Chapter 8
The budgeting process begins with the preparation of the _________ budget
sales
The first step in the budgeting process is preparing the ______ budget.
sales
What is usually the major source of receipts in the receipts section of the cash budget?
sales
Borrowing money is required whenever
the cash excess is less than the minimum required cash balance there is a cash deficiency
The calculation of unit product cost requires information from the ______ budget
manufacturing overhead
A number of separate, but interdependent, budgets that formally lay out the company's sales, production, and financial goals are contained in the
master budget
The amount of goods to be acquired from suppliers during the period is shown on the ___ budget
merchandise purchases
A perpetual budget keeps managers focused at least one year ahead by adding one
month or quarter to the end of the budget as each month or quarter comes to a close
Operating budgets generally cover a ______ period.
one year
In a manufacturing company, the______ budget shows the number of units that must be manufactured to satisfy sales needs and provide for the desired ending inventory.
production
The budgeted income statement does NOT rely on information from the
production
A company can repay outstanding principal and interest when
the cash excess is greater than the minimum required cash balance
Total sales for the year reported on the Sales Budget will always be equal to expected cash collections for the year.
False
S&P Enterprises has scheduled direct material purchases of $120,000 in April, $140,000 in May and $160,000 in June. The company pays for 75% of its purchases in the month of purchase and 25% the month after the purchase. Calculate the expected cash disbursements for the month of May.
135,000 Reason: May purchases ($140,000 x 75%) $105,000 + April purchases ($120,000 x 25%) $30,000 = $135,000
The amounts under the Year column in the cash budget always equal the sum of the amounts for the months or quarters of the budget.
false
In a manufacturing company, the budgets for manufacturing costs, including the direct materials budget, the direct labor budget, and the manufacturing overhead budget are all based on the
production
The value of the ending inventory is calculated by multiplying the number of units in ending inventory by the _________
unit product cost
profit planning
is a process used by businesses to achieve their planned levels of profits by preparing a number of budgets that together form an integrated business plan known as the master budget.
Which of the following is not found in the financing section of the cash budget?
Cash deficiency
What number does the direct materials budget take directly from the production budget?
Required production
Because all other parts of the budget depend on it, if the ______ budget is inaccurate, the rest of the budget will be inaccurate.
Sales
In a manufacturing company, which budget is used as the basis for creating the direct materials budget, the direct labor budget, and the manufacturing overhead budget?
production
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 pays dividends of $50,000?
$100,000 (80k-50k=30k+70k=100k
S&P Enterprises has scheduled direct material purchases of $100,000 in January, $130,000 in February and $150,000 in March. The company pays for 75% of its purchases in the month of purchase and 25% the month after the purchase. Calculate the expected cash disbursements for the month of February.
122.5k Reason: February purchases ($130,000 x 75%) $97,500 + January purchases ($100,000 x 25%) $25,000 = $122,500.
Given budgeted sales of 10,000 units, desired ending inventory of 5,000 units, and beginning inventory of 2,000 units, required production is _______ units
13k Reason: 10,000 + 5,000 - 2,000 = 13,000
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?
195,000 bottles (200k+15K(10%*150k)-20k)
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?
48k
Which of the following is not a benefit of self-imposed budgets?
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. Budget estimates prepared by front-line managers are often more accurate and reliable. x Lower-level managers are encouraged to create budgetary slack since they are more knowledgeable of day-to-day operations. Motivation is generally higher.
Which of the following is two of the reasons that organizations use budgets?
Budgets communicate financial goals throughout the organization. Budgets evaluate and reward employees.
Which of the following is NOT included on the sales budget?
Desired ending inventory of units
The cash budget uses information from several other budgets. Which of the following budgets is NOT used to prepare the cash budget?
Production
Each unit requires two pounds of material. Given a desired ending inventory of 20% of next month's production needs, the pounds of material to be purchased in April is
Reason: April production needs (105,000 x 2) 210,000 + Ending inventory (20% of May production needs: 110,000 x 2 x 20%) 44,000 - Beginning inventory (20% of April) 42,000 = 212,000 pounds.
A detailed plan for the future that is usually expressed in formal quantitative terms is
a budget
The final schedule of the master budget is the
budgeted balance sheet
Master budget schedules
are based on estimates and assumptions. answer several key questions for a company
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
The section on the cash budget that summarizes all cash payments except principal and interest repayments is the cash __ section
disbursements
The purpose of preparing a direct materials budget is to _________
estimate the quantity of raw materials to be purchased
The cash budget
is prepared near the end of the master budget process
In a budgeted income statement, _________ is subtracted from sales to arrive at gross margin.
COGS
A company borrows money as needed on the first day of the month and repays principal and interest on the last day of the budget period, if cash is available. For the second quarter of the year, they borrowed $10,000 in April, $8,000 in May and $5,000 in June. The interest rate is 1% per month. Assuming enough money is available on June 30th to repay the debt, the total amount of interest due is
Reason: $10,000 × 3% + $8,000 × 2% + $10,000 × 1% = $560
If desired ending inventory is 25% of next month's sales, the number of units to be produced in March is
Reason: March sales 16,000 + End. inv. (25% of April sales) 5,000 - Beg. inv. (25% of March sales) 4,000 = 17,000 units
responsibility accounting
Responsibility accounting is the idea that a manager should be held responsible for only those items they can actually control.
Madison Corporation's expected beginning cash balance is $22,000. Cash collections are budgeted at $60,000 and cash disbursements are estimated to be $75,000. The minimum required cash balance is $20,000 and the company can borrow as much as needed in increments of $5,000. Required borrowings for the period equal $
15,000
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 is the desired ending inventory for the second quarter?
25,000 bottles (250k*10%)
The first line of a merchandise purchases budget expressed in dollars is budgeted
COGS
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.
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?
40k (add it all up)