Deck 8: Profit Planning and Activity-Based Budgeting

Question 1

The master budget contains the following components, among others: direct-material budget, budgeted balance sheet, production budget, and cash budget. Which of these components would be prepared first and which would be prepared last?

A)Direct-material budget, cash budget
B)Direct-material budget, balance sheet
C)Production budget, cash budget
D)Production budget, balance sheet
E)Cash budget, direct-material budget

Answer 1

D

Question 2

The comprehensive set of budgets that serves as a company's overall financial plan is commonly known as:

A)an integrated budget.
B)a pro-forma budget.
C)a master budget.
D)a financial budget.
E)a rolling budget.

Answer 2

C

Question 3

Which of the following organizations is least likely to use budgets?

A)Manufacturing firms.
B)Merchandising firms.
C)Firms in service industries.
D)Nonprofit organizations.
E)Fictitious organizations.

Answer 3

E

Question 4

Welland Corporation has a highly automated production facility. Which of the following correctly shows the two factors that would likely have the most direct influence on the company's manufacturing overhead budget?

A)Sales volume and labour hours.
B)Contribution margin and cash payments.
C)Production volume and management judgment.
D)Labour hours and management judgment.
E)Management judgment and indirect labour cost.

Question 5

An organization's budgets will not often be prepared to cover:

A)one month.
B)one quarter.
C)one year.
D)five years.
E)a prior year.

Question 6

A company's sales forecast would likely consider all of the following factors except:

A)political and legal events.
B)advertising and pricing policies.
C)general economic and industry trends.
D)top management's attitude toward decentralized operating structures.
E)competition.

Question 7

A company's plan for the acquisition of long-lived assets, such as buildings and equipment, is commonly called a:

A)pro-forma budget.
B)master budget.
C)financial budget.
D)profit plan.
E)capital budget.

Question 8

A manufacturing firm would begin preparation of its master budget by constructing a:

A)sales budget.
B)production budget.
C)cash budget.
D)capital budget.
E)set of pro-forma financial statements.

Question 9

Which of the following would be considered when preparing a company's sales forecast?

A)Anticipated advertising campaigns, and general economic trends.
B)Anticipated advertising campaigns, and expected competitive actions.
C)Anticipated advertising campaigns.
D)Anticipated advertising campaigns, general economic trends, and expected competitive actions.
E)Expected competitive actions.

Question 10

Which of the following choices correctly denotes managerial functions that are commonly associated with budgeting?

A)Estimating taxes payable.
B)Planning, Performance Evaluation, and Coordination of Activities
C)Planning only
D)Planning and Coordination of Activities
E)Performance Evaluation only.

Question 11

Which of the following would have no effect, either direct or indirect, on an organization's cash budget?

A)Sales revenues.
B)Outlays for professional labour.
C)Advertising expenditures.
D)Raw material purchases.
E)Depreciation expense.

Question 12

Fast Track Company, which sells electronics in retail outlets and on the Internet, uses activity-based budgeting in the preparation of its selling, general, and administrative expense budget. Which of the following costs would the company likely classify as a unit-level expense on its budget?

A)Media advertising.
B)Retail outlet sales commissions.
C)Salaries of web-site maintenance personnel.
D)Administrative salaries.
E)Salary of the sales manager employed at Store No. 23.

Question 13

Which of the following would depict the logical order for preparing (1) a production budget, (2) a cash budget, (3) a sales budget, and (4) a direct-labour budget?

A)production budget, sales budget, direct-labour budget, and cash budget.
B)cash budget, sales budget, production budget, direct-labour budget.
C)cash budget, production budget, sales budget, and direct-labour budget.
D)sales budget, production budget, direct-labour budget, and cash budget.
E)sales budget, production budget, cash budget, and direct-labour budget.

Question 14

Generally speaking, budgets are not used to:

A)identify a company's most profitable products.
B)evaluate performance.
C)create a plan of action.
D)assist in the control of profit and operations.
E)facilitate communication and coordinate activities.

Question 15

A budget serves as a benchmark against which:

A)actual results can be compared.
B)allocated results can be compared.
C)actual results become inconsequential.
D)allocated results become inconsequential.
E)cash balances can be compared to expense totals.

