Question 1

A budget that budgets costs for the actual number of units produced is called a:

Accepted Answer

A)  master budget. 
B)  summary cash budget. 
C)  static budget. 
D)  flexible budget.

Question 2

In the budgeting process,which budget is typically prepared first?

Accepted Answer

A)  Cash budget 
B)  Summary budget 
C)  Sales budget 
D)  Production budget

Question 3

Holmes Manufacturing Inc.had the following purchases budgeted for the last six months of 2009:
$\begin{array}{lr}
\text { July } & \$ 60000 \
\text { August } & 45000 \
\text { September } & 52000 \
\text { October } & 60000 \
\text { November } & 80000 \
\text { December } & 85000
\end{array}$
Holmes pays one-half of a month's purchases in the month of purchase and the remainder in the following month.What are expected total cash disbursements for the last quarter of 2009?

Accepted Answer

A)  $112 500 
B)  $225 000 
C)  $182 500 
D)  $208 500

Question 4

Which of the following is not one of the sections that appears on a summary cash budget?

Accepted Answer

A)  Cash flows from manufacturing activities 
B)  Cash flows from financing activities 
C)  Cash flows from investing activities 
D)  Cash flows from operating activities

Question 5

O'Malley Inc.manufacturers a unique product.Prior to the start of July,the company's controller estimated July's production to be 4000 units.Each unit requires one hour of direct labour at a cost of $10 per direct labour hour.
At the end of July,it was determined that actual production was 4680 units and actual direct labour cost was $49 140.
Required: A. Prepare a static budget for July.
B. Prepare a flexible budget for July.
C. Which type of budget should be compared to the actual direct labour cost for control purposes? Explain

Accepted Answer

The answer of O'Malley Inc.manufacturers a unique product.Prior to the...

Question 6

Which of the following equations best depicts a basic production budget?

Accepted Answer

A)  Required Production = Projected Sales - Desired Ending Inventory + Beginning Inventory 
B)  Required Production = Projected Sales + Desired Ending Inventory - Beginning Inventory 
C)  Required Production = Projected Sales -Desired Ending Inventory - Beginning Inventory 
D)  Required Production = Projected Sales + Desired Ending Inventory + Beginning Inventory

Question 7

A disadvantage of rolling budgets is that they:

Accepted Answer

A)  cost more to execute than annual budgets. 
B)  require organisations to re-think how they manage their business. 
C)  only relevant in uncertain environments. 
D)  are very complicated relative to annual budgets.

Question 8

Which type of budget,static or flexible,should be used by managers for control activities? Explain your answer.

Accepted Answer

The answer of Which type of budget,static or flexible,should be...

Question 9

Donnelly Manufacturing
Donnelly Manufacturing sells cedar birdhouses. The company has prepared the following forecast for the third quarter of 2009:
$$\begin{array} { l r } 
\text { July } & 5000 \text { units } \
\text { August } & 6000 \text { units } \
\text { September } & 10000 \text { units }
\end{array}$$
Inventory at 30 June 2009 was budgeted at 1000 units. Management would like the desired quantity of finished goods inventory at the end of each month to be equal to 20 per cent of next month’s budgeted unit sales. October’s sales are projected to be 12 000 units.
Each completed unit of finished product requires 3 square feet of cedar at a cost of $1.50 per square foot.

-The company has determined that it needs 20 per cent of next month's raw material needs on hand at the end of each month.
The total required production of birdhouses for the third quarter of 2009 is:

Accepted Answer

A)  19 600 units 
B)  22 400 units 
C)  20 000 units 
D)  23 400 units

Question 10

Porcelain Interiors sells a variety of porcelain products including porcelain sinks.At 31 December,the company had 200 sinks in inventory.The company's policy is to maintain a sink inventory equal to 5 per cent of next month's sales.The company expects the following sales activity for the first quarter of the year:
$\begin{array}{ll}
\text { January } & 1500 \text { sinks } \
\text { February } & 2000 \text { sinks } \
\text { March } & 2300 \text { sinks }
\end{array}$

What is the projected production for February?

Accepted Answer

A)  2115 
B)  2015 
C)  1985 
D)  2215

Question 11

Homestyle Interiors sells a variety of home furnishings including entertainment centres.At 31 March,the company had 150 centres in inventory.The company's policy is to maintain an entertainment centre inventory equal to 3 per cent of next month's sales.The company expects the following sales activity for the second quarter of the year:
$$\begin{array} { l r } 
\text { April } & \text { 800 centres } \
\text { May } & 1200 \text { centres } \
\text { June } & 1000 \text { centrep }
\end{array}$$
What is the projected production for May?

Accepted Answer

A)  1206 centres 
B)  1194 centres 
C)  1266 centres 
D)  1134 centres

Question 12

Avery Inc.would like to prepare a summary cash budget for June.The following information is available:
?The cash balance at 1 June was estimated to be $ \$ 6000 $.
?June sales, all on account, were estimated to be $ \$ 75000 $. Sales are collected over a two-month period with 60 per cent collected in the month of sale and the remainder in the subsequent month. May sales on account were $ \$ 70000 $.
?Inventory purchases are expected to be $ \$ 50000 $ in June. The company pays for one-half of inventory purchases in the month of purchase and the remainder in the subsequent month. May purchases were $ \$ 60000 $.
?Cash disbursements for selling and administrative expenses are expected to be $ \$ 9000 $ in June.
?Depreciation expense for June is expected to be $ \$ 3000 $.

What is the cash balance at the end of June expected to be?

Accepted Answer

A)  $15 000 
B)  $12 000 
C)  $26 000 
D)  $29 000

Question 13

The 'Beginning Cash Balance' would most likely appear on which type of budget?

Accepted Answer

A)  Cash receipts budget 
B)  Summary cash budget 
C)  Sales budget 
D)  Cash disbursements budget

Question 14

Brady Inc.produced and sold 200 000 units for $50 each last year.For the upcoming year,management believes that if they decrease the price of each unit by 5 per cent,volume will increase 5 per cent.What are Brady's expected sales revenues for the upcoming year?

Accepted Answer

A)  $ 9 450 000 
B)  $10 000 000 
C)  $10 500 000 
D)  $ 9 975 000

Question 15

Woodsman Inc.produces a variety of wood finishing products including litres of varnish that it manufactures and packages under its own name.The company has computed the required production of litres of varnish it will need for the first three months of 2009 as follows:
$\begin{array}{ll}
\text { January } & 300000 \text { litres } \
\text { February } & 340000 \text { litres } \
\text { March } & 400000 \text { litres }
\end{array}$

Each litre of varnish requires 10 grams of a special chemical.This chemical costs $.25 per gram.The company has determined that it needs 20 per cent of next month's raw material needs on hand at the end of each month.
The cost of the direct material that should be purchased in February is:

Accepted Answer

A)  $920 000 
B)  $950 000 
C)  $880 000 
D)  $850 000

Exam 12: Fixed and Rolling Budgets for Planning and Decision Making