Budgetary Planning Test Questions & Answers Ch8

Managerial Accounting, 4e (Whitecotton)

Chapter 8 Budgetary Planning

1) Control is a forward-looking process while planning is a backward-looking one.

2) The budget translates a company's objectives into financial terms.

3) An advantage of budgeting is that it provides a benchmark for evaluating performance.

4) One advantage of participative budgeting is managers can build in budgetary slack.

5) Participative budgeting allows employees throughout the organization to have input into the budget-setting process.

6) Participative budgeting is more likely to motivate people to work toward the organization's goals than is a top-down approach.

7) Operating budgets focus on the financial resources needed to support operations.

8) The production budget must be prepared before the sales budget can be prepared.

9) Preparing the sales budget includes calculating the revenues to be earned from units sold in addition to the number of units to be sold.

10) If a company produces and sells goods to order, the sales budget and production budget are identical.

11) Manufacturing firms prepare a separate direct materials purchases budget for each material used in production.

12) The direct labor budget is based on budgeted sales levels.

13) Budgeted manufacturing overhead includes indirect manufacturing costs, but not selling or administrative costs.

14) The selling and administrative expense budget is based on the production budget.

15) Budgeted cash collections are based on the sales budget.

16) Which of the following is the forward-looking phase of the planning and control cycle?

A) Planning

B) Directing/Leading

C) Organizing

D) Control

17) Creating a budget is an important part of which phase of the planning and control process?

A) Planning

B) Controlling

C) Implementing

D) Executing

18) A short-term objective is:

A) a specific action managers use to reach their long-term goals.

B) a specific tactic put in place to support the strategic plan.

C) a specific goal that managers need to achieve in no more than a year to reach their long-term goals.

D) a specific component of the budgeted income statement.

19) Which of the following statements is true about the strategic plan?

A) It is management's vision of what they desire the organization to achieve over the long term.

B) It is created by employees of a company and shared with management for execution.

C) It is management's vision of individual professional development goals over the long term.

D) It is created as a thought exercise for long-term planning purposes, but it does not relate to daily activities.

20) A detailed plan that translates the company's objectives into financial terms, identifying the resources and expenditures that will be required over the planning horizon is a:

A) Strategic plan

B) Budget

C) Tactic

D) Long-term objective

21) Which of the following is the backward-looking phase of the planning and control cycle?

A) Planning

B) Implementing

C) Executing

D) Control

22) ________ are the specific actions managers use to achieve their goals.

A) Strategic plans

B) Long-term objectives

C) Short-term objectives

D) Tactics

23) ________ are the specific goals that managers want to achieve over a 5- to 10-year horizon.

A) Strategic plans

B) Long-term objectives

C) Short-term objectives

D) Tactics

24) A ________ is the vision of what management wants the organization to achieve over the long term.

A) Strategic plan

B) Long-term objective

C) Short-term objective

D) Tactic

25) Which of the following terms is generally not used to describe the forward-oriented nature of the budgeting process?

A) Predicted

B) Estimated

C) Hoped for

D) Expected

26) Which of the following is not a benefit of budgeting?

A) It forces managers to look to the future.

B) It plays an important role in communication within the organization.

C) It serves an important role in motivating and rewarding employees.

D) It builds organizational slack.

27) Top-down budgeting is:

A) when the local managers impose a budget on the top management.

B) when top management sets the budget and imposes it on lower levels of the organization.

C) when customers impose a budget on top management of the company.

D) when top management imposes a budget on the board of directors.

28) A top-down approach to budgeting is one that is:

A) participative.

B) motivational.

C) imposed.

D) tight.

29) Participative budgeting is an approach to budgeting that:

A) is top-down in nature.

B) allows top management to set the budget.

C) discourages budget slack.

D) is more likely to motivate people to work towards the organization's goals than a top-down approach.

30) From a managerial perspective, which budget is most likely to motivate people to succeed in executing it?

A) A budget that is tight, but attainable because it creates the appropriate level of challenge.

B) A budget that is easy to achieve, because it inspires confidence.

C) A budget that is difficult to achieve, because it encourages people to aim high.

D) A budget that is tight, and nearly impossible to achieve, because it creates camaraderie and an "us versus them" mentality.

31) Which of the following is correct about budgetary slack?

A) Budgetary slack is a bit of cushion built into a budget, making it more likely budgetary goals will be met.

B) Managers may include budgetary slack by overstating budgeted sales figures.

C) Managers may include budgetary slack by understating budgeted expense figures.

D) Budgetary slack helps managers make responsible spending decisions since it removes performance evaluations based on budgeting.

32) Which of the following is not a way to reduce the dysfunctional behaviors associated with budgeting?

A) Create budget slack.

B) Use different budgets for planning and for performance evaluation.

C) Use a continuous or rolling budget approach.

D) Use a zero-based budgeting approach.

33) Which of the following statements about employee motivation is true?

A) A budget that is too easy to achieve is more likely to motivate than a budget that is too difficult or that is tight but attainable.

