CMA Review Part 1 Section B

Most likely reason budget was not followed closely:

- budget not accepted by lower level mgrs bc they felt it was unfair

Excess inventory:

- consumes large warehouse space - additional costs until use or sale of inventory, ex storage - increased risk of inventory obsolescence - using the company's funds

Sales budget

- cornerstone of entire budget - firm attains its desired goals thru the sales budget - almost all activities of the firm emanate from efforts to attain sales goals and growth - an inaccurate sales forecast can render entire budget futile and imposes costly expenses to the company and suppliers

Sales budget should consider:

- current sales levels and sales trends for the past few years - general economic and industry conditions - competitors' actions and operating plans - pricing policies - credit policies - advertising and promotional activities - unfilled back orders

Effects of stock outs

- disappointed customers and lost sales to competitors - rush production, high overtime costs, more errors, and rush shipments of orders

3 components of the sales budget

- forecasted sales volume - budgeted sales price - forecasted sales mix

The budgeting process should include:

- form budget committee - determine budget period - specify budget guidelines - prepare initial budget proposal - budget negotiation - review and approval - budget revisions

Which of the following is an internal factor that should be analyzed during the strategic planning process?

- internal processes and capabilities The ability of a tax return company to prepare returns that are error-free and on-time

Reasons to use practical instead of theoretical standards

- machines need downtime for repairs - workers need downtime for rest - set up time for new production runs - machine breakdown and materials damage - operator errors

Which of the following statements correctly describes a disadvantage of using a flexible budgeting system?

Flexible budgeting can only be used for control purposes; it can't be used for planning

Sufficient lead time is critical bc

budgets take months to prepare

At the start of 20x8 the Nicholas Company forecasts sales for the next eight quarters as follows: $200,000, $250,000, $260,000, $280,000, $210,000, $270,000, $290,000, and $300,000. Sales in the first quarter of 20x8 totaled $220,000. Based on this, Nicholas revises sales estimates as follows (starting with Q2 of 20x8): $260,000, $275,000, $290,000, $230,000, $290,000, $310,000, $320,000, and $250,000. If Nicholas uses continuous or rolling budgeting, what will be the new annual budgeted sales figure (as of the beginning of Q2 of 20x8)?

$1,055,000

Malloy Metals has the following overhead costs per quarter: Variable CostsIndirect materials$1.20/hourIndirect labor$1.60/hourUtilities$0.25/hourMaintenance$0.15/hourFixed CostsSupervisory salaries$15,000Depreciation$2,400Property taxes/insurance$6,500Maintenance$4,700 If Malloy expects to have 4,000 labor hours in the first quarter, 4,500 in the second quarter, 5,000 in the third quarter, and 5,500 in the fourth quarter, what will their total manufacturing overhead budget be?

$175,200 (convert quarterly fixed costs to annual)

The Wolf Company gathers the following information on actual spending in 20x7 and likely spending in 20x8 for three projects: Project20x7 Actual Spending20x8 Expected SpendingEvaluationProduct Installation$75,000$88,000Many customers buy from Wolf because of installation serviceIn-Store Product Demonstrations$50,000$60,000Many customers buy products after seeing them demonstratedTuition Reimbursement$60,000$75,000Wolf has found this to be an attractive recruiting toolSubsidies to Reduce Employee Food Costs in Cafeteria$30,000$24,000Many employees bring their own lunches to work If Wolf practices zero-based budgeting, what would be the total budget for these projects in 20x8?

$223k

Under which of the following circumstances will relying on historical costs provide faulty results?

- When historical data does not take into account the impact of new technologies. - historical data can perpetuate past inefficiencies

Krouse Company is in the process of developing its operating budget for the coming year. Given below are selected data regarding the company's two products, laminated putter heads and forged putter heads, sold through specialty golf shops. Manufacturing overhead is applied to units produced on the basis of direct labor hours. Variable manufacturing overhead is projected to be $25,000, and fixed manufacturing overhead is expected to be $15,000. The estimated cost to produce one unit of the laminated putter head is:

$52 total DL hours = 1/4 * 8200 + 1 * 2k = 4050 total mfg OH = 25k + 1k = 40k / 4050 DL hours = $10 per DL hour predetermined application rate

Isle Industries' budget for the upcoming quarter is as follows: AprilMayJuneSales$46,000$59,000$55,000Direct Material Purchases30,00035,00033,500Direct Labor Costs15,00018,00017,250Variable Overhead Costs8,00011,0009,500 Half of Isle's sales are cash and half are credit. Credit sales are collected 60% in the month of sale and 35% in the following month; 5% are uncollectible. Isle buys 75% of its direct materials on credit and the rest with cash. Credit purchases are paid 60% in the month of purchase and 40% in the following month. Direct labor costs are paid 85% in the month incurred and 15% in the following month. Variable overhead costs are paid in the month following incurrence. What will Isle report as its total budgeted cash disbursements for May?

$59,050

The LCF Company's actual 20x7 balance sheet and pro forma 20x8 balance sheet are below. In addition, 20x8 pro forma net income is projected to be $1,000, depreciation expense is expected to be $100 in 20x8, no debt will be repaid in 20x8, and no stock will be issued in 20x8. Based on this, what would be the cash flow from investing activities on LCF's 20x8 pro forma statement of cash flows? 20x7(Actual)20x8 (Pro Forma)Cash$ 500$ 800Accounts receivable2,2002,400Inventory2,8003,300Net fixed assets5,0005,500Total Assets$10,500$12,000Accounts payable$1,200$1,600Other accruals1,6002,100Long-term debt3,0003,400Common equity4,7004,900Total Liabilities & Equity$10,500$12,000

$600 outflow

If a firm's desired ending direct materials (DM) inventory is 20% of the upcoming month's DM usage, and assuming no change in DM cost, then all of the following statements are correct

- When sales are rising each month, the DM purchases budget will be increasing each month. - When sales are rising each month, the DM purchases budget will be greater than the DM usage budget.

Aspects of Successful Budgets:

- acceptance and support by all managers and employees - personalized budget for people responsible for carrying it out - perceived as a planning and coordinating tool (NOT pressure or punishment device) - motivating device to work towards corp goals - always has technically correct and reasonably accurate numbers (so as not to be ignored or rendered useless wo confidence of employees)

Tip-Top Cleaning Supply carries a large number of different items in its inventory, giving the firm a competitive advantage in its industry. Below is part of Tip-Top's budget for the first quarter of next year. Historically, all of the sales are on account and are made evenly over the quarter. 5% of all sales are determined to be uncollectible and written off. The balance of the receivables is collected in 50 days. This sales and collection experience is expected to continue in the first quarter. The projected balance sheet for the first day of the quarter includes the following account balances: How much cash can Tip-Top anticipate collecting in the first quarter (based on a 90-day quarter)?

$811k 95% * 855k = 812250 * (90-50)/90 = this months sales collectible this month 361k + beg AR collectible in the first 50 days = 450k = 811k

Budget committee

- oversees all budget matters and usually includes at least one senior manager - issues budget guidelines based on plans emanating from reviews of firm's strategy, external and internal factors, goals and objectives for the budget period, and experience gained from implementing current budget - either budget committee or CEO gives final approval of the budget

Authoritative standards:

- resented more by employees - established more quickly - do not improve employee motivation - more closely matched to company goals

Budgets used to calc net operating income

- sales budget - cogs budget - selling and admin expense budget

Selling and admin expense budget:

- should be detailed to determine relevant line items - detail provides more enhanced communication of goals, coordination of actions, and control of activities

Ways to Reduce Incidence of Budgetary Slack

- using different budgets for planning and evaluation - giving rewards for accurate as well as high budgets - using additional evaluation measures besides just meeting/beating the budget - have managers learn more about subordinates' day-to-day work - using external benchmark performance measures

Although not limited to these, what major areas are usually examined when conducting environmental scanning?

--- sources: - sustainability - economic - regulatory

Budget preparation process

1. establish budget committee 2. determine budget period and specific guidelines 2. initial proposal 3. negotiation, review, and approval 5. revision

A manufacturing company required 800 direct labor hours to produce the first lot of four units of a new motor. Management believes that a 90% learning curve will be experienced over the next four lots of production. How many direct labor hours will be required to manufacture the next12 units?

