Reviewer For Budgeting

Chapter 009, Profit Planning
9-1

True / False Questions
1. The cash budget is developed from the budgeted income statement.
True False
2. The usual starting point in budgeting is to make a forecast of cash receipts and cash
disbursements.
True False
3. Budgets are used for planning rather than for control of operations.
True False
4. Self-imposed budgets are those that are prepared by top management and then assigned to
other managers within the organization.
True False
5. One of the distinct advantages of a budget is that it can help to uncover potential
bottlenecks before they occur.
True False
6. A self-imposed budget can be a very effective control device in an organization.

True False
7. A production budget is to a manufacturing firm as a merchandise purchases budget is to a

merchandising firm.
True False
9-2

8. In the merchandise purchases budget, the required purchases (in units) for a period can be
determined by subtracting the beginning merchandise inventory (in units) from the budgeted
sales (in units).
True False
9. When preparing a materials purchase budget, desired ending inventory is deducted from
total needs of the period to arrive at materials to be purchased.
True False
10. In companies that have "no lay-off" policies, the total direct labor cost for a budget period
is computed by multiplying the total direct labor hours needed to make the budgeted output of
completed units by the direct labor wage rate.
True False
11. If the expected level of activity is appreciably above or below the company's present
capacity, it may be desirable to adjust fixed costs in the budget.
True False
12. In the manufacturing overhead budget, the non-cash charges (such as depreciation) are
added to the total budgeted manufacturing overhead to determine the expected cash
disbursements for manufacturing overhead.
True False
13. In the selling and administrative budget, the non-cash charges (such as depreciation) are
deducted from the total budgeted selling and administrative expenses to determine the
expected cash disbursements for selling and administrative expenses.
True False
9-3

14. The beginning cash balance is not included on the cash budget because the cash budget
deals exclusively with cash flows rather than with balance sheet amounts.
True False
Multiple Choice Questions

15. The materials purchase budget:
A. is the beginning point in the budget process.
B. must provide for desired ending inventory as well as for production.
C. is accompanied by a schedule of cash collections.
D. is completed after the cash budget.
16. The budget or schedule that provides necessary input data for the direct labor budget is
the:
A. raw materials purchases budget.
B. production budget.
C. schedule of cash collections.
D. cash budget.
17. Which of the following budgets are prepared before the sales budget?
A. Choice A
B. Choice B
C. Choice C
D. Choice D
9-4

18. The master budget process usually begins with the:
A. production budget.
B. operating budget.
C. sales budget.
D. cash budget.
19. The cash budget must be prepared before you can complete the:
A. production budget.
B. budgeted balance sheet.
C. raw materials purchases budget.
D. schedule of cash disbursements.
20. Which of the following is not a benefit of budgeting?

A. It uncovers potential bottlenecks before they occur.
B. It coordinates the activities of the entire organization by integrating the plans and
objectives of the various parts.
C. It ensures that accounting records comply with generally accepted accounting principles.
D. It provides benchmarks for evaluating subsequent performance.
21. The concept of responsibility accounting means that:

A. Budgetary data should be reviewed and approved by the budget committee.
B. Budgetary data should be reviewed and approved by all levels of management.
C. An employee's performance should be evaluated only on those items under his or her
control.
D. An employee's performance should be evaluated only by his or her immediate supervisor.
9-5

22. Fairmont Inc. uses an accounting system that charges costs to the manager who has been
delegated the authority to make decisions concerning the costs. For example, if the sales
manager accepts a rush order that will result in higher than normal manufacturing costs, these
additional costs are charged to the sales manager because the authority to accept or decline the
rush order was given to the sales manager. This type of accounting system is known as:
A. responsibility accounting.
B. contribution accounting.
C. absorption accounting.
D. operational budgeting.
23. A self-imposed budget or ________________ budget is a budget that is prepared with the
full cooperation of managers at all levels.
A. perpetual
B. master
C. participative
D. responsibility
24. There are various budgets within the master budget. One of these budgets is the
production budget. Which of the following BEST describes the production budget?
A. It details the required direct labor hours.
B. It details the required raw materials purchases.
C. It is calculated based on the sales budget and the desired ending inventory.
D. It summarizes the costs of producing units for the budget period.
25. The excess or deficiency of cash available over disbursements on the cash budget is
calculated as follows:
A. The beginning balance less the expected cash receipts less the expected cash
disbursements.
B. The cash available less the expected cash receipts plus the expected cash disbursements.
C. The beginning balance plus the expected cash receipts less the expected cash
disbursements.
D. None of these.
9-6

26. Parlee Company's sales are 30% in cash and 70% on credit. Sixty % 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 are uncollectible. The following are budgeted sales data:
Total cash receipts in April would be budgeted to be:

A. $38,900
B. $47,900
C. $27,230
D. $36,230
27. The PDQ Company makes collections on credit sales according to the following schedule:
25% in month of sale
70% in month following sale
4% in second month following sale
1% uncollectible
The following sales have been budgeted:
Cash collections in June would be:

A. $113,400
B. $110,000
C. $111,000
D. $115,500
9-7

28. Tolla Company is estimating the following sales for the first six months of next year:
Sales at Tolla are normally collected as 70% in the month of sale, 25% in the month following
the sale, and the remaining 5% being uncollectible. Also, those customers paying in the month
of sale are given a 2% discount. Based on this information, how much cash should Tolla
expect to collect during the month of April?
A. $281,260
B. $361,260
C. $366,010
D. $393,760
9-8