B) A budget that is too difficult to achieve is more likely to motivate than a budget that is too easy or that is tight but attainable.

C) A budget that is tight but attainable is more likely to motivate than a budget that is too easy or too difficult to achieve.

D) Budgets are difficult to use for motivation.

34) How might the budgeting process be used ethically within an organization?

A) A sales manager defers sales to future periods once she has met her quota for the month to avoid having her budgeted quota increased in future periods. (She worries an increased quota would prevent her from spending time with her ailing father.)

B) A production manager begins production on orders that have not been placed in order to meet a budgetary goal for production units started during a period. (She worries that failing to meet a production goal will cause her department to forfeit their bonuses for the year.)

C) An entrepreneur offers a steep discount on services to increase the number of clients served during the quarter. (He worries his investor will withdraw funding if the service numbers aren't met and employees will lose their jobs.)

D) An accounting manager implements budgeting procedures to measure the environmental impact of the production process, striving to reduce emissions from the factory. (She worries not enough emphasis is placed on the non-financial measures of success.)

35) Which of the following is not a component of the master budget?

A) Operating budget

B) Budgeted income statement

C) Budgeted balance sheet

D) Statement of return on investment

36) Which of the following is not a component of the operating budget?

A) Budgeted balance sheet

B) Sales budget

C) Selling and administrative budget

D) Direct materials purchases budget

37) The starting point for preparing the master budget is the:

A) inventory budget.

B) sales budget.

C) production budget.

D) budgeted balance sheet.

38) Which of the following budgets shows how many units will be produced each period?

A) Direct materials budget

B) Direct labor budget

C) Sales budget

D) Production budget

39) A component of the financial budget is the:

A) production budget.

B) cash budget.

C) inventory budget.

D) selling and administrative budget.

40) Which of the following sequences is correct?

A) Sales budget – production budget – direct materials budget – budgeted income statement

B) Budgeted income statement – direct materials budget – production budget – sales budget

C) Cash receipts budget – sales budget – production budget – budgeted income statement

D) Inventory budget – production budget – sales budget – selling and administrative budget

41) The number of units included in the production budget:

A) are always the same as the number of units in the sales budget.

B) depends on the direct materials purchases budget.

C) is based on the number of units in the sales budget, and increased for increases in the selling and administrative expense budget to account for increased demand.

D) may differ from the number of units in the sales budget, depending on ending inventory goals.

42) Which of the following is not a source that can be used in preparing the sales budget?

A) Prior sales.

B) The production budget.

C) Industry trends.

D) Marketing activities.

43) Parker Corp., which operates on a calendar year, expects to sell 4,000 units in October, and expects sales to increase 20% each month thereafter. Sales price is expected to stay constant at $8 per unit. What are budgeted revenues for the fourth quarter?

A) $32,000

B) $96,000

C) $115,200

D) $116,480

44) Budgeted production is calculated by:

A) adding budgeted unit sales to budgeted beginning finished goods inventory, and subtracting budgeted ending finished goods inventory.

B) adding budgeted unit sales to budgeted beginning work in process inventory, and subtracting budgeted ending work in process inventory.

C) adding budgeted unit sales to budgeted ending finished goods inventory, and subtracting budgeted beginning finished goods inventory.

D) adding budgeted unit sales to budgeted ending work in process inventory, and subtracting budgeted beginning work in process inventory.

45) If a company is planning to build inventory:

A) production should exceed sales.

B) sales should exceed production.

C) production should equal sales.

D) production should equal inventory.

46) Lea Company produces hand tools. Budgeted sales for March are 10,000 units. Beginning finished goods inventory in March is budgeted to be 1,300 units, and ending finished goods inventory is budgeted to be 1,400 units. How many units will be produced in March?

A) 9,900

B) 10,000

C) 10,100

D) 12,700

47) Meadow Company produces hand tools. A sales budget for the next four months is as follows: March 10,000 units, April 13,000, May 16,000 and June 21,000. Meadow Company's ending finished goods inventory policy is 10% of the following month's sales. What is budgeted ending finished goods inventory for May?

A) 1,000

B) 1,300

C) 1,600

D) 2,100

48) Meadow Company produces hand tools. A sales budget for the next four months is as follows: March 10,000 units, April 13,000, May 16,000 and June 21,000. Meadow Company's ending finished goods inventory policy is 10% of the following month's sales. March 1 beginning inventory is projected to be 1,400 units. How many units will be produced in March?

A) 10,000

B) 9,900

C) 13,000

D) 10,100

49) Meadow Company produces hand tools. A sales budget for the next four months is as follows: March 10,000 units, April 13,000, May 16,000 and June 21,000. Meadow Company's ending finished goods inventory policy is 10% of the following month's sales. March 1 beginning inventory is projected to be 1,400 units. How many units will be produced in April?

A) 13,300

B) 15,900

C) 12,700

D) 13,000

50) Marlow Company produces hand tools. A production budget for the next four months is as follows: March 10,300 units, April 13,300, May 16,500, and June 21,800. Marlow Company's ending finished goods inventory policy is 10% of the following month's sales. Meadow plans to sell 16,000 units in May. How many units will be sold in April?

