as follows: 20% two months after purchase, 55% in the following month, and 25% in the month of purchase. What are the cash disbursements in October for September purchases? A) $9,200 B) $25,300 C) $8,000 D) $184,000 Answer: B Explanation: B) $ 46,000 × 55% = $ 25,300 Dif: 1 LO: 9-3 EOC: E9-27 AACSB: Analytical Thinking Learning Outcome: Discuss basic budgeting concepts and identify and prepare the budgets that comprise the master budget 85 Copyright © 2013 Pearson Education, Inc. publishing as Prentice Hall 166) Lough Company prepared the following purchases budget: Month Budgeted Purchases June $40,000 July $43,000 August $39,600 September $46,000 October $49,100 All purchases are paid for as follows: 20% two months after purchase, 55% in the following month, and 25% in the month of purchase. What are the total cash disbursements in August for the purchase of merchandise? A) $41,550 B) $45,495 C) $33,550 D) $9,900 Answer: A Explanation: A) August purchases $ 39,600 Payment month of purchase 25% Disbursements from August purchases $ 9,900 July purchases $ 43,000 Payment month after purchase 55% Disbursements from July purchases $ 23,650 June purchases $40,000 Payment 2 months after purchase 20% Disbursements from June purchases $ 8,000 Disbursements from August purchases $ 9,900 Disbursements from July purchases $ 23,650 Disbursements from June purchases $ 8,000 Total August cash disbursements $ 41,550 Dif: 2 LO: 9-3 EOC: E9-27 AACSB: Analytical Thinking Learning Outcome: Discuss basic budgeting concepts and identify and prepare the budgets that comprise the master budget 86 Copyright © 2013 Pearson Education, Inc. publishing as Prentice Hall 167) Lough Company prepared the following purchases budget: Month Budgeted Purchases June $40,000 July $43,000 August $39,600 September $46,000 October $49,100 All purchases are paid for as follows: 20% two months after purchase, 55% in the following month, and 25% in the month of purchase. What are the total cash disbursements in October for the purchase of merchandise? A) $12,275 B) $37,575 C) $41,550 D) $45,495 Answer: D Explanation: D) Aug. Purchases $ 39,600 × 20% = $ 7,920 Sept. 46,000 × 55% = 25,300 Oct. 49,100 × 25% = 12,275 Total $ 45,495 Dif: 2 LO: 9-3 EOC: E9-27 AACSB: Analytical Thinking Learning Outcome: Discuss basic budgeting concepts and identify and prepare the budgets that comprise the master budget 168) Lakewood Jet Skis has budgeted sales for June and July at $420,000 and $480,000, respectively. Sales are 75% credit, of which 40% is collected in the month of sale and 60% is collected in the following month. What is the accounts receivable balance on July 31? A) $189,000 B) $288,000 C) $216,000 D) $360,000 Answer: C Explanation: C) July 480,000 × 75% = 360,000 × 60% = $ 216,000 Dif: 1 LO: 9-3 EOC: E9-30 AACSB: Analytical Thinking Learning Outcome: Discuss basic budgeting concepts and identify and prepare the budgets that comprise the master budget 87 Copyright © 2013 Pearson Education, Inc. publishing as Prentice Hall 169) Defne operating budgets and fnancial budgets. List the specifc budgets which are operating budgets. List the specifc budgets which are fnancial budgets. Answer: Operating budgets: 1. sales budget 2. production budget 3. direct materials budget 4. direct labor budget 5. manufacturing overhead budget 6. operating expenses budget 7. budgeted income statement The operating budgets are the budgets needed to run the daily operations of the company. The operating budgets culminate in a budgeted income statement. The starting point of the operating budgets is the sales budget, because it afects most other components of the master budget. After estimating sales, manufacturers prepare the production budget, which determines how many units need to be produced. Once production volume is established, managers prepare the budgets determining the amounts of direct materials, direct labor, and manufacturing overhead that will be needed to meet production. Next, managers prepare the operating expenses budget. After all of these budgets are prepared, management will be able to prepare the budgeted income statement. Financial budgets: 1. capital expenditures budget 2. cash budgets 3. budgeted balance sheet The fnancial budgets project the collection and payment of cash, as well as forecast the company's budgeted balance sheet. The capital expenditure budget shows the company's plan for purchasing property, plant, and equipment. The cash budget projects the cash that will be available to run the company's operations and determines whether the company will have extra funds to invest or whether the company will need to borrow cash. Finally, the budgeted balance sheet forecasts the company's position at the end of the budget period. Dif: 3 LO: 9-3 EOC: S9-2 AACSB: Analytical Thinking Learning Outcome: Discuss basic budgeting concepts and identify and prepare the budgets that comprise the master budget 88 Copyright © 2013 Pearson Education, Inc. publishing as Prentice Hall 170) Beyerly Corporation anticipates the following sales revenue over a fve month period: Byerly Corporation's sales are 40% cash and 60% credit. The Beyerly Corporation's collection history indicates that credit sales are collected as follows: Month of sale 20% Month after sale 50% Two months after sale 25% Uncollectible 5% Required: Prepare a cash collections budget for each month in the quarter (January, February, and March) and for the quarter in total. Answer: Dif: 3 LO: 9-3 EOC: E9-27 AACSB: Analytical Thinking Learning Outcome: Discuss basic budgeting concepts and identify and prepare the budgets that comprise the master budget 89 Copyright © 2013 Pearson Education, Inc. publishing as Prentice Hall 171) PotatoState Manufacturing is preparing its cash payments budget for the coming month. The following information pertains to the cash payments: a. PotatoState Manufacturing pays for 70% of its direct materials purchases in the month of purchase and the remainder the following month. Last month's direct material purchases were $40,000, while FirstState Manufacturing anticipates $45,000 of direct material purchases this coming month. b. Direct labor for the upcoming month is budgeted to be $25,000 and will be paid at the end of the upcoming month. c. Overhead is estimated to be 150% of direct labor cost each month and is paid in the month in which it is incurred. This monthly estimate includes $8,000 of depreciation on the plant and equipment. d. Monthly operating expenses for next month are expected to be $27,500, which includes $1,500 of depreciation on ofce equipment and $2,000 of bad debt expense. These monthly operating expenses are paid during the month in which they are incurred. e. PotatoState Manufacturing will be making an estimated tax payment of $6,000 next month. Required: Prepare a cash payments budget for the month. Answer: Dif: 2 LO: 9-3 EOC: E9-28 AACSB: Analytical Thinking Learning Outcome: Discuss basic budgeting concepts and identify and prepare the budgets that comprise the master budget 90 Copyright © 2013 Pearson Education, Inc. publishing as Prentice Hall 172) The Alec Corporation sells infatable pools. On June 30, there were 105 pools in ending inventory, and accounts receivable had a balance of $12,000. Sales of infatable pools (in units) have been budgeted at the following levels for the upcoming months: Accounts receivable, June 30 $12,000 Number of pools budgeted to be sold in July 350 Number of pools budgeted to be sold in August 420 Number of pools budgeted to be sold in September 370 Number of pools budgeted to be sold in October 300 The company has a policy that the ending inventory of infatable pools should be equal to 30% of the number of pools to be sold in the following month. The Outdoor Leisure Store sells the infatable pools for $100 each. The company's collection history shows that 30% of the sales in a month are paid for by customers in the month of sale, while the remainder is collected in the following month. Required: a. Prepare a merchandise purchases budget showing how many pools should be purchased in each of the months including July, August, and September. b. Prepare a cash collections budget for each of the months including July, August, and September. Answer: Part a. Merchandise Purchases Budget July August September October Budgeted unit sales 350 420 370 300 Desired ending inventory (30% of next month's sales) 126 111 90 Total needs 476 531 460 Less beginning inventory 105 126 111 Required purchases 371 405 349 PART b. Cash Collections Budget July August September Budgeted unit sales 350 420 370 Selling price per unit $100.00 $100.00 $100.00 Budgeted sales $35,000 $42,000 $37,000 Accounts receivable, June 30 $12,000 July sales $10,500 $24,500 August sales $12,600 $29,400 September sales $11,100 Total cash collections $22,500 $37,100 $40,500 Dif: 3 LO: 9-3 EOC: E9-28 AACSB: Analytical Thinking Learning Outcome: Discuss basic budgeting concepts and identify and prepare the budgets that comprise the master budget 91 Copyright © 2013 Pearson Education, Inc. publishing as Prentice Hall 173) A merchandising company will have a production budget. Answer: FALSE Dif: 1 LO: 9-5 EOC: E3-34 AACSB: Refective Thinking Learning Outcome: Discuss basic budgeting concepts and identify and prepare the budgets that comprise the master budget 174) The master budget of a service company has fewer individual budget components than does the master budget of a manufacturing company. Answer: TRUE Dif: 1 LO: 9-5 EOC: E3-34 AACSB: Refective Thinking Learning Outcome: Discuss basic budgeting concepts and identify and prepare the budgets that comprise the master budget 175) The operating budgets of retailers and manufacturers are virtually identical. Answer: FALSE Dif: 1 LO: 9-5 EOC: E3-34 AACSB: Refective Thinking Learning Outcome: Discuss basic budgeting concepts and identify and prepare the budgets that comprise the master budget 176) Merchandisers use a "cost of goods sold, inventory, and purchases" budget to calculate the amount of merchandise to purchase. Answer: TRUE Dif: 1 LO: 9-5 EOC: E3-34 AACSB: Refective Thinking Learning Outcome: Discuss basic budgeting concepts and identify and prepare the budgets that comprise the master budget 177) The fnancial budgets prepared for manufacturers are diferent than those for merchandising and service companies. Answer: FALSE Dif: 1 LO: 9-5 EOC: E3-34 AACSB: Refective Thinking Learning Outcome: Discuss basic budgeting concepts and identify and prepare the budgets that 92 Copyright © 2013 Pearson Education, Inc. publishing as Prentice Hall comprise the master budget 178) Manufacturing, merchandising, and service companies prepare operating expense budgets. Answer: TRUE Dif: 1 LO: 9-5 EOC: E3-34 AACSB: Refective Thinking Learning Outcome: Discuss basic budgeting concepts and identify and prepare the budgets that comprise the master budget 179) Merchandising companies do not prepare a direct materials budget. Answer: TRUE Dif: 1 LO: 9-5 EOC: E3-34 AACSB: Refective Thinking Learning Outcome: Discuss basic budgeting concepts and identify and prepare the budgets that comprise the master budget 180) Service companies do not prepare a cash budget. Answer: FALSE Dif: 1 LO: 9-5 EOC: E3-34 AACSB: Refective Thinking Learning Outcome: Discuss basic budgeting concepts and identify and prepare the budgets that comprise the master budget 181) Which of the following types of companies use a direct materials budget? A) Manufacturing B) Merchandising C) Service D) All of the above Answer: A Dif: 1 LO: 9-5 EOC: E3-34 AACSB: Refective Thinking Learning Outcome: Discuss basic budgeting concepts and identify and prepare the budgets that comprise the master budget 93 Copyright © 2013 Pearson Education, Inc. publishing as Prentice Hall 182) Which of the following types of companies would combine cost of goods sold, inventory, and purchases into one budget? A) Manufacturing B) Merchandising C) Service D) All of the above Answer: B Dif: 1 LO: 9-5 EOC: E3-34 AACSB: Refective Thinking Learning Outcome: Discuss basic budgeting concepts and identify and prepare the budgets that comprise the master budget 183) Which of the following types of companies use a sales budget? A) Manufacturing B) Merchandising C) Service D) All of the above Answer: D Dif: 1 LO: 9-5 EOC: E3-34 AACSB: Refective Thinking Learning Outcome: Discuss basic budgeting concepts and identify and prepare the budgets that comprise the master budget 184) Which of the following types of companies use an operating expense budget? A) Manufacturing B) Merchandising C) Service D) All of the