Question 16

Wilson Corporation budgets its equipment needs on an on-going basis, with a new quarter being added to the budget as the current quarter is completed. This type of budget is most commonly known as a:

A)capital budget.
B)rolling budget.
C)revised budget.
D)pro-forma budget.
E)financial budget.

Question 17

A company that uses activity-based budgeting performs the following: (1) plans activities for the budget period; (2) forecasts the demand for products and services as well as the customers to be served; (3) budgets the resources necessary to carry out activities. Which of the following denotes the proper order of the preceding activities?

A)1-2-3.
B)2-1-3.
C)2-3-1.
D)3-1-2.
E)3-2-1.

Question 18

A formal budget program will almost always result in:

A)higher sales.
B)more cash inflows than cash outflows.
C)decreased expenses.
D)improved profits.
E)a detailed plan against which actual results can be compared.

Question 19

Which of the following statements best describes the relationship between the sales-forecasting process and the master-budgeting process?

A)The sales forecast is typically completed after completion of the master budget.
B)The sales forecast is typically completed halfway through the master-budget process.
C)The sales forecast is typically completed before the master budget and has no impact on the master budget.
D)The sales forecast is typically completed before the master budget and has little impact on the master budget.
E)The sales forecast is typically completed before the master budget and has significant impact on the master budget.

Question 20

The budgeted income statement, budgeted balance sheet, and budgeted statement of cash flows comprise:

A)the final portion of the master budget.
B)the depiction of an organization's overall actual financial results.
C)the first step of the master budget.
D)the portion of the master budget prepared after the sales forecast and before the remainder of the operational budgets.
E)the second step of the master budget.

Question 21

Nguyen plans to sell 40,000 units of Product No. 75 in June, and each of these units requires five square feet of raw material. Pertinent data are as follows:. $\begin{array} { | l | c | c | } \hline & \text { Product No. 75 } & \text { Raw Material } \\\hline \text { Actual June 1 inventory } & 5.500 & 18.000 \text { square fect } \\\hline \text { Estimated June } 30 \text { inventory } & 4,300 & ? \quad \text { square feet } \\\hline\end{array}$ If the company purchases 201,000 square feet of raw material during the month, the estimated raw-material inventory on June 30 would be:

A)11,000 square feet.
B)13,000 square feet.
C)23,000 square feet.
D)25,000 square feet.
E)28,500 square feet.

Question 22

Drago makes all sales on account, subject to the following collection pattern: 30% are collected in the month of sale; 60% are collected in the first month after sale; and 10% are collected in the second month after sale. If sales for June, July, and August were $120,000, $160,000, and $220,000, respectively, what were the firm's budgeted collections for August and the company's budgeted receivables balance on August 31?

A)August Collections:$162,000, August 31 Receivables Balance: $182,000
B)August Collections:$174,000, August 31 Receivables Balance: $170,000
C)August Collections:$190,000, August 31 Receivables Balance: $154,000
D)August Collections:$262,000, August 31 Receivables Balance: $82,000
E)August Collections:$162,000, August 31 Receivables Balance: $170,000

Question 23

The Grainger Company's budgeted income statement reflects the following amounts: $\begin{array} { | l | c | c | c | c | c | } \hline & \text { Sales } & & \text { Purchases } & & \text { Expenses } \\\hline \text { January } & \$ 120,000 & & \$ 78,000 & & \$ 24,000 \\\hline \text { February } & 110,000 & & 66,000 & & 24,200 \\\hline \text { March } & 125,000 & & 81,250 & & 27,000 \\\hline \text { April } & 130,000 & & 84,500 & & 28,600 \\\hline\end{array}$ Sales are collected 50% in the month of sale, 30% in the month following sale, and 19% in the second month following sale. One percent of sales is uncollectible and expensed at the end of the year. Grainger pays for all purchases in the month following purchase and takes advantage of a 3% discount. The following balances are as of January 1: Cash $88,000; Accounts Receivable $58,000; Accounts Payable $72,000. Of the accounts receivable balance, $35,000 will be collected in January and the remaining amount will be collected in February. The monthly expense figures include $5,000 of depreciation. All expenses are paid in the month incurred.
Grainger's expected cash balance at the end of January is:

A)$87,000.
B)$89,160.
C)$92,000.
D)$94,160.
E)$113,160.

