Planning and Budgeting Test Bank Ch13

Fundamentals of Cost Accounting, 6e (Lanen)

Chapter 13 Planning and Budgeting

1) A budget is the plan, stated in financial terms, of how an organization expects to carry out its activities and meet its goals.

2) A master budget consists of (a) organizational goals, (b) strategic long-range profit plan, and (c) tactical short-range profit plan.

3) Participative budgeting streamlines the budgeting process by reducing budget development time.

4) Individual managers' beliefs and expectations are incorporated into the budgeting process using grass roots budgeting procedures.

5) Sales projections are often the most difficult part of the budgeting process because it involves a considerable amount of subjectivity.

6) An organization's sales staff is more likely to provide a lower sales forecast than a forecast provided by market researchers.

7) The Delphi technique uses highly sophisticated computerized time series analysis to reduce the subjectivity surrounding the sales forecast.

8) Both variable and fixed manufacturing overhead costs are included in the manufacturing overhead budget.

9) The production budget allows management to plan for the resources needed to meet the current sales demand and ensure that inventory levels are sufficient for future sales.

10) Denton Company has 10,000 units on hand at the beginning of the year and plans to sell 100,000 units during the year. If the ending inventory needs to be twice the beginning inventory, Denton will need to produce 90,000 units during the year.

11) Denton Company wants to have 10,000 units on hand at the end of the year after marketing 100,000 units during the year. If the beginning inventory is 5,000 units, Denton needs to produce 105,000 units during the year.

12) The production budget must be prepared before the direct materials, direct labor, and overhead budgets can be prepared.

13) Estimates for direct labor costs can be obtained from the engineering and production management.

14) Bottlenecks in the production process can be discovered by the budgeting process before they occur.

15) In effect, the cash budget simply restates the budgeted income statement to the cash basis.

16) The cash budget is normally prepared before the budgeted income statement.

17) When assembling the master budget, the budgeted balance sheet is the last budget prepared in the process.

18) The sales budget drives the rest of the budgeting process for both manufacturers and merchandisers.

19) A production budget is not needed for a service organization.

20) Ethical conflicts can occur in the budgeting process because managers supply information for the budgets that are then used to evaluate their performance.

21) The use of sensitivity analysis techniques allows managers to ask "what-if" questions regarding budget assumptions and estimates.

22) Sensitivity analysis is more likely to be used for sales forecasts than for fixed overhead costs.

23) The major objectives of any budget system are to: (CIA adapted)

A) define responsibility centers, provide a framework for performance evaluation, and promote communication and coordination among organization segments.

B) define responsibility centers, facilitate the fixing of blame for missed budget predictions, and ensure goal congruence between superiors and subordinates.

C) foster the planning of operations, provide a framework for performance evaluation, and promote communication and coordination among organization segments.

D) foster the planning of operations, facilitate the fixing of blame for missed budget predictions, and ensure goal congruence between superiors and subordinates.

24) Which of the following statements is (are) true regarding the master budget?

(A) A master budget consists of (a) organizational goals, (b) strategic long-range profit plan, and (c) tactical short-range profit plan.

(B) A master budget consists of only a budgeted (a) income statement, (b) balance sheet, and (c) stockholders' equity statement.

A) Only A is true.

B) Only B is true.

C) Both of these are true.

D) None of these is true.

25) Establishing organizational goals as a management function is more important:

A) at top management levels.

B) at lower management levels.

C) at middle management levels.

D) for staff functions than line functions.

26) Which of the following terms is not an alternative for a master budget?

A) Budget plan.

B) Static budget.

C) Profit plan.

D) Planning budget.

27) A master budget:

A) indicates costs of the organization only for the coming year.

B) indicates sales of the organization only for the coming year.

C) indicates sales, production, and costs of the organization for the coming year.

D) indicates sales and production but does not address costs of the organization for the coming year.

28) Which of the following is not a component of an overall organization plan for an organization?

A) Organization goals.

B) Strategic long-range profit plan.

C) Tactical short-range profit plan.

D) Profit plans of competitors.

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

A) It reduces the need for tracking actual cost activity.

B) It sets benchmarks for evaluation performance.

C) It uncovers potential bottlenecks.

D) It formalizes a manager's planning efforts.

30) Which of the following statements is (are) true regarding the benefits associated with participative budgeting?

(A) Goal congruence by divisions means top management need not be concerned with overall profitability.

(B) Employee motivation and acceptance of goals is enhanced.

A) Only A is true.

B) Only B is true.

C) Both of these are true.

D) None of these is true.

31) Oklahoma Telephone Company has been forced by competition to put much more emphasis on planning and controlling its costs. Accordingly, the company's controller has suggested initiating a formal budgeting process. Which of the following steps will not help the company gain maximum acceptance by employees of the proposed budgeting system? (CMA adapted)

A) Implementing the change quickly.

B) Including in departmental responsibility reports only those items that are under the department manager's control.

C) Demonstrating top management support for the budgeting program.

D) Ensuring that favorable deviations of actual results from the budget, as well as unfavorable deviations, are discussed with the responsible managers.

32) Which of the following statements is not correct?

A) The sales budget is the starting point in preparing the master budget.

B) The sales budget is constructed by multiplying the expected sales in units by the sales price.

C) Using methods such as trend analysis and the Delphi technique can help reduce subjectivity in forecasting sales.

D) The cash budget must be prepared prior to the sales budget because managers want to know the expected cash collections on sales made to customers in prior periods before projecting sales for the current period.

33) In general, the first budget prepared is the:

A) production budget.

B) direct labor budget.

C) sales budget.

D) overhead budget.

34) In developing a master budget for a manufacturing company, which one of the following items should be done first?

A) Development of a sales budget.

B) Development of the capital budget.

C) Determination of manufacturing capacity.

D) Determination of the advertising budget.

35) The forecasting method in which individual forecasts of group members are submitted anonymously and evaluated by the group as a whole is called:

A) trend analysis.

B) econometric models.

C) the Delphi technique.

D) regression analysis.

36) The Variable Speed Company manufactures a line of high quality tools. The company sold 1,000,000 hammers at a price of $4 per unit last year. The company estimates that this volume represents a 20% share of the current hammers market. The market is expected to increase by 5%. Marketing specialists have determined that, as a result of a new advertising campaign and packaging, the company will increase its share of this larger market to 24%. Due to changes in prices, the new price for the hammer will be $4.30 per unit. This new price is expected to be in line with the competition and have no effect on the volume estimates. What are the estimated sales revenues in the coming year?

A) $5,040,000.

B) $5,160,000.

C) $5,418,000.

D) $5,689,000.

37) The statistical method of forecasting that relies heavily on regression models is called:

A) econometric models.

B) Delphi technique.

C) scattergraph method.

D) participative budgeting.

38) Acutron is a large securities dealer. Last year, the company made 120,000 trades with an average commission of $120. Because of the general economic climate, Acutron expects trade volume to decline by 20%. Fortunately, the average commission per trade is likely to increase by 10% because trades are expected to be large in the coming year. What are the estimated commission's revenues for Acutron in the coming year?

A) $11,520,000.

B) $12,672,000.

C) $15,552,000.

D) $15,840,000.

39) Adair Credit, Inc. has $35.0 million in consumer loans with an average interest rate of 12.0%. The company has $30.0 million in home equity loans with an average interest rate of 8.0%, and owns $5.0 million in corporate securities with an average interest rate of 6%. Next year, consumer loans are estimated to increase to $40.0 million because of a rate decrease to 10.0%, while home equity loans are estimated to increase to $32.0 million at an average interest rate of 6.5%. Unfortunately, the investment in corporate securities is estimated to decrease by 20% and the average interest rate is estimated to be 9.0%. What is Adair's estimated change in revenues next year?

