Attachment

Chapter 9
Profit Planning
True/False
1. The usual starting point in budgeting is to make a forecast of
F cash receipts and cash disbursements.
Medium
2. Budgets are used for planning rather than for control of
F operations.
Medium
3. A continuous or perpetual budget is one which covers a 12month
T period but which is constantly adding a new month on the end as
Easy the current month is completed.
4. Control involves developing objectives and preparing the
F various budgets to achieve those objectives.
Easy
5. One of the distinct advantages of a budget is that it can help
T to uncover potential bottlenecks before they occur.
Easy
6. A selfimposed budget can be a very effective control device in
T an organization.
Easy
7. Sales forecasts are drawn up after the cash budget has been
F completed since only then are the funds available for marketing
Medium known.
8. A production budget is to a manufacturing firm as a merchandise
T purchases budget is to a merchandising firm.
Medium
9. The direct materials to be purchased for a period can be
F obtained by subtracting the desired ending inventory of direct
Medium materials from the total direct materials needed for the
period.
10. In companies that have "no layoff" policies, the total direct
F labor cost for a budget period is computed by multiplying the
Hard total direct labor hours needed to make the budgeted output of
completed units by the direct labor wage rate.
Managerial Accounting, 9/e 65
11. In the merchandise purchases budget, the required purchases (in
F units) for a period can be determined by subtracting the
Medium beginning merchandise inventory (in units) from the budgeted
sales (in units).
12. The beginning cash balance is not included on the cash budget
F since the cash budget deals exclusively with cash flows rather
Hard than with balance sheet amounts.
13. When using the selfimposed budget approach, it is generally
F best for top management to accept all budget estimates without
Easy question in order to minimize adverse behavioral responses from
employees.
14. (Appendix) The economic order quantity is that point where the
T total costs of ordering inventory just equal the total costs of
Medium carrying inventory.
15. (Appendix) As the lead time increases, the safety stock should
T also increase.
Medium
Multiple Choice
16. The budget or schedule that provides necessary input data for
B the direct labor budget is the:
Easy a. raw materials purchases budget.
CMA b. production budget.
adapted c. schedule of cash collections.
d. cash budget.
17. The cash budget must be prepared before you can complete the:
B a. production budget.
Easy b. budgeted balance sheet.
CMA c. raw materials purchases budget.
adapted d. schedule of cash disbursements.
18. Which of the following is not a benefit of budgeting?
C a. It uncovers potential bottlenecks before they occur.
Easy b. It coordinates the activities of the entire organization by
integrating the plans and objectives of the various parts.
c. It ensures that accounting records comply with generally
accepted accounting principles.
d. It provides benchmarks for evaluating subsequent
performance.
66 Managerial Accounting, 9/e
19. The materials purchase budget:
B a. is the beginning point in the budget process.
Easy b. must provide for desired ending inventory as well as for
production.
c. is accompanied by a schedule of cash collections.
d. is completed after the cash budget.
20. The master budget process usually begins with the:
C a. production budget.
Easy b. operating budget.
CMA c. sales budget.
adapted d. cash budget.
21. There are various budgets within the master budget. One of
C these budgets is the production budget. Which of the following
Easy BEST describes the production budget?
CMA a. It details the required direct labor hours.
adapted b. It details the required raw materials purchases.
c. It is calculated based on the sales budget and the desired
ending inventory.
d. It summarizes the costs of producing units for the budget
period.
22. (Appendix) The economic order quantity (EOQ) in an inventory
C management system is:
Medium a. the order quantity that yields the lowest unit purchase
cost.
b. the order quantity that yields the lowest inventory handling
cost.
c. the order quantity that yields the lowest total cost of
ordering and carrying inventory.
d. the order quantity with the largest purchase discount.
23. (Appendix) The Stewart Company uses the Economic Order Quantity
D (EOQ) model in its inventory management. A decrease in which of
Medium the following variables would increase the company's EOQ?
CMA a. Annual sales.
adapted b. Cost per order.
c. Safety stock level.
d. Inventory carrying costs.
24. (Appendix) The level of safety stock depends on all of the
D following except:
Medium a. the level of uncertainty of the sales forecast.
b. the level of customer dissatisfaction when goods are
unavailable.
c. the level of uncertainty in the lead time for shipments from
suppliers.
d. the ordering cost per order.
25. A method of budgeting in which the cost of each program must be
B justified every year is called:
Easy a. operational budgeting.
CMA b. zerobased budgeting.
adapted c. continuous budgeting.
d. responsibility accounting.
26. Fairmont Inc. uses an accounting system that charges costs to
A the manager who has been delegated the authority to make
Easy decisions concerning the costs. For example, if the sales
CMA manager accepts a rush order that will result in higher than
adapted normal manufacturing costs, these additional costs are charged
to the sales manager because the authority to accept or decline
the rush order was given to the sales manager. This type of
accounting system is known as:
a. responsibility accounting.
b. contribution accounting.
c. absorption accounting.
d. operational budgeting.
27. Parlee Company's sales are 30% in cash and 70% on credit. Sixty
D percent of the credit sales are collected in the month of sale,
Medium 25% in the month following sale, and 12% in the second month
following sale. The remainder are uncollectible. The following
are budgeted sales data:
January February March April
Total sales $60,000 $70,000 $50,000 $30,000
Total cash receipts in April would be budgeted to be:
a. $38,900.
b. $47,900.
c. $27,230.
d. $36,230.
28. Budgeted sales in Allen Company over the next four months are
Difficult given below:
September October November December
Budgeted sales $100,000 $160,000 $180,000 $120,000
Twentyfive percent of the company's sales are for cash and 75%
are on account. Collections for sales on account follow a
stable pattern as follows: 50% of a month's sales are collected
in the month of sale, 30% are collected in the month following
sale, and 15% are collected in the second month following sale.
The remainder are uncollectible. Given these data, cash
collections for December should be:
a. $153,000.
b. $138,000.
c. $120,000.
d. $103,500.