29. Orion Corporation is preparing a cash budget for the six months beginning January 1.
Shown below are the company's expected collection pattern and the budgeted sales for the
period.
Expected collection pattern:
65% collected in the month of sale
20% collected in the month after sale
10% collected in the second month after sale
4% collected in the third month after sale
1% uncollectible
Budgeted sales:
The estimated total cash collections during April from sales and accounts receivables would
be:
A. $155,900
B. $167,000
C. $171,666
D. $173,400
30. Pardee Company plans to sell 12,000 units during the month of August. If the company
has 2,500 units on hand at the start of the month, and plans to have 2,000 units on hand at the
end of the month, how many units must be produced during the month?
A. 11,500
B. 12,500
C. 12,000
D. 14,000
9-9

31. Modesto Company produces and sells Product AlphaB. To guard against stockouts, the
company requires that 20% of the next month's sales be on hand at the end of each month.
Budgeted sales of Product AlphaB over the next four months are:
Budgeted production for August would be:

A. 62,000 units
B. 70,000 units
C. 58,000 units
D. 50,000 units
32. Friden Company has budgeted sales and production over the next quarter as follows:
The company has 20,000 units of product on hand at April 1. A minimum of 20% of the next
month's sales needs in units must be on hand at the end of each month. July sales are expected
to be 140,000 units. Budgeted sales for June would be (in units):
A. 188,000
B. 160,000
C. 128,000
D. 184,000
9-10

33. Fab Manufacturing Corporation manufactures and sells stainless steel coffee mugs.
Expected mug sales at Fab (in units) for the next three months are as follows:
Fab likes to maintain a finished goods inventory equal to 30% of the next month's estimated
sales. How many mugs should Fab plan on producing during the month of November?
A. 23,200 mugs
B. 26,800 mugs
C. 25,900 mugs
D. 34,300 mugs
34. Superior Industries' sales budget shows quarterly sales for the next year as follows:
Company policy is to have a finished goods inventory at the end of each quarter equal to 20%
of the next quarter's sales. Budgeted production for the second quarter should be:
A. 7,200 units
B. 8,000 units
C. 8,800 units
D. 8,400 units
9-11

35. The Waverly Company has budgeted sales for next 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 should be:
A. 17,500
B. 18,500
C. 22,000
D. 13,500
36. The Tobler Company has budgeted production for next 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 pounds. The raw materials inventory at the end of each quarter
should equal 10% of the next quarter's production needs. Budgeted purchases of raw materials
in the third quarter would be:
A. 63,200 pounds
B. 62,400 pounds
C. 56,800 pounds
D. 50,400 pounds
9-12

37. Marple Company's budgeted production in units and budgeted raw materials purchases
over the next three months are given below:
Two pounds of raw materials are required to produce one unit of product. The company wants
raw materials on hand at the end of each month equal to 30% of the following month's
production needs. The company is expected to have 36,000 pounds of raw materials on hand
on January 1. Budgeted production for February should be:
A. 105,000 units
B. 82,500 units
C. 150,000 units
D. 75,000 units
38. Yumm Dairy Corporation manufactures carrot-flavored ice cream. Yumm's production
budget indicated the following units to be produced for the upcoming months:
Four (4) ounces of carrots are needed for each gallon of ice cream. Yumm also likes to have
enough carrots on hand to cover 5% of the next month's production needs for carrots. How
many ounces of carrots should Yumm plan on purchasing during the month of February?
A. 474,000 ounces
B. 486,000 ounces
C. 490,000 ounces
D. 510,000 ounces
9-13

39. Brummitt Corporation is working on its direct labor budget for the next two months. Each
unit of output requires 0.05 direct labor-hours. The direct labor rate is $7.50 per direct laborhour. The production budget calls for producing 9,100 units in May and 8,800 units in June. 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. $3,300.00
B. $3,412.50
C. $6,712.50
D. $3,356.25
40. The following are budgeted data:
Each unit requires 0.75 hours of direct labor at a cost of $6.50 per hour. What is the cost of
direct labor for May?
A. $73,125
B. $82,875
C. $63,375
D. $78,000
41. Mouw Inc. bases its manufacturing overhead budget on budgeted direct labor-hours. The
direct labor budget indicates that 5,400 direct labor-hours will be required in January. The
variable overhead rate is $4.40 per direct labor-hour. The company's budgeted fixed
manufacturing overhead is $77,220 per month, which includes depreciation of $9,720. All
other fixed manufacturing overhead costs represent current cash flows. The January cash
disbursements for manufacturing overhead on the manufacturing overhead budget should be:
A. $67,500
B. $91,260
C. $100,980
D. $23,760
9-14

