Deck 12: Fixed and Rolling Budgets for Planning and Decision Making

Question 1

The usual starting point when developing a sales forecast is:

A) the production budget.
B) the cash budget.
C) last year's level of sales.
D) competitor budget information.

Answer 1

C

Question 2

Which type of activity includes ensuring that the objectives and goals developed by the organisation are being attained?

A) Planning
B) Operating
C) Control
D) Bookkeeping

Answer 2

C

Question 3

Which of the following statements regarding budgets is true?

A) They rarely use estimates.
B) They should not be used for performance evaluations.
C) They should focus on past performance.
D) They will likely require the input of more than one manager.

Answer 3

D

Question 4

A budget built from the ground up each year rather than by simply adding a percentage increase to last year's numbers is called:

A) a static budget.
B) a flexible budget.
C) a zero-based budget.
D) a master budget.

Question 5

Which of the following is not increased by the budgeting process?

A) Communication throughout the organisation.
B) Identification of potential bottlenecks or constraints.
C) Goal congruence between the personal goals of managers and the goals of the organisation.
D) Management's focus on past performance of the organisation.

Question 6

In order to prepare a sales budget,a _______________ is required.

A) production budget
B) sales forecast
C) static budget
D) flexible budget

Question 7

Which of the following statements regarding budgeting is false?

A) The focus of budgeting is planning.
B) Many companies use enterprise resource planning (ERP)systems as a budgeting tool.
C) Budgeting is a bookkeeping task.
D) Budgeting helps managers determine the resources needed to meet their goals and objectives.

Question 8

In 2008,Wingen Inc.sold 650 000 units at $3 each.Sales volume is expected to increase by 20 per cent in 2009 while the price of each unit is expected to decrease by 20 per cent.The expected sales revenue for 2009 is:

A) $ 780 000
B) $1 872 000
C) $1 950 000
D) $1 560 000

Question 9

_________ activities involve developing objectives and goals for the organisation as well as the actual preparation of the budget.

A) Operating
B) Control
C) Planning
D) Flexible

Question 10

The comparison of actual outcomes with desired outcomes is an example of a(n):

A) planning activity.
B) control activity.
C) operating activity.
D) static activity.

Question 11

Which of the following is not a consideration in the preparation of a sales budget or sales forecast?

A) General economic trends
B) Anticipated marketing or advertising plans
C) Issuance of the current year's financial statements
D) Anticipated price changes in both purchasing costs and sales prices

Question 12

Budgets are:

A) future oriented.
B) for managers only.
C) required by GAAP.
D) typically not used by small business.

Question 13

Which of the following is not an advantage of the budgeting process?

A) It can help management identify potential bottlenecks.
B) It can help facilitate goal congruence throughout the organisation.
C) It can force management to focus on the past and not be distracted by current activities of the organisation.
D) It can increase communication between various departments in the organisation.

Question 14

Milton Inc.has prepared the following first quarter sales forecast:
$\begin{array}{ll}\text { January } & 250000 \text { units } \\\text { February } & 375000 \text { units } \\\text { March } & 315000 \text { units }\end{array}$

Each unit sells for $1.50.
The sales budget for the first quarter is:

A) $1 410 000
B) $ 940 000
C) $ 626 667
D) $ 472 500

Question 15

Which of the following is an advantage of the budgeting process?

A) It requires very little input from various departmental managers,leaving them more time to devote to day-to-day activities.
B) It can communicate to employees specific goals and objectives that may be used in evaluating their job performance.
C) It forces management to focus on the past and not be distracted by the day-to-day operations of the business.
D) It requires no communication between various managers in the organisation.

Question 16

Which of the following statements is true regarding budgeting?

A) It is primarily focused on past performance.
B) It is primarily a bookkeeping task.
C) It should be built from the ground up each year.
D) It involves input from a broad range of managers.

Question 17

In the budgeting process,which budget is typically prepared first?

A) Cash budget
B) Summary budget
C) Sales budget
D) Production budget

Question 18

Which of the following statements is false regarding the process of preparing a sales forecast?

A) It usually starts with last year's level of sales.
B) General economic trends are often considered.
C) Since it involves estimates of future events,accuracy is of little importance.
D) The larger the size and complexity of an organisation,the more complex their sales forecasting system will be.

Question 19

The alignment of the personal goals of an organisation's managers with the goals of the overall organisation is called:

A) a bottleneck.
B) benchmarks.
C) goal congruence.
D) static budgeting.

