Deck 15: The Budgeting Process

Question 1

Figure 15-2
Harald, Inc., has done a cost analysis for its production of bumper stickers. The following activities and cost drivers have been developed: $\begin{array}{ll}\text { Activity } & \text { Cost Formula } \\\text { Maintenance } & £ 11,000+£ 0.11 \text { per machine hour } \\\text { Machining } & £ 25,000+£ 0.50 \text { per machine hour } \\\text { Setups } & £ 50 \text { per batch } \\\text { Purchasing } & £ 200+£ 45 \text { per purchase order }\end{array}$ Following are the actual costs of producing 85,000 stickers: 5,000 machine hours; 10 batches; 20 purchase orders $\begin{array}{lr}\text { Maintenance } & £ 11,500 \\\text { Machining } & 28,300 \\\text { Setups } & 550 \\\text { Purchasing } & 1,000\end{array}$

-Refer to Figure 15-2. What is the budgeted cost per sticker? (Round to three decimal places.)

A)£0.468
B)£0.478
C)£0.486
D)£0.487

Answer 1

£0.478

Question 2

Figure 15-1
Rydingsward, Inc., has done a cost analysis for its production of reflectors. The following activities and cost drivers have been developed: $\begin{array}{ll}\text { Activity } & \text { Cost Formula } \\\text { Maintenance } & £ 15,000+£ 4 \text { per machine hour } \\\text { Machining } & £ 35,000+£ 1 \text { per machine hour } \\\text { Inspection } & £ 60,000+£ 750 \text { per batch } \\\text { Setups } & £ 1,000 \text { per batch } \\\text { Purchasing } & £ 50,000+£ 10 \text { per purchase order }\end{array}$

-Refer to Figure 15-1. What is the budgeted purchasing cost if there was production of 50,000 reflectors that will require 8,000 machine hours, 25 batches, and 15,000 purchase orders?

A)£150,000
B)£200,000
C)£100,000
D)none of the above

Answer 2

£200,000

Question 3

A budget based on additions and subtractions from last year's budget is

A)a zero-base budget.
B)a continuous budget.
C)an incremental budget.
D)none of these.

Answer 3

C

Question 4

Activity-based budgeting provides better planning because

A)it incorporates change by understanding processes and drivers.
B)it incorporates change by assuming production relationships to be the same.
C)it incorporates change by making inflationary adjustments.
D)All of the above are correct.

Question 5

If a department plans forward from resources to outputs, this describes which criticism of traditional budgeting?

A)department orientation
B)dynamic
C)process oriented, not results oriented
D)results oriented, not process oriented

Question 6

____ are costs incurred for the acquisition of short-run activity capacity, usually as the result of yearly planning.

A)Discretionary fixed expenses
B)Committed fixed expenses
C)Mixed costs
D)Step-variable costs

Question 7

Activity-based budgeting

A)focuses on processes that result in output.
B)focuses on eliminating nonvalue-added activities.
C)focuses on the best use of capacity.
D)All of the above are correct.

Question 8

A budget where managers must justify all costs based on need is a(n)

A)zero-base budget.
B)participatory budget.
C)continuous budget.
D)incremental budget.

Question 9

Which of the following is an example of a discretionary fixed expense?

A)direct labour
B)depreciation on a factory building
C)insurance on a building
D)property taxes on a factory building

Question 10

Figure 15-1
Rydingsward, Inc., has done a cost analysis for its production of reflectors. The following activities and cost drivers have been developed: $\begin{array}{ll}\text { Activity } & \text { Cost Formula } \\\text { Maintenance } & £ 15,000+£ 4 \text { per machine hour } \\\text { Machining } & £ 35,000+£ 1 \text { per machine hour } \\\text { Inspection } & £ 60,000+£ 750 \text { per batch } \\\text { Setups } & £ 1,000 \text { per batch } \\\text { Purchasing } & £ 50,000+£ 10 \text { per purchase order }\end{array}$

-Refer to Figure 15-1. What is the machine cost for production of 50,000 reflectors that will require 8,000 machine hours, 25 batches, and 15,000 purchase orders?

