Deck 7: The Master Budget: Profit Planning

Question 1

For the budgeting process to be effective, management must focus only on the long-term budget.

Answer 1

False

Question 2

The master budget includes the operating budget, the capital expenditures budget and the financial budget.

Answer 2

True

Question 3

Which is the correct order of preparation?

A) Budgeted income statement; production budget; sales budget; direct materials budget
B) Sales budget; production budget; direct labor budget; budgeted balance sheet
C) Production budget; sales budget; manufacturing overhead budget; direct materials budget
D) Any of the above

Answer 3

Sales budget; production budget; direct labor budget; budgeted balance sheet

Question 4

The budget that informs management about their fixed assets expenditures is called the:

A) cash budget.
B) budgeted balance sheet.
C) production budget.
D) capital expenditures budget.

Question 5

The budget that informs management about the amount of goods they will make is called the:

A) cash budget.
B) budgeted balance sheet.
C) production budget.
D) capital expenditures budget.

Question 6

Heath Company has beginning inventory of 21,000 units and expected sales of 48,000 units. If the desired ending inventory is 15,500 units, how many units should be produced?

A) 27,000
B) 42,500
C) 45,000
D) 53,000

Question 7

Griffith Company has budgeted purchases of direct materials for December of $105,000. Expected beginning materials inventory on December 1 and ending materials inventory on December 31 are $120,000 and $129,000, respectively. If direct materials requisitioned purchases average 75% of direct materials purchases, what are budgeted direct materials purchases for December?

A) $114,000
B) $120,000
C) $128,000
D) $152,999

Question 8

Hogan's management has forecasted sales of 50,000 units and an increase in finished goods of 10,000 units for the upcoming year. How many units is Hogan planning to produce next year?

A) 50,000
B) 40,000
C) 60,000
D) 30,000

Question 9

Norton Company prepared the following sales budget:
The expected gross profit rate is 40% and the finished goods inventory at the end of February was $36,000. Desired inventory levels at the end of the month are 30% of the next month's cost of goods sold. What is the desired beginning inventory on June 1?

A) $36,000
B) $39,600
C) $43,200
D) $46,800

Question 10

Whitaker Company budgets payroll at $3,000 per month plus a percentage of monthly sales. The June operating expense budget includes total payroll of $10,500 with budgeted sales of $150,000. Sales for July are budgeted at $165,000, while purchases of inventory for July are budgeted at $85,000.
Depreciation and insurance for July are estimated at $750 and $500, respectively. Expenses related to purchasing inventory are budgeted at 5% of purchases for the month. The purchase of $3,000 in equipment and $1,200 in furniture is expected in July.

-
The July payroll should be budgeted at what amount?

A) $ 8,250
B) $11,250
C) $11,550
D) $14,550

Question 11

Whitaker Company budgets payroll at $3,000 per month plus a percentage of monthly sales. The June operating expense budget includes total payroll of $10,500 with budgeted sales of $150,000. Sales for July are budgeted at $165,000, while purchases of inventory for July are budgeted at $85,000.
Depreciation and insurance for July are estimated at $750 and $500, respectively. Expenses related to purchasing inventory are budgeted at 5% of purchases for the month. The purchase of $3,000 in equipment and $1,200 in furniture is expected in July.

-
If the percentage used to budget the variable portion of payroll increased 20%, what is the total payroll budgeted for July?

A) $12,900
B) $13,500
C) $13,860
D) $44,250

Question 12

Margo Company manufactures a product that takes 20 pounds of direct materials to produce. Margo'sudgeted sales are 2,000 units in August and 2,500 units in September. Margo's ending finished Goods inventory is budgeted to be 20% of the following month's sales. How much was Margo's Budgeted direct materials purchases for the month of August, assuming that the direct material costs $3.75 per pound and the direct materials inventory quantity is NOT budgeted to change?

