ACC 202 Ch. 8

Organize the following budgets in order of preparation as presented in the book.

1) Sales budget 2) Production budget 3) Direct materials purchases budget 4) Direct labor budget 5) Manufacturing overhead budget 6) Budgeted cost of goods sold 7) Selling and administrative expense budget 8) Budgeted income statement 9) Cash budget 10) Budgeted balance sheet

WellWheats, Inc. produces breakfast cereal and sells each box, or unit, for $7. The company is projecting sales of 1,000 units for the month of March. There are 30 units in the beginning inventory. Each unit requires 20 ounces of raw materials and 0.20 direct labor hours to make. The company's policy is to keep ending finished goods inventory of 10% of the current month's sales. Selling and administrative expenses for the month have been budgeted at $2,000. How many units should WellWheats produce in March?

1,070 units 1,070 units (Units to be produced) = 1,000 units (Budgeted sales) + 1,000 units × 10% (Ending finished inventory)] − 30 units (Beginning finished inventory).

The budget that shows the budgeted expenses for areas other than manufacturing is the______________ and _________________ expense budget.

Blank 1: selling, sales, or marketing Blank 2: administrative or admin

Which of the following budgets shows the company's planned profit?

Budgeted income statement

Which of the is NOT a financial budget?

Budgeted income statement explanation: The budgeted income statement is an operating budget.

Which of the following does NOT appear on the budgeted balance sheet?

Budgeted net operating income explanation: Budgeted net operating income is found on the budgeted income statement.

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

Budgeted production

To calculate the cash balance before financing on the cash budget, add the ______.

beginning cash balance to the budgeted cash receipts and deduct budgeted cash payments

The final step in the master budgeting process is to prepare the ______.

budgeted balance sheet

Total sales on the sales budget equal budgeted unit sales multiplied by ______.

budgeted sales price per unit

The operating budgets feed directly into the ____________ ______________, which then feeds directly into the budgeted balance sheet.

cash budget

Collections on credit sales made to customers in prior period(s) plus collections on sales made in the current budget period equal ______.

cash receipts

Budgets ______.

communicate management's plan throughout the organization

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 comprehensive set of budgets that covers all phases of planned activities for a specific period is called the__________ budget.

master

Each component of a(n)______________ budget is based on or provides input for another component.

master

The amount of goods for resale to be purchased from suppliers during the period is shown on the_____________ ______________ budget.

merchandise purchases

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

merchandise purchases

To calculate the direct labor requirement for each quarter, ______.

multiply the number of direct labor hours required per unit times the number of units to be produced

Employees throughout the organization have input into the budget-setting process when____________ budgeting is used.

participative, bottom-up, or bottom up

Budgeting is an important part of the___________ and _________________ cycle.

plan or planning, control or controlling

Developing goals for the budget is part of____________________, whereas____________ involves determining if goals have been followed.

planning, controlling or control

Budgets are used for two distinct purposes: ______ and ______. The first of these purposes relates to developing goals and preparing various budgets, while the second involves comparing actual results to the budget.

planning; controlling

The ______ budget shows the number of units needed to satisfy sales and provide the desired ending inventory.

production

The direct materials budget directly relies on the ______ budget.

production

The number of units that must be made to satisfy sales needs and to provide for the desired ending inventory is shown on the_______________ budget.

production

Budgeted expenses for costs related to selling the product and managing the business are shown on the ______ budget.

selling and administrative

Pastoria Enterprises has scheduled raw 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 Reason: February purchases ($130,000 × 75%) $97,500 + January purchases ($100,000 × 25%) $25,000 = $122,500.

WellWheats, Inc. produces breakfast cereal and sells each box, or unit, for $7. The company is projecting sales of 1,000 units for the month of March. There are 30 units in the beginning inventory. Each unit requires 20 ounces of raw materials and 0.20 direct labor hours to make. The company's policy is to keep ending finished goods inventory of 10% of the current month's sales. Selling and administrative expenses for the month have been budgeted at $2,000. If the direct labor cost per hour is $0.75, calculate the budgeted direct labor cost for the month of March.

$160.50 1,070 units (Units to be produced) = 1,000 units (Budgeted sales) + 100 (Ending finished inventory) − 30 (Beginning finished inventory); 1,070 units (Budgeted production) × 0.20 hours per unit = 214 hours (Total direct labor hours required); Direct labor cost = 214 hours × $0.75 = $160.50.

Madison Corporation's expected beginning cash balance is $35,000. Cash collections are budgeted at $50,000 and cash disbursements are estimated to be $80,000. The minimum required cash balance is $20,000 and the company can borrow as much as needed in increments of $10,000. Calculate the expected ending cash balance for the month.

$25,000 Reason: $35,000 + $50,000 - $80,000 = $5,000. Since they can borrow in increments of $10,000, they must borrow $20,000 to meet or exceed the minimum cash balance, making the ending balance $25,000.

WellWheats, Inc. produces breakfast cereal and sells each box, or unit, for $7. The company is projecting sales of 1,000 units for the month of March. The total cost of producing one unit includes $2 for direct materials, $1 for direct labor, and $0.50 for manufacturing overhead. Calculate the cost of goods sold for the month of March.

$3,500 explanation: $3.50 (Total cost of producing one unit) = $2.00 (Direct materials) + $1.00 (Direct labor) + $0.50 (Manufacturing overhead); $3.50 × 1,000 units = $3,500 (Cost of goods sold).

