CHAPTER 8 QUESTIONS

The manufacturing overhead budget at Amrein Corporation is based on budgeted direct labor-hours. The direct labor budget indicates that 4,900 direct labor-hours will be required in August. The variable overhead rate is $9.40 per direct labor-hour. The company's budgeted fixed manufacturing overhead is $96,040 per month, which includes depreciation of $7,350. All other fixed manufacturing overhead costs represent current cash flows. The August cash disbursements for manufacturing overhead on the manufacturing overhead budget should be: A) $88,690 B) $134,750 C) $46,060 D) $142,100

B) $134,750

The Gerald Company makes and sells a single product called a Clop. Each Clop requires the use of 1.1 hours of direct labor time. The planned cost of direct labor time is $8.20 per hour. The direct labor workforce is fully adjusted each month to the required workload. The company wishes to prepare a Direct Labor Budget for the first quarter of the year. If the company has budgeted to produce 20,000 Clops in January, then the budgeted direct labor cost for January is: A) $164,000 B) $180,400 C) $172,200 D) $195,600

B) $180,400

Davey Corporation is preparing its Manufacturing Overhead Budget for the fourth quarter of the year. The budgeted variable factory overhead rate is $3.00 per direct labor-hour; the budgeted fixed factory overhead is $66,000 per month, of which $10,000 is factory depreciation. If the budgeted direct labor time for December is 4000 hours, then the predetermined overhead per direct labor-hour for December would be: A) $3.00 B) $19.50 C) $5.50 D) $17.00

B) $19.50

Sparks Company has a cash balance of $7,500 on April 1. The company must maintain a minimum cash balance of $6,000. During April, cash receipts of $48,000 are planned. Cash disbursements during the month are expected to total $52,000. Ignoring interest payments, during April the company will need to borrow: A) $3,500 B) $2,500 C) $6,000 D) $4,000

B) $2,500

Axsom Inc. bases its manufacturing overhead budget on budgeted direct labor-hours. The direct labor budget indicates that 1,300 direct labor-hours will be required in March. The variable overhead rate is $8.90 per direct labor-hour. The company's budgeted fixed manufacturing overhead is $20,020 per month, which includes depreciation of $2,600. All other fixed manufacturing overhead costs represent current cash flows. The company recomputes its predetermined overhead rate every month. The predetermined overhead rate for March should be: A) $22.30 B) $24.30 C) $15.40 D) $8.90

B) $24.30

Razz Company is estimating the following sales: July: $45000 August: $50000 September: $65000 October: $80000 November: $75000 December $60000 Sales at Razz are normally collected as follows: 10% in the month of sale; 60% in the month following the sale; and the remaining 30% in the second month following the sale. In Razz's budgeted balance sheet at December 31, at what amount will accounts receivable be shown? A) $49,500 B) $76,500 C) $120,500 D) $135,500

B) $76,500

Davey Corporation is preparing its Manufacturing Overhead Budget for the fourth quarter of the year. The budgeted variable factory overhead rate is $3.00 per direct labor-hour; the budgeted fixed factory overhead is $66,000 per month, of which $10,000 is factory depreciation. If the budgeted direct labor time for November is 9000 hours then the total budgeted cash disbursements for November must be: A) $56000 B) $83000 C) $37000 D) $93000

B) $83000

Morrish Inc. bases its manufacturing overhead budget on budgeted direct labor-hours. The direct labor budget indicates that 7,100 direct labor-hours will be required in January. The variable overhead rate is $1.80 per direct labor-hour. The company's budgeted fixed manufacturing overhead is $102,950 per month, which includes depreciation of $19,880. All other fixed manufacturing overhead costs represent current cash flows. The January cash disbursements for manufacturing overhead on the manufacturing overhead budget should be: A) $115,730 B) $95,850 C) $12,780 D) $83,070

B) $95,850

Villi Manufacturing Corporation's most recent sales budget indicates the following expected sales (in units): July: 230000 August: 275000 September: 310000 Villi wants to maintain a finished goods inventory of 20% of the next month's expected sales. How many units should Villi plan on producing for the month of August? A) 268,000 units B) 282,000 units C) 291,000 units D) 337,000 units

B) 282,000 units

Harris, Inc., has budgeted sales in units for the next five months as follows: June: 9400 units July: 7800 units August: 7300 units September 5400 units October 4100 units Past experience has shown that the ending inventory for each month should be equal to 20% of the next month's sales in units. The inventory on May 31 contained 1,880 units. The company needs to prepare a production budget for the next five months. The total number of units produced in July should be: A) 9260 units B) 7700 units C) 7800 units D) 7900 units

