Question 1

Caskill Company forecasts $40 000 of sales in January, $38 000 in February, $30 000 in March, and $32 000 in April. Cost of sales is budgeted at 75% of sales. Caskill should have inventory on hand at the end of each month equal to $5 000 plus 20% of the following month's cost of sales. How much are budgeted purchases for January?

Accepted Answer

The answer of Caskill Company forecasts $40 000 of sales...

Question 2

Caskill Company forecasts $40 000 of sales in January, $38 000 in February, $30 000 in March, and $32 000 in April. Cost of sales is budgeted at 75% of sales. Caskill should have inventory on hand at the end of each month equal to $5 000 plus 20% of the following month's cost of sales. How much are budgeted purchases for February?

Accepted Answer

Budgeted purchases for February are calculated as: Ending inventory for February + Cost of sales for February - Beginning inventory for February. Ending inventory for February is $5,000 + 20% of March's cost of sales (20% of $22,500 = $4,500), totaling $9,500. Cost of sales for February is 75% of $38,000, which is $28,500. Beginning inventory for February is the ending inventory for January, which is $5,000 + 20% of February's cost of sales (20% of $28,500 = $5,700), totaling $10,700. Therefore, budgeted purchases for February are $9,500 + $28,500 - $10,700 = $27,300.

Question 3

When a company is preparing a budgeted cash flow statement and they wish to calculate the payments to suppliers for purchases of inventory, they should refer to which of the following?

Accepted Answer

The budgeted cash payments for purchases will provide the necessary information on the expected cash outflows related to inventory purchases.

Question 4

June sales were $40 000 while projected sales for July and August were $50 000 and $60 000, respectively. Sales are 40% cash and 60% credit. All credit sales are collected in the month following the sale. What are the expected collections for July?

Accepted Answer

In July, cash collections will be 40% of July sales ($50,000 * 40% = $20,000) plus credit collections from June sales ($40,000 * 60% = $24,000), totaling $44,000.

Question 5

Purchases for May were $100 000, while expected purchases for June and July are $110 000 and $125 000, respectively. All purchases are paid 25% in the month of purchase and 75% the following month. At what amount are June payments for purchases budgeted?

Accepted Answer

June payments include 25% of June purchases ($110,000 * 25% = $27,500) and 75% of May purchases ($100,000 * 75% = $75,000), totaling $102,500.

Question 6

A company has prepared the operational budget and the cash budget and is now preparing the budgeted balance sheet. To provide the balance for Retained earnings, which document should be used?

Accepted Answer

The budgeted income statement is used to determine the retained earnings balance, as it shows the expected net income, which is added to the beginning retained earnings to calculate the ending retained earnings.

Question 7

When the different business units at a company use differently structured reporting formats for their business unit budgets, it is more difficult for the company to consolidate the business unit data into a companywide budget.

Accepted Answer

If each business unit has their own unique reporting format for their budgets, it can make it challenging to combine and analyze the data from all business units to create a comprehensive companywide budget. Therefore, it is important for companies to establish consistent reporting formats for all business units to facilitate the consolidation process.

Question 8

When a company is preparing a budgeted cash flow statement and they wish to calculate the payments for operating expenses, they should refer to which of the following?

Accepted Answer

Budgeted cash payments for operating expenses is used to calculate the payments for operating expenses in a budgeted cash flow statement.

Question 9

When companies use an enterprise resource planning system to roll up or consolidate the budgets of the individual business units, it is more difficult for managers to conduct sensitivity analysis on their own budget data.

Accepted Answer

Enterprise Resource Planning (ERP) systems facilitate the integration and management of data across different departments, making it easier for managers to access, analyze, and conduct sensitivity analysis on their budget data by providing a unified platform for data analysis.

Question 10

Hatfield Company has the following budgeted credit sales for the last four months of the year -September, $13 000; October, $19 000; November $20 000; December, $24 000. Experience has shown that payment for the credit sales is received as follows: 10% in the month of sale, 60% in the first month after sale, 20% in the second month after sale, and 10% uncollectible. How much cash can Hatfield Company expect to collect in November as a result of credit sales?

Accepted Answer

In November, Hatfield Company will collect 10% of November sales ($20,000 * 10% = $2,000), 60% of October sales ($19,000 * 60% = $11,400), and 20% of September sales ($13,000 * 20% = $2,600). Total collection in November = $2,000 + $11,400 + $2,600 = $16,000.

Question 11

Which of the following best describes the term sensitivity analysis?

Accepted Answer

Sensitivity analysis involves changing key assumptions in a model to see how those changes affect the outcome, helping to understand the robustness of the results.

Question 12

Caribbean Tool and Die Company's forecasted sales for April, May, June and July are $150 000, $225 000, $180 000, and $210 000, respectively. Sales are 50% cash and 50% credit with all accounts receivables collected in the month following the sale.
What are the cash collections budgeted for June?

Accepted Answer

50% of the sales in June are collected in June, and 50% of the sales in May are collected in June. So, the cash collections budgeted for June are $180,000 * 50% + $225,000 * 50% = $90,000 + $112,500 = $202,500.

Question 13

A company has prepared the operational budget and the cash budget and is now preparing the budgeted balance sheet. To provide the balance for Accounts payable, which document should be used?

Accepted Answer

The balance for Accounts payable on the budgeted balance sheet is derived from the budgeted cash payments for purchases, as it reflects the amounts owed to suppliers for inventory or goods purchased on credit.

Question 14

A company has prepared the operational budget and the cash budget and is now preparing the budgeted balance sheet. To provide the balance for Inventory, which document should be used?

Accepted Answer

The Inventory, purchases, and cost of sales budget provides the necessary details to determine the ending inventory balance, which is needed for the budgeted balance sheet.

Question 15

A company has prepared the operational budget and the cash budget and is now preparing the budgeted balance sheet. To provide the balance for Accounts receivable, which document should be used?

Accepted Answer

The balance for Accounts Receivable on the budgeted balance sheet is derived from the Sales Budget and the Budgeted Cash Collections, as it reflects the sales made on credit that have not yet been collected in cash.

Question 16

Farmington Enterprises has budgeted sales for the months of September and October at $300 000 and $280 000, respectively. Monthly sales are 80% credit and 20% cash. Of the credit sales, 50% are collected in the month of sale and 50% are collected in the following month. What are the October cash collections from customers?

Accepted Answer

The answer of Farmington Enterprises has budgeted sales for the...

Question 17

Caskill Company forecasts $40 000 of sales in January, $38 000 in February, $30 000 in March, and $32 000 in April. Cost of sales is budgeted at 75% of sales. Caskill should have inventory on hand at the end of each month equal to $5 000 plus 20% of the following month's cost of sales. How much are budgeted purchases for March?

Accepted Answer

Budgeted purchases for March = (Cost of sales for April x 20%) + (Ending inventory for March - Beginning inventory for March)= ($32,000 x 20%) + ($5,000 + $29,700 - $5,000)= $6,400 + $29,700= $22,800

Question 18

Advance Engineering makes payments on its inventory purchases as follows-30% in the month of purchase, 50% in the following month, and 20% in the second month following purchase. Budgeted inventory purchases for June, July, and August are $50 000, $43 000 and $56 000, respectively. At what amount are cash payments for inventory in August budgeted?

Accepted Answer

The answer of Advance Engineering makes payments on its inventory...

Question 19

A company has prepared the operational budget and the cash budget and is now preparing the budgeted balance sheet. To provide the balance for the Cash account, which document should be used?

Accepted Answer

The cash budget provides detailed information about the expected cash inflows and outflows, which is necessary to determine the balance for the Cash account on the budgeted balance sheet.

Question 20

When a company is preparing a budgeted cash flow statement and they wish to calculate the collections from customers, they should refer to which of the following?

Accepted Answer

The budgeted cash collections are used to calculate the collections from customers in a budgeted cash flow statement.

Quiz 19: Introduction to Managerial Accounting and the Master Budget