A)£47,000
B)£43,000
C)£38,410,000
D)none of the above

Question 11

Figure 15-1
Rydingsward, Inc., has done a cost analysis for its production of reflectors. The following activities and cost drivers have been developed: $\begin{array}{ll}\text { Activity } & \text { Cost Formula } \\\text { Maintenance } & £ 15,000+£ 4 \text { per machine hour } \\\text { Machining } & £ 35,000+£ 1 \text { per machine hour } \\\text { Inspection } & £ 60,000+£ 750 \text { per batch } \\\text { Setups } & £ 1,000 \text { per batch } \\\text { Purchasing } & £ 50,000+£ 10 \text { per purchase order }\end{array}$

-Refer to Figure 15-1. What is the budget for maintenance if 20,000 reflectors were made that required 3,500 machine hours, 12 batches, and 5,000 purchase orders?

A)£3,500
B)£15,000
C)£29,000
D)£14,000

Question 12

Figure 15-1
Rydingsward, Inc., has done a cost analysis for its production of reflectors. The following activities and cost drivers have been developed: $\begin{array}{ll}\text { Activity } & \text { Cost Formula } \\\text { Maintenance } & £ 15,000+£ 4 \text { per machine hour } \\\text { Machining } & £ 35,000+£ 1 \text { per machine hour } \\\text { Inspection } & £ 60,000+£ 750 \text { per batch } \\\text { Setups } & £ 1,000 \text { per batch } \\\text { Purchasing } & £ 50,000+£ 10 \text { per purchase order }\end{array}$

-Refer to Figure 15-1. What is the budgeted setup costs if there was production of 50,000 reflectors that will require 8,000 machine hours, 25 batches, and 15,000 purchase orders?

A)£1,000
B)£25,000
C)£8,000,000
D)£15,000,000

Question 13

Activity-based budgeting is most useful when

A)output is homogeneous.
B)production processes are simple.
C)diverse products are produced.
D)volume levels are stable.

Question 14

Which is NOT one of the four steps needed to build an activity-based budget?

A)Determine output level.
B)Determine the activities and their drivers needed to produce output.
C)Estimate the demand for each activity to produce the output.
D)Estimate the committed capacity.

Question 15

Activity-based budgets compare costs for items based on activities such as

A)direct material.
B)direct labour.
C)setups.
D)power.

Question 16

Figure 15-1
Rydingsward, Inc., has done a cost analysis for its production of reflectors. The following activities and cost drivers have been developed: $\begin{array}{ll}\text { Activity } & \text { Cost Formula } \\\text { Maintenance } & £ 15,000+£ 4 \text { per machine hour } \\\text { Machining } & £ 35,000+£ 1 \text { per machine hour } \\\text { Inspection } & £ 60,000+£ 750 \text { per batch } \\\text { Setups } & £ 1,000 \text { per batch } \\\text { Purchasing } & £ 50,000+£ 10 \text { per purchase order }\end{array}$

-Refer to Figure 15-1. What is the budgeted inspection cost if there was production of 50,000 reflectors that will require 8,000 machine hours, 25 batches, and 15,000 purchase orders?

A)£18,750
B)£60,000
C)£66,000
D)£78,750

Question 17

Figure 15-2
Harald, Inc., has done a cost analysis for its production of bumper stickers. The following activities and cost drivers have been developed: $\begin{array}{ll}\text { Activity } & \text { Cost Formula } \\\text { Maintenance } & £ 11,000+£ 0.11 \text { per machine hour } \\\text { Machining } & £ 25,000+£ 0.50 \text { per machine hour } \\\text { Setups } & £ 50 \text { per batch } \\\text { Purchasing } & £ 200+£ 45 \text { per purchase order }\end{array}$ Following are the actual costs of producing 85,000 stickers: 5,000 machine hours; 10 batches; 20 purchase orders $\begin{array}{lr}\text { Maintenance } & £ 11,500 \\\text { Machining } & 28,300 \\\text { Setups } & 550 \\\text { Purchasing } & 1,000\end{array}$

-Refer to Figure 15-2. What is the actual cost per sticker? (Round to three decimal places.)

A)£0.468
B)£0.478
C)£0.486
D)£0.487

Question 18

Which of the following is NOT a criticism of the traditional master budget?

A)results oriented
B)Interdependencies are recognized.
C)static
D)department oriented

Question 19

Which of the following expenses is an example of a discretionary fixed expense?

