ACCT 212 Chapter 8: Master Budgeting

**What is the total amount of expected cash collections for the third quarter? a) $33,125 b) $33,750 c) $34,375 d) $38,125

$34,375

Ending Finished Goods Inventory Budget

A budget showing the dollar amount of unsold finished goods inventory that will appear on the ending balance sheet.

Budgeted unit sales for March, April, and May are 75,000, 80,000, and 90,000 units. Management desires to maintain an ending inventory equal to 30 percent of the next month's unit sales. How many units should be produced in April? a) 80,000 units b) 83,000 units c) 77,000 units d) 85,000 units

B

Control

The process of gathering feedback to ensure that a plan is being properly executed or modified as circumstances change.

Planning

The process of establishing goals and specifying how to achieve them.

Sales Budget

A detailed schedule showing expected sales expressed in both dollars and units.

If a company has a beginning merchandising inventory of $50,000, a desired ending merchandising inventory of $30,000, and a budgeted cost of goods sold of $300,000, what is the amount of required inventory purchases? a) $320,000 b) $280,000 c) $380,000 d) $300,000

B

Precision Company estimates its machine-hour requirements for the four quarters to be 35,000 hours, 20,000 hours, 15,000 hours, and 30,000 hours respectively. The variable manufacturing overhead rate is $4 per machine-hour. The fixed manufacturing overhead is $50,000 per quarter, which includes $20,000 of depreciation expense.

Questions marked with *** will be using this information.

Referring to the facts in the question marked with a *,what is the accounts receivable balance at the end of May? a) $40,000 b) $50,000 c) $72,000 d) $80,000

A

Budget

A detailed plan for the future that is usually expressed in formal quantitative terms.

Cash Budget

A detailed plan showing how cash resources will be acquired and used over a specific time period.

Direct Materials Budget

A detailed plan showing the amount of raw materials that must be purchased to fulfill the production budget and to provide for adequate inventories.

Production Budget

A detailed plan showing the number of units that must be produced during a period in order to satisfy both sales and inventory needs.

Manufacturing Overhead Budget

A detailed plan showing the production costs, other than direct materials and direct labor, that will be incurred over a specified time period.

Direct Labor Budget

A detailed plan that shows the direct labor-hours required to fulfill the production budget.

Merchandise Purchases Budget

A detailed plan used by a merchandising company that shows the amount of goods that must be purchased from suppliers during the period.

Selling and Administrative Expense Budget

A detailed schedule of planned expenses that will be incurred in areas other than manufacturing during a budget period.

Self-Imposed Budget (Participative Budget)

A method of preparing budgets in which managers prepare their own budgets. These budgets are then reviewed by higher-level managers, and any issues are resolved by mutual agreement.

Master Budget

A number of separate but interdependent budgets that formally lay out the company's sales, production, and financial goals and that culminates in a cash budget, budgeted income statement, and budgeted balance sheet.

*March, April, and May sales are $100,000, $120,000, and $125,000, respectively. A total of 80 percent of all sales are credit sales and 20 percent are cash sales. A total of 60 percent of credit sales are collected in the next month. There are no bad debt expenses. What is the amount of cash collections for April? a) $89,600 b) $111,600 c) $113,600 d) $132,600

C

Which of the following statements is false? (You may select more than one answer.) a) Control involves gathering feedback to ensure that the plan is being properly executed or modified as circumstances change b) Planning involves developing goals and preparing various budgets to achieve those goals c) A self-imposed budget is prepared with the full cooperation and participation of managers at all levels of the organization d) One strength of self-imposed budgets is that they eliminate the risk that lower-level managers may allow too much budgetary slack

D

Which of the following statements is true? (You may select more than one answer.) a) The manufacturing overhead budget includes depreciation related to assets that support a company's selling and administrative functions b) The cash disbursements for selling and administrative expenses are reported in the budgeted income statement c) The selling and administrative expense budget includes depreciation related to manufacturing assets d) The total variable and fixed selling and administrative expenses incurred during a period are reported in the budgeted income statement

D

The following is a schedule of the projected unit sales of Western Company, which manufactures casual wear. Each unit sells for $25. The company began the period with a beginning accounts receivable balance of $10,000. Budgeted unit sales: First Quarter: 1,500 Second Quarter: 1,300 Third Quarter: 1,400 Fourth Quarter: 1,300 Year: 5,500 Percentage of sales collected in the quarter of the sale: 75% Percentage of sales collected in the quarter after the sale: 25%

Questions marked with ** will be using this information.

