Chapter 6

A

A(n) ________ is also called a continuous budget or rolling forecast A) rolling budget B) financial budget C) cash budget D) operating budget

D

Budgetary slack ________. A) refers to differences between budgeted and actual results B) is used to achieve higher levels of performance through psychological motivation C) refers to the continuous improvement the manager anticipates during the budgeted period into budgeted numbers D) is the practice of underestimating budgeted revenues or overestimating budgeted costs to make budgeted targets easier to achieve

Beginning Cash Balance + Expected Cash Receipts

Cash Budgeting: What is the formula for Cash available?

Excess or Shortfall Cash + Financing increases or decreases

Cash Budgeting: What is the formula for Ending Cash Balance

Cash Available- Cash Disbursements for material purchases - Other Manufacturing costs (labor, overhead, etc) - Other General and administrative costs

Cash Budgeting: What is the formula for Excess or Shortfall Cash?

D

Controllability ________. A) is the practice of underestimating budgeted revenues or overestimating budgeted costs to make budgeted targets easier to achieve B) is the difference between actual results and budgeted amounts C) is more expanded and focuses on gaining information and knowledge in addition to control D) is the degree of influence a specific manager has over costs, revenues, or related items for which he or she is responsible

2. Number of vases to be produced = 6,000 units (Estimated sales) + 500 units (Budgeted ending inventory) - 400 units (Opening inventory) = 6,100 units.

Elton, Inc., expects to sell 6,000 ceramic vases for $20 each. Direct manufacturing labor is $14,000 and manufacturing overhead is $12,000. Purchases of direct materials is budgeted to be 10,000 pounds. Direct materials can be purchased for $2 per pound. The following inventory levels are: Beginning inventory Direct materials 1,000 pounds Work in Process Inventory $2,000 Finished Goods Inventory 400 units Ending Inventory Direct Materials 2,000 pounds Work-in-Process inventory $2,000 Finished Goods Inventory 500 units How many ceramic vases should be produced? 1.5,900 vases 2.6,100 vases 3.7,000 vases 4.6,000 vases

2. 10,000 + 1,000 - 2,000 = 9,000 x 2 = $18,000

Elton, Inc., expects to sell 6,000 ceramic vases for $20 each. Direct manufacturing labor is $14,000 and manufacturing overhead is $12,000. Purchases of direct materials is budgeted to be 10,000 pounds. Direct materials can be purchased for $2 per pound. The following inventory levels are: Beginning inventory Direct materials 1,000 pounds Work in Process Inventory $2,000 Finished Goods Inventory 400 units Ending Inventory Direct Materials 2,000 pounds Work-in-Process inventory $2,000 Finished Goods Inventory 500 units What is the budgeted cost of direct materials usage? 1.$20,000 2.$18,000 3.$10,000 4.$9,000

2. $18,000 + 14,000 + 12,000 = 44,000 + 2,000 - 3,000 = 43,000

Elton, Inc., expects to sell 6,000 ceramic vases for $20 each. Direct manufacturing labor is $14,000 and manufacturing overhead is $12,000. Purchases of direct materials is budgeted to be 10,000 pounds. Direct materials can be purchased for $2 per pound. The following inventory levels are: Beginning inventory Direct materials 1,000 pounds Work in Process Inventory $2,000 Finished Goods Inventory 400 units Ending Inventory Direct Materials 2,000 pounds Work-in-Process inventory $2,000 Finished Goods Inventory 500 units What is the budgeted cost of goods manufactured? 1.$18,000 2.$43,000 3.$44,000 4.$45,000

D

Estimates suggest that senior managers spend about ________ of their time on budgeting; financial planning departments spend ________. A) 10-20%; up to 50% B) 30%; up to 40% C) 25%; up to 50% D) 10-20%; up to 85%

C Sales 7000 Desired ending inventory (11000*5%) 550 Beginning inventory (7000*5%) -350 Production Units 7200

Howard ​Industries' sales budget shows quarterly sales for the next year as​ follows: Quarter​ 1, 9,000​; Quarter​ 2, 7,000​; Quarter​ 3, 11,000​; Quarter​ 4, 13,000. Company policy is to have a target​ finished-goods inventory at the end of each quarter equal to 5% of the next​ quarter's sales. What would be the budgeted production for the second quarter of next​ year? A. 11,000 ​units B. 7,550 units C. 7,200 ​units D. 6,850 ​units

a. Budgeted sales = $960,000 / 160,000 = $6 per unit × 1.125 = $6.75 new selling price × (160,000 x 0.91 = 145,600) = $982,800 b. Cost of goods sold in 2015 per unit: $640,000/160,000 units = $4 per unit Number of units sold in 2016 = 160,000 × 0.91 = 145,600 units × $4 per unit = $582,400. c. Yes, because it would result in an increase in operating income compared to 2015 ( 2016 operating income would be: $982,800 -$582,400 (COGS)-$260,000 (operating expenses, which are fixed) = $140,400 compared to $60,000 in 2015.

