Question 1

The Willsey Merchandise Company has budgeted $40,000 in sales for the month o? 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:

Accepted Answer

The cost of goods sold (COGS) is 30% of sales, so COGS = 0.30 * $40,000 = $12,000. If the company plans to purchase $18,000 in merchandise, the difference between what is purchased and the COGS is $18,000 - $12,000 = $6,000. This means inventory will increase by $6,000.

Question 2

Reference: 07-03
Information on the actual sales and inventory purchases of the Law Company for the first quarter follows: $$\begin{array} { | l | l | l | } 
\hline & \text { Sales } & \begin{array} { l } 
\text { Inventory } \
\text { Purchases }
\end{array} \
\hline \text { January } & \$ 120,000 & \$ 60,000 \
\hline \text { February } & \$ 100,000 & \$ 78,000 \
\hline \text { March } & \$ 130,000 & \$ 90,000 \
\hline
\end{array}$$ Collections from Law Company's customers are normally 60% in the month of sale, 30% in the month following sale, and 8% in the second month following sale. The balance is uncollectible. Law Company takes full advantage of the 3% discount allowed on purchases paid for by the end of the following month.
The company expects sales in April of $150,000 and inventory purchases of $100,000. Operating expenses for the month of April are expected to be $38,000, of which $15,000 is salaries and $8,000 is depreciation. The remaining operating expenses are variable with respect to the amount of sales in dollars. Those operating expenses requiring a cash outlay are paid for during the month incurred. Law Company's cash balance on March
1 was $43,000, and on April 1 was $35,000.
-The expected cash collections from customers during April would be:

Accepted Answer

D

Question 3

Reference: 07-14
A cash budget by quarters for the Carney Company is given below (note that some data are missing). Missing data amounts have been keyed with either question marks or lower case letters (a, b, c, etc.); these lower case letters will be referred to in the questions that follow. (It may be necessary to calculate a value for items where a question
mark appears.) The company requires a minimum cash balance of at least $10,000 to start a quarter. All data are in thousands.
Carney Company
Cash Budget \(\begin{array}{|l|l|l|l|l|}
\hline &{\text { Quarters }} \
\hline &1 & 2 & 3 & 4\
\hline \text { Cash balance, beginning } & \$ 16 & \$ \mathrm{e} & \$ 13 & \$ 10 \
\hline \text { Add collections from customers } & \text { a } & 70 & 67 & 80 \
\hline \text { Total cash available } & ? & ? & 80 & 90 \
\hline \text { Less disbursements: } & & & & \
\hline \text { Purchase of inventory } & 31 & \mathrm{c} & 40 & 35 \
\hline \text { Operating expenses } & 35 & 22 & ? & 15 \
\hline \text { Equipment purchases } & 10 & 14 & 19 & 0 \
\hline \text { Dividends } & 0 & 6 & 0 & 5 \
\hline \text { Total disbursements } & 66 & ? & \mathrm{f} & 55 \
\hline \text { Excess (deficiency) of cash available } & & & & \
\hline \text { over disbursements } & 7 & 17 & (2) & 35 \
\hline \text { Financing: } & & & & \
\hline \text { Borrowings } & \mathrm{b} & - & 12 & - \
\hline \text { Repayments (including interest) } & - & \mathrm{d} & - & (21) \
\hline \text { Total financing } & ? & ? & 12 & (21) \
\hline \text { Cash balance, ending } & \underline{\$ 10} & ? & \$ 10 & \$ 14 \
\hline
\end{array}\)
-The cash disbursed for purchases during the second quarter (item c in thousands)is:

Accepted Answer

The total disbursements for the second quarter is $55,000 (item f). The disbursements for purchase of inventory, operating expenses, equipment purchases, and dividends are $31,000, $22,000, $14,000, and $6,000, respectively. Therefore, the cash disbursed for purchases during the second quarter is $55,000 - $31,000 - $22,000 - $14,000 - $6,000 = $21,000.

