Deck 7: Profit Planning

Question 1

In preparing a master budget for a commercial entity,the last schedule prepared is usually the cash budget which summarizes all the previously prepared schedules and provides all information required for control purposes.

Answer 1

False

Question 2

The beginning cash balance is not included on the cash budget since the cash budget deals exclusively with cash flows rather than with balance sheet amounts.

Answer 2

False

Question 3

The production budget includes detailed information as to the number of units of direct materials and the number of direct labour hours required for each budget period for a manufacturing business.

Answer 3

False

Question 4

The direct materials to be purchased for a period can be obtained by subtracting the desired ending inventory of direct materials from the total direct materials needed for the period.

Question 5

In zero-based budgeting,the preparers are required to justify all expenditures,not just changes in the budget from the previous year.

Question 6

Budgets are used for planning rather than for control of operations.

Question 7

Sales forecasts are drawn up after the cash budget has been completed since only then are the funds available for marketing known.

Question 8

On a budgeted balance sheet,the cash number is the ending cash balance as projected by the cash budget.

Question 9

In companies that have "no lay-off" policies,the total direct labour cost for a budget period is computed by multiplying the total direct labour hours needed to make the budgeted output of completed units by the direct labour wage rate.

Question 10

As the sales forecast is the usual starting point for budgeting,not-for-profit entities do not prepare budgets as they have no sales.

Question 11

A multi-tiered business's standing budget committee prepares all the detailed budgets for all components of the organization.

Question 12

Budgets describe in financial terms the plans to achieve an entity's strategic objectives.

Question 13

A self-imposed budget can be a very effective device to control and evaluate a manager's performance in an organization.

Question 14

In a traditional incremental approach to budgeting,there is usually the assumption that the previous year's budget is used as a starting point.

Question 15

The usual starting point in budgeting for a for-profit organization is to make a forecast of cash receipts and cash disbursements.

Question 16

When using the self-imposed budget approach,it is generally best for top management to accept all budget estimates without question in order to minimize adverse behavioural responses from employees.

Question 17

A production budget is to a manufacturing firm as a merchandise purchases budget is to a merchandising firm.

Question 18

In the merchandise purchases budget,the required purchases (in units)for a period can be determined by subtracting the beginning merchandise inventory (in units)from the budgeted sales (in units).

Question 19

Control involves developing objectives and preparing the various budgets to achieve those objectives.

Question 20

One of the distinct advantages of a budget is that it can help to uncover potential bottlenecks before they occur.

Question 21

The PDQ Company makes collections on credit sales according to the following schedule: 25% in month of sale
70% in month following sale
4% in second month following sale
1% uncollectible
The following sales have been budgeted: The budget for cash collections in June will be:

A) $110,000.
B) $111,000.
C) $113,400.
D) $115,500.

Question 22

On a budgeted balance sheet,the retained earnings number is the net income number as projected by the budgeted income statement.

Question 23

The direct materials budget:

A) is the beginning point in the budget process.
B) must provide for desired ending inventory as well as for production.
C) is accompanied by a schedule of cash collections.
D) is completed after the cash budget.

Question 24

Budgeted sales in Allen Company over the next four months are given below: Twenty-five percent of the company's sales are for cash and 75% are on credit.Collections for sales on credit follow a stable pattern as follows: 50% of a month's sales are collected in the month of sale,30% are collected in the month following sale,and 15% are collected in the second month following sale.The remainder are uncollectible.Given these data,cash collections in December should be?

A) $103,500.
B) $120,000.
C) $133,500.
D) $153,000.

Question 25

Which of the following is not a benefit of budgeting?

A) It uncovers potential bottlenecks before they occur.
B) It coordinates the activities of the entire organization by integrating the plans and objectives of the various parts.
C) It ensures that accounting records comply with generally accepted accounting principles.
D) It provides benchmarks for evaluating subsequent performance.

Question 26

The cash budget must be prepared before you can complete the:

A) production budget.
B) budgeted balance sheet.
C) raw materials purchases budget.
D) schedule of cash disbursements.

Question 27

The Tobler Company has budgeted production for next year as follows: Four kilograms of raw materials are required for each unit produced.Raw materials on hand at the start of the year total 4,000 kilograms.The raw materials inventory at the end of each quarter should equal 10% of the next quarter's production needs.Budgeted purchases of raw materials in kilograms in the third quarter will be?

A) 50,400.
B) 56,800.
C) 62,400.
D) 63,200.

Question 28

Parlee Company's sales are 30% in cash and 70% on credit.Sixty percent of the credit sales are collected in the month of sale,25% in the month following sale,and 12% in the second month following sale.The remainder are uncollectible.The following are budgeted sales data: Total cash receipts in April would be budgeted to be:

A) $27,230.
B) $36,230.
C) $38,900.
D) $47,900.

Question 29

Orion Corporation is preparing a cash budget for the six months beginning January 1.Shown below are the company's expected collection pattern and the budgeted sales for the period. Expected collection pattern:
65% collected in the month of sale
20% collected in the month after sale
10% collected in the second month after sale
4% collected in the third month after sale
1% uncollectible The estimated total cash collections during April from sales and accounts receivables will be:

A) $155,900.
B) $167,000.
C) $171,666.
D) $173,400.

Question 30

The Waverly Company has budgeted sales for next year as follows: The ending inventory of finished goods for each quarter should equal 25% of the next quarter's budgeted sales in units.The finished goods inventory at the start of the year is 3,000 units.Scheduled production in units for the third quarter should be:

A) 13,500.
B) 17,500.
C) 18,500.
D) 22,000.

Question 31

Walsh Company expects sales of Product W to be 60,000 units in April,75,000 units in May and 70,000 units in June.The company desires that the inventory on hand at the end of each month be equal to 40% of the next month's expected unit sales.Due to excessive production during March,on March 31 there were 25,000 units of Product W in the ending inventory.Given this information,Walsh Company's production of Product W for the month of April should be how many units:

A) 60,000.
B) 65,000.
C) 66,000.
D) 75,000.

Question 32

Marple Company's budgeted production in units and budgeted raw materials purchases over the next three months are given below: Two kilograms of raw materials are required to produce one unit of product.The company wants raw materials on hand at the end of each month equal to 30% of the following month's production needs.The company is expected to have 36,000 kilograms of raw materials on hand on January 1.Budgeted production in units for February will be?

A) 75,000.
B) 82,500.
C) 105,000.
D) 150,000.

Question 33

Modesto Company produces and sells Product AlphaB.To guard against stockouts,the company requires that 20% of the next month's sales be on hand at the end of each month.Budgeted sales of Product AlphaB over the next four months are: Budgeted production units for August will be:

A) 50,000.
B) 58,000.
C) 62,000.
D) 70,000.

Question 34

The budget or schedule that provides necessary input data for the direct labour budget is the:

A) raw materials purchases budget.
B) production budget.
C) schedule of cash collections.
D) cash budget.

Question 35

Friden Company has budgeted sales and production over the next quarter as follows: The company has 20,000 units of product on hand at April 1.20% of the next month's sales needs in units must be on hand at the end of each month.July sales are expected to be 140,000 units.Budgeted sales for June will be (in units):

A) 128,000.
B) 160,000.
C) 184,000.
D) 188,000.

Question 36

The master budget process usually begins with the:

A) production budget.
B) operating budget.
C) sales budget.
D) cash budget.

Question 37

Superior Industries' sales budget shows quarterly sales for the next year as follows: Company policy is to have a finished goods inventory at the end of each quarter equal to 20% of the next quarter's sales.Budgeted production in units for the second quarter should be:

A) 7,200.
B) 8,000.
C) 8,400.
D) 8,800.

Question 38

Pardee Company plans to sell 12,000 units during the month of August.If the company has 2,500 units on hand at the start of the month,and plans to have 2,000 units on hand at the end of the month,how many units must be produced during the month?

A) 11,500 units.
B) 12,000 units.
C) 12,500 units.
D) 14,000 units.

Question 39

There are various budgets within the master budget.One of these budgets is the production budget.Which of the following BEST describes the production budget?

A) It details the required direct labour hours.
B) It details the required raw materials purchases.
C) It is calculated based on the sales budget,the desired beginning inventory and the desired ending inventory.
D) It summarizes the costs of producing required units for the budget period.

Question 40

Fairmont Inc.uses an accounting system that charges costs to the manager who has been delegated the authority to make decisions concerning the costs.For example,if the sales manager accepts a rush order that will result in higher than normal manufacturing costs,these additional costs are charged to the sales manager because the authority to accept or decline the rush order was given to the sales manager.This type of accounting system is known as:

A) responsibility accounting.
B) contribution accounting.
C) absorption accounting.
D) operational budgeting.

Question 41

ABC Company has a cash balance of $9,000 on April 1.The company must maintain a minimum cash balance of $6,000.During April expected cash receipts are $45,000.Expected cash disbursements during the month total $52,000.During April the company will need to borrow:

A) $2,000.
B) $4,000.
C) $6,000.
D) $8,000.

Question 42

The budgeted cash receipts for October are:

A) $188,000.
B) $226,000.
C) $248,000.
D) $278,000.

Question 43

In a budget of cash receipts for March,the total cash receipts would be:

A) $8,200.
B) $16,000.
C) $17,800.
D) $20,200.

Question 44

The amount of cash collected during the month of June should be:

A) $32,000.
B) $40,000.
C) $40,400.
D) $41,000.

Question 45

In a budgeted balance sheet,the merchandise inventory on February 28 would be:

A) $3,200.
B) $4,800.
C) $7,500.
D) $9,600.

Question 46

In a budgeted income statement for the month of February,net income would be:

A) $0.
B) $1,800.
C) $4,200.
D) $9,000.

Question 47

The expected cash collections from customers during April would be:

A) $117,600.
B) $137,000.
C) $139,000.
D) $150,000.

Question 48

The expected cash disbursements during April for inventory purchases would be:

A) $87,300.
B) $90,000.
C) $97,000.
D) $100,000.

Question 49

The cash disbursements during the month of June for goods purchased for resale and for operating expenses should be:

A) $40,000.
B) $41,000.
C) $42,500.
D) $43,500.

Question 50

The total cash collected by LaGrange Company during January would be:

A) $254,000.
B) $331,500.
C) $344,000.
D) $410,000.

Question 51

The expected cash balance on April 30 would be:

A) $19,700.
B) $28,700.
C) $54,700.
D) $62,700.

Question 52

The accounts receivable balance that would appear in the March 31 budgeted balance sheet would be:

A) $8,800.
B) $12,400.
C) $15,000.
D) $16,000.

Question 53

In a budget of cash disbursements for March,the total cash disbursements would be:

A) $11,200.
B) $13,900.
C) $16,900.
D) $22,300.

Question 54

The Willsey Merchandise Company has budgeted $40,000 in sales for the month of December.The company's cost of goods sold is 30% of sales.If the company has budgeted to purchase $18,000 in merchandise during December,then the budgeted change in inventory levels over the month of December is:

A) $6,000 increase.
B) $10,000 decrease.
C) $15,000 decrease.
D) $22,000 increase.

Question 55

The Stacy Company makes and sells a single product,Product R.Budgeted sales for April are $300,000.Gross margin is budgeted at 30% of sales dollars.If the net income for April is budgeted at $40,000,the budgeted selling and administrative expenses are:

A) $50,000.
B) $78,000.
C) $102,000.
D) $133,333.

Question 56

If Pardise Company plans to sell 480,000 units during July,the number of units it would have to manufacture during July would be:

A) 440,000.
B) 450,000.
C) 480,000.
D) 510,000.

Question 57

Avril Company makes collections on sales according to the following schedule: 30% collected in the month of sale
60% collected in the month following sale
8% collected in the second month following sale
2% uncollectible
The following sales are expected: Cash collections in March should be budgeted to be:

A) $105,000.
B) $110,000.
C) $110,800.
D) $113,000.

Question 58

The expected cash disbursements during April for operating expenses would be:

A) $15,000.
B) $23,000.
C) $30,000.
D) $38,000.

Question 59

What is the budgeted accounts receivable balance on June 1 of the current year:

A) $56,000.
B) $64,000.
C) $76,000.
D) $132,000.

Question 60

The budgeted accounts receivable balance on September 30 is:

A) $126,000.
B) $148,000.
C) $166,000.
D) $190,000.

Question 61

The total number of units to be produced in February is:

A) 5,220.
B) 5,400.
C) 5,580.
D) 6,120.

Question 62

The total of units to be produced in October is:

A) 4,530.
B) 5,070.
C) 5,670.
D) 5,890.

Question 63

The total number of units to be produced in July is:

A) 6,920.
B) 7,100.
C) 7,280.
D) 7,630.

Question 64

The opening inventory in units for April is:

A) 380.
B) 460.
C) 720.
D) 4,600.

Question 65

The opening inventory in units for September is:

A) 370.
B) 530.
C) 670.
D) 6,700.

Question 66

If the budgeted cash disbursements for selling and administrative expenses for November total $123,250,then how many units of Product SW does the company plan to sell in November (rounded to the nearest whole unit):

A) 20,111.
B) 22,952.
C) 25,000.
D) 33,444.

Question 67

The budgeted cash disbursements for December are:

A) $382,500.
B) $442,500.
C) $472,500.
D) $477,500.

Question 68

If the budgeted production for July is 6,000 units,then the total budgeted factory overhead for July is:

A) $77,000.
B) $82,000.
C) $85,000.
D) $93,000.

Question 69

If the company has budgeted to sell 24,000 units of Product SW in September,then the total budgeted fixed selling and administrative expenses for September would be?

A) $48,000.
B) $54,000.
C) $67,000.
D) $78,000.

Question 70

If the company has budgeted to sell 20,000 units of Product SW in October,then the total budgeted variable selling and administrative expenses for October will be:

A) $40,000.
B) $45,000.
C) $56,250.
D) $78,000.

Question 71

If the budgeted cash disbursements for factory overhead for September are $80,000,then the budgeted production in units for September must be?

A) 6,200.
B) 6,500.
C) 7,000.
D) 7,400.

Question 72

The desired ending inventory in units for December is:

A) 690.
B) 780.
C) 870.
D) 960.

Question 73

If 500,000 finished units were to be manufactured during July,the units of raw material needed to be purchased would be:

A) 990,000.
B) 1,000,000.
C) 1,010,000.
D) 1,020,000.

Question 74

The budgeted cash receipts for December are:

A) $137,500.
B) $412,500.
C) $550,000.
D) $585,000.

Question 75

The desired ending inventory in units for March is:

A) 380.
B) 460.
C) 540.
D) 720.

Question 76

The company has budgeted to produce 25,000 units of Product T in June.The finished goods inventories on June 1 and June 30 were budgeted at 500 and 700 units,respectively.Budgeted direct labour costs incurred in June would be:

A) $227,500.
B) $293,384.
C) $295,750.
D) $304,031.

Question 77

If the budgeted production for August is 5,000 units,then the total budgeted factory overhead per unit is:

A) $15.
B) $18.
C) $20.
D) $22.

Question 78

If the company has budgeted to sell 25,000 units of Product SW in July,then the total budgeted selling and administrative expenses for July will be:

A) $56,250.
B) $78,000.
C) $123,250.
D) $134,250.

Question 79

The budgeted direct labour cost per unit of Product T would be:

A) $7.00.
B) $9.10.
C) $10.40.
D) $11.83.

Question 80

The desired ending inventory in units for August is:

A) 370.
B) 530.
C) 670.
D) 710.