A) $460,000 decrease.

B) $460,000 increase.

C) $700,000 increase.

D) $700,000 decrease.

40) The master budget process usually begins with the: (CMA adapted)

A) production budget.

B) operating budget.

C) financial budget.

D) sales budget.

41) A company has the following annual budget data:

What are total budgeted production costs for the year? (CIA adapted)

A) $2,100,000.

B) $2,180,000.

C) $2,240,000.

D) $2,320,000.

42) Rerun Manufacturing Company is in the process of preparing its 2020 budget and is anticipating the following changes:

30% increase in the number of units sold.

20% increase in the direct material unit cost.

15% increase in the direct labor cost per unit.

10% increase in the manufacturing overhead cost per unit.

14% increase in the sales price.

7% increase in the administrative expenses.

Rerun does not keep any units in inventory.

The composition of the cost of finished products during 2019 for direct materials, direct labor, and factory overhead, respectively, was in the ratio of 3:2:1. The condensed income statement for 2019 is as follows:

What are estimated net sales for 2020, assuming the sales return/gross sales relationship remains constant?

A) $646,893.

B) $585,000.

C) $571,500.

D) $567,450.

43) Rerun Manufacturing Company is in the process of preparing its 2020 budget and is anticipating the following changes:

30% increase in the number of units sold.

20% increase in the direct material unit cost.

15% increase in the direct labor cost per unit.

10% increase in the manufacturing overhead cost per unit.

14% increase in the sales price.

7% increase in the administrative expenses.

Rerun does not keep any units in inventory.

The composition of the cost of finished products during 2019 for materials, direct labor, and factory overhead, respectively, was in the ratio of 3:2:1. The condensed income statement for 2019 is as follows: 

What is the estimated cost of goods sold for 2020 assuming the number of units sold does not change?

A) $464,100

B) $402,900

C) $397,800

D) $357,000

44) Trevor Company expects sales of Product W to be 60,000 units in April, 75,000 units in May, and 70,000 units in June. The 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, Trevor 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.

45) Vermicelli Company plans to sell 200,000 units of finished product in July and anticipates a growth rate in sales of 5% per month. The desired monthly ending inventory in units of finished product is 80% of the next month's estimated sales. There are 150,000 finished units in inventory on June 30.

Vermicelli Company's production requirement in units of finished product for the three-month period ending September 30 is: (CMA adapted)

A) 712,025 units.

B) 630,500 units.

C) 664,000 units.

D) 665,720 units.

46) The Pizza Merchandise Company has budgeted $40,000 in sales for the month of December. The company's cost of goods sold is 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.

47) Pablo Company has budgeted production for next year as follows:

Two pounds of material A are required for each unit produced. The company has a policy of maintaining a stock of material A on hand at the end of each quarter equal to 25% of the next quarter's production needs for material A. A total of 30,000 pounds of material A are on hand to start the year. Budgeted purchases of material A for the second quarter would be:

A) 82,500 pounds.

B) 165,000 pounds.

C) 200,000 pounds.

D) 205,000 pounds.

48) Vargas Corporation is working on its direct labor budget for the next two months. Each unit of output requires 0.77 direct labor-hours. The direct labor rate is $11.20 per direct labor-hour. The production budget calls for producing 7,100 units in October and 6,900 units in November. The company guarantees its direct labor workers a 40-hour paid work week. With the number of workers currently employed, that means that the company is committed to paying its direct labor work force for at least 5,480 hours in total each month even if there is not enough work to keep them busy. What would be the total combined direct labor cost for the two months?

A) $122,752.00.

B) $120,736.00.

C) $120,881.60.

D) $122,606.40.

49) Pouch Corporation is working on its direct labor budget for the next two months. Each unit of output requires 0.84 direct labor-hours. The direct labor rate is $9.40 per direct labor-hour. The production budget calls for producing 2,100 units in June and 1,900 units in July. If the direct labor work force is fully adjusted to the total direct labor-hours needed each month, what would be the total combined direct labor cost for the two months?

A) $15,792.00.

B) $15,002.40.

C) $16,581.60.

D) $31,584.00.

50) Trini Inc. bases its manufacturing overhead budget on budgeted direct labor-hours. The direct labor budget indicates that 8,100 direct labor-hours will be required in May. The variable overhead rate is $1.40 per direct labor-hour. The company's budgeted fixed manufacturing overhead is $100,440 per month, which includes depreciation of $8,910. All other fixed manufacturing overhead costs represent current cash flows. The May cash disbursements for manufacturing overhead on the manufacturing overhead budget should be:

A) $102,870.

B) $11,340.

C) $91,530.

D) $111,780.

51) The manufacturing overhead budget at Levetron Corporation is based on budgeted direct labor-hours. The direct labor budget indicates that 7,100 direct labor-hours will be required in August. The variable overhead rate is $8.60 per direct labor-hour. The company's budgeted fixed manufacturing overhead is $132,770 per month, which includes depreciation of $24,850. All other fixed manufacturing overhead costs represent current cash flows. The company recomputes its predetermined overhead rate every month. The predetermined overhead rate for August should be:

A) $8.60.

B) $27.30.

C) $23.80.

D) $18.70.

52) Rack Inc. bases its manufacturing overhead budget on budgeted direct labor-hours. The direct labor budget indicates that 3,700 direct labor-hours will be required in September. The variable overhead rate is $5.70 per direct labor-hour. The company's budgeted fixed manufacturing overhead is $48,100 per month, which includes depreciation of $5,550. All other fixed manufacturing overhead costs represent current cash flows. The company recomputes its predetermined overhead rate every month. The predetermined overhead rate for September should be:

A) $5.70.

B) $13.00.

C) $18.70.

D) $17.20.

53) The manufacturing overhead budget at Rost Corporation is based on budgeted direct labor-hours. The direct labor budget indicates that 2,800 direct labor-hours will be required in September. The variable overhead rate is $7.00 per direct labor-hour. The company's budgeted fixed manufacturing overhead is $43,120 per month, which includes depreciation of $3,640. All other fixed manufacturing overhead costs represent current cash flows. The September cash disbursements for manufacturing overhead on the manufacturing overhead budget should be:

A) $59,080.

B) $62,720.

C) $19,600.

D) $39,480.

54) The marketing and administrative expense budget of Frazier Corporation is based on budgeted unit sales, which are 5,500 units for June. The variable marketing and administrative expense is $1.00 per unit. The budgeted fixed marketing and administrative expense is $101,200 per month, which includes depreciation of $6,050 per month. The remainder of the fixed marketing and administrative expense represents current cash flows. The cash disbursements for marketing and administrative expenses on the June marketing and administrative expense budget should be:

A) $100,650.

B) $106,700.

C) $5,500.

D) $95,150.

55) Bentonville Inc. bases its marketing and administrative expense budget on budgeted unit sales. The sales budget shows 3,200 units are planned to be sold in December. The variable marketing and administrative expense is $3.10 per unit. The budgeted fixed marketing and administrative expense is $60,800 per month, which includes depreciation of $6,720 per month. The remainder of the fixed marketing and administrative expense represents current cash flows. The cash disbursements for marketing and administrative expenses on the December marketing and administrative expense budget should be:

A) $70,720.

B) $54,080.

C) $64,000.

D) $9,920.

56) The Colson Company has budgeted sales for the year as follows:

The ending inventory of finished goods for each quarter should equal 25% of the next quarter's budgeted sales in units. The finished goods inventory at the start of the year is 3,000 units. Scheduled production for the third quarter is (in units)

A) 17,500 units.

B) 18,500 units.

C) 18,000 units.

D) 16,500 units.

57) The Colson Company has budgeted sales for the year as follows:

The ending inventory of finished goods for each quarter should equal 25% of the next quarter's budgeted sales in units. The finished goods inventory at the start of the year is 3,000 units. Scheduled production for the second quarter is (in units):

A) 17,500 units.

B) 16,500 units.

C) 15,000 units.

D) 13,000 units.

58) The Tori Company had budgeted production for the year as follows:

Four pounds of raw materials are required for each unit produced. Raw materials on hand at the start of the year total 4,000 lbs. The raw materials inventory at the end of each quarter should equal 10% of the next quarter's production needs in materials. 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.

59) The Molson Company had budgeted production for the year as follows:

Four pounds of raw materials are required for each unit produced. Raw materials on hand at the start of the year total 4,000 lbs. The raw materials inventory at the end of each quarter should equal 10% of the next quarter's production needs in materials. Budgeted purchases of raw materials in the second quarter would be:

A) 48,000 lbs.

B) 46,400 lbs.

C) 49,600 lbs.

D) 54,400 lbs.

60) Krier Industries has just completed its sales forecasts and its marketing department estimates that the company will sell 36,000 units during the upcoming year. In the past, management has maintained inventories of finished goods at approximately three months' sales. However, the estimated inventory at the start of the year of the budget period is only 6,000 units. Sales occur evenly throughout the year. What is the estimated production level (units) for the first month of the upcoming budget year?

A) 12,000.

B) 9,000.

C) 6,000.

D) 3,000.

61) The Ralston Company manufactures a special line of graphic tubing items. The company estimates it will sell 75,000 units of this item in 2020. The beginning finished goods inventory contains 20,000 units. The target for each year's ending inventory is 10,000 units.

Each unit requires five feet of plastic tubing. The tubing inventory currently includes 70,000 feet of the required tubing. Materials on hand are targeted to equal three months' production. Any shortage in materials will be made up by the immediate purchase of materials. Sales take place evenly throughout the year.

What is the production budget (in units) for 2020?

A) 60,000.

B) 65,000.

C) 75,000.

D) 85,000.

62) The Ralston Company manufactures a special line of graphic tubing items. The company estimates it will sell 75,000 units of this item in 2020. The beginning finished goods inventory contains 20,000 units. The target for each year's ending inventory is 10,000 units.

Each unit requires five feet of plastic tubing. The tubing inventory currently includes 70,000 feet of the required tubing. Materials on hand are targeted to equal three months' production. Any shortage in materials will be made up by the immediate purchase of materials. Sales take place evenly throughout the year.

What are the materials requirements (in feet) for 2020?

A) 313,750.

B) 336,250.

C) 363,750.

D) 386,250.

63) The following budgeted information is provided:

One pound of materials is required for each finished unit. The inventory of materials at the end of each month should equal 20% of the following month's production needs. At the beginning of Month 1, there were 3,200 lbs. of materials on hand. Purchases of raw materials for Month 1 would be (in pounds):

A) 25,000.

B) 23,400.

C) 17,200.

D) 22,000.

64) Which of the following represents the correct order in which the indicated budget documents for a manufacturing company would be prepared?

A) Sales budget, cash budget, direct materials budget, direct labor budget.

B) Production budget, sales budget, direct materials budget, direct labor budget.

C) Sales budget, cash budget, production budget, direct materials budget.

D) Marketing and administrative expense budget, budgeted income statement, cash budget, budgeted balance sheet.

65) The starting point in preparing a comprehensive budget for a manufacturing company limited by its ability to produce and not by its ability to sell is

A) a sales forecast.

B) an estimate of production capacity.

C) an estimate of cash receipts and disbursements.

D) a projection of fixed asset acquisitions.

66) Merriweather Corporation is a manufacturer of tables sold to schools, restaurants, hotels, and other institutions. The table tops are manufactured by Merriweather, but the table legs are purchased from an outside supplier. The Assembly Department takes a manufactured table top and attaches the four purchased table legs. It takes 20 minutes of labor to assemble a table. The company follows a policy of producing enough tables to ensure that 40% of next month's sales are in the finished goods inventory. Merriweather also purchases sufficient raw materials (legs) to ensure that raw materials (legs) inventory is 60% of the following month's scheduled production needs. Merriweather's sales budget in units for the next quarter is as follows: (CMA adapted)

Merriweather's ending inventories in units for June 30 are:

The number of tables to be produced during August is:

A) 1,400 tables.

B) 2,340 tables.

C) 1,440 tables.

D) 1,900 tables.

67) Merriweather Corporation is a manufacturer of tables sold to schools, restaurants, hotels, and other institutions. The table tops are manufactured by Merriweather, but the table legs are purchased from an outside supplier. The Assembly Department takes a manufactured table top and attaches the four purchased table legs. It takes 20 minutes of labor to assemble a table. The company follows a policy of producing enough tables to ensure that 40% of next month's sales are in the finished goods inventory. Merriweather also purchases sufficient raw materials (legs) to ensure that raw materials (legs) inventory is 60% of the following month's scheduled production needs. Merriweather's sales budget in units for the next quarter is as follows: (CMA adapted)

Merriweather's ending inventories in units for June 30 are:

Assume the required production for August and September is 1,600 units and 1,800 units, respectively, and the July 31 raw materials (legs) inventory is 4,200 units. The number of table legs to be purchased in August is:

A) 6,520 legs.

B) 9,400 legs.

C) 6,280 legs.

D) 6,400 legs.

68) Budgeted production needs are determined by:

A) adding budgeted sales in units to the desired ending inventory in units and deducting the beginning inventory in units from this total.

B) adding budgeted sales in units to the beginning inventory in units and deducting the desired ending inventory in units from this total.

C) adding budgeted sales in units to the desired ending inventory in units.

D) deducting the beginning inventory in units from budgeted sales in units.

69) Which of the following is not correct regarding the manufacturing overhead budget?

A) Total budgeted cash disbursements for manufacturing overhead is equal to the total of budgeted variable and fixed manufacturing overhead.

B) Manufacturing overhead costs should be broken down by cost behavior.

C) The manufacturing overhead budget should provide a schedule of all costs of production other than direct materials and direct labor.

D) Budgeting overhead requires the use of many factors including production levels, management discretion, corporate policies, and external factors.

70) The number of units required for production is equal to:

A) budgeted sales plus units in the beginning inventory minus the units in the ending inventory.

B) budgeted sales plus units in the ending inventory minus the units in the beginning inventory.

C) budgeted sales plus the units in the ending inventory.

D) budgeted sales minus the units in the beginning inventory.

71) The amount of materials to be purchased during the budget period is equal to budgeted:

A) total production needs plus units in the beginning materials inventory minus the units in the ending materials inventory.

B) total production needs plus units in the ending materials inventory minus the units in the beginning materials inventory.

C) units to be produced plus units in the beginning materials inventory minus the units in the ending materials inventory.

D) units to be produced plus units in the ending materials inventory minus the units in the beginning materials inventory.

72) Which of the following budgets does not require the production budget?

A) Direct materials.

B) Direct labor.

C) Manufacturing overhead.

D) Marketing and administrative expenses.

73) The manufacturing overhead budget requires that costs be separated into their fixed and variable components. Another budget that has this requirement is the:

A) direct labor.

B) direct materials.

C) cost of goods sold.

D) marketing and administrative expenses.

74) Which of the following statements does not reflect a difficulty in preparing the marketing and administrative budget?

A) Managers have discretion about how much money is spent.

B) Managers have discretion about the timing of when money is spent.

C) Marketing and administrative expenses are made up of fixed and variable items.

D) Marketing and administrative expenses normally have a one-year time horizon.

75) Which of the following types of accounts would not be included on a budgeted balance sheet?

A) Cash.

B) Assets.

C) Liabilities.

D) Revenues.

76) The Arkansas Company makes and sells a product called Product K. Each unit of Product K sells for $24 and has a unit variable cost of $18. The company has the following budgeted data for November:

∙ Sales of $1,152,200, all in cash.

∙ A cash balance on November 1 of $48,000.

∙ Cash disbursements (other than interest) during November of $1,160,000.

∙ A minimum cash balance on November 30 of $60,000.

If necessary, the company will borrow cash from a bank. The borrowing will be in multiples of $1,000 and will bear interest at 2% per month. All borrowing will take place at the beginning of the month. The November interest will be paid in cash during November.

The amount of cash needed to be borrowed on November 1 to cover all cash disbursements and to obtain the desired November 30 cash balance is:

A) $20,000.

B) $21,000.

C) $37,000.

D) $38,000.

77) Riff, Inc. is working on its cash budget for June. The budgeted beginning cash balance is $16,000. Budgeted cash receipts total $188,000 and budgeted cash disbursements total $187,000. The desired ending cash balance is $40,000. The excess (deficiency) of cash available over disbursements for June will be:

A) $15,000.

B) $1,000.

C) $17,000.

D) $204,000.

78) Center Company makes collections on sales according to the following schedule:

The following sales are expected:

Cash collections in March should be budgeted to be:

A) $110,000.

B) $110,800.

C) $105,000.

D) $113,000.

79) Ari, Inc. is working on its cash budget for December. The budgeted beginning cash balance is $14,000. Budgeted cash receipts total $127,000 and budgeted cash disbursements total $126,000. The desired ending cash balance is $40,000. Any borrowing is in multiples of $1,000 and interest is paid in the month following the borrowing.

To attain its desired ending cash balance for December, the company needs to borrow:

A) $25,000.

B) $0.

C) $55,000.

D) $40,000.

80) Which one of the following budgets would be the last one prepared in the master budget preparation process?

A) Manufacturing overhead budget.

B) Cost of goods sold budget.

C) Marketing cost budget.

D) Cash budget.

81) Cash disbursements would not include payments for:

A) dividends.

B) income taxes.

C) accounts receivable.

D) capital budget expenditures.

82) Tennison Corporation had the following transactions in its first year of operations:

What is the cash balance at year-end?

A) $150,000.

B) $170,000.

C) $210,000.

D) $280,000.

83) The Model Company is to begin operations in April. It has budgeted April sales of $30,000, May sales of $34,000, June sales of $40,000, July sales of $42,000, and August sales of $38,000. Note that 10% of each month's sales is expected to represent cash sales; 75% of the balance is expected to be collected in the month following the sale, 17% the second month, 6% the third month, and the balance is expected to be uncollectible.

What is the amount of cash to be collected in the month of July?

A) $34,022.

B) $38,022.

C) $42,000.

D) $37,580.

84) The Model Company is to begin operations in April. It has budgeted April sales of $30,000, May sales of $34,000, June sales of $40,000, July sales of $42,000, and August sales of $38,000. Note that 10% of each month's sales is expected to represent cash sales; 75% of the balance is expected to be collected in the month following the sale, 17% the second month, 6% the third month, and the balance is expected to be uncollectible.

What is the amount of cash to be collected in the month of August?

A) $40,106.

B) $40,340.

C) $38,036.

D) $44,140.

85) The Model Company is to begin operations in April. It has budgeted April sales of $30,000, May sales of $34,000, June sales of $40,000, July sales of $42,000, and August sales of $38,000. Note that 10% of each month's sales is expected to represent cash sales; 75% of the balance is expected to be collected in the month following the sale, 17% the second month, 6% the third month, and the balance is expected to be uncollectible.

The Model Company is considering charging 1 1/2% on any balance that is not collected in the month following the month of sale. This charge would also change the collection percentages to 15% cash sales, 80% of the balance collected in the month following the sale, 16% the second month, and 3% the third month. This stricter credit policy will reduce the estimated sales budgets by 7% each month. Under this stricter credit policy, what is the amount of cash to be collected in July?  Round all calculations to the nearest whole dollar.

A) $39,199.

B) $35,312.

C) $38,193.

D) $36,242.

86) Page Company makes 30% of its sales for cash and 70% on account. 60% of the credit sales are collected in the month of sale, 25% in the month following sale, and 12% in the second month following sale. The remainder is uncollectible. The following information has been gathered for the current year:

Total cash receipts in Month 4 will be:

A) $38,000.

B) $47,900.

C) $27,230.

D) $36,230.

87) Page Company makes 30% of its sales for cash and 70% on account. 60% of the credit sales are collected in the month of sale, 25% in the month following sale, and 12% in the second month following sale. The remainder is uncollectible. The following information has been gathered for Page's first year of operations:

Total cash receipts in Month 3 will be:

A) $52,200.

B) $53,290.

C) $50,000.

D) $51,510.

88) The Beatrice Manufacturing Company increased its merchandise inventory by $17,000 over the year. The company also granted its customers more liberal credit terms which increased the accounts receivable by $37,500. Sales were $975,000 and the accounts payable decreased by $27,500. The gross profit on sales is 45%. Marketing and administrative expenses were $145,000; this included depreciation expense of $4,000. What were the cash disbursements for the year?

A) $721,750.

B) $706,500.

C) $689,500.

D) $599,750.

89) The Express Company is preparing its cash budget for the month of June. The following information is available concerning its inventories:

What are the estimated cash disbursements for inventories in June?

A) $264,000.

B) $320,250.

C) $335,250.

D) $341,250.

90) The Overland Company is preparing its cash budget for the month of June. The following information is available concerning its accounts receivable:

What are the estimated cash receipts from accounts receivable collections in June?

A) $221,250.

B) $227,250.

C) $229,250.

D) $239,250.

91) The Kansas Company is preparing a cash budget for the month of July. The following information on accounts receivable collections is available from Kansas' past collection experience:

The remaining 4% are not collected and are written off as bad debts.

Credit sales to date are as follows:

What are the estimated collections in July?

A) $125,250.

B) $131,250.

C) $133,250.

D) $137,250.

92) Kevin Montgomery Retail seeks your assistance to develop cash and other budget information for May, June, and July. At April 30, the company had cash of $5,500, accounts receivable of $437,000, inventories of $446,250, and accounts payable of $133,055. The budget is to be based on the following assumptions:

SALES:

Each month's sales are billed on the last day of the month. Customers are allowed a 3% discount if payment is made within 10 days after the billing date. Receivables are recorded in the accounts at their gross amounts (not net of discounts). 55% of the billings are collected within the discount period; 30% are collected by the end of the month; 9% are collected by the end of the second month; and 6% turn out to be uncollectible.

PURCHASES:

The marketing, general, and administrative expenses and 60% of all purchases of merchandise are paid in the month purchased, with the remainder of merchandise purchases paid in the following month. The number of units in each month's ending inventory is equal to 125% of the next month's sales (units). The cost of each unit of inventory is $30. Marketing, general, and administrative expenses, of which $3,000 is depreciation, are equal to 15% of the current month's sales.

Actual and projected sales are as shown below:

What are the budgeted merchandise purchases (in dollars) for May?

A) $338,250.

B) $355,500.

C) $357,000.

D) $375,750.

93) Kevin Montgomery Retail seeks your assistance to develop cash and other budget information for May, June, and July. At April 30, the company had cash of $5,500, accounts receivable of $437,000, inventories of $446,250, and accounts payable of $133,055. The budget is to be based on the following assumptions:

SALES:

Each month's sales are billed on the last day of the month. Customers are allowed a 3% discount if payment is made within 10 days after the billing date. Receivables are recorded in the accounts at their gross amounts (not net of discounts). 55% of the billings are collected within the discount period; 30% are collected by the end of the month; 9% are collected by the end of the second month; and 6% turn out to be uncollectible.

PURCHASES:

The marketing, general, and administrative expenses and 60% of all purchases of merchandise are paid in the month purchased, with the remainder of merchandise purchases paid in the following month. The number of units in each month's ending inventory is equal to 125% of the next month's sales (units). The cost of each unit of inventory is $30. Marketing, general, and administrative expenses, of which $3,000 is depreciation, are equal to 15% of the current month's sales.

Actual and projected sales are as shown below:

What are the budgeted merchandise purchases (in dollars) for June?

A) $319,500.

B) $342,000.

C) $364,500.

D) $375,000.

94) Kevin Montgomery Retail seeks your assistance to develop cash and other budget information for May, June, and July. At April 30, the company had cash of $5,500, accounts receivable of $437,000, inventories of $446,250, and accounts payable of $133,055. The budget is to be based on the following assumptions:

SALES:

Each month's sales are billed on the last day of the month. Customers are allowed a 3% discount if payment is made within 10 days after the billing date. Receivables are recorded in the accounts at their gross amounts (not net of discounts). 55% of the billings are collected within the discount period; 30% are collected by the end of the month; 9% are collected by the end of the second month; and 6% turn out to be uncollectible.

PURCHASES:

The marketing, general, and administrative expenses and 60% of all purchases of merchandise are paid in the month purchased, with the remainder of merchandise purchases paid in the following month. The number of units in each month's ending inventory is equal to 125% of the next month's sales (units). The cost of each unit of inventory is $30. Marketing, general, and administrative expenses, of which $3,000 is depreciation, are equal to 15% of the current month's sales.

Actual and projected sales are as shown below:

What are the budgeted cash disbursements during the month of June?

A) $407,520.

B) $419,400.

C) $421,950.

D) $434,280.

95) Kevin Montgomery Retail seeks your assistance to develop cash and other budget information for May, June, and July. At April 30, the company had cash of $5,500, accounts receivable of $437,000, inventories of $446,250, and accounts payable of $133,055. The budget is to be based on the following assumptions:

SALES:

Each month's sales are billed on the last day of the month. Customers are allowed a 3% discount if payment is made within 10 days after the billing date. Receivables are recorded in the accounts at their gross amounts (not net of discounts). 55% of the billings are collected within the discount period; 30% are collected by the end of the month; 9% are collected by the end of the second month; and 6% turn out to be uncollectible.

PURCHASES:

The marketing, general, and administrative expenses and 60% of all purchases of merchandise are paid in the month purchased, with the remainder of merchandise purchases paid in the following month. The number of units in each month's ending inventory is equal to 125% of the next month's units of sales. The cost of each unit of inventory is $30. Marketing, general, and administrative expenses, of which $3,000 is depreciation, are equal to 15% of the current month's sales.

Actual and projected sales are as shown below:

What are the budgeted cash collections during the month of May?

A) $445,894.

B) $453,880.

C) $472,114.

D) $474,934.

96) Kevin Montgomery Retail seeks your assistance to develop cash and other budget information for May, June, and July. At April 30, the company had cash of $5,500, accounts receivable of $437,000, inventories of $446,250, and accounts payable of $133,055. The budget is to be based on the following assumptions:

SALES:

Each month's sales are billed on the last day of the month. Customers are allowed a 3% discount if payment is made within 10 days after the billing date. Receivables are recorded in the accounts at their gross amounts (not net of discounts). 55% of the billings are collected within the discount period; 30% are collected by the end of the month; 9% are collected by the end of the second month; and 6% turn out to be uncollectible.

PURCHASES:

The marketing, general, and administrative expenses and 60% of all purchases of merchandise are paid in the month purchased, with the remainder of merchandise purchases paid in the following month. The number of units in each month's ending inventory is equal to 125% of the next month's units of sales. The cost of each unit of inventory is $30. Marketing, general, and administrative expenses, of which $3,000 is depreciation, are equal to 15% of the current month's sales.

Actual and projected sales are as shown below:

What are the budgeted number of inventory units that need to be purchased in July?

A) 11,750.

B) 15,000.

C) 12,250.

D) 12,000.

97) Jackson Company has developed the following sales projections for the calendar year:

Normal cash collection experience has been that 50% of sales is collected during the month of sale and 45% in the month following the sale. The remaining 5% of sales are never collected. Jackson's budgeted cash collections for the third calendar quarter are: (CMA adapted)

A) $450,000.

B) $440,000.

C) $414,000.

D) $360,000.

98) A company is preparing its cash budget for the coming month. All sales are on account. Given the following:

What is the expected cash balance of the company at the end of the coming month? (CIA adapted)

A) $15,000.

B) $40,000.

C) $45,000.

D) $70,000.

99) A company is formulating its plans for the coming year, including the preparation of its cash budget. Historically, the company's sales are 30% cash. The remaining sales are on credit with the following collection pattern:

Sales for the first 5 months of the coming year are forecast as follows:

For the month of April, the total cash receipts from sales and collections on accounts would be: (CIA adapted)

A) $3,729,968.

B) $3,781,600.

C) $4,025,200.

D) $4,408,000.

100) Shown below is the sales forecast for Kalin Inc. for the first four months of the coming year.

On average, 50% of credit sales are paid for in the month of the sale, 30% in the month following sale, and the remainder are paid two months after the month of the sale. Assuming there are no bad debts, the expected cash inflow in March is: (CMA adapted)

A) $138,000.

B) $122,000.

C) $119,000.

D) $108,000.

101) Budgeted sales in Washburn Company over the next four months are given below:

Twenty-five 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 credit 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 is uncollectible. Given these data, cash collections for December should be:

A) $138,000.

B) $133,500.

C) $120,000.

D) $103,500.

102) The following data have been taken from the budget reports of Kenyon Company, a merchandising company.

Forty percent of purchases are paid for in cash at the time of purchase, and 30% are paid for in each of the next two months. Purchases for the previous November and December were $150,000 per month. Employee wages are 10% of sales for the month in which the sales occur. Marketing and administrative expenses are 20% of the following month's sales. (July sales are budgeted to be $220,000.) Interest payments of $20,000 are paid quarterly in January and April. Kenyon's cash disbursements for the month of April would be: (CMA adapted)

A) $140,000.

B) $254,000.

C) $200,000.

D) $248,000.

103) Budgeted Balance sheets combine all of the following except:

A) an estimate of financial position at the beginning of the budget period.

B) the estimated results of operations for the period (from the income statements).

C) estimated changes in assets and liabilities.

D) an examination of all revenues, costs, and other transactions in terms of their effects on cash.

104) Serene Corporation, an auto parts retailer, had 17,000 units of brake calipers on hand at the end of 2019. The company's inventory policy is to maintain an ending inventory equal to 15% of the current year's sales. During 2020, Serene sold 210,000 units of calipers. How many units did Serene purchase in 2020?

A) 224,500.

B) 210,000.

C) 196,150.

D) 194,700.

105) Virginia Company, a merchandising firm, operated five sales offices last year at a total cost of $500,000, of which $70,000 represented fixed costs. Virginia has determined that total costs are significantly influenced by the number of sales offices operated. Last year's costs and number of sales offices can be used as the basis for predicting annual costs. What would be the budgeted cost for the coming year if Virginia were to operate seven sales offices? (CPA adapted)

A) $700,000.