42. Golebiewski Inc. bases its manufacturing overhead budget on budgeted direct labor-hours.
The direct labor budget indicates that 4,900 direct labor-hours will be required in November.
The variable overhead rate is $8.40 per direct labor-hour. The company's budgeted fixed
other fixed manufacturing overhead costs represent current cash flows. The company
recomputes its predetermined overhead rate every month. The predetermined overhead rate
for November should be:
A. $22.30
B. $16.00
C. $24.40
D. $8.40
43. The manufacturing overhead budget at Formica Corporation is based on budgeted direct
labor-hours. The direct labor budget indicates that 4,400 direct labor-hours will be required in
October. The variable overhead rate is $8.90 per direct labor-hour. The company's budgeted
fixed manufacturing overhead is $86,680 per month, which includes depreciation of $16,280.
All other fixed manufacturing overhead costs represent current cash flows. The company
recomputes its predetermined overhead rate every month. The predetermined overhead rate
for October should be:
A. $19.70
B. $24.90
C. $8.90
D. $28.60
44. The manufacturing overhead budget at Ferrucci Corporation is based on budgeted direct
December. The variable overhead rate is $4.40 per direct labor-hour. The company's budgeted
All other fixed manufacturing overhead costs represent current cash flows. The December
cash disbursements for manufacturing overhead on the manufacturing overhead budget should
be:
A. $7,040
B. $19,680
C. $26,720
D. $32,160
9-15

45. Roufs Inc. bases its selling and administrative expense budget on budgeted unit sales. The
sales budget shows 7,800 units are planned to be sold in April. The variable selling and
administrative expense is $3.20 per unit. The budgeted fixed selling and administrative
expense is $95,160 per month, which includes depreciation of $9,360 per month. The
remainder of the fixed selling and administrative expense represents current cash flows. The
cash disbursements for selling and administrative expenses on the April selling and
administrative expense budget should be:
A. $85,800
B. $24,960
C. $120,120
D. $110,760
46. The selling and administrative expense budget of Spurlock Corporation is based on
budgeted unit sales, which are 6,300 units for February. The variable selling and
expense is $118,440 per month, which includes depreciation of $19,530 per month. The
remainder of the fixed selling and administrative expense represents current cash flows. The
cash disbursements for selling and administrative expenses on the February selling and
administrative expense budget should be:
A. $98,910
B. $157,500
C. $58,590
D. $177,030
47. ABC Company has a cash balance of $9,000 on April 1. The company must maintain a
minimum cash balance of $6,000. During April expected cash receipts are $45,000. Expected
cash disbursements during the month total $52,000. During April the company will need to
borrow:
A. $2,000
B. $4,000
C. $6,000
D. $8,000
9-16

48. Thiel Inc. is working on its cash budget for October. The budgeted beginning cash balance
is $35,000. Budgeted cash receipts total $166,000 and budgeted cash disbursements total
$162,000. The desired ending cash balance is $50,000. The excess (deficiency) of cash
available over disbursements for October will be:
A. $31,000
B. $39,000
C. $4,000
D. $201,000
49. Guthridge Inc. is working on its cash budget for February. The budgeted beginning cash
balance is $26,000. Budgeted cash receipts total $104,000 and budgeted cash disbursements
total $100,000. The desired ending cash balance is $40,000. To attain its desired ending cash
balance for February, the company needs to borrow:
A. $0
B. $10,000
C. $40,000
D. $70,000
50. The Stacy Company makes and sells a single product, Product R. Budgeted sales for April
are $300,000. Gross Margin is budgeted at 30% of sales dollars. If the net income for April is
budgeted at $40,000, the budgeted selling and administrative expenses are:
A. $133,333
B. $50,000
C. $102,000
D. $78,000
9-17

Noskey Corporation is a merchandising firm. Information pertaining to the company's sales
revenue is presented in the following table.
Management estimates that 5% of credit sales are uncollectible. Of the credit sales that are
collectible, 60% are collected in the month of sale and the remainder in the month following
the sale. Purchases of inventory are equal to next month's cost of goods sold. The cost of
goods sold is 70% of the selling price. All purchases of inventory are on account; 25% are
paid in the month of purchase, and the remainder is paid in the month following the purchase.
51. Noskey Corporation's budgeted cash collections in July from June credit sales are:
A. $144,000
B. $136,800
C. $96,000
D. $91,200
52. Noskey Corporation's budgeted total cash receipts in August are:

A. $240,000
B. $294,000
C. $299,400
D. $239,400
53. Noskey Corporation's budgeted total cash payments in July for inventory purchases are:
A. $405,000
B. $283,500
C. $240,000
D. $168,000
9-18

Justin's Plant Store, a retailer, started operations on January 1. On that date, the only assets
were $16,000 in cash and $3,500 in merchandise inventory. For purposes of budget
preparation, assume that the company's cost of goods sold is 60% of sales. Expected sales for
the first four months appear below.
The company desires that the merchandise inventory on hand at the end of each month be
equal to 50% of the next month's merchandise sales (stated at cost). All purchases of
merchandise inventory must be paid in the month of purchase. Sixty percent of all sales
should be for cash; the balance will be on credit. Seventy-five percent of the credit sales
should be collected in the month following the month of sale, with the balance collected in the
following month. Variable selling and administrative expenses should be 10% of sales and
fixed expenses (all depreciation) should be $3,000 per month. Cash payments for the variable
selling and administrative expenses are made during the month the expenses are incurred.
54. In a budgeted income statement for the month of February, net income would be:
A. $9,000
B. $1,800
C. $0
D. $4,200
55. In a budgeted balance sheet, the Merchandise Inventory on February 28:

A. $4,800
B. $7,500
C. $9,600
D. $3,200
9-19

56. The Accounts Receivable balance that would appear in the March 31 budgeted balance
sheet would be:
A. $15,000
B. $16,000
C. $8,800
D. $12,400
57. In a cash budget for March, the total cash receipts would be:
A. $17,800
B. $8,200
C. $20,200
D. $16,000
58. In a cash budget for March, the total cash disbursements would be:
A. $11,200
B. $13,900
C. $22,300
D. $16,900
9-20