Which of the following is a major factor that should be taken into consideration while planning the desired level of inventories? a) Costs of carrying inventory b) General administrative policy of the company c) Selling price of the finished product d)Statutory requirements

a) Costs of carrying inventory

Which of the following is not one of the reasons that organizations use budgets? a) The budgeting process enables managers to uncover bottlenecks as they occur b) Budgets communicate financial goals throughout the organization c) Budgets evaluate and reward employees

a) The budgeting process enables managers to uncover bottlenecks as they occur

Companies prepare direct labor budgets to ________. a) avoid labor shortages b) determine the direct labor-hours per unit c) ensure timely supply of raw materials d) reduce inventories

a) avoid labor shortages

For a production budget, the _______ is the beginning inventory for the year. a) beginning inventory for the first quarter b) beginning inventory for the last quarter c) ending inventory for the last quarter d) sum of beginning inventories for the four quarters

a) beginning inventory for the first quarter

In a budgeted income statement, _______ is subtracted from sales to arrive at gross margin. a) cost of goods sold b) interest expense c) selling and administrative expense d) depreciation expense

a) cost of goods sold

The value of the ending inventory is calculated by multiplying the number of units in ending inventory by the _______. a) unit product cost b) variable overhead cost per unit c) total overhead cost per unit d) the sum of the direct materials and direct labor cost per unit

a) unit product cost

In a direct materials budget, the desired ending raw materials inventory for the year is equal to the ______. a) beginning balance of accounts payable b) desired ending raw materials inventory for the last period c) total merchandise purchased during the year d) value of raw materials used during the year

b) desired ending raw materials inventory for the last period

William Corporation has a contract with the labor union which guarantees its workers pay for at least 40,000 hours every quarter. Based on its direct labor budget for the current year, the company estimated it will need 39,000 direct labor-hours during the fourth quarter to produce 13,000 units of finished goods. Each unit requires 3 direct labor-hours (DLHs) and the cost of direct labor per hour is $12 per hour. What is the total direct labor cost for the fourth quarter? a) $432,000 b) $468,000 c) $480,000 d) $540,000

c) $480,000

Vineyard Corporation, a manufacturer of fine wines, began the year with 20,000 bottles in inventory. The company estimated the budgeted sales for the four quarters of the current year to be 200,000 bottles, 150,000 bottles, 250,000 bottles, and 400,000 bottles, respectively. The management feels that an ending inventory of 10% of the subsequent quarter's sales is appropriate. What are the production needs for the first quarter? a) 160,000 bottles b) 175,000 bottles c) 195,000 bottles d) 215,000 bottles

c) 195,000 bottles

Vineyard Corporation, a manufacturer of fine wines, began the year with 20,000 bottles in inventory. The company estimated the budgeted sales for the four quarters of the current year to be 200,000 bottles, 150,000 bottles, 250,000 bottles, and 400,000 bottles, respectively. The management feels that an ending inventory of 10% of the subsequent quarter's sales is appropriate. What is the desired ending inventory for the second quarter? a) 15,000 bottles b) 20,000 bottles c) 25,000 bottles d) 40,000 bottles

c) 25,000 bottles

Which of the following explains why operating budgets generally span a period of one year? a) Accounting regulations mandate that all operating budgets be prepared for one year b) Operating budgets, by definition, are prepared for one-year periods c) Companies choose a span of one year to correspond to their fiscal years d) Operating budgets need to correspond with the calendar year

c) Companies choose a span of one year to correspond to their fiscal years

Which of the following is not a benefit of self-imposed budgets? a) A manager who is not able to meet a budget that has been imposed from above can always say that the budget was unrealistic and impossible to meet b) Budget estimates prepared by front-line managers are often more accurate and reliable c) Lower-level managers are encouraged to create budgetary slack since they are more knowledgeable of day-to-day operations d) Motivation is generally higher

c) Lower-level managers are encouraged to create budgetary slack since they are more knowledgeable of day-to-day operations