Question 24

The following selected data pertain to the Inborne Corporation: $\begin{array} { | l | r | } \hline \text { Cash operating expenses, July 1-31 } & \$ 180,000 \\\hline \text { Depreciation } & 60,000 \\\hline \text { Merchandise purchases in July } & 560,000 \\\hline \text { listimated payments in July for purchases in June } & 220,000 \\\hline \text { Estimated payments in July for purchases prior to June } & 50,000 \\\hline \text { Estimated payments in July for purchases in July } & 40 \% \\\hline\end{array}$ July's cash disbursements are expected to be:

A)$404,000.
B)$464,000.
C)$674,000.
D)$734,000
E)$786,000.

Question 25

North Line Company manufactures a product requiring 0.5 ounces of platinum per unit. The cost of platinum is approximately $360 per ounce; the company maintains an ending platinum inventory equal to 10% of the following month's production usage. The following data were taken from the most recent quarterly production budget: $\begin{array} { | l | c | c | c | } \hline & \text { July } & \text { August } & \text { September } \\\hline \text { Planned production in units } & 1,000 & 1,100 & 980 \\\hline\end{array}$ If it takes two direct labour hours to produce each unit and North Line's cost per labour hour is $15, direct labour cost for August would be budgeted at:

A)$16,500.
B)$30,000.
C)$31,200.
D)$33,000.
E)$34,800.

Question 26

Melcher & Company had 3,000 units in finished-goods inventory on December 31. The following data are available for the upcoming year: $\begin{array} { | l | c | c | } \hline & \underline { \text { January } } & \text { February } \\\hline \text { Units to be produced } & 9,400 & 10,200 \\\hline \text { Desired ending finished-goods inventory } & 2,500 & 2,100 \\\hline\end{array}$ The number of units Melcher expects to sell in January is:

A)6,900.
B)8,900.
C)9,400.
D)9,900.
E)11,900.

Question 27

Core Windows Inc. makes all purchases on account, subject to the following payment pattern: Paid in the month of purchase: 40%
Paid in the first month following purchase: 30%
Paid in the second month following purchase: 30%
If purchases for January, February, and March were $400,000, $280,000, and $300,000, respectively, what were the firm's budgeted payments in March?

A)$120,000.
B)$160,000.
C)$232,000.
D)$324,000.
E)$980,000.

Question 28

End-of-period figures for accounts receivable and payables to suppliers would be found on the:

A)cash budget.
B)budgeted schedule of cost of goods manufactured.
C)budgeted income statement.
D)budgeted balance sheet.
E)budgeted statement of cash flows.

Question 29

The Grainger Company's budgeted income statement reflects the following amounts: $\begin{array} { | l | c | c | c | c | c | } \hline & \text { Sales } & & \text { Purchases } & & \text { Expenses } \\\hline \text { January } & \$ 120,000 & & \$ 78,000 & & \$ 24,000 \\\hline \text { February } & 110,000 & & 66,000 & & 24,200 \\\hline \text { March } & 125,000 & & 81,250 & & 27,000 \\\hline \text { April } & 130,000 & & 84,500 & & 28,600 \\\hline\end{array}$ Sales are collected 50% in the month of sale, 30% in the month following sale, and 19% in the second month following sale. One percent of sales is uncollectible and expensed at the end of the year. Grainger pays for all purchases in the month following purchase and takes advantage of a 3% discount. The following balances are as of January 1: Cash $88,000; Accounts Receivable $58,000; Accounts Payable $72,000. Of the accounts receivable balance, $35,000 will be collected in January and the remaining amount will be collected in February. The monthly expense figures include $5,000 of depreciation. All expenses are paid in the month incurred.
Grainger's budgeted cash payments in February are:

A)$75,660.
B)$94,860.
C)$97,200.
D)$99,860.
E)$102,200.

