Ch 23 Accounting 281
Scott Corporation's production budget for the upcoming quarter reveals total manufacturing costs of $700,000 (average of $25 per unit). The company's beginning finished goods inventory is $6,000 and its budgeted ending finished goods inventory is 500 units. The company's budgeted cost of goods sold for the upcoming quarter is $
$693,500 6,000 beginning finished goods inventory + 700,000 cost of goods manufactured - 12,500 budgeted ending finished goods inventory = 693,500
Baxter Corporation made the following budget cost estimates for the upcoming months: Direct labor = $30 per unit Direct Materials = $50 per unit Variable manufacturing overhead = $20 per unit Variable selling and administrative costs = $15 per unit Fixed manufacturing overhead = $300,000 per month Fixed selling and administrative costs = $450,000 The variable costs necessary to prepare a production budget total $_______ per unit The fixed costs necessary to prepare a production budget total $___________ per month
Variable cost per unit $100 30 + 50 + 20 = 100 Fixed costs per month $300,000
The master budget may be comprised of: a) the production budget b) the current period income statement c) the current period balance sheet d) the current period statement of cash flows
a) the production budget
Being profit rich, yet cash poor is often attributed to a) expenses exceeding revenue b) rapid growth c) operating cash flow outpacing revenue d) sluggish growth
b) rapid growth
A selling and administrative expense budget reports only fixed selling and administrative costs true/false
falase
A budget prepared using the total quality management approach is always achievable by departments within a company true/false
false
A ________________ __________________ is one that can be adjusted easily to show budgeted revenue, costs, and cash flow at different levels of activity
flexible budget
The budgeting process is often referred to as financial _____________ beacuse of its forward-looking focus
forcasting
When preparing a budgeted balance sheet, the source of the account information required from the master budget for income taxes payable
income tax budget
Budgets provide a yardstick by which management's _______________ can be measured and evaluated
performance
When preparing a budgeted balance sheet, the source of the account information required from the master budget for prepayments
prepayments budget
Elements of a master budget that are organized by responsibility center are generally referred to as _______________ budgets
responsibility
Most organizations use a(n) _____________ budget approach, whereby a new quarter or month is added to the end of the budget as the current quarter or month draws to a close
rolling
A budget provides a comprehensive plan enabling multiple departments to work together in a coordinated manner. true/false
true
A company's operating cycle is the time between purchases of direct materials and conversion of these materials back into cash true/false
true
Smith Corporation's budgeted production for the upcoming quarter is 60,000 units. Each unit produced is expected to require 1.25 direct labor hours, and its variable overhead application rate is $10 per direct labor hour. At this budgeted level of output, the company's average fixed manufacturing cost is $5 per unit. The company's total budgeted overhead for the upcoming quarter is $
$1,050,000 60,000 x 1.25 x 10 = 750,000 variable manufacturing overhead 60,000 x 5 = 300.000 fixed manufacturing overhead 750,000 + 300,000 = 1,050,000 total budgeted overhead
Dyer Corporation's budgeted production for the upcoming quarter is 15,000 units. Each unit requires 5 pounds of material costing $20 per pound. The company's beginning materials inventory is 15,000 pounds, and it desires 10,000 pounds of material at the end of the upcoming quarter. The company's budgeted cost of material purchases is $
$1,400,000 (15,000 units x 5 pounds) + 10,000 pounds - 15,000 pounds = 70,000 pounds 70,000 pounds x 20 = 1,400,000
Guthrie Corporation's budgeted sales for the upcoming quarter are 90,000 units. The company desires 18,000 units of inventory at the end of the upcoming quarter, and its beginning inventory is 8,000 units. Each unit that the company produces requires 0.1 direct labor hours at an average rate of $15 per hour. The company's direct labor budget for the upcoming quarter is $
$150,000 90,000 + 18,000 - 8,000 = 100,000 units of production 100,000 x 0.1 x 15 = 150,000
Hamline Corporation uses a flexible budgeting process. Its budgeted variable manufacturing costs for direct labor, direct materials and variable overhead total $60 per unit, and its fixed manufacturing overhead costs are budgeted at $50,000 per month. At its normal level of budgeted production of 2,000 units per month, its budgeted manufacturing costs total $170,000 ((2,000 units + $60 per unit) + 50,000). In the most recent month, the company produced 1,800 units at a total manufacturing cost of $165,000. The company's budgeted total month cost to produce 1,800 units is $ In the current month, the company was over budget by $
$158,000 50,000 + (60 x 1800) = 158.000 $7,000 165,000 - 158.000 = 7,000 over budget
A company's accounts receivable balance at the beginning of the current year is $100,000. The company's sales budgets for the upcoming first and second quarters report credit sales of $500,000 and $700,000, respectively. Budgeted collections on account in the first and second quarter are estiated at $450,000 and $650,000 respectively. The company's budgeted accounts receivable balance at the end of the second quarter is $