A) $150,000
B) $187,500
C) $120,000
D) $157,500

Question 13

C.J.'s Cookie Company produces chocolate chip cookies. Raw materials inventory includes flour, sugar, and chocolate chips at standard cost of $5.00 per pound. C.J. uses 1/20 of a pound of raw materials per cookie. CJ's anticipates quarterly sales as follows:
Beginning finished goods inventory is 90,000 cookies. Beginning raw materials inventory is 6,000 pounds. Target raw materials = 40% of next quarter's material needs. Target finished goods inventory is 30% of next quarter's sales.

- What is the forecasted production for the first quarter, 2012?

A) 355,000
B) 330,000
C) 325,000
D) 400,000

Question 14

C.J.'s Cookie Company produces chocolate chip cookies. Raw materials inventory includes flour, sugar, and chocolate chips at standard cost of $5.00 per pound. C.J. uses 1/20 of a pound of raw materials per cookie. CJ's anticipates quarterly sales as follows:
Beginning finished goods inventory is 90,000 cookies. Beginning raw materials inventory is 6,000 pounds. Target raw materials = 40% of next quarter's material needs. Target finished goods inventory is 30% of next quarter's sales.

- What is the forecasted production for the second quarter, 2012?

A) 355,000
B) 330,000
C) 325,000
D) 400,000

Question 15

C.J.'s Cookie Company produces chocolate chip cookies. Raw materials inventory includes flour, sugar, and chocolate chips at standard cost of $5.00 per pound. C.J. uses 1/20 of a pound of raw materials per cookie. CJ's anticipates quarterly sales as follows:
Beginning finished goods inventory is 90,000 cookies. Beginning raw materials inventory is 6,000 pounds. Target raw materials = 40% of next quarter's material needs. Target finished goods inventory is 30% of next quarter's sales.

-What is the forecasted production for the third quarter, 2012?

A) 355,000
B) 330,000
C) 325,000
D) 400,000

Question 16

C.J.'s Cookie Company produces chocolate chip cookies. Raw materials inventory includes flour, sugar, and chocolate chips at standard cost of $5.00 per pound. C.J. uses 1/20 of a pound of raw materials per cookie. CJ's anticipates quarterly sales as follows:
Beginning finished goods inventory is 90,000 cookies. Beginning raw materials inventory is 6,000 pounds. Target raw materials = 40% of next quarter's material needs. Target finished goods inventory is 30% of next quarter's sales.

- What is the budgeted amount of pounds of direct materials that need to be purchased for the first quarter, 2012?

A) 16,500
B) 17,150
C) 17,600
D) 23,600

Question 17

C.J.'s Cookie Company produces chocolate chip cookies. Raw materials inventory includes flour, sugar, and chocolate chips at standard cost of $5.00 per pound. C.J. uses 1/20 of a pound of raw materials per cookie. CJ's anticipates quarterly sales as follows:
Beginning finished goods inventory is 90,000 cookies. Beginning raw materials inventory is 6,000 pounds. Target raw materials = 40% of next quarter's material needs. Target finished goods inventory is 30% of next quarter's sales.

- What is the budgeted amount of pounds of direct materials that need to be purchased for the second quarter, 2012?

A) 17,750
B) 17,150
C) 24,250
D) 17,600

Question 18

C.J.'s Cookie Company produces chocolate chip cookies. Raw materials inventory includes flour, sugar, and chocolate chips at standard cost of $5.00 per pound. C.J. uses 1/20 of a pound of raw materials per cookie. CJ's anticipates quarterly sales as follows:
Beginning finished goods inventory is 90,000 cookies. Beginning raw materials inventory is 6,000 pounds. Target raw materials = 40% of next quarter's material needs. Target finished goods inventory is 30% of next quarter's sales. Planned production for 1^st quarter 2013 is 440,000.

-What is the budgeted amount of pounds of direct materials that need to be purchased for the third quarter, 2012?