Question 30

The Grainger Company's budgeted income statement reflects the following amounts: $\begin{array} { | l | c | c | c | c | c | } \hline & \text { Sales } & & \text { Purchases } & & \text { Expenses } \\\hline \text { January } & \$ 120,000 & & \$ 78,000 & & \$ 24,000 \\\hline \text { February } & 110,000 & & 66,000 & & 24,200 \\\hline \text { March } & 125,000 & & 81,250 & & 27,000 \\\hline \text { April } & 130,000 & & 84,500 & & 28,600 \\\hline\end{array}$ Sales are collected 50% in the month of sale, 30% in the month following sale, and 19% in the second month following sale. One percent of sales is uncollectible and expensed at the end of the year. Grainger pays for all purchases in the month following purchase and takes advantage of a 3% discount. The following balances are as of January 1: Cash $88,000; Accounts Receivable $58,000; Accounts Payable $72,000. Of the accounts receivable balance, $35,000 will be collected in January and the remaining amount will be collected in February. The monthly expense figures include $5,000 of depreciation. All expenses are paid in the month incurred.
Grainger's budgeted cash receipts in February are:

A)$91,000.
B)$95,000.
C)$113,090.
D)$113,640.
E)$114,000.

Question 31

Cyreno Corporation makes all purchases on account under the following payment pattern: Paid in the month of purchase: 20%
Paid in the first month following purchase: 30%
Paid in the second month following purchase: 50%
If purchases for April, May, and June were $400,000, $160,000, and $350,000, respectively, what was Cyreno's budgeted payables balance on June 30?

A)$48,000.
B)$70,000.
C)$248,000.
D)$360,000.
E)$910,000.

Question 32

Scream Corporation plans to sell 51,000 units of its single product in March. The company has 5,000 units in its March 1 finished-goods inventory and anticipates having 1,000 completed units in inventory on March 31. On the basis of this information, how many units does Scream plan to produce during March?

A)47,000.
B)52,000.
C)55,000.
D)56,000.
E)57,000.

Question 33

Quattro makes all sales on account, subject to the following collection pattern: 30% are collected in the month of sale; 60% are collected in the first month after sale; and 10% are collected in the second month after sale. If sales for April, May, and June were $60,000, $80,000, and $70,000, respectively, what were the firm's budgeted collections for June?

A)$21,000.
B)$60,000.
C)$69,000.
D)$75,000.
E)$80,000.

Question 34

An examination of Tall Corporation's inventory accounts revealed the following information: $\begin{array} { l l } \text { Raw materials inventory, September 1: } & 30,000 \text { units } \\\text { Raw materials inventory, September 30: } & 41,000 \text { units } \\\text { Purchases of raw materials during September: } & 200,000 \text { units }\end{array}$ Tall's finished product requires four units of raw materials. On the basis of this information, how many finished products were manufactured during September?

A)39,750.
B)47,250.
C)57,500.
D)60,250.
E)189,000.

Question 35

North Line Company manufactures a product requiring 0.5 ounces of platinum per unit. The cost of platinum is approximately $360 per ounce; the company maintains an ending platinum inventory equal to 10% of the following month's production usage. The following data were taken from the most recent quarterly production budget: $\begin{array} { | l | c | c | c | } \hline & \text { July } & \text { August } & \text { September } \\\hline \text { Planned production in units } & 1,000 & 1,100 & 980 \\\hline\end{array}$ The cost of platinum to be purchased to support August production is:

A)$195,840.
B)$198,000.
C)$200,160.
D)$391,680.
E)$396,000.

Question 36

AlliCat Skateboards Inc. makes all sales on account, subject to the following collection pattern:30% are collected in the month of sale; 60% are collected in the first month after sale; and 10% are collected in the second month after sale. If sales for October, November, and December were $50,000, $40,000, and $60,000, respectively, what was the budgeted receivables balance on December 31?

A)$42,000.
B)$46,000.
C)$60,000.
D)$61,000.
E)$150,000.

Question 37

Diamonds Inc. distributes whole cut diamonds throughout southeastern Ontario. The following data were taken from the most recent quarterly sales forecast. $\begin{array}{lll}& \text { Expected Sales } & \text { End of Month Target } \\&& \text { Inventory } \\\text { July } & 2,000 \mathrm{units} & 200 \text { units } \\\text { August } & 1,000 \mathrm{units} & 310 \text { units } \\\text { September } & 1,500 \mathrm{units} & 260 \mathrm{units}\end{array}$ Based upon the above, how many diamonds should the company purchase in August?

A)890.
B)1,000.
C)1,110.
D)1,310.
E)1,500.

