ACC 303 - Module 5

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? a) 160,000 bottles b) 175,000 bottles c) 195,000 bottles d) 215,000 bottles

$195,000 bottles ending inventory + production inventory - beginning inventory (150,000 bottles x 0.1) + 200,000 bottles - 20,000 bottles

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? a) $18,000 b) $30,000 c) $48,000 d) $50,000

$48,000 $90,000 - $30,000 - $12,000

What is the total amount of expected cash collections for the third quarter? a) $33,125 b) $33,750 c) $34,375 d) $38,125

c) $34,375 ((1,300 x .25) + (1,400 x .75)) x 25

What is the amount of budgeted sales revenue for the fourth quarter? a) 32,500 b) 33,750 c) $35,000 d) $37,500

a) $32,500 1,300 x $25 = $32,500

Which of the following is a major factor that should be taken into consideration while planning the desired level of inventories? a) Costs of carrying inventory. b) General administrative policy of the company. c) Selling price of the finished product. d) Statutory requirements.

a) Costs of carrying inventory.

Which of the following is not one of the reasons that organizations use budgets? a) Which of the following is not one of the reasons that organizations use budgets? b) Budgets communicate financial goals throughout the organization. c) Budgets evaluate and reward employees.

a) Which of the following is not one of the reasons that organizations use budgets?

Companies prepare direct labor budgets to ________. a) avoid labor shortages b) determine the direct labor-hours per unit c) ensure timely supply of raw materials d) reduce inventories

a) avoid labor shortages

For a production budget, the ______ is the beginning inventory for the year. a) beginning inventory for the first quarter b) beginning inventory for the last quarter c) ending inventory for the last quarter d) sum of beginning inventories for the four quarters

a) beginning inventory for the first quarter

In a budgeted income statement, _________ is subtracted from sales to arrive at gross margin. a) cost of goods sold b) interest expense c) selling and administrative expense d) depreciation expense

a) cost of goods sold

The value of the ending inventory is calculated by multiplying the number of units in ending inventory by the ________. a) unit product cost b) variable overhead cost per unit c) total overhead cost per unit d) the sum of the direct materials and direct labor cost per unit

a) 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? a) $80,000 b) $100,000 c) $150,000 d) $200,000

b) $100,000

Striker Company estimates its expected cash receipts for the period to be $80,000 and its expected cash disbursements to be $70,000. The beginning cash balance for the period was $5,000. The management wants to maintain a minimum cash balance of $40,000. How much cash will the company need to borrow? a) $15,000 b) $25,000 c) $30,000 d) $40,000

b) $25,000 $5,000 + $70,000 - $80,000 = $15,000 40,000 - $15,000 = $25,000

Perry, Incorporated desires to maintain the ending inventory of raw materials at 40 percent of the next quarter's raw material needs. What is the cost of raw materials to be purchased in the first quarter? a) $300,000 b) $320,000 c) $380,000 d) $400,000

b) $320,000 (60,000 + (.4 x 50,000) - 16,000) x 5

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? a) advertising expense b) depreciation expense c) selling commissions d) utilities expense

b) depreciation expense

In a direct materials budget, the desired ending raw materials inventory for the year is equal to the ________. a) beginning balance of accounts payable b) desired ending raw materials inventory for the last period c) total merchandise purchased during the year d) value of raw material used during the year

b) desired ending raw materials inventory for the last period

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 ________. a) budgeted sales revenue b) total budgeted cash disbursements for selling and administrative expenses c) total budgeted fixed selling and administrative expenses d) total budgeted variable selling and administrative expenses

b) total budgeted variable selling and administrative expenses

William Corporation has a contract with the labor union which guarantees its workers pay for at least 40,000 hours every quarter. Based on its direct labor budget for the current year, the company estimated it will need 39,000 direct labor-hours during the fourth quarter to produce 13,000 units of finished goods. Each unit requires 3 direct labor-hours (DLHs) and the cost of direct labor per hour is $12 per hour. What is the total direct labor cost for the fourth quarter? a) $432,000 b) $468,000 c) $480,000 d) $540,000

c) $480,000 Guaranteed labor hours of 40,000 per quarter means the minimum direct labor costs is $480,000.

What is the amount of cash that is expected to be collected during the second quarter as a result of sales made during the first quarter? a) $8,125 b) $8,750 c) $ 9,375 d) $28,125

c) $9,375 (1,500 x .25) x 25

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? a) 15,000 bottles b) 20,000 bottles c) 25,000 bottles d) 40,000 bottles

c) 25,000 bottles .1 x 250,000

Which of the following explains why operating budgets generally span a period of one year? a) Accounting regulations mandate that all operating budgets be prepared for one year. b) Operating budgets, by definition, are prepared for one-year periods. c) Companies choose a span of one year to correspond to their fiscal years. d) Operating budgets need to correspond with the calendar year.

c) Companies choose a span of one year to correspond to their fiscal years.

Which of the following is not a benefit of self-imposed budgets? a) 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. b) Budget estimates prepared by front-line managers are often more accurate and reliable. c) Lower-level managers are encouraged to create budgetary slack since they are more knowledgeable of day-to-day operations. d) Motivation is generally higher.

c) Lower-level managers are encouraged to create budgetary slack since they are more knowledgeable of day-to-day operations.

The purpose of preparing a direct materials budget is to ________. a) allocate the cost of raw materials to production departments b) estimate the manufacturing overhead c) estimate the quantity of raw materials to be purchased d) estimate the unit cost of direct materials to be purchased

d) estimate the unit cost of direct materials to be purchased

The budgeting process begins with the preparation of the ______ budget. a) cash b) direct materials c) production d) sales

d) sales

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 (DLHs) and the cost of direct labor per hour is $18. What would be the total direct labor cost for the fourth quarter? a) 355,000 b) $360,000 c) $300,000 d) $315,000

d) $315,000 (35,000 x 0.5) x 18

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? a) $20,000 b) $26,000 c) $32,000 d) $40,000

d) $40,000 $4,000 + $16,000 + $12,000 + $8,000

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. What is the budgeted variable manufacturing overhead for the year? a) $200,000 b) $260,000 c) $280,000 d) $400,000

d) $400,000 (35,000 + 20,000 + 15,000 + 30,000) x 4

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. What is the predetermined overhead rate for the year? a) $2 per machine hour b) $4 per machine hour c) $5 per machine hour d) $6 per machine hour

d) $6 per machine hour predetermined overhead rate = total manufacturing overhead / total activity level ($400,000 + (50,000 x 4)) / (35,000 + 20,000 + 15,000 + 30,000)