A) 18,550
B) 25,050
C) 16,250
D) 17,150

Question 19

C.J.'s Cookie Company produces chocolate chip cookies. Raw materials inventory includes flour, sugar, and chocolate chips at standard cost of $5.00 per pound. C.J. uses 1/20 of a pound of raw materials per cookie. CJ's anticipates quarterly sales as follows:
Beginning finished goods inventory is 90,000 cookies. Beginning raw materials inventory is 6,000 pounds. Target raw materials = 40% of next quarter's material needs. Target finished goods inventory is 30% of next quarter's sales.

- What is the budgeted cost of direct materials that need to be purchased for the first quarter, 2012?

A) $16,500
B) $88,000
C) $82,500
D) $118,000

Question 20

C.J.'s Cookie Company produces chocolate chip cookies. Raw materials inventory includes flour, sugar, and chocolate chips at standard cost of $5.00 per pound. C.J. uses 1/20 of a pound of raw materials per cookie. CJ's anticipates quarterly sales as follows:
Beginning finished goods inventory is 90,000 cookies. Beginning raw materials inventory is 6,000 pounds. Target raw materials = 40% of next quarter's material needs. Target finished goods inventory is 30% of next quarter's sales.

-What is the budgeted cost of direct materials that need to be purchased for the second quarter, 2012?

A) $88,750
B) $17,150
C) $121,250
D) $85,750

Question 21

CJ.'s Cookie Company produces chocolate chip cookies. Raw materials inventory includes flour, sugar,
And chocolate chips at standard cost of $5.00 per pound. C.J. uses 1/20 of a pound of raw materials per cookie. CJ's anticipates quarterly sales as follows:
Beginning finished goods inventory is 90,000 cookies. Beginning raw materials inventory is 6,000 pounds. Target raw materials = 40% of next quarter's material needs. Target finished goods inventory is 30% of next quarter's sales.

- What is the budgeted cost of direct materials that need to be purchased for the third quarter, 2012?

A) $18,550
B) $92,750
C) $81,250
D) $125,250

Question 22

The cash budget impacts both the budgeted balance sheet and cash budget.

Question 23

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

A) $102,500
B) $107,500
C) $110,000
D) $121,250

Question 24

Fasthound Express prepared the following sales budget:
Credit collections are 50% in the month of sale, 40% in the month following the sale, and 5% two months following the sale. The remaining 5% is expected to be uncollectible.

-
What are the total cash collections in June?

A) $42,500
B) $50,000
C) $82,500
D) $90,000

Question 25

Fasthound Express prepared the following sales budget:
Credit collections are 50% in the month of sale, 40% in the month following the sale, and 5% two months following the sale. The remaining 5% is expected to be uncollectible.

-
What is the total cash received in April from April sales?

A) $23,000
B) $35,000
C) $43,000
D) $50,000

Question 26

Acorn Company's budgeted credit sales are as follows:
April: $100,000
May: $120,000
June: $125,000
Acorn collects 30% of their credit sales during the month of sale, 50% during the month following the sale, and the remaining 20% two months after the month of sale.

- What are the budgeted cash collections from customers for the month of June?

A) $125,000
B) $85,000
C) $80,000
D) $117,500

Question 27

Pecan Corporation's budgeted March cash sales are $40,000 and budgeted credit sales are $260,000.
Pecan's budgeted Accounts receivable balance was $65,000 at the beginning of March and $79,000
At the end of March.

-How much was Pecan's budgeted cash collections from customers during March?

A) $286,000
B) $314,000
C) $274,000
D) $246,000

Question 28

The following information has been provided by Jared Incorporated:
.Budgeted sales for August and September are $120,000 and $140,000, respectively.
.Budgeted direct materials inventory purchases for August and September are $60,000 and $84,000, respectively.
.30% of direct materials purchased are paid for during the month of purchase, and the remaining 70% are paid for during the subsequent month.
.20% of sales are collected during the month of sale, and the remaining 80% are collected during the subsequent month.
.Variable operating costs are budgeted at 25% of sales. Fixed operating costs are budgeted at $21,000 monthly and include depreciation expense of $7,000. Operating costs are paid for in the month that they are incurred.
.The cash balance on September 1st was $10,000. Jared's goal is to maintain a $10,000 cash balance. Jared can borrow cash in increments of $1,000.