A)investment in production equipment
B)investment in the factory
C)electricity costs
D)employment costs

Question 20

Figure 15-1
Rydingsward, Inc., has done a cost analysis for its production of reflectors. The following activities and cost drivers have been developed: $\begin{array}{ll}\text { Activity } & \text { Cost Formula } \\\text { Maintenance } & £ 15,000+£ 4 \text { per machine hour } \\\text { Machining } & £ 35,000+£ 1 \text { per machine hour } \\\text { Inspection } & £ 60,000+£ 750 \text { per batch } \\\text { Setups } & £ 1,000 \text { per batch } \\\text { Purchasing } & £ 50,000+£ 10 \text { per purchase order }\end{array}$

-Refer to Figure 15-1. What is the budgeted maintenance cost if there was production of 50,000 reflectors that will require 8,000 machine hours, 25 batches, and 15,000 purchase orders?

A)£15,000
B)£32,000
C)£47,000
D)£79,000

Question 21

The budget that is a comprehensive financial plan for the organization as a whole is called a

A)capital budget.
B)master budget.
C)comprehensive budget.
D)continuous budget.

Question 22

Figure 15-3
Projected sales for Sommers, Inc., for next year and beginning and ending inventory data are as follows: $\begin{array}{lr}\text { Sales } & 50,000 \text { units } \\\text { Beginning inventory } & 4,000 \text { units } \\\text { Desired ending inventory } & 8,000 \text { units }\end{array}$ The selling price is £40 per unit. Each unit requires four pounds of material which costs £6 per pound. The beginning inventory of raw materials is 12,000 pounds. The company wants to have 3,000 pounds of material in inventory at the end of the year.

-Refer to Figure 15-3. According to Sommers' production budget, how many units should be produced?

A)54,000
B)46,000
C)62,000
D)38,000

Question 23

The first step in planning and control is

A)preparation of the budget.
B)performance evaluation.
C)strategic planning.
D)setting long-term objectives.

Question 24

The first step in the budgeting process is the preparation of the

A)production budget.
B)selling and administrative expenses budget.
C)sales forecast.
D)cash budget.

Question 25

Continuous budgeting requires managers to

A)add a future month as the current month expires.
B)constantly update the budget to include new information.
C)continuously refer to the budget when making decisions.
D)assign budgeting responsibilities to a defined group of employees.

Question 26

A budget is

A)a planning tool.
B)a control tool.
C)a means of communicating goals to the firm's divisions.
D)all of the above.

Question 27

A bank manager may review a company's cash budget to

A)determine whether the firm will earn net income.
B)uncover possible employee theft.
C)evaluate the company's ability to repay a loan.
D)do all of the above.

Question 28

The production budget

A)summarizes the cost of producing units for the budget period.
B)is calculated based on the sales budget and the desired ending inventory.
C)specifies the required overhead.
D)specifies the required direct labour hours.

Question 29

Feedee Company has budgeted sales and production (in units) over the next three months as follows: $$\begin{array} { l c c c } & \text { January } & \text { February } & \text { March } \\\text { Sales } & 50,000 & ? & 80,000 \\\text { Froduction } & 52,000 & 64,000 & 78,000\end{array}$$ There are 10,000 units on hand on January 1. A minimum of 20 per cent of the next month's sales in units must be on hand at the end of each month. April sales are expected to be 70,000. Budgeted sales for February would be

A)64,000.
B)78,000.
C)60,000.
D)52,000.

Question 30

A moving twelve-month budget where a future month is added as the current month expires is called a(n)

A)zero-base budget.
B)incremental budget.
C)revolving budget.
D)continuous budget.

Question 31

Jiggy Company plans to sell 33,000 units during the month of May. The company plans to have 2,500 units on hand at the end of the month. If 1,200 units are on hand on May 1, how many units must be produced during May?

A)33,000
B)35,500
C)34,300
D)31,800

Question 32

Activity-based budgeting

A)is a more powerful planning and control tool than a functional-based budget system.
B)starts with sales and production budgets similar to a functional-based budget system.
C)is simpler to construct than a functional-based budget system.
D)Both a and b above are correct.

Question 33

Which of the following appears in the cash budget?

A)interest payments
B)purchase of equipment on credit
C)depreciation
D)all of the above

Question 34

Which budget is prepared without monetary amounts?

A)direct materials purchases budget
B)overhead budget
C)production budget
D)all of the above

Question 35

Which of the following is an advantage of the budgeting process?

