Question 1

Hanover Inc. sells buckets for $15 each. Budgeted unit sales for 4 months of 2014 are: $$\begin{array} { l l } 
\text { March } & 26,000 \text { buckets } \
\text { April } & 28,000 \text { buckets } \
\text { May } & 22,000 \text { buckets } \
\text { June } & 25,000 \text { buckets }
\end{array}$$ Hanover desires to have buckets on hand at the end of each month equal to 16 percent of the following month's budgeted unit sales. Each bucket requires 3.9 pounds of plastic. At the end of each month, Hanover desires to have 12 percent of production material needs for the next month on hand. The plastic costs $0.40 per pound. How many buckets should Hanover produce during May?

Accepted Answer

The answer of Hanover Inc. sells buckets for $15 each....

Question 2

Carrier Company's budgeted income statement for 2014 follows: $\begin{array}{lr}\text { Sales (4,000 units) }&&\$84,000\
\text { Less: }\
\text { Variable costs } & \$ 44,000 \
\text { Fixed costs } & 26,000&70,000\
\text { Income before taxes }&&\$14,000
\end{array}$ How much would be reported as income before taxes on a flexible budget for 5,000 units?

Accepted Answer

The answer of Carrier Company's budgeted income statement for 2014...

Question 3

Exclusive Decor's budgeted income statement for 2014 follows: $\begin{array}{lr}\text { Sales (10,000 units) }&&\$128,000\
\text { Less: }\
\text { Direct materials } & \$ 27,600 \
\text { Direct labor } & 6,000 \
\text { Variable factory overhead } & 16,800 \
\text { Fixed factory overhead } & 15,000 \
\text { Fixed selling \& admin expenses } & 30,000&95,400\
\text { Income before taxes }&&\$32,600
\end{array}$ How much income before taxes will appear on a flexible budget for 11,000 units?

Accepted Answer

The answer of Exclusive Decor's budgeted income statement for 2014...

Question 4

Managers can create budget slack by

Accepted Answer

The answer of Managers can create budget slack by
...

Question 5

Paradise Gifts has budgeted sales for the quarter as follows: January $\quad 11,000$ units
February $\quad 13,000$ units
March $\quad 17,000$ units The ending inventory of finished goods each month should equal 25% of the next month's budgeted sales in units. How much is scheduled production for February?

Accepted Answer

To calculate February's production, start with February's sales (13,000 units), add the desired ending inventory for February (25% of March's sales, which is 4,250 units), and subtract January's ending inventory (25% of February's sales, which is 3,250 units). This results in 13,000 + 4,250 - 3,250 = 14,000 units.

Question 6

Which of the following is not a method that managers may use to achieve a budget income target in a given period?

Accepted Answer

The answer of Which of the following is not a...

Question 7

When budgets are used for evaluation, what is the difference between budgeted and actual amounts called?

Accepted Answer

The difference between budgeted and actual amounts is called budget variances. This is an important aspect of evaluating performance and can provide insights into areas where organizations may need to focus their attention to improve financial outcomes. Exceptions, performance results, and flexible budgets are also important concepts in budgeting but do not specifically refer to the difference between budgeted and actual amounts.

Question 8

Which of the following assumptions is made while preparing a flexible manufacturing overhead budget, when production levels change?

Accepted Answer

Total fixed costs remain constant regardless of changes in the level of production, which is a fundamental assumption in preparing a flexible manufacturing overhead budget. This allows for adjustments in budgeted costs based on varying levels of activity while keeping fixed costs unchanged.

Question 9

Yemesi, Inc.'s budgeted income statement for 2014 follows: $\begin{array}{lr}\text { Sales ( } 80,000 \text { units) }&&\$360,000\
\text { Less: }\
\text { Direct materials } & \$ 128,000 \
\text { Direct labor } & 36,000 \
\text { Vari able overhead } & 32,000 \
\text { Fixed overhead } & 10,000 \
\text { Fixed selling \& admin expenses } & 12,000&218,000\
\text { Income before taxes }&&\$142,000
\end{array}$ How much income before taxes would appear on a flexible budget for 84,000 units?

