Question 1

Which of the following budgets would NOT be prepared for a merchandising firm?

Accepted Answer

The direct labor budget is typically only prepared for a manufacturing firm that incurs direct labor costs in the production process. Merchandising firms, on the other hand, do not have such costs as they simply buy and sell products without adding value to them through a production process. Therefore, choice A is the correct answer.

Question 2

Tuscarora,Inc.,a merchandising company,has the following budgeted figures: $$\begin{array} { | l | l | l | l | l | } 
\hline & \text { Jan } & \text { Feb } & \text { Mar } & \text { April } \
\hline \text { Sales } & \$ 57,300 & \$ 60,000 & \$ 83,000 & \$ 98,000 \
\hline \text { Cost of goods sold } & 50 \% \text { of sales } & & & \
\hline & \$ 10,000 + 30 \% \text { of } & & & \
\text { Required ending inventory } & \text { next month's sales } & & & \
\hline \text { Inventory on hand on Jan } 1 & \$ 30,000 & & & \
\hline
\end{array}$$ Calculate the budgeted purchases for the month of January.

Accepted Answer

The budgeted purchases for January are calculated as: Cost of goods sold for January ($57,300 * 50% = $28,650) plus the required ending inventory for January (30% of February sales, $60,000 * 30% = $18,000) minus the beginning inventory ($30,000). So, $28,650 + $18,000 - $30,000 = $16,650.

Question 3

Seaworthy Company,a merchandising company,has prepared the following sales budget: $$\begin{array} { | l | r | } 
\hline \text { Month } & \text { Budgeted Sales } \
\hline \text { March } & \$ 500,000 \
\hline \text { April } & 187,000 \
\hline \text { May } & 224,000 \
\hline \text { Tune } & 237,000 \
\hline
\end{array}$$ Cost of goods sold is budgeted at 50% of sales,and the inventory at the end of February was $34,000.Desired inventory levels at the end of each month are 10% of the next month's cost of goods sold.What is the desired beginning inventory on June 1?

Accepted Answer

The answer of Seaworthy Company,a merchandising company,has prepared the following...

Question 4

Teleco Corp.is preparing its budget for the first quarter of 2018.The following data is provided: $$\begin{array} { | l | r | r | r | } 
\hline \text { Inventory, Purchases, and COGS Budget } & \text { Jan } & \text { Feb } & \text { March } \
\hline \text { Cost of goods sold (a) } & \$ 30,000 & \$ 29,000 & \$ 22,500 \
\hline \text { Desired ending inventory (b) } & 12,900 & 12,250 & ? \
\hline \text { Total inventory required } & 42,900 & 41,250 & \
\hline \text { Less: Beginning inventory } & ( 15,000 ) & ( 12,900 ) & \
\hline \text { Budgeted Purchases } & \$ 27,900 & \$ 28,350 & \
\hline \text { (a) COGS } = 75 \% \text { of sales } & & & \
\hline \text { (b) } \$ 10,000 + 10 \% \text { of COGS for next month } & & & \
\hline
\end{array}$$
April's cost of goods sold is $34,000.The amount of Merchandise Inventory to be shown on the budgeted balance sheet at March 31 would be ________.

Accepted Answer

The desired ending inventory for March is calculated as $10,000 + 10% of April's COGS ($34,000), which equals $13,400.

Question 5

For a merchandising company,budgeted purchases equals cost of goods sold plus beginning merchandise inventory minus ending merchandise inventory.

Accepted Answer

Purchases equals cost of goods sold plus ending merchandise inventory minus beginning merchandise inventory.

Question 6

Robust Resources expects to sell 440 units of Product A and 400 units of Product B each day at an average price of $18 for Product A and $27 for Product B.The expected cost for Product A is 40% of its selling price and the expected cost for Product B is 64% of its selling price.Robust Resources has no beginning inventory,but it wants to have a three-day supply of ending inventory for each product.Compute the company's budgeted sales for the next (seven-day)week.(Round the answer to the nearest dollar.)

