Deck 9: Financial Planning and Analysis: the Master Budget

Question 1

Wilmar Corporation is budgeting its equipment needs on an on-going basis, with a new quarter being added to the budget as the current quarter is completed. This type of budget is most commonly known as a:

A) capital budget.
B) rolling budget.
C) revised budget.
D) pro-forma budget.
E) financial budget.

Answer 1

B

Question 2

Which of the following choices correctly denotes managerial functions that are commonly associated with budgeting?

A) Choice A
B) Choice B
C) Choice C
D) Choice D
E) Choice E

Answer 2

B

Question 3

James Corporation, headquartered in Chicago, has a manufacturing plant in Dallas. Plant managers desire to participate in the company's budget efforts, which, for the past 10 years, have been handled solely by top executives in Chicago. Dallas managers feel that by becoming involved, they can make great strides in terms of improving operating performance of their aging facility.
Required:
Briefly discuss this situation, focusing on the benefits and problems of letting Dallas managers participate in the company's budgetary efforts.

Answer 3

Chapter 09 Financial Planning and

Question 4

A company's plan for the acquisition of long-lived assets, such as buildings and equipment, is commonly called a:

A) pro-forma budget.
B) master budget.
C) financial budget.
D) profit plan.
E) capital budget.

Question 5

That employees make little effort to achieve budgetary goals is an outcome sometimes associated with participative budgeting.

Question 6

A company's sales forecast would likely not consider general economic and industry trends.

Question 7

A budget serves as a benchmark against which:

A) actual results can be compared.
B) allocated results can be compared.
C) actual results become inconsequential.
D) allocated results become inconsequential.
E) cash balances can be compared to expense totals.

Question 8

Sainte Claire Corporation has a highly automated production facility. Production volume and management judgment are the two factors that would likely have the most direct influence on the company's manufacturing overhead budget.

Question 9

A company's plan for the issuance of stock or incurrence of debt is commonly called a:

A) pro-forma budget.
B) master budget.
C) financial budget.
D) profit plan.
E) capital budget.

Question 10

An organization's budgets will often be prepared to cover:

A) one month.
B) one quarter.
C) one year.
D) periods longer than one year.
E) all of the other answers are correct.

Question 11

The budgeted income statement, budgeted balance sheet, and budgeted statement of cash flows comprise:

A) the final portion of the master budget.
B) the depiction of an organization's overall actual financial results.
C) the first step of the master budget.
D) the portion of the master budget prepared after the sales forecast and before the remainder of the operational budgets.
E) the second step of the master budget.

Question 12

The comprehensive set of budgets that serves as a company's overall financial plan is commonly known as the financial budget.

Question 13

Generally speaking, budgets are not used to:

A) identify a company's most profitable products.
B) evaluate performance.
C) create a plan of action.
D) assist in the control of profit and operations.
E) facilitate communication and coordinate activities.

Question 14

The budgeting technique that helps managers assess the company's future and know if they are reaching their performance goals is called life-cycle budgeting.

Question 15

Which of the following budgets is prepared at the end of the budget-construction cycle?

A) Sales budget.
B) Production budget.
C) Budgeted financial statements.
D) Cash budget.
E) Overhead budget.

Question 16

A formal budget program will almost always result in:

A) higher sales.
B) more cash inflows than cash outflows.
C) decreased expenses.
D) improved profits.
E) a detailed plan against which actual results can be compared.

Question 17

The comprehensive set of budgets that serves as a company's overall financial plan is commonly known as:

A) an integrated budget.
B) a pro-forma budget.
C) a master budget.
D) a financial budget.
E) a rolling budget.

Question 18

A manufacturing firm would begin preparation of its master budget by constructing a:

A) sales budget.
B) production budget.
C) cash budget.
D) capital budget.
E) set of pro-forma financial statements.

Question 19

A company's expected receipts from sales and planned disbursements to pay bills is commonly called a:

A) pro-forma budget.
B) master budget.
C) financial budget.
D) profit plan.
E) cash budget.