29. The PDQ Company makes collections on credit sales according to
D the following schedule:
Medium
25% in month of sale
70% in month following sale
4% in second month following sale
1% uncollectible
The following sales have been budgeted:
Month Sales
April ... $100,000
May ..... 120,000
June .... 110,000
Cash collections in June would be:
a. $113,400.
b. $110,000.
c. $111,000.
d. $115,500.
30. Orion Corporation is preparing a cash budget for the six months
D beginning January 1. Shown below are the company's expected
Medium collection pattern and the budgeted sales for the period.
Expected collection pattern:
65% collected in the month of sale
20% collected in the month after sale
10% collected in the second month after sale
4% collected in the third month after sale
1% uncollectible
Budgeted sales:
January ....... $160,000
February ...... 185,000
March ......... 190,000
April ......... 170,000
May ........... 200,000
June .......... 180,000
The estimated total cash collections during April from sales
and accounts receivables would be:
a. $155,900.
b. $167,000.
c. $171,666.
d. $173,400.
31. Pardee Company plans to sell 12,000 units during the month of
A August. If the company has 2,500 units on hand at the start of
Easy the month, and plans to have 2,000 units on hand at the end of
the month, how many units must be produced during the month?
a. 11,500.
b. 12,500.
c. 12,000.
d. 14,000.
32. Modesto Company produces and sells Product AlphaB. To guard
C against stockouts, the company requires that 20% of the next
Medium month's sales be on hand at the end of each month. Budgeted
sales of Product AlphaB over the next four months are:
June July August September
Budgeted sales in units 30,000 40,000 60,000 50,000
Budgeted production for August would be:
a. 62,000 units.
b. 70,000 units.
c. 58,000 units.
d. 50,000 units.
33. Friden Company has budgeted sales and production over the next
B quarter as follows:
Hard
April May June
Sales in units ......... 100,000 120,000 ?
Production in units .... 104,000 128,000 156,000
The company has 20,000 units of product on hand at April 1. A
minimum of 20% of the next month's sales needs in units must be
on hand at the end of each month. July sales are expected to be
140,000 units. Budgeted sales for June would be (in units):
a. 188,000.
b. 160,000.
c. 128,000.
d. 184,000.
34. Walsh Company expects sales of Product W to be 60,000 units in
B April, 75,000 units in May and 70,000 units in June. The
Medium company desires that the inventory on hand at the end of each
month be equal to 40% of the next month's expected unit sales.
Due to excessive production during March, on March 31 there
were 25,000 units of Product W in the ending inventory. Given
this information, Walsh Company's production of Product W for
the month of April should be:
a. 60,000 units.
b. 65,000 units.
c. 75,000 units.
d. 66,000 units.
35. Superior Industries' sales budget shows quarterly sales for the
C next year as follows:
Medium
CMA Quarter Sales (units)
adapted First ..... 10,000
Second .... 8,000
Third ..... 12,000
Fourth .... 14,000
Company policy is to have a finished goods inventory at the end
of each quarter equal to 20% of the next quarter's sales.
Budgeted production for the second quarter should be:
a. 7,200 units.
b. 8,000 units.
c. 8,800 units.
d. 8,400 units.
36. The Tobler Company has budgeted production for next year as
A follows:
Medium
Quarter ............... First Second Third Fourth
Production in units ... 10,000 12,000 16,000 14,000
Four pounds of raw materials are required for each unit
produced. Raw materials on hand at the start of the year totals
4,000 lbs. The raw materials inventory at the end of each
quarter should equal 10% of the next quarter's production
needs. Budgeted purchases of raw materials in the third quarter
would be:
a. 63,200 lbs.
b. 62,400 lbs.
c. 56,800 lbs.
d. 50,400 lbs.
37. Marple Company's budgeted production in units and budgeted raw
D materials purchases over the next three months are given below:
Hard
January February March
Budgeted production (in units) .. 60,000 ? 100,000
Budgeted raw materials
purchases (in pounds) ........ 129,000 165,000 188,000
Two pounds of raw materials are required to produce one unit of
product. The company wants raw materials on hand at the end of
each month equal to 30% of the following month's production
needs. The company is expected to have 36,000 pounds of raw
materials on hand on January 1. Budgeted production for
February should be:
a. 105,000 units.
b. 82,500 units.
c. 150,000 units.
d. 75,000 units.
38. The Waverly Company has budgeted sales for next year as
A follows:
Medium
Quarter .......... First Second Third Fourth
Sales in units ... 12,000 14,000 18,000 16,000
The ending inventory of finished goods for each quarter should
equal 25% of the next quarter's budgeted sales in units. The
finished goods inventory at the start of the year is 3,000
units. Scheduled production for the third quarter should be:
a. 17,500.
b. 18,500.
c. 22,000.
d. 13,500.
39. The Willsey Merchandise Company has budgeted $40,000 in sales
A for the month of December. The company's cost of goods sold is
Hard 30% of sales. If the company has budgeted to purchase $18,000
in merchandise during December, then the budgeted change in
inventory levels over the month of December is:
a. $6,000 increase.
b. $10,000 decrease.
c. $22,000 decrease.
d. $15,000 increase.
40. ABC Company has a cash balance of $9,000 on April 1. The
B company must maintain a minimum cash balance of $6,000. During
Easy April expected cash receipts are $45,000. Expected cash
disbursements during the month total $52,000. During April the
company will need to borrow:
a. $2,000.
b. $4,000.
c. $6,000.
d. $8,000.
41. Avril Company makes collections on sales according to the
D following schedule:
Easy
30% in the month of sale
60% in the month following sale
8% in the second month following sale
The following sales are expected:
Expected Sales
January ....... $100,000
February ...... 120,000
March ......... 110,000
Cash collections in March should be budgeted to be:
a. $110,000.
b. $110,800.
c. $105,000.
d. $113,000.
42. The Stacy Company makes and sells a single product, Product R.
B Budgeted sales for April are $300,000. Gross Margin is budgeted
Hard at 30% of sales dollars. If the net income for April is
budgeted at $40,000, the budgeted selling and administrative
expenses are:
a. $133,333.
b. $50,000.
c. $102,000.
d. $78,000.