Question 38

Campz Company began operations on January 1 of the current year with a $20,000 cash balance. Fifty percent of sales are collected in the month of sale; 50% are collected in the month following sale. Similarly, 25% of purchases are paid in the month of purchase, and 75% are paid in the month following purchase. The following data apply to January and February: $\begin{array} { l r r } & \text { January } & \text { February } \\\text { Sales } & \$ 50,000 & \$ 50,000 \\\text { Purchases } & 20,000 & 25,000 \\\text { Operating expenses } & 5,000 & 7,000\end{array}$ If operating expenses are paid in the month incurred and are inclusive of monthly depreciation charges of $2,500, determine the Campz's cash balance at the end of February.

A)$64,250
B)$61,750.
C)$69,750.
D)$89,500.
E)$95,000.

Question 39

Friedlan Inc. anticipates sales of 2,000 units, 8,000 units, and 5,000 units in July, August, and September, respectively. Company policy is to maintain an ending finished-goods inventory equal to 20% of the following month's sales. On the basis of this information, how many units would the company plan to produce in August?

A)9,200.
B)8,000.
C)8,400.
D)10,000.
E)9,600.

Question 40

Merrimaid plans to sell 1,100 units of a particular product during July, and expects sales to increase at the rate of 5% per month during the remainder of the year. The June 30 and September 30 ending inventories are anticipated to be 100 units and 50 units, respectively. On the basis of this information, how many units should Merrimaid purchase for the quarter ended September 30? Round to the nearest whole dollar.

A)3,415.
B)3,418.
C)3,468.
D)3,518.
E)3,618.

Question 41

Turbo Manufacturing plans to produce 20,000 units, 24,000 units, and 30,000 units, respectively, in October, November, and December. Each of these units requires four units of part no. 879, which the company can purchase for $7 each. Turbo has 35,000 units of part no. 879 in stock on September 30.
Required:
Prepare a direct-material purchases budget for October and November if management desires to maintain an ending raw-material inventory equal to 40% of the following month's production usage.

Question 42

Bowstrong Corporation has estimate the following collection pattern for its credit sales in the first year of operations:
80% collected in the month of sale
10% collected in the first month after the sale
5% collected in the second month after the sale
2% collected in the third month after the sale
3% uncollectible
Budgeted credit sales for the first six months of the year follow. Required:
A. Calculate the estimated total cash collections during April.
B. Calculate the estimated total cash collections during the year's second quarter.

Question 43

The budgeting technique that focuses on different phases of a product such as planning and concept design, testing, manufacturing, and distribution and customer service is known as:

A)cash-flow budgeting.
B)integrative budgeting.
C)base budgeting.
D)comprehensive budgeting.
E)life-cycle budgeting.

Question 44

When an organization involves its employees in the budgeting process in a meaningful way, the organization is said to be using an approach most commonly known as:

A)budgetary slack.
B)participative budgeting.
C)budget padding.
D)imposed budgeting.
E)employee-based budgeting.

Question 45

Dean and Delila Corporation has experienced a number of out-of-stock situations with respect to its finished-goods inventories. Inventory at the end of August, for example, was only 30 units-an all-time low.
Management would like to implement a policy whereby finished-goods inventory is 50% of the following month's sales. Budgeted sales for September, October, and November are expected to be 6,000 units, 6,600 units, and 5,500 units, respectively.
Required:
Determine the number of units that Dean and Delila must produce in September and October

Question 46

Singular Saw Corporation assembles circular saws by purchasing bolts, clamps, and other parts from various suppliers.
Consider the following data:
▪ The company plans to sell 50,000 saws during each month of the year's first quarter.
▪ A review of the accounting records disclosed a finished-goods inventory of 2,400 saws on January 1 and an expected finished-goods inventory of 3,000 saws on January 31.
▪ Singular has 5,000 bolts in inventory on January 1, a level that is expected to drop by 6% at month-end.
▪ Assembly time totals 30 minutes per saw, and workers are paid $20 per hour.
▪ Singular accounts for employee benefits as a component of direct labour cost. Pension and insurance costs average $4 per hour (total); additionally, the company pays Payroll taxes that amount to 6% of gross wages earned.
Required:
A. How many saws does Singular expect to produce (i.e., assemble) in January?
B. How many bolts must be purchased to satisfy production needs?
C. Compute Singular's total direct labour cost.
D. Explain how the company's purchasing activity would affect the end-of-period balance sheet.

