Smartbook 8

Edison Corporation's variable manufacturing overhead rate is $5.00 per direct labor-hour. Total budgeted fixed overhead is $25,000 per month. The $25,000 per month includes $7,000 in depreciation expense. Total budgeted direct labor-hours for the month of July is 20,000. Budgeted cash disbursements for manufacturing overhead for July equals ______.

$118,000 Reason: Variable overhead (20,000 × $5.00) $100,000 + fixed overhead $25,000 - non-cash (depreciation) expenses $7,000 = $118,000

S&P Enterprises has scheduled direct material purchases of $100,000 in January, $130,000 in February and $150,000 in March. The company pays for 75% of its purchases in the month of purchase and 25% the month after the purchase. Calculate the expected cash disbursements for the month of February.

$122,500

Which of the following is needed to calculate raw materials to be purchased on the direct materials budget?

-Raw materials required per unit -Beginning inventory of raw materials

Given budgeted sales of 10,000 units, desired ending inventory of 5,000 units, and beginning inventory of 2,000 units, required production is ______ units.

13,000

Risks of not knowing in advance how much labor time will be needed throughout the budget period includes ______.

Erratic layoffs Labor shortages Low employee morale

Challenging but highly achievable budgets increase the likelihood that lower-level managers will engage in undesirable behavior to secure their desired compensation.

False

Control involves developing goals and preparing various budgets to achieve those goals.

False

For most companies a single, annual cash budget is sufficient.

False Monthly cash budgets are common and some companies may need budgets for shorter time periods to capture major cash fluctuations.

The amounts under the Year column in the cash budget always equal the sum of the amounts for the months or quarters of the budget

False Reason: Beginning cash for the year equals beginning cash of the first month or quarter and ending cash for the year equals ending cash of the last month or quarter.

What is added to the variable selling and administrative expenses to get the total selling and administrative expenses?

Fixed selling and administrative expenses

Which of the following budgets are directly based on information from the sales budget?

Production budget Selling and administrative expense budget

What number does the direct materials budget take directly from the production budget?

Required production

The first step in the budgeting process is preparing the ______ budget.

Sales

Many managers believe that being empowered to create their own self- budgets is the most effective method of budget preparation.

imposed

A company's planned net profit that serves as a benchmark against which subsequent company performance can be measured is shown on the budgeted ___ ___.

income statement

If inventory levels are ______, the result can lead to lost sales or last-minute, high-cost production efforts.

insufficient

The cash budget ______.

is prepared near the end of the master budget process

Using budgeting assumptions when preparing the master budget, ______.

makes it easier to answer "what-if" questions

All costs of production other than direct materials and direct labor are shown on the ______ budget.

manufacturing overhead

All costs of production other than direct materials and direct labor are shown on the _______ _______ budget.

manufacturing overhead

The calculation of unit product cost requires information from the ______ budget

manufacturing overhead

A number of separate, but interdependent, budgets that formally lay out the company's sales, production, and financial goals are contained in the _______ budget.

master

An integrated business plan that formally lays out the company's goals is called the ______ budget.

master

Highly achievable budget targets ______.

may help build manager confidence may generate greater management commitment to the budget are used in most companies

A company with adequate cash balances at the beginning and end of the year, ______.

may still have cash deficiency issues during the year

A detailed plan used by a merchandising company that shows the amount of goods that must be purchased from suppliers during the period is called a(n) _______ ______ budget.

merchandise purchases

The amount of goods to be acquired from suppliers during the period is shown on the Blank______ budget.

merchandise purchases

If a budget initiated by top management has targets that are set too high, ______.

motivation will suffer

Facing labor shortages or having to hire or lay off workers at awkward times are consequences of _____.

neglecting to budget the amount of labor time that will be needed

What is subtracted from total budgeted selling and administrative expenses to determine the cash disbursements for selling and administrative expenses?

non-cash expenses

A budget that is prepared with the full cooperation of managers at all levels is a self-imposed or ________ budget.

participative

More accurate estimates and higher motivation are generally the result of using a(n) ______ budget.

participative

Budgets are used for two distinct purposes: ______ and ______.

planning and control

The first line of the direct labor budget consists of the budgeted units expected to be ______ during the period.

produced

In a manufacturing company, the Blank______ budget shows the number of units that must be manufactured to satisfy sales needs and provide for the desired ending inventory.

production

In a manufacturing company, the _______ budget is prepared right after the sales budget.

production

In a manufacturing company, the _______ budget is used to determine the direct materials budget, the direct labor budget, and the manufacturing overhead budget.

production

In a manufacturing company, which budget is used as the basis for creating the direct materials budget, the direct labor budget, and the manufacturing overhead budget?

production

The cash budget uses information from several other budgets. Which of the following budgets is NOT used to prepare the cash budget?

production

The direct labor budget is based directly on the ______ budget.

production

Because all other parts of the budget depend on it, if the ______ budget is inaccurate, the rest of the budget will be inaccurate.

sales

Both the production and selling and administrative expense budgets are prepared using information directly from the ________ budget

sales

What is usually the major source of receipts in the receipts section of the cash budget?

sales

A manager cannot complain that the budget was unrealistic and impossible to meet when a(n) _______-_________ budget, or a participative budget, is in place

self-imposed

Budgeted expenses for areas other than manufacturing are shown on the ______ budget.

selling and administrative

In large organizations, many smaller individual budgets submitted by department heads and other responsible people comprise the ______ budget.

selling and administrative

A likely consequence of excessive inventory levels is ______.

storage problems

A company can repay outstanding principal and interest when ______.

the cash excess is greater than the minimum required cash balance

Budgetary slack occurs when a manager submits a budget that is ______.

too easy to attain

In companies that do not use a self-imposed budgeting process, profit targets are generally set by ______.

top managers

Identify the true statements about budgets.