A) 12,380

B) 13,000

C) 13,570

D) 13,620

51) Marlow Company produces hand tools. A production budget for the next four months is as follows: March 10,300 units, April 13,300, May 16,500, and June 21,800. Marlow Company's ending finished goods inventory policy is 10% of the following month's sales. Marlow plans to sell 16,000 units in May. What is budgeted ending inventory for March?

A) 1,030

B) 1,300

C) 1,330

D) 1,650

52) The formula for budgeted direct materials purchases is:

A) Budgeted production units + Ending direct materials inventory – Beginning direct materials inventory

B) Budgeted production units + Beginning direct materials inventory – Ending direct materials inventory

C) Materials needed for production + Ending direct materials inventory – Beginning direct materials inventory

D) Materials needed for production + Beginning direct materials inventory – Ending direct materials inventory

53) When calculating direct materials purchases, the starting point should be:

A) actual materials purchases from the previous year.

B) budgeted sales.

C) budgeted production.

D) budgeted cost of direct materials.

54) Jeremy Inc. produces leather handbags. The production budget for the next four months is: July 5,000 units, August 7,000, September 7,500, October 8,000. Each handbag requires 0.5 square meters of leather. Jeremy Inc.'s leather inventory policy is 30% of next month's production needs. If the leather policy is met, what will the July 1 inventory be?

A) 750 square meters

B) 1,050 square meters

C) 1,825 square meters

D) 300 square meters

55) Johnson Inc. produces leather handbags. Johnson Inc. estimates it will use 3,500 square meters of leather in production in August, and 3,750 square meters of leather in production in September. Johnson Inc.'s leather inventory policy is 30% of next month's production needs. What will leather purchases be in August?

A) 3,425 square meters

B) 3,500 square meters

C) 3,575 square meters

D) 4,625 square meters

56) Jackson Inc. produces leather handbags. The production budget for the next four months is: July 5,000 units, August 7,000, September 7,500, October 8,000. Each handbag requires 0.5 square meters of leather. Jackson Inc.'s leather inventory policy is 30% of next month's production needs. On July 1 leather inventory was expected to be 1,000 square meters. What will leather purchases be in August?

A) 7,150 square meters

B) 3,575 square meters

C) 7,075 square meters

D) 3,425 square meters

57) Jackson Inc. produces leather handbags. The production budget for the next four months is: July 5,000 units, August 7,000, September 7,500, October 8,000. Each handbag requires 0.5 square meters of leather. Jackson Inc.'s leather inventory policy is 30% of next month's production needs. On July 1 leather inventory was expected to be 1,000 square meters. What will leather purchases be in July?

A) 2,300 square meters

B) 2,550 square meters

C) 2,700 square meters

D) 3,575 square meters

58) Jackson Inc. produces leather handbags. The production budget for the next four months is: July 5,000 units, August 7,000, September 7,500, October 8,000. Each handbag requires 0.5 square meters of leather. Jackson Inc.'s leather inventory policy is 30% of next month's production needs. On July 1 leather inventory was expected to be 1,000 square meters. Leather is expected to cost $5.00 per square meter in June, but go up to $6.00 per square meter in July. What is the expected cost of leather purchases in July?

A) $13,800

B) $15,300

C) $16,200

D) $16,300

59) Jared Inc. produces leather handbags. The sales budget for the next four months is: July 5,000 units, August 7,000, September 7,500, October 8,000. Each handbag requires 0.5 square meters of leather. Jared Inc.'s finished goods inventory policy is 10% of next month's sales needs. Jared Inc.'s leather inventory policy is 30% of next month's production needs. What will leather purchases be in August?

A) 3,425 square meters

B) 3,450 square meters

C) 3,508 square meters

D) 3,600 square meters

60) Budgeted direct labor hours are calculated as:

A) Budgeted production units × Direct labor requirements per unit + Ending inventory – Beginning inventory

B) Budgeted production units × Direct labor requirements per unit + Beginning inventory – Ending inventory

C) Budgeted production units × Direct labor requirements per unit

D) Budgeted sales units × Direct labor requirements per unit

61) When calculating the direct labor budget, the starting point should be:

A) actual direct labor hours from the previous year.

B) budgeted sales.

C) budgeted production.

D) budgeted cost of direct labor.

62) Jillian Inc. produces leather handbags. The production budget for the next four months is: July 5,000 units, August 7,000, September 7,500, October 8,000. Each handbag requires 1.3 hours of unskilled labor (paid $8 per hour) and 2.2 hours of skilled labor (paid $15 per hour). How many unskilled labor hours will be budgeted for August?

A) 7,000

B) 9,100

C) 15,400

D) 24,500

63) Jillian Inc. produces leather handbags. The production budget for the next four months is: July 5,000 units, August 7,000, September 7,500, October 8,000. Each handbag requires 1.3 hours of unskilled labor (paid $8 per hour) and 2.2 hours of skilled labor (paid $15 per hour). How many total labor hours will be budgeted for September?