Question 20

Which of the following statements is false regarding sales forecasting?

A) It may involve the use of elaborate planning models and regression analysis.
B) It may rely heavily on the intuition and opinions of managers.
C) Other budgets are rarely affected by errors in sales forecasts.
D) The usual starting point is last year's level of sales.

Question 21

Donnelly Manufacturing
Donnelly Manufacturing sells cedar birdhouses. The company has prepared the following forecast for the third quarter of 2009:
$$\begin{array} { l r } \text { July } & 5000 \text { units } \\\text { August } & 6000 \text { units } \\\text { September } & 10000 \text { units }\end{array}$$
Inventory at 30 June 2009 was budgeted at 1000 units. Management would like the desired quantity of finished goods inventory at the end of each month to be equal to 20 per cent of next month’s budgeted unit sales. October’s sales are projected to be 12 000 units.
Each completed unit of finished product requires 3 square feet of cedar at a cost of $1.50 per square foot.


-The company has determined that it needs 20 per cent of next month's raw material needs on hand at the end of each month.
The total required production of birdhouses for the third quarter of 2009 is:

A) 19 600 units
B) 22 400 units
C) 20 000 units
D) 23 400 units

Question 22

Which of the following budgets would probably not be prepared using information provided by the production budget?

A) Direct materials budget
B) Direct labour budget
C) Manufacturing overhead budget
D) Sales budget

Question 23

Donnelly Manufacturing
Donnelly Manufacturing sells cedar birdhouses. The company has prepared the following forecast for the third quarter of 2009:
$$\begin{array} { l r } \text { July } & 5000 \text { units } \\\text { August } & 6000 \text { units } \\\text { September } & 10000 \text { units }\end{array}$$
Inventory at 30 June 2009 was budgeted at 1000 units. Management would like the desired quantity of finished goods inventory at the end of each month to be equal to 20 per cent of next month’s budgeted unit sales. October’s sales are projected to be 12 000 units.
Each completed unit of finished product requires 3 square feet of cedar at a cost of $1.50 per square foot.

-The company has determined that it needs 10 per cent of next month's raw material needs on hand at the end of each month.
The cost of the direct material that should be purchased in August is:

A) $32 940
B) $21 480
C) $30 600
D) $35 280

Question 24

Enloe Manufacturing has prepared a production budget for June.Management has determined that the total required production for June is 680 000 units when an ending inventory of 50 000 units is desired and the beginning inventory is 30 000 units.
Based on the above information,what were June's budgeted sales?

A) 660 000 units
B) 700 000 units
C) 760 000 units
D) 680 000 units

Question 25

Which of the following equations best depicts a basic production budget?

A) Required Production = Projected Sales - Desired Ending Inventory + Beginning Inventory
B) Required Production = Projected Sales + Desired Ending Inventory - Beginning Inventory
C) Required Production = Projected Sales -Desired Ending Inventory - Beginning Inventory
D) Required Production = Projected Sales + Desired Ending Inventory + Beginning Inventory

Question 26

Select Manufacturing sells a variety of office products including two-drawer file cabinets.On 30 June,the company had 300 cabinets in inventory.The company's policy is to maintain a cabinet inventory equal to 10 per cent of next month's sales.The company expects the following sales activity for the third quarter of the year:
$$\begin{array} { l l } \text { Juy } & \text { 3000 cabinets } \\\text { August } & 4000 \text { cabinets } \\\text { September } & 4800 \text { cabinets }\end{array}$$
In addition,October's sales are projected to be 5000 cabinets.What is the total required production for the third quarter?

A) 12 980 cabinets
B) 12 300 cabinets
C) 12 000 cabinets
D) 11 800 cabinets

Question 27

Keep-it-Cool Products Inc.manufactures a medium-sized drink cooler.At 30 June,the company had 5000 coolers in inventory.The company's policy is to maintain a cooler inventory equal to 15 per cent of next month's sales.The company expects the following sales activity for the third quarter of the year:
$\begin{array}{ll}\text { July } & 50000 \text { coolers } \\\text { August } & 40000 \text { coolers } \\\text { September } & 25000 \text { coolers }\end{array}$

How many coolers should be produced in August?