Dilom Farm Supply is located in a small town in the rural west. Data regarding the store's
operations follow:
Sales are budgeted at $260,000 for November, $230,000 for December, and $210,000 for
January.
Collections are expected to be 55% in the month of sale, 40% in the month following the
sale, and 5% uncollectible.
The cost of goods sold is 80% of sales.
The company purchases 50% of its merchandise in the month prior to the month of sale and
50% 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 $21,700.
Monthly depreciation is $17,000.
Ignore taxes.
59. Expected cash collections in December are:

A. $126,500
B. $230,500
C. $104,000
D. $230,000
9-21

60. The cost of December merchandise purchases would be:
A. $176,000
B. $208,000
C. $184,000
D. $84,000
61. December cash disbursements for merchandise purchases would be:

A. $184,000
B. $196,000
C. $176,000
D. $84,000
62. The excess (deficiency) of cash available over disbursements for December would be:
A. $12,800
B. $8,600
C. $17,000
D. $4,200
63. The net income (loss) for December would be:

A. $24,300
B. $12,800
C. ($4,200)
D. $7,300
64. The cash balance at the end of December would be:

A. $40,100
B. $28,000
C. $12,100
D. $40,800
9-22

65. The accounts receivable balance, net of uncollectible accounts, at the end of December
would be:
A. $89,500
B. $92,000
C. $103,500
D. $196,000
66. Accounts payable at the end of December would be:

A. $84,000
B. $92,000
C. $184,000
D. $176,000
67. Retained earnings at the end of December would be:

A. $342,000
B. $362,600
C. $337,800
D. $338,100
9-23

Braston Corporation is a small wholesaler of gourmet food products. Data regarding the
store's operations follow:
January.
purchase.
Ignore taxes.
68. Expected cash collections in December are:

A. $91,000
B. $330,000
C. $322,000
D. $231,000
9-24

69. The cost of December merchandise purchases would be:
A. $231,000
B. $119,000
C. $245,000
D. $234,500
70. December cash disbursements for merchandise purchases would be:

A. $119,000
B. $234,500
C. $231,000
D. $238,000
71. The excess (deficiency) of cash available over disbursements for December would be:
A. $20,200
B. $107,600
C. $43,700
D. $63,900
9-25

Super Drive is a computer hard drive manufacturer. The company's balance sheet for the
fiscal year ended on November 30 appears below:
Additional information regarding Super Drive's operations appear below:

Sales are budgeted at $520,000 for December and $500,000 for January.
Collections are expected to be 60% in the month of sale and 40% in the month following
sale. There are no bad debts.
80% of the disk drive components are purchased in the month prior to the month of the sale,
and 20% are purchased in the month of the sale. Purchased components comprise 40% of the
cost of goods sold.
Payment for components purchased is made in the month following the purchase.
Assume that the cost of goods sold is 80% of sales.
72. The budgeted cash collections for the upcoming December should be:
A. $208,000
B. $520,000
C. $402,000
D. $462,000
9-26

73. The balance in accounts payable on the budgeted balance sheet for December 31 should
be:
A. $161,280
B. $326,400
C. $165,120
D. $403,200
74. The budgeted gross margin for the month ending December 31 would be:
A. $416,000
B. $104,000
C. $134,000
D. $536,000
9-27

Richards Company has the following budgeted sales for the first half of next year:
The company is in the process of preparing a cash budget and must determine the expected
cash collections by month. To this end, the following information has been assembled:
Collections on credit sales:
60% in month of sale
75. Assume that the accounts receivable balance on January 1 is $70,000. Of this amount,
$60,000 represents uncollected December sales and $10,000 represents uncollected November
sales. Given these data, the total cash collected during January would be:
A. $270,000
B. $420,000
C. $345,000
D. $360,000
76. What is the budgeted accounts receivable balance on May 31?

A. $81,000
B. $68,000
C. $60,000
D. $141,000
9-28

The LaGrange Company had the following budgeted sales for the first half of the current
year:
The company is in the process of preparing a cash budget and must determine the expected
cash collections by month. To this end, the following information has been assembled:
Collections on sales: 60% in month of sale
The accounts receivable balance on January 1 of the current year was $70,000, of which
$50,000 represents uncollected December sales and $20,000 represents uncollected November
sales.
77. The total cash collected during January by LaGrange Company would be:
A. $410,000
B. $254,000
C. $344,000
D. $331,500
78. What is the budgeted accounts receivable balance on June 1 of the current year?
A. $56,000
B. $64,000
C. $76,000
D. $132,000
9-29

Pardise Company plans the following beginning and ending inventory levels (in units) for
July:
Two units of raw material are needed to produce each unit of finished product.
79. If Pardise Company plans to sell 480,000 units during July, the number of units it would
have to manufacture during July would be:
A. 440,000 units
B. 480,000 units
C. 510,000 units
D. 450,000 units
80. If 500,000 finished units were to be manufactured during July, the units of raw material
needed to be purchased would be:
A. 1,000,000 units
B. 1,020,000 units
C. 1,010,000 units
D. 990,000 units
9-30