Kramer Enterprises reports year-end information from 2015 as follows: Sales (160,000 units) $960,000 Cost of goods sold 640,000 Gross margin 320,000 Operating expenses 260,000 Operating income $60,000 Kramer is developing the 2016 budget. In 2016 the company would like to increase selling prices by 12.5%, and as a result expects a decrease in sales volume of 9%. All other operating expenses are expected to remain constant. Assume that cost of goods sold is a variable cost and that operating expenses are a fixed cost. a. What is budgeted sales for 2016? b. What is budgeted cost of goods sold for 2016 c. Should Kramer increase the selling price in 2016?

A

Mary​ Jacobs, the controller of the Jenks Company is working on​ Jenks' cash budget for year 2. She has information on each of the following​ items: I. Wages due to workers accrued as of December​ 31, year 1. II. Limits on a line of credit that may be used to fund​ Jenks' operations in year 2. III. The balance in accounts payable as of December​ 31, year​ 1, from credit purchases made in year 1. Which of the items above should Jacobs take into account when building the cash budget for year​ 2? A. ​I, II, and III B. II and III C. I and II D. I and III

1. 12-oz bottles Units 5,520,000 Price 0.75 Total 4,140,000 1-gallon containers Unites 1,800,000 Price $1.30 Total 2,340,000 Budgeted revenues $6,480,000 2. Budgeted sales in units 5,520,000 Add target ending finished goods inventory 690,000 Total requirements 6,210,000 Deduct beginning finished goods inventory 910,000 Units to be produced 5,300,000 3. Budgeted sales in units 1,800,000 + Targeted Ending Finished Goods Inventory 240,000 Total Requirements 2,040,000 - Budget Production units 1,900,000 = Beginning inventory 140,000

Porch​, ​Inc., bottles and distributes mineral water from the​company's natural springs in northern Oregon. Porch markets two ​products: 12-ounce disposable plastic bottles and​ 1-gallon reusable plastic containers. For 2021​, Porch marketing managers project monthly sales of 460,000 ​12-ounce bottles and 150,000 ​1-gallon containers. Average selling prices are estimated at $0.75 per​ 12-ounce bottle and $1.30 per​ 1-gallon container. Prepare a revenues budget for Porch​, ​Inc., for the year ending December​ 31, 2021. . Porch begins 2021 with 910,000 ​12-ounce bottles in inventory. The vice president of operations requests that​ 12-ounce bottles ending inventory on December​ 31, 2021​, be no less than 690,000 bottles. Based on sales projections as budgeted​ previously, what is the minimum number of​ 12-ounce bottles Porch must produce during 2021​? The VP of operations requests that ending inventory of​ 1-gallon containers on December​ 31, 2021​, be 240,000 units. If the production budget calls for Porch to produce 1,900,000 ​1-gallon containers during 2021​, what is the beginning inventory of​ 1-gallon containers on January​ 1, 2021​?

4. 50,000 x 60% = 30,000 25,000 x 40% = 10,000 30,000 + 10,000 = $40,000

Terrapins Company, a retailer, has the following data concerning its purchases of merchandise: Purchase on account October $35,000 November - 25,000 December 50,000 Terrapins pays 60% of a month's purchases in the month of purchase and the remaining 40% in the month following purchase. What is the amount of the estimated total payment to suppliers of merchandise during December? 1.$20,000 2.$50,000 3.$30,000 4.$40,000

1. 50,000 x 40% = 20,000

Terrapins Company, a retailer, has the following data concerning its purchases of merchandise: Purchase on account October $35,000 November - 25,000 December 50,000 Terrapins pays 60% of a month's purchases in the month of purchase and the remaining 40% in the month following purchase. What is the budgeted accounts payable balance at the end of December? 1.$20,000 2.$50,000 3.$30,000 4.$40,000

a. 70 + 500-50 = 520 Direct materials usage. b. 520 + 600+ 400 = 1,520 + 20 - 10 = 1,530 budgeted cost of goods manufactured c. 1,530 + 50 - 40 = 1,540 budgeted cost of goods sold

The Taipei Manufacturing Company is in the process of preparing a budgeted schedule of cost of goods manufactured for May 2017. The following data has been gathered: Sales Revenue.................. $2,000 Direct Materials Purchased.... 500 Direct Labor......... 600 Allocated Factory Overhead... 400 Inventory Levels: Direct Materials: May 1:$70 May 31: $50 Work in Process: May 1: 20 May 31: 10 Finished Goods May 1: 50 May 31: 40 a. What is the budgeted cost of direct materials usage for May? b. What is the budgeted cost of goods manufactured for May? c. What is the budgeted cost of goods sold for May?