$200,000 100,000 + 500,000 + 700,000 - 450,000 - 650,000 = 200,000
Holland corporations budgeted sales for the upcoming quarter are $500,000. Its supporting budgets and schedules show a beginning finished goods inventory of $20,000, budgeted cost of goods manufactured of $250,000, and a projected ending finished goods inventory of $30,000. Its selling and administrative budget projects expenses of $170,000, its budgeted interest expense is $5,000, and its tax rate averages 40%. The company's budgeted gross profit for the upcoming quarter is $
260,000 20,000 beginning finished goods inventory + 250,000 cost of goods manufactured - 30,000 ending finished goods inventory =$240,000 500,000 sales - 240,000 cost of goods sold - 260,000
A company's cycle time is 90 days. Inventories remain on-hand twice as long before being sold as accounts receivable remain outstanding before being collected. The average time accounts receivable remain outstanding before being collected
30 days
Which of the following costs are considered variable selling expenses? a) sales commissions b) shipping and delivery costs c) variable manufacturing overhead d) sales salaries
a and b
Flexible budgeting may be viewed as combining the concepts of budgeting with cost-volume-profit analysis true/false
true
If the behavioral approach is employed to determine the levels at which budgeted amounts are set, then reasonable and achievable levels should be used true/false
true
If the total quality management approach is employed to determine the level at which budgeted amounts are set, then absolute efficiency is assumed true/false
true
In preparing a master budget, budgeted levels for production, manufacturing costs and operating expenses normally are determined after preparing the sales forecast true/false
true
The preparation of a budgeted balance sheet requires consideration of the budgeted capital expenditures and budgeted net income true/false
true
The selling and administrative expense budget is indirectly reflected in the budgeted balance sheet through the following accounts: Cash, Retained Earnings, Prepayments and Other Current Payables true/false
true
Scott Corporation's production budget for the upcoming quarter reveals total manufacturing costs of $700,000 (average of $25 per unit). The company's beginning finished goods inventory is $6,000 and its budgeted ending finished goods inventory is 500 units. The company's budgeted ending finished goods inventory for the upcoming quarter is $
$12,500 500 x 25 = 12,500
Filmont Manufacturing desires inventory of 15,000 tires at the end of the upcoming quarter. Its beginning inventory is 6,000 units, and its budgeted production is 59,000 units. The company's budgeted sales for the upcoming quarter are _____________ units
50,000 59,000 + 6,000 - 15,000 = 50,000 units
A company's cycle time is 90 days. Inventories remain on-hand twice as long before being sold as accounts receivable remain outstanding before being collected. The average time inventory remains on-hand being sold is:
60 days x=accounts receivable days 2x = inventory days x + 2x = 90 days 3x = 90 days x = 30 days 2x = 60 days
Holland corporations budgeted sales for the upcoming quarter are $500,000. Its supporting budgets and schedules show a beginning finished goods inventory of $20,000, budgeted cost of goods manufactured of $250,000, and a projected ending finished goods inventory of $30,000. Its selling and administrative budget projects expenses of $170,000, its budgeted interest expense is $5,000, and its tax rate averages 40%. The company's budgeted income before taxes for the upcoming quarter is $
85,000 260,000 gross profit - 170,000 - 5,000 = 85,000
Which of the following statements about budgeted income taxes is/are true? a) if a beginning tax liability exceeds the ending liability, tax payments during the period exceeded tax expenses b) if an ending tax liability exceeds the beginning liability, tax payments during the period exceed tax expenses c) if a beginning tax liability exceeds the ending liability, tax expenses during the period exceeded tax payments d) if an ending tax liability exceeds the beginning liability, tax expenses during the period exceeded tax payments
a and d
Which of the following statements is/are true about budgets? a) budgets play an important role in controlling costs b) budgeting is of little significance to small businesses c) budgeting is an essential step in financial planning d) budgets are formal written plans for achieving financial goals
a, c and d
Which of the following manufacturing cost estimates are necessary to prepare a production budget a) direct labor costs b) fixed manufacturing overhead c) direct material costs d) selling and administrative costs e) variable manufacturing overhead
all except selling and administrative costs
Which of the following costs and expenses are NOT financed with payables in the current period? a) direct labor costs b) depreciation expense c) administrative salaries d) direct materials costs e) the expiration of prepayments
b and e
Which element of a master budget would normally be prepared last? a) a cash budget b) a budgeted balance sheet c) a budgeted income statement d) a production budget
b) a budgeted balance sheet
Which of the following is not a benefit of a careful and thorough budgeting process? a) budgeting increases management's awareness of the company's external economic environment b) budgeted net income assures the company of operating profitably c) the budget may provide advance warning of pending problems d) budgets provide a yardstick for evaluating future performance
