Question 1

Exhibit 18-10 Streamer Company sells float-tubes for recreational fly-fishing. A review of the company's historical operations shows that gross margin consistently averages 40% of sales. Company guidelines indicate that ending inventory at the end of any quarter should always be 25% of the next quarter's budgeted cost of goods sold. The expected sales for Streamer's next four quarters are shown below.
 
-Refer to Exhibit 18-10. If Streamer prepares a pro-forma income statement for the first quarter, what amount would be shown for purchases (assume the year end inventory balance is $120,000)?

Accepted Answer

The budgeted cost of goods sold for the first quarter can be calculated as follows:

Budgeted COGS = Expected sales for Q2 x Gross margin + Ending inventory for Q1

Ending inventory for Q1 = 25% of budgeted COGS for Q2 = 25% x (1,300,000 x 0.4) = $130,000

Budgeted COGS for Q1 = (1,300,000 x 0.4) + 130,000 = $650,000

Since the ending inventory at the end of the year is given as $120,000, we can calculate the cost of goods sold for the year as follows:

Ending inventory for Q4 = $120,000

Ending inventory for Q3 = 25% of budgeted COGS for Q4 = 25% x (1,400,000 x 0.4) = $140,000

Budgeted COGS for Q4 = (1,400,000 x 0.4) + 140,000 - 120,000 = $680,000

Ending inventory for Q2 = 25% of budgeted COGS for Q3 = 25% x (1,300,000 x 0.4) = $130,000

Budgeted COGS for Q3 = (1,300,000 x 0.4) + 130,000 - 140,000 = $650,000

Ending inventory for Q1 = 25% of budgeted COGS for Q2 = 25% x (1,300,000 x 0.4) = $130,000

Budgeted COGS for Q2 = (1,300,000 x 0.4) + 130,000 - 130,000 = $520,000

Therefore, the total cost of goods sold for the year is:

$650,000 + $650,000 + $680,000 + $520,000 = $2,500,000

The cost of goods sold for the first quarter can be calculated as follows:

Cost of goods sold for Q1 = Budgeted COGS for Q1 - Ending inventory for Q1 = $650,000 - $130,000 = $520,000

However, purchases during the quarter will be different from cost of goods sold if there are beginning and ending inventory balances. We need additional information to determine purchases during the quarter.

Question 2

Mark-A-Date Corporation makes pocket and wall calendars. The production budget for the next three months for each of the calendars is as follows:
 
From past experience, Mark-A-Date's management knows that it takes approximately 5 minutes to make a pocket calendar and 3 minutes to make a wall calendar. Mark-A-Date pays its employees $14 per hour. Prepare a direct labor budget for each of the three months in both hours and costs.

Accepted Answer

The answer of Mark-A-Date Corporation makes pocket and wall calendars....

Question 3

Maid-Sweet makes a frozen yogurt dessert. Each frozen yogurt dessert requires 12 ounces of yogurt. The production budget for the first four months of 2012 is as follows:
 
The company has determined that it must maintain materials inventory equal to 20% of the yogurt needed for the next month's production. Maid-Sweet can purchase yogurt for $0.10 per ounce. On December 31, 2011, there were 80,000 ounces of yogurt in stock. Prepare a budget showing direct materials usage and purchases for the first quarter of 2012 (January, February, and March).

Accepted Answer

The answer of Maid-Sweet makes a frozen yogurt dessert. Each...

Question 4

Michele has a salary of $56,000 per year. Michele estimates her living expenses are approximately as follows:
 
Prepare Michele's budget for the year.

Accepted Answer

The answer of Michele has a salary of $56,000 per...

Question 5

Burke Corporation had accounts receivable of $44,400 on April 1 and $33,600 on April 30. How much cash was collected from accounts receivable during April if Burke's April sales on account totaled $134,400?

Accepted Answer

The answer of Burke Corporation had accounts receivable of $44,400...

Question 6

Which of the following serve as a basis for key management decisions?

Accepted Answer

Pro forma financial statements provide key information on expected revenues, expenses, and profits, which are essential for making key management decisions. Cash budgets and budgeted cost of production sheets provide important financial information, but are more specific in scope and may not capture the full breadth of key management decisions. Sales budgets are also important, but they are more focused on forecasting sales and may not provide as much insight into the overall financial health of the business.

Question 7

Exhibit 18-9 Winthrop Merchandising is preparing its budget for 2011 (its first year of operation). Sales for the year are budgeted at $1,500,000; 20% are cash sales and 80% are credit sales. The company expects to collect 60% of all credit sales in 2011. Budgeted expenses are $1,200,000. These expenditures include $37,500 for depreciation and $745,500 for variable manufacturing overhead.
-
Refer to Exhibit 18-9. Given the information above, total cash outflows for 2011 would be:

Accepted Answer

The answer of Exhibit 18-9 Winthrop Merchandising is preparing its...

Question 8

Blake Company has $15,000 cash at the beginning of June and anticipates $50,000 in cash receipts and $34,500 in cash disbursements. Blake Company requires a minimum cash balance of $10,000 and maintains no more than $20,000 on hand. Any excess cash over the maximum is used to pay down debts. The firm has an agreement with its bank to borrow as needed or repay loans as funds become available. As of May 31, the company owes $15,000 to the bank. The balance of the loan on June 30 will be:

Accepted Answer

The answer of Blake Company has $15,000 cash at the...

Question 9

Exhibit 18-8 Cheroke Company had an accounts receivable balance of $60,000 at December 31, 2011. Projected sales for the first three months of 2012 are:
 All sales are credit sales. Cheroke Company usually collects 40% of its sales during the month of sale, 50% in the month following the sale, and 10% in the second month following the sale.
-Refer to Exhibit 18-8. Given the information above, cash collections during February should be:

Accepted Answer

The answer of Exhibit 18-8 Cheroke Company had an accounts...