Question 47

Which of the following outcomes is sometimes associated with participative budgeting?

A)Employees make little effort to achieve budgetary goals.
B)Budget preparation time is never lengthy.
C)The problem of budget padding can never arise.
D)Financial modeling becomes much more difficult to undertake.
E)Budget preparation time can be somewhat lengthy and budget padding may arise.

Question 48

Which one of the following is an advantage of using participative budgeting?

A)It is updated daily to reflect current activity.
B)It assures the company is operating at the activity level of the master budget.
C)It allows companies to compare the current with the previous year.
D)Lower level managers are more likely to perceive budgets as fair.
E)Lower level managers are more likely to perceive budgets as unfair.

Question 49

Jacobs Company manufactures two products: A and B. The company predicts a sales volume of 10,000 units for product A and ending finished-goods inventory of 2,000 units. These numbers for product B are 12,000 and 3,000, respectively. Jacobs currently has 7,000 units of A in inventory and 9,000 units of B.
The following raw materials are required to manufacture these products:
Product A requires three hours of cutting time and two hours of finishing time; B requires one hour and three hours, respectively. The direct labour rate for cutting is $10 per hour and $18 per hour for finishing.
Required:
A. Prepare a production budget in units.
B. Prepare a materials usage budget in pounds and dollars.
C. Prepare a direct labour budget in hours and dollars for product A.

Question 50

The accounting records of Backspace, Inc., revealed an accounts receivable balance of $195,000 on January 1, 2012. Forty percent of the company's sales are for cash, and the remaining 60% are on account. Of the credit sales, 30% are collected in the month of sale and 70% are collected in the following month. Total sales in January and February are expected to amount to $500,000 and $530,000, respectively.
Assume that in the latter half of 2012, Backspace hired a new sales manager who aggressively tried to maximize the company's market share. She implemented a compensation system for the sales force that was 100% commission based, with the commission calculated on the basis of gross sales dollars. Sales volume increased dramatically in a very short period of time, and the sales and collection patterns changed, as follows: Required:
A. Compute the company's cash inflows for January and February, 2012.
B. Determine the outstanding receivables balance at the end of February.
C. Compare the sales and collection patterns before and after the arrival of the new sales manager. Have things improved or deteriorated? Explain.
D. On the basis of the information presented, determine what likely caused the improvement or deterioration in collection patterns.

Question 51

In many companies, who is assigned the responsibility for approving the budget?

A)The budget committee.
B)The budget director.
C)The company's board of directors since they approve major corporate changes.
D)The chief budget officer.
E)The chief budget director.

Question 52

Which of the following statements about financial planning models (FPMs) is false?

A)FPMs express a company's financial and operating relationships in mathematical terms.
B)FPMs allow a user to explore the impact of changes in variables.
C)FPMs are commonly known as "what-if" models.
D)FPMs have become less popular in recent years because of computers and spreadsheets.
E)FPMs are used by management to cope with uncertainty.

Question 53

Andrews McNeel Inc. plans to sell 200,000 units of finished product in July 2012. Management anticipates a growth rate in sales of 3% per month thereafter and desires a monthly ending finished-goods inventory (in units) of 60% of the following month's estimated sales. There are 200,000 completed units in the June 30, 2012 inventory.
Each unit of finished product requires three pounds of direct material at a cost of $2.50 per pound. There are 600,000 pounds of direct material in inventory on June 30, 2012.
Required:
A. Prepare a production budget for the quarter ended September 30, 2012. Note: For both part "A" and part "B" of this problem, prepare your budget on a quarterly (not monthly) basis.
B. Independent of your answer to part "A," assume that Andrews McNeel plans to produce 200,000 units of finished product for the quarter ended September 30. If the firm desires to stock direct materials at the end of this period equal to 20% of current production usage, compute the cost of direct material purchases for the quarter.

Question 54

List several factors that an organization might consider when developing a sales forecast.

Question 55

The difference between the revenue or cost projection that a person provides and a realistic estimate of the revenue or cost is called:

A)passing the buck.
B)budgetary slack.
C)false budgeting.
D)participative budgeting.
E)resource allocation processing.