C

The following budgeted information relates to Global Comfort Company: Budgeted unit sales 3,500 units Units of finished goods to be produced 3,200 units Beginning finished goods inventory 450 units Selling price per unit $10 What amount of sales revenue will be reported on the budgeted income statement by Global Comfort? A) $27,500 B) $3,500 C) $35,000 D) $32,000

C

The following budgeted information relates to Green Power Inc.: Cost of goods manufactured $3,000 Cost of goods available for sale $3,150 Beginning finished goods inventory $125 Ending finished goods inventory $200 What amount of cost of goods sold will be reported on the budgeted income statement by Green? A) $15.63 B) $200.04 C) $2,925 D) $3,325

A

The following budgeted information relates to McKensie Spice Corporation: Budgeted unit sales 2,000 units Target ending finished goods inventory 310 units Beginning finished goods inventory 200 units Calculate the number of finished goods in units to be produced by McKensie. A) 2,110 units B) 1,490 units C) 2,510 units D) 2,310 units

1. 150,000 x 60% = 90,000 100,000 x 30% = 30,000 200,000 x 10% = 20,000 90,000 + 30,000 + 20,000 = $140,000

The following information pertains to the January operating budget for Casey Corporation. ∙ Budgeted sales for January $200,000, February $100,000, and March $150,000. ∙ Collections for sales are 60% in the month of sale and 30% the next month, and 10% two months out. What are budgeted cash collections for March? 1.$140,000 2.$90,000 3.$120,000 4.$150,000

4. 150,000 x 40% = 60,000 100,000 x 10% = 10,000 60,000 + 10,000 = $70,000

The following information pertains to the January operating budget for Casey Corporation. ∙ Budgeted sales for January $200,000, February $100,000, and March $150,000. ∙ Collections for sales are 60% in the month of sale and 30% the next month, and 10% two months out. What is the budgeted accounts receivable balance at the end of March? 1.$140,000 2.$150,000 3.$60,000 4.$70,000

D

The manager is responsible for which of the following at an investment center? A) Revenues and costs B) Investments only C) Revenues only D) Investments, revenues, and costs

D

The production budget is prepared after the ________. A) operating budget B) capital expenditures budget C) financial budget D) revenues budget

4. $246,330 - $89,250 = $157,080 (Gross margin); $157,080 - $150,000 = $7,080 (Operating income). No, because there would be a decrease in operating income compared to p/y.

Violet Sales Corp, reports the year-end information from last year as follows: Sales (35,000 units) $280,000 Cost of goods sold 105,000 Gross margin 175,000 Operating expenses <150,000> Operating income $ 25,000 Violet is developing the upcoming annual budget. The company would like to increase selling prices by 3.5%, and as a result expects a decrease in sales volume of 15%. All other operating expenses are expected to remain constant. Assume that cost of goods sold is a variable cost and that operating expenses are a fixed cost. Should Violet increase the selling price in the upcoming year? 1.Yes, because sales revenue increases for 2016. 2.Yes, because gross margin increases for 2016. 3.No, because sales volume decreases for 2016. 4.No, because operating income decreases for 2016.

1. 35,000 units × .85 = 29,750 105,000 / 35,000 = $3 29,750 x $3 = $89,250

Violet Sales Corp, reports the year-end information from last year as follows: Sales (35,000 units) $280,000 Cost of goods sold 105,000 Gross margin 175,000 Operating expenses <150,000> Operating income $ 25,000 Violet is developing the upcoming annual budget. The company would like to increase selling prices by 3.5%, and as a result expects a decrease in sales volume of 15%. All other operating expenses are expected to remain constant. Assume that cost of goods sold is a variable cost and that operating expenses are a fixed cost. What is budgeted cost of goods sold for the upcoming year? 1.$89,250 2.$98,250 3.$15,750 4.$257,040

2. Budgeted sales in upcoming year: Selling prices in p/y were $8 per unit ($280,000/35,000 units); increase selling price by 3.5% in 2016 means new selling price per unit in 2016 is $8.28 per unit; 2016 sales volume will be 35,000 units × .85 = 29,750 units times $8.28 per unit = $246,330

Violet Sales Corp, reports the year-end information from last year as follows: Sales (35,000 units) $280,000 Cost of goods sold 105,000 Gross margin 175,000 Operating expenses <150,000> Operating income $ 25,000 Violet is developing the upcoming annual budget. The company would like to increase selling prices by 3.5%, and as a result expects a decrease in sales volume of 15%. All other operating expenses are expected to remain constant. Assume that cost of goods sold is a variable cost and that operating expenses are a fixed cost. What is budgeted sales for the upcoming year? 1.$291,200 2.$246,330 3.$302,400 4.$322,000

Budgeted sales + Target ending finished goods inventory - Budgeted finished goods inventory

What is the budgeted units formula?

