Acct chapter 8

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?

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

14. What is the estimated total selling and administrative expense for July?

$104,000

12. Candida Company is in the process of preparing its selling and administrative expense budget for the year. The company expects to produce 8,500 units and sell 9,500 units during the year. The variable selling and administrative expenses are $1.75 per unit. The fixed selling and administrative expenses are expected to total $95,000 during the year. The total budgeted selling and administrative expenses would be:

$11,625

15. Simpson Company makes and sells a single product. Budgeted sales for April are $1,210,000. Gross margin is budgeted at 25% of sales. If the net income for April is budgeted at $161,000, budgeted selling and administrative expenses must be:

$141,500

8. What is the estimated accounts payable balance at the end of July?

$154,152

2. Mambo Inc. has credit sales of $140,000 in May, $170,000 in June, and $190,000 in July. Mambo collects cash on account 70% in the month of sale and 30% in the month following the sale. What would the cash collections be for June?

$161,000

15. What is the estimated net operating income for July, if the company always uses an estimated predetermined plantwide overhead rate of $8 per direct labor-hour?

$166,400

7. If the cost of raw material purchases in June is $149,340, what are the estimated cash disbursements for raw materials purchases in July?

$192,372

9. Irwin Company has budgeted direct labor hours for the coming three months as follows: July, 5,000 hours; August, 6,600 hours; and September, 6,800 hours. Manufacturing overhead is budgeted at $11,800 per month plus $1.80 per direct labor hour. What is the budgeted manufacturing overhead for August?

$23,680

6. What is the estimated cost of raw materials purchases for July?

$256,920

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?

$30,000 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.

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?

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

BUDGETED UNIT SALES: Quarter 1: 1,500 2: 1,300 3: 1,400 4: 1,300 Year: 5,500 selling price per unit 1: $25 2: 25 3: 25 4: 25 year 25 percentage of sales collected in the period of the sale 75% percentage of sales collected in the period after the sale 25% What is the amount of budgeted sales revenue for the last quarter?

$32,500 The budgeted sales revenue for the last quarter is $32,500 ($32,500 = 1,300 units × $25).

BUDGETED UNIT SALES: Quarter 1: 1,500 2: 1,300 3: 1,400 4: 1,300 Year: 5,500 selling price per unit 1: $25 2: 25 3: 25 4: 25 year 25 percentage of sales collected in the period of the sale 75% percentage of sales collected in the period after the sale 25% What are the expected cash collections in the third quarter?

$34,375 The expected cash collections from the third quarter are $34,375, 25% of second quarter sales and 75% of third quarter sales $34,375 = ($32,500 × 25%) + ($35,000 × 75%).

12. What is the estimated finished goods inventory balance at the end of July, if the company always uses an estimated predetermined plantwide overhead rate of $8 per direct labor-hour?

$347,200

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.

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

9. What is the estimated raw materials inventory balance (in dollars) at the end of July?

$40,680

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?

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

11. If the company always uses an estimated predetermined plantwide overhead rate of $8 per direct labor-hour, what is the estimated unit product cost?

$49.60

8. Ironton Products has a production budget as follows: May, 17,500 units; June, 20,500 units; and July, 25,500 units. Each unit requires 2.5 labor hours at $10 per hour. What would be the budgeted direct labor cost for June?

$512,500

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.

$6 per machine-hour 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.

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 bottles 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).

4. According to the production budget, how many units should be produced in July?

26,500 units

7. Dakota Products has a production budget as follows: May, 18,000 units; June, 21,000 units; and July, 26,000 units. Each unit requires 2 pounds of raw material and 2.5 direct labor hours. Dakota desires to keep an inventory of 10% of the next month's requirements on hand. On May, 1 there were 3,600 pounds of raw material in inventory. Direct labor hours required in May would be:

45,000 hrs

5. Dakota Products has a production budget as follows: May, 17,500 units; June, 20,500 units; and July, 25,500 units. Each unit requires 4 pounds of raw material. Dakota desires to keep an inventory of 10% of the next month's requirements on hand. On May 1, there was 7,000 pounds of material in inventory. Material purchases in May would be:

71,200 lbs

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 Factors considered for planning the desired level of inventories are costs of carrying inventory and costs of lost sales.

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 Depreciation expense is a noncash expense and hence is deducted from the total selling and administrative expense budget to determine the cash disbursements for selling and administrative expense budget.

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

In a direct materials budget, the desired ending raw materials inventory for the year is equal to: your answer: the beginning balance of accounts payable correct answer: the desired ending raw materials inventory for the last period In a direct materials budget, the desired ending raw materials inventory for the year is the same as the desired ending raw materials inventory for the last period.

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

Managers at all levels participate in preparing the budget. Self-imposed budgets are prepared with the full cooperation of and active participation from managers at all levels. Individuals at all levels are recognized as members and their views and judgments are valued by top management.

Identify the major sections of the cash budget from the following. Select all that apply. There can be more than one correct answer. The cash excess or deficiency section The current section The disbursements section The financing section The income statement section The investing section The noncash section The operating section The production section The receipts section

The cash excess or deficiency section The disbursements section The financing section The receipts section The cash budget is composed of four major sections: the receipts section, the disbursements section, the cash excess or deficiency section, and the financing section.

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 The purpose of the direct materials budget is to determine the quantity of raw materials to be purchased each period to fulfill the production needs and to provide for adequate inventories.

17. The statement that presents the budgeted levels of assets, liabilities, and equity is the:

balance sheet

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

beginning inventory for the first quarter The beginning inventory for the first quarter is the beginning inventory for the year.

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

interest expense

16. Which of the following budgets is NOT used in the preparation of a budgeted income statement?

master budget the master budget is the aggregation of all lower-level budgets produced by a company's various functional areas

1. The starting point for the preparation of a master budget is the:

sales budget

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 In a direct materials budget, the beginning raw materials inventory for the year will be the beginning raw materials inventory for the first period.

14. The cash budget provides necessary input data for the preparation of the:

the budgeted balance sheet

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

the cash budget

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

the sum of production needs for the four quarters

3. What is the accounts receivable balance at the end of July?

$936,000

13. Waggoner Company has a cash balance of $38,000 on April 1. The company is required to maintain a cash balance of $25,000. During April expected cash receipts are $184,000. Expected cash disbursements during the month total $212,800. During April the company will need to borrow:

$15,800

11. Gamma Inc. has forecast sales as follows: July, 12,400 units; August, 10,900 units; September, 8,900 units; and October, 6,400 units. Each unit sells for $11. Gamma's selling and administrative budget is $1,700 fixed per month plus $1.20 per unit sold. What is the budgeted selling and administrative expense for October?

$9,380

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

10. What is the total estimated direct labor cost for July assuming the direct labor workforce is adjusted to match the hours required to produce the forecasted number of units produced?

$636,000

2. What are the expected cash collections for July?

$966,000

18. SanFran Sales has projected the following balances for the end of the fiscal period: Sales $ 228,000 Cash 14,300 COGS 143,000 A/R 31,000 Inventory 48,000 Selling expenses 38,000 Interest expenses 16,000 Equipment 128,000 Accumulated depreciation 66,000 What are total assets at the end of the period?

$155,300

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 When variable selling and administrative expense budget depend on the number of units sold, the variable selling and administrative rate multiplied by the budgeted sales give the total variable selling and administrative expense budget.

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 A continuous or perpetual budget keeps managers focused at least one year ahead and prevents managers from becoming too narrowly focused on short-term results.

13. What is the estimated cost of goods sold and gross margin for July, if the company always uses an estimated predetermined plantwide overhead rate of $8 per direct labor-hour?

estimated cost of goods sold $1,289,600 estimated gross margin $270,400

6. The budget or schedule that provides the required data for the preparation of the direct materials budget is the:

production budget it calculates the number of units to be manufactured along with details of sales and closing inventory of finished goods. this helps in estimating the requirement of dm to be purchased and used in production. preparation of the dm budget thus happens from the production budget

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?

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

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.

$400,000 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.

Morganton Company makes one product and it provided the following information to help prepare the master budget for its first four months of operations: a. The budgeted selling price per unit is $60. Budgeted unit sales for June, July, August, and September are 9,500, 26,000, 28,000, and 29,000 units, respectively. All sales are on credit. b. Forty percent of credit sales are collected in the month of the sale and 60% in the following month. c. The ending finished goods inventory equals 25% of the following month's unit sales. d. The ending raw materials inventory equals 15% of the following month's raw materials production needs. Each unit of finished goods requires 4 pounds of raw materials. The raw materials cost $2.40 per pound. e. Forty percent of raw materials purchases are paid for in the month of purchase and 60% in the following month. f. The direct labor wage rate is $12 per hour. Each unit of finished goods requires two direct labor-hours. g. The variable selling and administrative expense per unit sold is $1.50. The fixed selling and administrative expense per month is $65,000. 1. What are the budgeted sales for July?

$1,560,000

19. Lunderville Inc. bases its selling and administrative expense budget on budgeted unit sales. The sales budget shows 6,600 units are planned to be sold in December. The variable selling and administrative expense is $4.60 per unit. The budgeted fixed selling and administrative expense is $98,200 per month, which includes depreciation of $8,760 per month. The remainder of the fixed selling and administrative expense represents current cash flows. The cash disbursements for selling and administrative expenses on the December selling and administrative expense budget should be:

$119,800

20. Shuck Inc. bases its manufacturing overhead budget on budgeted direct labor-hours. The direct labor budget indicates that 8,200 direct labor-hours will be required in May. The variable overhead rate is $4.10 per direct labor-hour. The company's budgeted fixed manufacturing overhead is $100,940 per month, which includes depreciation of $6,850. All other fixed manufacturing overhead costs represent current cash flows. The May cash disbursements for manufacturing overhead on the manufacturing overhead budget should be:

$127,710

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?

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

10. Manufacturing overhead is applied based on budgeted direct labor-hours. The direct labor budget indicates that 5,900 direct labor-hours will be required during the year. The variable overhead rate is $3.90 per direct labor-hour. The company's budgeted fixed manufacturing overhead is $91,450 per year, which includes depreciation of $18,600. All other fixed manufacturing overhead costs represent current cash flows. The predetermined overhead rate for would be: (Round your answer to 2 decimal places.)

$19.40

5. If 113,000 pounds of raw materials are needed to meet production in August, how many pounds of raw materials should be purchased in July?

107,050 lbs

BUDGETED UNIT SALES: Quarter 1: 1,500 2: 1,300 3: 1,400 4: 1,300 Year: 5,500 selling price per unit 1: $25 2: 25 3: 25 4: 25 year 25 percentage of sales collected in the period of the sale 75% percentage of sales collected in the period after the sale 25% What is the amount of budgeted cash collections in the second quarter from prior period sales?

$9,375 Note that the question did not ask for the total cash collections in the 2nd quarter. The amount of budgeted cash collections in the second quarter from prior period sales is $9,375. ($9,375 = First quarter sales of 1,500 units × $25 per unit × the percentage of sales collected in the quarter after the period of the sale of 25%).

4. The management of Nicto Company plans to have an inventory at the end of each month equal to 25% of the next month's sales. Budgeted sales in units over the next three months are 78,000 in October, 118,000 in November, and 98,000 in December. Budgeted production for November would be:

113,000 u

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 bottles 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).

3. Pluta Company plans the following beginning and ending inventory levels (in units) for April: April 1 & April 30 Raw materials 78,000 & 98,000 Work in Process 19,000 & 19,000 Finished Goods 158,000 & 98,000 If the company plans to sell 958,000 units during April, the number of units it would need to manufacture during April would be:

898,000 u

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

False Non-cash manufacturing overhead costs do not cause cash outflows, but they are still overhead expenses and are included in the budget. However, they are subtracted from total manufacturing overhead to determine the expected cash disbursements.

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

False The budgeting process begins with the preparation of the sales budget. The sales budget is a detailed schedule showing the expected sales for the budget period.