A) 7,500

B) 9,750

C) 16,500

D) 26,250

64) Jillian Inc. produces leather handbags. The production budget for the next four months is: July 5,000 units, August 7,000, September 7,500, October 8,000. Each handbag requires 1.3 hours of unskilled labor (paid $8 per hour) and 2.2 hours of skilled labor (paid $15 per hour). How much will be paid to skilled labor during the three months July through September?

A) $742,500

B) $643,500

C) $4,387,500

D) $292,500

65) Jillian Inc. produces leather handbags. The production budget for the next four months is: July 5,000 units, August 7,000, September 7,500, October 8,000. Each handbag requires 1.3 hours of unskilled labor (paid $8 per hour) and 2.2 hours of skilled labor (paid $15 per hour). What will be the total labor cost for the month of August?

A) $303,800

B) $231,000

C) $121,500

D) $161,000

66) Jaybird Inc. produces leather handbags. The sales budget for the next four months is: July 5,000 units, August 7,000, September 7,500, October 8,000. Jaybird Inc.'s ending finished goods inventory policy is 10% of the following month's sales. Each handbag requires 1.3 hours of unskilled labor (paid $8 per hour) and 2.2 hours of skilled labor (paid $15 per hour). What will be the total labor cost for the month of August?

A) $24,675

B) $225,680

C) $303,800

D) $305,970

67) Jaybird Inc. produces leather handbags. The sales budget for the next four months is: July 5,000 units, August 7,000, September 7,500, October 8,000. Jaybird Inc.'s ending finished goods inventory policy is 10% of the following month's sales. Each handbag requires 1.3 hours of unskilled labor (paid $8 per hour) and 2.2 hours of skilled labor (paid $15 per hour). How much is total labor cost during the three months July through September?

A) $69,300

B) $327,670

C) $846,300

D) $859,320

68) Skylark has forecast production for the next three months as follows: July 4,900 units, August 6,600 units, September 7,500 units. Monthly manufacturing overhead is budgeted to be $17,000 plus $6 per unit produced. What is budgeted manufacturing overhead for July?

A) $29,400

B) $47,000

C) $46,400

D) $17,000

69) Skylark has forecast production for the next three months as follows: July 4,900 units, August 6,600 units, September 7,500 units. Monthly manufacturing overhead is budgeted to be $17,000 plus $6 per unit produced. What is budgeted manufacturing overhead for August?

A) $56,600

B) $17,000

C) $39,600

D) $62,000

70) Larken has forecast sales for the next three months as follows: July 4,000 units, August 6,000 units, September 7,500 units. Larken's policy is to have an ending inventory of 40% of the next month's sales needs on hand. July 1 inventory is projected to be 1,500 units. Monthly manufacturing overhead is budgeted to be $17,000 plus $6 per unit produced. What is budgeted manufacturing overhead for July?

A) $29,400

B) $41,000

C) $46,400

D) $17,000

71) Larken has forecast sales for the next three months as follows: July 4,000 units, August 6,000 units, September 7,500 units. Larken's policy is to have an ending inventory of 40% of the next month's sales needs on hand. July 1 inventory is projected to be 1,500 units. Monthly manufacturing overhead is budgeted to be $17,000 plus $6 per unit produced. What is budgeted manufacturing overhead for August?

A) $56,600

B) $17,000

C) $53,000

D) $38,600

72) Skybird has forecast sales for the next three months as follows: July 4,000 units, August 6,000 units, September 7,500 units. Skybird's policy is to have an ending inventory of 40% of the next month's sales needs on hand. July 1 inventory is projected to be 1,500 units. Monthly costs are budgeted as follows:

What is budgeted manufacturing overhead cost for July?

A) $32,000

B) $41,000

C) $46,400

D) $17,000

73) Pacific has forecast sales for the next three months as follows: July 4,000 units, August 6,000 units, September 7,500 units. Pacific's policy is to have an ending inventory of 40% of the next month's sales needs on hand. July 1 inventory is projected to be 1,500 units. Monthly costs are budgeted as follows:

What is budgeted manufacturing overhead cost for August?

A) $50,000

B) $47,000

C) $33,000

D) $32,000

74) Budgeted cost of goods manufactured reflects:

A) all the costs required to manufacture and sell the product.

B) all the costs required to manufacture the product, but not to sell it.

C) all the costs required to sell the product, but not manufacture it.

D) direct costs required to manufacture a product, but not indirect manufacturing costs (like manufacturing overhead).

75) Budgeted cost of goods sold should include which of the following?

A) Direct materials and direct labor

B) Direct materials, direct labor, and manufacturing overhead

C) Direct materials, direct labor, manufacturing overhead, and selling expenses

D) Direct materials, direct labor, manufacturing overhead, selling expenses, and administrative expenses

76) Harney, Inc. has prepared the following budgets for March. In March, budgeted production equals budgeted sales, and direct materials inventory will stay constant.

What is budgeted cost of goods sold for March? 