1792

Daffy Tunes manufactures an animated rabbit with moving parts and a built-in voice box. Projected sales in units are: Each rabbit requires basic materials that Daffy purchases from a single supplier at $3.50 per rabbit. Voice boxes are purchased from another supplier at $1.00 each. Assembly labor cost is $2.00 per rabbit and variable overhead cost is $0.50 per rabbit. Fixed manufacturing overhead applicable to rabbit production is $12,000 per month. Daffy's policy is to manufacture 1.5 times the coming month's projected sales every othermonth starting with January (i.e., odd-numbered months) for February sales, and to manufacture 0.5 times the coming month's projected sales in alternate months (i.e., even-numbered months). This allows Daffy to allocate limited manufacturing resources to other products as needed during the even-numbered months. The unit production budget for animated rabbits for January is:

54k

Martin Fabricating uses a cumulative average-time learning curve model to monitor labor costs. Data regarding two recently completed batches of a part that is used in tractor-trailer rigs is as follows: If the same rate of learning continues for the next several batches produced, which of the following best describes (1) the type (i.e., degree) of learning curve that the firm is experiencing and (2) the average hours per unit for units included in the 201-400 range of units produced (i.e., the last 200 units)?

80% learning curve; 7.68 avg hours per unit

Which of the following statements correctly defines a flexible budget system?

A budgeting system used to show the budget that would have been prepared if the organization knew in advance what its actual sales would be.

Which of the following is true of activity-based budgeting (ABB)?

ABB uses both traditional volume-based and activity-based cost drivers; fixed and variable costs are kept in separate cost pools.

Expected Value Analysis

Advantage: applies objectivity to uncertain situations Disadvantage: measures "average" outcome of a situation

Learning Curve Analysis

Advantage: assumes efficiency improvements greater when production begins then rate of improvement decreases until it levels off (realistic) Disadvantage: assumes all improvements are due to employee learning (ignores labor mix, improved machinery, better quality materials)

Which of the following statements correctly explains the relationship between the cash budget, the capital expenditure budget, and the pro forma statement of cash flows?

All of the cash flows used to prepare the pro forma statement of cash flows are used to prepare the cash budget.

Measures production efficiency

COGS

In developing the budget for the next year, which one of the following approaches would most likely result in a successful budget with the greatest amount of positive motivation and goal congruence?

Divisional and senior level mgrs jointly develop goals then the divisional mgr develop the implementation plan

Myers Company uses a calendar-year and prepares a cash budget for each month of the year. Which one of the following items should be considered when developing July's cash budget?

Federal income tax and social security tax withheld from employee's June paychecks to be remitted to the Internal Revenue Service in July. (only cash receipts and disbursements for that month)

"A higher authority, other than the team that developed a budget, must review and approve the budget." How does this contribute to a successful budget?

Higher authorities will be able to identify flaws and discrepancies in a budget. (NOT higher authorities will be able to enforce the budget more effectively)

A company's management representative consults the production manager to set the standards for the upcoming quarter. The manager gives him the following information: The defective unit rate per worker per day is 2 out of 10 units. The actual daily production is 10 units per worker. The production department operates for 40 hours in a week with workers working 8 hours each day. The management representative includes the following in the quarterly budget: Monthly production target per worker is 200 units with nil defective units. The defective unit rate per worker per day is nil. The board of directors disapproved the budget stating it to be unattainable. Under which of the following situations can the given budget be achieved?

Ideal budgets can only be achieved by the most efficient and skilled workers at their best efficiency all of the time

Which of the following budgets is based more on planned future operating practices than on current practices?

Kaizen budgeting

Which of the following is a benefit of linear regression analysis?

Linear regression analysis can be used to help predict costs at various levels of output.

Which of the following two organizational strategy types compete with each other on a head-to-head basis?

Product differentiation vs. product differentiation

Preparation of a project budget is similar to

preparation of the master budget

Which of the following would effectively commit responsibility center managers to the company strategy in a top-down environment?

The CEO sends a memo to each manager with specific instructions on forming their budgets. (even in top-down environment, mgrs still make their own budget proposals)

Disadvantage of zero-based budget

The annual review needed to implement a zero-based budgeting system can be very time consuming and expensive.

