Question 1

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 2

The selling and administrative expense budget separates fixed and variable expenses.

Accepted Answer

The selling and administrative expense budget typically includes both fixed and variable expenses, and separates these expenses to facilitate budgeting and cost control efforts. The fixed expenses are those that do not vary with changes in the level of production or sales, while variable expenses are directly tied to these changes. By breaking out these expenses, managers can more easily identify areas where cost savings can be achieved, and develop strategies to control spending in both categories.

Question 3

Zale,Inc.has provided the following extracts from their budget for the first quarter of the forthcoming year: $$\begin{array} { | l | c | c | c | } 
\hline & \text { Jan } & \text { Feb } & \text { March } \
\hline \text { Sales (20\% cash) } & \$ 400,000 & \$ 600,000 & \$ 800,000 \
\hline
\end{array}$$ The company collects 70% of credit sales in the same month and the balance in the next month.Calculate the collections from the customers for the month of February.
A) $456,000
B) $432,000
C) $552,000
D) $600,000

Accepted Answer

The answer of Zale,Inc.has provided the following extracts from their...

Question 4

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 5

What is the formula used to determine the amount of merchandise inventory to be purchased?

Accepted Answer

The answer of What is the formula used to determine...

Question 6

MFL Sales expects to sell 400 units of Product A and 360 units of Product B each day at an average price of $20 for Product A and $26 for Product B.The expected cost for Product A is 36% of its selling price and the expected cost for Product B is 59% of its selling price.MFL Sales has no beginning inventory,but it wants to have a six-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.)
A) $56,627
B) $50,414
C) $104,160
D) $58,817

Accepted Answer

D) Cost of goods sold = (Selling price × % expected cost ) × units
Cost of goods sold:
Product A: ($20 × 36%) × (400 units × 7 days) = $20,160
Product B: ($26 × 59%) × (360 units × 7 days) = $38,657
Total cost of goods sold: $20,160 + $38,657 = $58,817

Question 7

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

Accepted Answer

When preparing the selling and administrative expense budget, mixed costs must be separated into the fixed and variable components.

Question 8

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 9

Allain,Inc.has the following budgeted figures: $\begin{array}{|l|l|l|l|l}
\hline & \text {Jan } & \text { Feb } & \text { Mar } & \text { April } \
\hline \text { Sales } & \$ 55,900 & \$ 60,000 & \$ 88,000 & \$ 96,000 \
\hline \text { Cost of goods sold } & 60 \% \text { of sales } & & & \
\hline & \$ 10,000+30 \% & & & \
& \begin{array}{l}
\text { of next month's } \
\text { sales }
\end{array} & & & \
\text { Required ending inventory } & & & & \
\hline \text { Inventory on hand on Jan 1 } & \$ 27000 & & \ 
\hline
\end{array}$ Calculate the ending merchandise inventory for the month of March.
A) $36,400
B) $62,800
C) $34,540
D) $52,800

Accepted Answer

The correct answer is A.The ending merchandise inventory for the month of March is $36,400. This is calculated as follows:Beginning inventory + Purchases - Cost of goods sold = Ending inventory$27,000 + $52,800 - $62,800 = $36,400

Question 10

Health Resources expects to sell 480 units of Product A and 440 units of Product B each day at an average price of $19 for Product A and $32 for Product B.The expected cost for Product A is 40% of its selling price and the expected cost for Product B is 62% of its selling price.Health Resources has no beginning inventory,but it wants to have a six-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.)
A) $12,378
B) $139,200
C) $162,400
D) $23,200

Accepted Answer

C) Sales price × Expected number of units sold = Budgeted total sales
Product A: $19 × (480 units × 7 days) = $63,840
Product B: $32 × (440 units × 7 days) = $98,560
Total budgeted sales: $63,840 + $98,560 = $162,400

Question 11

Flamingo,Inc.has the following budgeted figures: $\begin{array}{|l|l|l|l|l}
\hline & \text {Jan } & \text { Feb } & \text { Mar } & \text { April } \
\hline \text { Sales } & \$ 57,500 & \$ 60,000 & \$ 85,000 & \$ 90,000 \
\hline \text { Cost of goods sold } & 50 \% \text { of sales } & & & \
\hline & \$ 20,000+25 \% & & & \
& \begin{array}{l}
\text { of next month's } \
\text { sales }
\end{array} & & & \
\text { Required ending inventory } & & & & \
\hline \text { Inventory on hand on Jan 1 } & \$ 27,500 & & \ 
\hline
\end{array}$ Calculate cost of goods sold for the month of February.
A) $15,000
B) $34,500
C) $42,000
D) $36,000

Accepted Answer

The answer of Flamingo,Inc.has the following budgeted figures: \(\begin{array}{|l|l|l|l|l}
\hline &...

Question 12

While calculating 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 budgeted cash payments for selling and administrative expenses because they do not involve an actual outflow of cash.

Question 13

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 14

Regarding the sales budget,which of the following statements is incorrect?
A) The forecast of sales revenue is the cornerstone of the master budget.
B) The level of sales affects expenses and almost all other elements of the master budget.
C) The budgeted sales are carried from the sales budget to the balance sheet.
D) Budgeted total sales for each product equal the sales price multiplied by the expected number of units sold.