-
How much cash will be paid to suppliers during September?

A) $84,000
B) $67,200
C) $76,800
D) $72,000

Question 29

The following information has been provided by Jared Incorporated:
.Budgeted sales for August and September are $120,000 and $140,000, respectively.
.Budgeted direct materials inventory purchases for August and September are $60,000 and $84,000, respectively.
.30% of direct materials purchased are paid for during the month of purchase, and the remaining 70% are paid for during the subsequent month.
.20% of sales are collected during the month of sale, and the remaining 80% are collected during the subsequent month.
.Variable operating costs are budgeted at 25% of sales. Fixed operating costs are budgeted at $21,000 monthly and include depreciation expense of $7,000. Operating costs are paid for in the month that they are incurred.
.The cash balance on September 1st was $10,000. Jared's goal is to maintain a $10,000 cash balance. Jared can borrow cash in increments of $1,000.

-
How much cash will be colleted from customers during September?

A) $130,000
B) $140,000
C) $136,000
D) $124,000

Question 30

The following information has been provided by Jared Incorporated:
.Budgeted sales for August and September are $120,000 and $140,000, respectively.
.Budgeted direct materials inventory purchases for August and September are $60,000 and $84,000, respectively.
.30% of direct materials purchased are paid for during the month of purchase, and the remaining 70% are paid for during the subsequent month.
.20% of sales are collected during the month of sale, and the remaining 80% are collected during the subsequent month.
.Variable operating costs are budgeted at 25% of sales. Fixed operating costs are budgeted at $21,000 monthly and include depreciation expense of $7,000. Operating costs are paid for in the month that they are incurred.
.The cash balance on September 1st was $10,000. Jared's goal is to maintain a $10,000 cash balance. Jared can borrow cash in increments of $1,000.

-
How much cash is budgeted to be paid in September for operating costs?

A) $36,000
B) $35,000
C) $71,000
D) $64,000

Question 31

The following information has been provided by Jared Incorporated:
.Budgeted sales for August and September are $120,000 and $140,000, respectively.
.Budgeted direct materials inventory purchases for August and September are $60,000 and $84,000, respectively.
.30% of direct materials purchased are paid for during the month of purchase, and the remaining 70% are paid for during the subsequent month.
.20% of sales are collected during the month of sale, and the remaining 80% are collected during the subsequent month.
.Variable operating costs are budgeted at 25% of sales. Fixed operating costs are budgeted at $21,000 monthly and include depreciation expense of $7,000. Operating costs are paid for in the month that they are incurred.
.The cash balance on September 1st was $10,000. Jared's goal is to maintain a $10,000 cash balance. Jared can borrow cash in increments of $1,000.

-
How much will Jared have to borrow during September in order to maintain the $10,000 minimum cash balance?

A) $8,000
B) $1,200
C) $9,000
D) $7,200

Question 32

The following information has been provided by Zeppelin Corporation:
.Budgeted sales for January and February are $240,000 and $280,000, respectively.
.Budgeted direct materials inventory purchases for January and February are $120,000 and $168,000, respectively.
.40% of direct materials purchased are paid for during the month of purchase and the remaining 60% are paid for during the subsequent month.
.10% of sales are collected during the month of sale and the remaining 90% are collected during the subsequent month.
.Variable operating costs are budgeted at 25% of sales. Fixed operating costs are budgeted at $72,000 monthly and include depreciation expense of $14,000. Operating costs are paid for in the month that they are incurred.
.The cash balance on February 1st was $20,000. Zeppelin's goal is to maintain at least a $20,000 cash balance. Zeppelin can borrow cash in increments of $1,000.