A) 37 750 coolers
B) 36 250 coolers
C) 42 250 coolers
D) 43 750 coolers

Question 28

In 2008,Truman Products sold 900 000 units at $9 each.Sales volume is expected to increase by 10 per cent in 2009 while the price of each unit is expected to decrease by 15 per cent.The expected sales revenue for 2009 is:

A) $8 761 500
B) $1 336 500
C) $7 573 500
D) $6 885 000

Question 29

Homestyle Interiors sells a variety of home furnishings including entertainment centres.At 31 March,the company had 150 centres in inventory.The company's policy is to maintain an entertainment centre inventory equal to 3 per cent of next month's sales.The company expects the following sales activity for the second quarter of the year:
$$\begin{array} { l r } \text { April } & \text { 800 centres } \\\text { May } & 1200 \text { centres } \\\text { June } & 1000 \text { centrep }\end{array}$$
What is the projected production for May?

A) 1206 centres
B) 1194 centres
C) 1266 centres
D) 1134 centres

Question 30

Broughton Corp.has prepared a production budget for February.Management has determined that the total required production for February is 360 000 units when an ending inventory of 40 000 units is desired and the beginning inventory is 10 000 units.
Based on the above information,what were February's budgeted sales?

A) 410 000 units
B) 360 000 units
C) 330 000 units
D) 390 000 units

Question 31

Thurston Products
Thurston Products sells a popular style of running shoe. The company has prepared the following sales forecast for the second quarter of 2010:
$$\begin{array} { l r } \text { April } & 80000 \text { pairs } \\\text { May } & 100000 \text { pairs } \\\text { June } & 130000 \text { pairs }\end{array}$$
Ending inventory at 31 March 2010 was budgeted at 5000 pairs. Management would like the desired quantity of finished goods inventory at the end of each month to be equal to 6 per cent of next month’s budgeted unit sales. July’s sales are projected to be 120 000 pairs.

Each completed unit of finished product requires 1.5 pounds of rubber material at a cost of $.75 per pound. The company has determined that it needs 10 per cent of next month’s raw material needs on hand at the end of each month.


-The total required production of running shoes for the second quarter of 2010 is:

A) 317 200 pairs
B) 312 200 pairs
C) 307 800 pairs
D) 323 600 pairs

Question 32

The budget that forecasts how many units a manufacturing company should produce in order to meet sales projections is called a:

A) sales budget.
B) materials budget.
C) production budget.
D) flexible budget.

Question 33

Jones Manufacturing
Jones Manufacturing sells unique decorative water fountains. The company has prepared the following forecast for the first quarter of 2010:
$$\begin{array} { l l } \text { January } & 1000 \text { units } \\\text { February } & 1400 \text { units } \\\text { March } & 2000 \text { units }\end{array}$$
Ending inventory at 31 December 2009 was budgeted at 80 units. Management would like the desired quantity of finished goods inventory at the end of each month to be equal to 10 per cent of next month’s budgeted unit sales. April’s sales are projected to be 1600 units.

Each completed unit of finished product requires 3 pounds of compounding material at a cost of $2.00 per pound. The company has determined that it needs 15 per cent of next month’s raw material needs on hand at the end of each month.

-The total required production of water fountains for the first quarter of 2009 is:

A) 4320 units
B) 4560 units
C) 4640 units
D) 4480 units

Question 34

Newman Products is preparing their first quarter production budget.The desired ending inventory of finished goods for the month of January becomes:

A) the required production for the month of January.
B) the budgeted sales for the month of February.
C) the beginning inventory for the month of February.
D) the required production for the month of February.

Question 35

Brady Inc.produced and sold 200 000 units for $50 each last year.For the upcoming year,management believes that if they decrease the price of each unit by 5 per cent,volume will increase 5 per cent.What are Brady's expected sales revenues for the upcoming year?

A) $ 9 450 000
B) $10 000 000
C) $10 500 000
D) $ 9 975 000

Question 36

Homestyle Interiors sells a variety of home furnishings including sleeper sofas.At 31 March,the company had 400 sofas in inventory.The company's policy is to maintain a sleeper sofa inventory equal to 2 per cent of next month's sales.The company expects the following sales activity for the second quarter of the year:
$\begin{array}{ll}\text { April } & 1000 \text { sofas } \\\text { May } & 1400 \text { sofas } \\\text { June } & 2000 \text { sofas }\end{array}$

What is the projected production for May?

A) 1332 sofas
B) 1468 sofas
C) 1388 sofas
D) 1412 sofas

Question 37

Ligon Enterprises has prepared a production budget for October.Management has determined that the total required production for October is 425 000 units when an ending inventory of 20 000 units is desired and the beginning inventory is 8000 units.
Based on the above information,what were October's budgeted sales?

