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

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

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

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

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

The value of the ending inventory is calculated by multiplying the number of units in ending inventory by the _________

unit product cost

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)

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%)

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)

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.

In a budgeted income statement, _________ is subtracted from sales to arrive at gross margin.

COGS

The first line of a merchandise purchases budget expressed in dollars is budgeted

COGS

Which of the following is not found in the financing section of the cash budget?

Cash deficiency

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 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

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

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.

What number does the direct materials budget take directly from the production budget?

Required production

responsibility accounting

Responsibility accounting is the idea that a manager should be held responsible for only those items they can actually control.

Because all other parts of the budget depend on it, if the ______ budget is inaccurate, the rest of the budget will be inaccurate.

Sales

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

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.

The cash budget

is prepared near the end of the master budget process