They coordinate the activities of the entire organization by integrating the plans of its various parts. The budgeting process can uncover potential bottlenecks before they occur. They define goals and objectives that can serve as benchmarks for evaluating subsequent performance. They encourage managers to think about and plan for the future.

Many of the schedules in a master budget are based on a variety of management estimates and assumptions.

True

To prepare a budgeted balance sheet as of December 31, 2021, data is needed from the ______ December 31, 2020.

balance sheet as of

A budgeted balance sheet is developed using data from the ______ of the budget period and data contained in the various schedules.

beginning

When a manager creates a budget that is too easy to attain, ______ occurs.

budgetary slack

The final schedule of the master budget is the ______.

budgeted balance sheet

Which of the following budgets shows the company's planned profit and serves as a benchmark against which subsequent company performance can be measured?

budgeted income statement

On the cash budget, what is subtracted from total cash available to find the cash excess or deficiency?

cash disbursements

Budgets ______.

communicate management's plan throughout the organization

S&P Enterprises has scheduled direct material purchases of $120,000 in April, $140,000 in May and $160,000 in June. The company pays for 75% of its purchases in the month of purchase and 25% the month after the purchase. Calculate the expected cash disbursements for the month of May.

$135,000 Reason: May purchases ($140,000 x 75%) $105,000 + April purchases ($120,000 x 25%) $30,000 = $135,000

ABC, Inc.'s expected sales for the first six month of the year are as follows. Month Expected Sales January $120,000 February $150,000 March $160,000 April $200,000 May $220,000 June $250,000 Experience has shown that 60% of sales are collected in the month of sale and 40% are collected the month after sale. Calculate expected cash collections for the month of March.

$156,000 Reason: 60% of March sales ($96,000) + 40% of February sales ($60,000) = $156,000

ABC, Inc.'s expected sales for the first six month of the year are as follows. Month Expected Sales January $120,000 February $150,000 March $160,000 April $200,000 May $220,000 June $250,000 Experience has shown that 60% of sales are collected in the month of sale and 40% are collected the month after sale. Calculate expected cash collections for the month of April.

$184,000

Sperling Company's master budget shows expected sales of 10,000 units and expected production of 11,000 units for the month of March. Each unit requires 1/2 hour of direct labor. The direct labor rate is $15.00 per hour. Calculate the expected total direct labor cost for the month of March.

$82,500

ABC, Inc.'s expected sales for the first six month of the year are: Month Expected Unit Sales January 12,000 February 15,000 March 16,000 April 20,000 May 22,000 June 25,000 If desired ending inventory is 25% of next month's sales, the number of units to be produced in March is

17000 Reason: March sales 16,000 + End. inv. (25% of April sales) 5,000 - Beg. inv. (25% of March sales) 4,000 = 17,000 units

If a cash budget is prepared by quarter, the beginning cash balance for the year is the same as the beginning cash balance for the _______ quarter and the ending cash balance for the year is the same as the ending cash balance for the _______ quarter.

1st 4th

Edison Corporation's variable manufacturing overhead rate is $5.00 per direct labor-hour. Total budgeted fixed overhead is $25,000 per month. The $25,000 per month includes $7,000 in depreciation expense. Total budgeted direct labor-hours for the month of July is 20,000. Based on the month of July only, the predetermined overhead rate is $

625

During May, Davidson Corporation's expected sales equal 12,000 units and expected production is 15,000 units. If each unit requires 1/2 hour of direct labor and the direct labor rate is $12.00 per hour, the expected total direct labor cost for the month of May is $_____

90000 $15000 x 6 = 90000

Which of the following budgets are needed to calculate unit product costs?

Direct Labor, Direct Materials, Manufacturing Overhead

Required borrowings on a cash budget is calculated by ______.

adding the desired ending cash balance to the amount of the cash deficiency

Master budget schedules ______.

are based on estimates and assumptions. answer several key questions for a company

Because it is needed for the schedule of expected cash collections, the annual master budget file includes the ______ ______ from last year.

balance sheet

The annual master budget file includes the ______ from last year because it is needed for the schedule of expected cash collections.

balance sheet

When creating an Excel budget and performing what-if analysis, it is generally easiest to ______.

create the budget with a budgeting assumption tab

The number of working hours required to satisfy the production budget is shown on the ________ ________ budget.

direct labor

Working hours required to satisfy the production budget are shown on the ______ budget.

direct labor

In a manufacturing company, the ______ budget details the raw materials that must be purchased to fulfill the production budget and provide for adequate inventories

direct materials

In a manufacturing company, the ________ ________ budget details the raw materials that must be purchased to fulfill the production budget and to provide for adequate inventories.

direct materials

The cost of unsold units is computed on the ______ budget.

ending finished goods inventory

The budgeted income statement relies on information from the ______.

ending finished goods inventory budget selling and administrative expense budget sales budget cash budget

The ending finished goods inventory budget computes the cost of ______ units.

unsold