A) $14,560

B) $24,960

C) $27,560

D) $37,960

77) Atlantic, Inc. has prepared the following budgets for March. In March, budgeted production equals budgeted sales of 1,000 units, and direct materials inventory will stay constant.

What is budgeted cost of goods sold for March?

A) $16,800

B) $24,300

C) $31,800

D) $43,800

78) Crystal, Inc. has prepared the following budgets for March. In March, budgeted production is 1,000 units, budgeted sales is 1,200 units, and direct materials inventory will stay constant.

What is budgeted cost of goods sold for March?

A) $20,367

B) $21,200

C) $25,440

D) $35,040

79) Crystal, Inc. has prepared the following budgets for March. In March, budgeted production is 1,000 units, budgeted sales is 1,200 units, and direct materials inventory unit costs will stay constant.

What is budgeted cost of goods sold for March?

A) $30,551

B) $31,800

C) $36,660

D) $38,160

80) Lemon, Inc. has prepared the following budgets for March. In March, budgeted production is 1,000 units, budgeted sales is 1,200 units, and direct materials inventory and unit costs will stay constant.

What is budgeted cost of goods sold for March?

A) $40,734

B) $42,400

C) $48,880

D) $50,880

81) Which of the following would not be an example of a cost to include in a selling and administrative expense budget?

A) Legal expenses

B) Accounting services

C) Fixed manufacturing overhead

D) Franchise fees

82) Walnut has forecast sales for the next three months as follows: July 4,000 units, August 6,000 units, September 7,500 units. Walnut's policy is to have an ending inventory of 40% of the next month's sales needs on hand. July 1 inventory is projected to be 1,500 units. Selling and administrative costs are budgeted to be $15,000 per month plus $5 per unit sold. What are budgeted selling and administrative expenses for July?

A) $24,500

B) $39,500

C) $35,000

D) $30,500

83) Walnut has forecast sales for the next three months as follows: July 4,000 units, August 6,000 units, September 7,500 units. Walnut's policy is to have an ending inventory of 40% of the next month's sales needs on hand. July 1 inventory is projected to be 1,500 units. Selling and administrative costs are budgeted to be $15,000 per month plus $5 per unit sold. What are budgeted selling and administrative expenses for September?

A) $30,000

B) $67,500

C) $32,500

D) $52,500

84) The budgeted income statement is a combination of:

A) All the operating budgets.

B) All the operating budgets plus the budgeted balance sheet.

C) The direct materials budget, the direct labor budget, and the manufacturing overhead budget.

D) The production budget, the cost of goods sold budget, and the selling and administrative expense budget.

85) The purpose of the cash budget is to:

A) be used as a basis for the operating budgets.

B) provide external users with an estimate of future cash flows.

C) help managers plan ahead to make certain they will have enough cash on hand to meet their operating needs.

D) summarize the cash flowing into and out of the business during the past period.

86) The basic form of the cash budget is:

A) Budgeted cash collections − Budgeted cash payments +/− Cash borrowed or repaid = Ending cash balance

B) Beginning cash balance + Budgeted cash collections − Budgeted cash payments +/− Cash borrowed or repaid = Ending cash balance

C) Beginning cash balance − Budgeted cash collections + Budgeted cash payments +/− Cash borrowed or repaid = Ending cash balance

D) Beginning cash balance + Budgeted cash collections − Budgeted cash payments = Cash borrowed or repaid

87) Which of the following is not a component of the cash budget?

A) Budgeted cash collections

B) Budgeted cash payments

C) Depreciation expense

D) Cash borrowed or repaid

88) Which component of the cash budget is shown as a line item on the budgeted balance sheet?

A) Budgeted cash collections

B) Budgeted cash payments

C) Cash repaid

D) Ending cash balance

89) Grover has forecast sales to be $125,000 in February, $135,000 in March, $150,000 in April, and $140,000 in May. The average cost of goods sold is 70% of sales. All sales are on made on credit and sales are collected 60% in the month of sale, and 40% the month following. What are budgeted cash receipts in March?

A) $131,000

B) $135,000

C) $94,500

D) $91,700

90) Grover has forecast sales to be $125,000 in February, $135,000 in March, $150,000 in April, and $140,000 in May. The average cost of goods sold is 70% of sales. All sales are made on credit and sales are collected 60% in the month of sale, and 40% the month following. What are budgeted cash receipts in April?

A) $105,000

B) $141,000

C) $150,000

D) $144,000

91) Dayton has forecast sales to be $205,000 in February, $270,000 in March, $290,000 in April, and $310,000 in May. The average cost of goods sold is 60% of sales. All sales are made on credit and sales are collected 50% in the month of sale, 30% the month following and the remainder two months after the sale. What are budgeted cash receipts in May?

A) $267,000

B) $296,000

C) $161,250

D) $241,500

92) Blue has forecast sales to be $410,000 in February, $540,000 in March, $580,000 in April, and $620,000 in May. The average cost of goods sold is 60% of sales. All sales are made on credit and sales are collected 50% in the month of sale, 30% the month following and the remainder two months after the sale. What are budgeted cash receipts in May?