Rainer Enterprises has conducted a SWOT (strengths, weaknesses, opportunities, and threats) analysis to determine its business strategy. After studying the weighted average of the results of the analysis, one of the partners, Miranda Swift, believes that the firm should invest in exploiting market attractiveness instead of focusing on building business strength. Which of the following data, if true, suggests that Swift's conclusion is flawed?

The calculated weighted average for market attractiveness is 4.8 and the calculated weighted average for business strength is 1.9.

Enscribe Inc. is a small firm that provides specialized, industry-oriented articles and features to medical publications. Founded and run by a team of physicians, Enscribe is a highly respected vendor in the market and has a dominant market share. However, the firm's market currently is undergoing a rapid expansion owing to a proliferation of online medical Websites. The chief executive officer of Enscribe—Dr. Elliot—sees this as a massive opportunity for the firm. However, the chief editor—Dr. Cruz—believes that this development is a threat. Which of the following, if true, would strengthen Dr. Cruz's conclusion?

The firm has always struggled to find good quality new hires

Francisco Corp. is in the business of manufacturing plastic bottles. In the current quarter, $100,000 was provided for materials procurement and 10,000 bottles were produced against a budgeted production of 8,500 bottles. However, the extra production of 1,500 bottles had to be sold immediately at a price lower than the market price. Identify the most likely flaw in the budget prepared by Francisco Corp. which led to a sale at lower prices.

The sale price was overestimated. The storage capacity required was underestimated.

Which of the following statements concerning establishing standards is true?

Using historical data to establish standards is typically less accurate than using activity analysis to establish them.

Nathan is working on the operating budgets for his company. He has already done the sales and production budgets, and he is now working on the direct materials, direct labor, and manufacturing overhead budgets. He decides to do the direct labor budget first, then the manufacturing overhead budget, then the direct materials budget. Do you think this is an appropriate way to prepare the budgets? Why or why not?

Yes, because the manufacturing overhead budget depends on the direct labor budget, but none of the other budgets depend on the direct materials budget.

Actual cost with anticipated scrap cost = (aka Expected Cost)

[(price per unit / %expected to pass the test) * total # of units] + [DL scrap cost per unit * total #units*(1 - %expected to pass)]

--- places emphasis on teamwork, synchronized activity, and customer satisfaction

activity based budgeting

When can variances be used?

at the end of accounting period OR during accounting period to assess performance (making changes during the period is preferred to waiting til it's too late to improve performance at the end)

Which of the following industries faces the least threat of competition and profitability harm from the entry of a new competitor?

automobile industry bc high entry barriers in this industry

Disadvantage of master budget system

based on set of assumptions that may not come true

Standards based on targeted performance

can provide motivation to achieve targets

Standards based on expected performance

can result in the most accurate forecasts

What is the most effective approach to a budgeting process:

combination approach (mix of top-down authoritative and bottom-up participative)

A company wants to develop a budget that is suitable to use to plan activities in an industry where technology advances occur rapidly. Which budgeting system would be the most appropriate system to use for this purpose?

continuous or rolling budget system

The production manager of Eileen Corp. is responsible for determining the standard cost for direct materials during budget preparation. For ascertaining the supply chain costs he always selects the lowest-cost vendor. How will this affect the general cost behavior?

costs will vary each year

Mfg OH budget

details expected spending for fixed and variable manufacturing overhead for a period

Selling and admin expense budget

details expected spending on non-manufacturing items

Direct Labor budget

details the expected hours of manufacturing direct labor required for a period and the expected amount to be paid for manufacturing direct labor in a period.

Rolling budget process

establishes the budget for a period of time and then steps the budget forward at the end of each operating period.

Regression analysis:

estimates the dependent cost variable.

How can stakeholder analysis be linked to strategic planning?

helps organization frame its corporate social responsibility

Market attractiveness

how likely others are to enter the market

Activity analysis to establish standards

involves analyzing the steps in a process to determine the average time needed to perform the activity.

Long-range planning

is used to review progress rather than as a basis for control.

Who determines targeted cash balance?

management determines what ending cash balance should be (NOT the cash budget)

Disadvantage of rolling or continuous budget

managers needs to spend time every month

Jessica has helped develop the sales budget, the production budget, the cash budget, and several other budgets. Jessica is working on developing the ________ budget.

master (production and sales = operating budget cash = financial budget)

It was nearing the end of the budgetary quarter, and the sales manager realized that his sales team had only reached 90% of the company's projected sales for the quarter. He met with his sales staff to brainstorm ideas to boost sales over the next few days, and with the cooperation of his team they met their sales goals. In this situation, the budget served as which of the following?

motivator for sales personnel

Measure overall efficiency

net income

When compared to static budgets, flexible budgets:

offer managers a more realistic comparison of budget and actual revenue and cost items under their control. (NOT provide better understanding of capacity variances)

Steve Electronics is a leading manufacturer of cell phones. Its close competitor, Sidney Tim Inc., has introduced a new model with a modified version of the latest operating system. Which of the following is the most likely effect of the step taken by the competitor?

profit margin for Steve Electronics will decline (bc will have to lower sales price but costs won't change)

capital projects

projects that are expected to provide benefits in the future from spending in the current year

Which of the following items would most likely be included in a company's capital expenditure budget?

purchase of a business

Disadvantage of activity based budget

quite expensive to design, implement, and maintain

Who has responsibility for strategic planning and budgeting?

top management

Which one of the following items would most likely cause the planning and budgeting system to fail? The lack of:

top management support

--- places emphasis on increasing management performance

traditional budgeting

Sam Montana Bookcases (SMB) manufactures bookcases for colleges and universities to use in dorm rooms. Each bookcase sells for $65. The company plans to sell 114,500 bookcases in July. Sam's salespeople earn a 5% commission on all sales and shipping costs are $8.50 per bookcase. Administrative salaries are $62,400 annually, and advertising is $132,000 annually. What are the company's budgeted selling and administrative expenses for July?

$1,361,575 (*must convert fixed annual costs to monthly)

At the start of 20x8 the Joseph Company forecasts sales for the next eight quarters as follows: $400,000, $410,000, $430,000, $440,000, $410,000, $420,000, $430,000, and $440,000. Sales in the first quarter of 20x8 totaled $420,000. Based on this, Joseph revises sales estimates as follows (starting with Q2 of 20x8): $430,000, $440,000, $460,000, $430,000, $440,000, $450,000, $470,000, and $480,000. If Joseph uses continuous or rolling budgeting, what will be the new annual budgeted sales figure (as of the beginning of Q2 of 20x8)?

$1,760,000

The Mountain Mule Glove Company is in its first year of business. Mountain Mule had a beginning cash balance of $85,000 for the quarter. The budgeted information for the first quarter is shown below. All sales are made on credit and are collected in the second month following the sale. Purchases are paid in the month following the purchase, while operating costs are paid in the month that they are incurred. How much will Mountain Mule need to borrow at the end of the quarter if the company needs to maintain a minimum cash balance of $5,000 as required by a loan covenant agreement?

$10,000.

Connor Company is planning to start a project to build a new warehouse. To build the warehouse, Connor Company estimates that in 20x8 labor costs will be $1,000,000, material costs will be $300,000, legal costs will be $400,000, architectural/engineering costs will be $800,000, and a charge for corporate administrative costs will be $200,000. If Connor uses the project budgeting system, what will be the total costs included in that budget?

$2.5M incl OH for project but not allocated corp costs

Karmee Company has been accumulating operating data in order to prepare an annual profit plan. Details regarding Karmee's sales for the first six months of the coming year are: Karmee's cost of goods sold averages 40% of the sales value. Karmee's objective is to maintain a target inventory equal to 30% of the next month's sales. Purchases of merchandise for resale are paid for in the month following the sale. The variable operating expenses (other than cost of goods sold) for Karmee are 10% of sales and are paid for in the month following the sale. The annual fixed operating expenses are presented below. All of these are incurred uniformly throughout the year and paid monthly except for insurance and property taxes. Insurance is paid quarterly in January, April, July, and October. Property taxes are paid twice a year in April and October. The total cash disbursements that Karmee Company will make for the operating expenses (expenses other than the cost of goods sold) during the month of April will be:

$385k - depr noncash - 1/2 prop tax - 1/4 ins - 1/12 salaries and advertising - 10% march sales

The LCF Company's actual 20x7 balance sheet and pro forma 20x8 balance sheet are below. In addition, 20x8 pro forma net income is projected to be $1,000, depreciation expense is expected to be $100 in 20x8, no debt will be repaid in 20x8, and no stock will be issued in 20x8. Based on this, what would be the cash flow from financing activities on LCF's 20x8 pro forma statement of cash flows? 20x7(Actual)20x8 (Pro Forma)Cash$ 500$ 800Accounts receivable2,2002,400Inventory2,8003,300Net fixed assets5,0005,500Total Assets$10,500$12,000Accounts payable$1,200$1,600Other accruals1,6002,100Long-term debt3,0003,400Common equity4,7004,900Total Liabilities & Equity$10,500$12,000

$400 outflow

The AJF Company's 20x7 balance sheet is below. Sales in 20x7 were $800,000 and are expected to be $864,000 in 20x8. In addition, net income was $50,000 in 20x7 and is expected to be $55,000 in 20x8. AJF paid out 40% of its net income in dividends in 20x7 and plans to do that again in 20x8. AJF does not plan to issue any new equity in 20x8. Assuming cash, accounts receivable, inventory, net fixed assets, accounts payable, and other accruals remain the same percentage of sales in 20x8 as 20x7, how will AJF's debt change in 20x8? Actual 20x7Cash$ 80,000Accounts receivable96,000Inventory160,000Net fixed assets280,000Total Assets$616,000Accounts payable$ 64,000Other accruals88,000Long-term debt100,000Common equity364,000Total Liabilities & Equity$616,000

$4120 will be borrowed in 20X8

Which of the following best describes the function of strategic analysis?

Strategy addresses the objectives of an organization and evaluates the risks of alternative strategies.

Wishing-Well Inc., a chain of small convenience stores in Atlanta, Georgia, has just opened a store in a rapidly developing suburb to the north of the city. The marketing manager of Wishing-Well believes that the suburb is a lucrative market, as the area has several expensive homes and offices but does not have any other convenience stores or supermarkets. Which of the following is likely to neutralize the opportunity offered by the new market?

Abundant retail space is available for low rates in the suburb. (low barriers to entry present threat)

Umbra Inc., a business unit of ANB Inc., manufactures widgets. On its BCG Growth-Share Matrix, ANB has identified Umbra as a cash cow. The market for Umbra recently has started growing rapidly, converting it into a high-growth market. Given the changed market conditions, in which of the following situations will Umbra eventually turn into a question mark on the BCG Growth-Share Matrix?

If Umbra is not able to expand its production capacity

Below is the actual 20x7 income statement and the pro forma 20x8 income statement for the DFR Manufacturing Company. If a strategic goal for DFR is to improve overall efficiency, does the 20x8 pro forma income statement indicate it will achieve this goal? 20x7 (Actual)20x8(Pro Forma)Sales$600,000$660,000Cost of sales360,000402,600Gross margin240,000257,400S&A expenses150,000162,000Operating income90,00095,400Interest expense8,00010,000Earnings before taxes82,00085,400Tax expense20,50021,350Net Income$61,500$64,050

No, because net income is expected to decrease from 10.3% of sales in 20x7 to 9.7% of sales in 20x8.

Jeremy is the CFO of a growing company. When the company was smaller, Jeremy developed the master budget on his own with input from the CEO. Now that the company is larger, he feels that both he and the CEO are too far removed from the day-to-day operations to accurately develop a budget. What would you suggest to help Jeremy develop an effective budget?

The company should develop a budget committee to receive input from department managers for their own portion of the budget.

Denton Inc. manufactures industrial machinery and requires 100,000 switches per year in its assembly process. When switches are received from a vendor they are installed in the specific machine and tested. If the switches fail, they are scrapped and the associated labor cost of $25 is considered lost productivity. Denton purchases "off-the-shelf" switches as opposed to custom-made switches and experiences quality problems with some vendors' products. A decision must be made as to which vendor to buy from during the next year based on the following information. VendorPrice per SwitchPercentage Expected to Pass the TestP$3590%Q$3794%R$3997%S$4099% Which vendor should Denton's controller recommend to management?

Vendor S

Which of the following statements concerning establishing standards is true?

Which of the following statements concerning establishing standards is true?

Below is the actual 20x7 income statement and the pro forma 20x8 income statement for the HYJ Manufacturing Company. If a strategic goal for HYJ is to improve overall efficiency, does the 20x8 pro forma income statement indicate it will achieve this goal? 20x7 (Actual)20x8(ProForma)Sales$500,000$550,000Cost of sales340,000357,500Gross margin160,000192,500S&A expenses100,000108,000Operating income60,00084,500Interest expense8,00010,000Earnings before taxes52,00074,500Tax expense13,00018,625Net Income$39,000$55,875

Yes, because net income is expected to increase from 7.8% of sales in 20x7 to 10.2% of sales in 20x8.

Ideal standards

allow for no work delays, interruptions, waste or machine breakdowns

Which of the following items is correctly paired with its location?

freight out - selling and administrative expense budget

Situational analysis as it is used in strategic planning

situational analysis is used to analyze an organization's external and internal environment (may include SWOT, PESTLE, Porter's 5 Forces)

The DFA Company's actual 20x7 balance sheet and pro forma 20x8 balance sheet are below. In addition, 20x8 pro forma net income is projected to be $700, depreciation expense is expected to be $100 in 20x8, no debt will be repaid in 20x8, and no stock will be issued in 20x8. Based on this, what would be the cash flow from investing activities on DFA's 20x8 pro forma statement of cash flows? 20x7 (Actual)20x8 (Pro Forma)Cash$ 400$ 500Accounts receivable1,8002,000Inventory2,2002,600Net fixed assets4,0004,600Total Assets$8,400$9,700Accounts payable$1,000$1,600Other accruals1,5001,700Long-term debt3,0003,100Common equity2,9003,300Total liabilities & equity$8,400$9,700

$700 outflow 4k - 100 depr + x = 4600 x = 700

Monroe Products is preparing a cash forecast based on the following information: Monthly sales: December $200,000; January $200,000; February $350,000; March $400,000. All sales are on credit and collected the month following the sale. Purchases are 60% of next month's sales and are paid for in the month of purchase. Other monthly expenses are $25,000, including $5,000 of depreciation. If the January beginning cash balance is $30,000, and Monroe is required to maintain a minimum cash balance of $10,000, how much short-term borrowing will be required by the end of February?

$70k

Steers Company has just completed its pro forma financial statements for the coming year. Relevant information is summarized below. Assuming that the increase in working capital was the result of a decrease in the accounts payable balance, how much can Steers use for capital expenditures without raising outside financing?

$90k

Which of the following correctly describes the materials purchase budget calculation?

(Number of units to be produced × direct materials per unit × direct materials cost) + desired ending direct materials inventory − beginning direct materials inventory.

Expected cost =

(purchase cost per unit / % expected to pass ) + scrap costs

an external factor that should be analyzed during the strategic planning process?

- A new administration's attitude toward anti-trust regulation - The availability of high-speed wireless access on customers' ability to access your product - A company acquiring your largest competitor and investing money in the company

A cost of goods sold (COGS) budget for a manufacturing firm contains which of the following primary components?

- beginning and ending FG inventory balances and COGM (COGM can be broken out as budgeted DM used, budgeted DL, and budgeted mfg OH)

Budgeting:

- can be used to measure actual results relative to ST and LT goals - variance = difference between actual and budgeted performance

Qualities of Direct Labor budget

- can smooth out production over the year to keep consistent workforce - allows firms to notify unions before changes are needed - can be broken down by categories semiskilled, skilled, and unskilled - all Direct labor is a variable cost

Contingency planning

- cannot cover every possible scenario an organization could encounter. - help an organization prepare to effectively respond to relatively UNLIKELY risks that could have catastrophic results for the organization. - part of risk management

Factors that affect medium and long term cash forecasts:

- current union wage negotiations - forecasts for production fluctuations - increases in cost of natural resources (NOT potential governmental tax law changes bc can't reasonably forecast until signed into law)

Which of the following is correct concerning participative standards?

