Chapter 9 SmartBook Cost

A detailed plan, expressed in quantitative terms, that specifies what resources will be acquired and used during a specified period of time is a(n) _____ .

budget

The most obvious purpose of a(n) _____ is to quantify a plan of action.

budget

Pro forma financial statements is another term for _____ financial statements.

budgeted

The budgeted cost of goods manufactured schedule calculates the ______.

budgeted cost of goods completed and transferred to budgeted finished-goods inventory

The final portion of the master budget is the preparation of the ______.

budgeted financial statements

Budgets that specify how activities will be carried out to meet sales demands are called Blank______ budgets.

operational

Budgets that specify how activities will be carried out to meet sales demands are called _____ budgets.

operational

Inventory budgets are Blank______ budgets.

operational

A financing budget shows a ______.

plan that shows how the organization will acquire financial resources

The starting point in the sales forecasting process is generally ______.

prior year sales levels

Budgeted financial statements are often called _____ _____ financial statements.

pro forma

A merchandising firm does not prepare a Blank______ budget.

production

The direct materials and direct labor budgets are based upon the Blank______ budget.

production

The starting point for the direct material purchase budget is the Blank______ budget.

production

Other costs of production, besides purchases and direct labor, are called ______.

production overhead costs

A master budget is also called a(n) _____ plan.

profit

The order of budget preparation in nonprofit organizations is generally ______.

program budgets and then funding sources Reason: Nonprofits generally begin with budgets for the services they plan to provide (operational program budgets) and use those budgets to determine how to generate the resources needed to meet their program goals.

Allocating resources is the process of ______.

providing for the needs of competing uses of revenues

The direct-material budget shows the number of units and cost of materials to be ______.

purchased and used

The most obvious purpose of a budget is to ______.

quantify a plan of action

A plan that is continuously updated by adding a new time period and dropping the period just completed is a Blank______ budget.

revolving

The first budget created in the budgeting process is the _____ budget

sales

The production budget is based upon the Blank______ budget.

sales

The cash receipts budget can differ from the sales budget due to the fact that ______.

sales on account and cash collections may occur in different periods

The key types of master budget schedules are _____, _____, _____, and financial statements.

sales, operational, financing

Budgets that cover a month, quarter, or year are considered Blank______ budgets.

short-range

A company expects to sell 2,500 units at $7 unit during the 1st quarter. The company expects to collect 70% of the sales during the quarter they are sold and the balance in the next quarter. Collections in the 1st quarter are expected to be ______.

$12,250 Reason: 2,500 × $7 × 70% = $12,250.

Animas Manufacturing expects to produce 7,000 units in January, 6,400 units in February, and 6,800 units in March. Each unit requires 3/4 of a pound (lb) of materials at a cost of $24/lb. Animas anticipates a beginning raw-material inventory for January of 525 lbs. Company policy is to have 10% of next month's materials in ending inventory. What is the budgeted cost of raw material purchases for January?

$124,920 Reason: February RM needed: 6,400 × 3/4 lb = 4,800 lbs. January RM ending inventory: 4,800 × 10% = 480 lbs. January RM production needs: 7,000 units × 3/4 lb = 5,250 lbs − 525 lbs beginning + 480 lbs = 5,205 lbs purchased × $24/lb = $124,920.

The Whitewater Wine Foundation hosts 3 festivals per year. The May festival is predicting 125,000 attendees and a total of 150 labor hours. Incidental costs related to the workers are budgeted at $1.75 per direct labor hour. Other budgeted costs for the May festival are $50,000 for liability insurance, $3,500 in advertising, $10,000 for grounds rental, and $2,000 for tents. The foundation also incurs annual costs, evenly over the year, for the following: Foundation director's salary $120,000 Depreciation on foundation offices $1,200 General advertising regarding foundation $600 Utilities on foundation offices $900 What is the SG & A budget for the month of May?