Question 20

Which of the following budgets is based on many other master-budget components?

A) Direct labor budget.
B) Overhead budget.
C) Sales budget.
D) Cash budget.
E) Selling and administrative expense budget.

Question 21

Yorkley Corporation plans to sell 41,000 units of its single product in March. The company has 2,800 units in its March 1 finished-goods inventory and anticipates having 2,400 completed units in inventory on March 31. On the basis of this information, how many units does Yorkley plan to produce during March?

A) 40,600.
B) 41,400.
C) 43,800.
D) 46,200.
E) None of the other answers are correct.

Question 22

Which of the following would have no effect, either direct or indirect, on an organization's cash budget?

A) Sales revenues.
B) Outlays for professional labor.
C) Advertising expenditures.
D) Raw material purchases.
E) None of the other answers are correct, since all of these items would have some influence.

Question 23

The master budget contains the following components, among others: (1) direct-material budget, (2) budgeted balance sheet, (3) production budget, and (4) cash budget. Which of these components would be prepared first and which would be prepared last?

A) Choice A
B) Choice B
C) Choice C
D) Choice D
E) Choice E

Question 24

Mayze Production Company, which uses activity-based budgeting, is in the process of preparing a manufacturing overhead budget. Which of the following would likely appear on that budget?

A) Batch-level costs: Production setup.
B) Unit-level costs: Depreciation.
C) Unit-level costs: Maintenance.
D) Product-level costs: Insurance and property taxes.
E) Facility and general operations-level costs: Indirect material.

Question 25

Swamp Fox has the following sales forecasts for its hip waders next year: What is Swamp Fox's estimated sales in units for next year?

A) 41,485 pairs.
B) 38,300 pairs.
C) 40,000 pairs.
D) 40,685 pairs.
E) None of the other answers are correct.

Question 26

Activity-based budgeting:

A) begins with a forecast of products and services to be produced, and customers served.
B) ends with a forecast of products and services to be produced, and customers served.
C) parallels the flow of analysis that is associated with activity-based costing.
D) reverses the flow of analysis that is associated with activity-based costing.
E) None of the other answers are correct.

Question 27

A company's sales forecast would likely consider all of the following factors except:

A) past sales levels and trends.
B) the company's intended pricing policy.
C) the company's product costing policy.
D) market research studies.
E) planned advertising and promotions.

Question 28

A company's sales forecast would likely consider all of the following factors except:

A) political and legal events.
B) advertising and pricing policies.
C) general economic and industry trends.
D) top management's attitude toward decentralized operating structures.
E) competition.

Question 29

Swamp Fox has the following sales forecasts for its hip waders next year: What is Swamp Fox's estimated sales revenue for next year if each pair sells for an average of $30?

A) $1,149,000.
B) $1,200,000.
C) $1,220,550.
D) $1,244,550.
E) None of the other answers are correct.

Question 30

Sainte Claire Corporation has a highly automated production facility. Which of the following correctly shows the two factors that would likely have the most direct influence on the company's manufacturing overhead budget?

A) Sales volume and labor hours.
B) Contribution margin and cash payments.
C) Production volume and management judgment.
D) Labor hours and management judgment.
E) Management judgment and indirect labor cost.

Question 31

Which of the following would depict the logical order for preparing (1) a production budget, (2) a cash budget, (3) a sales budget, and (4) a direct-labor budget?

A) 1-3-4-2.
B) 2-3-1-4.
C) 2-1-3-4.
D) 3-1-4-2.
E) 3-1-2-4.

Question 32

Which of the following statements best describes the relationship between the sales-forecasting process and the master-budgeting process?

A) The sales forecast is typically completed after completion of the master budget.
B) The sales forecast is typically completed approximately halfway through the master-budget process.
C) The sales forecast is typically completed before the master budget and has no impact on the master budget.
D) The sales forecast is typically completed before the master budget and has little impact on the master budget.
E) The sales forecast is typically completed before the master budget and has significant impact on the master budget.

