Managerial Accounting

Assume Durango Co. has sales of $100,000 for the month of November. The company expects sales to grow 10% each month. Durango Co. collects 50% of sales in the month of sale and 50% the month after sale. What should Durango Co. project for cash collections in December?

$105,000---December sales = $110,000 (November sales of $100,000 X 1.1) Cash Collections for December: November sales $100,000 X 0.5 = $50,000 December sales = $110,000 X 0.5 = $55,000 Total Collections = $50,000 + $55,000= $105,000

Durango Co. desires to maintain an ending inventory equal to 10% of next month's cost of budgeted sales. Assume that Durango Co. maintained this level of ending inventory for the month of September. The cost of budgeted sales for October is $100,000 and the cost of budgeted sales for November is $200,000. Calculate required purchases for the month of October.

$110,000---Desired ending inventory for September = $20,000 ($200,000 x.1) + $100,000 budgeted sales for October - $10,000 beginning inventory for October = $110,000.

Durango Co. desires to maintain an ending inventory equal to 20% of next month's cost of budgeted sales. Assume that Durango Co. maintained this level of ending inventory for the month of September. The cost of budgeted sales for October is $100,000 and the cost of budgeted sales for November is $200,000. Calculate required purchases for the month of October.

$120,000----Desired ending inventory for October + Budgeted sales for October - Beginning inventory for October = ($200,000 x 0.2) + $100,000 - ($100,000 x 0.2) = $40,000 + $100,000 - $20,000 = $120,000

Assume Durango Co. has cash sales of $80,000 and sales on account of $120,000 for the month of November. The company expects sales to grow 1% a month. What should Durango Co. project for December sales?

$202,000--(80,000+120,000) X 1%

Assume Durango Co. has sales of $200,000 for the month of November. The company expects sales to grow 10% each month. Durango Co. collects 60% of sales in the month of sale and 40% the month after sale. What should Durango Co. project for cash collections in December?

$212,000---December sales = $220,000 (November sales of $200,000 X 1.1) Cash Collections for December: November sales $200,000 X 0.4 = $80,000 December sales = $220,000 X 0.6 = $132,000 Total Collections = $80,000 + $132,000= $212,000

Assume Durango Co. has cash sales of $80,000 and sales on account of $120,000 for the month of November. The company expects sales to grow 10% a month. What should Durango Co. project for December sales?

$220,000---Total sales for November = $200,000 x 1.1 increase = $220,000 projected sales for December.

Which of the following is an advantage of budgeting? (Select all that apply.)

Assists in performance evaluation enables better coordination across departments provides advance notice of potential problems allows for better planning

The schedule of cash receipts may include

Collections of accounts receivable current cash sales

Which activities are involved in strategic planning?

Determining which product to develop Identifying the most profitable market niche Determining the scope of the business

Strategic planning

Focuses on decisions such as defining the scope of the business, determining which products to develop or discontinue, and identifying the most profitable market niche

Capital budgeting

Focuses on intermediate range plans

Strategic planning

Focuses on long-term plans

Operations budgeting

Focuses on short-term plans

Managers should be aware that budgets can have which of the following negative effects on employees? (Select all that apply.)

Increase stress limit individual freedom

Operations budgeting

Involves decisions establishing sales targets, production goals, and financing plans

Capital budgeting

Involves decisions such as whether to buy or lease equipment, whether to stimulate sales, or whether to increase a company's asset base

Which of the following is not an advantage of budgeting? (Select all that apply.)

Lowers accountability increases employee's individual freedom ensures profitability

Which of the following are included in the master budget? (Select all that apply.)

Operating budgets capital budgets pro forma financial statements

Which items from the sales budget are reported on the pro forma financial statements? (Select all that apply.)

Sales Accounts receivable

Match the master budgeting items shown in the left column with the numbers shown in the right column that represents the order in which they are prepared.

Sales Budget Inventory Purchases Budget Selling & Admin. Expenses Budget Cash Budget Pro Forma Financial Statements

Which of the following displays the correct order in preparing the master budget?

Sales budget, inventory purchases budget, selling and administrative expense budget, cash budget, pro forma financial statements

Which of the following are not included in the master budget? (Select all that apply.)

Strategic budgets Mission statement Opportunity costs Performance budgets

Which of the following equations equals required purchases?

Total inventory needed - beginning inventory = required purchases Cost of budgeted sales + desired ending inventory - beginning inventory = required purchases

Which of the following line items from the three-month sales budget are presented on the pro forma financial statements? Assume that 50% of credit sales are collected in the month of sale and the remaining 50% in the month after. (Select all that apply.)

Total sales for the three months 50% of credit sales for the last month

A continuous 12-month budget is

adjusted at the end of each month.

Required purchases is the

amount of inventory that must be purchased to meet sales demand and satisfy ending inventory requirements minus beginning inventory.

Pro forma financial statements

are future oriented.

Strategic plans are_______ rather than quantitative.

descriptive

Participative budgeting is a process where

employees at all levels are involved in the budget process.

True or false: The master budget only includes operating and capital budgets.

false

Capital budgeting focuses on _________range planning.

intermediate

The________ department coordinates the development of the sales forecast. (Enter only one word.)

marketing

A group of detailed budgets and schedules representing the operating and financial plans for the future is called a(n) _______ budget. (Enter only one word.)

master

The budgeting process normally begins with preparing the________ budgets. (Enter only one word.)

operating

The master budget is a group of detailed budgets and schedules representing the company's

operating and financial plans for the future.

Which of the following budgets is normally prepared to start the budgeting process?

operating budget--The master budget includes the operating budgets, capital budgets and pro forma financial statements. The budgeting process normally begins with preparing the operating budgets.

A technique that invites personnel at all levels of the organization to contribute to the budget process is called

participative budgeting.

A 12-month budget that is continuously adjusted by adding an additional month at the end of each month is called a(n)

perpetual budget.

Financial statements that are based on projected (budgeted) numbers are called

pro forma financial statements.

The schedule of cash_______ adds current cash sales to collections of accounts receivable to determine total budgeted cash collections.

receipts

The most important number to forecast in preparing the master budget is

sales

The most important number to forecast in preparing the master budget is the number ________ . (Enter only one word.)

sales

Operations budgeting concentrates on _______term plans.

short

Once a company makes its required purchases, then its inventory will equal

total inventory needed.

The inventory necessary to meet budgeted sales and desired ending inventory is called

total inventory needed.

True or false: Budgets can increase stress and reduce individual freedom.

true