Question 56

Which of the following statements concerning the budget director is false?

A)The budget director is often an organization's controller.
B)The budget director has the responsibility of specifying the process by which budget data will be gathered.
C)The budget director collects information and prepares the master budget.
D)The budget director communicates budget procedures and deadlines to employees throughout an organization.
E)The budget director usually has the authority to give final approval to the master budget.

Question 57

The University of Ottawa(OU) is preparing its master budget for the upcoming academic year. Currently, 22,000 students are enrolled on campus; however, the admissions office is forecasting a 2% growth in the student body despite a tuition increase to $75 per credit hour. The following additional information has been gathered from an examination of university records and conversations with university officials:
▪ OU is planning to award 200 tuition-free scholarships.
▪ The average class has 50 students, and the typical student takes 10 credit hours each semester.
▪ Each class is two credit hours.
▪ Each faculty member teaches four classes during the academic year.
Required:
A. Compute the budgeted tuition revenue for the upcoming academic year.
B. Determine the number of faculty members needed to cover classes.
C. In preparing the university's master budget, should the administration begin with a forecast of students or a forecast of faculty members? Briefly explain.

Question 58

If a manager builds slack into a budget, how would that manager handle estimates of revenues and expenses?

A)Revenues: Underestimate, Expenses: Underestimate
B)Revenues: Underestimate, Expenses: Overestimate
C)Revenues: Overestimate, Expenses: Underestimate
D)Revenues: Overestimate, Expenses: Overestimate
E)Revenues: Estimate correctly, Expenses: Estimate correctly

Question 59

Discuss the importance of budgeting and identify five purposes of budgeting systems.

Question 60

Company A uses a heavily participative budgeting approach whereas at Company B, top management develops all budgets and imposes them on lower-level personnel. Which of the following statements is false?

A) A's employees will likely be more motivated to achieve budgetary goals than the employees of Company B.
B) B's employees may be somewhat disenchanted because although they will be evaluated against a budget, they really had little say in budget development.
C)Budget padding will likely be a greater problem at Company B.
D) Budget preparation time will likely be longer at Company B.
E) Ethical issues are more likely to arise at Company A, especially when the budget is used as a basis for performance appraisal.

Question 61

The following information relates to DFW Corporation for the year ended March 31, 2012:
▪ All sales are on account and are budgeted as follows: February, $350,000; March, $360,000; and April, $400,000. DFW collects 70% of its sales in the month of sale and 30% in the following month.
▪ Cost of goods sold averages 60% of sales. Purchases total 65% of the following month's sales and are paid in the month following acquisition.
▪ Cash operating expenses total $60,000 per month and are paid when incurred. Monthly depreciation amounts to $18,000.
▪ Selected amounts taken from the January 31 balance sheet were: accounts receivable, $115,000; plant and equipment (net), $107,000; and retained earnings, $85,000.
Required:
A. Prepare a budgeted income statement that summarizes activity for the two months ended March 31, 2012.
B. Compute the amounts that would appear on the March 31 balance sheet for accounts receivable, plant and equipment (net), and retained earnings.

Question 62

Clingy Company has budgeted the following unit sales for the first five months of 2012: Each unit requires 2 metres of fabric which is estimated to cost $3.50 per metre. It is the company's policy to maintain a finished goods inventory at the end of each month equal to 20% of next month's anticipated sales.
Clingy Company also have a policy of maintaining a raw materials inventory at the end of each month equal to 10% of the metres needed for the following month's production. There were 1,200 metres of fabric on hand at March 1.
Required:
A. Prepare a production budget for Clingy Company for March.
B. Prepare a direct materials budget for Clingy Company for March

Question 63

Sushi House has budgeted sales revenues for 2012 as follows:

Question 64

Renson Corporation, a wholesaler, provided the following information: Customers pay 60% of their balances in the month of sale, 30% in the month following sale, and 10% in the second month following sale. The company pays all invoices in the month following purchase and takes advantage of a 3% discount on all amounts due. Cash payments for operating expenses in May will be $119,500; Renson's cash balance on May 1 was $127,800.
Required:
Calculate the following:
A. Expected cash collections during May.
B. Expected cash disbursements during May.
C. Expected cash balance on May 31.

Question 65

James Corporation, headquartered in Toronto, has a manufacturing plant in Edmonton. Plant managers desire to participate in the company's budget efforts, which, for the past 10 years, have been handled solely by top executives in Toronto. Edmonton managers feel that by becoming involved, they can make great strides in terms of improving operating performance of their aging facility.
Required:
Briefly discuss this situation, focusing on the benefits and problems of letting Edmonton managers participate in the company's budgetary efforts.

Question 66

Tara Pineno, new-accounts manager at East Bank of Clarion, has been asked to project how many new accounts she will open during 20 x 2. The local economy has been growing, and the bank has experienced a 10% increase in the number of new accounts over each of the past five years. In 20 x 1, the bank had 10,000 accounts.
Tara is paid a salary, plus a bonus of $20 for every new account above the budgeted amount. Thus, if the annual budget calls for 1,000 new accounts, and 1,080 new accounts are obtained, her bonus will be $1,600 (80 x $20).
Pineno believes that the local economy will continue to grow at the same rate in 20 x 2 as it has in recent years. She decided to submit a projection of 700 new accounts for 20 x 2.
Required:
Your consulting firm has been hired by the bank president to make recommendations for improving the bank's operation. Write a memorandum to the president defining and explaining the negative consequences of budgetary slack. Also discuss the bank's bonus system for the new-accounts manager and how the bonus program tends to encourage budgetary slack.

Question 67

Stiles Enterprises reported the following cash collections in July and August from credit sales:
The Company sells a single product for $20, and all sales are collected over a two-month period.
Required:
A. Determine the number of units that were sold in July.
B. Determine the percent of credit sales collected in the month of sale and the percent of sales collected in the month following sale.
C. How many units were sold in August?
D. Determine the accounts receivable balance as of August 31.

Question 68

Miller Manufacturing has a cash balance of $8,000 on August 1 of the current year. The company's controller forecast the following cash receipts and cash disbursements for the upcoming two months of activity: Management desires to maintain a minimum cash balance of $8,000 at all times. If necessary, additional financing can be obtained in $1,000 multiples at a 12% interest rate. All borrowings are made at the beginning of the month; debt retirement, on the other hand, occurs at the end of the month. Interest is paid at the time of repaying loan principal and is computed on the portion of debt repaid.
Required:
A. Determine the ending cash balance in August both before and after any necessary financing or debt retirement.
B. Repeat part "A" for September.

Question 69

Sherman Company provides services in the retail flooring industry. The following information is available for 2012:
▪ Twenty percent of the firm's services are for cash and the remaining 80% are on account. Of the credit services, 40% are collected in the month that the service is provided, with the remaining 60% collected in the following month.
▪ Services provided in January are expected to total $250,000 and grow at the rate of 5% per month thereafter.
▪ January's cash collections are expected to be $240,400, and month-end receivables are forecast at $120,000.
▪ Monthly cash operating costs and depreciation during the first quarter of the year are approximated at $250,000 and $15,000, respectively.
▪ Sherman's December 31, 2011 balance sheet revealed accounts payable balances of $28,000. This amount is related to the company's operating costs and is expected to grow to $36,000 by the end of the first quarter of 2012. All operating costs are paid within 30 days of incurrence.
▪ Company policy requires that a $20,000 minimum cash balance be maintained, and Sherman's 2011 year-end balance sheet showed that the firm was in compliance with policy by having cash of $23,000.
Required:
A. Determine the sales revenue earned that will appear on the income statement for the quarter ended March 31, 2012.
B. Compute the company's first-quarter cash collections.
C. Compute the cash balance that would appear on the March 31, 2012 balance sheet.
D. What are some possible actions the company could pursue if, at any time during the quarter, it finds that the cash balance has fallen below the stated minimum?

Question 70

At Lakeside Manufacturing, budgets are the responsibility of everyone. Each department collaborates in determining its expected needs, and sales personnel determine the likely sales volume. Ed Tucker, one of the production managers, believes in building plenty of slack into everything, including his estimates of ending inventory of work in process.
Required:
You are the accounting manager. Write a memo to Mr. Tucker. Explain why the ending inventory figure should be extremely accurate, with as little slack as possible.