43. (Appendix) Canesco Enterprises uses 84,000 units of Part 256 in
A its production over a 300day work year. The usual lead time
Hard for delivery of the part from the supplier is six days;
CMA occasionally, the lead time has been as high as eight days. The
adapted company wants to implement a safety stock policy (it presently
carries no safety stocks). The safety stock size, the likely
effect on stockout costs of implementing the safety stock, and
the likely effect on carrying costs of implementing the safety
stock, respectively, would be:
a. 560 units, decrease, increase.
b. 560 units, increase, decrease.
c. 1,680 units, decrease, increase.
d. 1,680 units, increase, no change.
44. (Appendix) Karpov Enterprises, a wholesaler of electronic
B instruments, uses the economic order quantity model in its
Medium inventory management. Data concerning one product appear below:
Total units purchased annually .............. 810
Costs to place one order .................... $10
Selling price per unit ...................... $40
Annual cost to carry one unit in stock ...... $ 2
The economic order quantity (EOQ) for this product would be:
a. 18 units.
b. 90 units.
c. 81 units.
d. 180 units.
45. (Appendix) The Aron Company requires 40,000 units of Product Q
D for the year. The units will be used evenly throughout the
Medium year. It costs $60 to place an order. It costs $10 to carry a
CPA unit in inventory for the year. What is the economic order
adapted quantity (EOQ) rounded to the nearest whole unit?
a. 400.
b. 490.
c. 600.
d. 693.
46. (Appendix) The following data relate to a part used by the
A Henry Company:
Medium
CPA Units required per year .......... 30,000
adapted Cost of placing an order ......... $ 400
Unit carrying cost per year ...... $ 600
Assuming that the units will be used evenly throughout the
year, what is the economic order quantity (EOQ)?
a. 200.
b. 300.
c. 400.
d. 500.
47. (Appendix) Politan Company manufactures 4,000 bookcases a year.
D Setup costs are $20 for a production run. Using the economic
Hard order quantity (EOQ) approach, the optimal production lot size
CPA would be 200 units when the cost of carrying one bookcase in
adapted inventory for one year is:
a. $0.50.
b. $1.00.
c. $2.00.
d. $4.00.
48. (Appendix) Moss Converters Inc. uses 100,000 kilograms of raw
A material annually in its production processes. The raw material
Hard costs $12 per kilogram. The cost to process a purchase order is
CMA $45, which includes variable costs of $35 and allocated fixed
adapted costs of $10. Outofpocket storage costs are $4.20 per
kilogram per year. Moss's economic order quantity (EOQ) is:
a. 1,291 units.
b. 1,464 units.
c. 1,708 units.
d. 1,936 units.
49. (Appendix) Jasper Inc. produces automobile headlight assemblies
C for sportsutility vehicles. Data concerning a particular metal
Medium fastener that is used in a one of the company's products appear
below.
Economic order quantity ..... 600 units
Average weekly usage ........ 150 units
Maximum weekly usage ........ 175 units
Lead time ................... 2 weeks
The safety stock would be:
a. 350 units.
b. 175 units.
c. 50 units.
d. 75 units.
Reference: 91
KAB Inc., a small retail store, had the following results for May. The
budgets for June and July are also given.
May June July
(actual) (budget) (budget)
Sales ........................ $42,000 $40,000 $45,000
Cost of sales ................ 21,000 20,000 22,500
Gross margin ................. 21,000 20,000 22,500
Operating expenses ........... 20,000 20,000 20,000
Operating income ............. $ 1,000 $ 0 $ 2,500
Sales are collected 80% in the month of the sale and the balance in the
month following the sale. (There are no bad debts.) The goods that are
sold are purchased in the month prior to sale. Suppliers of the goods are
paid in the month following the sale. The "operating expenses" are paid in
the month of the sale.
50. The amount of cash collected during the month of June should
C be:
Easy a. $32,000.
CMA b. $40,000.
adapted c. $40,400.
Refer To: d. $41,000.
91
51. The cash disbursements during the month of June for goods
B purchased for resale and for operating expenses should be:
Easy a. $40,000.
CMA b. $41,000.
adapted c. $42,500.
Refer To: d. $43,500.
91
Reference: 92
Justin's Plant Store, a retailer, started operations on January 1. On that
date, the only assets were $16,000 in cash and $3,500 in merchandise
inventory. For purposes of budget preparation, assume that the company's
cost of goods sold is 60% of sales. Expected sales for the first four months
appear below.
Expected
Sales
January ....... $10,000
February ...... 24,000
March ......... 16,000
April ......... 25,000
The company desires that the merchandise inventory on hand at the end of
each month be equal to 50% of the next month's merchandise sales (stated at
cost). All purchases of merchandise inventory must be paid in the month of
purchase. Sixty percent of all sales should be for cash; the balance will be
on credit. Seventyfive percent of the credit sales should be collected in
the month following the month of sale, with the balance collected in the
following month. Variable operating expenses should be 10% of sales and
fixed expenses (all depreciation) should be $3,000 per month. Cash payments
for the variable operating expenses are made during the month the expenses
are incurred.
52. In a budgeted income statement for the month of February, net
D income would be:
Medium a. $9,000.
Refer To: b. $1,800.
92 c. $0.
d. $4,200.
53. In a budgeted balance sheet, the Merchandise Inventory on
A February 28 would be:
Medium a. $4,800.
92 c. $9,600.
d. $3,200.
54. The Accounts Receivable balance that would appear in the March
C 31 budgeted balance sheet would be:
Medium a. $15,000.
Refer To: b. $16,000.
92 c. $8,800.
d. $12,400.
55. In a budget of cash receipts for March, the total cash receipts
A would be:
Medium a. $17,800.
92 c. $20,200.
d. $16,000.
56. In a budget of cash disbursements for March, the total cash
B disbursements would be:
Hard a. $11,200.
