ECN 626 - Mid-Term

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 $_______.

DEBT (CURR) = $400,000 DEBT SVC COST = $25,000 PRINC PAY = $15,000 Solution DEBT SVC COST-PRINC PAY=INT PMT $25,000-$15,000= $10,000 INT PMT/DEBT(CURR)= INT RATE PER QTR $10,000/$400,000= 0.025 or 2.5% INT RATE PER QTRx4= ANNUAL INT RATE 2.5x4=10%

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 percentage rate on this debt is 8%. Of the company's total debt service budget, the amount allocated to debt principal payments is $_______.

DEBT = $30,000 DEBT SVC COST = $2,100 INTEREST(ANNUAL) = 8% INTEREST(QTR) = 8%/4=2% Solution SVC COST - DEBT x INT(QTR) = Amount Allocated to Debt Principle Payment $2,100-$30,000x0.02 =$1,500

The following information is from the manufacturing budget and the budgeted financial statements of Fabor Fabrication. a. Compute the budgeted amount for purchases of direct materials during the year. b. Compute the budgeted amount for cash payments during the year to suppliers of materials.

DM INV DEC = $44,000= DM INV JAN = $68,000 ACCT PAY DEC = $79,000 ACCT PAY JAN = $50,000 DM BUDGET = $220,000 Solutions a. Open Bal+DM Purch- Closing Material= DM used $68,000+DM Purchase-$44,000= $220,000 DM Purchase = $220,000+$44,000- $68,000 DM Purchase = $196,000 b. Open Acct Pay+Material Purchased-Closing Acct Pay=Cash PMT $50,000+$196,000- $79,000=$215,000 Cash PMT = $167,000

In addition to including budgeted quarterly income as an increase to total stockholders' equity in the budgeted balance sheet, budgeted _______ declared during the quarter would be included as a decrease to total equity in the budgeted balance sheet.

dividends

A company's beginning income tax liability plus its budgeted income tax _______ minus its budgeted income tax _______ for the period equals its budgeted ending income tax liability.

expense payments

True or false: A selling and administrative expense budget reports only fixed selling and administrative costs.

false

True or false: Cash budget estimates are identical to operating budget estimates.

false

True or false: The preparation of a cash flow forecast is generally the first step taken in the master budgeting process.

false

Elements of a master budget that are shared with external parties, such as investors and creditors, are commonly referred to as ___________ budgets.

financial

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 __________ because of its forward-looking focus.

forecasting

An operating cycle reflects the amount of time that cash is tied up in ____________ and accounts ____________ before converting back to cash.

inventories receivable

The master budgeting process helped NTI to better understand why it was profit rich, yet cash poor. In particular, the process gave the company advanced warning that excessive cash was being tied up in _______ and _______.

inventories receivables

Which of the following costs are considered variable selling expenses? o sales commissions o sales salaries o shipping and delivery costs o variable manufacturing overhead

o sales commissions o shipping and delivery costs

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

Budgets provide a yardstick by which management's ____________ can be measured and evaluated.

performance

A _______ _______ compares budgeted amounts with actual performance and quantifies on a line-by-line basis the amounts by which actual amounts were over or under budgeted amounts.

performance report

A debt service budget reports anticipated payments of debt _______ plus accrued _______.

principal interest

"Profit Rich, Yet Cash Poor" stems from _________ _________.

rapid growth

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

An advantage of the ___________ budget approach is that it stabilizes the planning horizon at a full-year ahead. Under the ___________ year or calendar year approaches, the planning period shortens as the year progresses.

rolling fiscal

True or False: Amounts included in the Prepayments for Insurance and Depreciation do not call for future disbursements of cash.

true

Define the term, Operating Cycle.

Is the average time period between the purchase of raw materials and the conversion of those materials into cash.

Baxter Corporation made the following budget cost estimates for the upcoming month: 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 1. The variable costs necessary to prepare a production budget total $_______ per unit. 2. The fixed costs necessary to prepare a production budget total $_______ per month.

Note: Production budgets do not include S&A costs. Variables DL($/U) = $30/unit DM($/U) = $50/unit VMO($/U) = $20/unit VS&A($/U) = $15/unit FMO($/M) = $300,000/month FS&A($) = $450,000 Solution VC(U)=DM+DL+VMO $50 + $30 + $20 = $100 VC(U)=$100 FC = FMO FC = $300,000

Mennaga Corporation's current payables total $100,000. Its manufacturing cost projections for material, labor, and overhead for the upcoming quarter total $500,000, and its selling and administrative costs are budgeted at $200,000. Of its total cost and expense projections, $150,000 pertain to depreciation, and $20,000 pertain to prepayments converting into expenses. After careful analysis, the company estimates that payables outstanding at the end of the upcoming quarter will total $130,000. The company's budgeted cash payments on current payables in the upcoming quarter total $_______.

PAYABLES(CURR) = $100,000 PAYABLES(EOQ) = $130,000 TMC($) = $500,000 DEPRECIATION = $150,000 PREPAY = $20,000 S&A = $200,000 Solution SEE IMAGE

Hunt Corporation's budgeted production for the upcoming quarter is 25,000 units. Each unit requires 4 pounds of material costing $6 per pound. The company's beginning materials inventory is 3,000 pounds, and it desires 8,000 pounds of material at the end of the upcoming quarter. The company's budgeted cost of material purchases is $_______.

PB = 25,000 units DM(LBS/U) = 4lbs/unit DM($/LBS) = $6 INV(CURR) = 3,000 lbs INV(EOQ) = 8,000 lbs Solution PBxDM(LBS/U)=SB(LBS) 25,000x4=100,000 lbs SB(LBS)xDM($/LBS)= SB($) 100,000x$6=$600,000 INV(CURR)xDM($/LBS)=INV(CURR) in dollars 3,000x$6=$18,000 INV(EOQ)xDM($/LBS)=INV(EOQ) in dollars 8,000x$6=$48,000 (SB($)+INV(EOQ))-INV(CURR)=TB ($600,000+$48,000)- $18,000=$630,000

Mercury Bag Company produces cases of grocery bags. The managers at Mercury are trying to develop budgets for the upcoming quarter. The following data have been gathered. a. Using the above information, develop Mercury's sales forecast in dollars and production schedule in units. b. What is Mercury's budgeted variable manufacturing cost per case? c.Prepare Mercury's manufacturing cost budget. d. What is the projected ending value of the Inventory account?

Projected Sales = 1,840 cases Selling Price/unit = $240/unit Total Projected Sales = 1,840x$240=$432,000 INV (START QTR) = 150 cases INV (START QTR) $ = 150x$240=$36,000 INV (END QTR) = 100 cases INV (END QTR) $ = 100x$240=$24,000 DL(HR/U) = 2hrs/unit DL($/HR) = $10/hour DM($/U) = $8/unit VMOC($/U) = $6/unit FMOC = $220,000/QTR a. Budgeted Sales ($) = 1,840x$240=$441,600 Planned Production (cases) = 1,840+100-150=1,790 cases b. Variable Cost of Manufac DL(HR) per case = 2x$10 = $20 DM per case = $8 VMOC per case = $6 Total = $34 per case c. Manufac Cost Budget Budget Produc Units = 1,790 DM Budget Material Cost/Unit = $8 Total Cost of DM = $14,320 DL Budget Labor hours per unit = 2 Total Labor Hours Req = 3,580 Labor rate per hour = $10 Total Cost of Labor = $35,800 Variable Ovhd Budget Variable Ovhd per unit = $6 Total Variable Ovhd = $10,740 Total Variable Manuf Cost = $60,860 Fixed Manuf Ovhd Add: Budgeted Fixed Ovhd = $220,000 Total COFGM =$280,860 Manuf Cost/unit = $280,860/1,790 = $156.91 per unit d. Closing Stock $156.91x100=$12,290.50

A company's accounts receivable balance at the beginning of the current year is $400,000. The company's sales budgets for the upcoming first and second quarters report credit sales of $800,000 and $900,000, respectively. Budgeted collections on account in the first and second quarter are estimated at $850,000 and $950,000, respectively. The company's budgeted accounts receivable balance at the end of the second quarter is $_______.