Sarrazin Corporation is in the process of preparing its annual budget. The following
beginning and ending inventory levels are planned for the year.
Each unit of finished goods requires 8 grams of raw material.
81. If the company plans to sell 640,000 units during the year, the number of units it would
have to manufacture during the year would be:
A. 670,000 units
B. 640,000 units
C. 690,000 units
D. 590,000 units
82. How much of the raw material should the company purchase during the year?
A. 4,720,000 grams
B. 4,700,000 grams
C. 4,730,000 grams
D. 4,740,000 grams
LDG Corporation makes and sells a product called Product WZ. Each unit of Product WZ
requires 2.0 hours of direct labor at the rate of $10.50 per direct labor-hour. Management
would like you to prepare a Direct Labor Budget for June.
83. The budgeted direct labor cost per unit of Product WZ would be:
A. $12.50
B. $10.50
C. $21.00
D. $5.25
9-31

84. The company plans to sell 22,000 units of Product WZ in June. The finished goods
inventories on June 1 and June 30 are budgeted to be 100 and 400 units, respectively.
Budgeted direct labor costs for June would be:
A. $234,150
B. $468,300
C. $462,000
D. $455,700
Detmer Enterprises has budgeted sales for the next five months as follows:
Past experience has shown that the ending inventory for each month should be equal to 10%
of the next month's sales in units. The inventory on December 31 contained 400 units, which
was in excess of the desired level of inventory. The company needs to prepare a Production
Budget for the first quarter of the year.
85. The total number of units needed (i.e., unit sales plus desired ending inventory) in March
is:
A. 6,120 units
B. 6,080 units
C. 5,400 units
D. 5,940 units
86. The total number of units to be produced in January is:

A. 4,480 units
B. 3,800 units
C. 4,080 units
D. 3,500 units
9-32

87. The desired ending inventory for April is:
A. 460 units
B. 540 units
C. 720 units
D. 680 units
Roberts Enterprises has budgeted sales in units for the next five months as follows:
Past experience has shown that the ending inventory for each month must be equal to 10% of
the next month's sales in units. The inventory on May 31 contained 410 units. The company
needs to prepare a production budget for the second quarter of the year.
88. The beginning inventory in units for September is:

A. 370 units
B. 6,700 units
C. 530 units
D. 670 units
89. The total number of units to be produced in July is:

A. 7,630 units
B. 7,100 units
C. 6,920 units
D. 7,280 units
9-33

90. The desired ending inventory for August is:
A. 530 units
B. 670 units
C. 710 units
D. 370 units
Hardin, Inc, has budgeted sales in units for the next five months as follows:
Past experience has shown that the ending inventory for each month should be equal to 15%
of the next month's sales in units. The inventory on May 31 contained 1,020 units. The
company needs to prepare a production budget for the next five months.
91. The beginning inventory for September should be:

A. 900 units
B. 1,035 units
C. 1,020 units
D. 1,050 units
92. The total number of units produced in July should be:

A. 6,500 units
B. 5,600 units
C. 5,660 units
D. 5,540 units
9-34

Coles Company, Inc. makes and sells a single product, Product R. Three yards of Material K
are needed to make one unit of Product R. Budgeted production of Product R for the next five
months is as follows:
The company wants to maintain monthly ending inventories of Material K equal to 20% of
the following month's production needs. On July 31, this requirement was not met since only
2,500 yards of Material K were on hand. The cost of Material K is $0.85 per yard. The
company wants to prepare a Direct Materials Purchase Budget for the rest of the year.
93. The total cost of Material K to be purchased in August is:

A. $40,970
B. $48,200
C. $33,840
D. $42,300
94. The desired ending inventory of Material K for the month of September is:
A. 7,560 yards
B. 8,400 yards
C. 8,700 yards
D. 9,300 yards
95. The total needs (i.e., production requirements plus desired ending inventory) of Material
K for the month of November are:
A. 37,800 yards
B. 44,940 yards
C. 37,380 yards
D. 45,360 yards
9-35

Castil Corporation makes and sells a product called a Miniwarp. One Miniwarp requires 2.5
kilograms of the raw material Jurislon. Budgeted production of Miniwarps for the next five
months is as follows:
The company wants to maintain monthly ending inventories of Jurislon equal to 20% of the
following month's production needs. On July 31, this requirement was not met since only
9,700 kilograms of Jurislon were on hand. The cost of Jurislon is $5.00 per kilogram. The
company wants to prepare a Direct Materials Purchase Budget for the next five months.
96. The desired ending inventory of Jurislon for the month of September is:
A. $20,900
B. $52,000
C. $52,250
D. $20,800
97. The total cost of Jurislon to be purchased in August is:

A. $302,250
B. $451,500
C. $250,000
D. $253,750
9-36

Smith Company makes and sells a single product called a Pod. Each Pod requires 1.4 hours
of labor at a labor rate of $9.60 per hour. Smith Company needs to prepare a Direct Labor
Budget for the second quarter of the year.
98. If the budgeted direct labor cost for April is $201,600, then the budgeted production of
Pods for April would be:
A. 21,000 units
B. 29,400 units
C. 18,273 units
D. 15,000 units
99. The budgeted direct labor cost per Pod would be:
A. $13.44
B. $9.60
C. $7.38
D. $11.00
100. In June the company has budgeted to produce 22,000 Pods. The finished goods inventory
on June 1 and June 30 were budgeted at 500 and 800 units, respectively. Budgeted direct labor
costs incurred in June would be:
A. $470,400
B. $295,680
C. $240,000
D. $211,200
9-37