A) 453 000 units
B) 413 000 units
C) 437 000 units
D) 425 000 units

Question 38

Last year,Garrison Manufacturing sold 500 000 units at $4 each.Both sales volume and sales price are expected to increase by 10 per cent in the upcoming year.The expected sales revenue for the upcoming year is:

A) $2 420 000
B) $2 200 000
C) $2 255 000
D) $2 000 000

Question 39

Tunstall Manufacturing sells medical supplies,including stethoscopes.At 30 September,the company had 1000 stethoscopes in inventory.The company's policy is to maintain an inventory equal to 8 per cent of next month's sales.The company expects the following sales activity for the fourth quarter of the year:
$\begin{array}{ll}\text { October } & 11000 \text { stethoscopes } \\\text { November } & 15000 \text { stethoscopes } \\\text { December } & 14000 \text { stethoscopes }\end{array}$

In addition,January sales for the following year are projected to be 16 000 stethoscopes.What is the total required production for the fourth quarter?

A) 40 280 stethoscopes
B) 39 000 stethoscopes
C) 39 720 stethoscopes
D) 41 280 stethoscopes

Question 40

Porcelain Interiors sells a variety of porcelain products including porcelain sinks.At 31 December,the company had 200 sinks in inventory.The company's policy is to maintain a sink inventory equal to 5 per cent of next month's sales.The company expects the following sales activity for the first quarter of the year:
$\begin{array}{ll}\text { January } & 1500 \text { sinks } \\\text { February } & 2000 \text { sinks } \\\text { March } & 2300 \text { sinks }\end{array}$

What is the projected production for February?

A) 2115
B) 2015
C) 1985
D) 2215

Question 41

Taylor Inc.sells and installs residential water heaters.Its customers pay for their water heaters over four months by paying in equal,monthly instalments.The sales price of an installed water heater is $600.Taylor sold and installed the following number of water heaters in the first six months of 2009:
$\begin{array}{lc}\text { January } & 80 \text { units } \\\text { February } & 100 \text { units } \\\text { March } & 70 \text { units } \\\text { April } & 84 \text { units } \\\text { May } & 90 \text { units } \\\text { June } & 75 \text { units }\end{array}$
Cash receipts for June are expected to be:

A) $ 74 850
B) $118 050
C) $ 47 850
D) $191 400

Question 42

Cash paid for the purchase of property,plant,and equipment will be shown:

A) on the materials purchases budget.
B) in the investing activity section of the cash summary budget.
C) on the cash disbursements budget.
D) in the operating activity section of the cash summary budget.

Question 43

Crafty Cathy Products Inc.manufactures a product sold in most craft stores which requires non-soluble glue as one of the key ingredients.The company has already estimated that it needs to produce the following number of units of product for the second quarter of 2009:
$\begin{array}{ll}\text { April } & 75000 \text { units } \\\text { May } & 90000 \text { units } \\\text { June } & 84000 \text { units }\end{array}$

Each unit requires .5 grams of glue at a cost of $.30 a gram.The company has determined that it needs 15 per cent of next month's raw material needs on hand at the end of each month.
The cost of the glue that should be purchased in May is:

A) $13 365
B) $13 500
C) $15 390
D) $13 635

Question 44

Grisham Products Inc.manufactures engines for small scooters.At 30 September,the company had 2500 engines in inventory.The company's policy is to maintain an ending inventory equal to 8 per cent of next month's sales.Each engine manufactured requires 45 minutes of assembly and inspecting time at a cost of $.30 per minute.Grisham applies overhead to engines at a rate of $.15 per direct labour minute.
The company expects the following sales activity for the fourth quarter of the year:
$\begin{array}{ll}\text { October } & 12000 \text { units } \\\text { November } & 20000 \text { units } \\\text { December } & 35000 \text { units }\end{array}$

What is the projected applied manufacturing overhead cost for November?