A) $592,000

B) $620,000

C) 310,000

D) $483,334

93) Dane Inc. has forecast purchases on account to be $465,000 in March, 555,000 in April, $630,000 in May, and $735,000 in June. Seventy percent of purchases are paid for in the month of purchase, the remaining 30% are paid in the following month. What are budgeted cash payments for April?

A) $528,000

B) $577,500

C) $388,500

D) $189,000

94) Ivory Inc. has forecast purchases on account to be $310,000 in March, $370,000 in April, $420,000 in May, and $490,000 in June. Seventy percent of purchases are paid for in the month of purchase, the remaining 30% are paid in the following month. What are budgeted cash payments for June?

A) $441,000

B) $469,000

C) $343,000

D) $294,000

95) Cedar Co. has forecast purchases to be $330,000 in June, $375,000 in July, $310,000 in August, and $270,000 in September. Purchases average 30% paid in cash, 70% on credit. Credit purchases are paid 60% in the month of purchase, 30% during the month following, and 10% the second month following the purchase. Cash disbursements in September would be:

A) $113,400

B) $204,750

C) $261,450

D) $285,750

96) Arbor Co. has forecast sales to be $400,000 in May, $475,000 in June, $575,000 in July and $700,000 in August. Forty percent of sales are made in cash, the remainder is on credit. Credit sales are collected 60% in the month of sale, the remaining the following month. What are budgeted cash collections for July?

A) $230,000

B) $334,000

C) $459,000

D) $551,000

97) Ebony Co. has forecast sales to be $300,000 in May, $375,000 in June, $475,000 in July and $600,000 in August. Forty percent of sales are made in cash, the remainder is on account. Credit sales are partially collected in the month of sale, with all collections completed by the end of the month following the sale. The August 31 accounts receivable is budgeted to be $108,000. What are budgeted cash collections for July?

A) $389,500

B) $267,000

C) $457,000

D) $415,000

98) Which of the following budgets do not provide information needed for the budgeted balance sheet?

A) Materials purchases budget

B) Production budget

C) Selling and administrative expense budget

D) Cash budget

99) Orchard has forecast sales to be $250,000 in February, $270,000 in March, $300,000 in April, and $280,000 in May. The average cost of goods sold is 70% of sales. All sales are made on credit and sales are collected 60% in the month of sale, and 40% the month following. What is the budgeted Accounts Receivable balance on May 31?

A) $196,000

B) $117,600

C) $112,000

D) $168,000

100) Boxwood Inc. has forecast purchases on account to be $620,000 in March, $740,000 in April, $840,000 in May, and $980,000 in June. Seventy percent of purchases are paid for in the month of purchase, the remaining 30% are paid in the following month. What is the budgeted Accounts Payable balance for June 30?

A) $588,000

B) $686,000

C) $294,000

D) $252,000

101) Audrey has forecast sales to be $205,000 in February, $270,000 in March, $290,000 in April, and $310,000 in May. The average cost of goods sold is 60% of sales. All sales are made on credit and sales are collected 50% in the month of sale, 30% the month following and the remainder two months after the sale. What is the budgeted Accounts Receivable balance on May 31?

A) $155,000

B) $213,000

C) $127,800

D) $186,000

102) Which of the following budgets would not exist for a merchandising firm?

A) Sales budget

B) Purchases budget

C) Production budget

D) Selling and administrative expense budget

103) Clare purchases a single product for $15 and sells it for $30. Forecasted sales for the next three months are July 4,000 units, August 6,000 units, September 7,500 units. Clare's policy is to have an ending inventory of 40% of the next month's sales needs on hand. July 1 inventory is projected to be 1,500 units. What are budgeted purchases in units for August?

A) 6,600 units

B) 10,400 units

C) 5,400 units

D) 600 units

104) Parsley Inc., a merchandising firm, has forecasted sales to be $125,000 in February, $135,000 in March, $150,000 in April, and $140,000 in May. The average cost of goods sold is 60% of sales. The merchandise inventory policy is to carry 50% of next month's sales needs. If actual February 1 inventory is $40,000, what will the cost of March purchases be?

A) $58,500

B) $142,500

C) $81,000

D) $85,500

105) Mango Place has forecast its sales for the coming months as follows:

The standard unit sells for $200, the deluxe unit sells for $350.

Required:

Prepare a sales budget for each of the three months April through June as well as the total for the quarter. Present the budget for each product as well as total sales.

106) Edna Inc. has forecast its sales for the coming months as follows:

The standard model sells for $28, the economy model sells for $21, and the deluxe model sells for $49.  

Required:

Prepare a sales budget for each of the three months July through September as well as the total for the quarter. Present the budget for each product as well as total sales.