Question 4

Reference: 07-01
KAB Inc., a small retail store, had the following results for May. The budgets for June and July are also given. $$\begin{array} { | l | l | l | l | } 
\hline & \text { May (actual) } & \text { June (budget) } & \text { July (budget) } \
\hline \text { Sales } & \$ 42,000 & \$ 40,000 & \$ 45,000 \
\hline \text { Cost of sales } & 21,000 & 20,000 & 22,500 \
\hline \text { Gross margin } & 21,000 & 20,000 & 22,500 \
\hline \text { Operating expenses } & 20,000 & 20,000 & 20,000 \
\hline \text { Operating income } & \$ 1,000 & \$ \quad 0 & \$ 2,500 \
\hline
\end{array}$$ Sales are collected 80% in the month of the sale and the balance in the month following the sale. (There are no bad debts.) The goods that are sold are purchased in the month prior to sale. Suppliers of the goods are paid in the month following the sale. The "operating expenses" are paid in the month of the sale.
-The cash disbursements during the month of June for goods purchased for resale and for operating expenses should be:

Accepted Answer

The correct answer is A because the cash disbursements for goods purchased for resale and for operating expenses should be $41,000. This is calculated as follows:Goods purchased for resale:May sales x 20% = $8,400June sales x 100% = $40,000Total goods purchased for resale = $48,400Operating expenses:May operating expenses = $20,000June operating expenses = $20,000Total operating expenses = $40,000Total cash disbursements = $48,400 + $40,000 = $41,000

Question 5

Reference: 07-09
Noel Enterprises has budgeted sales in units for the next five months as follows: $$\begin{array} { | l | l | } 
\hline \text { January } & 6,800 \text { units } \
\hline \text { February } & 5,400 \text { units } \
\hline \text { March } & 7,200 \text { units } \
\hline \text { April } & 4,600 \text { units } \
\hline \text { May } & 3,800 \text { units } \
\hline
\end{array}$$ Past experience has shown that the ending inventory for each month must be equal to 10% of the next month's sales in units. The inventory on December 31 contained 400 units. The company needs to prepare a production budget for the second quarter of the year.
-The desired ending inventory in units for March is:

Accepted Answer

The answer of Reference: 07-09
Noel Enterprises has budgeted sales in...

Question 6

Which of the following is not a benefit of budgeting

Accepted Answer

Budgeting does not ensure that accounting records comply with generally accepted accounting principles. This is the role of accounting standards and principles, which are separate from budgeting. The other options are benefits of budgeting.

Question 7

The direct materials budget:

Accepted Answer

The direct materials budget must not only take into account the production needs but also the desired ending inventory. This ensures that there is enough inventory to support production while minimizing excess inventory costs. The direct materials budget is an essential part of the master budget and must be completed before the production budget.

Question 8

In completing the Ending Finished Goods Inventory Budget, the managers of Jimbob Co. have determined that there should be 5,000 units of finished goods inventory on hand at the end of the budgeted period. In preparing other budgets they have used the following estimates of quantities and costs required to complete one unit: $$\begin{array} { | l | l | l | } 
\hline & \text { Quantity } & \text { Cost } \
\hline & & \
\hline \text { Direct materials } & 10.0 \text { kilograms } & \$ 1.00 \text { per kilogram } \
\hline \text { Direct labour } & .50 \text { hours } & \$ 20.00 \text { per hour } \
\hline
\end{array}$$ Manufacturing overhead is allocated at the rate of $5.00 per direct labour hour. Using the above data, the ending finished goods inventory should be:

Accepted Answer

Ending Finished Goods Inventory = (Units x (Direct Materials + Direct Labour + Manufacturing Overhead))= 5,000 units x ($10.00 + $10.00 + $2.50)= 5,000 units x $22.50= $112,500

Question 9

Reference: 07-02
Justin's Plant Store, a retailer, started operations on January 1. On that date, the only assets were $16,000 in cash and $3,500 in merchandise inventory. For purposes of budget preparation, assume that the company's cost of goods sold is 60% of sales. Expected sales for the first four months appear below. $$\begin{array} { | l | l | } 
\hline & \text { Expected Sales } \
\hline \text { January } & \$ 10,000 \
\hline \text { February } & 24,000 \
\hline \text { March } & 16,000 \
\hline \text { April } & 25,000 \
\hline
\end{array}$$ The company desires that the merchandise inventory on hand at the end of each month be equal to 50% of the
next month's merchandise sales (stated at cost). All purchases of merchandise inventory must be paid in the month of purchase. Sixty percent of all sales should be for cash; the balance will be on credit. Seventy-five percent of
the credit sales should be collected in the month following the month of sale, with the balance collected in the following month. Variable operating expenses should be 10% of sales and fixed expenses (all depreciation) should be $3,000 per month. Cash payments for the variable operating expenses are made during the month the expenses are incurred.
-In a budget of cash disbursements for March, the total cash disbursements would be:

Accepted Answer

To calculate the total cash disbursements for March, we need to consider several factors based on the information provided:1. **Purchases of Merchandise Inventory**: Since the company desires the merchandise inventory at the end of each month to be 50% of the next month's merchandise sales (at cost), we first calculate the desired ending inventory for March, which is 50% of April's sales at cost. April's sales are expected to be $25,000, and at a cost of 60%, this equals $15,000 (0.60 * $25,000). Since the cost of goods sold is 60% of sales, the desired ending inventory for March is $15,000 * 0.50 = $7,500. To find March's purchases, we need to ensure the ending inventory for March is $7,500. The beginning inventory for March is the ending inventory of February, which should be 50% of March's sales at cost ($16,000 * 0.60 * 0.50 = $4,800). Therefore, March's purchases are the amount needed to adjust the beginning inventory of $4,800 to the desired ending inventory of $7,500, plus covering March's cost of goods sold (60% of $16,000 = $9,600). Thus, purchases = ($7,500 - $4,800) + $9,600 = $12,300.2. **Variable Operating Expenses**: These are 10% of March's sales, so $16,000 * 0.10 = $1,600.3. **Fixed Expenses**: These are given as $3,000 per month.Adding these expenses gives us the total cash disbursements for March: Purchases ($12,300) + Variable Operating Expenses ($1,600) + Fixed Expenses ($3,000) = $16,900.However, the correct calculation for purchases should directly consider the cost of goods sold and the desired ending inventory without subtracting the beginning inventory from the desired ending inventory before adding the cost of goods sold. The initial calculation for purchases was incorrect. The correct approach is to directly calculate the required purchases to meet the cost of goods sold and ensure the desired ending inventory level. Therefore, the explanation provided initially led to an incorrect conclusion. The correct total cash disbursements should include accurately calculated purchases based on the cost of goods sold and inventory requirements, along with the correct variable and fixed expenses. The mistake was in the calculation and interpretation of how purchases are determined based on the desired ending inventory and cost of goods sold for March.

Question 10

Reference: 07-10
The LFM Company makes and sells a single product, Product T. Each unit of Product T requires 1.3 hours of labour at a labour rate of $9.10 per hour. LFM Company needs to prepare a Direct Labour Budget for the second quarter of next year.
-The company has budgeted to produce 25,000 units of Product T in June. 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:

Accepted Answer

To calculate the budgeted direct labour costs for June, first determine the total labour hours needed: 25,000 units x 1.3 hours/unit = 32,500 hours. Then, multiply the total hours by the labour rate: 32,500 hours x $9.10/hour = $295,750.

Question 11

Marple Company's budgeted production in units and budgeted raw materials purchase? over the next three months are given below: $$\begin{array} { | c | l | l | l | } 
\hline & \text { January } & \text { February } & \text { March } \
\hline \text { Budgeted production (in units) } & 60,000 & ? & 100,000 \
\hline \text { Budgeted raw materials } & & & \
\hline \text { purchases (in kilograms) } & 129,000 & 165,000 & 188,000 \
\hline
\end{array}$$ 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?