A) $153 900
B) $143 100
C) $ 42 930
D) $126 900

Question 45

Woodsman Inc.produces a variety of wood finishing products including litres of varnish that it manufactures and packages under its own name.The company has computed the required production of litres of varnish it will need for the first three months of 2009 as follows:
$\begin{array}{ll}\text { January } & 300000 \text { litres } \\\text { February } & 340000 \text { litres } \\\text { March } & 400000 \text { litres }\end{array}$

Each litre of varnish requires 10 grams of a special chemical.This chemical costs $.25 per gram.The company has determined that it needs 20 per cent of next month's raw material needs on hand at the end of each month.
The cost of the direct material that should be purchased in February is:

A) $920 000
B) $950 000
C) $880 000
D) $850 000

Question 46

Ingalls Mercantile Inc.sells bolts of fabric to retailers for $80 per bolt.The company's accountant has prepared the following sales forecast (in bolts)for the first quarter of 2009:
$\begin{array}{lr}\text { January } & 600 \text { bolts } \\\text { February } & 1000 \text { bolts } \\\text { March } & 700 \text { bolts }\end{array}$
Historically,the cash collection of sales has been as follows: 60 per cent in the month of sale,30 per cent in the month following sale,and 9 per cent in the second month following sale.
Cash receipts for March are expected to be:

A) $ 61 920
B) $182 160
C) $ 33 600
D) $ 57 840

Question 47

Which of the following is not one of the sections that appears on a summary cash budget?

A) Cash flows from manufacturing activities
B) Cash flows from financing activities
C) Cash flows from investing activities
D) Cash flows from operating activities

Question 48

Cicero Manufacturing Inc.sells gloves at local ski resorts during the winter months.Each pair of gloves sells for $15.The following sales forecast (in units)has been prepared for October 2008 through March 2009:
$\begin{array}{lr}\text { October } & 500 \\\text { November } & 800 \\\text { December } & 1000 \\\text { January } & 1200 \\\text { February } & 900 \\\text { March } & 600\end{array}$
Historically,the cash collection of sales has been as follows: 60 per cent in the month of sale,35 per cent in the month following sale,and 4 per cent in the second month following sale.The remaining 1 per cent is uncollectible.
Cash receipts for January are expected to be:

A) $13 170
B) $51 975
C) $10 800
D) $16 530

Question 49

Cash paid for the retirement of long-term debt will be shown:

A) in the financing activity section of the cash summary budget.
B) in the investing activity section of the cash summary budget.
C) on the cash disbursements budget.
D) in the operating activity section of the cash summary budget.

Question 50

Carteret Inc.
Carteret Inc. manufactures hammocks under various brand names. The company sells most of its hammocks in the second quarter of each year. Their production budget for the second quarter shows the following number of hammocks needs to be produced:
$$\begin{array} { l r } \text { April } & 6000 \text { units } \\\text { May } & 10000 \text { units } \\\text { June } & 15000 \text { units }\end{array}$$
Each unit requires 30 feet of cotton rope cord which costs $.50 per foot. The company has determined that it needs 20 per cent of next month’s raw material needs on hand at the end of each month.
In addition, each hammock requires 45 minutes of direct labour for assembly and inspection at a cost of $.25 per minute. The company currently applies manufacturing overhead to production at the rate of $8 per direct labour hour.

-The cost of the rope cord that should be purchased in May is:

A) $195 000
B) $150 000
C) $165 000
D) $135 000

Question 51

The 'Beginning Cash Balance' would most likely appear on which type of budget?

A) Cash receipts budget
B) Summary cash budget
C) Sales budget
D) Cash disbursements budget

Question 52

Carteret Inc.
Carteret Inc. manufactures hammocks under various brand names. The company sells most of its hammocks in the second quarter of each year. Their production budget for the second quarter shows the following number of hammocks needs to be produced:
$$\begin{array} { l r } \text { April } & 6000 \text { units } \\\text { May } & 10000 \text { units } \\\text { June } & 15000 \text { units }\end{array}$$
Each unit requires 30 feet of cotton rope cord which costs $.50 per foot. The company has determined that it needs 20 per cent of next month’s raw material needs on hand at the end of each month.
In addition, each hammock requires 45 minutes of direct labour for assembly and inspection at a cost of $.25 per minute. The company currently applies manufacturing overhead to production at the rate of $8 per direct labour hour.

-The total cost of direct labour and manufacturing overhead for the month of May is:

A) $192 500
B) $ 82 500
C) $172 500
D) $168 750

Question 53

Browning Inc.has projected the following sales information for the fourth quarter of 2009:
$\begin{array}{rr}&\underline{\text { October }} &\underline{ \text { November }}&\underline{ \text { December }}\\\text {Cash sales}&\$19000&\$ 26000 & \$ 32000 \\ \text {Credit sales}&\underline{35000}&\underline{45000} & \underline{ 60000} \\\text { Total sales}&\underline{\$54000}&\underline{\$71000}&\underline{ \$ 92000}\end{array}$
Credit sales are collected over a two-month period,with 60 per cent collected in the month of sale and 40 per cent collected in the month following sale.
Total cash collections for December are:

A) $86 000
B) $54 000
C) $83 600
D) $68 000

Question 54

Sellars Inc.manufactures widgets.At 30 June,the company had 2000 widgets in inventory.The company's policy is to maintain a widget ending inventory equal to 10 per cent of next month's sales.In addition,each widget manufactured requires 6 minutes of assembly and inspecting time at a cost of $.25 per minute.
The company expects the following sales activity for the third quarter of the year:
$\begin{array}{ll}\text { July } & 25000 \text { units } \\\text { August } & 38000 \text { units } \\\text { September } & 30000 \text { units }\end{array}$
What is the projected direct labour cost for August?

A) $55 800
B) $57 000
C) $61 500
D) $58 200

Question 55

Which of the following statements regarding cash flows is true?

A) Many managers consider cash flow budgets to be the least important of all the budgets.
B) As long as accounting revenues exceed accounting expenses,cash flow budgets do not have to be prepared.
C) It is possible for cash receipts to exceed revenues earned in a given month.
D) As long as a manager is confident that there will eventually be a cash receipt from a customer,the timing of the cash receipt is not important.

Question 56

Cash received from the borrowing of long-term debt will be shown:

A) in the financing activity section of the cash summary budget.
B) in the investing activity section of the cash summary budget.
C) on the cash receipts budget.
D) in the operating activity section of the cash summary budget.

Question 57

Carson Products Inc.manufactures LEDs (light emitting diodes)for use in vehicles.At 30 September,the company had 5000 LED units in inventory.The company's policy is to maintain a LED ending inventory equal to 25 per cent of next month's sales.In addition,each LED manufactured requires 2 minutes of assembly and inspecting time at a cost of $.30 per minute.
The company expects the following sales activity for the fourth quarter of the year:
$\begin{array}{lr}\text { October } & 90000 \text { units } \\\text { November } & 100000 \text { units } \\\text { December } & 80000 \text { units }\end{array}$

What is the projected direct labour cost for November?

A) $72 000
B) $63 000
C) $60 000
D) $57 000

Question 58

Robusto Coffee Traders Inc.sells pre-packaged coffees to a variety of businesses throughout the East Coast.Robusto purchases the coffee in bulk from a wholesale distributor and packages the coffee themselves to sell to customers.The company expects to sell 500 000 and 600 000 half-kilo packages of coffee during 2008 and 2009 respectively.The company had 18 000 half-kilo packages on hand at the beginning of 2008,and the company has a policy of maintaining an ending inventory equal to 10 per cent of the packages needed for next year's expected sales.
How many packages of coffee should the company plan to purchase in 2008?

A) 560 000
B) 542 000
C) 458 000
D) 532 000

Question 59

Boylan Inc.has projected the following sales information for the first quarter of 2009:
$\begin{array}{lrr}&\underline{\text { January }} &\underline{ \text { February }} &\underline{ \text { March }}\\\text {Cash sales}&\$20000&\$ 35000 & \$ 40000 \\\text {Credit sales}&\underline{43000}&\underline{57000} &\underline{ 55000} \\\text {Total sales}&\underline{\$63000}&\underline{ \$ 92000} &\underline{ \$ 95000}\end{array}$
Credit sales are collected over a two-month period,with 55 per cent collected in the month of sale and 45 per cent collected in the month following sale.
Total cash collections for March are:

A) $55 900
B) $93 650
C) $70 250
D) $95 900

Question 60

Blooming Products Inc.sells flower bulbs to local nurseries.Each bag of bulbs sells for $2.The company's accountant has prepared the following sales forecast (in bags)for the fourth quarter of 2009:
$\begin{array}{ll}\text { October } & 5000 \text { bags } \\\text { November } & 9000 \text { bags } \\\text { December } & 8000 \text { bags }\end{array}$
Historically,the cash collection of sales has been as follows: 50 per cent in the month of sale,40 per cent in the month following sale,and 10 per cent in the second month following sale.
Cash receipts for December are expected to be:

A) $13 800
B) $ 8000
C) $16 200
D) $ 8100

Question 61

Which of the following statements is false regarding a company's budgeted financial statements?