b) budgeted net income assures the company of operating profitably
Which of the following statements is/are true regarding prepayments for items such as rent and insurance? a) prepayments represent operating cash outflows that have an immediate effect on operating income b) prepayments represent operating cash outflows that have no immediate effect on operating income c) prepayments have an immediate effect on operating income but no immediate effect on operating cash flow d) payments have no immediate effect on operating cash flow or on operating income
b) prepayments represent operating cash outflows that have no immediate effect on operating income
When preparing a budgeted balance sheet, the source of the account information required from the master budget for accounts receivable is
budgeted accounts receivable and collections budget
As the volume of output increases: a) variable costs per unit will increase b) variable costs per unit will decrease c) variable costs per unit will not change d) variable costs in total will decrease
c) variable costs per unit will not change
A cash budget determines the maximum amount of money that can be spent during the period true/false
false
A flexible budget allows management to spend more or less for labor and materials without regard to the amount of production true/false
false
A performance report can be easily adjusted to show budgeted revenues and costs at different levels of activity true/false
false
Because a budget is merely a forecast of future events, its benefits are extremely narrow and limited true/false
false
Cash budget estimates are identical to operating budget estimates true/false
false
The operating cycle is the average time required to manufacture products for sale true/false
false
The total quality management approach to budgeting sets budgeted amounts at levels that can be achieved through reasonably efficient operatioins true/false
false
The typical starting point of a master budget would be to prepare a budgeted balance sheet true/false
false
Under the "total quality management" philosophy, budgeted amounts should be set at realistic and achievable levels rather than at levels representing absolute efficiency true/false
false
Elements of a master budget that are internal working budgets used primarily by managers, such as sales budgets and production budgets, are commonly referred to as _________________ budgets
operating
A debt service budget reports anticipated payments of debt _______________ plus accrued _______________
principal, interest
When preparing a budgeted balance sheet, the source of the account information required from the master budget for direct materials inventory
production budget (direct materials schedule)
A common means of performance evaluation occurs by comparing budgeted amounts with actual amounts true/false
true
A company that is profitable may not have sufficient cash on hand to meet its immediate needs true/false
true
A master budget actually includes a number of related budgets true/false
true
A master budget is a comprehensive financial plan setting forth the financial and operational goals of a business true/false
true
Eskola Corporation's budgeted production for the upcoming quarter is 40,000 units. Each unit requires 6 gallons of material costing $15 per gallon. The company's beginning materials inventory is 14,000 gallons, and it desires 12,000 gallons of material at the end of the upcoming quarter. The company's budgeted cost of material purchases is $
$3,570,000 (40,000 units x 6 gallons) + 12,000 gallons - 14,000 gallons = 238,000 gallons 238,000 gallons x 15 = 3,570,000
A company has $30,000 of debt outstanding. In the upcoming quarter,it budgets a total debt service cost associated with this obligation of $2,100. The annual interest rate on this debt is 8%. Of the company's total debt service budget, the amount allocated to debt principal payments is $
$1,500 8%/4 = 2% quarterly interest $2,100 - (30,000 x 2%) = 1,500
When preparing a budgeted balance sheet, the source of the account information required from the master budget for cash is
cash budget
When preparing a budgeted balance sheet, the source of the account information required from the master budget for other payables
current payables budget
Flexible budgeting may be used for profit centers by applying cost-volume-profit relationships to the actual level of: a) units produced b) resources consumed c) costs incurred d) sales achieved
d) sales achieved
When preparing a budgeted balance sheet, the source of the account information required from the master budget for notes payable
debt service budget
Holland corporations budgeted sales for the upcoming quarter are $500,000. Its supporting budgets and schedules show a beginning finished goods inventory of $20,000, budgeted cost of goods manufactured of $250,000, and a projected ending finished goods inventory of $30,000. Its selling and administrative budget projects expenses of $170,000, its budgeted interest expense is $5,000, and its tax rate averages 40%. The company's budgeted income taxes for the upcoming quarter is $
$34,000 85,000 income before tax x 40% = 34,000
Holland corporations budgeted sales for the upcoming quarter are $500,000. Its supporting budgets and schedules show a beginning finished goods inventory of $20,000, budgeted cost of goods manufactured of $250,000, and a projected ending finished goods inventory of $30,000. Its selling and administrative budget projects expenses of $170,000, its budgeted interest expense is $5,000, and its tax rate averages 40%. The company's budgeted net income for the upcoming quarter is $
$51,000 85,000 - 34,000 = 51,000
Swift Corporation's budgeted sales for the upcoming quarter are 100,000 units. The company desires 5,000 units of inventory at the end of the upcoming quarter, and its beginning inventory is 10,000 units. Each unit that the company produces requires .25 direct labor hours at an average rate of $24 per hour. The company's direct labor budget for the upcoming quarter is $
$570,000 100,000 + 5,000 - 10,000 = 95,000 units of production 95,000 x .25 x 24 = 570,000
Sebeka Corporation's current payables total $200,000. Its manufacturing cost projections for material, labor, and overhead for the upcoming quarter total $700,000, and its selling and administrative costs are budgeted at $300,000. Of its total cost and expense projections, $175,000 pertaining to depreciation, and $30,000 pertain to prepayments converting into expenses. After careful analysis, the company estimates that payables outstanding at the end of the upcoming quarter will total $145,000. The company's budgeted cash payments on current payables in the upcoming quarter total $
$850,000 200,000 beginning payables + 700,000 manufacturing costs + 300,000 S&A costs - 175,000 depreciation - 30,000 prepayment conversions - 145,000 ending payables = 850,000
A company has $400,000 of debt outstanding. In the upcoming quarter,, it budgets a total debt service cost associated with this obligation of $25,000. Of this amount, $15,000 applies to principal payments. The annual percentage rate associated with interest on this obligation is ____________
10% 25,000 - 15,000 = 10,000 interest 10,000/25,000 = 2.5% quarterly 2.5 x 4 = 10% annually
Which of the following elements of a master budget flow(s) directly into a cash budget? a) current payables budget b) selling and administrative budget c) prepayments budget d) debt service budget e) income tax budget
all except b
Which of the following estimates are included in a cash budget? a) budgeted payables distributions b) budgeted debt service payments c) budgeted prepayments d) budgeted selling and administrative expenses e) budgeted tax payments
all except d
Which of the following budgets are typically considered financial budgets? a) selling and administrative expense budgets b) budgeted income statements c) sales budgets d) production budgets e) budgeted balance sheets
b and e
Waterede Corporation has budgeted a total of $361,800 in costs and expenses for the upcoming quarter. Of this amount, $45,000 represents depreciation expense and $7,300 represents the expiration of prepayments. Wateredge's current payables balance is $265,000 at the beginning of the quarter. Budgeted payments on current payables for the quarter amount to $370,000. The company's estimated current payables balance at the end of the quarter is: a) $179,500 b) $204,500 c) $203,500 d) $310,000
b) $204,500 265,000 + 361,800 - 45,000 - 7,300 - 370,000 = 204,500
Preparation of a budgeted income statement does not require: a) estimates of cost of goods sold b) estimates of the timing of cash receipts and payments c) preparation of sales forecast d) anticipation of operating expenses
b) estimates of the timing of cash receipts and payments
Which philosophy in setting budgeted amounts assumes both the complete elimination of inefficiencies and a level of absolute efficiency? a) the behavioral approach b) the total quality management approach c) the strategic approach d) the master budget approach
b) the total quality management approach
The two prevailing philosophies for establishing budgetary amounts are the _______________ and the ______________ _______________ _____________ approach
behavioral and total quality management
When preparing a budgeted balance sheet, the source of the account information required from the master budget for finished goods inventory
budgeted cost of goods manufactured and sold budget
When preparing a budgeted balance sheet, the source of the account information required from the master budget for retained earnings
budgeted income statement
Mentha Company currently has the following statistics: Days in inventory - 80 Days in accounts receivable - 68 What is Mentha's operating cycle? a) 80 days b) 68 days c) 148 days d) cannot be determined from the information given
c) 148 days
Which of the following is a major component of a master budget? a) a production throughput schedule b) a machinery maintenance schedule c) a cash budget d) an employee training budget
c) a cash budget
Which of the budgeted financial statements is generally prepared last? a) budgeted income statement b) cost of goods sold budget c) budgeted balance sheet d) cash balance
c) budgeted balance sheet
Flexible budgets an be prepared for sales budgets but not for production budgets true/false
false
If a budget is to provide a basis for evaluating departmental performance, departmental managers should not know what their budget targets are until after the budget period has ended true/false
false
In a flexible budget, both variable and fixed costs will vary with the level of activity true/false
false
In a master budget, the sales forecast would be dependent upon the budgeted production figures true/false
false
Once a company determines its desired production level, it uses that estimated production level to forecast sales for the period true/false
false
The behavioral approach to budgeting has as its goal the complete elimination of inefficiency true/false
false