$13,725.00 Reason: ($120,000 + $1,200 + $600 + $900)/12 = $10,225 allocated SG & A + $3,500 event advertising.

Whitewater Wine Foundation expects 125,000 attendees at their May festival. Wine-tasters pay a $10 entrance fee, which includes a tasting glass and wine-tasting wristband. Designated drivers pay a $5 entrance fee and receive a ticket for one non-alcoholic drink. Of the attendees, 10% are expected to be designated drivers. Costs to the festival are $.25 for wristbands, $.90 for tasting glasses, and $.15 for non-alcoholic drinks. All drink tickets are expected to be used. What is the total purchase budget for the May festival?

$131,250 Reason: Designate drivers (DD): 125,000 × 10% = 12,500. Wine drinkers: 125,000 − 12,500 = 112,500. Wine drinker cost: ($0.25 + $0.90) × 112,500 = $129,375. DD cost: 12,500 × $0.15 = $1,875. Total cost: $129,375 + $1,875 = $131,250.

A group of film students is hosting a preview of the horror films they created for their film class with the hope that they can sell copies of their films to help underwrite their next film. They expect that their showings to result in 3,200 students buying an average of 2 films each. Films copies will only be made based upon orders and the copying costs per film is $2.75. What is the purchase budget based upon their estimated sales?

$17,600 Reason: 3,200 × 2 films each × $2.75/film = $17,600.

A company expects to sell 2,500 units at $7 unit during the first quarter and expects sales to increase by 10% each quarter. What is the total budgeted sales revenue for the 2nd quarter?

$19,250 Reason: 2500 × 110% × $7 = $19,250.

The Whitewater Wine Foundation hosts 3 festivals per year. The May festival is predicting total attendance of 125,000 people. The festival will last 3 days and be open 10 hours per day. The festival will need 4 ticket sellers on hand at all times who will be paid $18/hour. In addition, during peak times, approximately 5 hours per day, 2 parking attendants will be needed. They will be paid $12/hour. Direct labor cost for the May festival will be ______.

$2,520 Reason: Ticket sellers: 3 days × 10 hours/day × 4 people × $18/hour = $2,160. Parking: 3 days × 5 hours/day × 2 people × $12/hour = $360. Total labor = $2,160 + $360 = $2,520.

Interest is earned at a 6% annual rate on the average cash balance for the quarter. What interest will be earned for the 1st quarter given the following budgeted information? (Round to the nearest whole dollar.) Quarter 1 Beginning cash balance $115,144 Cash receipts $492,000 Less: Cash disbursements ($346,920)

$2,815 Reason: Rate per quarter = 6%/4= 1.5%. Net change in cash: $492,000 − $346,920 = $145,080. Average cash balance: $115,144 + (1/2 × $145,080) = $187,684 × 1.5% = $2,815.

A group of film students is hosting a preview of the horror films they created for their film class with the hope that they can sell copies of their films to help underwrite their next film. They expect that their showings to result in 3,200 students buying an average of 2 films each. Films copies will only be made based upon orders and the copying costs per film is $2.75. The copying time per film is 15 minutes, and the person making the copies is paid $12.50 per hour. What is the direct labor budget based upon their estimated sales?

$20,000 Reason: 3,200 × 2 = 6,400 copies × .25 hrs/copy = 1,600 hours × $12.50/hr = $20,000.

Casa, Inc. is projecting the following unit sales per quarter; however, they plan to increase their $5 per unit sales price by 20% in the 3rd quarter, the beginning of their busy season. Calculate their budgeted sales revenue for the year. Sales in units Quarter 1. 10,500 Quarter 2 9,450 Quarter 3. 14,800 Quarter 4. 17,700

$294,750 Reason: Increased sales price: $5 × 120% = $6. Sales revenue: ((10,500 + 9,450) × $5) + ((14,800 + 17,700) × $6) = $294,750.

Casa, Inc. is projecting the following sales per quarter. Based upon past experience, the company expects to collect 40% in the quarter of sale and the remaining balance in the next quarter. Calculate the expected cash receipts for the 2nd quarter. Sales in dollar Quarter 1$53,000 Quarter 2$56,700 Quarter 3$74,000 Quarter 4$10,200

$54,480 Reason: Collected in Q2 on Q1 sales: $53,000 × 60% = $31,800.Collected in Q2 on Q2 sales: $56,700 × 40% = $22,680.Total collections: $31,800 + $22,680 = $54,480.

The Whitewater Wine Foundation hosts 3 festivals per year. The May festival is predicting 125,000 attendees and a total of 150 labor hours. Incidental costs related to the workers (sunscreen and water) are budgeted at $1.75 per direct labor hour. Other budgeted costs for the May festival are $50,000 for liability insurance, $3,500 in advertising, $10,000 for grounds rental, and $2,000 for tents. The foundation also incurs annual costs, evenly over the year, for the following: Foundation director's salary $120,000 Depreciation on foundation offices $1,200 General advertising regarding foundation $600 Utilities on foundation offices $900 What is the production overhead budget for the May festival?

$62,262.50 Reason: Direct labor hours: 150 hours. Total production overhead = (150 hours × $1.75) + $50,000 + 10,000 + $2,000 = $62,262.50; advertising and the other annual costs are SG&A costs.

The Whitewater Wine Foundation incurs the following expenses: Foundation director's salary $60,000 annually Utilities $750 per month Direct labor costs $20,000 annually What is the total amount of expenses that will be shown on the cash disbursement budget for the year?

$89,000 Reason: $60,000 + ($750 × 12) + $20,000 = $89,000.

Which of the following statements about a master budget are not true?

-Budgets cannot use activity-based costing. -Budget schedules are independent.

Which of the following statements are true?

-Manufacturing firms have inventories and service firms do not. -Manufacturing firms usually have larger capital investment needs than service firms.

Select all that apply A budget is used for ______.

-allocating resources -facilitating communication and coordination -controlling profit and operations -planning -evaluating performance and providing incentives for employees

The cash flow budget reflects ______.

-cash outflows for merchandise purchases -cash inflow from customers -cash inflows from other sources -proceeds from the sale of fixed assets -repayments of loans

The units on the production budget are not always equal to the sales budget due to ______.

-companies building inventory in an effort to smooth production levels -timing differences between production and when sales can occur -difficulty in predicting sales

The units on the production budget are not always equal to the sales budget due to ______.

-difficulty in predicting sales -timing differences between production and when sales can occur -companies building inventory in an effort to smooth production levels

Major factors in sales forecasting include ______.

-expected actions of competitors -economic climate -advertising and product promotions -past sales levels -political events

Which of the following are not selling, general and administrative expenses?

-purchases -depreciation on factory building -cost of employees directly providing the service the company is selling

A budget ______.

-serves as a useful benchmark for comparing actual results -serves both a planning and control purpose -can help managers evaluate firm effectiveness

A company expects to sell 2,750 units in the 2nd quarter and 3,025 units in the 3rd quarter. The company anticipates a finished-goods inventory of 500 units at the end of the 1st quarter. Due to concerns about the availability of materials, desired ending inventory at the end of the 2nd quarter is 20% of next quarter's sales. How many units will the company budget to produce in the 2nd quarter to meet this goal?

2,855 Reason: Desired ending inventory = 20% × 3,025 = 605 units. Production = Sales of 2,750 − beginning inventory of 500 + desired ending of 605 = 2,855 units.

A plan for the acquisition of fixed assets is a Blank______ budget.

Capital

A company's financial position is summarized on the _____ budget.

Cash

Because it depends on the spending plans reflected in several operational budgets, the _____ _____ budget is quite complex.

Cash disbursements

True or false: For most manufacturing firms, units sold generally equals units produced.

False Reason: For a number of reasons, there is often a difference in timing between units sold and units produced.

True or false: Service industry firms do not prepare production budgets since they do not manufacture a tangible product.

False Reason: Service firms prepare production budgets for the production of services with the precise nature depending on the industry.

True or false: The budgeted statement of cash flows is also known as the cash budget.

False Reason: The cash budget is for internal use and provides greater detail for management use; the statement of cash flows is a required statement for external reporting whose format is recommended by the FASB.

True or false: The beginning of the master budgeting process is the budgeted financial statements.

False Reason: They are the end result, not the beginning.

True or false: All organizations, other than nonprofits, begin the budgeting process with the goods or services to be provided and the revenue to be available.

False Reason: This is true for all organizations, including nonprofits.

Cash disbursement budgets are based on Blank______ budgets.

Operational Reason: Although the amounts may differ between these budgets due to timing differences, these are the starting point for cash disbursement budgets.

For any organization to be effective, each manager throughout the organization must Blank______ other managers.

be aware of the plans made by

The main difference in budgeting for service industries versus manufacturing industries is Blank______ in service industries.

The revenue source Reason: The main difference in budgeting for service industries versus manufacturing industries is the revenue source in service industries.

True or false: A master budget can, and should, be used by all types of businesses, governmental agencies, as well as individuals.

True Reason: Everyone can benefit from planning expenditures, both routine and non-routine, based upon available resources.

True or false: A budget provides a means of allocating resources among competing uses.

True Reason: Organizations have limited resources and a budget is one way to allocate them.

An example of a merchandise firm is ______.

Walmart

The linkage between planned production and raw material purchases is Blank______ in manufacturing firms.

a critical linkage

A company's financial position is summarized on the _____ budget

cash

A company's financial position is summarized on the _____ budget.

cash

The budgeted income statement shows all of the following except budgeted ______.

cash

Trends and events that will require long-term capital acquisition through debt or equity are identified on the _____ budget.

cash

The budget that reflects the time period in which company expects to collect on its sales is the Blank______ budget.

cash receipts

A master budget does all of the following except ______.

choose the supplier of the resources required to accomplish the plans

Pulling together the plans of all the organization's managers is the purpose of ______.

communication and coordination

The resources needed to turn purchased inputs into a marketable product or service are called _____ costs.

conversion

Only a manufacturing firm includes a budgeted schedule of ______.

cost of goods manufactured

Which of the following would not be found on the cash disbursement budget?

depreciation expense

FASB recommends using the _____ method to prepare the budgeted statement of cash flows.

direct

Budgeting differences between service and manufacturing firms are found primarily on the Blank______ budgets.

direct-materials production

A comprehensive set of budgets covering all phases of an organization's operations for a specific period of time is called a Blank______ budget.

master

Comparing actual sales to budgeted sales helps managers evaluate the firm's Blank______ in making sales.

effectiveness

One advantage of an FP&A system over a system that focuses solely on measuring and recording results is it ______.

encourages the cross-functional communication necessary to create company financial and non-financial goals

Awarding bonuses is a component of the Blank______ part of budgeting.

evaluating performance and providing incentives

Comparing actual results to budgeted results to reward achievements is part of ______.

evaluating performance and providing incentives

A system that includes planning, measuring, and recording results and evaluating the performance of the entire organization is called a(n) Blank______ system.

financial planning and analysis

A budget that shows cash shortfalls and surpluses is a(n) Blank______ budget.

financing

Budgets that project cash flow and identify likely cash shortfalls and surpluses are _____ budgets.

financing

In a manufacturing firm, units to be produced are calculated as budgeted sales + desired ______.

finished-goods ending inventory − expected beginning finished-goods inventory

Sales forecasting ______.

impacts other budgeting components

All of the information on the budgeted income statement comes from other schedules except budgeted ______.

income taxes

Conversion costs are the costs of ______.

the resources needed to convert purchased inputs into a marketable product or service

For most manufacturers, direct materials is a ______-level cost.

unit

Which of the following would not be considered in sales forecasting for the upcoming year?

who to hire as the manager of research and development