- less closely aligned with business goals - tend to be established more slowly than authoritative - improve employee motivation

Reasons to prepare a cash budget:

- to determine external financing needs - to determine expected ending cash balance - to determine whether will need to liquidate investments during a period (NOT to determine the targeted cash balance)

Refer to the table below. One new worker can produce a garment in 20 hours. Due to increased learning, the second garment can be produced in 16 hours. The same worker can produce his or her fourth garment in 12.8 hours. Using the cumulative average-time learning model, what is the individual time for producing the fourth garment? Garment // Cum. Avg. Time per Unit 1 // 20 2 // 16 3 // 14.04 4 // 12.8

9.08 hours total time for 2 garments = 16*2 = 32 total time for 3 garments = 42.12 total time for 4 garments = 12.8* 4 = 51.2 51.2 - 42.12 = 9.08

Which of the following is the correct order of the budgeting process?

1. proposal 2. negotiation 3. review and approval 4. revision

Lake Corporation manufactures specialty components for the electronics industry in a highly labor intensive environment. Arc Electronics has asked Lake to bid on a component that Lake made for Arc last month. The previous order was for 80 units and required 120 hours of direct labor to manufacture. Arc would now like 240 additional components. Lake experiences an 80 percent learning curve on all of its jobs. The number of direct labor hours needed for Lake to complete the 240 additional components is:

187.2

A firm has projected sales of 50,000, 51,000, and 52,000 units for the next three periods (periods 1, 2 and 3, respectively). The firm maintains an ending finished goods inventory equal to 10% of the next period's projected sales. Each unit requires 5 pounds of direct material (DM). The firm maintains an ending DMs inventory equal to 15% of the next period's DMs needs. Assume that all inventory standards are currently met. How many pounds of material must be purchased in period 1?

251,250 pounds.

A company implements a new process to manufacture its product and uses 100 hours to complete one unit. It expects that the new process will be subject to an 80% learning curve. If the company assumes the learning curve will follow the cumulative average-time learning model, what is the average time per unit when producing two batches?

80 hours avg time per unit total time for 2 units = 160 time for the second unit = 60

A manufacturing company has the opportunity to submit a bid for 20 units of a product on which it has already produced two 10-unit lots. The production manager believes that the learning experience observed on the first two lots will continue for at least the next two lots. The direct labor required on the first two lots was as follows: 5,000 direct labor hours for the first lot of 10 units 3,000 additional direct labor hours for the second lot of 10 units The learning rate experienced by the company on the first two lots of this product is:

80% batch 1 cum avg = 5k batch 2 cum avg = total hours 8k /2 = 4k 4k/5k = 80% LC

Which of the following statements concerning a "dog" on the Boston Consulting Group (BCG) Growth Share Matrix is correct?

A "dog" is a product or service with a low cash generating capability and a low growth rate.

Many companies use comprehensive budgeting in planning for the next year's activities. When both an operating budget and a financial budget are prepared, which one of the following is correctly included in the financial budget?

Capital Budget: Yes Pro-forma Balance Sheet: Yes Cash Budget: Yes.

Reshenie Inc. is analyzing the following decision: whether to start an R&D project or purchase a license to produce new types of sensors, the company's major product. If the decision to conduct R&D in-house is made, the company will have two alternatives: conduct a complex R&D project to create a new product or proceed with a low-cost project to improve the characteristics of existing products. Three levels of demand for sensors are considered: high, medium and low. Expected values of project results (EV) are shown in $ millions. Applying the decision tree analysis, select the best alternative.

Conduct R&D research, as its expected value is $1.4 million higher than the license purchase alternative. (EV of purchase license $17.1M; EV of R&D $18.5M bc would do the higher EV wouldn't do $15.2M EV R&D)

A country's political environment will likely affect which of the following?

political environment affects long range planning, but does not affect budgeting bc usually 1 year or less

"Standards"

represent expected or targeted level of performance

Ellen is a manager who helps develop sales promotions, targets customers for upselling, and searches for potential new customers. Which of the following budgets would Ellen most likely help develop?

sales budget (NOT selling and admin exp budget)