TUTORS COPY

ACCT2112 Management Accounting

Tutorial Questions with Suggested Answers
Chapter 6: Master Budget and Responsibility Accounting

Section A: Multiple Choice Questions

Instruction: Select the best answers for the following questions.
1.

The time coverage of a budget should be:

a.
b.
c.
d.
e.

2.

one year
guided by the purpose of the budget
cover design through manufacture and sale of the product
shorter rather than longer
none of the above.

In which order are the following developed? First to last:

A = Production budget B = Direct materials costs budget
C = Budgeted income statement D = Revenues budget
a.
b.
c.
d.

3.

ABDC
DABC
DCAB
CABD

Budgeted production depends on:

a.
b.
c.
d.
e.

the direct materials usage budget and direct material purchases budget
the direct manufacturing labor budget
budgeted sales and expected changes in inventory levels
the manufacturing overhead costs budget
none of the above.

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4.

Building in budgetary slack includes:

a.
b.
c.
d.
e.

5.

A regional manager of a restaurant chain in charge of finding additional locations for expansion
is MOST likely responsible for a(n):
a.
b.
c.
d.
e.

6.

revenue center
investment center
cost center
profit center
none of the above.

A manager of a profit center is responsible for all of the following EXCEPT:

a.
b.
c.
d.

7.

overestimating budgeted revenues

underestimating budgeted costs
making budgeted targets more easily achievable
All of the above are correct.
None of the above

sales revenue
the cost of merchandise purchased for resale
expanding into new geographic areas
selling and marketing costs

A PRIMARY consideration in assigning a cost to a responsibility center is:

a.
b.
c.
d.
e.

whether the cost is fixed or variable

whether the cost is direct or indirect
who can best explain the change in that cost
where in the organizational structure the cost was incurred
none of the above.

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8.
ABC Company expects to manufacture and sell 30,000 baskets in 20X4 for $6 each. There are
3,000 baskets in beginning finished goods inventory with target ending inventory of 4,000 baskets. The
company keeps no work-in-process inventory. What amount of sales revenue will be reported on the
20X4 budgeted income statement?
a.
b.
c.
d.
e.

$174,000
$180,000
$186,000
$204,000
none of the above.

30,000 x $6 = $180,000

9.

DeArmond Corporation has budgeted sales of 18,000 units, target ending finished goods
inventory of 3,000 units, and beginning finished goods inventory of 900 units. How many units
should be produced next year?
a.
b.
c.
d.
e.

21,900 units
20,100 units
15,900 units
18,000 units
none of the above.

18,000 + 3,000 900 = 20,100 units

THE FOLLOWING INFORMATION APPLIES TO QUESTIONS 10 THROUGH 13:

Daniel, Inc., expects to sell 6,000 ceramic vases for $20 each. Direct materials costs are $2, direct
manufacturing labor is $10, and manufacturing overhead is $3 per vase. The following inventory levels
apply to 20X5:
Direct materials 1,000 units
Work-in-process inventory
Finished goods inventory
10.

Beginning inventory
1,000 units
0 units
400 units

Ending inventory
1,000 units
0 units
500 units

On the 20X5 budgeted income statement, what amount will be reported for sales?
a.
$122,000
b.
$118,000
c.
$140,000
d.
$120,000
e.
none of the above.
6,000 x $20 = $120,000

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11.

How many ceramic vases need to be produced in 20X5?

a.
b.
c.
d.
e.

5,900 vases
6,000 vases
7,100 vases
8,000 vases
none of the above.

6,000 + 500 400 = 6,100 vases

12.

On the 20X5 budgeted income statement, what amount will be reported for cost of goods sold?
a.
b.
c.
d.
e.

$91,500
$105,000
$90,000
$88,500
none of the above.

6,000 x ($2 + $10 + $3) = $90,000

13.

What are the 20X5 budgeted costs for direct materials, direct manufacturing labor, and
manufacturing overhead, respectively?
a.
b.
c.
d.
e.

$12,200; $61,000; $18,300

$12,000; $60,000; $18,000
$2,000; $10,000; $3,000
$2,000; $0; $18,000
none of the above.

6,100 x $2 = $12,200; 6,100 x $10 = $61,000; 6,100 x $3 = $18,300

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Section B: Questions/Problems
QUESTION 1
The following information pertains to Tiffany Company:
Month
January
February
March

Sales
$30,000
$40,000
$50,000

Purchases
$16,000
$20,000
$28,000

Cash is collected from customers in the following manner:

Month of sale
30%
Month following the sale
70%
40% of purchases are paid for in cash in the month of purchase, and the balance is paid the
following month.
Labor costs are 20% of sales. Other operating costs are $15,000 per month (including
$4,000 of depreciation). Both of these are paid in the month incurred.
The cash balance on March 1 is $4,000. A minimum cash balance of $3,000 is required at
the end of the month. Money can be borrowed in multiples of $1,000.

REQUIRED:
1.

Compute how much cash will be collected from customers in March.

($40,000 x 70%) + ($50,000 x 30%) = $43,000

2.

Compute how much cash will be paid to suppliers in March.

($20,000 x 60%) + ($28,000 x 40%) = $23,200

3.

Compute how much cash will be disbursed in total in March.

($20,000 x 60%) + ($28,000 x 40%) + ($50,000 x 20%) + ($15,000 $4,000) = $44,200

4.

Compute the ending cash balance for March.

$4,000 + $43,000 $44,200 + $1,000 = $3,800

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