RCVBLE BAL = $400,000 1ST QTR SB = $800,000 2ND QTR SB = $900,000 1ST COLLECT = $850,000 2ND COLLECT = $950,000 Solution (1ST SB-1ST COL)+(2ND SB-2ND COL)+RCVBLE BAL=ACCT RCVBLE BAL ($800,000-$850,000)+($900,000-$950,000)+ $400,000=$300,000

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 estimated at $450,000 and $650,000, respectively. The company's budgeted accounts receivable balance at the end of the second quarter is $_______.

RECEIVABLE ACCT = $100,000 1ST QTR SB = $500,000 2ND QTR SB = $700,000 1ST QTR COLLECT = $450,000 2ND QTR COLLECT = $650,000 Solution SEE IMAGE (1ST SB-1ST COLL)+ (2ND SB-2ND COLL)+ACCT RCVBLE= BAL OF ACCTS RCVBLE

Benfer Corporation's budgeted sales for the upcoming quarter are $800,000. Its supporting budgets and schedules show a beginning finished goods inventory of $30,000, budgeted cost of goods manufactured of $310,000, and a projected ending finished goods inventory of $50,000. Its selling and administrative budget projects expenses of $320,000, its budgeted interest expense is $15,000, and its tax rate averages 40%. 1. The company's budgeted gross profit for the upcoming quarter is $_______. 2. The company's budgeted income before taxes for the upcoming quarter is $_______. 3. The company's budgeted income taxes for the upcoming quarter are $_______. 4. The company's budgeted net income for the upcoming quarter is $_______.

SV(QTR) = $800,000 INV(CURR) = $30,000 BCOGM = $310,000 INV(EOQ) = $50,000 S&A = $320,000 INT EXP = $15,000 TAX RATE = 40% Solutions 1. (SV(QTR) + INV(EOQ)) - INV(CURR) - BCOGM = TB ($800,000+$50,000)-$30,000 - $310,000 = $510,000 2. TB - S&A - INT EXP = BI $510,000-$320,000-$15,000=$175,000 3. BI x TAX RATE = TAXES $175,000 x 0.40 = $70,000 BI - TAXES = NI $175,000 - $70,000 = $105,000

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.

SV(QTR) = 59,000 units INV(CURR) = 6,000 INV(EOQ) = 15,000 Solution SV(QTR) + INV(CURR) -INV(EOQ) = TB (U) 59,000 + 6,000 - 15,000= 50,000 units

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 overhead cost is $5 per unit. The company's total budgeted overhead for the upcoming quarter is $_______.

SV(QTR) = 60,000 units DL(HR/U) = 1.25 direct labor hours/unit VOH($/DLHR) = $10/direct labor hour FMO ($/U) = $5/unit Solution (SV(QTR)xFMO)+(SV(QTR)xDL(HR/U)x VMO = TB (60,000x$5)+(60,000x1.25x$10) = $1,050,000

Sales on account for the first two months of the current year are budgeted as follows. January $214,000 February $596,000 All sales are made on terms of 2/10, n/30 (2 percent discount if paid in 10 days, full amount by 30 days); collections on accounts receivable are typically made as follows. Collections within the month of sale: Within discount period 60% After discount period 15% Collections within the month following sale: Within discount period 15% After discount period 7% Returns, allow, and uncoll. 3% Total 100% Compute the estimated cash collections on accounts receivable for the month of February.

Solution SEE IMAGE

Outdoor Outfitters has created a flexible budget for the 70,000-unit and the 80,000-unit levels of activity shown as follows. Complete Outdoor Outfitters's flexible budget at the 108,000-unit level of activity. Assume that the cost of goods sold and variable operating expenses vary directly with sales and that income taxes remain at 30 percent of operating income. NOTE: $90,000 Fixed Operating Expense Income Tax = 30% of Op Income At 70,000 Units Sales = $1,400,000 COGS = $840,000 Gross Profit on Sales = $560,000 Operate Expense = $370,000 Operate Income = $190,000 Income Tax = $57,000 Net Income = $133,000 At 80,000 Units Sales = $1,600,000 COGS = $960,000 Gross Profit on Sales = $640,000 Operate Expense = $410,000 Operate Income = $230,000 Income Tax = $69,000 Net Income = $161,000 Calculate at 108,000 units.

Solution SEE IMAGE Step 1 Calculate per unit of: Sales Price COGS Operating Expense (Add FC) Step 2 Multiply Step 1 by Quantity of Forecast Step 3 Subtract down in last column to fill in gaps

On March 1 of the current year, Spicer Corporation compiled information to prepare a cash budget for March, April, and May. All of the company's sales are made on account. The following information has been provided by Spicer's management. Month Credit Sales January $300,000(actual) February $400,000(actual) March $490,000(estimated) April $856,000(estimated) May $800,000(estimated) The company's collection activity on credit sales historically has been as follows. Collections in the month of the sale 50% Collections one month after the sale 30% Collections two months after the sale 15% Uncollectible accounts 5% Spicer's total cash expenditures for March, April, and May have been estimated at $1,200,000 (an average of $400,000 per month). Its cash balance on March 1 of the current year is $500,000. No financing or investing activities are anticipated during the second quarter. Compute Spicer's budgeted cash balance at the ends of March, April, and May.

Solution SEE IMAGE Step 1 Rate x Month = Collected Step 2 Sum of Collections/Mo. Step 3 Total Collection - Cash Expenditures = Total Cash Balance Step 4 Initial Balance + Each month's Total Cash Balance

Hawkins Corporation uses a flexible budgeting process. Its budgeted variable manufacturing costs for direct labor, direct materials, and variable overhead total $50 per unit, and its fixed manufacturing overhead costs are budgeted at $10,000 per month. At its normal level of budgeted production of 500 units per month, its budgeted manufacturing costs total $35,000 ((500 units × $50 per unit) + $10,000). In the most recent month, the company produced 400 units at a total manufacturing cost of $29,000. 1. The company's budgeted total monthly cost to produce 400 units is $_______. 2. In the current month, the company was under budget by $_______.

VMOC = $50/unit FMOC = $10,000 BUDGET PROD = 500units/month BGT MANUFAC COST = $35,000 RECENT MONTH = 400 units $29,000 manufac cost Solution (400x$50)+$10,000= $30,000 $29,000-$20,000= $1,000

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. 1. The company's budgeted total monthly cost to produce 1,800 units is $_______. 2. In the current month, the company was over budget by $_______.

VMOC = $60/unit TB VMOC = $50,000/month Qty Produced = 2,000 units/month Budget Manufac Cost = (2,000x$60)+$50,000 =$170,000 Recent Manufac Cost = 1,800 units at $165,000 Solution 1. (1,800x$60)+$50,000= $158,000 2. $165,000-$158,000= $7,000

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 pertain 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 $_______.

Variables ACT PAYABLE (CURR) = $200,000 ACT PAYABLE (EOQ) = $145,000 DM/DL/OH (TOTAL) = $700,000 DEPRECIATION = $175,000 PRE-PAY = $30,000 Solution SEE IMAGE

A company's beginning income tax liability is $40,000. For the upcoming quarter, income before taxes is budgeted at $300,000, and tax payments are budgeted at $150,000. If the company's average tax rate is 40%, its budgeted ending tax liability is $_______.

Variables INC TAX LIAB = $40,000 TAX BUDGET = $300,000 TAX PMTS = $150,000 TAX RATE = 40% Solution TAX BUDGETxTAX RATE=UPCOMING TAX LIAB $300,000x0.40= $120,000 (TAX PMTS-UPCOM TAX LIAB) - INC TAX LIAB=BUDGET ENDING TAX LIAB ($150,000-$120,000)- $40,000=$10,000

Grenfell Corporation's current payables total $80,000. Its manufacturing cost projections for material, labor, and overhead for the upcoming quarter total $250,000, and its selling and administrative costs are budgeted at $100,000. Of its total cost and expense projections, $20,000 pertain to depreciation, and $10,000 pertain to prepayments converting into expenses. After careful analysis, the company estimates that payables outstanding at the end of the upcoming quarter will total $50,000. The company's budgeted cash payments on current payables in the upcoming quarter total $_______.