The purpose of preparing a direct materials budget is to _______. a) allocate the cost of raw materials to production departments b) estimate the manufacturing overhead c) estimate the quantity of raw materials to be purchased d) estimate the unit cost of direct materials to be purchased

c) estimate the quantity of raw materials to be purchased

For the budget period ending December 31, of the current year, Aaron Corporation estimates its ending balances for cash as $4,000, accounts receivable as $16,000, finished goods inventory as $12,000, and raw materials inventory as $8,000. Invoices relating to raw materials in the amount of $14,000 are expected to be unpaid as of December 31. What is the amount of total current assets that will be reported on the budgeted balance sheet? a) $20,000 b) $26,000 c) $32,000 d) $40,000

d) $40,000

***What is the predetermined overhead rate for the year? a) $2 per machine hour b) $4 per machine hour c) $5 per machine hour d) $6 per machine hour

d) $6 per machine hour

The budgeting process begins with the preparation of the _______ budget. a) cash b) direct materials c) production d) sales

d) sales

A company determines that the number of units sold is the cost driver for its variable selling and administrative expense budget. The product of its variable selling and administrative rate and budgeted unit sales will be _______. a) budgeted sales revenue b) total budgeted cash disbursements for selling and administrative expenses c) total budgeted fixed selling and administrative expenses d) total budgeted variable selling and administrative expenses

d) total budgeted variable selling and administrative expenses

**What is the amount of budgeted sales revenue for the fourth quarter? a) $32,500 b) $33,750 c) $35,000 d) $37,500

a) $32,500

Film Studio, Incorporated has beginning retained earnings of $80,000 and expects to earn net income of $70,000 during the budget period. What would be the budgeted ending balance in retained earnings if the company declares and pay dividends of $50,000? a) $80,000 b) $100,000 c) $150,000 d) $200,000

b) $100,000

Striker Company estimates its expected cash receipts for the period to be $80,000 and its expected cash disbursements to be $70,000. The beginning cash balance for the period was $5,000. The management wants to maintain a minimum cash balance of $40,000. How much cash will the company need to borrow? a) $15,000 b) $25,000 c) $30,000 d) $40,000

b) $25,000

Perry, Incorporated desires to maintain the ending inventory of raw materials at 40 percent of the next quarter's raw material needs. What is the cost of raw materials to be purchased in the first quarter? a) $300,000 b) $320,000 c) $380,000 d) $400,000

b) $320,000

Which of the following is deducted from the total selling and administrative expense budget to determine the cash disbursements for selling and administrative expense budget? a) Advertising expense b) Depreciation expense c) Selling commissions d) Utilities expense

b) Depreciation expense

Smarton Company is in the process of preparing its budgeted income statement. It has determined its estimated gross margin to be $90,000. The company also expects to incur selling and administrative expenses of $30,000 and interest expense of $12,000. What is Smarton's budgeted net income? a) $18,000 b) $30,000 c) $48,000 d) $60,000

c) $48,000

**What is the amount of cash that is expected to be collected during the second quarter as a result of sales made during the first quarter? a) $8,125 b) $8,750 c) $9,375 d) $28,125

c) $9,375

Pro Clean Company, a manufacturer of hand sanitizers, intends to produce 40,000 units in the third quarter and 35,000 units in the fourth quarter. Each unit requires 0.50 direct labor-hours to produce, and the cost of direct labor per hour is $18. What would be the total direct labor cost for the fourth quarter? a) $355,000 b) $360,000 c) $300,000 d) $315,000

d) $315,000

***What is the budgeted variable manufacturing overhead for the year? a) $200,000 b) $260,000 c) $280,000 d) $400,000

d) $400,000