WellWheats, Inc. produces breakfast cereal and sells each box, or unit, for $7. The company has forecast production for the next three months as follows: July 5,000 units, August 6,000 units, September 3,500 units. Monthly manufacturing overhead is budgeted to be $20,000 plus $5 per unit produced. What is budgeted manufacturing overhead for July?

$45,000 explanation: Budgeted manufacturing overhead for July = (5,000 × $5) + $20,000 = $45,000.

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 Reason: Units to be produced × time per unit × rate per hour = 11,000 × 1/2 × $15 = $82,500.

Soup Inc. has the following budgeted sales: January $60,000, February $80,000, and March $90,000. 40% of the sales are for cash and 60% are on credit. For the credit sales, 75% are collected in the month of sale, and 25% the next month. The total budgeted cash receipts for March are:

$88,500 explanation: March cash sales = ($90,000 × 40%) + ($90,000 × 60% × 75%) + ($80,000 × 60% × 25%) = 36,000 + 40,500 + 12,000 = $88,500.

WellWheats, Inc. produces breakfast cereal and sells each box, or unit, for $7. The company is projecting sales of 1,000 units for the month of March. There are 30 units in the beginning inventory. Each unit requires 20 ounces of raw materials and 0.20 direct labor hours to make. The company's policy is to keep ending finished goods inventory of 10% of the current month's sales. Selling and administrative expenses for the month have been budgeted at $2,000. Assume that the beginning raw materials inventory is 2,000 ounces. If the desired ending raw materials inventory is 20% of the current month's production needs, calculate the budgeted raw materials to be purchased.

23,680 ounces 1,070 units (Units to be produced) = 1,000 units (Budgeted sales) + 100 (Ending finished inventory) − 30 (Beginning finished inventory); Total purchases of raw materials = [1,070 (Budgeted production) × 20 ounces] + [(21,400 × 20%) (Ending raw materials inventory)] − 2,000 ounces (Beginning raw materials inventory) = 23,680 ounces.

Cobra, Inc., a sporting goods retailer, estimates to sell 50,000 units in the next quarter. The beginning inventory is 4,000 units and ending inventory is estimated to be 20 percent of estimated sales. How many units should be purchased?

56,000 units explanation: 56,000 units (Budgeted purchases) = 50,000 units (Estimates sales) + 10,000 units (Ending inventory) − 4,000 units (Beginning inventory)

The three sections of the cash budget are________________,________________, and financing.

Blank 1: disbursements, payments, or expenditures Blank 2: receipts or collections

Which of the following is the correct formula for calculating budgeted merchandise purchases in units?

Budgeted sales units + Budgeted ending merchandise inventory - Budgeted beginning merchandise inventory explanation: The formula for calculating budgeted merchandise purchases in units is: Budgeted sales units + Budgeted ending merchandise inventory − Budgeted beginning merchandise inventory.

Which of the following does not appear as a separate section on the cash budget?

Capital expenditures explanation: Capital expenditures is part of cash payments and follows into the cash budget.

Classify each of the following budgets as an operating (O) or financial (F) budget:

Cash budget Budgeted balance sheet

Which of the following is NOT an operating budget?

Cash budget explanation: The cash budget is a financial budget.

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

Direct labor budget Direct materials budget Manufacturing overhead budget

Which of the following budgets is not prepared by a merchandiser?

Direct labor budget explanation: A merchandiser purchases finished goods and resells them, so it does not prepare a direct labor budget. A direct labor budget is typically prepared by a manufacturer.

True or false: Controlling involves developing goals and preparing various budgets to achieve those goals.

FALSE

True or false: Using a participative approach to budgeting is less likely to motivate employees than using a top-down approach.

FALSE

A bottom-up approach to budgeting is also called:

Participative budgeting explanation: A bottom-up approach that allows employees at all levels to have input in the budgeting process is also called participative budgeting.

Budgeting involves which business function:

Planning

Which of the following is NOT included on a budgeted cash payments budget?

Production in units Reason: The required production in units is included in the direct materials budget.

Classify each of the following budgets as an operating (O) or financial (F) budget: OPERATING BUDGET

Sales budget Direct materials purchases budget Selling and administrative expense budget Manufacturing overhead budget Direct labor budget Budgeted income statement Production budget

Which of the following statements about a budgeted income statement is true?

The budgeted income statement is prepared using the operating budgets.

Which of the following is needed to prepare a sales budget?

The budgeted number of units to be sold

Which of the following statements is true?

Understanding the interrelationships of individual budgets is the key to developing a master budget.

In participative budgeting, employees may try to build budgetary slack by:

Understating revenues explanation: Managers build budgetary slack by understating budgeted revenues or overstating budgeted expenses.

Which of the following approaches to budgeting starts from scratch without considering the last period's results?

Zero-based budgeting explanation: The zero-based budgeting approach starts from scratch without considering the last period's results. Though time-consuming, it makes managers justify their budget each year.

A pro forma budgeted balance sheet is developed from the______________ budgets.

financial or previous

Advantages of budgeting include ______.

forcing managers to think about and plan for the future providing lead time to solve potential problems providing benchmarks for evaluating performance promoting cooperation and coordination among different areas within the organization

The budgeted _____ _____ shows a company's planned profit

income statement

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

manufacturing or factory, overhead