The LFM Company makes and sells a single product, Product T. Each unit of Product T
requires 1.3 hours of direct labor at a rate of $9.10 per direct labor-hour. LFM Company needs
to prepare a Direct Labor Budget for the second quarter of next year.
101. The budgeted direct labor cost per unit of Product T would be:
A. $9.10
B. $11.83
C. $7.00
D. $10.40
102. The company has budgeted to produce 25,000 units of Product T in June. The finished
goods inventories on June 1 and June 30 were budgeted at 500 and 700 units, respectively.
Budgeted direct labor costs for June would be:
A. $293,384
B. $304,031
C. $295,750
D. $227,500
The Culver Company is preparing its Manufacturing Overhead Budget for the third quarter of
the year. Budgeted variable factory overhead is $3.00 per unit produced; budgeted fixed
factory overhead is $75,000 per month, with $16,000 of this amount being factory
depreciation.
103. If the budgeted production for July is 6,000 units, then the total budgeted factory
overhead for July is:
A. $77,000
B. $82,000
C. $85,000
D. $93,000
9-38

104. If the budgeted production for August is 5,000 units, then the total budgeted factory
overhead per unit is:
A. $15
B. $18
C. $20
D. $22
105. If the budgeted cash disbursements for factory overhead for September are $80,000, then
the budgeted production for September must be:
A. 7,400 units
B. 6,200 units
C. 6,500 units
D. 7,000 units
The Charade Company is preparing its Manufacturing Overhead budget for the fourth quarter
of the year. The budgeted variable factory overhead is $5.00 per direct labor-hour; the
budgeted fixed factory overhead is $75,000 per month, of which $15,000 is factory
depreciation.
106. If the budgeted direct labor time for November is 7,000 hours, then the total budgeted
factory overhead for November is:
A. $95,000
B. $110,000
C. $75,000
D. $125,000
107. If the budgeted cash disbursements for factory overhead for December total $105,000,
then the budgeted direct labor-hours for December must be:
A. 6,000 hours
B. 21,000 hours
C. 9,000 hours
D. 3,000 hours
9-39

108. If the budgeted direct labor time for December is 8,000 hours, then total budgeted
factory overhead per direct labor-hour is (rounded):
A. $14.38
B. $9.38
C. $12.50
D. $16.25
Davie Corporation is preparing its Manufacturing Overhead Budget for the fourth quarter of
the year. The budgeted variable factory overhead rate is $6.00 per direct labor-hour; the
budgeted fixed factory overhead is $92,000 per month, of which $16,000 is factory
depreciation.
109. If the budgeted direct labor time for October is 8,000 hours, then the total budgeted
factory overhead for October is:
A. $140,000
B. $76,000
C. $64,000
D. $124,000
110. If the budgeted direct labor time for November is 9,000 hours, then the total budgeted
cash disbursements for November must be:
A. $130,000
B. $146,000
C. $70,000
D. $76,000
111. If the budgeted direct labor time for December is 4,000 hours, then the predetermined
factory overhead per direct labor-hour for December would be:
A. $6.00
B. $29.00
C. $25.00
D. $10.00
9-40

Dano Inc. bases its manufacturing overhead budget on budgeted direct labor-hours. The
other fixed manufacturing overhead costs represent current cash flows. The direct labor
budget indicates that 7,600 direct labor-hours will be required in December.
112. The December cash disbursements for manufacturing overhead on the manufacturing
overhead budget should be:
A. $92,720
B. $121,600
C. $81,320
D. $11,400
113. The company recomputes its predetermined overhead rate every month. The
predetermined overhead rate for December should be:
A. $14.50
B. $12.20
C. $16.00
D. $1.50
The manufacturing overhead budget at Waycaster Corporation is based on budgeted direct

February. The variable overhead rate is $3.40 per direct labor-hour. The company's budgeted
All other fixed manufacturing overhead costs represent current cash flows.
114. The company recomputes its predetermined overhead rate every month. The
predetermined overhead rate for February should be:
A. $17.00
B. $13.60
C. $14.00
D. $3.40
9-41

115. The February cash disbursements for manufacturing overhead on the manufacturing
overhead budget should be:
A. $20,400
B. $63,600
C. $102,000
D. $84,000
Porus Corporation makes and sells a single product called a Yute. The company is in the
process of preparing its Selling 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.
116. If the company has budgeted to sell 19,000 Yutes in November, then the total budgeted
selling and administrative expenses for November would be:
A. $529,100
B. $189,000
C. $340,100
D. $528,100
117. If the company has budgeted to sell 20,000 Yutes in December, then the budgeted total
cash disbursements for selling and administrative expenses for December would be:
A. $546,000
B. $547,000
C. $189,000
D. $358,000
9-42

118. If the total budget for selling and administrative expense for October is $493,300, then
how many Yutes does the company plan to sell in October?
A. 17,500 units
B. 17,000 units
C. 17,200 units
D. 16,700 units
The Adams Company, a merchandising firm, has budgeted its activity for November
according to the following information:
Sales at $450,000, all for cash
Merchandise inventory on October 31 was $200,000.
The cash balance November 1 was $18,000.
Selling and administrative expenses are budgeted at $60,000 for November and are paid for
in cash.
Budgeted depreciation for November is $25,000.
The planned merchandise inventory on November 30 is $230,000.
The cost of goods sold is 70% of the selling price.
All purchases are paid for in cash.
119. The budgeted cash receipts for November are:

A. $315,000
B. $450,000
C. $135,000
D. $475,000
120. The budgeted cash disbursements for November are:

A. $345,000
B. $375,000
C. $530,000
D. $405,000
9-43

121. The budgeted net income for November is:
A. $50,000
B. $68,000
C. $75,000
D. $135,000
Palmerin Corporation is preparing its cash budget for November. The budgeted beginning
cash balance is $30,000. Budgeted cash receipts total $167,000 and budgeted cash
disbursements total $171,000. The desired ending cash balance is $50,000.
122. The excess (deficiency) of cash available over disbursements for November is:
A. $34,000
B. ($4,000)
C. $26,000
D. $197,000
123. To attain its desired ending cash balance for November, the company should borrow:
A. $0
B. $76,000
C. $50,000
D. $24,000
Crose Inc. is working on its cash budget for November. The budgeted beginning cash balance
is $22,000. Budgeted cash receipts total $118,000 and budgeted cash disbursements total
$116,000. The desired ending cash balance is $40,000.
124. The excess (deficiency) of cash available over disbursements for November will be:
A. $2,000
B. $20,000
C. $24,000
D. $140,000
9-44

125. To attain its desired ending cash balance for November, the company needs to borrow:
A. $16,000
B. $40,000
C. $0
D. $64,000
Carner Lumber sells lumber and general building supplies to building contractors in a
medium-sized town in Montana. Data regarding the store's operations follow:
January.
purchase.
Ignore taxes.
9-45

126. The net income for December would be:
A. $59,200
B. $83,400
C. $66,400
D. $72,600
127. The cash balance at the end of December would be:

A. $91,600
B. $205,500
C. $186,500
D. $19,000
128. The accounts receivable balance, net of uncollectible accounts, at the end of December
would be:
A. $94,900
B. $46,800
C. $90,200
D. $54,000
129. Accounts payable at the end of December would be:

A. $176,400
B. $252,000
C. $247,800
D. $71,400
130. Retained earnings at the end of December would be:

A. $224,500
B. $147,900
C. $88,700
D. $209,900
9-46

Essay Questions
131. Carter Company has projected sales and production in units for the second quarter of
next 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.
Selling and administrative expenses (all of which are paid in cash) amount to $120,000 per
month. The accounts payable balance on March 31 totals $192,000, all of which will be paid
in April. Prepare a schedule for each month showing budgeted cash disbursements for Carter
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 $510,000 $(90,000 from February's sales and the remainder from March).
Prepare a schedule for each month showing budgeted cash receipts for Carter Company.
9-47

132. Weltin Industrial Gas Corporation supplies acetylene and other compressed gases to
industry. Data regarding the store's operations follow:
January.
purchase.
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.
9-48
133. TabComp Inc. is a retail distributor for MZB-33 computer hardware and related
software. TabComp prepares annual sales forecasts of which the first six months of the
coming year are presented below.
Cash sales account for 25% of TabComp's total sales, 30% of the total sales are paid by bank
credit card, and the remaining 45% are on open account (TabComp's own charge accounts).
The cash and bank credit card sale payments are received in the month of the sale. Bank credit
card sales are subject to a 4 % discount which is deducted immediately. The cash receipts for
sales on open account are 70% in the month following the sale, 28% in the second month
following the sale, and the remaining are uncollectible.
TabComp's month-end inventory requirements for computer hardware units are 30% of the
next month's sales. The units must be ordered two months in advance due to long lead times
quoted by the manufacturer.
Required:
a. Calculate the cash that TabComp can expect to collect during April. Show all of your
calculations.
b. Determine the number of computer hardware units that should be ordered in January. Show
all of your calculations.
9-49

134. Capid Corporation is a wholesaler of industrial goods. Data regarding the store's
operations follow:
January.
purchase.
The November beginning balance in the accounts receivable account is $77,000.
The November beginning balance in the accounts payable account is $271,000.
Required:
a. Prepare a Schedule of Expected Cash Collections for November and December.
b. Prepare a Merchandise Purchases Budget for November and December.
9-50

135. Tilson Company has projected sales and production in units for the second quarter of the
coming year as follows:
Cash-related production costs are budgeted at $7 per unit produced. Of these production costs,
40% are paid in the month in which they are incurred and the balance in the following month.
Selling and administrative expenses will amount to $110,000 per month. The accounts
payable balance on March 31 totals $193,000, which will be paid in April.
All units are sold on account for $16 each. Cash collections from sales are budgeted at 60% in
the month of sale, 30% in the month following the month of sale, and the remaining 10% in
the second month following the month of sale. Accounts receivable on April 1 totaled
$520,000 $(100,000 from February's sales and the remainder from March).
Required:
a. Prepare a schedule for each month showing budgeted cash disbursements for the Tilson
Company.
b. Prepare a schedule for each month showing budgeted cash receipts for Tilson Company.
9-51

136. A sales budget is given below for one of the products manufactured by the Key Co.:
The inventory of finished goods at the end of each month must equal 20% of the next month's
sales. On December 31, the finished goods inventory totaled 4,000 units.
Each unit of product requires three specialized electrical switches. Since the production of
these specialized switches by Key's suppliers is sometimes irregular, the company has a policy
of maintaining an ending inventory at the end of each month equal to 30% of the next month's
production needs. This requirement had been met on January 1 of the current year.
Required:
Prepare a budget showing the quantity of switches to be purchased each month for January,
February, and March and in total for the quarter.
9-52