A)Budgeting provides resource information for decision making.
B)Budgeting provides a standard for performance evaluation.
C)Budgeting improves communication and coordination within the organization.
D)all of the above

Question 36

Figure 15-3
Projected sales for Sommers, Inc., for next year and beginning and ending inventory data are as follows: $\begin{array}{lr}\text { Sales } & 50,000 \text { units } \\\text { Beginning inventory } & 4,000 \text { units } \\\text { Desired ending inventory } & 8,000 \text { units }\end{array}$ The selling price is £40 per unit. Each unit requires four pounds of material which costs £6 per pound. The beginning inventory of raw materials is 12,000 pounds. The company wants to have 3,000 pounds of material in inventory at the end of the year.

-Refer to Figure 15-3. Sommers' budgeted sales would be

A)£2,160,000.
B)£2,320,000.
C)£2,480,000.
D)£2,000,000.

Question 37

Which of the following is usually prepared before the production budget?

A)direct materials purchases budget
B)direct labour budget
C)sales budget
D)cash budget

Question 38

Which of the following is usually prepared before the direct materials purchases budget?

A)production budget
B)cash budget
C)pro forma income statement
D)pro forma balance sheet

Question 39

Which of the following is true about budgets?

A)Budgets are financial plans for the future.
B)Budgets identify objectives and the actions needed to achieve them.
C)Budgets should be tightly linked to the strategic plan.
D)all of the above

Question 40

Jiggy Company plans to sell 33,000 units during the month of May. Beginning inventory was 1,200 units. The company plans to have 2,500 units on hand at the end of the month. Each unit requires 3 pounds of raw materials. If raw material inventory on May 1 is 4,400 pounds and desired ending inventory is 2,200 pounds, how many pounds of raw materials must be purchased during May?

A)103,500
B)102,900
C)105,100
D)100,700

Question 41

Budgeted sales for the second quarter for Maxwell Company, a retailer, are as follows: $\begin{array}{lr}& \text { Budgeted Sales (Units) } \\\text { April } & 60,000 \\\text { May } & 120,000 \\\text { June } & 140,000\end{array}$ Maxwell started the quarter with an inventory of 30,000 units. The company likes to maintain an inventory equal to 10 per cent of next month's budgeted sales. Budgeted purchases in units for May would be

A)146,000.
B)120,000.
C)134,000.
D)122,000.

Question 42

General Ltd. manufactures boxes. The estimated number of boxes sold for the first three months of 2012 are: $$\begin{array} { l l } \text { Month } & \text { Sales } \\\text { January } & 3,000 \\\text { February } & 4,200 \\\text { March } & 3,900\end{array}$$ Finished goods inventory at the end of December was 900 units. Ending finished goods inventory is equal to 20 per cent of the next month's sales. General Ltd. expects to sell the boxes for £5 each. April 2012 sales is projected at 4,500 boxes. What is the expected sales amount for March?

A)£15,000
B)£21,000
C)£19,500
D)£4,500

Question 43

Figure 15-5
Canceco Company produces and sells pillows. It expects to sell 10,000 pillows in the year 2008 and had 1,000 pillows in finished goods inventory at the end of 2011. Canceco would like to complete operations in the year 2008 with at least 1,250 completed pillows in inventory. There is no ending work-in-process inventory. The pillows sell for £5 each.
Refer to Figure 15-5. How many pillows would be produced in the year 2008?

A)10,000 pillows
B)11,000 pillows
C)11,250 pillows
D)10,250 pillows

Question 44

Budgeted sales for the first quarter for Cullison Company, a retailer, are as follows: $\begin{array}{lr}& \text { Budgeted Sales (Units) } \\\text { January } & 75,000 \\\text { February } & 100,000 \\\text { March } & 110,000\end{array}$ Cullison started the year with an inventory of 7,500 units. The company likes to maintain an inventory equal to 10 per cent of next month's budgeted sales. Budgeted purchases in units for February would be

A)111,000.
B)110,000.
C)101,000.
D)100,000.

Question 45

Which of the following is an example of a discretionary fixed cost?

A)the cost of a donation to the United Way
B)the cost of the manufacturing facilities
C)the cost of the manufacturing equipment
D)taxes on the property used for manufacturing

Question 46

Figure 15-3
Projected sales for Sommers, Inc., for next year and beginning and ending inventory data are as follows: $\begin{array}{lr}\text { Sales } & 50,000 \text { units } \\\text { Beginning inventory } & 4,000 \text { units } \\\text { Desired ending inventory } & 8,000 \text { units }\end{array}$ The selling price is £40 per unit. Each unit requires four pounds of material which costs £6 per pound. The beginning inventory of raw materials is 12,000 pounds. The company wants to have 3,000 pounds of material in inventory at the end of the year.

