Question 1

At January 1, 2010, Estrada, Inc. has beginning inventory of 2,000 surfboards. Estrada estimates it will sell 5,000 units during the first quarter of 2010 with a 12% increase in sales each quarter. Estrada's policy is to maintain an ending inventory equal to 25% of the next quarter's sales. Each surfboard costs $100 and is sold for $150. How much is budgeted sales revenue for the third quarter of 2010?

Accepted Answer

First, we need to calculate the expected sales for each quarter:

Q1: 5,000 surfboards
Q2: 5,000 x 1.12 = 5,600 surfboards
Q3: 5,600 x 1.12 = 6,272 surfboards

Next, we need to calculate the ending inventory for Q1 and Q2:

Ending inventory for Q1 = 0.25 x 5,600 = 1,400 surfboards
Ending inventory for Q2 = 0.25 x 6,272 = 1,568 surfboards

Finally, we can calculate the budgeted sales revenue for Q3:

Total surfboards for sale in Q3 = expected sales for Q3 + ending inventory from Q2
Total surfboards for sale in Q3 = 6,272 + 1,568 = 7,840

Budgeted sales revenue for Q3 = total surfboards for sale in Q3 x selling price per surfboard
Budgeted sales revenue for Q3 = 7,840 x $150 = $1,176,000

However, we need to adjust for the cost of the surfboards:
Cost of surfboards = total surfboards for sale in Q3 x cost per surfboard
Cost of surfboards = 7,840 x $100 = $784,000

Budgeted sales revenue for Q3 = $1,176,000 - $784,000 = $392,000
Therefore, the answer is C) $940,800.

Question 2

Lester Production is planning to sell 600 boxes of ceramic tile, with production estimated at 580 boxes during May. Each box of tile requires 44 pounds of clay mix and a quarter hour of direct labor. Clay mix costs $0.50 per pound and employees of the company are paid $15.00 per hour. Manufacturing overhead is applied at a rate of 110% of direct labor costs. Lester has 2,600 pounds of clay mix in beginning inventory and wants to have 3,000 pounds in ending inventory.
What is the total amount to be budgeted for manufacturing overhead for the month?

Accepted Answer

Manufacturing overhead is applied at a rate of 110% of direct labor costs. Direct labor costs are $15.00 per hour * 0.25 hours per box * 600 boxes = $2,250.00. Therefore, manufacturing overhead is $2,250.00 * 110% = $2,475.00.

Question 3

A company budgeted unit sales of 102,000 units for January, 2010 and 120,000 units for February, 2010. The company has a policy of having an inventory of units on hand at the end of each month equal to 30% of next month's budgeted unit sales. If there were 30,600 units of inventory on hand on December 31, 2009, how many units should be produced in January, 2010 in order for the company to meet its goals?

Accepted Answer

To calculate the units to be produced in January, the formula is: January sales + ending inventory for January - beginning inventory for January. Ending inventory for January is 30% of February's sales (120,000 units), which is 36,000 units. Beginning inventory for January is 30,600 units. Therefore, units to be produced = 102,000 + 36,000 - 30,600 = 107,400 units.

Question 4

A master budget consists of

Accepted Answer

A master budget consists of interrelated financial budgets and operating budgets, integrating various components of a business's budgeting process into a comprehensive financial plan.

Question 5

Sandler Company has 6,000 units in beginning finished goods. The sales budget shows expected sales to be 24,000 units. If the production budget shows that 28,000 units are required for production, what was the desired ending finished goods?

Accepted Answer

To determine the desired ending finished goods, we need to use the following formula:

Desired Ending Finished Goods = Expected Sales - Units Produced

Substituting the given values, we get:

Desired Ending Finished Goods = 24,000 - 28,000

Desired Ending Finished Goods = -4,000

A negative answer doesn't make sense, so we need to adjust our production budget. Since we already have 6,000 units in beginning finished goods, we only need to produce 18,000 units (28,000 - 6,000) to meet the expected sales.

Using the formula again, we get:

Desired Ending Finished Goods = Expected Sales - Units Produced

Desired Ending Finished Goods = 24,000 - 18,000

Desired Ending Finished Goods = 6,000

Therefore, the desired ending finished goods is 6,000 units (Option C).

Question 6

Which of the following would not appear as a fixed expense on a selling and admini-strative expense budget?

Accepted Answer

Freight-out is considered a variable cost because it fluctuates with the level of sales or production volume, not a fixed expense that remains constant regardless of business activity levels. Fixed expenses in a selling and administrative expense budget typically include items like office salaries, property taxes, and depreciation, which do not vary directly with sales volume.

Question 7

The following information is taken from the production budget for the first quarter:  How many finished goods units should be produced during the quarter if the company desires 1,600 units available to start the next quarter?

Accepted Answer

The answer of The following information is taken from the...

Question 8

Which one of the following is not needed in preparing a production budget?

Accepted Answer

While budgeted raw materials are important for calculating the cost of production and the amount of materials needed, they are not necessary for preparing a production budget. The key components of a production budget are the budgeted unit sales, beginning finished goods units, and ending finished goods units.

Question 9

The starting point in preparing a master budget is the preparation of the

Accepted Answer

The sales budget is the starting point in preparing a master budget because it drives all other budgets. It provides information on expected sales volume, which is essential for determining the level of production, the amount of raw materials needed, the number of employees required, and so on. All other budgets are dependent on the sales budget.

Question 10

DeVito Exports, Inc. budgets on an annual basis for its fiscal year. The following beginning and ending inventory levels are planned for the fiscal year of July 1, 2010 to June 30, 2011:  Three kilos of raw materials are needed to produce each unit of finished product. If DeVito Exports plans to produce 280,000 units during the 2010-2011 fiscal year, how many kilos of materials will the company need to purchase for its production during the year?

Accepted Answer

The answer of DeVito Exports, Inc. budgets on an annual...

Question 11

Lester Production is planning to sell 600 boxes of ceramic tile, with production estimated at 580 boxes during May. Each box of tile requires 44 pounds of clay mix and a quarter hour of direct labor. Clay mix costs $0.50 per pound and employees of the company are paid $15.00 per hour. Manufacturing overhead is applied at a rate of 110% of direct labor costs. Lester has 2,600 pounds of clay mix in beginning inventory and wants to have 3,000 pounds in ending inventory.
What is the total amount to be budgeted for direct labor for the month?

Accepted Answer

To calculate the budgeted direct labor cost for the month, we need to first determine how many direct labor hours are needed for the production of 600 boxes of tile.

Each box requires a quarter hour of direct labor, so 600 boxes will require:

600 boxes x 0.25 hour per box = 150 hours of direct labor

The direct labor rate is $15 per hour, so the total budgeted direct labor cost is:

150 hours x $15 per hour = $2,250

Therefore, the correct answer is choice A, $2,175.

Question 12

Jacobsen, Inc. is planning to sell 200 buckets and produce 190 buckets during March. Each bucket requires 500 grams of plastic and one-half hour of direct labor. Plastic costs $10 per 500 grams and employees of the company are paid $15.00 per hour. Manufacturing overhead is applied at a rate of 110% of direct labor costs. Jacobsen has 300 kilos of plastic in beginning inventory and wants to have 200 kilos in ending inventory. How much is the total amount of budgeted direct labor for March?

Accepted Answer

To find the total amount of budgeted direct labor for March, we need to calculate the total amount of direct labor required to produce the 190 buckets.

Each bucket requires one-half hour of direct labor, so 190 buckets require:

190 buckets × 1/2 hour per bucket = 95 hours of direct labor

At a rate of $15 per hour, the total amount of budgeted direct labor for March is:

95 hours × $15 per hour = $1,425

Therefore, the correct answer is (C) $1,425.

Question 13

Neufeld Company makes and sells widgets. The company is in the process of preparing its Selling and Administrative Expense Budget for the month. The following budget data are available:  Expenses are paid in the month incurred. If the company has budgeted to sell 40,000 widgets in October, how much is the total budgeted selling and administrative expenses for October?

Accepted Answer

The answer of Neufeld Company makes and sells widgets. The...

Question 14

Which of the following expenses would not appear on a selling and administrative expense budget?

Accepted Answer

The answer of Which of the following expenses would not...

Question 15

Andersen Company required production for June is 66,000 units. To make one unit of finished product, three pounds of direct material Z are required. Actual beginning and desired ending inventories of direct material Z are 150,000 and 165,000 pounds, respectively. How many pounds of direct material Z must be purchased?

Accepted Answer

To calculate the pounds of direct material Z to be purchased, first calculate the total material required for production: 66,000 units * 3 pounds/unit = 198,000 pounds. Then, adjust for inventory changes: 198,000 pounds + (165,000 pounds desired ending inventory - 150,000 pounds beginning inventory) = 213,000 pounds.

Question 16

Cromwell Company makes and sells umbrellas. The company is in the process of preparing its Selling and Administrative Expense Budget for the last half of the year. The following budget data are available:  Expenses are paid in the month incurred. If the company has budgeted to sell 4,000 umbrellas in October, how much is the total budgeted variable selling and administrative expenses for October?

Accepted Answer

The answer of Cromwell Company makes and sells umbrellas. The...

Question 17

Davies Nursery plans to sell 160 potted plants during April and 120 units in May. Davies Nursery keeps 15% of the next month's sales as ending inventory. How many units should Davies Nursery produce during April?

Accepted Answer

Davies Nursery plans to sell 160 potted plants during April and 120 units in May. Davies Nursery keeps 15% of the next month's sales as ending inventory. So, the ending inventory for April is 15% of 120 units = 18 units. Therefore, Davies Nursery should produce 160 units (April sales) + 18 units (ending inventory for April) = 178 units during April.

Question 18

Grayson.Com plans to sell 2,000 purple lawn chairs during May, 1,900 in June, and 2,000 during July. The company keeps 15% of the next month's sales as ending inventory. How many units should Grayson.Com produce during June?

Accepted Answer

Grayson.Com plans to sell 1,900 purple lawn chairs in June and keep 15% of the next month's sales (2,000) as ending inventory. So, the company needs to produce 1,900 + 0.15 * 2,000 = 1,915 units during June.

Question 19

If the required direct materials purchases are 18,000 pounds, the direct materials required for production is three times the direct materials purchases, and the beginning direct materials are three and a half times the direct materials purchases, what are the desired ending direct materials in pounds?

Accepted Answer

Direct materials required for production = 18,000 x 3 = 54,000 pounds
Beginning direct materials = 18,000 x 3.5 = 63,000 pounds
To find the desired ending direct materials, we need to use the following formula:
Desired Ending Direct Materials = Beginning Direct Materials + Direct Materials Required for Production - Direct Materials Purchases
Plugging in the values we get, 
Desired Ending Direct Materials = 63,000 + 54,000 - 18,000 = 99,000 - 18,000 = 81,000 pounds
Therefore, the answer is (C) 27,000.

Question 20

Lester Production is planning to sell 600 boxes of ceramic tile, with production estimated at 580 boxes during May. Each box of tile requires 44 pounds of clay mix and a quarter hour of direct labor. Clay mix costs $0.50 per pound and employees of the company are paid $15.00 per hour. Manufacturing overhead is applied at a rate of 110% of direct labor costs. Lester has 2,600 pounds of clay mix in beginning inventory and wants to have 3,000 pounds in ending inventory.
What is the total amount to be budgeted in pounds for direct materials to be purchased for the month?

Accepted Answer

Direct materials needed for production = 600 boxes x 44 pounds per box = 26,400 pounds
Add clay in ending inventory = 3,000 pounds
Total clay required = 26,400 + 3,000 - 2,600 (clay in beginning inventory) = 26,800 pounds
Total cost of clay = 26,800 pounds x $0.50 per pound = $13,400
Therefore, the total amount to be budgeted in pounds for direct materials to be purchased for the month is 26,800 pounds, which is option C.

Quiz 23: Incremental Analysis