137. Glinski Corporation is working on its direct labor budget for the next two months. Each
unit of output requires 0.29 direct labor-hours. The direct labor rate is $7.00 per direct laborhour. The production budget calls for producing 5,600 units in June and 6,100 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.
138. Deviney Corporation is working on its direct labor budget for the next two months. Each
unit of output requires 0.86 direct labor-hours. The direct labor rate is $8.20 per direct laborhour. The production budget calls for producing 6,500 units in July and 6,000 units in August.
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 5,600 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.
9-53

139. Gokey Inc. bases its manufacturing overhead budget on budgeted direct labor-hours. The
other fixed manufacturing overhead costs represent current cash flows. The November direct
labor budget indicates that 5,400 direct labor-hours will be required in that month.
Required:
a. Determine the cash disbursement for manufacturing overhead for November.
b. Determine the predetermined overhead rate for November.
140. The manufacturing overhead budget of Inch Corporation is based on budgeted direct
labor-hours. The September direct labor budget indicates that 4,400 direct labor-hours will be
required in that month. The variable overhead rate is $5.00 per direct labor-hour. The
company's budgeted fixed manufacturing overhead is $59,400 per month, which includes
depreciation of $10,560. All other fixed manufacturing overhead costs represent current cash
flows.
Required:
a. Determine the cash disbursement for manufacturing overhead for September. Show your
work!
b. Determine the predetermined overhead rate for September. Show your work!
9-54

141. Borling Inc. bases its selling and administrative expense budget on the number of units
sold. The variable selling and administrative expense is $8.30 per unit. The budgeted fixed
selling and administrative expense is $93,870 per month, which includes depreciation of
$16,380. The remainder of the fixed selling and administrative expense represents current
cash flows. The sales budget shows 6,300 units are planned to be sold in July.
Required:
Prepare the selling and administrative expense budget for July.
142. The selling and administrative expense budget of Hiser Corporation is based on the
number of units sold, which are budgeted to be 1,900 units in August. The variable selling and
expense is $22,420 per month, which includes depreciation of $5,130. The remainder of the
fixed selling and administrative expense represents current cash flows.
Required:
Prepare the selling and administrative expense budget for August.
9-55

143. Matuseski Corporation is preparing its cash budget for October. The budgeted beginning
cash balance is $17,000. Budgeted cash receipts total $187,000 and budgeted cash
disbursements total $177,000. The desired ending cash balance is $40,000. 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 October in good form.
144. Payment Inc. is preparing its cash budget for February. The budgeted beginning cash
balance is $27,000. Budgeted cash receipts total $136,000 and budgeted cash disbursements
total $128,000. The desired ending cash balance is $50,000. The company can borrow up to
$110,000 at any time from a local bank, with interest not due until the following month.
Required:
Prepare the company's cash budget for February in good form. Make sure to indicate what
borrowing, if any, would be needed to attain the desired ending cash balance.
9-56
Chapter 009, Profit Planning Key
9-57

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Chapter 009, Profit Planning

Chapter 009, Profit Planning

6. A self-imposed budget can be a very effective control device in an organization.

7. A production budget is to a manufacturing firm as a merchandise purchases budget is to a

Chapter 009, Profit Planning

Chapter 009, Profit Planning

Multiple Choice Questions

Chapter 009, Profit Planning

20. Which of the following is not a benefit of budgeting?

21. The concept of responsibility accounting means that:

Chapter 009, Profit Planning

Chapter 009, Profit Planning

Total cash receipts in April would be budgeted to be:

Cash collections in June would be:

Chapter 009, Profit Planning

Chapter 009, Profit Planning

Chapter 009, Profit Planning

Budgeted production for August would be:

Chapter 009, Profit Planning

Chapter 009, Profit Planning

Chapter 009, Profit Planning

Chapter 009, Profit Planning

40. The following are budgeted data:

Chapter 009, Profit Planning

Chapter 009, Profit Planning

Chapter 009, Profit Planning

Chapter 009, Profit Planning

52. Noskey Corporation's budgeted total cash receipts in August are:

Chapter 009, Profit Planning

55. In a budgeted balance sheet, the Merchandise Inventory on February 28:

Chapter 009, Profit Planning

Chapter 009, Profit Planning

59. Expected cash collections in December are:

Chapter 009, Profit Planning

61. December cash disbursements for merchandise purchases would be:

63. The net income (loss) for December would be:

64. The cash balance at the end of December would be:

Chapter 009, Profit Planning

66. Accounts payable at the end of December would be:

67. Retained earnings at the end of December would be:

Chapter 009, Profit Planning

68. Expected cash collections in December are:

Chapter 009, Profit Planning

70. December cash disbursements for merchandise purchases would be:

Chapter 009, Profit Planning

Additional information regarding Super Drive's operations appear below:

Chapter 009, Profit Planning

Chapter 009, Profit Planning

76. What is the budgeted accounts receivable balance on May 31?

Chapter 009, Profit Planning

Chapter 009, Profit Planning

Chapter 009, Profit Planning

Each unit of finished goods requires 8 grams of raw material.

Chapter 009, Profit Planning

86. The total number of units to be produced in January is:

Chapter 009, Profit Planning

88. The beginning inventory in units for September is:

89. The total number of units to be produced in July is:

Chapter 009, Profit Planning

91. The beginning inventory for September should be:

92. The total number of units produced in July should be:

Chapter 009, Profit Planning

93. The total cost of Material K to be purchased in August is: