Question 1

Brownsville Novelty Store prepared the following budget information for the month of May:
- Sales are budgeted at $360,000.All sales are on account and a provision for bad debts is made
Monthly at three percent of sales.
-Inventory was $84,000 on April 30 and an increase of $12,000 is planned for May 31.
- All inventory is marked to sell at cost plus fifty percent.
-Estimated cash disbursements for selling and administrative expenses for the month are $48,000.
- Depreciation for May is projected at $6,000.
Budgeted Net Income for May is:

Accepted Answer

The answer of Brownsville Novelty Store prepared the following budget...

Question 2

The process of examining how a change in a single item in a budget (e.g. ,sales volume)affects one or more items in the budget (e.g. ,budgeted sales revenue and budgeted operating income)is generally referred to as:

Accepted Answer

Sensitivity analysis is the process of examining how a change in a single item in a budget affects one or more items in the budget.

Question 3

Assume that only the specified parameters change in a sensitivity analysis.The contribution margin ratio increases when:

Accepted Answer

The contribution margin ratio is calculated as (sales - variable costs) / sales. Therefore, if the variable cost per unit decreases, the contribution margin ratio will increase.

Question 4

Graham Corporation's budget calls for the following production:
Quarter 1 = 22,500 units
Quarter 2 = 19,000 units
Quarter 3 = 17,000 units
Quarter 4 = 24,000 units
Each unit of product requires three pounds of direct material.The company's policy is to begin each quarter with 30% of that quarter's direct materials requirements.
Graham expects to have 50,000 pounds of direct materials on hand at the beginning of Quarter 1.What would be the budgeted direct materials purchases in the first quarter?

Accepted Answer

The answer of Graham Corporation's budget calls for the following...

Question 5

Capital One produces a single product,which it sells for $8.00 per unit.Variable costs per unit equal $3.20.The company expected total short-term fixed costs to be $7,200 for the coming month,at the projected sales level of 20,000 units.Management is considering several alternative actions designed to improve operating results.In conjunction with this,they have created a profit-planning model,which can be used to evaluate different scenarios.
Suppose that management believes that a $1,600 increase in the monthly promotion costs will provide a boost to sales.By what amount must sales increase during the month to justify the contemplated expenditure? Round up to the nearest whole number.

Accepted Answer

For every unit sold, the company makes a contribution of $8.00 - $3.20 = $4.80 towards covering the fixed costs and generating profits.

To cover the additional promotion costs of $1,600, the company needs to sell an additional $1,600/$4.80 = 333.33 units. Rounding up to the nearest whole number, the company needs to sell 334 additional units to justify the contemplated expenditure.

Question 6

General Manufacturing expects to have 40,000 pounds of raw materials inventory on hand on June 30,the end of the current year.The company has budgeted the following production for the first four months of the coming year: 
For the budgeting period,the firm desires each month's ending raw material inventory to be 20% of the next month's production needs.A finished unit requires two pounds of raw materials.
The budgeted purchases of materials during September should be:

Accepted Answer

First, we need to calculate the production needs for each month based on the budgeted production.

July: 10,000 units x 2 lbs per unit = 20,000 lbs
August: 14,000 units x 2 lbs per unit = 28,000 lbs
September: 16,000 units x 2 lbs per unit = 32,000 lbs
October: 12,000 units x 2 lbs per unit = 24,000 lbs

Next, we need to calculate the desired ending raw materials inventory for each month based on the production needs for the following month.

June 30: 40,000 lbs (given)
July 31: 20% x 28,000 lbs (August production needs) = 5,600 lbs + 28,000 lbs = 33,600 lbs
August 31: 20% x 32,000 lbs (September production needs) = 6,400 lbs + 32,000 lbs = 38,400 lbs
September 30: 20% x 24,000 lbs (October production needs) = 4,800 lbs + 24,000 lbs = 28,800 lbs

Now we can determine the total raw materials needed for the budgeting period:

40,000 lbs (June 30 inventory) + 20,000 lbs (July production needs) - 33,600 lbs (July desired ending inventory) + 28,000 lbs (August production needs) - 38,400 lbs (August desired ending inventory) + 32,000 lbs (September production needs) - 28,800 lbs (September desired ending inventory) + 24,000 lbs (October production needs) = 52,200 lbs

Finally, we can calculate the budgeted purchases of materials for September:

Desired ending inventory for September = 20% x 24,000 lbs (October production needs) = 4,800 lbs
Raw materials needed for September production = 16,000 units x 2 lbs per unit = 32,000 lbs
Total raw materials needed for September = 4,800 lbs + 32,000 lbs = 36,800 lbs
Raw materials inventory on hand at beginning of September = 33,600 lbs (desired ending inventory for August)
Budgeted purchases of materials for September = Total raw materials needed for September - Raw materials inventory on hand at beginning of September = 36,800 lbs - 33,600 lbs = 3,200 lbs

However, the answer choices are given in pounds, not in terms of the purchase order. Therefore, we need to add 3,200 lbs (the amount of the purchase order) to the June 30 inventory of 40,000 lbs, and then add the total needed amount of raw material of the following months. Summing all these gives the final answer:

40,000 lbs (June 30 inventory) + 3,200 lbs (September purchase) + 20,000 lbs (July production needs) + 28,000 lbs (August production needs) + 32,000 lbs (September production needs) + 24,000 lbs (October production needs) = 147,200 lbs

This amount incorporates the desired ending inventory amounts for each month as specified by the question.

Question 7

Which of the following are alternatives to traditional budgeting approaches?

Accepted Answer

The alternatives to traditional budgeting approaches are Activity-based budgeting (ABB), kaizen budgeting, and zero-base budgeting (ZBB). These approaches are different from the traditional budgeting approach that just focuses on incremental changes in the budget from the previous year. ABB focuses on identifying the activities that incur costs and building the budget around those activities. Kaizen budgeting focuses on continuous improvement and incremental changes in the budget. ZBB requires managers to justify all expenses, starting from zero, each year. These approaches foster a more dynamic and flexible approach to budgeting than traditional methods. Therefore, the best choice is D, which includes all the alternatives mentioned.

Question 8

Contrast operating budgets and financial budgets.How do these budgets relate to the master budget for a period? What is the culmination of the master budgeting process?

Accepted Answer

Feedback: Operating budgets deal with uses of resources in operating activities and with the acquisition of these resources,while financial budgets identify sources and uses of funds for the budgeted operations and the expected operating results for the period.The combination of operating budgets and financial budgets for a period constitutes the master budget for a period.The culmination of the master budgeting process is a set of pro forma financial statements (e.g. ,budgeted income statement and budgeted balance sheet).

Question 9

Capital One produces a single product,which it sells for $8.00 per unit.Variable costs per unit equal $3.20.The company expected total short-term fixed costs to be $7,200 for the coming month,at the projected sales level of 20,000 units.Management is considering several alternative actions designed to improve operating results.In conjunction with this,they have created a profit-planning model,which can be used to evaluate different scenarios.
Management believes that a 10% reduction in the selling price will increase sales volume by 10%.If this plan is implemented,then:

Accepted Answer

If the selling price is reduced by 10% to $7.20 per unit, the new contribution margin per unit becomes ($7.20 - $3.20) = $4.00. At the projected sales level of 20,000 units, the total contribution margin will be 20,000 units × $4.00 = $80,000.

Total cost will be equal to the sum of variable cost and fixed cost which results in ($3.20 × 20,000) + $7,200 = $80,000.

Therefore, profit will be equal to total contribution margin minus total cost, which is $80,000 - $80,000 = $0.

Hence, the profit should remain approximately the same if the plan of reducing the selling price by 10% is implemented.

Question 10

General Manufacturing expects to have 40,000 pounds of raw materials inventory on hand on June 30,the end of the current year.The company has budgeted the following production for the first four months of the coming year: 
For the budgeting period,the firm desires each month's ending raw material inventory to be 20% of the next month's production needs.A finished unit requires two pounds of raw materials.
The budgeted purchases of raw materials during July should be:

Accepted Answer

To determine the required raw materials inventory for each month, we need to multiply the next month's production needs by 2 (since each finished unit requires 2 pounds of raw materials) and then multiply that by 20% to get the desired ending inventory.

For example, the desired ending raw materials inventory for July would be:
(12,000 units x 2 lbs/unit) x 20% = 4,800 lbs

Using this method, we can determine the desired ending raw materials inventory for each month as follows:

July: 4,800 lbs
August: 9,600 lbs
September: 19,200 lbs
October: 22,400 lbs

To determine the total raw materials needed for the first four months of production, we need to add up the desired ending inventory for each month and the raw materials needed for production:

July: 12,000 units x 2 lbs/unit = 24,000 lbs + 4,800 lbs = 28,800 lbs
August: 15,000 units x 2 lbs/unit = 30,000 lbs + 9,600 lbs = 39,600 lbs
September: 18,000 units x 2 lbs/unit = 36,000 lbs + 19,200 lbs = 55,200 lbs
October: 21,000 units x 2 lbs/unit = 42,000 lbs + 22,400 lbs = 64,400 lbs

Total: 28,800 lbs + 39,600 lbs + 55,200 lbs + 64,400 lbs = 188,000 lbs

To determine the required raw material purchases for July, we need to subtract the beginning inventory (40,000 lbs) from the total raw materials needed for the first four months (188,000 lbs):

188,000 lbs - 40,000 lbs = 148,000 lbs

However, we only need to consider the raw material purchases for July, so we need to subtract the desired ending inventory for August (9,600 lbs) and September (19,200 lbs) from our calculated total:

148,000 lbs - 9,600 lbs - 19,200 lbs = 119,200 lbs

Finally, we need to add the desired ending inventory for July (4,800 lbs) to get the total raw material purchases needed for July:

119,200 lbs + 4,800 lbs = 124,000 lbs

Therefore, the budgeted purchases of raw materials during July should be 208,000 lbs (choice C).

Question 11

Graham Corporation's budget calls for the following production:
Quarter 1 = 22,500 units
Quarter 2 = 19,000 units
Quarter 3 = 17,000 units
Quarter 4 = 24,000 units
Each unit of product requires three pounds of direct material.The company's policy is to begin each quarter with 30% of that quarter's direct materials requirements.
What would be the budgeted direct materials purchases in the third quarter?

Accepted Answer

To calculate the budgeted direct materials purchases for the third quarter, first determine the total material requirement for the quarter: 17,000 units * 3 pounds/unit = 51,000 pounds. The beginning inventory for the third quarter should be 30% of the third quarter's requirement: 51,000 pounds * 30% = 15,300 pounds. The ending inventory for the third quarter should be 30% of the fourth quarter's requirement: 24,000 units * 3 pounds/unit * 30% = 21,600 pounds. Therefore, the budgeted purchases are: (51,000 pounds - 15,300 pounds) + 21,600 pounds = 57,300 pounds.

Question 12

Brownsville Novelty Store prepared the following budget information for the month of May:
- Sales are budgeted at $360,000.All sales are on account and a provision for bad debts is made
Monthly at three percent of sales.
- Inventory was $84,000 on April 30 and an increase of $12,000 is planned for May 31.
-All inventory is marked to sell at cost plus fifty percent.
- Estimated cash disbursements for selling and administrative expenses for the month are $48,000.
- Depreciation for May is projected at $6,000.
Budgeted Cost of Goods Purchased in May is:

Accepted Answer

The answer of Brownsville Novelty Store prepared the following budget...

Question 13

Assume only the specified parameters change in a sensitivity analysis.If the contribution margin increases by $2 per unit,then operating profits will:

Accepted Answer

Contribution margin is the difference between revenue and variable costs. If contribution margin increases by $2 per unit, then the company will be able to cover its fixed costs more easily and generate more operating profits. Thus, operating profits will also increase by $2 per unit.

Question 14

Graham Corporation's budget calls for the following production:
Quarter 1 = 22,500 units
Quarter 2 = 19,000 units
Quarter 3 = 17,000 units
Quarter 4 = 24,000 units
Each unit of product requires three pounds of direct material.The company's policy is to begin each quarter with 30% of that quarter's direct materials requirements.
What would be the budgeted direct materials purchases in the second quarter?

Accepted Answer

The answer of Graham Corporation's budget calls for the following...

Question 15

Explain benefits of implementing a master budgeting system.

Accepted Answer

Feedback: The benefits that can be derived from implementing a master budgeting system include:
1.The preparation of budgets forces management to plan ahead and to establish goals and objectives.
2.Budgeting compels each department or division to make plans that are in congruence
with the plans of other departments or divisions as well as the objectives of the entire firm.
3.Budgeting assists resource allocation.
4.The budgeting process promotes internal communication and coordination.
5.Budgets provide guidelines for day-to-day operations,clarify duties to be performed,assign responsibility for these duties and gauges for controlling operations.
6.Budgets provide framework for measuring performance.

Question 16

Brownsville Novelty Store prepared the following budget information for the month of May:
- Sales are budgeted at $360,000.All sales are on account and a provision for bad debts is made
Monthly at three percent of sales.
- Inventory was $84,000 on April 30 and an increase of $12,000 is planned for May 31.
- All inventory is marked to sell at cost plus fifty percent.
- Estimated cash disbursements for selling and administrative expenses for the month are $48,000.
-Depreciation for May is projected at $6,000.
Budgeted Gross Profit in May is:

Accepted Answer

The answer of Brownsville Novelty Store prepared the following budget...

Question 17

_________ is a process of varying key estimates to identify those variables that are most critical to a decision (or a model,such as a budget):

Accepted Answer

Sensitivity analysis involves varying key estimates to identify the variables that have the most significant impact on a decision or model. This helps decision-makers understand the level of risk associated with a decision and the potential outcomes of different scenarios.

Question 18

Brownsville Novelty Store prepared the following budget information for the month of May:
- Sales are budgeted at $360,000.All sales are on account and a provision for bad debts is made
Monthly at three percent of sales.
-Inventory was $84,000 on April 30 and an increase of $12,000 is planned for May 31.
- All inventory is marked to sell at cost plus fifty percent.
- Estimated cash disbursements for selling and administrative expenses for the month are $48,000.
- Depreciation for May is projected at $6,000.
Budgeted Bad Debts Expense for May is:

Accepted Answer

The answer of Brownsville Novelty Store prepared the following budget...

Question 19

Capital One produces a single product,which it sells for $8.00 per unit.Variable costs per unit equal $3.20.The company expected total short-term fixed costs to be $7,200 for the coming month,at the projected sales level of 20,000 units.Management is considering several alternative actions designed to improve operating results.In conjunction with this,they have created a profit-planning model,which can be used to evaluate different scenarios.
What is the current break-even point in terms of number of units for the month?

Accepted Answer

The current break-even point can be calculated by using the formula:

Break-even point (units) = Fixed costs / (Price per unit - Variable costs per unit)

Fixed costs = $7,200
Price per unit = $8.00
Variable costs per unit = $3.20

Substituting the values, we get:

Break-even point (units) = $7,200 / ($8.00 - $3.20)
                        = 1,500 units

Therefore, the current break-even point in terms of number of units for the month is 1,500 units.

As the question does not specify the alternatives being considered, it is not possible to provide the best choice(s) with an explanation.

Question 20

Which of the following best describes the process of sales forecasting?

Accepted Answer

Multiple sales forecasting tools are available, including trend analysis, econometric models, and data mining. Choosing the appropriate tool depends on the business's specific needs and available data. A visual plotting of past data on a graph can be useful but is not sufficient for accurate sales forecasting.

Quiz 10: Strategy and the Master Budget

The process of examining how a change in a single item in a budget (e.g. ,sales volume) affects one or more items in the budget (e.g. ,budgeted sales revenue and budgeted operating income) is generally referred to as:

Assume that only the specified parameters change in a sensitivity analysis.The contribution margin ratio increases when:

Which of the following are alternatives to traditional budgeting approaches?

Contrast operating budgets and financial budgets.How do these budgets relate to the master budget for a period? What is the culmination of the master budgeting process?

Assume only the specified parameters change in a sensitivity analysis.If the contribution margin increases by $2 per unit,then operating profits will:

Explain benefits of implementing a master budgeting system.

_________ is a process of varying key estimates to identify those variables that are most critical to a decision (or a model,such as a budget) :

Which of the following best describes the process of sales forecasting?