A) They are used for internal planning purposes.
B) They are often called pro forma financial statements.
C) Lending institutions should not use them as a basis for granting a loan.
D) An error in the preparation of one budget often affects one or more other budgets.

Question 62

Diamonde Products Inc.would like to prepare a summary cash budget for the second quarter of 2009.The following information regarding operating activities from the cash receipts and cash disbursements budgets are available:
$\begin{array}{lrrr}&\underline{\text { January}} &\underline{\text { February } }&\underline{\text { March }}\\\text { Cash receipts }&\$ 10000 & \$ 16000 & \$ 250000 \\\text { Cash disbursements }&8000 &18000&160000\end{array}$
The following information is also available:
?The cash balance on 31 March 2009 was $\$ 3000$ .
?Equipment costing $\$ 6000$ will be purchased in May. A down payment of $\$ 2000$ will be made in May and payments of $\$ 2000$ will be made in each subsequent month thereafter until the equipment is paid in full.
?Dividends in the amount of $\$ 1000$ will be paid in June.
What is the cash balance at the end of June expected to be?

A) $1000
B) $7000
C) $4000
D) $5000

Question 63

Upton Products Inc.would like to prepare a summary cash budget for the first quarter of 2009.The following information regarding operating activities from the cash receipts and cash disbursements budgets are available:
$\begin{array}{lrrr}&\underline{\text { January}} &\underline{\text { February } }&\underline{\text { March }}\\\text { Cash receipts }&\$ 15000 & \$ 23000 & \$ 340000 \\\text { Cash disbursements }&13000 & 26000&30000\end{array}$
The following information is also available:
?The cash balance on 1 January 2009 was $\$ 2000$ .
?Equipment costing $\$ 4000$ will be purchased in February. A down payment of $\$ 1000$ will be made in February and payments of $\$ 1000$ will be made in each subsequent month thereafter.
?Dividends in the amount of $\$ 2000$ will be paid in March.
What is the cash balance at the end of March expected to be?

A) $(1000)
B) $ 0
C) $ 1000
D) $ 2000

Question 64

Which type(s)of activities are flexible budgets most useful for?

A) Operating activities
B) Control activities
C) Planning activities
D) Both control and planning activities

Question 65

A budget that is established at the beginning of the period and not adjusted for different levels of actual sales activity is called a:

A) non-financial budget.
B) flexible budget.
C) static budget.
D) zero-based budget.

Question 66

Becham Inc.had the following purchases budgeted for the last quarter of 2009:
$\begin{array}{lr} \text { October } &\$75000\\ \text { November } &90000\\ \text { December } &84000\\\end{array}$

Becham pays one-half of a month's purchases in the month of purchase and the remainder in the following month.What are expected cash disbursements for the month of December?

A) $124 500
B) $ 84 000
C) $ 87 000
D) $ 42 000

Question 67

Which of the following budgets is often more of a focus for a service company than a manufacturing company?

A) Sales budget
B) Direct materials budget
C) Labour budget
D) Cash receipts budget

Question 68

Holmes Manufacturing Inc.had the following purchases budgeted for the last six months of 2009:
$\begin{array}{lr}\text { July } & \$ 60000 \\\text { August } & 45000 \\\text { September } & 52000 \\\text { October } & 60000 \\\text { November } & 80000 \\\text { December } & 85000\end{array}$
Holmes pays one-half of a month's purchases in the month of purchase and the remainder in the following month.What are expected total cash disbursements for the last quarter of 2009?

A) $112 500
B) $225 000
C) $182 500
D) $208 500

Question 69

Avery Inc.would like to prepare a summary cash budget for June.The following information is available:
?The cash balance at 1 June was estimated to be $\$ 6000$ .
?June sales, all on account, were estimated to be $\$ 75000$ . Sales are collected over a two-month period with 60 per cent collected in the month of sale and the remainder in the subsequent month. May sales on account were $\$ 70000$ .
?Inventory purchases are expected to be $\$ 50000$ in June. The company pays for one-half of inventory purchases in the month of purchase and the remainder in the subsequent month. May purchases were $\$ 60000$ .
?Cash disbursements for selling and administrative expenses are expected to be $\$ 9000$ in June.
?Depreciation expense for June is expected to be $\$ 3000$ .

What is the cash balance at the end of June expected to be?