Variables PAYABLES(CURR) = $80,000 PAYABLES(EOQ) = $50,000 TMC = $250,000 DEPRECIATION = $20,000 PREPAY = $10,000 S&A = $100,000 Solution SEE IMAGE

Ferguson Corporation's budgeted sales for the upcoming quarter are $900,000. Its supporting budgets and schedules show a beginning finished goods inventory of $60,000, budgeted cost of goods manufactured of $480,000, and a projected ending finished goods inventory of $40,000. Its selling and administrative budget projects expenses of $250,000, its budgeted interest expense is $10,000, and its tax rate averages 40%. 1. The company's budgeted gross profit for the upcoming quarter is $_______. 2. The company's budgeted income before taxes for the upcoming quarter is $_______. 3. The company's budgeted income taxes for the upcoming quarter are $_______. 4. The company's budgeted net income for the upcoming quarter is $_______.

Variables SB(QTR) = $900,000 INV(CURR) = $60,000 COGM = $480,000 INV(EOQ) = $40,000 S&A = $250,000 INT EXP = $10,000 TAX RATE = 40% Solutions 1. (SB(QTR)+INV(EOQ))-INV(CURR)-COGM=TB ($900,000+$40,000)- $60,000-$480,000= $400,000 2. TB-S&A-INT EXP=BI $400,000-$250,000- $10,000=$140,000 3. BI x TAX RATE = TOTAL TAXES $140,000x0.40= $56,000 4. BI-TOTAL TAXES=NET INC $140,000-$56,000= $84,000

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 $_______.

Variables SV(QTR) = 15,000 units DM(LBS/U) = 5 pounds/unit DM($/LBS) $20/pound INV(CURR) = 15,000 pounds INV(EOQ) = 10,000 pounds Solution (SV(QTR) x DM(LBS)) + INV(EOQ) - INV(CURR) = Total Pounds (TP) (15,000 x 5) + 10,000 - 15,000 = 70,000 pounds TP x DM($) = TB 70,000 x $20 = $1,400,000

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 $_______.

Variables SV(QTR) = 40,000 units DM(G/unit) = 6 gallons/unit DM($/G) = $15/gallon INV(CURR) = 14,000 G INV(EOQ) = 12,000 G Solution (SV(QTR)xDM(G/U) + INV(EOQ) - INV (CURR) = TSV (40,000 x 6) + 12,000 - $14,000 = 42,000 units TSV x DM($/G) = TB 42,000x15 = $3,570,000

Batalden Corporation's budgeted production for the upcoming quarter is 75,000 units. Each unit produced is expected to require 0.1 machine-hours, and its variable overhead application rate is $6 per machine-hour. At this budgeted level of output, the company's average fixed manufacturing overhead cost is $2 per unit. The company's total budgeted overhead for the upcoming quarter is $_______.

Variables SV(QTR) = 75,000 units DL(MH/U) = 0.1 Machine Hrs/Unit VOH($/MH) = $6/machine hour FOM($/U) = $2/unit Solution (SV(QTR) x DL(MH/U) x DL($/MH)) + (SV(QTR) x FOM($/U)) = TB (75,000 x 0.1 x $6) + (75,000 x $2) = $195,000

Conway Corporation's budgeted sales for the upcoming quarter are 75,000 units. The company desires 15,000 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 0.5 direct labor hours at an average rate of $30 per hour. The company's direct labor budget for the upcoming quarter is $_______.

Variables SV(QTR) = 75,000 INV(EOQ) = 15,000 INV(CURR) = 10,000 DL(HR/U) = 0.5 hours/unit DL($/HR) = $30/hour Solution (SV(QTR)+INV(EOQ)-INV(CURR)=TSV (75,000+15,000)-10,000= 80,000 units TSVxDL(HR/U)xDL($/HR) = TB 80,000x0.5x$30 =$1,200,000

Scott Corporation's production budget for the upcoming quarter reveals total manufacturing costs of $700,000 (an average manufacturing cost of $25 per unit). The company's beginning finished goods inventory is $6,000, and its budgeted ending finished goods inventory is 500 units. 1. The company's budgeted ending finished goods inventory for the upcoming quarter is $_______. 2. The company's budgeted cost of goods sold for the upcoming quarter is $_______.