107) In 2014, a design service firm served 12 clients (approximately one per month). The average client project lasted 20 (business) days and the clients were served evenly throughout the year. The firm expects 100% growth in the number of clients served in 2015.

a. Prepare a sales forecast based on this information for 2015.

b. In December of 2014, an influential journalist wrote an article about the type of approach this design firm used, generating 30 new potential client inquiries for the firm. Historically, 50% of the inquiries result in new projects within a six-month period. (Assume the projects begin evenly throughout the period.) Prepare a sales forecast based on this information for 2015.

c. To capitalize on the publicity generated by the article, the firm invests in a robust marketing strategy in June. Based on its projections, the marketing efforts will result in an additional 50% growth in clients for the six-month period July through December.

Prepare a sales forecast based on this information for 2015.

108) Willow Products expects the following sales of its single product:

Willow Products desires an ending finished goods inventory to be equal to 30% of the next month's sales needs. Actual March 1 inventory is projected to be 1,300 units.

Required:

Prepare a production budget for Willow Products for as many months as is possible.

109) Heather Products expects the following sales of its single product:

Heather desires an ending finished goods inventory to be equal to 20% of the next month's sales needs. Actual May 1 inventory will be 3,300 units.  

Required:

Prepare a production budget for Heather for as many months as is possible.

110) Wheat Inc. has forecast its sales for the coming months as follows:

Wheat maintains finished goods inventory equal to 20% of the next month's sales requirements. April 1 inventories were 14 standard units and 10 deluxe.

Required:

Prepare a production schedule for April through June.

111) Cherry Inc. has forecast its sales for the coming months as follows:

Cherry maintains finished goods inventory equal to 40% of the next month's sales requirements. April 1 inventories were 74 standard units and 72 economy. 

Required:

Prepare a production schedule for April through June.

112) Gertrude Products expects the following sales of its single product:

Gertrude desires an ending finished goods inventory to be equal to 10% of the next month's sales needs. July 1 inventory is projected to be 800 units. Each unit requires 5 pounds of Chemical A and 14 pounds of Chemical B. July 1 materials inventory includes 8,600 pounds of Chemical A and 76,000 pounds of Chemical B. Gertrude desires to maintain a Chemical A inventory equal to 20% of next month's production needs and a Chemical B inventory equal to 100% of next month's production needs.

a. Prepare a production budget for Gertrude for as many months as is possible.

b. Prepare a direct materials purchases budget for both Chemical A and Chemical B for the months of July through September.

113) Crest Products expects the following sales of its single product:

Crest desires an ending finished goods inventory to be equal to 30% of the next month's sales needs. August 1 inventory is projected to be 7,800 units. Each finished unit requires 2 units of component X and 11 units of component Z. August 1 materials inventory includes 5,000 units of component X and 184,000 units of component Z. Crest desires to maintain a component X inventory equal to 10% of next month's production needs and a component Z inventory equal to 70% of next month's production needs.

a. Prepare a production budget for Crest for as many months as is possible.

b. Prepare a direct materials purchases budget for both Component X and Component Z for the months of August through October.

114) Honeysuckle Inc. produces canvas bags. The production budget for the next four months is: July 5,000 units, August 7,000, September 7,500, October 8,000. Each bag requires 2.6 hours of unskilled labor (paid $8 per hour) and 4.4 hours of skilled labor (paid $15 per hour).

Required:

Prepare a labor budget for the three months July through September. Provide the labor requirements according to skill level in hours and in labor cost as well as in total. Provide the budget monthly as well as a total for the quarter.

115) Maple Inc. produces wooden boxes. The production budget for the next three months is: July 15,000 units, August 17,000, September 17,500. Each box requires three skill levels: 1.0 hours of unskilled labor (paid $8 per hour), 1.5 hours of semi-skilled labor (paid $10) and 2.0 hours of skilled labor (paid $15 per hour).

Required:

Prepare a labor budget for the three months July — September. Provide the labor requirements according to skill level in hours and in labor cost as well as in total. Provide the budget monthly as well as a total for the quarter.

116) Sugar Co. has forecast sales for the next four months as follows: July 4,000 units, August 6,000 units, September 7,500 units, and October 8,000 units. Sugar's policy is to have an ending inventory of 40% of the next month's sales needs on hand. July 1 inventory is projected to be 1,500 units. Manufacturing overhead is budgeted to be $17,000 plus $5 per unit produced.

a. Prepare a production budget for Sugar for as many months as is possible.

b. Prepare a manufacturing overhead budget for the three months July — September. Be sure to include a total for the quarter as well.

117) Butler Corp. has forecast sales for the next four months as follows: July 14,000 units, August 16,000 units, September 17,500 units, October 18,000 units. Butler's policy is to have an ending inventory of 20% of the next month's sales needs on hand. July 1 inventory is projected to be 2,500 units. Manufacturing overhead is budgeted to be $18,000 (depreciation $2,000, supervision $7,000, factory lease $1,500, maintenance $4,000, training $3,500) plus $5 per unit produced ($3 indirect materials, $2 utilities).

a. Prepare a production budget for Butler for as many months as is possible.

b. Prepare a manufacturing overhead budget for the three months July through September. Be sure to include a total for the quarter as well.