Refer To: b. $13,900.
92 c. $22,300.
d. $16,900.
Reference: 93
Information on the actual sales and inventory purchases of the Law Company
for the first quarter follow:
Inventory
Sales Purchases
January ...... $120,000 $60,000
February ..... $100,000 $78,000
March ........ $130,000 $90,000
Collections from Law Company's customers are normally 60% in the month of
sale, 30% in the month following sale, and 8% in the second month following
sale. The balance is uncollectible. Law Company takes full advantage of the
3% discount allowed on purchases paid for by the end of the following month.
The company expects sales in April of $150,000 and inventory purchases of
$100,000. Operating expenses for the month of April are expected to be
$38,000, of which $15,000 is salaries and $8,000 is depreciation. The
remaining operating expenses are variable with respect to the amount of
sales in dollars. Those operating expenses requiring a cash outlay are paid
for during the month incurred. Law Company's cash balance on March 1 was
$43,000, and on April 1 was $35,000.
57. The expected cash collections from customers during April would
B be:
Medium a. $150,000.
Refer To: b. $137,000.
93 c. $139,000.
d. $117,600.
58. The expected cash disbursements during April for inventory
D purchases would be:
Easy a. $100,000.
Refer To: b. $97,000.
93 c. $90,000.
d. $87,300.
59. The expected cash disbursements during April for operating
B expenses would be:
Easy a. $38,000.
Refer To: b. $30,000.
93 c. $23,000.
d. $15,000.
60. The expected cash balance on April 30 would be:
A a. $54,700.
Hard b. $62,700.
Refer To: c. $19,700.
93 d. $28,700.
Reference: 94
The LaPann Company has obtained the following sales forecast data:
July August September October
Cash sales ..... $ 80,000 $ 70,000 $ 50,000 $ 60,000
Credit sales ... $240,000 $220,000 $180,000 $200,000
The regular pattern of collection of credit sales is 20% in the month of
sale, 70% in the month following the month of sale, and the remainder in the
second month following the month of sale. There are no bad debts.
61. The budgeted accounts receivable balance on September 30 is:
C a. $126,000.
Medium b. $148,000.
Refer To: c. $166,000.
94 d. $190,000.
62. The budgeted cash receipts for October are:
B a. $188,000.
Medium b. $248,000.
Refer To: c. $226,000.
94 d. $278,000.
Reference: 95
The LaGrange Company had the following budgeted sales for the first half of
the current year:
Cash Sales Credit Sales
January ............ $70,000 $340,000
February ........... 50,000 190,000
March .............. 40,000 135,000
April .............. 35,000 120,000
May ................ 45,000 160,000
June ............... 40,000 140,000
The company is in the process of preparing a cash budget and must determine
the expected cash collections by month. To this end, the following
information has been assembled:
Collections on sales: 60% in month of sale
30% in month following sale
10% in second month following sale
The accounts receivable balance on January 1 of the current year was
$70,000, of which $50,000 represents uncollected December sales and $20,000
represents uncollected November sales.
63. The total cash collected by LaGrange Company during January
D would be:
Hard a. $410,000.
Refer To: b. $254,000.
95 c. $344,000.
d. $331,500.
64. What is the budgeted accounts receivable balance on June 1 of
C the current year?
Hard a. $56,000.
Refer To: b. $64,000.
95 c. $76,000.
d. $132,000.
Reference: 96
Pardise Company plans the following beginning and ending inventory levels
(in units) for July:
July 1 July 30
Raw material 40,000 50,000
Work in process 10,000 10,000
Finished goods 80,000 50,000
Two units of raw material are needed to produce each unit of finished
product.
65. If Pardise Company plans to sell 480,000 units during July, the
D number of units it would have to manufacture during July would
Easy be:
CMA a. 440,000 units.
adapted b. 480,000 units.
Refer To: c. 510,000 units.
96 d. 450,000 units.
66. If 500,000 finished units were to be manufactured during July,
C the units of raw material needed to be purchased would be:
Easy a. 1,000,000 units.
CMA b. 1,020,000 units.
adapted c. 1,010,000 units.
Refer To: d. 990,000 units.
96
Reference: 97
Barley Enterprises has budgeted unit sales for the next four months as
follows:
October 4,800 units
November 5,800 units
December 6,400 units
January 5,200 units
The ending inventory for each month should be equal to 15% of the next
month's sales in units. The inventory on September 30 was below this level
and contained only 600 units.
67. The total units to be produced in October is:
B a. 4,530.
Medium b. 5,070.
Refer To: c. 5,670.
97 d. 5,890.
68. The desired ending inventory for December is:
C a. 960.
Easy b. 870.
Refer To: c. 780.
97 d. 690.
Reference: 98
Roberts Enterprises has budgeted sales in units for the next five months as
follows:
June ............ 4,500 units
July ............ 7,100 units
August .......... 5,300 units
September ....... 6,700 units
October ......... 3,700 units
Past experience has shown that the ending inventory for each month must be
equal to 10% of the next month's sales in units. The inventory on May 31
contained 410 units. The company needs to prepare a production budget for
the second quarter of the year.
69. The opening inventory in units for September is:
D a. 370 units.
Medium b. 6,700 units.
Refer To: c. 530 units.
98 d. 670 units.
70. The total number of units to be produced in July is:
C a. 7,630 units.
98 d. 7,280 units.
71. The desired ending inventory for August is:
B a. 530 units.
Easy b. 670 units.
98 d. 370 units.
Reference: 99
Noel Enterprises has budgeted sales in units for the next five months as
follows:
January ..... 6,800 units
February .... 5,400 units
March ....... 7,200 units
April ....... 4,600 units
May ......... 3,800 units
Past experience has shown that the ending inventory for each month must be
equal to 10% of the next month's sales in units. The inventory on December
31 contained 400 units. The company needs to prepare a production budget for
the second quarter of the year.
72. The opening inventory in units for April is:
B a. 380 units.
Medium b. 460 units.
99 d. 720 units.
73. The total number of units to be produced in February is:
A a. 5,580 units.