above Answer: D Dif: 1 LO: 9-5 EOC: E3-34 AACSB: Refective Thinking Learning Outcome: Discuss basic budgeting concepts and identify and prepare the budgets that comprise the master budget 94 Copyright © 2013 Pearson Education, Inc. publishing as Prentice Hall 185) Which of the following types of companies use a "cost of goods sold, inventory, and purchases" budget? A) Merchandising B) Manufacturing C) Service D) All of the above Answer: A Dif: 1 LO: 9-5 EOC: E3-34 AACSB: Refective Thinking Learning Outcome: Discuss basic budgeting concepts and identify and prepare the budgets that comprise the master budget 186) Which of the following types of companies use a capital expenditures budget? A) Manufacturing B) Merchandising C) Service D) All of the above Answer: D Dif: 1 LO: 9-5 EOC: E3-34 AACSB: Refective Thinking Learning Outcome: Discuss basic budgeting concepts and identify and prepare the budgets that comprise the master budget 187) The format of the "cost of goods sold, inventory, and purchases" budget is as follows: A) desired ending inventory + beginning inventory - cost of goods sold. B) cost of goods sold + desired ending inventory - beginning inventory. C) cost of goods sold - desired ending inventory + beginning inventory. D) desired ending inventory - beginning inventory - cost of goods sold. Answer: B Dif: 1 LO: 9-5 EOC: E3-34 AACSB: Refective Thinking Learning Outcome: Discuss basic budgeting concepts and identify and prepare the budgets that comprise the master budget 95 Copyright © 2013 Pearson Education, Inc. publishing as Prentice Hall 188) Merchandising companies prepare which of the following budgets? A) Sales B) Cash C) Operating expense D) All of the above Answer: D Dif: 1 LO: 9-5 EOC: E3-34 AACSB: Refective Thinking Learning Outcome: Discuss basic budgeting concepts and identify and prepare the budgets that comprise the master budget 189) All of the following budgets are prepared by service companies except A) cost of goods sold, inventory and purchases. B) cash. C) operating expense. D) sales. Answer: A Dif: 1 LO: 9-5 EOC: E3-34 AACSB: Refective Thinking Learning Outcome: Discuss basic budgeting concepts and identify and prepare the budgets that comprise the master budget 190) All of the following budgets are prepared by merchandising companies except A) sales. B) operating expense. C) direct materials. D) cost of goods sold, inventory and purchases. Answer: C Dif: 1 LO: 9-5 EOC: E3-34 AACSB: Refective Thinking Learning Outcome: Discuss basic budgeting concepts and identify and prepare the budgets that comprise the master budget 96 Copyright © 2013 Pearson Education, Inc. publishing as Prentice Hall 191) All of the following budgets are prepared by merchandising companies except A) manufacturing overhead. B) capital expenditures. C) budgeted income statement. D) cash. Answer: A Dif: 1 LO: 9-5 EOC: E3-34 AACSB: Refective Thinking Learning Outcome: Discuss basic budgeting concepts and identify and prepare the budgets that comprise the master budget 192) Merchandising companies prepare sales, cash, and operating expense budgets. Answer: TRUE Dif: 1 LO: 9-5 EOC: E3-34 AACSB: Refective Thinking Learning Outcome: Discuss basic budgeting concepts and identify and prepare the budgets that comprise the master budget 193) Service companies do not prepare a cost of goods sold, inventory, and purchases budget. Answer: TRUE Dif: 1 LO: 9-5 EOC: E3-34 AACSB: Refective Thinking Learning Outcome: Discuss basic budgeting concepts and identify and prepare the budgets that comprise the master budget 194) Merchandising companies prepare a direct materials budget. Answer: FALSE Dif: 1 LO: 9-5 EOC: E3-34 AACSB: Refective Thinking Learning Outcome: Discuss basic budgeting concepts and identify and prepare the budgets that comprise the master budget 195) Merchandising companies prepare a manufacturing overhead budget. Answer: FALSE Dif: 1 LO: 9-5 EOC: E3-34 AACSB: Refective Thinking Learning Outcome: Discuss basic budgeting concepts and identify and prepare the budgets that 97 Copyright © 2013 Pearson Education, Inc. publishing as Prentice Hall comprise the master budget 98 Copyright © 2013 Pearson Education, Inc. publishing as Prentice Hall