B) $672,000.

C) $602,000.

D) $586,000.

106) Which of the following budgets is not required in a wholesale organization?

A) Cash.

B) Sales.

C) Production.

D) Cost of goods sold.

107) Which of the following budgets is not required in a service organization?

A) Cash.

B) Sales.

C) Labor.

D) Cost of goods sold.

108) Which of the following statements is true regarding ethical issues accompanying budgeting?

A) Conflicts of interest do not arise when employees are asked for input to help establish a budget.

B) Easy target incentives are eliminated through budgeting.

C) The conflicts of biased budgeting can be avoided in a decentralized firm.

D) If budget targets are difficult to meet, employees could turn to fraudulent financial reporting.

109) Sensitivity analysis can best be used in the budgeting process to:

A) explore the uncertainty surrounding their estimates.

B) remove the subjective nature from the budgeting process.

C) answer "what-if" questions regarding key projections.

D) consider alternatives and options in the budgeting process.

110) Dalley Inc. has the following information for its first year of operations:

All depreciation charges are fixed and are expected to remain the same for year 2. Sales volume is expected to increase by 15%, but sales prices are expected to fall by 4%. Material costs per unit are expected to decrease by 6%. Other unit variable manufacturing costs are expected to decrease by 2.5% per unit. Fixed manufacturing costs (other than depreciation) are expected to increase by 6%.

Variable marketing costs per unit will remain constant. Administrative costs (other than depreciation) are expected to increase by 10%.

Assume there are no inventories. Dalley operates on a cash basis.

Required:

Prepare a budgeted income statement for year 2.

111) Oregon Inc. has the following information for its first year of operations:

All depreciation charges are fixed and are expected to remain the same for year 2. Sales volume is expected to increase by 13%, and sales prices are expected to increase by 4%. Material costs per unit are expected to increase by 8%. Other unit variable manufacturing costs are expected to increase by 10% per unit. Fixed manufacturing costs (other than depreciation) are expected to increase by 6%.

Variable marketing costs per unit will remain constant. Administrative costs (other than depreciation) are expected to increase by 12%.

Assume there are no inventories. Oregon operates on a cash basis.

Required:

Prepare a budgeted income statement for year 2.

112) A sales budget is given below for one of the products manufactured by Trumpet, Ltd.

The inventory of finished goods at the end of each month must be equal to 20% of the next month's sales. On June 30, the finished goods inventory totaled 6,800 units.

Each unit of product requires ten ounces of a special chemical known as AQ-12. Sometimes the chemical is in short supply; for this reason, the company has a policy of maintaining an inventory at the end of each month equal to 75% of the next month's production needs. This requirement was met on July 1 of the current year

Required:

Prepare a budget showing the quantity of AQ-12 to be purchased for October.

113) A sales budget is given below for one of the products manufactured by Reyes, Ltd.

The inventory of finished goods at the end of each month must be equal to 30% of the next month's sales. On June 30, the finished goods inventory totaled 16,800 units.

Each unit of product requires four pounds of material. The company has a policy of maintaining a material inventory at the end of each month equal to 25% of the next month's production needs.

This requirement was met on July 1 of the current year.

Required:

Prepare a budget showing the quantity of material to be purchased for August.

114) Flores Corporation is working on its direct labor budget for the next two months. Each unit of output requires 0.07 direct labor-hours. The direct labor rate is $8.50 per direct labor-hour. The production budget calls for producing 4,800 units in June and 5,300 units in July.

Required:

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

115) Arctic Corporation is working on its direct labor budget for the next two months. Each unit of output requires 0.41 direct labor-hours. The direct labor rate is $8.50 per direct labor-hour. The production budget calls for producing 2,300 units in August and 2,200 units in September. The company guarantees its direct labor workers a 40-hour paid work week. With the number of workers currently employed, that means that the company is committed to paying its direct labor work force for at least 960 hours in total each month even if there is not enough work to keep them busy.

Required:

Construct the direct labor budget for the next two months.

116) Endpoint Inc. bases its manufacturing overhead budget on budgeted direct labor-hours. The variable overhead rate is $1.30 per direct labor-hour. The company's budgeted fixed manufacturing overhead is $98,900 per month, which includes depreciation of $19,780. All other fixed manufacturing overhead costs represent current cash flows. The September direct labor budget indicates that 8,600 direct labor-hours will be required in that month.

Required:

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

b. Determine the predetermined overhead rate for September.

117) The manufacturing overhead budget of Waverly Corporation is based on budgeted direct labor-hours. The June direct labor budget indicates that 5,800 direct labor-hours will be required in that month. The variable overhead rate is $7.70 per direct labor-hour. The company's budgeted fixed manufacturing overhead is $111,360 per month, which includes depreciation of $17,400. All other fixed manufacturing overhead costs represent current cash flows.

Required:

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

b. Determine the predetermined overhead rate for June.

118) Ng Inc. bases its marketing and administrative expense budget on the number of units sold. The variable marketing and administrative expense is $4.30 per unit. The budgeted fixed marketing and administrative expense is $30,240 per month, which includes depreciation of $3,510. The remainder of the fixed marketing and administrative expense represents current cash flows. The sales budget shows 2,700 units are planned to be sold in April.

Required:

Prepare a schedule showing total marketing and administrative expenses for April, as well as the cash disbursements for marketing and administrative expenses.

119) The marketing and administrative expense budget of Kimble Corporation is based on the number of units sold, which are budgeted to be 2,500 units in January. The variable marketing and administrative expense is $4.40 per unit. The budgeted fixed marketing and administrative expense is $35,750 per month, which includes depreciation of $4,000. The remainder of the fixed marketing and administrative expense represents current cash flows.

Required:

Prepare a schedule showing total marketing and administrative expenses for January, as well as the cash disbursements for marketing and administrative expenses.

120) Rocket Plating Company plans to sell 120,000 units of a certain product line at a price of $6 per unit. There are 10,000 units of the product in inventory at January 1 and the inventory is to be increased 20% during the year.

Two types of materials are used to make the product. Four units of Material A, costing 30 cents each, are required for each unit of product, and two units of Material B, costing 40 cents each, are required for each unit of product. On January 1, there are 10,000 units of Material A in inventory and 5,000 units of Material B. Plans for the year indicate that 12,000 units of Material A and 6,000 units of Material B are to be in the inventory on December 31.

Each unit of product can be produced in 15 minutes of direct labor time. Direct labor is paid at the rate of $8.00 an hour. The variable manufacturing overhead rate is $0.50 per direct labor hour and the fixed manufacturing overhead for the year is estimated at $140,000.

Required:

a. Prepare a production budget for the year.

b. Prepare a direct materials budget for the year.

c. Prepare a direct labor budget for the year.

d. Prepare a budget for manufacturing overhead for the year.

121) A sales budget is given below for one of the products manufactured by Dance, Ltd.

The inventory of finished goods at the end of each month must be equal to 5,000 units plus 10% of the next month's sales. On June 30, the finished goods inventory totaled 6,800 units.

Each unit of product requires three ounces of a special liquid extract known as SV-6. Sometimes the extract is in short supply; for this reason, the company has a policy of maintaining an inventory at the end of each month equal to one half of the next month's production needs. This requirement was met on July 1 of the current year.

Required:

Prepare a budget showing the quantity of SV-6 to be purchased for September.

122) The production manager of Dame Enterprises plans to have an inventory on hand at the end of each month that will equal 150% of the next month's sales. This requirement was met at the end of February. A sales budget for the four months ending June 30th is as follows:

Required:

Prepare a production budget for April and May.

123) Atlanta Import Enterprises, a wholesaler of imported goods, expects the following unit sales over the next five months:

Atlanta Import's goal is to maintain an inventory equal to 10% of next month's sales requirements. March 31st inventory is projected to be 18,000 units.

Required:

Prepare a purchases budget (in units) for Atlanta Import for as many months as is possible based on data provided. Assume a 30-day month

124) Shipping Company plans to sell 90,000 units of a certain product line at a price of $16 per unit. There are 7,500 units of the product in inventory at January 1 and the inventory is to be increased 15% during the year.

Two types of materials are used to make the product. Three units of Material A, costing 40 cents each, are required for each unit of product, and two units of Material B, costing 36 cents each, are required for each unit of product. On January 1, there are 10,000 units of Material A in inventory and 5,000 units of Material B. Plans for the year indicate both Material A and B inventories will increase 10%.

Each unit of product can be produced in 20 minutes of direct labor time. Direct labor is paid at the rate of $12.00 an hour. The variable manufacturing overhead rate is $2.60 per direct labor hour and the fixed manufacturing overhead for the year is estimated at $175,000.

Required:

a. Prepare a production budget for the year.

b. Prepare a direct materials budget for the year.

c. Prepare a direct labor budget for the year.

d. Prepare a budget for manufacturing overhead for the year.

125) Folkes, Inc has prepared a sales budget for the second quarter as shown below:

The company is in the process of preparing a cash budget for the second quarter. To this end, the following information has been assembled:

The company gives a 1% cash discount to customers paying in the month of the sale. Records show past sales to be: January $300,000, February $340,000, and March $360,000.

Required:

Prepare a schedule of cash receipts  for the third quarter.

126) Parlour Company, a retailer, has the following sales budget for the coming year.

The sales price per unit is $10; the cost of sales is 70% of sales. Parlour keeps inventory equal to double the coming month's budgeted sales requirements. It pays for purchases 65% in the month of purchase and 35% in the month after purchase. Inventory at the beginning of January is $204,400. Accounts Payable on January 1 is $43,000.

Required:

a. Prepare a schedule of purchases, in units and in dollars, for the first three months of the year.

b. Prepare a schedule of cash disbursements on account for the first three months of the year.

127) Xenos Company has the following sales projections for the coming months:

Xenos collects 20% of its sales in the month of sale, 45% in the month following the sale, and 35% in the second month following the sale.

Required:

a. Prepare a schedule of cash receipts for the three months April through June.

b. What would be the accounts receivable balance on June 30?

128) Italian Company, a retailer of Italian handbags, has the following sales budget for the coming year.

The sales price per unit is $15; the cost of sales is 60% of sales. Italian keeps inventory equal to the coming month's budgeted sales requirements. It pays for purchases 55% in the month of purchase and 45% in the month after purchase. Inventory at the beginning of January is $172,800. Accounts Payable on January 1 is $83,000.

Required:

a. Prepare a schedule of purchases, in units and in dollars, for the first three months of the year.

b. Prepare a schedule of cash disbursements on account for the first three months of the year.

c. Determine the accounts payable balance as of March 31.

129) Roman Company, a merchandising firm, has the following sales budget for the coming year.

The sales price per unit is $20; the cost of sales is 60% of sales. Roman keeps inventory equal to 50% of the coming month's budgeted sales requirements. It pays for purchases 35% in the month of purchase and 65% in the month after purchase. Inventory at the beginning of July is $78,000. Accounts Payable on July 1 is $100,750.

Required:

a. Prepare a schedule of purchases, in units and in dollars, for the first three months of the year.

b. Prepare a schedule of cash disbursements on account for the first three months of the year.

130) Software Corporation is preparing its cash budget for November. The budgeted beginning cash balance is $31,000. Budgeted cash receipts total $135,000 and budgeted cash disbursements total $141,000. The desired ending cash balance is $50,000. The company can borrow up to $100,000 at any time from a local bank, with interest not due until the following month.

Required:

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

131) Things Inc. is preparing its cash budget for April. The budgeted beginning cash balance is $19,000. Budgeted cash receipts total $105,000 and budgeted cash disbursements total $98,000. The desired ending cash balance is $50,000. The company can borrow up to $120,000 at any time from a local bank, with interest not due until the following month.

Required:

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

132) Wings Inc. is preparing its cash budget for November. The budgeted beginning cash balance is $10,000. Budgeted cash receipts total $100,000 and budgeted cash disbursements total $104,000. The desired ending cash balance is $30,000.

Required:

a. Calculate the excess (deficiency) of cash available over disbursements for November.

b. To attain its desired ending cash balance for November, how much should the company borrow.

133) The Boxer Company, a merchandising firm, has budgeted its activity for December according to the following information:

∙ Sales at $500,000, all for cash.

∙ Merchandise Inventory on November 30 was $250,000.

∙ The cash balance at December 1 was $20,000.

∙ Marketing and administrative expenses are budgeted at $50,000 for December and are paid for in cash.

∙ Budgeted depreciation for December is $30,000.

∙ The planned merchandise inventory on December 31 is $260,000.

∙ The cost of goods sold represents 75% of the sales price.

∙ All purchases are paid for in cash in the month of purchase.

Required:

a. What are the budgeted cash receipts for December?

b. What are the budgeted cash disbursements for December?

134) James, Inc. makes a product that has peak sales in September of each year. The company has prepared a sales budget for the third quarter as shown below:

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

The company gives a 3% cash discount to customers paying in the month of their sale. The company charges 2% interest to customers who pay in the second month following their sales. The accounts receivable balance to start the quarter is $150,000: $35,000 from May's sales and $115,000 from June's sales.

Required:

Prepare a schedule of cash receipts for the third quarter. 

135) Davis Company has forecast its sales as follows:

Davis has experienced collections of 40% during the month of sale, 50% the month after the sale, and 10% the second month after the sale.

Required:

a. Prepare a schedule of cash receipts for the 3-month period October - December.

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

136) Parker Company has forecast its sales as follows:

Parker has experienced collections of 55% during the month of sale, 38% the month after the sale, and 7% the second month after the sale.

Required:

a. Prepare a schedule of cash receipts for the 4-month period January - April.

b. What will the Accounts Receivable balance be on April 30?

137) Thomas Company's past experience has demonstrated that 55% of the net sales billed in a month are collected during the month, 35% are collected in the following month and 9% are collected in the second following month. Customers are allowed a 3% discount if payment is made within 5 days after the billing date. 65% of the customers that pay in the month of the sale, pay within 5 days and take the discount. A sales budget for the four months ending June 30 is as follows:

Required:

Prepare a schedule of cash receipts for May and June.

138) Falcon Enterprises expects the following unit sales over the next five months:

Falcon's goal is to maintain an inventory equal to 20% of next month's sales requirements. March 31 inventory is projected to be 70,000 units.

Required:

Prepare a purchases budget (in units) for Falcon for as many months as is possible based on data provided. Assume a 30-day month.

139) Templeton Enterprises expects the following unit sales over the next few months:

Templeton's goal is to maintain an inventory equal to a 6-day supply. May 31 inventory is projected to be 18,000 units.

Required:

Prepare a purchases budget (in units) for Templeton for as many months as is possible based on data provided. Assume a 30-day month

140) What are the differences between strategic planning and the tactical planning process?

141) Describe what is meant by participative budgeting and give an example of a benefit and a drawback.

142) Describe the difference between the following sales forecasting techniques: Delphi technique, trend analysis, and econometric models.

143) Why is it more difficult to prepare a marketing and administrative budget than it is to prepare a production budget?

144) What is the "curse of growth" with respect to budgeting and why is this a critical problem affecting new firms?