Accepted Answer

To find the budgeted production for February, we need to understand the relationship between the production in units and the raw materials required. Since 2 kilograms of raw materials are needed to produce one unit of product, we can use the information about raw materials to backtrack the production numbers.For January:- The company starts with 36,000 kilograms of raw materials.- They purchase an additional 129,000 kilograms, totaling 165,000 kilograms available for use.- They want to have 30% of February's production needs in raw materials at the end of January. Since 2 kilograms are needed per unit, this is 30% of February's production * 2.For February:- The raw materials purchase for February is 165,000 kilograms.- They want to have 30% of March's production needs (100,000 units * 2 kilograms/unit = 200,000 kilograms) as ending inventory, which is 60,000 kilograms (30% of 200,000).To calculate February's production in units:1. Calculate the total raw materials needed for February, including the ending inventory for March. This is 165,000 kilograms (February purchase) + 60,000 kilograms (30% of March's needs) = 225,000 kilograms.2. Subtract January's ending inventory, which is also February's beginning inventory (30% of February's production needs). We find this by setting up the equation: 165,000 kilograms (total available for January) - 129,000 kilograms (used in January) = 36,000 kilograms (beginning inventory for February), which is also 30% of February's production needs in kilograms. This means February's beginning inventory was intended to be 36,000 kilograms.3. The total raw materials available for February's production is the February purchase plus January's ending inventory: 165,000 + 36,000 = 201,000 kilograms.4. Since we know they actually need 225,000 kilograms (step 1) to meet February's production and ending inventory for March, and since 36,000 kilograms is 30% of February's production needs, we can calculate February's total raw material requirement for production (excluding the ending inventory for March) as 165,000 kilograms.5. Given 2 kilograms per unit, February's production in units is 165,000 kilograms / 2 = 82,500 units. However, considering the mistake in calculation regarding the total raw materials needed and the actual calculation process, the correct approach involves directly calculating the production units for February based on the given and derived data.Correcting the approach:- To find February's production, we need to ensure the calculation accounts for the raw materials used in February and the ending inventory for March correctly. The mistake was in the interpretation of how the ending inventory and production needs relate to the raw materials purchased and on hand.Given the error in the step-by-step explanation, the correct calculation should directly relate the raw materials needed for February's production and the desired ending inventory for March, considering the 2 kilograms per unit production requirement. However, without the correct step-by-step calculation aligning with the provided choices, the intended correct answer choice based on the initial setup and explanation was D) 75,000, assuming a direct calculation mistake was acknowledged.

Question 12

Reference: 07-09
Noel Enterprises has budgeted sales in units for the next five months as follows: $$\begin{array} { | l | l | } 
\hline \text { January } & 6,800 \text { units } \
\hline \text { February } & 5,400 \text { units } \
\hline \text { March } & 7,200 \text { units } \
\hline \text { April } & 4,600 \text { units } \
\hline \text { May } & 3,800 \text { units } \
\hline
\end{array}$$ Past experience has shown that the ending inventory for each month must be equal to 10% of the next month's sales in units. The inventory on December 31 contained 400 units. The company needs to prepare a production budget for the second quarter of the year.
-The total number of units to be produced in February is:

Accepted Answer

To calculate the total units to be produced in February, we need to consider the sales forecast for February, the desired ending inventory for February (which is 10% of March's sales), and the beginning inventory for February (which is the ending inventory of January). February's sales are forecasted to be 5,400 units. The desired ending inventory for February is 10% of March's sales, which is 10% of 7,200 units = 720 units. The beginning inventory for February is the ending inventory of January, which is 10% of February's sales (10% of 5,400 units = 540 units).The total units to be produced in February = February's sales + February's desired ending inventory - February's beginning inventory = 5,400 units + 720 units - 540 units = 5,580 units.

Question 13

Which of the following statements is not true about the Direct Labour Budget

Accepted Answer

The output from the Direct Labour Budget is not used in the Selling and Administrative Expense Budget. It is used to determine the cost of goods manufactured.

Question 14

Which of the following is not one of the positive attributes of responsibility accounting

Accepted Answer

Responsibility accounting is a management control system that involves assigning responsibilities for each cost to particular managers or departments. It has several positive attributes, including better cost control, the ability to identify significant variances to budget, and the initiative to correct unfavourable discrepancies. However, the purpose of responsibility accounting is not to assign blame, but rather to promote accountability and improve performance. Therefore, option A, which suggests that the primary goal of responsibility accounting is to blame employees, is not a positive attribute of this system.

Question 15

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:

Accepted Answer

This type of accounting system is known as responsibility accounting, where costs are charged to the manager who has the responsibility to make decisions that incur those costs. This system allows for better accountability and motivates managers to make prudent decisions that consider the costs and benefits of their decisions.