B) 7700 units

The following are budgeted data: April // May // June Sales in units: 26000 // 28000 // 32000 Budgeted production: 28000 // 32000 //36000 Desired ending inventory: 2100//2800//3000 How many yards of cloth should Rhett plan on purchasing in May? A) 84,700 yards B) 96,700 yards C) 98,100 yards D) 98,800 yards

B) 96,700 yards

When preparing a production budget, the required production equals: A) budgeted sales + beginning inventory + desired ending inventory. B) budgeted sales - beginning inventory + desired ending inventory. C) budgeted sales - beginning inventory - desired ending inventory. D) budgeted sales + beginning inventory - desired ending inventory.

B) budgeted sales - beginning inventory + desired ending inventory.

In preparing a master budget, top management is generally best able to: A) prepare detailed departmental-level budget figures. B) provide a perspective on the company as a whole. C) point out the particular persons who are to blame for inability to meet budget goals. D) responses a, b, and c are all correct.

B) provide a perspective on the company as a whole.

The manufacturing overhead budget at Pendley Corporation is based on budgeted direct labor-hours. The direct labor budget indicates that 8,900 direct labor-hours will be required in August. The variable overhead rate is $5.50 per direct labor-hour. The company's budgeted fixed manufacturing overhead is $133,500 per month, which includes depreciation of $30,260. All other fixed manufacturing overhead costs represent current cash flows. The company recomputes its predetermined overhead rate every month. The predetermined overhead rate for August should be: A) $5.50 B) $17.10 C) $20.50 D) $15.00

C) $20.50

The Ellis Company has budgeted its activity for September according to the following information: Sales are budgeted at $392,000 and all sales are for cash. All purchases of merchandise inventory are for cash. Merchandise inventory was $150,000 on August 31 and the planned merchandise inventory on September 30 is $140,000. All merchandise is sold at 40% above cost. The selling and administrative expenses are budgeted at $92,000 for the month. All of these expenses are paid for in cash except for depreciation of $12,000. The budgeted cash disbursements for September are: A) $140,000 B) $270,000 C) $350,000 D) $362,000

C) $350,000

Milano Corporation is working on its direct labor budget for the next two months. Each unit of output requires 0.50 direct labor-hours. The direct labor rate is $9.80 per direct labor-hour. The production budget calls for producing 6,400 units in October and 6,300 units in November. If the direct labor work force is fully adjusted to the total direct labor-hours needed each month, what would be the total combined direct labor cost for the two months? A) $30,870 B) $31,360 C) $62,230 D) $31,115

C) $62,230

The Gerald Company makes and sells a single product called a Clop. Each Clop requires the use of 1.1 hours of direct labor time. The planned cost of direct labor time is $8.20 per hour. The direct labor workforce is fully adjusted each month to the required workload. The company wishes to prepare a Direct Labor Budget for the first quarter of the year. The budgeted direct labor cost per Clop is: A) $7.45 B) $8.20 C) $9.02 D) $9.76

C) $9.02

The following are budgeted data: January // February // March Sales in units: 16000 // 21000 // 20000 Production in units: 17000 //19000//18000 One pound of material is required for each finished unit. The inventory of materials at the end of each month should equal 20% of the following month's production needs. Purchases of raw materials for February would be budgeted to be: A) 19000 pounds B) 19200 pounds C) 18800 pounds D) 23000 pounds

C) 18800 pounds

Which of the following is an advantage of implementing a self-imposed budgeting system? A) Budgeting is quick and easy because only a few individuals are involved in the budgeting process. B) Upper level management does not have to review budget estimates. C) Motivation to meet budget estimates is usually enhanced. D) All of the above.

C) Motivation to meet budget estimates is usually enhanced.

Which of the following represents the normal sequence in which the below budgets are prepared? A) Sales, Balance Sheet, Income Statement B) Balance Sheet, Sales, Income Statement C) Sales, Income Statement, Balance Sheet D) Income Statement, Sales, Balance Sheet

C) Sales, Income Statement, Balance Sheet

Which of the following is NOT an objective of the budgeting process? A) To communicate management's plans throughout the entire organization. B) To provide a means of allocating resources to those parts of the organization where they can be used most effectively. C) To ensure that the company continues to grow. D) To uncover potential bottlenecks before they occur.

C) To ensure that the company continues to grow.

All the following are considered to be benefits of participative budgeting, except for: A) Individuals at all organizational levels are recognized as being part of a team; this results in greater support for the organization. B) The budget estimates are prepared by those in directly involved in activities. C) When managers set their own targets for the budget, top management need not be concerned with the overall profitability of operations. D) Managers are held responsible for reaching their goals and cannot easily shift responsibility by blaming unrealistic goals set by others.

C) When managers set their own targets for the budget, top management need not be concerned with the overall profitability of operations.

The budget method that maintains a constant twelve month planning horizon by adding a new month on the end as the current month is completed is called: A) an operating budget. B) a capital budget. C) a continuous budget. D) a master budget.

C) a continuous budget.

Which of the following might be included as a disbursement on a cash budget? Depreciation on factory equipment//income taxes to be paid A) yes // yes B) yes // no C) no // yes D) no // no

C) no // yes

The direct labor budget is based on: A) the desired ending inventory of finished goods. B) the beginning inventory of finished goods. C) the required production for the period. D) the required materials purchases for the period.

C) the required production for the period.

Which of the following budgets are prepared before the production budget? Direct Materials budget // Sales budget A. yes//yes B. yes//no C. no//yes D. no//no

C. no//yes

For May, Young Company has budgeted its cash receipts at $125,000 and its cash disbursements at $138,000. The company's cash balance on May 1 is $17,000. If the desired May 31 cash balance is $20,000, then how much cash must the company borrow during the month (before considering any interest payments)? A) $4,000 B) $8,000 C) $12,000 D) $16,000

D) $16,000

Vandel 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 April. The variable selling and administrative expense is $9.70 per unit. The budgeted fixed selling and administrative expense is $127,380 per month, which includes depreciation of $8,580 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 April selling and administrative expense budget should be: A) $191,400 B) $118,800 C) $64,020 D) $182,820

D) $182,820

Thirty percent of Sharp Company's sales are for cash and 70% are on account. Sixty percent of the account sales are collected in the month of sale, 25% in the month following sale, and 12% in the second month following sale. The remainder is uncollectible. The following are budgeted sales data for the company: January: $50000 February: $60000 March: $40000 April: $30000 Total cash receipts in April are expected to be: A) $24,640 B) $35,200 C) $31,560 D) $33,640

D) $33,640

Cashan Corporation makes and sells a product called a Miniwarp. One Miniwarp requires 1.5 kilograms of the raw material Jurislon. Budgeted production of Miniwarps for the next five months is as follows: August: 24500 units September: 24700 units October: 26400 units November: 26400 units December: 24500 units The company wants to maintain monthly ending inventories of Jurislon equal to 30% of the following month's production needs. On July 31, this requirement was not met since only 10,400 kilograms of Jurislon were on hand. The cost of Jurislon is $4.00 per kilogram. The company wants to prepare a Direct Materials Purchase Budget for the next five months. The desired ending inventory of Jurislon for the month of September is: A) $29,640 B) $29,520 C) $44,460 D) $44,280

D) $44,280

Davey Corporation is preparing its Manufacturing Overhead Budget for the fourth quarter of the year. The budgeted variable factory overhead rate is $3.00 per direct labor-hour; the budgeted fixed factory overhead is $66,000 per month, of which $10,000 is factory depreciation. If the budgeted direct labor time for October is 6,000 hours, then the total budgeted factory overhead for October is: A) $28,000 B) $56,000 C) $74,000 D) $84,000

D) $84,000

Acmal Manufacturing Company is estimating the following raw material purchases for the last four months of the year: September: $850000 October: $900000 November: $810000 December: $780000 At Acmal, 25% of raw materials purchases are normally paid for in the month of purchase. The remaining 75% is paid for in the month following the purchase. How much cash should Acmal expect to pay out for raw material purchases during the month of November? A) $202,500 B) $832,500 C) $862,500 D) $877,500

D) $877,500

Harris, Inc., has budgeted sales in units for the next five months as follows: June: 9400 units July: 7800 units August: 7300 units September 5400 units October 4100 units Past experience has shown that the ending inventory for each month should be equal to 20% of the next month's sales in units. The inventory on May 31 contained 1,880 units. The company needs to prepare a production budget for the next five months. The beginning inventory for September should be: A) 820 units B) 1,880 units C) 1,460 units D) 1,080 units

D) 1,080 units

The Gerald Company makes and sells a single product called a Clop. Each Clop requires the use of 1.1 hours of direct labor time. The planned cost of direct labor time is $8.20 per hour. The direct labor workforce is fully adjusted each month to the required workload. The company wishes to prepare a Direct Labor Budget for the first quarter of the year. If the budgeted direct labor cost for February is $162,360, then the budeted production of Clops for February is: A) 23200 units B) 21000 units C) 19800 units D) 18000 units

D) 18000 units

Hamway Products, Inc. makes and sells a single product called a Wob. It takes two yards of material A to make one Wob. Budgeted production of Wobs for the next four months is as follows: April: 12000 units May: 13500 units June: 12400 units July: 11200 units The company wants to maintain monthly ending inventories of material A equal to 10% of the following month's production needs. On March 31 this target had not been met since only 1,500 yards of material A were on hand. The cost of material A is $.90 per yard. The desired ending inventory of material A for the month of June is A) 2480 yards B) 1120 yards C) 1870 yards D) 2240 yards

D) 2240 yards

Douglas Company plans to sell 24,000 units of Product A during July and 30,000 units during August. Sales of Product A during June were 25,000 units. Past experience has shown that end-of-month inventory should equal 3,000 units plus 30% of the next month's sales. On June 30 this requirement was met. Based on these data, how many units of Product A must be produced during the month of July? A) 28,800 B) 22,200 C) 24,000 D) 25,800

D) 25,800

Axsom Inc. bases its manufacturing overhead budget on budgeted direct labor-hours. The direct labor budget indicates that 1,300 direct labor-hours will be required in March. The variable overhead rate is $8.90 per direct labor-hour. The company's budgeted fixed manufacturing overhead is $20,020 per month, which includes depreciation of $2,600. All other fixed manufacturing overhead costs represent current cash flows. The company recomputes its predetermined overhead rate every month. The predetermined overhead rate for March should be: A) $24.30 B) $22.30 C) $8.90 D) $15.40

A) $24.30

Morie Corporation is working on its direct labor budget for the next two months. Each unit of output requires 0.75 direct labor-hours. The direct labor rate is $8.10 per direct labor-hour. The production budget calls for producing 2,000 units in March and 2,300 units in April. The company guarantees its direct labor workers a 40-hour paid work week. With the number of workers currently employed, that means that the company is committed to paying its direct labor work force for at least 1,760 hours in total each month even if there is not enough work to keep them busy. What would be the total combined direct labor cost for the two months? A) $28,512.00 B) $26,406.00 C) $28,228.50 D) $26,122.50

A) $28,512.00

Acmal Manufacturing Company is estimating the following raw material purchases for the last four months of the year: September: $850000 October: $900000 November: $810000 December: $780000 At Acmal, 25% of raw materials purchases are normally paid for in the month of purchase. The remaining 75% is paid for in the month following the purchase. In Acmal's budgeted balance sheet at December 31, at what amount will accounts payable be shown? A) $585,000 B) $607,500 C) $780,000 D) $802,500

A) $585,000

he Gerald Corporation makes and sells a single product called a Clop. Each Clop requires 1.1 direct labor-hours at $8.20 per direct labor-hour. The direct labor workforce is fully adjusted each month to the required workload. The company is preparing a Direct Labor Budget for the first quarter of the year. The budgeted direct labor cost per Clop is closest to: A) $9.02 B) $7.45 C) $9.76 D) $8.20

A) $9.02

On January 1, Colver Company has 6,500 units of Product A on hand. During the year, the company plans to sell 15,000 units of Product A, and plans to have 5,000 units on hand at year end. How many units of Product A must be produced during the year? A) 13,500 B) 16,500 C) 15,000 D) 20,000

A) 13,500

Sharp Company, a retailer, plans to sell 15,000 units of Product X during the month of August. If the company has 2,500 units on hand at the start of the month, and plans to have 2,000 units on hand at the end of the month, how many units of Product X must be purchased from the supplier during the month? A) 14,500 B) 15,500 C) 15,000 D) 17,000

A) 14,500

Parsons Corporation plans to sell 18,000 units during August. If the company has 5,500 units on hand at the start of the month, and plans to have 6,000 units on hand at the end of the month, how many units must be produced during the month? A) 18500 B) 17500 C) 24000 D) 19500