-
How much cash will be paid to suppliers during February?

A) $148,800
B) $139,200
C) $168,000
D) $115,200

Question 33

The following information has been provided by Zeppelin Corporation:
.Budgeted sales for January and February are $240,000 and $280,000, respectively.
.Budgeted direct materials inventory purchases for January and February are $120,000 and $168,000, respectively.
.40% of direct materials purchased are paid for during the month of purchase and the remaining 60% are paid for during the subsequent month.
.10% of sales are collected during the month of sale and the remaining 90% are collected during the subsequent month.
.Variable operating costs are budgeted at 25% of sales. Fixed operating costs are budgeted at $72,000 monthly and include depreciation expense of $14,000. Operating costs are paid for in the month that they are incurred.
.The cash balance on February 1st was $20,000. Zeppelin's goal is to maintain at least a $20,000 cash balance. Zeppelin can borrow cash in increments of $1,000.

-
How much cash will be collected from customers during February?

A) $234,000
B) $276,000
C) $244,000
D) $216,000

Question 34

The following information has been provided by Zeppelin Corporation:
.Budgeted sales for January and February are $240,000 and $280,000, respectively.
.Budgeted direct materials inventory purchases for January and February are $120,000 and $168,000, respectively.
.40% of direct materials purchased are paid for during the month of purchase and the remaining 60% are paid for during the subsequent month.
.10% of sales are collected during the month of sale and the remaining 90% are collected during the subsequent month.
.Variable operating costs are budgeted at 25% of sales. Fixed operating costs are budgeted at $72,000 monthly and include depreciation expense of $14,000. Operating costs are paid for in the month that they are incurred.
.The cash balance on February 1st was $20,000. Zeppelin's goal is to maintain at least a $20,000 cash balance. Zeppelin can borrow cash in increments of $1,000.

-
How much cash is budgeted to be paid in February for operating costs?

A) $118,000
B) $132,000
C) $142,000
D) $128,000

Question 35

The following information has been provided by Zeppelin Corporation:
.Budgeted sales for January and February are $240,000 and $280,000, respectively.
.Budgeted direct materials inventory purchases for January and February are $120,000 and $168,000, respectively.
.40% of direct materials purchased are paid for during the month of purchase and the remaining 60% are paid for during the subsequent month.
.10% of sales are collected during the month of sale and the remaining 90% are collected during the subsequent month.
.Variable operating costs are budgeted at 25% of sales. Fixed operating costs are budgeted at $72,000 monthly and include depreciation expense of $14,000. Operating costs are paid for in the month that they are incurred.
.The cash balance on February 1st was $20,000. Zeppelin's goal is to maintain at least a $20,000 cash balance. Zeppelin can borrow cash in increments of $1,000.

-
How much will Zeppelin have to borrow during February in order to maintain the $20,000 minimum cash balance?

A) $33,000
B) $24,000
C) $67,000
D) $63,000

Question 36

Lavender Corporation prepares 3 master budgets every year, considering the low, average and high for expected sales and production each year. This is an example of sensitivity analysis.

Question 37

Actual results often differ from plans so management uses sensitivity analysis to know how budgeted income and cash balances would change if key assumptions turned out to be incorrect.

Question 38

“What if" analyses are NOT often used in preparing budgets for a company.

Question 39

“What if" analyses help management plan for what will happen if a budget assumption changes.

Question 40

Joey’s parents plan on saving to pay for his college for the next 10 years. They prepare 3 sets of required deposits to a savings account based on that account earning 2%, 4%, or 6%. This is an example of sensitivity analysis.

Question 41

Sensitivity analysis may help a company:

A) plan for changes in collectability of accounts receivable.
B) anticipate future cash flow shortages.
C) adjust interest expenses based on various interest rates that may be charged on loans.
D) with all of the above.