Accepted Answer

The correct answer is A because the variable costs will increase with the increase in units, while the fixed costs will remain the same. The variable costs per unit are:Direct materials: $128,000 / 80,000 units = $1.60 per unitDirect labor: $36,000 / 80,000 units = $0.45 per unitVariable overhead: $32,000 / 80,000 units = $0.40 per unitThe total variable cost per unit is $1.60 + $0.45 + $0.40 = $2.45 per unit.The total variable cost for 84,000 units is $2.45 per unit * 84,000 units = $205,800.The fixed costs will remain the same at $10,000 + $12,000 = $22,000.The total cost for 84,000 units is $205,800 + $22,000 = $227,800.The income before taxes for 84,000 units is $360,000 - $227,800 = $150,200.

Question 10

The main difference between a static budget and a flexible budget is that the static budget is

Accepted Answer

A static budget is based on a single expected level of activity, while a flexible budget can be adjusted for different activity levels. Thus, the main difference between a static and flexible budget is that a flexible budget can adapt to different levels of activity, while a static budget cannot.

Question 11

Samson Company has budgeted production for the next two months as follows: $$\begin{array} { l l } 
\text { July } & 16,000 \text { units } \
\text { August } & 22,000 \text { units }
\end{array}$$ Each unit requires 5 pounds of material. Raw materials at the end of each month should equal 10% of the next month's production requirements. How many pounds will be budgeted for purchases of raw materials for July?

Accepted Answer

Samson Company requires 5 pounds of material for each unit. In July, the company will produce 16,000 units, so it will need 80,000 pounds of material (16,000 units x 5 pounds per unit). The company also wants to have 10% of the next month's production requirements on hand at the end of each month. In August, the company will produce 22,000 units, so it will need 110,000 pounds of material (22,000 units x 5 pounds per unit). Therefore, the company will need to purchase 83,000 pounds of material in July (80,000 pounds for July production + 3,000 pounds for August ending inventory).

Question 12

Which of the following are problem behaviors that may occur when budgets are used for both planning and control?
I. Padding of budgets
II. Shifting of income between periods
III. Understatement of budgeted expenses

Accepted Answer

Padding of budgets and shifting of income between periods are problem behaviors that may occur when budgets are used for both planning and control. Understatement of budgeted expenses is not typically a problem behavior associated with using budgets for planning and control.

Question 13

Kitchen Stuff produces spatulas made out of acrylic. The company has estimated sales for June at 12,000, July at 12,800, August at 15,000, and September at 16,000 spatulas. The company plans to have 15% of the next month's anticipated unit spatula sales and 22% of the next month's acrylic needed for production on hand at the end of each month. Each spatula uses 7 ounces of acrylic, which is purchased at a cost of $0.22 per ounce. How much is budgeted production for July?

Accepted Answer

To calculate the budgeted production for July, we need to calculate the amount of acrylic needed for production in July and divide it by the amount of acrylic needed for one spatula. We can use the formula:

Acrylic needed for production in July = (July sales x 0.15 + August sales x 0.22) x 7

Plugging in the numbers, we get:

Acrylic needed for production in July = (12,800 x 0.15 + 15,000 x 0.22) x 7 = 39,270 ounces

Now, we can calculate the budgeted production for July by dividing the acrylic needed for production in July by the amount of acrylic needed for one spatula:

Budgeted production for July = 39,270 / 7 = 5,610 units

Therefore, the correct answer is B, 13,130 units.

Question 14

Sultan Sundries must maintain a minimum cash balance of $34,000. At the beginning of February the company's cash balance was $60,000. The budget for February is as follows: $$\begin{array} { l r } 
\text { Total cash receipts } & \$ 250,000 \
\text { Total cash disbursements } & \$ 245,000 \
\text { Net income } & \$ 50,000 \
\text { Purchase machinery by signing a note } & \$ 35,000
\end{array}$$ During February, how much will Sultan need to borrow?