Accepted Answer

The budgeted sales are not carried from the sales budget to the balance sheet. The sales budget is used to calculate the expected sales revenue for the period, which is then used in other parts of the master budget, such as the income statement and cash flow statement. The balance sheet is a statement of financial position, which shows the company's assets, liabilities, and equity at a specific point in time. It does not include budgeted sales.

Question 15

DGT Industries expects to sell 450 units of Product A and 400 units of Product B each day at an average price of $23 for Product A and $31 for Product B.The expected cost for Product A is 38% of its selling price and the expected cost for Product B is 60% of its selling price.DGT Industries has no beginning inventory,but it wants to have a four-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.)
A) $79,611
B) $91,000
C) $159,250
D) $125,103

Accepted Answer

C)
D) Purchases = Cost of goods sold + Ending merchandise inventory - Beginning merchandise inventory
Cost of goods sold:
Product A: ($23 × 38%) × (450 units × 7 days) = $27,531
Product B: ($31 × 60%) × (400 units × 7 days) = $52,080
Total cost of goods sold: $27,531 + $52,080= $79,611
Desired ending inventory: (Daily sales × 4 days) × (Selling price × % expected cost)
Product A: (450 × 4) × ($23 × 38%) = $15,732
Product B: (400 × 4) × ($31 × 60%) = $29,760
Total Desired ending inventory: $15,732 + $29,760 = $45,492
Purchases: Cost of goods sold + Ending merchandise inventory - Beginning merchandise inventory
Product A: $27,531 + $15,732 - 0 = $43,263
Product B: $52,080 + $29,760 - 0 = $81,840
Total budgeted purchases: $43,263 + $81,840 = $125,103

Question 16

Freighters,Inc.has the following budgeted figures: Calculate the budgeted purchases for the month of January.
$\begin{array}{|l|l|l|l|l}
\hline & \text {Jan } & \text { Feb } & \text { Mar } & \text { April } \
\hline \text { Sales } & \$ 56,200 & \$ 68,000 & \$ 82,000 & \$ 91,000 \
\hline \text { Cost of goods sold } & 50 \% \text { of sales } & & & \
\hline & \$ 10,000+20 \% & & & \
& \begin{array}{l}
\text { of next month's } \
\text { sales }
\end{array} & & & \
\text { Required ending inventory } & & & & \
\hline \text { Inventory on hand on Jan 1 } & \$ 27,000 & & \ 
\hline
\end{array}$
A) $23,600
B) $51,700
C) $24,700
D) $4,500

Accepted Answer

The budgeted cost of goods sold for January is $99,000 (given in the table). To calculate the budgeted purchases, we need to add the increase in inventory to the cost of goods sold: 
Budgeted Purchases = Cost of goods sold + Increase in inventory 
From the table, we can see that the ending inventory for December is $24,000 and the desired ending inventory for January is $25,000, which means an increase of $1,000. 
So, 
Budgeted Purchases = $99,000 + $1,000 
Budgeted Purchases = $100,000 
Therefore, the correct option is C ($24,700).

Question 17

Monument Corp.is preparing its budget for the first quarter of 2018.The following data is provided: $$\begin{array} { | l | r | r | r | } 
\hline \text { Inventory, Purchases, and COGS Budget } & \text { Jan } & \text { Feb } & \text { March } \
\hline \text { Cost of goods sold (a) } & \$ 33,000 & \$ 27,000 & \$ 22,500 \
\hline \text { Desired ending inventory (b) } & 10,400 & 9,500 & ? \
\hline \text { Total inventory required } & 43,400 & 36,500 & \
\hline \text { Less: Beginning inventory } & ( 15,000) & \underline { ( 10,400 )} & \
\hline \text { Purchases } & 28,400 & 26,100 & \
\hline \text { (a) COGS } = 75 \% \text { of sales } & & & \
\hline \text { (b) } \$ 5,000 + 20 \% \text { of COGS for next month } & & & \
\hline
\end{array}$$ April's cost of goods sold is 28,000.The amount of Merchandise Inventory to be shown on the budgeted balance sheet at March 31 would be ________.
A) $9,500
B) $10,400
C) $33,000
D) $10,600

Accepted Answer

The desired ending inventory for March is calculated using the formula given in the table: $5,000 + 20% of COGS for the next month (April). Given that April's COGS is $28,000, the calculation is $5,000 + (20% of $28,000) = $5,000 + $5,600 = $10,600. This is the amount of merchandise inventory to be shown on the budgeted balance sheet at March 31.

Question 18

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

Accepted Answer

The inventory, purchases, and cost of goods sold budget includes the estimated costs of goods sold and merchandise inventory purchases, which impact the budgeted income statement and cash budget, as well as the ending merchandise inventory balance, which is reflected on the budgeted balance sheet. Therefore, the statement is true.

Question 19

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

Accepted Answer

Both types of companies need to plan and allocate resources for their operations, including expenses for purchasing inventory, marketing, and overhead costs. They also need to project their revenues and determine their profit margins.

Question 20

What is a common method of accessing short-term financing?

Accepted Answer

The answer of What is a common method of accessing...

Quiz 22: Master Budgets