-Refer to Figure 15-3. How many pounds of material would Sommers need to purchase?

A)216,000
B)225,000
C)207,000
D)201,000

Question 47

Arlo Company uses an annual cost formula for overhead of £72,000 + £1.60 for each direct labour hour worked. For the upcoming month, Arlo plans to manufacture 96,000 units. Each unit requires five minutes of direct labour. Arlo's budgeted overhead for the month is

A)£12,800.
B)£18,800.
C)£84,800.
D)£225,600.

Question 48

Figure 15-4
Budgeted sales for the second quarter of the current year are as follows: $\begin{array}{lc} & \text { Budgeted Sales } \\\text { Apri1 } & £ 150,000 \\\text { May } & 200,000 \\\text { June } & 180,000\end{array}$ The company collects 20 per cent in the month of sale, 70 per cent in the first month following the sale, and 10 per cent in the second month following the sale.

-Refer to Figure 15-4. April sales to be collected in May are

A)£30,000.
B)£105,000.
C)£104,000.
D)£-0-.

Question 49

Figure 15-4
Budgeted sales for the second quarter of the current year are as follows: $\begin{array}{lc} & \text { Budgeted Sales } \\\text { Apri1 } & £ 150,000 \\\text { May } & 200,000 \\\text { June } & 180,000\end{array}$ The company collects 20 per cent in the month of sale, 70 per cent in the first month following the sale, and 10 per cent in the second month following the sale.

-Refer to Figure 15-4. Wemberly's budgeted cash receipts for February are

A)£220,000.
B)£209,000.
C)£194,000.
D)£143,000.

Question 50

Figure 15-4
Budgeted sales for the second quarter of the current year are as follows: $\begin{array}{lc} & \text { Budgeted Sales } \\\text { Apri1 } & £ 150,000 \\\text { May } & 200,000 \\\text { June } & 180,000\end{array}$ The company collects 20 per cent in the month of sale, 70 per cent in the first month following the sale, and 10 per cent in the second month following the sale.

-Refer to Figure 15-4 above. Total cash collected in June will be

A)£180,000.
B)£191,000.
C)£90,000.
D)£140,000.

Question 51

Diely Company has the following sales budget: $$\begin{array}{l}&\text { July }& \text { August }& \text { September }\\ \text { Budgeted Sales }&{ £ 105,000 }&{ £ 211,000 }&{ £ 134,000 }\end{array}$$ Credit sales represent 80 per cent of budgeted sales. Of the credit sales, 20 per cent is collected in the month of the sale, 60 per cent in the month after the sale, and the remaining 15 per cent is collected two months after the sale. Five per cent of all sales are uncollectible and written-off. Cash receipts from sales in September amounted to

A)£169,150.
B)£135,320.
C)£107,200.
D)£162,120.

Question 52

Bronco Company sells a product for £10. Budgeted sales for the first quarter of the current year are as follows: $\begin{array}{lc} & \text { Budgeted Sales } \\\text { January } & £ 600,000 \\\text { February } & 800,000 \\\text { March } & 900,000\end{array}$ The company wants to maintain an inventory of finished units equal to 30 per cent of the following month's sales, and 10,000 units are on hand at the beginning of the year. Each unit requires two pounds of raw material costing £1 per pound. The company maintains a raw materials inventory equal to 20 per cent of the following month's production needs.
Budgeted production in units for February would be

A)131,000.
B)107,000.
C)83,000.
D)80,000.

Question 53

Figure 15-4
Budgeted sales for the second quarter of the current year are as follows: $\begin{array}{lc} & \text { Budgeted Sales } \\\text { Apri1 } & £ 150,000 \\\text { May } & 200,000 \\\text { June } & 180,000\end{array}$ The company collects 20 per cent in the month of sale, 70 per cent in the first month following the sale, and 10 per cent in the second month following the sale.

-Refer to Figure 15-4 above. Wemberly's budgeted cash receipts for March are

A)£300,000.
B)£335,000.
C)£195,000.
D)£261,000.