99 d. 5,220 units.
74. The desired ending inventory for March is:
B a. 720 units.
Medium b. 460 units.
99 d. 380 units.
Reference: 910
Wellfleet Company manufactures children’s' recreational equipment. The
Purchasing Department is finalizing plans for next year and has gathered the
following information regarding two of the components used in both tricycles
and bicycles:
Part A19 Part B12 Tricycles Bicycles
Beginning inventory ... 3,500 1,200 800 2,150
Ending inventory ...... 2,000 1,800 1,000 900
Unit cost ............. $1.20 $4.50 $54.50 $89.60
Projected unit sales .. 96,000 130,000
Component usage:
Tricycles ....... 2 per unit 1 per unit
Bicycles ........ 2 per unit 4 per unit
75. The budgeted dollar value of Wellfleet Company's purchases of
B Part A19 for next year is:
Hard a. $383,580.
CMA b. $538,080.
adapted c. $540,600.
Refer To: d. $480,000.
910
76. (Appendix) If the economic order quantity (EOQ) for Part B12 is
D 70,000 units, the number of times that Wellfleet Company should
Hard purchase this part next year is:
CMA a. four times.
adapted b. seven times.
Refer To: c. eight times.
910 d. nine times.
Reference: 911
The LFM Company makes and sells a single product, Product T. Each unit of
Product T requires 1.3 hours of labor at a labor rate of $9.10 per hour. LFM
Company needs to prepare a Direct Labor Budget for the second quarter of
next year.
77. The budgeted direct labor cost per unit of Product T would be:
B a. $9.10.
Easy b. $11.83.
Refer To: c. $7.00.
911 d. $10.40.
78. The company has budgeted to produce 25,000 units of Product T
C in June. The finished goods inventories on June 1 and June 30
Medium were budgeted at 500 and 700 units, respectively. Budgeted
Refer To: direct labor costs incurred in June would be:
911 a. $293,384.
b. $304,031.
c. $295,750.
d. $227,500.
Reference: 912
The International Company makes and sells only one product, Product SW. The
company is in the process of preparing its Selling and Administrative
Expense Budget for the last half of the year. The following budget data are
available:
Variable Cost
Per Unit Sold Monthly Fixed Cost
Sales commissions ................... $0.70
Shipping ............................ $1.10
Advertising ......................... $0.20 $14,000
Executive salaries .................. $34,000
Depreciation on office equipment .... $11,000
Other ............................... $0.25 $19,000
All expenses other than depreciation are paid in cash in the month they are
incurred.
79. If the company has budgeted to sell 25,000 units of Product SW
C in July, then the total budgeted selling and administrative
Medium expenses for July will be:
Refer To: a. $56,250.
912 b. $78,000.
c. $134,250.
d. $123,250.
A in October then the total budgeted variable selling and
Medium administrative expenses for October will be:
Refer To: a. $45,000.
912 b. $40,000.
c. $56,250.
d. $78,000.
81. If the budgeted cash disbursements for selling and
B administrative expenses for November total $123,250, then how
Hard many units of Product SW does the company plan to sell in
Refer To: November (rounded to the nearest whole unit)?
912 a. 33,444 units.
b. 25,000 units.
c. 22,952 units.
d. 20,111 units.
D in September, then the total budgeted fixed selling and
Medium administrative expenses for September would be:
Refer To: a. $54,000.
912 b. $48,000.
c. $67,000.
d. $78,000.
Reference: 913
The Culver Company is preparing its Manufacturing Overhead Budget for the
third quarter of the year. Budgeted variable factory overhead is $3.00 per
unit produced; budgeted fixed factory overhead is $75,000 per month, with
$16,000 of this amount being factory depreciation.
83. If the budgeted production for July is 6,000 units, then the
D total budgeted factory overhead for July is:
Easy a. $77,000.
Refer To: b. $82,000.
913 c. $85,000.
d. $93,000.
84. If the budgeted production for August is 5,000 units, then the
B total budgeted factory overhead per unit is:
Easy a. $15.
Refer To: b. $18.
913 c. $20.
d. $22.
85. If the budgeted cash disbursements for factory overhead for
D September are $80,000, then the budgeted production for
Medium September must be:
Refer To: a. 7,400 units.
913 b. 6,200 units.
c. 6,500 units.
d. 7,000 units.
Reference: 914
The Bandeiras Company, a merchandising firm, has budgeted its activity for
December according to the following information:
I. Sales at $550,000, all for cash.
II. Merchandise inventory on November 30 was $300,000.
III. Budgeted depreciation for December is $35,000.
IV. The cash balance at December 1 was $25,000.
V. Selling and administrative expenses are budgeted at $60,000 for
December and are paid in cash.
VI. The planned merchandise inventory on December 31 is $270,000.
VII. The invoice cost for merchandise purchases represents 75% of the sales
price. All purchases are paid for in cash.
86. The budgeted cash receipts for December are:
D a. $412,500.
Easy b. $137,500.
Refer To: c. $585,000.
914 d. $550,000.
87. The budgeted cash disbursements for December are:
B a. $382,500.
Hard b. $442,500.
Refer To: c. $472,500.
914 d. $477,500.
88. The budgeted net income for December is:
C a. $107,500.
Hard b. $137,500.
Refer To: c. $42,500.
914 d. $77,500.
Reference: 915
A cash budget by quarters for the Carney Company is given below (note that
some data are missing). Missing data amounts have been keyed with either
question marks or lower case letters (a, b, c, etc.); these lower case
letters will be referred to in the questions that follow. (It may be
necessary to calculate a value for items where a question mark appears.)
The company requires a minimum cash balance of at least $10,000 to start a
quarter. All data are in thousands.
Carney Corporation
Cash Budget

Quarters
o
1 2 3 4
Cash balance, beginning .................... $16 $ e $13 $10
Add collections from customers ............. a 70 67 80
Total cash available .................... ? ? 80 90
Less disbursements:
Purchase of inventory ................... 31 c 40 35
Operating expenses ...................... 35 22 ? 15
Equipment purchases ..................... 10 14 19 0
Dividends ............................... 0 6 0 5
Total disbursements ................. 66 ? f 55
Excess (deficiency) of cash available
over disbursements ...................... 7 17 (2) 35
Financing:
Borrowings .............................. b 12
Repayments (including interest) ......... d (21)
Total financing ...................... ? ? 12 (21)
Cash balance, ending ....................... 10 ? $10 $14
89. The collections from customers during the first quarter (item
C a) are:
Medium a. $50.
Refer To: b. $60.
915 c. $57.
d. $73.
90. The borrowing required during the first quarter to meet the
D minimum cash balance (item b) is:
Easy a. $0.
Refer To: b. $7.
915 c. $10.
d. $3.
91. The cash disbursed for purchases during the second quarter
D (item c) is:
Hard a. $13.
Refer To: b. $55.
915 c. $9.
d. $21.
92. The repayment (including interest) of financing during the
A second quarter (item d) is:
Medium a. $4.
Refer To: b. $0.
915 c. $17.
d. $7.
93. The cash balance at the beginning of the second quarter (item
A e) is:
Easy a. $10.
Refer To: b. $14.
915 c. $0.
d. $7.
94. The total disbursements during the third quarter (item f) is:
C a. $84.
Easy b. $78.
Refer To: c. $82.
915 d. $59.
Reference: 916
(Appendix) Ryerson Computer Furniture Inc. (RCF) manufactures a line of
office chairs. The annual demand for the chairs is 5,000 units. The annual
cost to carry one chair in inventory is $10 and the cost to set up a
production run is $1,000. There are no chairs on hand in inventory, and RCF
management has scheduled four production runs of chairs for the coming year,
the first of which is to be run immediately. A total of 1,250 chairs will be
produced in each of the production runs. RCF has 250 business days per year
and sales occur uniformly throughout the year.
95. If RCF does not maintain a safety stock, the estimated total
C inventory carrying costs for the chairs for the coming year
Medium based on their current production schedule is:
CMA a. $4,000.
adapted b. $5,000.
Refer To: c. $6,250.
916 d. $12,500.
96. The number of production runs per year that would minimize the
D sum of the inventory carrying costs and setup costs for the
Medium coming year is:
CMA a. 1 production run.
adapted b. 2 production runs.
Refer To: c. 4 production runs.
916 d. 5 production runs.
97. A safety stock of a fiveday supply of computer chairs would
C increase RCF's planned average inventory by:
Medium a. 20 units.
CMA b. 5 units.
adapted c. 100 units.
Refer To: d. 50 units.
916
Reference: 917
(Appendix) Cantor Creations, which has 250 business days per year,
manufactures desks for desktop workstations. The annual demand for the desks
is estimated to be 5,000 units. The annual cost of carrying one unit in
inventory is $10, and the cost to set up a production run is $1,000. Cantor
has scheduled four equal production runs for the coming year, the first to
begin immediately. Currently, there are no desks on hand. Assume that sales
occur uniformly throughout the year and that production is instantaneous.
98. If Cantor Creations does not maintain a safety stock, the
B estimated total carrying costs for the desks for the coming
Hard year is:
CMA a. $5,000.
adapted b. $6,250.
917 d. $10,250.
99. If Cantor Creations were to schedule only two equal production
A runs of the desks for the coming year, the sum of carrying
Hard costs and setup costs would increase (decrease) by:
CMA a. $4,250.
adapted b. $(2,000).
917 d. $(250).
100. A safety stock of a fiveday supply of desks would increase the
B number of units in Cantor Creations' planned average inventory
Hard by:
CMA a. 50 units.
adapted b. 100 units.
917 d. 500 units.
Reference: 918
(Appendix) The Huron Corporation purchases 60,000 headbands per year. The
average purchase lead time is 20 working days. Maximum lead time is 27
working days. The corporation works 240 days per year.
101. Horun Corporation should carry a safety stock of:
C a. 5,000 units.
CMA c. 1,750 units.
adapted d. 5,250 units.
Refer To:
918
102. Huron Corporation should reorder headbands when the quantity in
B inventory reaches:
Medium a. 5,000 units.
CMA b. 6,750 units.
adapted c. 1,750 units.
Refer To: d. 5,250 units.
918
Essay
103. Clay Company has projected sales and production in units for
Medium the second quarter of the coming year as follows:
April May June
Sales ......... 50,000 40,000 60,000
Production .... 60,000 50,000 50,000
Cashrelated production costs are budgeted at $5 per unit
produced. Of these production costs, 40% are paid in the month
in which they are incurred and the balance in the following
month. Selling and administrative expenses will amount to
$100,000 per month. The accounts payable balance on March 31
totals $190,000, which will be paid in April.
All units are sold on account for $14 each. Cash
collections from sales are budgeted at 60% in the month of
sale, 30% in the month following the month of sale, and the
remaining 10% in the second month following the month of sale.
Accounts receivable on April 1 totaled $500,000 ($90,000 from
February's sales and the remainder from March).
Required:
a. Prepare a schedule for each month showing budgeted cash
disbursements for the Clay Company.
b. Prepare a schedule for each month showing budgeted cash
receipts for Clay Company.
Answer:
April May June
Production units................... 60,000 50,000 50,000
Cash required per unit............. $5 $5 $5
Production costs................... $300,000 $250,000 $250,000
Cash disbursements:
April May June
Production this month (40%)........ $120,000 $100,000 $100,000
Production prior month (60%)....... 190,000 180,000 150,000
Selling and administrative......... 100,000 100,000 100,000
Total disbursements................ $410,000 $380,000 $350,000
Payments relating to the prior month (March) in April represent
the balance of accounts payable at March 31.
April May June
Sales units........................ 50,000 40,000 60,000
Sales price........................ X $14 x $14 x $14
Total sales........................ $700,000 $560,000 $840,000
April May June
Cash receipts:
February sales................... $ 90,000
March sales...................... 307,500 $102,500
April sales...................... 420,000 210,000 $ 70,000
May sales........................ 336,000 168,000
June sales....................... ________ ________ 504,000
Total receipts..................... $817,500 $648,500 $742,000
104. Tilson Company has projected sales and production in units for
Medium the second quarter of the coming year as follows:
April May June
Sales ............ 55,000 45,000 65,000
Production ....... 65,000 55,000 55,000
Cashrelated production costs are budgeted at $7 per unit
produced. Of these production costs, 40% are paid in the month
in which they are incurred and the balance in the following
month. Selling and administrative expenses will amount to
$110,000 per month. The accounts payable balance on March 31
totals $193,000, which will be paid in April.
All units are sold on account for $16 each. Cash
collections from sales are budgeted at 60% in the month of
sale, 30% in the month following the month of sale, and the
remaining 10% in the second month following the month of sale.
Accounts receivable on April 1 totaled $520,000 ($100,000 from
February's sales and the remainder from March).
Required:
a. Prepare a schedule for each month showing budgeted cash
disbursements for the Tilson Company.
b. Prepare a schedule for each month showing budgeted cash
receipts for Tilson Company.
Answer:
April May June
Production units................... 65,000 55,000 55,000
Cash required per unit............. $7 $7 $7
Production costs................... $455,000 $385,000 $385,000
Cash disbursements:
April May June
Production this month (40%)........ $182,000 $154,000 $154,000
Production prior month (60%)....... 193,000 273,000 231,000
Selling and administrative......... 110,000 110,000 110,000
Total disbursements................ $485,000 $537,000 $495,000
Payments relating to the prior month (March) in April represent
the balance of accounts payable at March 31.
April May June
Sales units....................... 55,000 45,000 65,000
Sales price....................... X $16 x $16 __ x $16
Total sales....................... $880,000 $720,000 $1,040,000
April May June
Cash receipts:
February sales.................. $100,000
March sales..................... 315,000 $105,000
April sales..................... 528,000 264,000 $ 88,000
May sales....................... 432,000 216,000
June sales...................... 624,000
Total receipts.................... $943,000 $801,000 $928,000
105. At March 31 Streuling Enterprises, a merchandising firm, had an
Medium inventory of 38,000 units, and it had accounts receivable
totaling $85,000. Sales, in units, have been budgeted as
follows for the next four months:
April ............... 60,000
May ................. 75,000
June ................ 90,000
July ................ 81,000
Streuling's board of directors has established a policy to
commence in April that the inventory at the end of each month
should contain 40% of the units required for the following
month's budgeted sales.
The selling price is $2 per unit. Onethird of sales are paid
for by customers in the month of the sale, the balance is
collected in the following month.
Required:
a. Prepare a merchandise purchases budget showing how many
units should be purchased for each of the months April, May,
and June.
b. Prepare a schedule of expected cash collections for each of
the months April, May, and June.
Answer:
a. April May June July
Budgeted sales, in units ..... 60,000 75,000 90,000 81,000
Desired ending inventory (40%) 30,000 36,000 32,400
Total needs .................. 90,000 111,000 122,400
Less beginning inventory ..... 38,000 30,000 36,000
Required purchases ........... 52,000 81,000 86,400
b. April May June
Budgeted sales,
at $2 per unit .......... $120,000 $150,000 $180,000
March 31 Accounts Receivable $85,000
April sales ............... 40,000 $ 80,000
May sales ................. 50,000 $100,000
June sales ................ 60,000
Total cash collections ..... $125,000 $130,000 $160,000
106. TabComp Inc. is a retail distributor for MZB33 computer hardware
Hard and related software. TabComp prepares annual sales forecasts of
which the first six months of the coming year are presented
below.
Hardware Hardware Total
Units Dollars Software Sales
January ....... 130 $390,000 $160,000 $550,000
February ...... 120 360,000 140,000 500,000
March ......... 110 330,000 150,000 480,000
April ......... 90 270,000 130,000 400,000
May ........... 100 300,000 125,000 425,000
June .......... 125 375,000 225,000 600,000
Cash sales account for 25% of TabComp's total sales, 30% of
the total sales are paid by bank credit card, and the remaining
45% are on open account (TabComp's own charge accounts). The
cash and bank credit card sale payments are received in the
month of the sale. Bank credit card sales are subject to a four
percent discount which is deducted immediately. The cash
receipts for sales on open account are 70% in the month
following the sale, 28% in the second month following the sale,
and the remaining are uncollectible.
TabComp's monthend inventory requirements for computer
hardware units are 30% of the next month's sales. The units
must be ordered two months in advance due to long lead times
quoted by the manufacturer.
Required:
a. Calculate the cash that TabComp can expect to collect during
April. Show all of your calculations.
b. Determine the number of computer hardware units that should
be ordered in January. show all of your calculations.
Answer:
a. The cash that TabComp can expect to collect during April is
calculated below.
April cash receipts:
April cash sales ($400,000 x 0.25)............. $100,000
April credit card sales ($400,000 x 0.30 x 0.96) 115,200
Collections on open account:
March ($480,000 x 0.45 x 0.70)................. 151,200
February ($500,000 x 0.45 x 0.28).............. 63,000
January (uncollectible)........................ 0
Total collections............................ $429,400
b. The number of units that TabComp should order in January is
calculated as follows.
March sales ..................................... 110 units
Add desired ending inventory (90 units x 0.30) .. 27 units
Total needs ..................................... 137 units
Less beginning inventory (110 units x 0.30) ..... 33 units
Required purchases .............................. 104 units
107. The Doley Company has planned the following sales for the next
Medium three months:
Jan Feb Mar
Budgeted sales ...... $40,000 $50,000 $70,000
Sales are made 20% for cash and 80% on account. From
experience, the company has learned that a month's sales on
account are collected according to the following pattern:
Month of sale ................ 60%
First month following sale ... 30%
Second month following sale .. 8%
Uncollectible ................ 2%
The company requires a minimum cash balance of $5,000 to start
a month. The beginning cash balance in March is budgeted to be
$6,000.
Required:
a. Compute the budgeted cash receipts for March.
b. The following additional information has been provide for
March:
Inventory purchases (all paid in March) $28,000
Operating expenses (all paid in March) $40,000
Depreciation expense for March ........ $5,000
Dividends paid in March ............... $4,000
Prepare a cash budget in good form for the month of March,
using this information and the budgeted cash receipts you
computed for part (1) above. The company can borrow in any
dollar amount and will not pay interest until April.
Answer:
a. Cash sales, March: $70,000 x 20% ............... $14,000
Collections on account:
Jan. sales: $40,000 x 80% x 8% .............. 2,560
Feb. sales: $50,000 x 80% x 30% ............. 12,000
Mar. sales: $70,000 x 80% x 60% ............. 33,600
Total cash receipts ............................. $62,160
b. Cash balance, beginning ......................... $ 6,000
Add cash receipts from sales .................... 62,160
Total cash available ......................... $68,160
Less disbursements:
Inventory purchases .......................... 28,000
Operating expenses ........................... 40,000
Dividends .................................... 4,000
Total disbursements ............................. 72,000
Cash excess (deficiency) ........................ (3,840)
Financing borrowing ........................... 8,840
Cash balance, ending ............................ $ 5,000
108. Montero Corporation, a merchandising company, has provided the
Medium following budget data:
CPA Purchases Sales
adapted January ........ $42,000 $72,000
February........ 48,000 66,000
March .......... 36,000 60,000
April .......... 54,000 78,000
May ............ 60,000 66,000
Collections from customers are normally 70% in the month of
sale, 20% in the month following the sale, and 9% in the second
month following the sale. The balance is expected to be
uncollectible. Montero pays for purchases in the month
following the purchase. Cash disbursements for expenses other
than merchandise purchases are expected to be $14,400 for May.
Montero's cash balance at May 1 was $22,000.
Required:
a. Compute the expected cash collections during May.
b. Compute the expected cash balance at May 31.
Answer:
a. Expected
Sales Collections
March ............ $60,000 x 9% = $ 5,400
April ............ $78,000 x 20% = $15,600
May .............. $66,000 x 70% = $46,200
Total .......... $67,200
b.
Balance, May 1 ....................... $22,000
Expected collections ................. 67,200
Expected disbursements
April purchases to be paid in May .. $54,000
Cash disbursements for expenses .... 14,400
Total disbursements............... 68,400

(1,200)
Expected ending balance .............. $20,800
109. A sales budget is given below for one of the products
Hard manufactured by the Key Co.:
January ......... 21,000 units
February ........ 36,000 units
March ........... 61,000 units
April ........... 41,000 units
May ............. 31,000 units
June ............ 25,000 units
The inventory of finished goods at the end of each month
should equal 20% of the next month's sales. However, on
December 31 the finished goods inventory totaled only 4,000
units.
Each unit of product requires three specialized electrical
switches. Since the production of these specialized switches by
Key's suppliers is sometimes irregular, the company has a
policy of maintaining an ending inventory at the end of each
month equal to 30% of the next month's production needs. This
requirement had been met on January 1 of the current year.
Required:
Prepare a budget showing the quantity of switches to be
purchased each month for January, February, and March and in
total for the quarter.
Answer:
Budgeted sales (units)....... 21,000 36,000 61,000 41,000
Add: Desired ending inventory 7,200 12,200 8,200 6,200
Total needs.................. 28,200 48,200 69,200 47,200
Deduct: Beginning inventory. 4,000 7,200 12,200 8,200
Units to be produced......... 24,200 41,000 57,000 39,000
January February March Quarter
Units to be produced........ 24,200 41,000 57,000 122,200
Switches per unit........... x 3 x 3 x 3 x 3
Production needs............ 72,600 123,000 171,000 366,600
Add: Desired
ending inventory 36,900 51,300 35,100 35,100
Total needs................. 109,500 174,300 206,100 401,700
Deduct: Beginning inventory. 21,780 36,900 51,300 21,780
Required purchases.......... 87,720 137,400 154,800 379,920
Beginning inventory, January 1: 72,600 x 0.3 = 21,780.
Ending inventory, March 30: (39,000 x 3) x 0.3 = 35,100.
110. A sales budget is given below for one of the products
Hard manufactured by the OMI Co.:
January ...... 25,000 units
February ..... 40,000 units
March ........ 65,000 units
April ........ 45,000 units
May .......... 35,000 units
June ......... 30,000 units
The inventory of finished goods at the end of each month
must equal 20% of the next month's sales. However, on December
31 the finished goods inventory totaled only 4,000 units.
Each unit of product requires three pounds of specialized
material. Since the production of this specialized material by
OMI's suppliers is sometimes irregular, the company has a
policy of maintaining an ending inventory at the end of each
month equal to 30% of the next month's production needs. This
requirement had been met on January 1 of the current year.
Required:
Prepare a budget showing the quantity of material to be
purchased each month for January, February, and March and in
total for the quarter.
Answer:
Budgeted sales (units)... 25,000 40,000 65,000 45,000
Add: Desired
ending inventory 8,000 13,000 9,000 7,000
Total needs.............. 33,000 53,000 74,000 52,000
Deduct:
Beginning inventory 4,000 8,000 13,000 9,000
Units to be produced...... 29,000 45,000 61,000 43,000
January February March Quarter
Units to be produced..... 29,000 45,000 61,000 135,000
Switches per unit........ x 3 x 3 x 3 x 3
Production needs......... 87,000 135,000 183,000 405,000
Add: Desired
ending inventory. 40,500 54,900 38,700 38,700
Total needs.............. 127,500 189,900 221,700 443,700
Deduct:
Beginning inventory... 26,100 40,500 54,900 26,100
Required purchases....... 101,400 149,400 166,800 417,600
Beginning inventory, January 1: 87,000 x 0.3 = 26,100.
Ending inventory, March 30: (43,000 x 3) x 0.3 = 38,700.

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