Accepted Answer

To calculate the budgeted sales for the next week, we need to calculate the total sales revenue for each product and then add them together.

For Product A:
Expected daily sales = 440 units
Expected selling price = $18
Expected cost = 40% of selling price = 0.4 x $18 = $7.20
Expected gross profit per unit = Selling price - cost = $18 - $7.20 = $10.80
Total expected daily sales revenue = Expected daily sales x Selling price = 440 x $18 = $7,920
Total expected weekly sales revenue = Total expected daily sales revenue x 7 days = $7,920 x 7 = $55,440

For Product B:
Expected daily sales = 400 units
Expected selling price = $27
Expected cost = 64% of selling price = 0.64 x $27 = $17.28
Expected gross profit per unit = Selling price - cost = $27 - $17.28 = $9.72
Total expected daily sales revenue = Expected daily sales x Selling price = 400 x $27 = $10,800
Total expected weekly sales revenue = Total expected daily sales revenue x 7 days = $10,800 x 7 = $75,600

Therefore, the total budgeted sales for the next week is the sum of the sales revenue for each product:
Total budgeted sales = Total expected weekly sales revenue for Product A + Total expected weekly sales revenue for Product B
Total budgeted sales = $55,440 + $75,600 = $131,040

Hence, the best choice is C.

Question 7

Mimosa,Inc.,a merchandising company,has the following budgeted figures: $$\begin{array} { | l | l | l | l | l | } 
\hline & \text { Jan } & \text { Feb } & \text { Mar } & \text { April } \
\hline \text { Sales } & \$ 54,900 & \$ 63,000 & \$ 88,000 & \$ 94,000 \
\hline \text { Cost of goods sold } & 60 \% \text { of sales } & & & \
\hline & \$ 20,000 + 30 \% \text { of } & & & \
 \text { Required ending inventory}&\text {next month's sales } & & & \
\hline \text { Inventory on hand on Jan 1 } & \$ 27,500 & & & \
\hline
\end{array}$$ Calculate cost of goods sold for the month of February.

Accepted Answer

The answer of Mimosa,Inc.,a merchandising company,has the following budgeted figures:...

Question 8

Yoshino,Inc.,a merchandising company,has the following budgeted figures: $$\begin{array} { | l | l | l | l | l | } 
\hline & \text { Jan } & \text { Feb } & \text { Mar } & \text { April } \
\hline \text { Sales } & \$ 51,900 & \$ 69,000 & \$ 80,000 & \$ 91,000 \
\hline \text { Cost of goods sold } & 50 \% \text { of sales } & & & \
\hline & \$ 15,000 + 20 \% \text { of } & & & \
 \text { Required ending inventory}&\text {next month's sales } & & & \
\hline \text { Inventory on hand on Jan 1 } & \$ 27,000 & & & \
\hline
\end{array}$$ Calculate the ending merchandise inventory for the month of March.

Accepted Answer

Ending merchandise inventory for March = $27,000 + (20% x $80,000) = $33,200

Question 9

For a merchandising company,what is the formula used to determine the amount of merchandise inventory to be purchased?

Accepted Answer

The answer of For a merchandising company,what is the formula...

Question 10

Keeping merchandise inventory at the maximum level that meets the needs of providing goods to customers,with turning over the merchandise inventory efficiently,helps reduce inventory storage costs,insurance costs,and warehousing costs.

Accepted Answer

Keeping merchandise inventory at the minimum level that meets the needs of providing goods to customers, with turning over the merchandise inventory efficiently, helps reduce inventory storage costs, insurance costs, and warehousing costs.

Question 11

What is the cornerstone of the master budget for a merchandising company? Why?

Accepted Answer

The answer of What is the cornerstone of the master...

Question 12

For a merchandising company,the selling and administrative expense budget separates fixed and variable expenses.

Accepted Answer

The selling and administrative expense budget for a merchandising company typically separates fixed expenses, such as rent and salaries, from variable expenses, such as advertising and shipping costs. This allows for better budget planning and cost control.

Question 13

Kwanzan Industries expects to sell 490 units of Product A and 420 units of Product B each day at an average price of $16 for Product A and $30 for Product B.The expected cost for Product A is 42% of its selling price and the expected cost for Product B is 59% of its selling price.Kwanzan Industries has no beginning inventory,but it wants to have a five-day supply of ending inventory for each product.Compute the budgeted purchases for the next (seven-day)week.(Round the answer to the nearest dollar.)

Accepted Answer

The answer of Kwanzan Industries expects to sell 490 units...

Question 14

Hygeia Health expects to sell 450 units of Product A and 380 units of Product B each day at an average price of $15 for Product A and $35 for Product B.The expected cost for Product A is 35% of its selling price and the expected cost for Product B is 55% of its selling price.Hygeia Health has no beginning inventory,but it wants to have a three-day supply of ending inventory for each product.Compute the budgeted cost of goods sold for the next (seven-day)week.(Round the answer to the nearest dollar.)

Accepted Answer

The answer of Hygeia Health expects to sell 450 units...

Question 15

From the following details,provided by a merchandising company,prepare the selling and administrative expenses budget for the first quarter of the next year.
 $$\begin{array} { | l | l | } 
\hline \text { Rent Expense } & \$ 8,000 \text { per month } \
\hline \text { Depreciation Expense } & \$ 3,500 \text { per month } \
\hline \text { Insurance Expense } & \$ 1,250 \text { per month } \
\hline \text { Miscellaneous Expense } & 2 \% \text { of sales, paid as incurred } \
\hline \text { Commissions Expense } & 10 \% \text { of sales } \
\hline \text { Salaries Expense } & \$ 7,000 \text { per month } \
\hline
\end{array}$$ $$\begin{array} { | l | l | l | r | } 
\hline & \text { Jan } & \text { Feb } & \text { March } \
\hline \text { Sales } & \$ 50,000 & \$ 65,000 & \$ 80,000 \
\hline
\end{array}$$

Accepted Answer

The answer of From the following details,provided by a merchandising...

Question 16

When preparing the selling and administrative expense budget,there is no need for a merchandising company to separate mixed costs into the fixed and variable components.

Accepted Answer

Separating mixed costs into fixed and variable components is important for accurate budgeting and forecasting, even for a merchandising company. It helps in understanding cost behavior and making informed decisions about adjusting expenses in response to changes in sales volume or other factors.

Question 17

The inventory,purchases,and cost of goods sold budget determines cost of goods sold for the budgeted income statement,and ending Merchandise Inventory for the budgeted balance sheet.

Accepted Answer

This is true because the inventory, purchases, and cost of goods sold budget are used to calculate the cost of goods sold expenses on the income statement, which impacts the net income figure. The ending merchandise inventory is also derived from the inventory budget and is reported on the balance sheet as a current asset.

Question 18

Regarding the sales budget,which of the following statements is incorrect?

Accepted Answer

The budgeted sales are not typically carried from the sales budget to the balance sheet. The sales budget is used to determine the expected sales revenue, which is incorporated into the budgeted income statement. The balance sheet would reflect the expected inventory levels, accounts receivable, and other items impacted by sales, but not the budgeted sales themselves.

Question 19

When a merchandiser calculates the budgeted cash payments for selling and administrative expenses,noncash expenses like depreciation are also considered.

Accepted Answer

Noncash expenses like depreciation are not considered in the calculation of budgeted cash payments for selling and administrative expenses because they do not involve an actual outflow of cash.

Question 20

The financial budget of a merchandising company is similar to that of a manufacturing company.

Accepted Answer

Both types of companies need to plan for their expenses related to producing and selling products, such as materials, labor, marketing, and overhead costs. Therefore, their budgets share many similarities, although there may be some differences in the allocation of costs depending on the nature of their business.

Quiz 22: Master Budgets