Variables TMC($) = $700,000 MC($/U) = $25/unit INV(CURR) = $6,000 INV(EOQ) = 500 units Solutions 1. INV(EOQ)xMC($/U) = INV(EOQ) in dollars 500 units x $25 = $12,500 2. INV(CURR)+TMC-FG INV (END) = $6,000+$700,000- $12,500=$693,500

Wendy Corporation's production budget for the upcoming quarter reveals total manufacturing costs of $850,000 (an average manufacturing cost of $5 per unit). The company's beginning finished goods inventory is $30,000, and its budgeted ending finished goods inventory is 8,000 units. 1. The company's budgeted ending finished goods inventory for the upcoming quarter is $ _______. 2. The company's budgeted cost of goods sold for the upcoming quarter is $ _______.

Variables TMOC ($) = $850,000 MOC ($/U) = $5/unit FG INV (CURR) = $30,000 FG INV B (U) = 8,000 units Solution FG INV (END) = FG INV B x MOC COGS = INV(CURR)+TMC-FG INV (END) = $30,000+$850,000-$40,000=$840,000

Welsh Corporation uses a flexible budgeting process. Its budgeted variable manufacturing costs for direct labor, direct materials, and variable overhead total $37 per unit, and its fixed manufacturing overhead costs are budgeted at $5,000 per month. At its normal level of budgeted production of 300 units per month, its budgeted manufacturing costs total $16,100 ((300 units × $37 per unit) + $5,000). In the most recent month, the company produced 400 units at a total manufacturing cost of $19,850. 1. The company's budgeted total monthly cost to produce 400 units is $ _______. 2. In the current month, the company was over budget by $ _______.

Variables VMOC = $37/unit FMOC = $5,000/month QTY PROD = 300 units/month BMOC = $16,100 RECENT MONTH = 400 units $19,850 MOC Solutions 1. (400x$37)+$5,000= $19,800 2. $19,850-$19,800=$50

Hinkley Manufacturing budgets that it will sell 40,000 gliders in the upcoming quarter. The company desires an ending inventory of 5,000 units, and its budgeted production is 42,000 units. The company's beginning inventory is ____________ units.

Variables: SV(QTR) = 40,000 INV(EOQ) = 5,000 BP(QTR) = 42,000 Solution: (SV(QTR)+INV(EOQ))-BP(QTR)=INV(CURR) (40,000+5,000)-42,000=3,000 units

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 $ ____________.

Variables: SV(QTR) = 90,000 units INV(EOQ) = 18,000 units INV(CURR) = 8,000 units DL(HR/U) = 0.1 hours/unit DL($/HR) = $15 per hour TSV (in units) = Total Sales Volume B($) = Planned Budget Solution: SV(QTR) - INV(EOQ) - INV(CURR) = TSV 90,000 - 18,000 - 8,000 = 100,000 TSV x DL(HR/U) x DL($/HR) = PB 100,000 x 0.1 x $15 = $150,000

Which element of a master budget is always prepared first? a. production budget b. sales budget c. cash budget d. operating expense budget

b. sales budget

A flexible budget is useful when _______ levels of activity differ substantially from budgeted levels.

actual

NTI will likely use the master budgeting process for evaluating management performance by comparing budgeted amounts to _______ performance.

actual

The two prevailing philosophies for establishing budgetary amounts are the ____________ approach and the ____________ ____________ ____________ approach.

behavioral Total Quality Management

A ____________ is a comprehensive financial plan for achieving the operational and financial goals of an organization.

budget

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 have an immediate effect on operating income but no immediate effect on operating cash flow. c. Prepayments represent operating cash outflows that have no immediate effect on operating income. d. Prepayments have no immediate effect on operating cash flow or on operating income.

c. Prepayments represent operating cash outflows that have no immediate effect on operating income.

Being profit rich, yet cash poor is often attributed to: a. sluggish growth. b. expenses exceeding revenue. c. operating cash flow outpacing revenue. d. rapid growth.

d. rapid growth.

The ____________ budget consists of a number of related budgets that collectively summarize all of the planned activities of an organization.

master

Which of the following statements is/are true about budgets? o Budgets play an important role in controlling costs. o Budgeting is of little significance to small businesses. o Budgets are formal written plans for achieving financial goals. o Budgeting is an essential step in financial planning.

o Budgets play an important role in controlling costs. o Budgets are formal written plans for achieving financial goals. o Budgeting is an essential step in financial planning.

Which of the following statements about budgeted income taxes is/are true? o If an ending tax liability exceeds the beginning liability, tax payments during the period exceeded tax expenses. o If a beginning tax liability exceeds the ending liability, tax expenses during the period exceeded tax payments. o If a beginning tax liability exceeds the ending liability, tax payments during the period exceeded tax expenses. o If an ending tax liability exceeds the beginning liability, tax expenses during the period exceeded tax payments.

o If a beginning tax liability exceeds the ending liability, tax payments during the period exceeded tax expenses. o If an ending tax liability exceeds the beginning liability, tax expenses during the period exceeded tax payments.

Which of the following statements is/are true regarding the selection and implementation of a budgeting approach? o Managers should understand both the intent and the purpose of the budgeting process. o Regardless of the approach taken, budget expectations should be set at reasonably achievable levels. o The budgeting approach should reflect the goals and philosophies of top management. o Managers should participate actively in the budgeting process.

o Managers should understand both the intent and the purpose of the budgeting process. o The budgeting approach should reflect the goals and philosophies of top management. o Managers should participate actively in the budgeting process.

Which of the following statements is/are true regarding the behavioral approach of establishing budgetary amounts? o Failure to comply with budgetary expectations should not be viewed as unacceptable performance. o Budgetary performance expectations should be set just high enough that they cannot be exceeded. o Managers will be motivated to perform if they view the budget as a fair basis for evaluating a responsibility center's performance. o Budgetary amounts should be set at reasonably achievable levels.

o Managers will be motivated to perform if they view the budget as a fair basis for evaluating a responsibility center's performance. o Budgetary amounts should be set at reasonably achievable levels.

Which of the following benefits of the budgeting process? o Unambiguous assessments of decision-making responsibilities. o Justifications for failed policies and ineffective strategic decisions. o Effective coordination among departments and other operating units. o Enhanced management awareness of the external economic environment. o Objective measures of performance evaluation.

o Unambiguous assessments of decision-making responsibilities. o Effective coordination among departments and other operating units. o Enhanced management awareness of the external economic environment. o Objective measures of performance evaluation.

Which of the following budgets are typically considered financial budgets? o sales budgets o production budgets o budgeted balance sheets o selling and administrative expense budgets o budgeted income statements

o budgeted balance sheets o budgeted income statements

Which of the following estimates are included in a cash budget? o budgeted payables distributions o budgeted debt service payments o budgeted tax payments o budgeted prepayments o budgeted selling and administrative expenses

o budgeted payables distributions o budgeted debt service payments o budgeted tax payments o budgeted prepayments

Which of the following costs and expenses are NOT financed with payables in the current period? o administrative salaries o depreciation expense o the expiration of prepayments o direct labor costs o direct materials costs

o depreciation expense o the expiration of prepayments

Which of the following manufacturing cost estimates are necessary to prepare a production budget? o direct labor costs o selling and administrative costs o direct material costs o variable manufacturing overhead o fixed manufacturing overhead

o direct labor costs o direct material costs o variable manufacturing overhead o fixed manufacturing overhead

Which of the following costs are considered fixed selling and administrative expenses? o insurance costs on delivery vehicles o variable manufacturing overhead o sales salaries o shipping and delivery costs o sales commissions

o insurance costs on delivery vehicles o sales salaries

Which of the following are considered elements of a production budget? o manufacturing overhead budget o research and development budget o sales budget o direct materials budget o direct labor budget

o manufacturing overhead budget o direct materials budget o direct labor budget

A company that is profit rich, yet cash poor can experience:

o profitability measures that exceed industry averages. o liquidity measures that fall short of industry averages o negative operating cash flow.