Question 33

Bird plans to sell 5,000 units each quarter next year. During the first two quarters each unit will sell for $12; during the last two quarters the sales price will increase $1.50 per unit. What is Bird's estimated sales revenue for next year?

A) $240,000.
B) $255,000.
C) $270,000.
D) $244,000.
E) None of the other answers are correct.

Question 34

Swansong plans to sell 10,000 units of a particular product during July, and expects sales to increase at the rate of 10% per month during the remainder of the year. The June 30 and September 30 ending inventories are anticipated to be 1,100 units and 950 units, respectively. On the basis of this information, how many units should Swansong purchase for the quarter ended September 30?

A) 31,850.
B) 32,150.
C) 32,950.
D) 33,250.
E) None of the other answers are correct.

Question 35

Which of the following organizations is not likely to use budgets?

A) Manufacturing firms.
B) Merchandising firms.
C) Firms in service industries.
D) Nonprofit organizations.
E) none of the other answers are correct, because all are likely to use budgets.

Question 36

Nonprofit organizations begin their budgeting process with:

A) a sales budget.
B) anticipated funding.
C) proforma financial statements.
D) services to be provided.
E) a cash budget.

Question 37

A company that uses activity-based budgeting performs the following:
1-Plans activities for the budget period.
2-Forecasts the demand for products and services as well as the customers to be served.
3-Budgets the resources necessary to carry out activities.
Which of the following denotes the proper order of the preceding activities?

A) 1-2-3.
B) 2-1-3.
C) 2-3-1.
D) 3-1-2.
E) 3-2-1.

Question 38

Bison Sporting Goods sells bicycles throughout the northeastern United States. The following data were taken from the most recent quarterly sales forecast: $\begin{array}{lll}&& \text { End-of-Month } \\&\text { Expected Sales } & \text { Target Inventory }\\\text { July } & 1,800 \text { units } & 210 \text { units } \\\text { August } & 1,950 \text { units } & 300 \text { units } \\\text { September } & 1,880 \text { units } & 270 \text { units }\end{array}$ On the basis of the information presented, how many bicycles should the company purchase in August?

A) 1,860.
B) 1,950.
C) 2,040.
D) 2,250.
E) None of the other answers are correct.

Question 39

Which of the following would be considered when preparing a company's sales forecast?

A) Choice A
B) Choice B
C) Choice C
D) Choice D
E) Choice E

Question 40

FastTec sells electronics in retail outlets and on the Internet. It uses activity-based budgeting in the preparation of its selling, general, and administrative expense budget. Which of the following costs would the company likely classify as a unit-level expense on its budget?

A) Media advertising.
B) Retail outlet sales commissions.
C) Salaries of web-site maintenance personnel.
D) Administrative salaries.
E) Salary of the sales manager employed at store no. 23.

Question 41

Coleman, Inc. anticipates sales of 50,000 units, 48,000 units, and 51,000 units in July, August, and September, respectively. Company policy is to maintain an ending finished-goods inventory equal to 40% of the following month's sales. On the basis of this information, how many units would the company plan to produce in July?

A) 46,800.
B) 49,200.
C) 49,800.
D) 52,200.
E) None of the other answers are correct.

Question 42

Northcutt's production data for a new deluxe product were taken from the most recent quarterly production budget: In addition, Northcutt produces 5,000 units a month of its standard product. It takes two direct labor hours to produce each standard unit and 2.25 direct labor hours to produce each deluxe unit. Northwest's cost per labor hour is $15. Direct labor cost for the quarter would be budgeted at:

A) $519,075.
B) $533,125.
C) $547,750.
D) $553,950.
E) None of the other answers are correct.

Question 43

Quattro began operations in April of this year. It makes all sales on account, subject to the following collection pattern: 30% are collected in the month of sale; 60% are collected in the first month after sale; and 10% are collected in the second month after sale. If sales for April, May, and June were $60,000, $80,000, and $70,000, respectively, what were the firm's budgeted collections for June?

