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Exam 13: Planning and Budgeting

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Question 61

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Budgeted production needs are determined by:

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

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Question 62

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The Kansas Company is preparing a cash budget for the month of July. The following information on accounts receivable collections is available from Kansas' past collection experience: $\begin{array}{llr} \text { Percent of current month's sales collected this month } &15\%\\ \text { Percent of prior month's sales collected this month } &72\%\\ \text { Percent of sales two months prior to current month collected this month } &6\%\\ \text { Percent of sales three months prior to current month collected this month} &3\%\\\end{array}$ The remaining 4% are not collected and are written off as bad debts. Credit sales to date are as follows: $\begin{array} { l l l } \text { July (estimated) } & \$ 150,000 \\\text { June } & \$ 135,000 \\\text { May } & \$ 120,000 \\\text { April } & \$ 145,000\end{array}$ What are the estimated collections in July?

A) $125,250.
B) $131,250.
C) $133,250.
D) $137,250.

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Question 63

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Page Company makes 30% of its sales for cash and 70% on account. 60% of the credit sales are collected in the month of sale, 25% in the month following sale, and 12% in the second month following sale. The remainder is uncollectible. The following information has been gathered for the current year: $\begin{array} { | l | c | c | c | c | } \hline \text { Month } & 1 & 2 & 3 & 4 \\\hline \text { Total sales } & \$ 60,000 & \$ 70,000 & \$ 50,000 & \$ 30,000 \\\hline\end{array}$ Total cash receipts in Month 4 will be:

Which of the following is not a benefit of budgeting?

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

Albert Corporation is a wholesaler of industrial goods. Data regarding the store's operations follow: ? Sales are budgeted at $350,000 for November, $360,000 for December, and $340,000 for January. ? Collections are expected to be 60% in the month of sale, 39% in the month following the sale, and 1% uncollectible. ? The cost of goods sold is 75% of sales. ? The company purchases 40% of its merchandise in the month prior to the month of sale and 60% in the month of sale. Payment for merchandise is made in the month following the purchase. ? The November beginning balance in the accounts receivable account is $70,000. ? The November beginning balance in the accounts payable account is $257,000. Required: a. Prepare a Schedule of Expected Cash Collections for November and December. b. Prepare a Merchandise Purchases Budget for November and December.

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

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

In general, the first budget prepared is the:

Parlour Company, a retailer, has the following sales budget for the coming year. $\begin{array} { l c } \text { Month } & \text { Sales } \\\text { January } & \$ 180,000 \\\text { February } & \$ 190,000 \\\text { March } & \$ 210,000 \\\text { April } & \$ 230,000\end{array}$ The sales price per unit is $10; the cost of sales is 70% of sales. Parlour keeps inventory equal to double the coming month's budgeted sales requirements. It pays for purchases 65% in the month of purchase and 35% in the month after purchase. Inventory at the beginning of January is $204,400. Accounts Payable on January 1 is $43,000. Required: a. Prepare a schedule of purchases, in units and in dollars, for the first three months of the year. b. Prepare a schedule of cash disbursements on account for the first three months of the year.

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

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

Which of the following statements is not correct?

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

Folkes, Inc has prepared a sales budget for the second quarter as shown below: $\begin{array} { l c } & \text { Budgeted Sales } \\\text { April } & \$ 400,000 \\\text { May } & 500,000 \\\text { June } & 600,000\end{array}$ The company is in the process of preparing a cash budget for the second quarter. To this end, the following information has been assembled: $\begin{array} { l c } & \text { Collections on Sales } \\\text { In month of sale } &70 \%\\\text { In month following sale } & 25 \% \\\text { In second month following sale } &5\%\\\end{array}$ The company gives a 1% cash discount to customers paying in the month of the sale. Records show past sales to be: January $300,000, February $340,000, and March $360,000. Required: Prepare a schedule of cash receipts for the third quarter.

Budgeted Balance sheets combine all of the following except:

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

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

The Colson Company has budgeted sales for the year as follows: $\begin{array} { | l | l | l | l | l | } \hline \text { Quarter } & 1 & 2 & 3 & 4 \\\hline \text { Sales in units } & 12,000 & 14,000 & 18,000 & 16,000 \\\hline\end{array}$ The ending inventory of finished goods for each quarter should equal 25% of the next quarter's budgeted sales in units. The finished goods inventory at the start of the year is 3,000 units. -Scheduled production for the third quarter is (in units)

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