A) 18500

Which of the following is the cornerstone of the master budget? A) The Sales Budget B) The Production Budget C) The Budgeted Balance Sheet D) The Selling and Administrative Budget

A) The Sales Budget

Which of the following benefits could an organization reasonably expect from an effective budget program? Increased employee motivation // exposure of bottlenecks A) yes // yes B) yes // no C) no // yes D) no // no

A) yes // yes

Both variable and fixed manufacturing overhead costs are included in the selling and administrative expense budget. T/F

FALSE

Budgeting is a trade-off between planning and control in that increased use of budgeting will usually improve planning but will weaken control. T/F

FALSE

In zero-base budgeting, only changes from the prior budget must be justified. T/F

FALSE

One of the weaknesses of budgets is that they are of little value in uncovering potential bottlenecks in an organization. T/F

FALSE

The basic idea behind responsibility accounting is that top management is responsible for preparing detailed budgets by which the performance of middle and lower management will be evaluated. T/F

FALSE

The budgeted income statement is not one of the key schedules in the budget process. T/F

FALSE

The cash budget is the starting point in preparing the master budget. T/F

FALSE

The first budget a company prepares in a master budget is the production budget. T/F

FALSE

Uncollectible amounts on credit sales to customers will be listed as cash outflows on the schedule of expected cash collections. T/F

FALSE

When preparing a direct materials budget, beginning inventory for raw materials should be added to production needs, and desired ending inventory should be subtracted to determine the amount of raw materials to be purchased. T/F

FALSE

he first step in the budgeting process is the preparation of the cash budget, which is a detailed schedule showing the expected sales for the budget period. T/F

FALSE

A master budget consists of a number of seperate but independent budgets that formally lay out the company's sales, production, and financial goals. T/F

TRUE

Budgets are used to plan and to control operations. T/F

TRUE

In large organizations, the selling and administrative expense budget would be a compilation of many smaller, individual budgets submitted by department heads and other persons responsible for selling and administrative expenses. T/F

TRUE

On a cash budget, the total amount of budgeted cash payments for manufacturing overhead should not include any amounts for depreciation on factory equipment. T/F

TRUE

One of the advantages of a self-imposed budget is that the person directly involved in an activity is more likely to be in a position to make good budget estimates. T/F

TRUE

The manufacturing overhead budget provides a schedule of all costs of production other than direct materials and direct labor. T/F

TRUE

The number of units to be produced in a period can be determined by adding the expected sales to the desired ending inventory and then deducting the beginning inventory. T/F

TRUE

The sales budget is usually prepared before the production budget. T/F

TRUE

The sales budget often includes a schedule of expected cash collections. T/F

TRUE

Cashan Corporation makes and sells a product called a Miniwarp. One Miniwarp requires 1.5 kilograms of the raw material Jurislon. Budgeted production of Miniwarps for the next five months is as follows: August: 24500 units September: 24700 units October: 26400 units November: 26400 units December: 24500 units The company wants to maintain monthly ending inventories of Jurislon equal to 30% of the following month's production needs. On July 31, this requirement was not met since only 10,400 kilograms of Jurislon were on hand. The cost of Jurislon is $4.00 per kilogram. The company wants to prepare a Direct Materials Purchase Budget for the next five months. The total cost of Jurislon to be purchased in August is: A) $149,860 B) $252,400 C) $191,460 D) $147,000

A) $149,860

The Ellis Company has budgeted its activity for September according to the following information: Sales are budgeted at $392,000 and all sales are for cash. All purchases of merchandise inventory are for cash. Merchandise inventory was $150,000 on August 31 and the planned merchandise inventory on September 30 is $140,000. All merchandise is sold at 40% above cost. The selling and administrative expenses are budgeted at $92,000 for the month. All of these expenses are paid for in cash except for depreciation of $12,000. The budgeted net income for September is: A) $20,000 B) $143,200 C) $112,000 D) $64,800

A) $20,000

Hamway Products, Inc. makes and sells a single product called a Wob. It takes two yards of material A to make one Wob. Budgeted production of Wobs for the next four months is as follows: April: 12000 units May: 13500 units June: 12400 units July: 11200 units The company wants to maintain monthly ending inventories of material A equal to 10% of the following month's production needs. On March 31 this target had not been met since only 1,500 yards of material A were on hand. The cost of material A is $.90 per yard. The total cost of material A to be purchased in April is: A) $22,680 B) $24,750 C) $26,750 D) $26,780

A) $22,680