A) $21,000.
B) $60,000.
C) $69,000.
D) $75,000.
E) None of the other answers are correct.

Question 44

Coleman, Inc. anticipates sales of 50,000 units, 48,000 units, and 51,000 units in July, August, and September, respectively. Company policy is to maintain an ending finished-goods inventory equal to 40% of the following month's sales. On the basis of this information, how many units would the company plan to produce in August?

A) 48,000.
B) 49,200.
C) 49,800.
D) 50,600.
E) None of the other answers are correct.

Question 45

Quattro began operations in April of this year. It makes all sales on account, subject to the following collection pattern: 30% are collected in the month of sale; 60% are collected in the first month after sale; and 10% are collected in the second month after sale. If sales for April, May, and June were $60,000, $80,000, and $70,000, respectively, what were the firm's budgeted collections for April?

A) $18,000.
B) $21,000.
C) $60,000.
D) $65,000.
E) None of the other answers are correct.

Question 46

Northwest manufactures a product requiring 0.5 ounces of platinum per unit. The cost of platinum is approximately $360 per ounce; the company maintains an ending platinum inventory equal to 10% of the following month's production usage. The following data were taken from the most recent quarterly production budget: The cost of platinum to be purchased to support August production is:

A) $195,840.
B) $198,000.
C) $200,160.
D) $391,680.
E) None of the other answers are correct.

Question 47

Northcutt's production data for a new deluxe product were taken from the most recent quarterly production budget: In addition, Northcutt produces 5,000 units a month of its standard product. It takes two direct labor hours to produce each standard unit and 2.25 direct labor hours to produce each deluxe unit. Northwest's cost per labor hour is $15. Direct labor cost for July would be budgeted at:

A) $183,750.
B) $187,125.
C) $189,125.
D) $194,750.
E) None of the other answers are correct.

Question 48

Northwest's production data for one of its products were taken from the most recent quarterly production budget: If it takes two direct labor hours to produce each unit and Northwest's cost per labor hour is $15, direct labor cost for August would be budgeted at:

A) $16,500.
B) $31,200.
C) $33,000.
D) $34,800.
E) None of the other answers are correct.

Question 49

Tidewater plans to sell 85,000 units of product no. 794 in May, and each of these units requires three units of raw material. Pertinent data follow. On the basis of the information presented, how many units of raw material should Tidewater purchase for use in May production?

A) 228,000.
B) 246,000.
C) 264,000.
D) 282,000.
E) None of the other answers are correct.

Question 50

Nguyen plans to sell 40,000 units of product no. 75 in June, and each of these units requires five square feet of raw material. Pertinent data follow. If the company purchases 201,000 square feet of raw material during the month, the estimated raw-material inventory on June 30 would be:

A) 11,000 square feet.
B) 13,000 square feet.
C) 23,000 square feet.
D) 25,000 square feet.
E) None of the other answers are correct.

Question 51

Northcutt's production data for a new deluxe product were taken from the most recent quarterly production budget: In addition, Northcutt produces 5,000 units a month of its standard product. It takes two direct labor hours to produce each standard unit and 2.25 direct labor hours to produce each deluxe unit. Northwest's cost per labor hour is $15. Direct labor cost for August would be budgeted at:

A) $187,125.
B) $194,750.
C) $197,107.
D) $183,250.
E) None of the other answers are correct.

Question 52

Verna's makes all sales on account, subject to the following collection pattern: 20% are collected in the month of sale; 70% are collected in the first month after sale; and 10% are collected in the second month after sale. If sales for October, November, and December were $70,000, $60,000, and $50,000, respectively, what was the budgeted receivables balance on December 31?

A) $40,000.
B) $46,000.
C) $49,000.
D) $59,000.
E) None of the other answers are correct.

Question 53

Coleman, Inc. anticipates sales of 50,000 units, 48,000 units, 51,000 units and 50,000 units in July, August, September and October, respectively. Company policy is to maintain an ending finished-goods inventory equal to 40% of the following month's sales. On the basis of this information, how many units would the company plan to produce in September?

A) 46,800.
B) 49,200.
C) 49,800.
D) 50,600.
E) None of the other answers are correct.

Question 54

Dragon makes all sales on account, subject to the following collection pattern: 30% are collected in the month of sale; 60% are collected in the first month after sale; and 10% are collected in the second month after sale. If sales for June, July, and August were $120,000, $160,000, and $220,000, respectively, what were the firm's budgeted collections for August and the company's budgeted receivables balance on August 31?

A) Choice A
B) Choice B
C) Choice C
D) Choice D
E) Choice E

Question 55

Northcutt's production data for a new deluxe product were taken from the most recent quarterly production budget: In addition, Northcutt produces 5,000 units a month of its standard product. It takes two direct labor hours to produce each standard unit and 2.25 direct labor hours to produce each deluxe unit. Northwest's cost per labor hour is $15. Direct labor cost for September would be budgeted at:

A) $187,125.
B) $183,075.
C) $194,750.
D) $197,075.
E) None of the other answers are correct.

Question 56

Quattro began operations in April of this year. It makes all sales on account, subject to the following collection pattern: 30% are collected in the month of sale; 60% are collected in the first month after sale; and 10% are collected in the second month after sale. If sales for April, May, and June were $60,000, $80,000, and $70,000, respectively, what were the firm's budgeted collections for the quarter?

A) $121,000.
B) $140,000.
C) $153,000.
D) $175,000.
E) None of the other answers are correct.

Question 57

Telfair & Company had 3,000 units in finished-goods inventory on December 31. The following data are available for the upcoming year: $\begin{array}{lrr}&\text { January }&\text { February }\\\text { Units to be produced } & 9,400 & 10,200 \\\text { Desired ending finished-goods inventory } & 2,500 & 2,100\end{array}$ The number of units the company expects to sell in January is:

A) 6,900.
B) 8,900.
C) 9,400.
D) 9,900.
E) 11,900.

Question 58

An examination of Shorter Corporation's inventory accounts revealed the following information:
Raw materials, June 1: 46,000 units
Raw materials, June 30: 51,000 units
Purchases of raw materials during June: 185,000 units
Shorter's finished product requires four units of raw materials. On the basis of this information, how many finished products were manufactured during June?

A) 45,000.
B) 47,500.
C) 57,750.
D) 70,500.
E) None of the other answers are correct.

Question 59

To derive the raw material to purchase during an accounting period, an accountant would calculate the raw material required for production and then:

A) add the beginning raw-material inventory and the desired ending raw-material inventory.
B) subtract the beginning raw-material inventory and the desired ending raw-material inventory.
C) add the beginning raw-material inventory and subtract the desired ending raw-material inventory.
D) add the desired ending raw-material inventory and subtract the beginning raw-material inventory.
E) add the desired ending raw-material inventory and subtract both the beginning raw-material inventory and the expected units to be sold.

Question 60

Quattro began operations in April of this year. It makes all sales on account, subject to the following collection pattern: 30% are collected in the month of sale; 60% are collected in the first month after sale; and 10% are collected in the second month after sale. If sales for April, May, and June were $60,000, $80,000, and $70,000, respectively, what were the firm's budgeted collections for May?

A) $21,000.
B) $60,000.
C) $69,000.
D) $75,000.
E) None of the other answers are correct.

Question 61

The following events took place when Managers A, B, and C were preparing budgets for the upcoming period:
I) Manager A increased property tax expenditures by 2% when she was informed of a recent rate hike by local authorities.
II) Manager B reduced sales revenues by 4% when informed of recent aggressive actions by a new competitor.
III) Manager C, who supervises employees with widely varying skill levels, used the highest wage rate in the department when preparing the labor budget.
Assuming that the percentage amounts given are reasonable, which of the preceding cases is (are) an example of building slack in budgets?

A) I only.
B) II only.
C) III only.
D) I and II.
E) II and III.

Question 62

The Gingham Company's budgeted income statement reflects the following amounts: $$\begin{array} { l c c r } & \underline { \text { Sales } } & \underline { \text { Purchases } } & \underline { \text { Expenses } } \\\text { January } & \$ 120,000 & \$ 78,000 & \$ 24,000 \\\text { February } & 110,000 & 66,000 & 24,200 \\\text { March } & 125,000 & 81,250 & 27,000 \\\text { April } & 130,000 & 84,500 & 28,600\end{array}$$ Sales are collected 50% in the month of sale, 30% in the month following sale, and 19% in the second month following sale. One percent of sales is uncollectible and expensed at the end of the year.
Gingham pays for all purchases in the month following purchase and takes advantage of a 3% discount. The following balances are as of January 1: $$\begin{array} { l r } \text { Cash } & \$ 88,000 \\\text { Accounts receivable* } & 58,000 \\\text { Accounts payable } & 72,000\end{array}$$
*Of this balance, $35,000 will be collected in January and the remaining amount will be collected in February.
The monthly expense figures include $5,000 of depreciation. The expenses are paid in the month incurred.
Gingham's expected cash balance at the end of February is:

A) $87,000.
B) $89,160.
C) $92,000.
D) $94,160.
E) $113,300.

Question 63

End-of-period figures for accounts receivable and payables to suppliers would be found on the:

A) cash budget.
B) budgeted schedule of cost of goods manufactured.
C) budgeted income statement.
D) budgeted balance sheet.
E) budgeted statement of cash flows.

Question 64

Consider the following statements about budgetary slack:
I) Managers build slack into a budget so that they stand a greater chance of receiving favorable performance evaluations.
II) Budgetary slack is used by managers to guard against uncertainty and unforeseen events.
III) Budgetary slack is used by managers to guard against dollar cuts by top management in the resource allocation process.
Which of the above statements is (are) true?

A) I only.
B) II only.
C) I and II.
D) II and III.
E) I, II, and III.

Question 65

Virginia State University (VSU) is preparing its master budget for the upcoming academic year (an academic year consists of two semesters). Currently, 12,000 students are enrolled on campus; however, the admissions office is forecasting a 5% growth in the student body despite a tuition hike to $80 per credit hour. The following additional information has been gathered from an examination of university records and conversations with university officials:
• VSU is planning to award 150 tuition-free scholarships.
• The average class has 30 students, and the typical student takes 15 credit hours each semester.
• Each class is three credit hours.
• Each faculty member teaches five classes during the academic year.
Required:
A. Compute the budgeted tuition revenue for the upcoming academic year.
B. Determine the number of faculty members needed to cover classes.
C. In preparing the university's master budget, should the administration begin with a forecast of students or a forecast of faculty members? Briefly explain.

Question 66

The difference between the revenue or cost projection that a person provides, and a realistic estimate of the revenue or cost, is called:

A) passing the buck.
B) budgetary slack.
C) false budgeting.
D) participative budgeting.
E) resource allocation processing.

Question 67

If a manager builds slack into a budget, how would that manager handle estimates of revenues and expenses?

A) Choice A
B) Choice B
C) Choice C
D) Choice D
E) Choice E

Question 68

Brooke-lyn makes all purchases on account, subject to the following payment pattern:
Paid in the month of purchase: 30%
Paid in the first month following purchase: 65%
Paid in the second month following purchase: 5%
If purchases for April, May, and June were $200,000, $160,000, and $250,000, respectively, what was the firm's budgeted payables balance on June 30?

A) $175,000.
B) $179,000.
C) $183,000.
D) $189,000.
E) None of the other answers are correct.

Question 69

When an organization involves its many employees in the budgeting process in a meaningful way, the organization is said to be using an approach most commonly known as:

A) budgetary slack.
B) participative budgeting.
C) budget padding.
D) imposed budgeting.
E) employee-based budgeting.

Question 70

Digregory makes all purchases on account, subject to the following payment pattern:
Paid in the month of purchase: 30%
Paid in the first month following purchase: 60%
Paid in the second month following purchase: 10%
If purchases for January, February, and March were $200,000, $180,000, and $230,000, respectively, what were the firm's budgeted payments in March?

A) $69,000.
B) $138,000.
C) $177,000.
D) $197,000.
E) None of the other answers are correct.

Question 71

Which of the following outcomes is (are) sometimes associated with participative budgeting?

A) Employees make little effort to achieve budgetary goals.
B) Budget preparation time can be somewhat lengthy.
C) The problem of budget padding may arise.
D) Financial modeling becomes much more difficult to undertake.
E) Budget preparation time can be somewhat lengthy and the problem of budget padding may arise.

Question 72

The Gingham Company's budgeted income statement reflects the following amounts: $$\begin{array} { l c c r } & \underline { \text { Sales } } & \underline { \text { Purchases } } & \underline { \text { Expenses } } \\\text { January } & \$ 120,000 & \$ 78,000 & \$ 24,000 \\\text { February } & 110,000 & 66,000 & 24,200 \\\text { March } & 125,000 & 81,250 & 27,000 \\\text { April } & 130,000 & 84,500 & 28,600\end{array}$$ Sales are collected 50% in the month of sale, 30% in the month following sale, and 19% in the second month following sale. One percent of sales is uncollectible and expensed at the end of the year.
Gingham pays for all purchases in the month following purchase and takes advantage of a 3% discount. The following balances are as of January 1: $$\begin{array} { l r } \text { Cash } & \$ 88,000 \\\text { Accounts receivable* } & 58,000 \\\text { Accounts payable } & 72,000\end{array}$$
*Of this balance, $35,000 will be collected in January and the remaining amount will be collected in February.
The monthly expense figures include $5,000 of depreciation. The expenses are paid in the month incurred.
Gingham's expected cash balance at the end of January is:

A) $87,000.
B) $89,160.
C) $92,000.
D) $94,160.
E) $113,160.

Question 73

Consider the following statements about companies that are involved with international operations:
I) Budgeting for these firms is often very involved because of fluctuating values in foreign currencies.
II) Multinational firms may encounter hyperinflationary economies.
III) Such organizations often face changing laws and political climates that affect business activity.
Which of the above statements is (are) true?

A) I only.
B) III only.
C) I and II.
D) II and III.
E) I, II, and III.

Question 74

The Gingham Company's budgeted income statement reflects the following amounts: $$\begin{array} { l c c r } & \underline { \text { Sales } } & \underline { \text { Purchases } } & \underline { \text { Expenses } } \\\text { January } & \$ 120,000 & \$ 78,000 & \$ 24,000 \\\text { February } & 110,000 & 66,000 & 24,200 \\\text { March } & 125,000 & 81,250 & 27,000 \\\text { April } & 130,000 & 84,500 & 28,600\end{array}$$ Sales are collected 50% in the month of sale, 30% in the month following sale, and 19% in the second month following sale. One percent of sales is uncollectible and expensed at the end of the year.
Gingham pays for all purchases in the month following purchase and takes advantage of a 3% discount. The following balances are as of January 1: $$\begin{array} { l r } \text { Cash } & \$ 88,000 \\\text { Accounts receivable* } & 58,000 \\\text { Accounts payable } & 72,000\end{array}$$
*Of this balance, $35,000 will be collected in January and the remaining amount will be collected in February.
The monthly expense figures include $5,000 of depreciation. The expenses are paid in the month incurred.
Gingham's budgeted cash payments in February are:

A) $75,660.
B) $94,860.
C) $97,200.
D) $99,860.
E) $102,200.

Question 75

Which of the following statements concerning the budget director is false?

A) The budget director is often an organization's controller.
B) The budget director has the responsibility of specifying the process by which budget data will be gathered.
C) The budget director collects information and participates in preparing the master budget.
D) The budget director communicates budget procedures and deadlines to employees throughout an organization.
E) The budget director usually has the authority to give final approval to the master budget.

Question 76

Consider the following statements about budget administration:
I) The budgeting process is a very formal process in all organizations regardless of an organization's size.
II) The budget manual is prepared to communicate budget procedures and deadlines to employees throughout an organization.
III) Effective internal control procedures require that the budget director be an individual other than the controller.
Which of the above statements is (are) true?

A) I only.
B) II only.
C) III only.
D) I and II.
E) I and III.

Question 77

The Gingham Company's budgeted income statement reflects the following amounts: $$\begin{array} { l c c r } & \underline { \text { Sales } } & \underline { \text { Purchases } } & \underline { \text { Expenses } } \\\text { January } & \$ 120,000 & \$ 78,000 & \$ 24,000 \\\text { February } & 110,000 & 66,000 & 24,200 \\\text { March } & 125,000 & 81,250 & 27,000 \\\text { April } & 130,000 & 84,500 & 28,600\end{array}$$ Sales are collected 50% in the month of sale, 30% in the month following sale, and 19% in the second month following sale. One percent of sales is uncollectible and expensed at the end of the year.
Gingham pays for all purchases in the month following purchase and takes advantage of a 3% discount. The following balances are as of January 1: $$\begin{array} { l r } \text { Cash } & \$ 88,000 \\\text { Accounts receivable* } & 58,000 \\\text { Accounts payable } & 72,000\end{array}$$
*Of this balance, $35,000 will be collected in January and the remaining amount will be collected in February.
The monthly expense figures include $5,000 of depreciation. The expenses are paid in the month incurred.
Gingham's budgeted cash receipts in February are:

A) $91,000.
B) $95,000.
C) $113,090.
D) $113,640.
E) $114,000.

Question 78

The following selected data pertain to Phineus Corporation: $\begin{array}{lr}\text { Cash operating expenses, July 1-31 } & \$ 180,000 \\\text { Depreciation } & 60,000 \\\text { Merchandise purchases in July } & 560,000 \\\text { Estimated payments in July for purchases in June } & 220,000 \\\text { Estimated payments in July for purchases prior to June } & 50,000 \\\text { Estimated payments in July for purchases in July } & 40 \%\end{array}$ July's cash disbursements are expected to be:

A) $404,000.
B) $464,000.
C) $674,000.
D) $734,000.
E) None of the other answers are correct.

Question 79

Which of the following statements about financial planning models (FPMs) is (are) false?

A) FPMs express a company's financial and operating relationships in mathematical terms.
B) FPMs allow a user to explore the impact of changes in variables.
C) FPMs are commonly known as "what-if" models.
D) FPMs have become less popular in recent years because of computers and spreadsheets.
E) Both FPMs are commonly known as "what-if" models and FPMs have become less popular in recent years because of computers and spreadsheets.

Question 80

Wolverine, Inc. began operations on January 1 of the current year with a $12,000 cash balance. Forty percent of sales are collected in the month of sale; 60% are collected in the month following sale. Similarly, 20% of purchases are paid in the month of purchase, and 80% are paid in the month following purchase. The following data apply to January and February: $\begin{array}{lrr}&\text { January } &\text { February }\\\text { Sales } & \$ 35,000 & \$ 55,000 \\\text { Purchases } & 30,000 & 40,000 \\\text { Operating expenses } & 7,000 & 9,000\end{array}$ If operating expenses are paid in the month incurred and include monthly depreciation charges of $2,500, determine the change in Wolverine's cash balance during February.

A) $2,000 increase.
B) $4,500 increase.
C) $5,000 increase.
D) $7,500 increase.
E) None of the other answers are correct.