Accepted Answer

Sultan Sundries starts with $60,000 and expects net cash inflow of $5,000 ($250,000 receipts - $245,000 disbursements). This results in an ending cash balance of $65,000, which is above the minimum required balance of $34,000. Therefore, no borrowing is needed.

Question 15

Wilson, Inc. created a spreadsheet that utilized a set of budget relationships that could be adjusted for various activity levels. What did Wilson create?

Accepted Answer

Wilson, Inc. created a flexible budget, which allows for adjustments to be made based on various activity levels. A capital budget is used for long-term investments, a static budget is set at a fixed level regardless of activity, and a standard budget is based on historical data and may not be adjusted for changes in activity levels.

Question 16

KirbyCor's budgeted income statement for 2014 follows: $\begin{array}{lr}\text { Sales (80,000 units) }&&\$400,000\
\text { Less: }\
\text { Direct materials } & \$ 120,000 \
\text { Direct labor } & 80,000 \
\text { Variable overhead } & 40,000 \
\text { Fixed costs } & 80,000 &320,000\
\text { Income before taxes }&&\$80,000
\end{array}$ How much would be reported for total variable costs on a flexible budget at 75,000 units?

Accepted Answer

Total variable costs per unit are $3.00 for direct materials, $1.00 for direct labor, and $0.50 for variable overhead. At 75,000 units, total variable costs would be $225,000 (75,000 units x $3.00 + $1.00 + $0.50).

Question 17

DynaCare Products' sales are all on account. History indicates that sales will be collected as follows: $$\begin{array} { l r } 
\text { Month of sale } & 25 \% \
\text { Month following the sale } & 65 \% \
\text { Second month following the sale } & 8 \% \
\text { Never collected } & 2 \%
\end{array}$$ Budgeted sales data follows: $$\begin{array} { l l } 
\text { March } & \$ 300,000 \
\text { April } & \$ 250,000 \
\text { May } & \$ 260,000 \
\text { June } & \$ 230,000 \
\text { July } & \$ 200,000
\end{array}$$
How much are total budgeted cash collections during May?

Accepted Answer

The answer of DynaCare Products' sales are all on account....

Question 18

Green Company's sales are 20% cash and 80% credit. Of the credit sales, 60% are collected in the month of sale and 30% in the month following the sale. The balance is collected during the following month. Budgeted sales data is as follows: $$\begin{array} { l l } 
\text { June } & \$ 300,000 \
\text { July } & \$ 250,000 \
\text { August } & \$ 280,000 \
\text { September } & \$ 310,000
\end{array}$$ How much is total Accounts Receivable at the end of August?

Accepted Answer

To calculate Accounts Receivable at the end of August, consider the uncollected credit sales from July and August. For July: 10% of $250,000 (remaining uncollected) = $20,000. For August: 40% of $224,000 (80% of $280,000 credit sales) = $89,600. Total Accounts Receivable = $20,000 + $89,600 = $109,600.

Question 19

Management by exception refers to the practice of only investigating variances

Accepted Answer

Management by exception focuses on investigating variances that are material in dollar amounts relative to budgeted amounts, rather than investigating all variances. Therefore, option C is the best choice. Options A, B, and D are too narrow or limit the scope of management by exception, and do not fully encompass the concept.

Question 20

Teva Sandals' sales for the next three months are as follows: $$\begin{array} { l l } 
\text { February } & \$ 130,000 \
\text { March } & \$ 170,000 \
\text { April } & \$ 200,000
\end{array}$$ Collection history for the company indicates that 60% of sales are collected in the month of the sale, 36% is collected in the following month, and 4% of sales are uncollectible.
How much are budgeted cash receipts for April?

Accepted Answer

April sales are $200,000. 60% of this amount, or $120,000, will be collected in April. 36% of March sales, or $61,200 (0.36 x $170,000), will also be collected in April. Therefore, total budgeted cash receipts for April are $181,200 ($120,000 + $61,200).

Quiz 10: Budgetary Planning and Control