Question 54

Figure 15-5
Canceco Company produces and sells pillows. It expects to sell 10,000 pillows in the year 2008 and had 1,000 pillows in finished goods inventory at the end of 2011. Canceco would like to complete operations in the year 2008 with at least 1,250 completed pillows in inventory. There is no ending work-in-process inventory. The pillows sell for £5 each.
Refer to Figure 15-5. What would be the total sales for the year 2008?

A)£50,000
B)£55,000
C)£56,250
D)£51,250

Question 55

At the beginning of the current month, Melrose had £10,000. Cash disbursements were £260,000 and cash collections were £235,000. Melrose invests all excess cash in a money market fund and has a line of credit to cover cash deficiencies. If Melrose wishes to start the next month with £15,000, Melrose must

A)borrow £15,000.
B)borrow £30,000.
C)borrow £45,000.
D)do nothing.

Question 56

The budget committee

A)has the responsibility to review the budget.
B)resolves differences that may arise as the budget is prepared.
C)prepares financial statements for the auditor.
D)both a and b

Question 57

Cal Company uses the following formula for annual overhead: £360,000 + £1.20 for each machine hour used. For the upcoming month, Cal plans to manufacture 6,000 units. Each unit requires 2 machine hours. Cal's budgeted overhead for the month is

A)£367,200.
B)£37,200.
C)£374,400.
D)£44,400.

Question 58

Figure 15-3
Projected sales for Sommers, Inc., for next year and beginning and ending inventory data are as follows: $\begin{array}{lr}\text { Sales } & 50,000 \text { units } \\\text { Beginning inventory } & 4,000 \text { units } \\\text { Desired ending inventory } & 8,000 \text { units }\end{array}$ The selling price is £40 per unit. Each unit requires four pounds of material which costs £6 per pound. The beginning inventory of raw materials is 12,000 pounds. The company wants to have 3,000 pounds of material in inventory at the end of the year.

-Refer to Figure 15-3. Sommers' budgeted total purchase cost of direct materials would be

A)£1,350,000.
B)£1,242,000.
C)£1,206,000.
D)£1,296,000.

Question 59

Nichols Company sells a product for £20. Budgeted sales for the first quarter of the current year are as follows: $\begin{array}{lr}& \text { Budgeted Sales } \\\text { January } & £ 80,000 \\\text { February } & 50,000 \\\text { March } & 90,000\end{array}$ The company wants to maintain an inventory of finished units equal to 30 per cent of the following month's sales, and 1,000 units are on hand at the beginning of the year. Each unit requires two pounds of raw material costing £1 per pound. The company maintains a raw materials inventory equal to 10 per cent of the following month's production needs.
Budgeted production in units for February would be

A)2,500.
B)3,100.
C)3,850.
D)4,600.

Question 60

Brown, Inc., has budgeted £60,000 for annual fixed overhead costs for the coming year. Budgeted variable overhead is £0.10 per unit. For the next quarter, Brown plans to manufacture 500,000 units. Brown's budgeted overhead for the quarter is

A)£50,000.
B)£65,000.
C)£110,000.
D)£150,000.

Question 61

The Good As Old Company manufactures antique-looking, oak rocking chairs. Budgeted sales for the first five months of the year are as follows: Each rocking chair requires 10 square feet of oak, at a cost of £20 per square foot.
The company wants to maintain an inventory of chairs equal to 25 per cent of the following month's sales. At the beginning of the year, 40 chairs are on hand.
Assume the company maintains an inventory of oak equal to 10 per cent of the next month's needs. At the beginning of the year, 240 square feet of oak are on hand. Inventory of oak at March 31 is estimated to be 180 square feet.
a.Prepare a production budget, in units, for each of the first four months of the year.
b.Prepare a purchases budget, in dollars, for each of the first three months of the year.

Question 62

Michael Ltd. has the following sales forecasts for the first three months of 2011: $$\begin{array} { l c } \text { Month } & \text { Sales } \\\text { January } & £ 36,000 \\\text { February } & 24,000 \\\text { March } & 40,000\end{array}$$ Sixty-five per cent of sales are collected in the month of the sale and the remainder are collected in the following month. $\begin{array}{lr}\text { Accounts receivable balance (January 1,2011) } & £ 16,000 \\\text { Cash bal ance (January } 1,2011) & 12,000\end{array}$ Minimum cash balance is £20,000. Cash can be borrowed in £1,000 increments from the local bank (assume no interest charges). How much cash would be collected in March from sales?

A)£32,000
B)£58,400
C)£48,000
D)£34,400

Question 63

Jordan Manufacturing Company expects to incur the following per unit costs for 1,000 units of production: $\begin{array}{ll}\text { Direct materials } & 31 \mathrm{~b} . @ 5=£ 15 \\\text { Direct labour } & 1 \mathrm{hr} @ £ 6=£ 6 \\\text { Variable overhead } & 75 \% \text { of direct labour costs } \\\text { Fixed overhead } & 50 \% \text { of direct labour costs }\end{array}$ What is the total amount of overhead included in the overhead budget?

A)£4,500
B)£3,000
C)£11,250
D)£7,500

Question 64

Budgeted sales for the second quarter of the year for Reuben Company are as follows: $\begin{array}{lc} & \text { Budgeted Sales } \\\text { April } & £ 400,000 \\\text { May } & 200,000 \\\text { June } & 600,000\end{array}$ The company normally collects 60 per cent in the month of sale and 30 per cent in the month following the sale. Ten per cent of all sales are uncollectible and are written off in the following month.
The balance in accounts receivable at April 1 was £200,000, which represents 40 per cent of March sales.

Question 65

Smithson Ltd. has the following budgeted sales for the selected six-month period: There were 7,500 units of finished goods in inventory at the beginning of June. Plans are to have an inventory of finished product equal to 20 per cent of the unit sales for the next month.
Three pounds of materials are required for each unit produced. Each pound of material costs £20. Inventory levels for materials equal 30 per cent of the needs for the next month. Materials inventory on June 1 was 5,000 pounds.
a.Prepare production budgets in units for July, August, and September.
b.Prepare a purchases budget in pounds and dollars for July, August, and September.

Question 66

Budgeted sales for the third quarter of the year for Brown Company are as follows: $\begin{array}{lr}& \text { Budgeted Sales } \\\text { July } & £ 300,000 \\\text { August } & 375,000 \\\text { September } & 450,000\end{array}$ The company normally collects 30 per cent in the month of sale and 65 per cent in the month following the sale. Five per cent of all sales are uncollectible and are written off in the following month.
The balance in accounts receivable at July 1 was £245,000, which represents 70 per cent of June sales.

Question 67

Gerald Company manufactures books. Manufacturing a book takes 10 units of A1 and 1 unit of A2. Scheduled production of books for the next two months is 1,000 and 1,200 units, respectively. Beginning inventory is 4,000 units of A1 and 30 units of A2. The ending inventory of A1 is planned to decrease 500 units in each of the next two months, and the A2 inventory is expected to increase 5 units in each of the next two months. Based on this information, the number of units of A1 that needs to be purchased by Gerald during the first month is

A)9,500 units.
B)10,000 units.
C)1,000 units.
D)10,500 units.

Question 68

Steve manufactures picture frames. Sales for July are expected to be 10,000 units of various sizes. Historically, the average frame requires five foot of framing, one square foot of glass, and one square feet of backing. Beginning inventory includes 7,000 feet of framing, 1,500 square feet of glass, and 2,500 square feet of backing. Current prices are £0.90 per foot of framing, £4.50 per square foot of glass, and £1.50 per square foot of backing. Ending inventory should be 150 per cent of beginning inventory. Purchases are paid for in the month acquired.
a.Determine the quantity of framing, glass, and backing that is to be purchased during July.
b.Determine the total amount of cash needed for July purchases.

Question 69

The following budget estimates have been prepared by Clifton Company: $\begin{array}{lcc} & \text { Cash Receipts } & \text { Cash Payments } \\\text { May } & £ 120,000 & £ 150,000 \\\text { June } & 110,300 & 150,000\end{array}$ The company likes to maintain a minimum cash balance of £40,000.
Any excess cash is invested in a money market account earning 9 per cent compounded monthly. Interest is reinvested in the money market account. Any cash deficiencies are covered by a withdrawal from the money market account. If additional cash is needed, the company has a line of credit at 12 per cent interest with the local bank. Interest is paid monthly.
Assume a cash balance on May 1 of £40,000, a money market account balance of £0, and a credit line loan balance of £0.