Question 10

LeMinton Company expects the following credit sales for the first five months of the year: January, $25,000; February, $40,000; March, $30,000; April, $36,000, May $40,000. Experience has shown that payment for the credit sales is received as follows: 60% in the month of sale, 25% in the first month after sale, 12% in the second month after sale, and the remainder is uncollectible. How much cash can LeMinton Company expect to collect in March as a result of credit sales?

Accepted Answer

The answer of LeMinton Company expects the following credit sales...

Question 11

Describe the differences between authoritative budgeting and participative budgeting. Include advantages of each type of budgeting.

Accepted Answer

The answer of Describe the differences between authoritative budgeting and...

Question 12

Exhibit 18-10 Streamer Company sells float-tubes for recreational fly-fishing. A review of the company's historical operations shows that gross margin consistently averages 40% of sales. Company guidelines indicate that ending inventory at the end of any quarter should always be 25% of the next quarter's budgeted cost of goods sold. The expected sales for Streamer's next four quarters are shown below.
 
-Refer to Exhibit 18-10. If Streamer prepares a pro-forma income statement for the third quarter, what amount would be shown for inventory available for sale?

Accepted Answer

The answer of Exhibit 18-10 Streamer Company sells float-tubes for...

Question 13

For 2011, Raster Graphics forecasts cash receipts of $405,000 and cash disbursements of $430,000. If the beginning cash balance is $35,000 and the desired ending balance is $21,000, how much must Raster borrow during the year?

Accepted Answer

The total cash shortfall for the year is the difference between the cash receipts and cash disbursements: 
$430,000 - $405,000 = $25,000

However, Raster only needs to borrow enough to reach the desired ending balance: 
$35,000 - $21,000 = $14,000

Since $25,000 is more than the desired ending balance, Raster only needs to borrow $14,000 to meet its cash needs for the year. Therefore, the correct answer is C) $11,000 (the closest answer choice to $14,000).

Question 14

A pro-forma income statement usually includes all of the following EXCEPT:

Accepted Answer

A pro-forma income statement typically includes projected or budgeted revenue, cost of goods sold, gross profit, operating expenses, and net income. However, it does not typically include budgeted capital expenditures, which would be better suited for a pro-forma cash flow statement or pro-forma balance sheet.

Question 15

General Telephone makes telephones and fax machines. During the past several years, management has kept accurate records of costs and resource requirements, determining that the following is needed to make telephones and fax machines:
 
Compute the total unit costs of the telephones and the fax machines.

Accepted Answer

The answer of General Telephone makes telephones and fax machines....

Question 16

Exhibit 18-8 Cheroke Company had an accounts receivable balance of $60,000 at December 31, 2011. Projected sales for the first three months of 2012 are:
 All sales are credit sales. Cheroke Company usually collects 40% of its sales during the month of sale, 50% in the month following the sale, and 10% in the second month following the sale.
-Refer to Exhibit 18-8. Given the information above, cash collections during January should be:

Accepted Answer

The answer of Exhibit 18-8 Cheroke Company had an accounts...

Question 17

Exhibit 18-8 Cheroke Company had an accounts receivable balance of $60,000 at December 31, 2011. Projected sales for the first three months of 2012 are:
 All sales are credit sales. Cheroke Company usually collects 40% of its sales during the month of sale, 50% in the month following the sale, and 10% in the second month following the sale.
-Refer to Exhibit 18-8. Given the information above, cash collections during March should be:

Accepted Answer

The answer of Exhibit 18-8 Cheroke Company had an accounts...

Question 18

Exhibit 18-9 Winthrop Merchandising is preparing its budget for 2011 (its first year of operation). Sales for the year are budgeted at $1,500,000; 20% are cash sales and 80% are credit sales. The company expects to collect 60% of all credit sales in 2011. Budgeted expenses are $1,200,000. These expenditures include $37,500 for depreciation and $745,500 for variable manufacturing overhead.
-
Refer to Exhibit 18-9. If the desired ending cash balance is $45,000, how much must Winthrop borrow during the year?

Accepted Answer

The answer of Exhibit 18-9 Winthrop Merchandising is preparing its...

Question 19

Pro-forma financial statements typically include all of the following EXCEPT:

Accepted Answer

The answer of Pro-forma financial statements typically include all of...

Question 20

The Sho-lo Company makes measuring devices. The unit sales forecasts for measuring devices for the four quarters of 2011 and the first quarter of 2012 are as follows:
 
As of December 31, 2012, Sho-lo has 6,000 units in inventory. The company likes to maintain 20% of the next quarter's sales in inventory.
Prepare a production budget for each of the four quarters of 2011 for measuring devices.

Accepted Answer

The answer of The Sho-lo Company makes measuring devices. The...

Quiz 18: Budgeting and Control

Michele has a salary of $56,000 per year. Michele estimates her living expenses are approximately as follows: Prepare Michele's budget for the year.

Burke Corporation had accounts receivable of $44,400 on April 1 and $33,600 on April 30. How much cash was collected from accounts receivable during April if Burke's April sales on account totaled $134,400?

Which of the following serve as a basis for key management decisions?

Describe the differences between authoritative budgeting and participative budgeting. Include advantages of each type of budgeting.

For 2011, Raster Graphics forecasts cash receipts of $405,000 and cash disbursements of $430,000. If the beginning cash balance is $35,000 and the desired ending balance is $21,000, how much must Raster borrow during the year?

A pro-forma income statement usually includes all of the following EXCEPT:

Pro-forma financial statements typically include all of the following EXCEPT: