Accounting 212 Exam #2

Max, Inc., has two divisions, South Division and North Division. South Division's sales, contribution margin ratio, and traceable fixed expenses are $500,000, 60%, and $100,000 respectively. What is the segment margin for the South Division?

$200,000 -->Sales of $500,000 x 60% contribution margin = $300,000 contribution margin; $300,000 contribution margin minus $100,000 traceable fixed expenses = segment margin of $200,000.

Bovine Corporation has two divisions: televisions and mobile phones. The mobile phone division has a contribution margin of $600,000. The company's common fixed costs and total traceable fixed costs are $100,000 and $500,000 respectively. What is the segment margin of the mobile phone division, assuming the traceable fixed costs of the television division are $300,000?

$400,000 -->The traceable fixed costs of the mobile phone division is $200,000 ($500,000 total traceable fixed costs minus $300,000 traceable fixed costs of television division). Thus, the mobile phone segment margin is $400,000 ($600,000 contribution margin minus the $200,000 traceable fixed costs).

Identify the major sections of the cash budget from the following.

-The cash excess or deficiency section -The disbursements section -The financing section -The receipts section

Vineyard Corporation, a manufacturer of fine wines, began the year 2016 with 20,000 bottles in inventory. The company estimated the budgeted sales for the four quarters of 2016 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?

195,000 --Production needs for the first quarter are 195,000 bottles (budgeted sales of 200,000 bottles + ending inventory of 15,000 bottles - beginning inventory of 20,000 bottles = 195,000 bottles).

Vineyard Corporation, a manufacturer of fine wines, began the year 2016 with 20,000 bottles in inventory. The company estimated the budgeted sales for the four quarters of 2016 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?

25,000 --The desired ending inventory for the second quarter is 25,000 bottles (third quarter sales of 250,000 bottles × ending inventory percentage of 10% = 25,000 bottles).

fixed manufacturing overhead is recorded as a product cost.

Absorption costing

income statement that categorizes costs based on their function

Absorption costing contribution format

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 would be Smarton's budgeted net income?

Budgeted net income on Smarton's budgeted income statement would be $48,000. $48,000 = $90,000 - $30,000 - $12,000.

Which of the following explains why operating budgets generally span a period of one year?

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

Which of the following is a major factor that should be taken into consideration while planning the desired level of inventories?

Costs of carrying inventory

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?

Depreciation expense

Film Studio, Inc. has beginning retained earnings of $80,000 and expects to earn a net income of $70,000 during the budget period. What would be the budgeted closing retained earnings balance if the company pays dividends of $50,000?

Ending retained earnings = Beginning retained earnings + Net income - Dividends; $100,000 = $80,000 + $70,000 - $50,000.

A true common fixed cost would disappear if a segment was entirely eliminated.

FALSE

Some manufacturing overhead costs such as depreciation are non-cash expenses and are not considered in the preparation of the manufacturing overhead budget.

FALSE

The budgeting process begins with the preparation of the production budget.

FALSE

When the units produced during a period are less than the units sold, the absorption costing net operating income will be more than the variable costing net operating income.

FALSE

When we reconcile variable costing with absorption costing income, which costs must be considered?

Fixed manufacturing overhead

Which of the following is true of a self-imposed budget?

Managers at all levels participate in preparing the budget.

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. Calculate Precision Surgical Company's predetermined overhead rate for the year.

Predetermined overhead rate = (Variable manufacturing overhead + Fixed manufacturing overhead) / Total machine-hours required; $6 = (($4 × 100,000 machine-hours) + ($50,000 per quarter × 4 quarters)) / 100,000 machine-hours or ($400,000 + $200,000) / 100,000 machine-hours.

Striker Company determines its expected receipts for the period to be $80,000 and expected disbursements to be $70,000. The beginning cash balance for the period was $5,000. The management wants to maintain a minimum balance of $40,000. What is the required borrowing?

Required borrowing to maintain a minimum cash balance of $40,000 is $25,000. $25,000 = $40,000 - (($80,000 - $70,000) + $5,000).

Striker Company determines its expected receipts for the period to be $80,000 and expected disbursements to be $70,000. The beginning cash balance for the period was $5,000. The management wants to maintain a minimum balance of $40,000. What is the required borrowing assuming that the bank lends only in multiples of $10,000?

Required borrowing to maintain a minimum cash balance of $40,000 is $25,000. Because the bank lends only in multiples of $10,000, Striker would need to borrow at least $30,000.

Which of the following is an example of a common fixed cost?

Salary of the CEO of Apple, Inc.

Continuous budgets ensure that managers do not become too narrowly focused on short-term results and keep them focused for at least one year ahead.

TRUE

The contribution approach income statement can be used for cost-volume-profit analysis because costs are separated as fixed and variable.

TRUE

For the budget period ending December 31, 2015, 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. Raw materials worth $14,000 will be unpaid. What would be the amount of accounts payable reported on the budgeted balance sheet?

The accounts payable balance of $14,000 equals the balance of raw materials that are unpaid at the end of the period.

Which of the following is a reason that companies prepare direct labor budgets?

To avoid labor shortages

What is the purpose of preparing a direct materials budget?

To estimate the quantity of raw materials to be purchased

For the budget period ending December 31, 2015, 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. Raw materials worth $14,000 will be unpaid. Determine the amount of total current assets that will be reported on the budgeted balance sheet.

Total current assets = Cash + Accounts receivable + Finished goods inventory + Raw materials inventory = $4,000 + $16,000 + $12,000 + $8,000 = $40,000.

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?

Total direct labor cost for the fourth quarter = $315,000; $315,000 = 35,000 units × 0.50 direct labor-hour per unit × $18.

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:

Total variable selling and administrative expense budget

In an absorption costing income statement, in addition to direct materials and direct labor, cost of goods sold also includes:

Variable manufacturing overhead and fixed manufacturing overhead

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. Calculate the variable manufacturing overhead for the year.

Variable manufacturing overhead for the year = Variable manufacturing overhead rate per machine-hour × Total machine-hours required for the year; $400,000 = $4 × 100,000 machine-hours.

For a production budget, the ______ is the beginning inventory for the year.

beginning inventory for the first quarter

When units produced are equal to units sold, the absorption costing net operating income is _____ the variable costing net operating income.

equal to

When units produced exceed the units sold, the absorption costing net operating income is _____ the variable costing net operating income.

greater than

In a budgeted income statement, _________ is subtracted from net operating income to arrive at net income.

interest expense

When the units produced are fewer than the units sold, the absorption costing net operating income is _____ the variable costing net operating income.

less than

The use of absorption costing for segmented income statements results in:

omission of upstream and downstream costs.

In a direct materials budget, the beginning raw materials inventory for the year is the same as:

the beginning raw materials inventory for the first period

The schedule of expected cash disbursements for raw materials helps in the preparation of:

the cash budget

In a direct materials budget, the desired ending raw materials inventory for the year is equal to:

the desired ending raw materials inventory for the last period

In a production budget, the production needs for the year equals ______.

the sum of production needs for the four quarters