A) $15 000
B) $12 000
C) $26 000
D) $29 000

Question 70

Vela Enterprises Inc.would like to prepare a summary cash budget for March.The following information is available:
?The cash balance at 1 March was estimated to be $\$ 3000$ .
?March sales, all on account, were estimated to be $\$ 50$ 000. Sales are collected over a two-month period with 65 per cent collected in the month of sale and the remainder in the subsequent month. February sales on account were $\$ 60000$ .
?Inventory purchases are expected to be $\$ 20000$ in March. The company pays for one-half of inventory purchases in the month of purchase and the remainder in the subsequent month. February's purchases were $\$ 18000$
?Cash disbursements for selling and administrative expenses are expected to be $\$ 4000$ in March.
?Depreciation expense for March is expected to be $\$ 5000$
?Loan and interest payments for March are expected to be $\$ 25000$ .
What is the cash balance at the end of March expected to be?

A) $ 8500
B) $ (3500)
C) $ 3500
D) $26 500

Question 71

For a manufacturing company,which of the following budgets does not have to be prepared before a budgeted income statement is prepared?

A) Budgeted cost of goods manufactured
B) Budgeted cost of goods sold
C) Budgeted balance sheet
D) Sales budget

Question 72

A budget that budgets costs for the actual number of units produced is called a:

A) master budget.
B) summary cash budget.
C) static budget.
D) flexible budget.

Question 73

In September of 2009,Mitford Products Inc.began doing business as a corporation.The company plans to start making its first purchases in October of 2009.They have the following purchases budgeted for the last quarter of 2009:
$\begin{array}{lr}\text { October } & \$ 850000 \\\text { November } & 600000 \\\text { December } & 720000\end{array}$
Mitford has worked out agreements with its various suppliers to pay for one-third of a month's purchases each month,beginning in the month of purchase,until the purchases are paid in full.No purchases were made prior to October.
What are expected total cash disbursements for the last quarter of 2009?

A) $1 490 000
B) $ 723 333
C) $1 006 667
D) $1 446 667

Question 74

Which of the following budgets would be prepared by both manufacturing companies and merchandising companies?

A) Production budgets
B) Direct material purchases budget
C) Sales budget
D) Manufacturing overhead budget

Question 75

Which of the following would not appear on a budgeted income statement?

A) Net income
B) Depreciation expense
C) Cost of goods sold
D) Cash received from bank loan

Question 76

Griswald Inc.would like to prepare a summary cash budget for the first quarter of 2009.The following information from the cash receipts and cash disbursements budgets are available:
$\begin{array}{rrr}&\underline{\text { January}} &\underline{\text { February } }&\underline{\text { March }}\\\text { Cash receipts }&\$ 50000 & \$ 72000 & \$ 80000 \\\text { Cash disbursements }&42000 & 75000& 71000\end{array}$
The company has a beginning cash balance on 1 January 2009 of $5000.No other receipts and disbursements in the first quarter are expected.What is the cash balance at the end of March expected to be?

A) $14 000
B) $19 000
C) $ 9000
D) $34 000

Question 77

Which of the following budgets would be prepared by manufacturing companies but not merchandising companies?

A) Sales budget
B) Cash receipts budget
C) Production budget
D) Selling and administrative expenses budget

Question 78

In December of 2008,Jones Inc.was formed as a corporation.The company plans to start its operations in early January of 2009.They have the following purchases budgeted for the first quarter of 2009:
$\begin{array}{lr}\text { January } & \$ 600000 \\\text { February } & 500000 \\\text { March } & 300000\end{array}$
Jones has worked out agreements with its various suppliers to pay for one-quarter of a month's purchases each month,beginning in the month of purchase,until the purchases are paid in full.No purchases were made prior to January.
What are total cash disbursements expected for the first quarter of 2009?

A) $425 000
B) $625 000
C) $775 000
D) $350 000

Question 79

Which type(s)of activities are static budgets less useful for?

A) Operating activities
B) Control activities
C) Planning activities
D) Both control and planning activities

Question 80

Merrell Enterprises had the following purchases budgeted for the last six months of 2009:
$\begin{array}{lr}\text { July } & \$ 100000 \\\text { August } & 80000 \\\text { September } & 90000 \\\text { October } & 70000 \\\text { November } & 90000 \\\text { December } & 100000\end{array}$
Merrell pays one-half of a month's purchases in the month of purchase and the remainder in the following month.What are expected total cash disbursements for the last quarter of 2009?

A) $210 000
B) $255 000
C) $130 000
D) $260 000