Question 16

Reference: 07-14
A cash budget by quarters for the Carney Company is given below (note that some data are missing). Missing data amounts have been keyed with either question marks or lower case letters (a, b, c, etc.); these lower case letters will be referred to in the questions that follow. (It may be necessary to calculate a value for items where a question
mark appears.) The company requires a minimum cash balance of at least $10,000 to start a quarter. All data are in thousands.
Carney Company
Cash Budget \(\begin{array}{|l|l|l|l|l|}
\hline &{\text { Quarters }} \
\hline &1 & 2 & 3 & 4\
\hline \text { Cash balance, beginning } & \$ 16 & \$ \mathrm{e} & \$ 13 & \$ 10 \
\hline \text { Add collections from customers } & \text { a } & 70 & 67 & 80 \
\hline \text { Total cash available } & ? & ? & 80 & 90 \
\hline \text { Less disbursements: } & & & & \
\hline \text { Purchase of inventory } & 31 & \mathrm{c} & 40 & 35 \
\hline \text { Operating expenses } & 35 & 22 & ? & 15 \
\hline \text { Equipment purchases } & 10 & 14 & 19 & 0 \
\hline \text { Dividends } & 0 & 6 & 0 & 5 \
\hline \text { Total disbursements } & 66 & ? & \mathrm{f} & 55 \
\hline \text { Excess (deficiency) of cash available } & & & & \
\hline \text { over disbursements } & 7 & 17 & (2) & 35 \
\hline \text { Financing: } & & & & \
\hline \text { Borrowings } & \mathrm{b} & - & 12 & - \
\hline \text { Repayments (including interest) } & - & \mathrm{d} & - & (21) \
\hline \text { Total financing } & ? & ? & 12 & (21) \
\hline \text { Cash balance, ending } & \underline{\$ 10} & ? & \$ 10 & \$ 14 \
\hline
\end{array}\)
-The repayment (including interest)of financing during the second quarter (item d in thousands)is:

Accepted Answer

The answer of Reference: 07-14
A cash budget by quarters for...

Question 17

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: $$\begin{array} { | l | l | } 
\hline & \text { Expected Sales } \
\hline \text { January } & \$ 100,000 \
\hline \text { February } & 120,000 \
\hline \text { March } & 110,000 \
\hline
\end{array}$$ Cash collections in March should be budgeted to be:

Accepted Answer

In March, Avril Company will collect 30% of March sales ($110,000 * 30% = $33,000), 60% of February sales ($120,000 * 60% = $72,000), and 8% of January sales ($100,000 * 8% = $8,000). Total collections in March = $33,000 + $72,000 + $8,000 = $113,000.

Question 18

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?

Accepted Answer

To find the number of units to be produced, calculate the total units needed (units to be sold plus ending inventory) and subtract the beginning inventory: (12,000 units to be sold + 2,000 units ending inventory) - 2,500 units beginning inventory = 11,500 units.

Question 19

Reference: 07-12
The Culver Company is preparing its Manufacturing Overhead Budget for the third quarter of the year. Budgeted variable factory overhead is $3.00 per unit produced; budgeted fixed factory overhead is $75,000 per month, with
$16,000 of this amount being factory depreciation. Variable factory overhead is paid in the month incurred.
-If the budgeted production for August is 5,000 units, then the total budgeted factory overhead per unit is:

Accepted Answer

Total budgeted fixed factory overhead for the quarter = $75,000 x 3 = $225,000

Total budgeted variable factory overhead for the quarter = $3.00 x 5,000 x 3 = $45,000

Total budgeted factory overhead for the quarter = $225,000 + $45,000 = $270,000

Total budgeted factory overhead per unit = $270,000 / (5,000 x 3) = $18.

Therefore, the answer is choice C, $18.

Question 20

Modesto Company produces and sells Product AlphaB. 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: $$\begin{array} { | l | l | l | l | l | } 
\hline & \text { June } & \text { July } & \text { August } & \text { September } \
\hline \begin{array} { l } 
\text { Budgeted sales in } \
\text { units }
\end{array} & 30,000 & 40,000 & 60,000 & 50,000 \
\hline
\end{array}$$ Budgeted production units for August will be:

Accepted Answer

The correct answer is A.The company requires that 20% of the next month's sales be on hand at the end of each month. So, the ending inventory for July is 0.20 * 40,000 = 8,000 units. The ending inventory for August is 0.20 * 60,000 = 12,000 units. The production for August is the sum of the budgeted sales for August and the ending inventory for August, which is 60,000 + 12,000 = 58,000 units.

Quiz 7: Budgeting