Total Work in Process for the Period - Ending work in process inventory

What is the formula for Costs of Goods Manufactured?

Direct materials + Direct Labor + Mfg. Overhead applied

What is the formula for Total Manufacturing costs?

Beginning work in process inventory + Total Manufacturing Costs

What is the formula for Total Work In Process for the period?

Beginning raw materials inventory + raw materials purchased

What is the formula for raw materials available for use in production?

Raw materials available for use in production- Ending raw materials inventory

What is the formula for raw materials used in production?

A

Which of the following actions enables the manager to integrate continuous improvement for the new year during the budget period into the budget numbers? A) Kaizen budgeting B) Stretch targets C) Variances D) Budgetary slack

B

Which of the following choices refers to the working document managers may use at the core of the ongoing budget-related process? A) The financial budget B) The master budget C) The operating budget D) The rolling budget

C

Which of the following should primarily guide a manager in choosing the period for the budget? A) The updated data in the budget B) The shareholder expectations C) The motive for creating a budget D) The operating cycle of the business

C

Which of the following statements best defines sensitivity analysis? A) The practice of underestimating budgeted revenues or overestimating budgeted costs to make budgeted targets easier to achieve B) Mathematical representations of the relationships among operating activities, financing activities, and other factors that affect the master budget C) A "what-if" technique that examines how a result will change if the original predicted data are not achieved or if an underlying assumption changes D) A numerical representation of a future plan of action by management for a determined time period and helps managers coordinate actions to implement the plan

B

Which of the following statements is NOT true about multinational companies? A) In a multinational company, a manager can use the results of a budget to evaluate the performance of a regional manager by determining how well the manager stayed within budgetary guidelines. B) The manager at a multinational company earns revenues and incurs expenses from one currency in one country. C) The manager at a multinational company should never ignore the economic and tax environments of a foreign country when planning, preparing and implementing budgets. D) The manager at a multinational company should never ignore the political and legal economic environments of a foreign country when planning, preparing and implementing budgets.

C

Which of the following statements is TRUE of budgeting benefits? A) Managers use past performance because future conditions may differ from past experiences. B) Past results incorporate past miscues and substandard performance. C) Budgets provide a framework for judging performance and facilitating learning. D) Budgets eliminate the need for unnecessary management interventions during the production process.

B

Which of the following statements is correct regarding the components of the master​ budget? A. The manufacturing overhead budget is used to create the production budget. B. Operating budgets are used to create cash budgets. C. The cash budget is used to create the capital budget. D. The cost of goods sold budget is used to create the selling and administrative expense budget

D

Which of the following statements is correct regarding the drivers of operating and financial​ budgets? A. The cash budget will drive the production and selling and administrative expense budgets. B. The production budget will drive the selling and administrative expense budget. C. The cost of goods sold budget will drive the units of production budget. D. The sales budget will drive the cost of goods sold budget.

a. 120,000 x 50% = $60,000 100,000 x 40% = $40,000 90,000 x 10% = $9,000 60,000 + 40,000 + 9,000 = 109,000 b. 50,000 x 40% = 20,000 25,000 x 60% = 15,000 20,000 + 15,000 = 35,000 c. 35,000 + 50,000 - 10,000 + 25,000 + 15,000 = 115,000 d. 20,000 + 109,000 - 115,000 = 14,000

Woods Company is preparing its cash budget for the month of May. On May 1, Woods has a $20,000 balance in its only cash account. Credit Purchase Sales on account March - actual................................................. 90,000 35,000 April - actual................................................. 100,000 25,000 May - budgeted............................................. 120,000 50,000 Prior experience has indicated that 50% of a month's sales are collected in the month of sale, 40% in the month following sale, and the remaining 10% in the second month following sale. Woods pays 40% of a month's purchases in the month of purchase and the remaining 60% in the month following purchase. Selling and administrative expenses budgeted for the May total $50,000 including depreciation expense of $10,000. Woods plans to purchase a new delivery truck costing $25,000 in May. The company also plans to pay quarterly cash dividends totaling $15,000 during the month. a. What is the amount of the estimated collections from credit sales that can be expected during May? b. What is the amount of the estimated disbursements for purchases on account that can be expected during May? c. What is the amount of total cash disbursements for May? d. What is the amount of expected cash balance at May 31?