118) Bear Corp. sells its product for $120. Forecasted sales are 1,200 units in October, 1,500 in November, and 1,600 in December. Variable costs are based on sales, and consist of commissions (7% of sales), advertising (3%) and shipping (5%). Fixed costs per month are $4,000 sales salaries, $3,300 office salaries, $2,000 depreciation, $1,800 office rent, $750 insurance and $900 utilities.

Required:

Prepare Bear Corp's selling and administrative expense budget for the period October through December. Present monthly totals as well as a 3-month total.

119) Rapid Corp. sells its product for $200. Forecasted sales are 1,500 units in January, 1,800 in February, and 1,600 in March. Variable costs are based on sales, and consist of commissions (6% of sales), cooperative advertising (2%) and shipping (6%). Monthly fixed costs are $7,000 sales salaries, $6,500 office salaries, $2,500 depreciation, $1,800 office rent, $900 insurance and $1,200 utilities.

a. Prepare Rapid's selling and administrative expense budget for the period January through March. Present monthly totals as well as a 3-month total.

120) Meredith Company has budgeted sales for the upcoming months as follows:

Forty percent of the sales are credit sales, the remainder are made in cash. Credit sales are collected 50% in the month of sale, 40% in the month following the sale, and 8% in the second month following the sale.

a. Compute Meredith Company's cash receipts for June.

b. Compute Meredith Company's cash receipts for July.

c. Compute Meredith Company's cash receipts for August.

121) Spencer Company has budgeted sales for the upcoming months as follows:

Seventy percent of the sales are credit sales, the remainder are made in cash. Credit sales are collected 40% in the month of sale, 50% in the month following the sale, and 10% in the second month following the sale.

a. Compute Spencer's cash receipts for April.

b. Compute Spencer's cash receipts for May.

c. Compute the accounts receivable balance for May 31.

122) Blair is a retailer of assorted baby products. The sales forecast for the coming months is:

All sales are credit sales. The cash collection pattern is 20% in the month of sale, 70% in the month following the sale, and the remainder in the second month following the sale. Accounts receivable on June 1 were $177,500.

a. Prepare a cash receipts schedule for the period June through August (by month).

b. What will the Accounts Receivable balance be on August 31?

123) Portia is a retailer of scrapbooking products. The sales forecast for the coming months is:

Portia's sales are all credit. The collection pattern is 60% in the month of sale, 35% the following month and the remainder in the second month following the sale. Accounts receivable on April 1 were $122,500.

a. Prepare a cash receipts schedule for the period June through August (by month).

b. What will the Accounts Receivable balance be on August 31?

124) Cassie is a manufacturer of sketching pads. The following information is available from the company's budgets:

Manufacturing overhead includes depreciation of $12,000 per month. There is no depreciation included in the selling and administrative expenses. All expenses are paid in the month they are incurred. Cash at the beginning of the period was $20,000. The company wants to maintain a minimum cash balance of $20,000. There were no loans outstanding on May 1. The line of credit with the bank allows for borrowings and repayments in $1,000 increments. If the loan is paid off by the end of the quarter, there is no interest.

a. Prepare monthly cash budgets for the 2nd quarter.

b. What is the amount of cash shown on the balance sheet at the end of the quarter?

125) Ian operates an automobile repair shop and he has the opportunity to buy an additional machine, which he needs to continue servicing his increasing customer base, at a bargain price of $6,200 if he purchases it by the end of February. In order to meet payroll and other expenses, Ian wants to maintain a $5,000 cash balance. He is trying to determine if he needs to go to the bank for a loan. His accountant has projected the following estimates for the month of February:

Labor, overhead and administrative expenses are paid in the month incurred. Parts are only purchased as needed to repair vehicles. 100% of the parts purchases are paid in the month following the purchase.

a. Prepare a cash budget for the month of February.

b. What is the minimum amount that Ian will need to borrow?

c. Prepare a budgeted income statement for the month of February.

126) Young is a retailer of assorted baby products. The sales forecast for the coming months is:

Young's cost of sales averages 60% of revenues. The inventory policy is to carry 30% of next month's sales needs. April 1 inventory will be as expected under the policy. Young pays for purchases 80% in the month of purchase and 20% the following month. Accounts payable on April 1 is $22,400.

a. Prepare a purchases budget for as many months as is possible.

b. Prepare a cash payments budget for April through July.

127) Carmen is a retailer of scrapbooking products. The sales forecast for the coming months is:

Carmen's sales are 70% cash and 30% store credit. The credit sales are collected 60% in the month of sale, the remainder the following month. Accounts receivable on April 1 are $32,000.

Carmen's cost of sales averages 65% of revenues. The inventory policy is to carry 40% of next month's sales needs. April 1 inventory will be as expected under the policy. Carmen pays for purchases 30% in the month of purchase and 70% the following month. Accounts payable on April 1 is $125,000.

a. Prepare a purchases budget for as many months as is possible.

b. Prepare a cash payments budget for April through July.

c. Prepare a cash receipts budget for April through July.