Question 70

Retro, Inc., produces a single product. The projected sales for the first month of the coming year and the beginning and ending inventory data are as follows: $\begin{array}{lr}\text { Sales } & 80,000 \text { units } \\\text { Unit price } & £ 12 \\\text { Beginning inventory } & 6,000 \text { units } \\\text { Desired ending inventory } & 9,000 \text { units }\end{array}$ Each unit requires three pounds of material costing £2 per pound. The beginning inventory of raw materials is 2,500 pounds, and the company wants to have 4,500 pounds of material in inventory at the end of the month. Each unit requires one hour of direct labour time, which is billed at £8 per hour.
a.Prepare a production budget for the first month.
b.Prepare a direct materials purchases budget for the first month.

Question 71

Dodge Ltd. is in the process of preparing its budget for next year. Cost of goods sold has been estimated at 60 per cent of sales. Merchandise purchases are to be made during the month preceding the month of the sales. Dodge pays 60 per cent in the month of purchase, and 40 per cent in the month following. Wages are estimated at 20 per cent of sales and are paid during the month of sale. Other operating costs amounting to 10 per cent of sales are to be paid in the month following the sale. The accounts payable balance on June 30 was £20,000. $$\begin{array} { l r } \text { Month } & \text { Sales } \\\text { June } & £ 170,000 \\\text { July } & 200,000 \\\text { August } & 120,000 \\\text { September } & 150,000 \\\text { October } & 160,000 \\\text { November } & 100,000\end{array}$$

Question 72

Gerald Company manufactures books. Manufacturing a book takes 10 units of A1 and 1 unit of A2. Scheduled production of books for the next two months is 1,000 and 1,200 units, respectively. Beginning inventory is 4,000 units of A1 and 30 units of A2. The ending inventory of A1 is planned to decrease 500 units in each of the next two months, and the A2 inventory is expected to increase 5 units in each of the next two months. How many units of A1 does expect to use in production during the second month?

A)12,000 units
B)12,500 units
C)10,000 units
D)10,750 units

Question 73

Dusty Company manufactures oak porch swings. Budgeted sales for the first four months of the year are as follows: Each porch swing requires 15 square feet of oak, at a cost of £20 per square foot.
The company wants to maintain an inventory of swings equal to 20 per cent of the following month's sales. At the beginning of the year, 40 swings are on hand.
Assume the company maintains an inventory of oak equal to 10 per cent of the next month's needs. At the beginning of the year, 500 square feet of oak are on hand. Inventory of oak at March 31 is estimated to be 400 square feet.
a.Prepare a production budget, in units, for each of the first three months of the year.
b.Prepare a purchases budget, in monetary values, for direct materials for each of the first three months of the year.

Question 74

The following budget estimates have been prepared by Flowers Company: $$\begin{array} { l c c } & \text { Cash Receipts } & \text { Cash Payments } \\\text { January } & £ 220,000 & £ 220,000 \\\text { February } & 380,000 & 400,000 \\\text { March } & 320,000 & 319,800\end{array}$$ The company likes to maintain a minimum cash balance of £50,000.
Any excess cash is invested in a money market account earning 8 per cent compounded monthly. Interest is reinvested in the money market account. Any cash deficiencies are covered by a withdrawal from the money market account. If additional cash is needed, the company has a line of credit at 12 per cent interest with the local bank.
Assume a cash balance on January 1 of £50,000, a money market account balance of £0, and a credit line loan balance of £0.

Question 75

Rydingsward, Inc., has done a cost analysis for its production of reflectors.
The following activities and cost drivers have been developed:

Question 76

Sales for October, November, and December are expected to be £200,000, £180,000, and £220,000, respectively, for Ripken Company. All sales are on account (terms 2/15, net 30 days) and are collected 50 per cent in the month of sale and 50 per cent in the following month. One-half of all sales discounts are taken on the average. Materials are purchased one month before being needed, and all purchases and expenses are paid for as incurred. Activities for the quarter are expected to be: $$\begin{array} { l r r r } & \text { October } & \text { November } & \text { December } \\\text { Materials used } & £ 40,000 & £ 36,000 & £ 44,000 \\\text { Salaries } & 70,000 & 68,000 & 72,000 \\\text { Maintenance and repairs } & 18,000 & 18,000 & 18,000 \\\text { Depreciation } & 36,000 & 36,000 & 36,000 \\\text { Utilities and other } & 14,000 & 14,000 & 14,000 \\\text { Dividends paid } & - 0 - & 10,000 & - 0 - \\\text { Payment on bonds } & 8,000 & 8,000 & 8,000\end{array}$$