Chapter 9 Quiz Info

Managerial Accounting, 3e (Braun/Tietz)
Chapter 9 The Master Budget

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

Required:
Prepare a cash collections budget for each month in the quarter (January, February, and March) and for
the quarter in total.
Answer:
Dif: 3
LO: 9-3
EOC: E9-27
89
171) PotatoState Manufacturing is preparing its cash payments budget for the coming month. The
following information pertains to the cash payments:
a. PotatoState Manufacturing pays for 70% of its direct materials purchases in the month of
purchase and the remainder the following month. Last month's direct material purchases were $40,000,
while FirstState Manufacturing anticipates $45,000 of direct material purchases this coming month.
b. Direct labor for the upcoming month is budgeted to be $25,000 and will be paid at the end of the
upcoming month.
c. Overhead is estimated to be 150% of direct labor cost each month and is paid in the month in
which it is incurred. This monthly estimate includes $8,000 of depreciation on the plant and equipment.
d. Monthly operating expenses for next month are expected to be $27,500, which includes $1,500 of
depreciation on ofce equipment and $2,000 of bad debt expense. These monthly operating expenses are
paid during the month in which they are incurred.
e. PotatoState Manufacturing will be making an estimated tax payment of $6,000 next month.
Required:
Prepare a cash payments budget for the month.
Answer:
Dif: 2
LO: 9-3
EOC: E9-28
90
172) The Alec Corporation sells infatable pools. On June 30, there were 105 pools in ending inventory,
and accounts receivable had a balance of $12,000. Sales of infatable pools (in units) have been budgeted at
the following levels for the upcoming months:
Accounts receivable, June 30 $12,000
Number of pools budgeted to be sold in July 350
Number of pools budgeted to be sold in August 420
Number of pools budgeted to be sold in September 370
Number of pools budgeted to be sold in October 300

The company has a policy that the ending inventory of infatable pools should be equal to 30% of the
number of pools to be sold in the following month. The Outdoor Leisure Store sells the infatable pools
for $100 each. The company's collection history shows that 30% of the sales in a month are paid for by
customers in the month of sale, while the remainder is collected in the following month.
Required:
a. Prepare a merchandise purchases budget showing how many pools should be purchased in each of the
months including July, August, and September.
b. Prepare a cash collections budget for each of the months including July, August, and September.
Answer:
Part a.
Merchandise Purchases Budget July August September October
Budgeted unit sales 350 420 370 300
Desired ending inventory (30% of next
month's sales) 126 111 90
Total needs 476 531 460
Less beginning inventory 105 126 111
Required purchases 371 405 349
PART b.
Cash Collections Budget July August September
Budgeted unit sales 350 420 370
Selling price per unit $100.00 $100.00 $100.00
Budgeted sales $35,000 $42,000 $37,000
Accounts receivable, June 30 $12,000
July sales $10,500 $24,500
August sales $12,600 $29,400
September sales $11,100
Total cash collections $22,500 $37,100 $40,500
Dif: 3
LO: 9-3
EOC: E9-28
91
173) A merchandising company will have a production budget.
Answer: FALSE
Dif: 1
LO: 9-5
EOC: E3-34
174) The master budget of a service company has fewer individual budget components than does the
master budget of a manufacturing company.
Answer: TRUE
Dif: 1
LO: 9-5
EOC: E3-34
175) The operating budgets of retailers and manufacturers are virtually identical.
Answer: FALSE
Dif: 1
LO: 9-5
EOC: E3-34
176) Merchandisers use a "cost of goods sold, inventory, and purchases" budget to calculate the amount of
merchandise to purchase.
Answer: TRUE
Dif: 1
LO: 9-5
EOC: E3-34
177) The fnancial budgets prepared for manufacturers are diferent than those for merchandising and
service companies.
Answer: FALSE
Dif: 1
LO: 9-5
EOC: E3-34
92
178) Manufacturing, merchandising, and service companies prepare operating expense budgets.
Answer: TRUE
Dif: 1
LO: 9-5
EOC: E3-34
179) Merchandising companies do not prepare a direct materials budget.
Answer: TRUE
Dif: 1
LO: 9-5
EOC: E3-34
180) Service companies do not prepare a cash budget.
Answer: FALSE
Dif: 1
LO: 9-5
EOC: E3-34
181) Which of the following types of companies use a direct materials budget?
A) Manufacturing
B) Merchandising
C) Service
D) All of the above
Answer: A
Dif: 1
LO: 9-5
EOC: E3-34
93
182) Which of the following types of companies would combine cost of goods sold, inventory, and
purchases into one budget?
A) Manufacturing
B) Merchandising
C) Service
D) All of the above
Answer: B
Dif: 1
LO: 9-5
EOC: E3-34
183) Which of the following types of companies use a sales budget?
A) Manufacturing
B) Merchandising
C) Service
D) All of the above
Answer: D
Dif: 1
LO: 9-5
EOC: E3-34
184) Which of the following types of companies use an operating expense budget?
A) Manufacturing
B) Merchandising
C) Service
D) All of the above
Answer: D
Dif: 1
LO: 9-5
EOC: E3-34
94
185) Which of the following types of companies use a "cost of goods sold, inventory, and purchases"
budget?
A) Merchandising
B) Manufacturing
C) Service
D) All of the above
Answer: A
Dif: 1
LO: 9-5
EOC: E3-34
186) Which of the following types of companies use a capital expenditures budget?
A) Manufacturing
B) Merchandising
C) Service
D) All of the above
Answer: D
Dif: 1
LO: 9-5
EOC: E3-34
187) The format of the "cost of goods sold, inventory, and purchases" budget is as follows:
A) desired ending inventory + beginning inventory - cost of goods sold.
B) cost of goods sold + desired ending inventory - beginning inventory.
C) cost of goods sold - desired ending inventory + beginning inventory.
D) desired ending inventory - beginning inventory - cost of goods sold.
Answer: B
Dif: 1
LO: 9-5
EOC: E3-34
95
188) Merchandising companies prepare which of the following budgets?
A) Sales
B) Cash
C) Operating expense
D) All of the above
Answer: D
Dif: 1
LO: 9-5
EOC: E3-34
189) All of the following budgets are prepared by service companies except
A) cost of goods sold, inventory and purchases.
B) cash.
C) operating expense.
D) sales.
Answer: A
Dif: 1
LO: 9-5
EOC: E3-34
190) All of the following budgets are prepared by merchandising companies except
A) sales.
B) operating expense.
C) direct materials.
D) cost of goods sold, inventory and purchases.
Answer: C
Dif: 1
LO: 9-5
EOC: E3-34
96
191) All of the following budgets are prepared by merchandising companies except
A) manufacturing overhead.
B) capital expenditures.
C) budgeted income statement.
D) cash.
Answer: A
Dif: 1
LO: 9-5
EOC: E3-34
192) Merchandising companies prepare sales, cash, and operating expense budgets.
Answer: TRUE
Dif: 1
LO: 9-5
EOC: E3-34
193) Service companies do not prepare a cost of goods sold, inventory, and purchases budget.
Answer: TRUE
Dif: 1
LO: 9-5
EOC: E3-34
194) Merchandising companies prepare a direct materials budget.
Answer: FALSE
Dif: 1
LO: 9-5
EOC: E3-34
195) Merchandising companies prepare a manufacturing overhead budget.
Answer: FALSE
Dif: 1
LO: 9-5
EOC: E3-34
97
98

Chapter 9 Quiz Info

Uploaded by

Document Information

Copyright

Available Formats

Share this document

Share or Embed Document

Sharing Options

Did you find this document useful?

Is this content inappropriate?

Copyright:

Available Formats

Chapter 9 Quiz Info

Uploaded by

Copyright:

Available Formats

Managerial Accounting, 3e (Braun/Tietz)

Chapter 9 The Master Budget

You might also like