145) Why does a service organization not need to prepare a production budget or a cost of goods sold budget?

146) Why does budgeting create serious ethical issues for many people and give an example?

147) What does the phrase, "use it or lose it," mean in the context of budgeting?

148) A friend of yours wants to plan a 5K fun-run for a local charity. He explains that his strategic objective is to maximize contributions and also develop numerous scenario budgets for the event due to several venue alternatives and weather uncertainties. He knows that you have taken a managerial accounting course and asks for your advice. Based on this information, what would you suggest to your friend?

149) Goodnight and Son is a small business that, after struggling for a while, has taken off.  Goodnight, Jr. has been attending various seminars to improve his business knowledge and has brought back several new ideas to see if they can be implemented in the company. One idea that he felt was very urgent to implement was for he and his father, and others in managerial positions, to sit down and develop a strategic plan and a budget process for the company. This had not been done when the company started so he would have to do some persuading to get the others accepting and involved. One other thing he had learned at one of his seminars was that something like this had to be accepted at the top before others would accept it.

Required:

What kinds of issues should Goodnight, Jr. bring up to get his idea accepted?

150) Allentown Company has been busy over the first few years of its existence in penetrating its market and gaining a respectable market share. To facilitate this, Mr. Marks, the CEO, and his controller, Mr. Nance, have been developing the annual master budgets. To date, this approach has worked well.

Allentown has been acquired by a company in a related business but will continue to operate as an independent subsidiary. The CFO of the acquiring company, Mr. Radisson, has suggested to Mr. Marks that, since it was expected that his company would continue to grow, it adopt a departmental budgeting system; a suggestion Mr. Marks agreed to readily. Mr. Radisson explained to Marks' departmental managers the concepts of a departmental participative budgeting system and their involvement. The managers were encouraged to take the information and come back with suggestions which could then be put into a formal budget process.

Required:

a. What benefits will accrue to Mr. Marks under this new budgeting system?

b. What behavioral issues might arise for departmental managers and for production workers?

c. What is the most probable long-term reaction of Marks' people to the participative budget system?

151) Autumn Corporation makes and sells a single product called a Security Surge. The company is in the process of preparing its Marketing and Administrative Expense Budget for the last quarter of the year. The following budget data are available:

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

Required:

a. If the company budgets to sell 22,000 Security Surges in November, what would the total budgeted marketing and administrative expenses be for November?

b. If the company budgets to sell 19,000 Security Surges in December, what would the budgeted total cash disbursements for marketing and administrative expenses be for December?

c. If the total budgeted marketing and administrative expense for October is $409,000, then how many Security Surges does the company plan to sell in October?

152) Lien Company is a merchandising company that sells a single product. The company's inventories, production, and sales in units for the next three months have been forecasted as follows:

Units are sold for $12 each. One fourth of all sales are paid for in the month of sale and the balance is paid for in the following month. Accounts receivable at September 30 totaled $450,000.

Merchandise is purchased for $7 per unit. Half of the purchases are paid for in the month of the purchase and the remainder is paid for in the month following purchase. Marketing and administrative expenses are expected to total $120,000 each month. One half of these expenses will be paid in the month in which they are incurred and the balance will be paid in the following month. Accounts payable at September 30 totaled $290,000.

Cash at September 30 totaled $80,000. A payment of $300,000 for purchase of equipment is scheduled for November, and a dividend of $200,000 is to be paid in December. Ignore depreciation for purposes of preparing the schedules

Required:

a. Prepare a schedule of expected cash collections for each month October-December.

b. Prepare a schedule showing expected cash disbursements for merchandise purchases and marketing and administrative expenses for each month October-December.

c. Prepare a cash budget for each month October--December. There is no minimum required ending cash balance.

153) Marino Company has projected sales and production in units for the second quarter of the year as follows:

Required:

a. Cash production costs are budgeted at $6 per unit produced. Of these production costs, 40% are paid in the month in which they are incurred and the balance in the following month. Marketing and administrative expenses (all paid in cash) amount to $60,000 per month. The accounts payable balance on March 31 totals $96,000, all of which will be paid in April. Prepare a schedule for each month showing budgeted cash disbursements for Marino Company.

b. Assume that all units will be sold on account for $15 each. Cash collections from sales are budgeted at 60% in the month of sale, 30% in the month following the month of sale and the remaining 10% in the second month following the month of sale. Accounts receivable on March 31 totaled $255,000 ($45,000 from February's sales and the remainder from March.) Prepare a schedule for each month showing budgeted cash receipts for Marino Company.

154) Albert Corporation is a wholesaler of industrial goods. Data regarding the store's operations follow:

∙ Sales are budgeted at $350,000 for November, $360,000 for December, and $340,000 for January.

∙ Collections are expected to be 60% in the month of sale, 39% in the month following the sale, and 1% uncollectible.

∙ The cost of goods sold is 75% of sales.

∙ The company purchases 40% of its merchandise in the month prior to the month of sale and 60% in the month of sale. Payment for merchandise is made in the month following the purchase.

∙ The November beginning balance in the accounts receivable account is $70,000.

∙ The November beginning balance in the accounts payable account is $257,000.

Required:

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

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

155) Rockwell Company is a fast-growing company with monthly sales for the current year estimated at a relatively steady upward trend. Past history has shown that all sales are collected within two months with negligible uncollectibles. The product for a given month is purchased partially in the month before sale and the rest during the month of sale and is paid for over a two-month period. Property and income taxes are paid quarterly while other expenses are paid as incurred. The company has a desired ending cash balance for each month of $150,000, and when necessary, borrows to meet shortfalls and invests overages.

The success of the company has been sudden and Ms. Harrison, the controller, is concerned about meeting the goals of the company without getting into serious short-term financial difficulties. As a result, she has been very conscientious about preparing the cash budget and keeping it up-to-date as conditions warrant.

Required:

Why is cash budgeting important for a rapidly expanding firm such as Rockwell Company?

156) High Plains Lumber sells lumber and general building supplies to building contractors in a medium-sized town in North Dakota. Data regarding the store's operations follow:

∙ Sales are budgeted at $340,000 for November, $350,000 for December, and $370,000 for January.

∙ Collections are expected to be 55% in the month of sale, 44% in the month following the sale, and 1% uncollectible.

∙ The cost of goods sold is 75% of sales.

∙ The company purchases 60% of its merchandise in the month prior to the month of sale and 40% in the month of sale. Payment for merchandise is made in the month following the purchase.

∙ Other monthly expenses to be paid in cash are $21,100.

∙ Monthly depreciation is $19,000.

∙ Ignore taxes.

Required:

a. Determine the net income for December.

b. Determine the cash balance at the end of December.

c. Calculate the accounts receivable balance, net of uncollectible accounts, at the end of December.

d. Determine the accounts payable at the end of December.

e. Determine the balance in Retained earnings at the end of December.

157) Washington Gas Corporation supplies acetylene and other compressed gases to industry. Data regarding the store's operations follow:

∙ Sales are budgeted at $320,000 for November, $340,000 for December, and $330,000 for January.

∙ Collections are expected to be 75% in the month of sale, 20% in the month following the sale, and 5% uncollectible.

∙ The cost of goods sold is 65% of sales.

∙ The company purchases 80% of its merchandise in the month prior to the month of sale and 20% in the month of sale. Payment for merchandise is made in the month following the purchase.

∙ Other monthly expenses to be paid in cash are $21,000.

∙ Monthly depreciation is $16,000.

∙ Ignore taxes.

Required:

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

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

c. Prepare Cash Budgets for November and December.

d. Prepare Budgeted Income Statements for November and December.

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