Profit Planning - youcancallmefrance



True/False Questions

1. The usual starting point in budgeting is to make a forecast of net income.

Ans:  False AACSB:  Reflective Thinking AICPA BB:  Critical Thinking AICPA FN:  Reporting LO:  1,9 Level:  Easy

2. A budget committee helps provide consistency in the budgeting process because it prepares all of the budgets for the various segments of the organization.

Ans:  False AACSB:  Reflective Thinking AICPA BB:  Critical Thinking AICPA FN:  Reporting LO:  1 Level:  Easy

3. A continuous or perpetual budget is one which covers a 12-month period but which is constantly adding a new month on the end as the current month is completed.

Ans:  True AACSB:  Reflective Thinking AICPA BB:  Critical Thinking AICPA FN:  Reporting LO:  1 Level:  Easy

4. Control involves developing objectives and preparing the various budgets to achieve those objectives.

Ans:  False AACSB:  Reflective Thinking AICPA BB:  Critical Thinking AICPA FN:  Reporting LO:  1 Level:  Easy

5. A self-imposed budget is one prepared by top management and passed downward through an organization.

Ans:  False AACSB:  Reflective Thinking AICPA BB:  Critical Thinking AICPA FN:  Reporting LO:  1 Level:  Easy

6. When using the self-imposed budget approach, it is generally best for top management to accept all budget estimates without question in order to minimize adverse behavioral responses from employees.

Ans:  False AACSB:  Reflective Thinking AICPA BB:  Resource Management, Critical Thinking AICPA FN:  Reporting LO:  1 Level:  Easy

7. Cash collections in a schedule of cash collections typically consist of collections on sales made to customers in prior periods plus collections on sales made in the current budget period.

Ans:  True AACSB:  Reflective Thinking AICPA BB:  Critical Thinking AICPA FN:  Reporting LO:  2 Level:  Easy

8. In a production budget, if the number of units in finished goods inventory at the end of the period is less than the number of units in finished goods inventory at the beginning of the period, then the expected number of units sold is greater than the number of units to be produced during the period.

Ans:  True AACSB:  Reflective Thinking AICPA BB:  Critical Thinking AICPA FN:  Reporting LO:  3 Level:  Medium

9. In a merchandising company, the required merchandise purchases for a period are determined by subtracting the units in beginning inventory from the sum of the units to be sold during the period and the desired ending inventory.

Ans:  True AACSB:  Reflective Thinking AICPA BB:  Critical Thinking AICPA FN:  Reporting LO:  3 Level:  Easy

10. The direct materials to be purchased for a period can be obtained by subtracting the desired ending inventory of direct materials from the total direct materials needed for the period.

Ans:  False AACSB:  Reflective Thinking AICPA BB:  Critical Thinking AICPA FN:  Reporting LO:  4 Level:  Medium

11. The direct labor budget begins with sales in units from the sales budget.

Ans:  False AACSB:  Reflective Thinking AICPA BB:  Critical Thinking AICPA FN:  Reporting LO:  5 Level:  Easy

12. The selling and administrative expense budget lists all costs of production other than direct materials and direct labor.

Ans:  False AACSB:  Reflective Thinking AICPA BB:  Critical Thinking AICPA FN:  Reporting LO:  6,7 Level:  Easy

13. In the manufacturing overhead budget, the non-cash charges (such as depreciation) are deducted from the total budgeted manufacturing overhead to determine the expected cash disbursements for manufacturing overhead.

Ans:  True AACSB:  Reflective Thinking AICPA BB:  Critical Thinking AICPA FN:  Reporting LO:  6 Level:  Easy

14. The selling and administrative expense budget lists the budgeted expenses for areas other than manufacturing.

Ans:  True AACSB:  Reflective Thinking AICPA BB:  Critical Thinking AICPA FN:  Reporting LO:  7 Level:  Easy

15. The disbursements section of a cash budget consists of all cash payments for the period except cash payments for dividends.

Ans:  False AACSB:  Reflective Thinking AICPA BB:  Critical Thinking AICPA FN:  Reporting LO:  8 Level:  Medium

16. Which of the following budgets are prepared before the sales budget?

| |Budgeted Income Statement |Direct Labor Budget |

|A) |Yes |Yes |

|B) |Yes |No |

|C) |No |Yes |

|D) |No |No |

Ans:  D AACSB:  Reflective Thinking AICPA BB:  Critical Thinking AICPA FN:  Reporting LO:  1 Level:  Easy

17. The usual starting point for a master budget is:

A) the direct materials purchase budget.

B) the budgeted income statement.

C) the sales forecast or sales budget.

D) the production budget.

Ans:  C AACSB:  Reflective Thinking AICPA BB:  Critical Thinking AICPA FN:  Reporting LO:  1 Level:  Easy

18. Which of the following budgets are prepared before the cash budget?

| |Selling and Administrative Expense Budget |Production Budget |

|A) |Yes |Yes |

|B) |Yes |No |

|C) |No |Yes |

|D) |No |No |

Ans:  A AACSB:  Reflective Thinking AICPA BB:  Critical Thinking AICPA FN:  Reporting LO:  1 Level:  Medium

19. Which of the following benefits could an organization reasonably expect from an effective budget program?

A) Better control of the organization's costs.

B) Better coordination of an organization's activities.

C) Better communication of the organization's objectives.

D) All of the above.

Ans:  D AACSB:  Reflective Thinking AICPA BB:  Resource Management, Critical Thinking AICPA FN:  Reporting LO:  1 Level:  Easy

20. An organization's budget program should not be used:

A) to motivate employees.

B) to assign blame to managers that do not meet budgetary goals.

C) to help evaluate managers.

D) to allocate resources to the various parts of an organization.

Ans:  B AACSB:  Reflective Thinking AICPA BB:  Resource Management, Critical Thinking AICPA FN:  Reporting LO:  1 Level:  Easy

21. A basic idea underlying __________________ is that a manager should be held responsible only for those items that the manager can actually control to a significant extent.

A) participative budgeting

B) planning and control

C) responsibility accounting

D) the master budget

Ans:  C AACSB:  Reflective Thinking AICPA BB:  Resource Management, Critical Thinking AICPA FN:  Reporting LO:  1 Level:  Easy

22. When preparing a merchandise purchases budget, the required purchases in units equals:

A) budgeted unit sales + beginning merchandise inventory + desired merchandise ending inventory.

B) budgeted unit sales - beginning merchandise inventory + desired merchandise ending inventory.

C) budgeted unit sales - beginning merchandise inventory - desired merchandise ending inventory.

D) budgeted unit sales + beginning merchandise inventory - desired merchandise ending inventory.

Ans:  B AACSB:  Reflective Thinking AICPA BB:  Critical Thinking AICPA FN:  Reporting LO:  3 Level:  Easy

23. When preparing a direct materials budget, the required purchases of raw materials in units equals:

A) raw materials needed to meet the production schedule + desired ending inventory of raw materials - beginning inventory of raw materials.

B) raw materials needed to meet the production schedule - desired ending inventory of raw materials - beginning inventory of raw materials.

C) raw materials needed to meet the production schedule - desired ending inventory of raw materials + beginning inventory of raw materials.

D) raw materials needed to meet the production schedule + desired ending inventory of raw materials + beginning inventory of raw materials.

Ans:  A AACSB:  Reflective Thinking AICPA BB:  Critical Thinking AICPA FN:  Reporting LO:  4 Level:  Easy

24. Which of the following statements is NOT correct concerning the Manufacturing Overhead Budget?

A) The Manufacturing Overhead Budget provides a schedule of all costs of production other than direct materials and labor costs.

B) The Manufacturing Overhead Budget shows only the variable portion of manufacturing overhead.

C) The Manufacturing Overhead Budget shows the expected cash disbursements for manufacturing overhead.

D) The Manufacturing Overhead Budget is prepared after the Sales Budget.

Ans:  B AACSB:  Reflective Thinking AICPA BB:  Critical Thinking AICPA FN:  Reporting LO:  6 Level:  Easy

25. Which of the following statements is NOT correct concerning the Cash Budget?

A) It is not necessary to prepare any other budgets before preparing the Cash Budget.

B) The Cash Budget should be prepared before the Budgeted Income Statement.

C) The Cash Budget should be prepared before the Budgeted Balance Sheet.

D) The Cash Budget builds on earlier budgets and schedules as well as additional data.

Ans:  A AACSB:  Reflective Thinking AICPA BB:  Critical Thinking AICPA FN:  Reporting LO:  8 Level:  Easy

26. Pitkins Company collects 20% of a month's sales in the month of sale, 70% in the month following sale, and 6% in the second month following sale. The remainder is uncollectible. Budgeted sales for the next four months are:

| | |January |February |March |April |

| |Budgeted sales |$200,000 |$300,000 |$350,000 |$250,000 |

Cash collections in April are budgeted to be:

A) $321,000

B) $313,000

C) $320,000

D) $292,000

Ans:  B AACSB:  Analytic AICPA BB:  Critical Thinking AICPA FN:  Reporting LO:  2 Level:  Easy

Solution:

| |April sales ($250,000 × 20%) |$ 50,000 |

| |March sales ($350,000 × 70%) |245,000 |

| |February sales ($300,000 × 6%) | 18,000 |

| |Total |$313,000 |

27. Sioux Company is estimating the following sales for the first six months of next year:

| |January |$250,000 |

| |February |$220,000 |

| |March |$240,000 |

| |April |$300,000 |

| |May |$360,000 |

Sales at Sioux are normally collected as 60% in the month of sale, 35% in the month following the sale, and the remaining 5% being uncollectible. Based on this information, how much cash should Sioux expect to collect during the month of April?

A) $250,800

B) $264,000

C) $290,700

D) $306,000

Ans:  B AACSB:  Analytic AICPA BB:  Critical Thinking AICPA FN:  Reporting LO:  2 Level:  Medium

Solution:

| |April sales ($300,000 × 60%) |$180,000 |

| |March sales ($240,000 × 35%) | 84,000 |

| |Total |$264,000 |

28. All of Gaylord Company's sales are on account. Thirty-five percent of the credit sales are collected in the month of sale, 45% in the month following sale, and the rest are collected in the second month following sale. Bad debts are negligible and should be ignored. The following are budgeted sales data for the company:

| | |January |February |March |April |

| |Total sales |$50,000 |$60,000 |$40,000 |$30,000 |

What is the amount of cash that should be collected in March?

A) $39,000

B) $37,000

C) $27,500

D) $51,000

Ans:  D AACSB:  Analytic AICPA BB:  Critical Thinking AICPA FN:  Reporting LO:  2 Level:  Easy

Solution:

| |March sales ($40,000 × 35%) |$14,000 |

| |February sales ($60,000 × 45%) |27,000 |

| |January sales ($50,000 × 20%*) | 10,000 |

| |Total |$51,000 |

*100% − 35% − 45% = 20%

29. On January 1, Barnes Company has 8,000 units of Product A on hand. During the year, the company plans to sell 30,000 units of Product A, and plans to have 6,500 units on hand at year end. How many units of Product A must be produced during the year?

A) 28,500

B) 31,500

C) 30,000

D) 36,500

Ans:  A AACSB:  Analytic AICPA BB:  Critical Thinking AICPA FN:  Reporting LO:  3 Level:  Easy

Solution:

Units produced = Ending inventory + Units sold − Beginning inventory

= 6,500 + 30,000 − 8,000

= 28,500

30. Betz Company's sales budget shows the following projections for next year:

| | |Sales in units |

| |First Quarter |60,000 |

| |Second Quarter |80,000 |

| |Third Quarter |45,000 |

| |Fourth Quarter |55,000 |

Inventory at the beginning of the year was 18,000 units. The finished goods inventory at the end of each quarter is to equal 30% of the next quarter's budgeted unit sales. How many units should be produced during the first quarter?

A) 24,000

B) 48,000

C) 66,000

D) 72,000

Ans:  C AACSB:  Analytic AICPA BB:  Critical Thinking AICPA FN:  Reporting LO:  3 Level:  Medium Source:  CPA, adapted

Solution:

Units produced = Ending inventory + Units sold + Beginning inventory

= (30% × 80,000) + 60,000 − 18,000

= 24,000 + 60,000 − 18,000 = 66,000

31. The following information relates to Minorca Manufacturing Corporation for next quarter:

| | |January |February |March |

| |Expected sales (in units) |440,000 |390,000 |400,000 |

| |Desired ending finished goods inventory (in units) |28,000 |30,000 |35,000 |

How many units should Minorca plan on producing for the month of February?

A) 360,000 units

B) 388,000 units

C) 392,000 units

D) 420,000 units

Ans:  C AACSB:  Analytic AICPA BB:  Critical Thinking AICPA FN:  Reporting LO:  3 Level:  Medium

Solution:

Ending inventory + Units sold − Beginning inventory

= 30,000 + 390,000 - 28,000 = 392,000

32. MJ Department Store expects to generate the following sales figures for the next three months:

| | |July |August |September |

| |Expected sales |$480,000 |$560,000 |$600,000 |

MJ's gross profit rate is 45% of sales dollars. At the end of each month, MJ wants a merchandise inventory balance equal to 30% of the following month's expected sales, stated at cost. What dollar amount of merchandise inventory should MJ plan to purchase in August?

A) $257,400

B) $314,600

C) $320,000

D) $327,800

Ans:  B AACSB:  Analytic AICPA BB:  Critical Thinking AICPA FN:  Reporting LO:  3 Level:  Hard

Solution:

Inventory cost is 55% of sales dollars (1 – 45% gross profit rate)

Inventory purchased = Ending inventory + Sales − Beginning inventory

= [($600,000 × 30%) × 55%] + ($560,000 × 55%) − [($560,000 × 30%) × 55%]

= ($180,000 × 55%) + $308,000 − ($168,000 × 55%)

= $99,000 + $308,000 − $92,400 = $314,600

33. On October 1, The Gala Manufacturing Company has 300 units of Product XYZ on hand. The company plans to sell 1,200 units of Product XYZ during October, and plans to have 500 units on hand October 31. How many units of Product XYZ must be produced during October?

A) 1,400

B) 1,500

C) 1,000

D) 2,000

Ans:  A AACSB:  Analytic AICPA BB:  Critical Thinking AICPA FN:  Reporting LO:  3 Level:  Easy

Solution:

Units produced = Ending inventory + Units sold − Beginning inventory

= 500 + 1,200 − 300 = 1,400

34. The following are budgeted data:

| | |Month 1 |Month 2 |Month 3 |

| |Sales in units |15,000 |20,000 |18,000 |

| |Production in units |16,000 |22,000 |15,000 |

One pound of material is required for each finished unit. The inventory of materials at the end of each month should equal 20% of the following month's production needs. At the beginning of Month 1, 3,200 lbs. of materials were on hand. Purchases of raw materials for Month 2 would be budgeted to be:

A) 17,600 pounds

B) 23,400 pounds

C) 20,600 pounds

D) 25,000 pounds

Ans:  C AACSB:  Analytic AICPA BB:  Critical Thinking AICPA FN:  Reporting LO:  4 Level:  Medium

Solution:

Materials purchased = Ending inventory + Materials used − Beginning inventory

= (20% × 15,000) + 22,000 − (20% × 22,000)

= 3,000 + 22,000 − 4,400 = 20,600

35. Alexis Fabrication, Inc. manufactures and sells box trailers for semi trucks. Each trailer requires two (2) axles. For next quarter, Alexis has scheduled 720 trailers for production and 750 for sale. Alexis is also moving to just-in-time purchasing next quarter and plans on reducing its inventory of trailer axles by 100. How many axles should Alexis budget for purchase for next quarter?

A) 1,240 axles

B) 1,300 axles

C) 1,340 axles

D) 1,400 axles

Ans:  C AACSB:  Analytic AICPA BB:  Critical Thinking AICPA FN:  Reporting LO:  4 Level:  Medium

Solution:

Materials to be purchased = Ending inventory + Materials to be used − Beginning inventory

= Materials to be used + (Ending inventory − Beginning inventory)

= (720 × 2) − 100 = 1,440 − 100 = 1,340

36. Garry Manufacturing Corporation's most recent production budget indicates the following required production:

| | |October |November |December |

| |Required production (units) |210,000 |175,000 |110,000 |

Each unit of finished product requires 5 pounds of raw materials. The company maintains raw materials inventory equal to 25% of the next month's expected production needs. How many pounds of raw material should Garry plan on purchasing for the month of November?

A) 1,006,250

B) 793,750

C) 1,012,500

D) 893,500

Ans:  B AACSB:  Analytic AICPA BB:  Critical Thinking AICPA FN:  Reporting LO:  4 Level:  Easy

Solution:

Materials to be purchased = Ending inventory + Materials to be used − Beginning inventory

= (25% × 110,000 × 5) + (175,000 × 5) − (25% × 175,000 × 5)

= 137,500 + 875,000 − 218,750 = 793,750

37. Depasquale Corporation is working on its direct labor budget for the next two months. Each unit of output requires 0.41 direct labor-hours. The direct labor rate is $8.10 per direct labor-hour. The production budget calls for producing 5,000 units in May and 5,400 units in June. If the direct labor work force is fully adjusted to the total direct labor-hours needed each month, what would be the total combined direct labor cost for the two months?

A) $16,605.00

B) $17,933.40

C) $17,269.20

D) $34,538.40

Ans:  D AACSB:  Analytic AICPA BB:  Critical Thinking AICPA FN:  Reporting LO:  5 Level:  Easy

Solution:

Total direct labor-hours = 0.41 × (5,000 + 5,400) = 4,264

Direct labor cost = 4,264 × $8.10 = $34,538.40

38. Pooler Corporation is working on its direct labor budget for the next two months. Each unit of output requires 0.15 direct labor-hours. The direct labor rate is $7.00 per direct labor-hour. The production budget calls for producing 6,500 units in April and 6,200 units in May. The company guarantees its direct labor workers a 40-hour paid work week. With the number of workers currently employed, that means that the company is committed to paying its direct labor work force for at least 1,000 hours in total each month even if there is not enough work to keep them busy. What would be the total combined direct labor cost for the two months?

A) $13,825.00

B) $13,335.00

C) $14,000.00

D) $13,510.00

Ans:  C AACSB:  Analytic AICPA BB:  Critical Thinking AICPA FN:  Reporting LO:  5 Level:  Easy

Solution:

Direct labor-hours needed for production in April = 0.15 × 6,500 = 975

Direct labor-hours needed for production in May = 0.15 × 6,200 = 930

Even though both months’ production needs would require less than 1,000 hours, the company has committed to paying a minimum of 1,000 hours per month.

Total direct labor-hours = 1,000 + 1,000 = 2,000

Direct labor cost = 2,000 × $7 = $14,000

39. Traverse Company manufactures and sells women's skirts. Each skirt (unit) requires 2.5 yards of cloth. Selected data from Traverse's master budget for next quarter are shown below:

| | |July |August |September |

| |Budgeted sales (in units) |6,000 |8,000 |9,000 |

| |Budgeted production (in units) |8,000 |10,500 |12,000 |

Each unit requires 1.5 hours of direct labor, and the average hourly cost of Traverse's direct labor is $10. What is the cost of Traverse Company's direct labor in September?

A) $135,000

B) $180,000

C) $157,500

D) $120,000

Ans:  B AACSB:  Analytic AICPA BB:  Critical Thinking AICPA FN:  Reporting LO:  5 Level:  Easy

Solution:

12,000 × 1.5 × $10 = $180,000

40. Haylock Inc. bases its manufacturing overhead budget on budgeted direct labor-hours. The direct labor budget indicates that 5,600 direct labor-hours will be required in August. The variable overhead rate is $5.40 per direct labor-hour. The company's budgeted fixed manufacturing overhead is $69,440 per month, which includes depreciation of $15,680. All other fixed manufacturing overhead costs represent current cash flows. The August cash disbursements for manufacturing overhead on the manufacturing overhead budget should be:

A) $99,680

B) $84,000

C) $53,760

D) $30,240

Ans:  B AACSB:  Analytic AICPA BB:  Critical Thinking AICPA FN:  Reporting LO:  6 Level:  Easy

Solution:

Variable manufacturing overhead + Fixed manufacturing overhead

= (5,600 × $5.40) + ($69,440 − $15,680)

= $30,240 + $53,760 = $84,000

41. Arciba Inc. bases its manufacturing overhead budget on budgeted direct labor-hours. The direct labor budget indicates that 7,400 direct labor-hours will be required in January. The variable overhead rate is $9.50 per direct labor-hour. The company's budgeted fixed manufacturing overhead is $130,980 per month, which includes depreciation of $10,360. All other fixed manufacturing overhead costs represent current cash flows. The company recomputes its predetermined overhead rate every month. The predetermined overhead rate for January should be:

A) $27.20

B) $25.80

C) $17.70

D) $9.50

Ans:  A AACSB:  Analytic AICPA BB:  Critical Thinking AICPA FN:  Reporting LO:  6 Level:  Easy

Solution:

$9.50 + ($130,980 ÷ 7,400) = $9.50 + $17.70 = $27.20

42. The manufacturing overhead budget at Foshay Corporation is based on budgeted direct labor-hours. The direct labor budget indicates that 5,800 direct labor-hours will be required in May. The variable overhead rate is $9.10 per direct labor-hour. The company's budgeted fixed manufacturing overhead is $104,400 per month, which includes depreciation of $8,120. All other fixed manufacturing overhead costs represent current cash flows. The company recomputes its predetermined overhead rate every month. The predetermined overhead rate for May should be:

A) $9.10

B) $27.10

C) $18.00

D) $25.70

Ans:  B AACSB:  Analytic AICPA BB:  Critical Thinking AICPA FN:  Reporting LO:  6 Level:  Easy

Solution:

$9.10 + ($104,400 ÷ 5,800) = $9.10 + $18 = $27.10

43. The manufacturing overhead budget at Franklyn Corporation is based on budgeted direct labor-hours. The direct labor budget indicates that 4,400 direct labor-hours will be required in January. The variable overhead rate is $1.30 per direct labor-hour. The company's budgeted fixed manufacturing overhead is $60,280 per month, which includes depreciation of $17,160. All other fixed manufacturing overhead costs represent current cash flows. The January cash disbursements for manufacturing overhead on the manufacturing overhead budget should be:

A) $5,720

B) $43,120

C) $48,840

D) $66,000

Ans:  C AACSB:  Analytic AICPA BB:  Critical Thinking AICPA FN:  Reporting LO:  6 Level:  Easy

Solution:

(4,400 × $1.30) + ($60,280 − $17,160) = $5,720 + $43,120 = $48,840

44. Schuepfer Inc. bases its selling and administrative expense budget on budgeted unit sales. The sales budget shows 1,300 units are planned to be sold in March. The variable selling and administrative expense is $4.20 per unit. The budgeted fixed selling and administrative expense is $19,240 per month, which includes depreciation of $3,380 per month. The remainder of the fixed selling and administrative expense represents current cash flows. The cash disbursements for selling and administrative expenses on the March selling and administrative expense budget should be:

A) $15,860

B) $5,460

C) $24,700

D) $21,320

Ans:  D AACSB:  Analytic AICPA BB:  Critical Thinking AICPA FN:  Reporting LO:  7 Level:  Easy

Solution:

(1,300 × $4.20) + ($19,240 − $3,380) = $5,460 + $15,860 = $21,320

45. The selling and administrative expense budget of Choo Corporation is based on budgeted unit sales, which are 4,600 units for August. The variable selling and administrative expense is $7.30 per unit. The budgeted fixed selling and administrative expense is $51,980 per month, which includes depreciation of $6,440 per month. The remainder of the fixed selling and administrative expense represents current cash flows. The cash disbursements for selling and administrative expenses on the August selling and administrative expense budget should be:

A) $85,560

B) $45,540

C) $79,120

D) $33,580

Ans:  C AACSB:  Analytic AICPA BB:  Critical Thinking AICPA FN:  Reporting LO:  7 Level:  Easy

Solution:

(4,600 × $7.30) + ($51,980 − $6,440) = $33,580 + $45,540 = $79,120

46. Sedita Inc. is working on its cash budget for July. The budgeted beginning cash balance is $46,000. Budgeted cash receipts total $175,000 and budgeted cash disbursements total $174,000. The desired ending cash balance is $50,000. The excess (deficiency) of cash available over disbursements for July will be:

A) $47,000

B) $221,000

C) $45,000

D) $1,000

Ans:  A AACSB:  Analytic AICPA BB:  Critical Thinking AICPA FN:  Reporting LO:  8 Level:  Easy

Solution:

Excess cash available = Beginning cash balance + Cash receipts − Cash disbursements = $46,000 + $175,000 − $174,000 = $47,000

47. Bustillo Inc. is working on its cash budget for March. The budgeted beginning cash balance is $35,000. Budgeted cash receipts total $142,000 and budgeted cash disbursements total $151,000. The desired ending cash balance is $30,000. To attain its desired ending cash balance for March, the company needs to borrow:

A) $0

B) $4,000

C) $56,000

D) $30,000

Ans:  B AACSB:  Analytic AICPA BB:  Critical Thinking AICPA FN:  Reporting LO:  8 Level:  Easy

Solution:

Actual ending cash balance = Beginning cash balance + Cash receipts − Cash disbursements = $35,000 + $142,000 − $151,000 = $26,000

Amount borrowed = Desired ending cash balance − Actual ending cash balance

= $30,000 − $26,000 = $4,000

48. Francis Manufacturing Company is currently preparing its cash budget for next month and has gathered the following information:

| |Expected cash receipts |$39,400 |

| |Expected disbursements: | |

| |Direct materials |$12,000 |

| |Direct labor |$9,000 |

| |Manufacturing overhead |$11,500 |

| |Selling and administrative expenses |$22,000 |

The beginning cash balance will be $6,000 and the company requires a minimum cash balance at the end of the month of $5,000. How much will Francis Manufacturing need to borrow to meet its cash needs for the month?

A) $9,100

B) $14,100

C) $20,100

D) None of the above.

Ans:  B AACSB:  Analytic AICPA BB:  Critical Thinking AICPA FN:  Reporting LO:  8 Level:  Easy

Solution:

Actual ending cash balance = Beginning cash balance + Cash receipts − Cash disbursements = $6,000 + $39,400 − ($12,000 + $9,000 + $11,500 + $22,000)

= $45,400 − $54,500 = ($9,100)

Amount borrowed = Desired ending cash balance − Actual ending cash balance

= $5,000 − ($9,100) = $14,100

Use the following to answer questions 49-50:

KAB Inc., a small retail store, had the following results for May. The budgets for June and July are also given.

| | |May |June |July |

| | |(actual) |(budget) |(budget) |

| |Sales |$42,000 |$40,000 |$45,000 |

| |Less cost of goods sold | 21,000 | 20,000 | 22,500 |

| |Gross margin |21,000 |20,000 |22,500 |

| |Less selling and administrative expenses | 20,000 | 20,000 | 20,000 |

| |Net operating income |$ 1,000 |$        0 |$ 2,500 |

Sales are collected 80% in the month of the sale and the balance in the month following the sale. (There are no bad debts.) The goods that are sold are purchased in the month prior to sale. Suppliers of the goods are paid in the month following the sale. The "selling and administrative expenses" are paid in the month of the sale.

49. The amount of cash collected during the month of June should be:

A) $32,000

B) $40,000

C) $40,400

D) $41,000

Ans:  C AACSB:  Analytic AICPA BB:  Critical Thinking AICPA FN:  Reporting LO:  2 Level:  Easy Source:  CMA, adapted

Solution:

| |June sales ($40,000 × 80%) |$32,000 |

| |May sales ($42,000 × 20%) | 8,400 |

| |Total |$40,400 |

50. The cash disbursements during the month of June for goods purchased for resale and for selling and administrative expenses should be:

A) $40,000

B) $41,000

C) $42,500

D) $43,500

Ans:  B AACSB:  Analytic AICPA BB:  Critical Thinking AICPA FN:  Reporting LO:  3,4 Level:  Easy Source:  CMA, adapted

Solution:

| |May purchases of goods |$21,000 |

| |June selling and administrative expenses | 20,000 |

| |Total |$41,000 |

Use the following to answer questions 51-59:

Dilly Farm Supply is located in a small town in the rural west. Data regarding the store's operations follow:

• Sales are budgeted at $290,000 for November, $310,000 for December, and $210,000 for January.

• Collections are expected to be 65% in the month of sale, 33% in the month following the sale, and 2% uncollectible.

• The cost of goods sold is 80% of sales.

• The company purchases 70% of its merchandise in the month prior to the month of sale and 30% in the month of sale. Payment for merchandise is made in the month following the purchase.

• Other monthly expenses to be paid in cash are $21,100.

• Monthly depreciation is $21,000.

• Ignore taxes.

| |Statement of Financial Position | |

| |October 31 | |

| |Assets: | |

| |Cash |$    25,000 |

| |Accounts receivable |77,000 |

| |(net of allowance for uncollectible accounts) | |

| |Inventory |162,400 |

| |Property, plant and equipment | 1,026,000 |

| |(net of $624,000 accumulated depreciation) | |

| |Total assets |$1,290,400 |

| | | |

| |Liabilities and Stockholders’ Equity: | |

| |Accounts payable |$   239,000 |

| |Common stock |740,000 |

| |Retained earnings |     311,400 |

| |Total liabilities and stockholders’ equity |$1,290,400 |

51. Expected cash collections in December are:

A) $310,000

B) $95,700

C) $297,200

D) $201,500

Ans:  C AACSB:  Analytic AICPA BB:  Critical Thinking AICPA FN:  Reporting LO:  2 Level:  Hard

Solution:

| |December sales ($310,000 × 65%) |$201,500 |

| |November sales ($290,000 × 33%) | 95,700 |

| |Total |$297,200 |

52. The cost of December merchandise purchases would be:

A) $248,000

B) $232,000

C) $117,600

D) $192,000

Ans:  D AACSB:  Analytic AICPA BB:  Critical Thinking AICPA FN:  Reporting LO:  3 Level:  Hard

Solution:

| | |Sales |Cost of Goods Sold |

| |November |$290,000 |$232,000 |

| |December |$310,000 |$248,000 |

| |January |$210,000 |$168,000 |

Merchandise purchases = Ending inventory + Cost of goods sold − Beginning inventory = ($168,000 × 70%) + $248,000 − ($248,000 × 70%)

= $117,600 + $248,000 − $173,600 = $192,000

53. December cash disbursements for merchandise purchases would be:

A) $192,000

B) $243,200

C) $117,600

D) $248,000

Ans:  B AACSB:  Analytic AICPA BB:  Critical Thinking AICPA FN:  Reporting LO:  3 Level:  Hard

Solution:

| | |Sales |Cost of Goods Sold |

| |November |$290,000 |$232,000 |

| |December |$310,000 |$248,000 |

| |January |$210,000 |$168,000 |

December cash disbursements = 70% of December Cost of Goods Sold + 30% of November Cost of Good Sold = (70% × $248,000) + (30% × $232,000)

= $173,600 + $69,600 = $243,200

54. The excess (deficiency) of cash available over disbursements for December would be:

A) $46,600

B) $19,200

C) $13,700

D) $32,900

Ans:  D AACSB:  Analytic AICPA BB:  Critical Thinking AICPA FN:  Reporting LO:  8 Level:  Hard

Solution:

Cash collections − Cash disbursements − Other monthly expenses

= $297,200 − $243,200 − $21,100 = $32,900

55. The net income for December would be:

A) $13,700

B) $32,900

C) $40,900

D) $19,900

Ans:  A AACSB:  Analytic AICPA BB:  Critical Thinking AICPA FN:  Reporting LO:  9 Level:  Hard

Solution:

| |Sales |$310,000 |

| |Less uncollectible ($310,000 × 2%) | 6,200 |

| |Net sales |303,800 |

| |Cost of goods sold ($310,000 × 80%) |248,000 |

| |Other expenses |21,100 |

| |Depreciation expenses | 21,000 |

| |Net income |$ 13,700 |

56. The cash balance at the end of December would be:

A) $63,300

B) $25,000

C) $57,900

D) $38,300

Ans:  A AACSB:  Analytic AICPA BB:  Critical Thinking AICPA FN:  Reporting LO:  8 Level:  Hard

Solution:

| | |November |December |

| |October Accounts Receivable Balance |$ 77,000 | |

| |Collection of November Sales | | |

| | $290,000 × 65% |188,500 | |

| | $290,000 × 33% | |$ 95,700 |

| |Collection of December Sales | | |

| | $310,000 × 65% | |201,500 |

| |October Accounts Payable Balance |(239,000) | |

| |Payment for November Purchases | | |

| | ($290,000 × 80%) × 30% | |(69,600) |

| | ($310,000 × 80%) × 70% | |(173,600) |

| |Other cash monthly expenses |(21,100) |(21,100) |

| |Net cash inflow(outflow) per month |$ 5,400 |$ 32,900 |

| |Beginning cash balance, October 31 |$25,000 |

| |Add November net cash inflow |5,400 |

| |Add December net cash inflow |32,900 |

| |Ending cash balance, December 31 |$63,300 |

57. The accounts receivable balance, net of uncollectible accounts, at the end of December would be:

A) $102,300

B) $198,000

C) $83,200

D) $108,500

Ans:  A AACSB:  Analytic AICPA BB:  Critical Thinking AICPA FN:  Reporting LO:  10 Level:  Hard

Solution:

From December sales ($310,000 × 33%): $102,300

58. Accounts payable at the end of December would be:

A) $192,000

B) $248,000

C) $117,600

D) $74,400

Ans:  A AACSB:  Analytic AICPA BB:  Critical Thinking AICPA FN:  Reporting LO:  10 Level:  Hard

Solution:

| | |Sales |Cost of Goods Sold |

| |November |$290,000 |$232,000 |

| |December |$310,000 |$248,000 |

| |January |$210,000 |$168,000 |

Merchandise purchases = Ending inventory + Cost of goods sold − Beginning inventory = ($168,000 × 70%) + $248,000 − ($248,000 × 70%)

= $117,600 + $248,000 − $173,600 = $192,000

59. Retained earnings at the end of December would be:

A) $325,100

B) $311,400

C) $335,200

D) $347,200

Ans:  C AACSB:  Analytic AICPA BB:  Critical Thinking AICPA FN:  Reporting LO:  10 Level:  Hard

Solution:

Net income in November:

| |Sales |$290,000 |

| |Less uncollectible ($290,000 × 2%) | 5,800 |

| |Net sales |284,200 |

| |Cost of goods sold ($290,000 × 80%) |232,000 |

| |Other expenses |21,100 |

| |Depreciation expenses | 21,000 |

| |Net income |$ 10,100 |

Retained earnings in December = Retained earnings in October + Net income in November + Net income in December = $311,400 + $10,100 + $13,700 = $335,200

Use the following to answer questions 60-63:

Bramble Corporation is a small wholesaler of gourmet food products. Data regarding the store's operations follow:

• Sales are budgeted at $340,000 for November, $320,000 for December, and $310,000 for January.

• Collections are expected to be 80% in the month of sale, 16% in the month following the sale, and 4% uncollectible.

• The cost of goods sold is 75% of sales.

• The company purchases 60% of its merchandise in the month prior to the month of sale and 40% in the month of sale. Payment for merchandise is made in the month following the purchase.

• Other monthly expenses to be paid in cash are $24,000.

• Monthly depreciation is $15,000.

• Ignore taxes.

| |Statement of Financial Position | |

| |October 31 | |

| |Assets: | |

| |Cash |$     20,000 |

| |Accounts receivable (net of allowance for uncollectible accounts) |70,000 |

| |Inventory |153,000 |

| |Property, plant and equipment (net of $572,000 accumulated depreciation) | 1,094,000 |

| |Total assets |$1,337,000 |

| | | |

| |Liabilities and Stockholders’ Equity: | |

| |Accounts payable |$   254,000 |

| |Common stock |820,000 |

| |Retained earnings |     263,000 |

| |Total liabilities and stockholders’ equity |$1,337,000 |

60. Expected cash collections in December are:

A) $54,400

B) $256,000

C) $320,000

D) $310,400

Ans:  D AACSB:  Analytic AICPA BB:  Critical Thinking AICPA FN:  Reporting LO:  2 Level:  Hard

Solution:

| |December sales ($320,000 × 80%) |$256,000 |

| |November sales ($340,000 × 16%) | 54,400 |

| |Total |$310,400 |

61. The cost of December merchandise purchases would be:

A) $255,000

B) $139,500

C) $235,500

D) $240,000

Ans:  C AACSB:  Analytic AICPA BB:  Critical Thinking AICPA FN:  Reporting LO:  3 Level:  Hard

Solution:

| | |Sales |Cost of Goods Sold |

| |November |$340,000 |$255,000 |

| |December |$320,000 |$240,000 |

| |January |$310,000 |$232,500 |

Merchandise purchases = Ending inventory + Cost of goods sold − Beginning inventory = ($232,500 × 60%) + $240,000 − ($240,000 × 60%)

= $139,500 + $240,000 − $144,000 = $235,500

62. December cash disbursements for merchandise purchases would be:

A) $139,500

B) $246,000

C) $240,000

D) $235,500

Ans:  B AACSB:  Analytic AICPA BB:  Critical Thinking AICPA FN:  Reporting LO:  3 Level:  Hard

Solution:

November purchases = Ending inventory + Cost of good sold − Beginning inventory = ($240,000 × 60%) + $255,000 − ($255,000 × 60%)

= $144,000 + $255,000 − $153,000 = $246,000

December cash disbursements = November purchases = $246,000

63. The excess (deficiency) of cash available over disbursements for December would be:

A) $40,400

B) $68,600

C) $28,200

D) $12,200

Ans:  A AACSB:  Analytic AICPA BB:  Critical Thinking AICPA FN:  Reporting LO:  8 Level:  Hard

Solution:

| |December sales ($320,000 × 80%) |$256,000 |

| |November sales ($340,000 × 16%) | 54,400 |

| |Total cash collections in December |$310,400 |

November purchases = Ending inventory + Cost of good sold − Beginning inventory = ($240,000 × 60%) + $255,000 − ($255,000 × 60%)

= $144,000 + $255,000 − $153,000 = $246,000

December cash disbursements = November purchases = $246,000

Cash collections − Cash disbursements − Other monthly expenses

= $310,400 − $246,000 − $24,000 = $40,400

Use the following to answer questions 64-67:

Information on the actual sales and inventory purchases of the Law Company for the first quarter follow:

| | |Sales |Inventory Purchases |

| |January |$120,000 |$60,000 |

| |February |$100,000 |$78,000 |

| |March |$130,000 |$90,000 |

Collections from Law Company's customers are normally 60% in the month of sale, 30% in the month following sale, and 8% in the second month following sale. The balance is uncollectible. Law Company takes full advantage of the 3% discount allowed on purchases paid for by the end of the following month.

The company expects sales in April of $150,000 and inventory purchases of $100,000. Selling and administrative expenses for the month of April are expected to be $38,000, of which $15,000 is salaries and $8,000 is depreciation. The remaining selling and administrative expenses are variable with respect to the amount of sales in dollars. Those selling and administrative expenses requiring a cash outlay are paid for during the month incurred. Law Company's cash balance on March 1 was $43,000, and on April 1 was $35,000.

64. The expected cash collections from customers during April would be:

A) $150,000

B) $137,000

C) $139,000

D) $117,600

Ans:  B AACSB:  Analytic AICPA BB:  Critical Thinking AICPA FN:  Reporting LO:  2 Level:  Medium

Solution:

| |April sales ($150,000 × 60%) |$ 90,000 |

| |March sales ($130,000 × 30%) |39,000 |

| |February sales ($100,000 × 8%) | 8,000 |

| |Expected cash collections |$137,000 |

65. The expected cash disbursements during April for inventory purchases would be:

A) $100,000

B) $97,000

C) $90,000

D) $87,300

Ans:  D AACSB:  Analytic AICPA BB:  Critical Thinking AICPA FN:  Reporting LO:  2 Level:  Easy

Solution:

Expected cash disbursements for April for inventory purchases = March inventory purchases × (100% − discount percentage for paying by end of month)

= $90,000 × (100% − 3%) = $90,000 × 97% = $87,300

66. The expected cash disbursements during April for selling and administrative expenses would be:

A) $38,000

B) $30,000

C) $23,000

D) $15,000

Ans:  B AACSB:  Analytic AICPA BB:  Critical Thinking AICPA FN:  Reporting LO:  7 Level:  Easy

Solution:

Expected cash disbursements during April for selling and administrative expenses = Total selling and administrative expenses − Depreciation

= $38,000 − $8,000 = $30,000

67. The expected cash balance on April 30 would be:

A) $54,700

B) $62,700

C) $19,700

D) $28,700

Ans:  A AACSB:  Analytic AICPA BB:  Critical Thinking AICPA FN:  Reporting LO:  8 Level:  Hard

Solution:

| |April sales ($150,000 × 60%) |$ 90,000 |

| |March sales ($130,000 × 30%) |39,000 |

| |February sales ($100,000 × 8%) | 8,000 |

| |Expected cash collections |$137,000 |

Expected cash disbursements for April for inventory purchases = March inventory purchases × (100% − discount percentage for paying by end of month)

= $90,000 × (100% − 3%) = $90,000 × 97% = $87,300

Expected cash disbursements = Total selling and administrative expenses − Depreciation = $38,000 − $8,000 = $30,000

Expected cash balance = Beginning cash balance + Total cash receipts − Expected cash disbursements for inventory purchases − Expected cash disbursements for selling and administrative expenses

= $35,000 + $137,000 − $87,300 − $30,000

= $35,000 + $19,700 = $54,700

Use the following to answer questions 68-69:

The LaPann Company has obtained the following sales forecast data:

| | |July |August |September |October |

| |Cash sales |$80,000 |$70,000 |$50,000 |$60,000 |

| |Credit sales |$240,000 |$220,000 |$180,000 |$200,000 |

The regular pattern of collection of credit sales is 20% in the month of sale, 70% in the month following the month of sale, and the remainder in the second month following the month of sale. There are no bad debts.

68. The budgeted accounts receivable balance on September 30 is:

A) $126,000

B) $148,000

C) $166,000

D) $190,000

Ans:  C AACSB:  Analytic AICPA BB:  Critical Thinking AICPA FN:  Reporting LO:  2 Level:  Medium

Solution:

| |September sales ($180,000 × 80%*) |$144,000 |

| |August sales ($220,000 × 10%**) | 22,000 |

| |Total |$166,000 |

*100% − 20%

**100% − 20% − 70%

69. The budgeted cash receipts for October are:

A) $188,000

B) $248,000

C) $226,000

D) $278,000

Ans:  B AACSB:  Analytic AICPA BB:  Critical Thinking AICPA FN:  Reporting LO:  2 Level:  Medium

Solution:

| |October cash sales |$ 60,000 |

| |October credit sales ($200,000 × 20%) |40,000 |

| |September credit sales ($180,000 × 70%) |126,000 |

| |August credit sales ($220,000 × 10%) | 22,000 |

| |Total |$248,000 |

Use the following to answer questions 70-71:

Sarafiny Corporation is in the process of preparing its annual budget. The following beginning and ending inventory levels are planned for the year.

| | |Beginning Inventory |Ending Inventory |

| |Finished goods (units) |20,000 |30,000 |

| |Raw material (grams) |50,000 |40,000 |

Each unit of finished goods requires 7 grams of raw material.

70. If the company plans to sell 270,000 units during the year, the number of units it would have to manufacture during the year would be:

A) 300,000 units

B) 270,000 units

C) 260,000 units

D) 280,000 units

Ans:  D AACSB:  Analytic AICPA BB:  Critical Thinking AICPA FN:  Reporting LO:  3 Level:  Easy

Solution:

Units produced = Ending inventory + Units sold − Beginning inventory

= 30,000 + 270,000 − 20,000 = 280,000

71. How much of the raw material should the company purchase during the year?

A) 1,960,000 grams

B) 1,950,000 grams

C) 1,970,000 grams

D) 2,000,000 grams

Ans:  B AACSB:  Analytic AICPA BB:  Critical Thinking AICPA FN:  Reporting LO:  4 Level:  Medium

Solution:

Materials purchased = Ending inventory + Materials to be used − Beginning inventory = 40,000 + (280,000 × 7) − 50,000

= 40,000 + 1,960,000 − 50,000 = 1,950,000

Use the following to answer questions 72-73:

LBC Corporation makes and sells a product called Product WZ. Each unit of Product WZ requires 3.5 hours of direct labor at the rate of $14.50 per direct labor-hour. Management would like you to prepare a Direct Labor Budget for June.

72. The budgeted direct labor cost per unit of Product WZ would be:

A) $50.75

B) $14.50

C) $4.14

D) $18.00

Ans:  A AACSB:  Analytic AICPA BB:  Critical Thinking AICPA FN:  Reporting LO:  3 Level:  Easy

Solution:

Budgeted direct labor cost per unit = Direct labor-hours per unit × Direct labor rate

= 3.5 × $14.50 = $50.75

73. The company plans to sell 39,000 units of Product WZ in June. The finished goods inventories on June 1 and June 30 are budgeted to be 200 and 100 units, respectively. Budgeted direct labor costs for June would be:

A) $1,984,325

B) $1,974,175

C) $1,979,250

D) $564,050

Ans:  B AACSB:  Analytic AICPA BB:  Critical Thinking AICPA FN:  Reporting LO:  5 Level:  Medium

Solution:

Units produced = Ending inventory + Units sold − Beginning inventory

= 100 + 39,000 − 200 = 38,900

Budgeted direct labor cost per unit = Direct labor-hours per unit × Direct labor rate

= 3.5 × $14.50 = $50.75

Budgeted direct labor cost = Units produced × Budgeted direct labor cost per unit

= 38,900 × $50.75 = $1,974,175

Use the following to answer questions 74-75:

Barley Enterprises has budgeted unit sales for the next four months as follows:

| |October |4,800 units |

| |November |5,800 units |

| |December |6,400 units |

| |January |5,200 units |

The ending inventory for each month should be equal to 15% of the next month's sales in units. The inventory on September 30 was below this level and contained only 600 units.

74. The total units to be produced in October are:

A) 4,530

B) 5,070

C) 5,670

D) 5,890

Ans:  B AACSB:  Analytic AICPA BB:  Critical Thinking AICPA FN:  Reporting LO:  3 Level:  Medium

Solution:

Units produced = Ending inventory + Units sold − Beginning inventory

= (15% × 5,800) + 4,800 − 600 = 870 + 4,800 − 600 = 5,070

75. The desired ending inventory for December is:

A) 960

B) 870

C) 780

D) 690

Ans:  C AACSB:  Analytic AICPA BB:  Critical Thinking AICPA FN:  Reporting LO:  3 Level:  Easy

Solution:

Desired ending inventory for December = 15% of January’s sales in units

= 15% × 5,200 = 780

Use the following to answer questions 76-77:

Harden, Inc., has budgeted sales in units for the next five months as follows:

| |June |7,000 units |

| |July |5,300 units |

| |August |7,100 units |

| |September |6,800 units |

| |October |4,900 units |

Past experience has shown that the ending inventory for each month should be equal to 15% of the next month's sales in units. The inventory on May 31 contained 1,050 units. The company needs to prepare a production budget for the next five months.

76. The beginning inventory for September should be:

A) 1,020 units

B) 1,050 units

C) 1,065 units

D) 735 units

Ans:  A AACSB:  Analytic AICPA BB:  Critical Thinking AICPA FN:  Reporting LO:  3 Level:  Easy

Solution:

The beginning inventory for September is equal to the ending inventory for August.

Desired ending inventory for August = 15% × September’s sales in units

= 15% × 6,800 = 1,020

77. The total number of units produced in July should be:

A) 5,300 units

B) 6,365 units

C) 5,570 units

D) 5,030 units

Ans:  C AACSB:  Analytic AICPA BB:  Critical Thinking AICPA FN:  Reporting LO:  3 Level:  Easy

Solution:

Units produced = Ending inventory + Units sold − Beginning inventory

= (7,100 × 15%) + 5,300 − (5,300 × 15%)

= 1,065 + 5,300 − 795 = 5,570

Use the following to answer questions 78-79:

Caspion Corporation makes and sells a product called a Miniwarp. One Miniwarp requires 2.5 kilograms of the raw material Jurislon. Budgeted production of Miniwarps for the next five months is as follows:

| |August |22,600 units |

| |September |21,300 units |

| |October |22,700 units |

| |November |23,900 units |

| |December |23,600 units |

The company wants to maintain monthly ending inventories of Jurislon equal to 20% of the following month's production needs. On July 31, this requirement was not met since only 10,800 kilograms of Jurislon were on hand. The cost of Jurislon is $18.00 per kilogram. The company wants to prepare a Direct Materials Purchase Budget for the next five months.

78. The desired ending inventory of Jurislon for the month of September is:

A) $81,720

B) $76,680

C) $191,700

D) $204,300

Ans:  D AACSB:  Analytic AICPA BB:  Critical Thinking AICPA FN:  Reporting LO:  4 Level:  Medium

Solution:

Desired ending inventory = 20% × Direct materials needed for October × Cost per kilogram of Jurislon = 20% × (22,700 × 2.5) × $18 = 11,350 × $18 = $204,300

79. The total cost of Jurislon to be purchased in August is:

A) $1,839,600

B) $1,014,300

C) $1,208,700

D) $1,017,000

Ans:  B AACSB:  Analytic AICPA BB:  Critical Thinking AICPA FN:  Reporting LO:  4 Level:  Medium

Solution:

Materials purchased = Ending inventory + Materials used − Beginning inventory

= (20% × 21,300 × 2.5) + (22,600 × 2.5) − 10,800

= 10,650 + 56,500 − 10,800 = 56,350

Total cost of purchase = 56,350 × $18 = $1,014,300

Use the following to answer questions 80-83:

The International Company makes and sells only one product, Product SW. The company is in the process of preparing its Selling and Administrative Expense Budget for the last half of the year. The following budget data are available:

| | |Variable Cost Per Unit |Monthly Fixed Cost |

| | |Sold | |

| |Sales commissions |$0.70 | |

| |Shipping |$1.10 | |

| |Advertising |$0.20 |$14,000 |

| |Executive salaries | |$34,000 |

| |Depreciation on office equipment | |$11,000 |

| |Other |$0.25 |$19,000 |

All expenses other than depreciation are paid in cash in the month they are incurred.

80. If the company has budgeted to sell 25,000 units of Product SW in July, then the total budgeted selling and administrative expenses for July will be:

A) $56,250

B) $78,000

C) $134,250

D) $123,250

Ans:  C AACSB:  Analytic AICPA BB:  Critical Thinking AICPA FN:  Reporting LO:  6 Level:  Medium

Solution:

Variable cost per unit = ($0.70 + $1.10 + $0.20 + $0.25) = $2.25

Fixed cost = $14,000 + $34,000 + $11,000 + $19,000 = $78,000

Total budgeted selling and administrative expenses = Variable cost + Fixed cost

= ($2.25 × 25,000) + $78,000 = $56,250 + $78,000 = $134,250

81. If the company has budgeted to sell 20,000 units of Product SW in October then the total budgeted variable selling and administrative expenses for October will be:

A) $45,000

B) $40,000

C) $56,250

D) $78,000

Ans:  A AACSB:  Analytic AICPA BB:  Critical Thinking AICPA FN:  Reporting LO:  6 Level:  Medium

Solution:

Variable cost per unit = ($0.70 + $1.10 + $0.20 + $0.25) = $2.25

Total budgeted variable selling and administrative expenses = Variable cost per unit × Units sold = $2.25 × 20,000 = $45,000

82. If the budgeted cash disbursements for selling and administrative expenses for November total $123,250, then how many units of Product SW does the company plan to sell in November (rounded to the nearest whole unit)?

A) 33,444 units

B) 25,000 units

C) 22,952 units

D) 20,111 units

Ans:  B AACSB:  Analytic AICPA BB:  Critical Thinking AICPA FN:  Reporting LO:  8 Level:  Hard

Solution:

Variable cost per unit = ($0.70 + $1.10 + $0.20 + $0.25) = $2.25

Cash disbursements = Variable cost + (Fixed cost − Depreciation)

$123,250 = ($2.25 × Units sold) + ($78,000 − $11,000)

$123,250 = ($2.25 × Units sold) - $67,000

Units sold = ($123,250 − $67,000) ÷ $2.25

Units sold = $56,250 ÷ $2.25

Units sold = 25,000 units

83. If the company has budgeted to sell 24,000 units of Product SW in September, then the total budgeted fixed selling and administrative expenses for September would be:

A) $54,000

B) $48,000

C) $67,000

D) $78,000

Ans:  D AACSB:  Analytic AICPA BB:  Critical Thinking AICPA FN:  Reporting LO:  7 Level:  Medium

Solution:

| | |Monthly Fixed Cost |

| |Advertising |$14,000 |

| |Executive salaries |34,000 |

| |Depreciation on office equipment |11,000 |

| |Other |  19,000 |

| |Total |$78,000 |

Use the following to answer questions 84-86:

Davis Corporation is preparing its Manufacturing Overhead Budget for the fourth quarter of the year. The budgeted variable factory overhead rate is $1.70 per direct labor-hour; the budgeted fixed factory overhead is $116,000 per month, of which $30,000 is factory depreciation.

84. If the budgeted direct labor time for October is 8,000 hours, then the total budgeted factory overhead for October is:

A) $129,600

B) $43,600

C) $99,600

D) $86,000

Ans:  A AACSB:  Analytic AICPA BB:  Critical Thinking AICPA FN:  Reporting LO:  6 Level:  Easy

Solution:

Total budgeted factory overhead = Variable manufacturing overhead + Fixed manufacturing overhead = (8,000 × $1.70) + $116,000 = $13,600 + $116,000

= $129,600

85. If the budgeted direct labor time for November is 7,000 hours, then the total budgeted cash disbursements for November must be:

A) $41,900

B) $127,900

C) $86,000

D) $97,900

Ans:  D AACSB:  Analytic AICPA BB:  Critical Thinking AICPA FN:  Reporting LO:  6 Level:  Medium

Solution:

Cash disbursements = Variable manufacturing overhead + Fixed manufacturing overhead − Depreciation = (7,000 × $1.70) + $116,000 − $30,000

= $11,900 + $116,000 − $30,000 = $97,900

86. If the budgeted direct labor time for December is 4,000 hours, then the predetermined factory overhead per direct labor-hour for December would be:

A) $9.20

B) $30.70

C) $23.20

D) $1.70

Ans:  B AACSB:  Analytic AICPA BB:  Critical Thinking AICPA FN:  Reporting LO:  6 Level:  Medium

Solution:

Predetermined factory overhead rate = Variable overhead rate per direct labor hour + Fixed factory overhead rate per hour = $1.70 + ($116,000 ÷ 4,000)

= $1.70 + $29 = $30.70

Use the following to answer questions 87-88:

Cartier Inc. bases its manufacturing overhead budget on budgeted direct labor-hours. The variable overhead rate is $5.80 per direct labor-hour. The company's budgeted fixed manufacturing overhead is $39,930 per month, which includes depreciation of $12,870. All other fixed manufacturing overhead costs represent current cash flows. The direct labor budget indicates that 3,300 direct labor-hours will be required in April.

87. The April cash disbursements for manufacturing overhead on the manufacturing overhead budget should be:

A) $59,070

B) $46,200

C) $27,060

D) $19,140

Ans:  B AACSB:  Analytic AICPA BB:  Critical Thinking AICPA FN:  Reporting LO:  6 Level:  Easy

Solution:

Cash disbursements for April = (Variable overhead rate × Number of direct-labor hours) + (Fixed manufacturing overhead less depreciation)

= ($5.80 × 3,300) + ($39,930 − $12,870) = $19,140 + $27,060 = $46,200

88. The company recomputes its predetermined overhead rate every month. The predetermined overhead rate for April should be:

A) $14.00

B) $5.80

C) $17.90

D) $12.10

Ans:  C AACSB:  Analytic AICPA BB:  Critical Thinking AICPA FN:  Reporting LO:  6 Level:  Easy

Solution:

Predetermined factory overhead rate = Variable overhead rate per direct labor hour + Fixed factory overhead rate per hour = $5.80 + ($39,930 ÷ 3,300)

= $5.80 + $12.10 = $17.90

Use the following to answer questions 89-90:

Avril Inc. bases its manufacturing overhead budget on budgeted direct labor-hours. The variable overhead rate is $4.60 per direct labor-hour. The company's budgeted fixed manufacturing overhead is $54,080 per month, which includes depreciation of $3,840. All other fixed manufacturing overhead costs represent current cash flows. The direct labor budget indicates that 3,200 direct labor-hours will be required in October.

89. The October cash disbursements for manufacturing overhead on the manufacturing overhead budget should be:

A) $68,800

B) $64,960

C) $14,720

D) $50,240

Ans:  B AACSB:  Analytic AICPA BB:  Critical Thinking AICPA FN:  Reporting LO:  6 Level:  Easy

Solution:

Cash disbursements for October = (Variable overhead rate × Number of direct-labor hours) + (Fixed manufacturing overhead less depreciation)

= ($4.60 × 3,200) + ($54,080 − $3,840) = $14,720 + $50,240 = $64,960

90. The company recomputes its predetermined overhead rate every month. The predetermined overhead rate for October should be:

A) $4.60

B) $21.50

C) $20.30

D) $16.90

Ans:  B AACSB:  Analytic AICPA BB:  Critical Thinking AICPA FN:  Reporting LO:  6 Level:  Easy

Solution:

Predetermined factory overhead rate = Variable overhead rate per direct labor hour + Fixed factory overhead rate per hour

= $4.60 + ($54,080 ÷ 3,200) = $4.60 + $16.90 = $21.50

Use the following to answer questions 91-92:

The manufacturing overhead budget at Cardera Corporation is based on budgeted direct labor-hours. The direct labor budget indicates that 2,300 direct labor-hours will be required in January. The variable overhead rate is $1.00 per direct labor-hour. The company's budgeted fixed manufacturing overhead is $28,060 per month, which includes depreciation of $4,600. All other fixed manufacturing overhead costs represent current cash flows.

91. The company recomputes its predetermined overhead rate every month. The predetermined overhead rate for January should be:

A) $1.00

B) $12.20

C) $11.20

D) $13.20

Ans:  D AACSB:  Analytic AICPA BB:  Critical Thinking AICPA FN:  Reporting LO:  6 Level:  Easy

Solution:

Predetermined factory overhead rate = Variable overhead rate per direct labor hour + Fixed factory overhead rate per hour

= $1 + ($28,060 ÷ 2,300) = $1 + $12.20 = $13.20

92. The January cash disbursements for manufacturing overhead on the manufacturing overhead budget should be:

A) $30,360

B) $2,300

C) $23,460

D) $25,760

Ans:  D AACSB:  Analytic AICPA BB:  Critical Thinking AICPA FN:  Reporting LO:  6 Level:  Easy

Solution:

Cash disbursements for January = (Variable overhead rate × Number of direct-labor hours) + (Fixed manufacturing overhead less depreciation)

= (2,300 × $1) + ($28,060 − $4,600) = $2,300 + $23,460 = $25,760

Use the following to answer questions 93-94:

The manufacturing overhead budget at Polich Corporation is based on budgeted direct labor-hours. The direct labor budget indicates that 1,600 direct labor-hours will be required in February. The variable overhead rate is $3.40 per direct labor-hour. The company's budgeted fixed manufacturing overhead is $28,320 per month, which includes depreciation of $3,680. All other fixed manufacturing overhead costs represent current cash flows.

93. The company recomputes its predetermined overhead rate every month. The predetermined overhead rate for February should be:

A) $3.40

B) $21.10

C) $17.70

D) $18.80

Ans:  B AACSB:  Analytic AICPA BB:  Critical Thinking AICPA FN:  Reporting LO:  6 Level:  Easy

Solution:

Predetermined factory overhead rate = Variable overhead rate per direct labor hour + Fixed factory overhead rate per hour = $3.40 + ($28,320 ÷ 1,600)

= $3.40 + $17.70 = $21.10

94. The February cash disbursements for manufacturing overhead on the manufacturing overhead budget should be:

A) $24,640

B) $33,760

C) $30,080

D) $5,440

Ans:  C AACSB:  Analytic AICPA BB:  Critical Thinking AICPA FN:  Reporting LO:  6 Level:  Easy

Solution:

Cash disbursements for February = (Variable overhead rate × Number of direct-labor hours) + (Fixed manufacturing overhead less depreciation)

= (1,600 × $3.40) + ($28,320 − $3,680) = $5,440 + $24,640 = $30,080

Use the following to answer questions 95-97:

Porter Corporation makes and sells a single product called a Yute. The company is in the process of preparing its Selling and Administrative Expense Budget for the last quarter of the year. The following budget data are available:

| | |Variable Cost Per Yute|Monthly Fixed Cost |

| | |Sold | |

| |Sales commissions |$5.90 | |

| |Shipping |$5.30 | |

| |Advertising |$8.90 |$32,000 |

| |Executive salaries | |$178,000 |

| |Depreciation on office equipment | |$7,000 |

| |Other |$0.60 |$20,000 |

All of these expenses (except depreciation) are paid in cash in the month they are incurred.

95. If the company has budgeted to sell 14,000 Yutes in November, then the total budgeted selling and administrative expenses for November would be:

A) $526,800

B) $289,800

C) $237,000

D) $519,800

Ans:  A AACSB:  Analytic AICPA BB:  Critical Thinking AICPA FN:  Reporting LO:  7 Level:  Medium

Solution:

Total budgeted selling and administrative expenses = Variable cost + Fixed cost = [14,000 × ($5.90 + $5.30 + $8.90 + $ 0.60)] + ($32,000 + $178,000 + $7,000 + $20,000) = (14,000 × $20.70) + $237,000 = $526,800

96. If the company has budgeted to sell 12,000 Yutes in December, then the budgeted total cash disbursements for selling and administrative expenses for December would be:

A) $237,000

B) $485,400

C) $248,400

D) $478,400

Ans:  D AACSB:  Analytic AICPA BB:  Critical Thinking AICPA FN:  Reporting LO:  7 Level:  Medium

Solution:

Variable cost per unit = $5.90 + $5.30 + $8.90 + $0.60 = $20.70

Fixed cost total = $32,000 + $178,000 + $7,000 + $20,000 = $237,000

Cash disbursements for December = (Variable selling and administrative cost × Number of direct-labor hours) + (Fixed manufacturing overhead less depreciation)

= (12,000 × $20.70) + ($237,000 − $7,000) = $248,400 + $230,000 = $478,400

97. If the budgeted cash disbursements for selling and administrative expenses for October total $518,520, then how many Yutes does the company plan to sell in October?

A) 13,300 units

B) 14,100 units

C) 13,800 units

D) 13,600 units

Ans:  D AACSB:  Analytic AICPA BB:  Critical Thinking AICPA FN:  Reporting LO:  7 Level:  Hard

Solution:

($20.70 × Units sold) + $237,000 = $518,520

($20.70 × Units) = $518,520 − $237,000

Units = $281,520 ÷ $20.70 = 13,600

Use the following to answer questions 98-100:

The Bandeiras Company, a merchandising firm, has budgeted its activity for December according to the following information:

• Sales at $550,000, all for cash.

• Merchandise inventory on November 30 was $300,000.

• Budgeted depreciation for December is $35,000.

• The cash balance at December 1 was $25,000.

• Selling and administrative expenses are budgeted at $60,000 for December and are paid in cash.

• The planned merchandise inventory on December 31 is $270,000.

• The invoice cost for merchandise purchases represents 75% of the sales price. All purchases are paid for in cash.

98. The budgeted cash receipts for December are:

A) $412,500

B) $137,500

C) $585,000

D) $550,000

Ans:  D AACSB:  Analytic AICPA BB:  Critical Thinking AICPA FN:  Reporting LO:  8 Level:  Easy

Solution:

Since all sales are on a cash basis, the cash receipts for December will be equal to the sales in December of $550,000.

99. The budgeted cash disbursements for December are:

A) $382,500

B) $442,500

C) $472,500

D) $477,500

Ans:  B AACSB:  Analytic AICPA BB:  Critical Thinking AICPA FN:  Reporting LO:  8 Level:  Hard

Solution:

Purchases = Ending inventory + Cost of goods sold − Beginning inventory

= $270,000 + ($550,000 × 75%) − $300,000 = $382,500

Cash disbursements = Purchases + Selling and administrative expenses

= $382,500 + $60,000 = $442,500

100. The budgeted net income for December is:

A) $107,500

B) $137,500

C) $42,500

D) $77,500

Ans:  C AACSB:  Analytic AICPA BB:  Critical Thinking AICPA FN:  Reporting LO:  9 Level:  Hard

Solution:

| |Sales |$550,000 |

| |Cost of goods sold ($550,000 × 75%) | 412,500 |

| |Gross margin |137,500 |

| |Depreciation expense |35,000 |

| |Selling and administrative expense | 60,000 |

| |Net income |$ 42,500 |

Use the following to answer questions 101-102:

Rogers Corporation is preparing its cash budget for July. The budgeted beginning cash balance is $25,000. Budgeted cash receipts total $141,000 and budgeted cash disbursements total $139,000. The desired ending cash balance is $30,000.

101. The excess (deficiency) of cash available over disbursements for July is:

A) $23,000

B) $2,000

C) $166,000

D) $27,000

Ans:  D AACSB:  Analytic AICPA BB:  Critical Thinking AICPA FN:  Reporting LO:  8 Level:  Easy

Solution:

Excess cash available over disbursements = Beginning cash balance + Budgeted cash receipts - Budgeted cash disbursements

= $25,000 + $141,000 - $139,000 = $27,000

102. To attain its desired ending cash balance for July, the company should borrow:

A) $30,000

B) $0

C) $3,000

D) $57,000

Ans:  C AACSB:  Analytic AICPA BB:  Critical Thinking AICPA FN:  Reporting LO:  8 Level:  Easy

Solution:

Excess cash available over disbursements = Beginning cash balance + Budgeted cash receipts - Budgeted cash disbursements = $25,000 + $141,000 − $139,000 = $27,000

Borrowing = Desired ending cash balance − Excess cash available over disbursements = $30,000 − $27,000 = $3,000

Use the following to answer questions 103-104:

Bries Corporation is preparing its cash budget for January. The budgeted beginning cash balance is $18,000. Budgeted cash receipts total $183,000 and budgeted cash disbursements total $188,000. The desired ending cash balance is $30,000.

103. The excess (deficiency) of cash available over disbursements for January is:

A) $23,000

B) $13,000

C) ($5,000)

D) $201,000

Ans:  B AACSB:  Analytic AICPA BB:  Critical Thinking AICPA FN:  Reporting LO:  8 Level:  Easy

Solution:

Excess cash available over disbursements = Beginning cash balance + Budgeted cash receipts − Budgeted cash disbursements = $18,000 + $183,000 − $188,000 = $13,000

104. To attain its desired ending cash balance for January, the company should borrow:

A) $17,000

B) $0

C) $30,000

D) $43,000

Ans:  A AACSB:  Analytic AICPA BB:  Critical Thinking AICPA FN:  Reporting LO:  8 Level:  Easy

Solution:

Excess cash available over disbursements = Beginning cash balance + Budgeted cash receipts − Budgeted cash disbursements = $18,000 + $183,000 − $188,000 = $13,000

Borrowing = Desired ending cash balance − Excess cash available over disbursements = $30,000 − $13,000 = $17,000

Use the following to answer questions 105-106:

Muecke Inc. is working on its cash budget for April. The budgeted beginning cash balance is $40,000. Budgeted cash receipts total $150,000 and budgeted cash disbursements total $158,000. The desired ending cash balance is $50,000.

105. The excess (deficiency) of cash available over disbursements for April will be:

A) $32,000

B) $190,000

C) $48,000

D) ($8,000)

Ans:  A AACSB:  Analytic AICPA BB:  Critical Thinking AICPA FN:  Reporting LO:  8 Level:  Easy

Solution:

Excess cash available over disbursements = Beginning cash balance + Budgeted cash receipts − Budgeted cash disbursements = $40,000 + $150,000 − $158,000 = $32,000

106. To attain its desired ending cash balance for April, the company needs to borrow:

A) $18,000

B) $0

C) $50,000

D) $82,000

Ans:  A AACSB:  Analytic AICPA BB:  Critical Thinking AICPA FN:  Reporting LO:  8 Level:  Easy

Solution:

Excess cash available over disbursements = Beginning cash balance + Budgeted cash receipts - Budgeted cash disbursements = $40,000 + $150,000 - $158,000 = $32,000

Borrowing = Desired ending cash balance − Excess cash available over disbursements = $50,000 − $32,000 = $18,000

Use the following to answer questions 107-108:

Varughese Inc. is working on its cash budget for March. The budgeted beginning cash balance is $33,000. Budgeted cash receipts total $182,000 and budgeted cash disbursements total $191,000. The desired ending cash balance is $40,000.

107. The excess (deficiency) of cash available over disbursements for March will be:

A) $215,000

B) $42,000

C) $24,000

D) ($9,000)

Ans:  C AACSB:  Analytic AICPA BB:  Critical Thinking AICPA FN:  Reporting LO:  8 Level:  Easy

Solution:

Excess cash available over disbursements = Beginning cash balance + Budgeted cash receipts − Budgeted cash disbursements = $33,000 + $182,000 − $191,000 = $24,000

108. To attain its desired ending cash balance for March, the company needs to borrow:

A) $40,000

B) $0

C) $16,000

D) $64,000

Ans:  C AACSB:  Analytic AICPA BB:  Critical Thinking AICPA FN:  Reporting LO:  8 Level:  Easy

Solution:

Excess cash available over disbursements = Beginning cash balance + Budgeted cash receipts − Budgeted cash disbursements = $33,000 + $182,000 − $191,000 = $24,000

Borrowing = Desired ending cash balance − Excess cash available over disbursements = $40,000 − $24,000 = $16,000

Use the following to answer questions 109-113:

Carver Lumber sells lumber and general building supplies to building contractors in a medium-sized town in Montana. Data regarding the store's operations follow:

• Sales are budgeted at $350,000 for November, $320,000 for December, and $300,000 for January.

• Collections are expected to be 90% in the month of sale, 8% in the month following the sale, and 2% uncollectible.

• The cost of goods sold is 75% of sales.

• The company purchases 60% of its merchandise in the month prior to the month of sale and 40% in the month of sale. Payment for merchandise is made in the month following the purchase.

• Other monthly expenses to be paid in cash are $24,700.

• Monthly depreciation is $16,000.

• Ignore taxes.

| |Statement of Financial Position | |

| |October 31 | |

| |Assets: | |

| |Cash |$    19,000 |

| |Accounts receivable (net of allowance for uncollectible accounts) |77,000 |

| |Inventory |157,500 |

| |Property, plant and equipment (net of $502,000 accumulated depreciation) | 1,002,000 |

| |Total assets |$1,255,500 |

| | | |

| |Liabilities and Stockholders’ Equity: | |

| |Accounts payable |$   272,000 |

| |Common stock |780,000 |

| |Retained earnings |    203,500 |

| |Total liabilities and stockholders’ equity |$1,255,500 |

109. The net income for December would be:

A) $32,900

B) $42,300

C) $39,300

D) $55,300

Ans:  A AACSB:  Analytic AICPA BB:  Critical Thinking AICPA FN:  Reporting LO:  9 Level:  Hard

Solution:

| |Net sales [$320,000 × (100% − 2%)] |$313,600 |

| |Cost of goods sold ($320,000 × 75%) | 240,000 |

| |Gross margin |73,600 |

| |Depreciation expense |16,000 |

| |Selling and administrative expense | 24,700 |

| |Net income |$ 32,900 |

110. The cash balance at the end of December would be:

A) $19,000

B) $156,600

C) $61,300

D) $137,600

Ans:  B AACSB:  Analytic AICPA BB:  Critical Thinking AICPA FN:  Reporting LO:  10 Level:  Hard

Solution:

| | |November |December |

| |October Accounts Receivable Balance |$ 77,000 | |

| |Collection of November Sales | | |

| | $350,000 × 90% |315,000 | |

| | $350,000 × 8% | |$ 28,000 |

| |Collection of December Sales | | |

| | $320,000 × 90% | |288,000 |

| |October Accounts Payable Balance |(272,000) | |

| |Payment for November Purchases | | |

| | ($350,000 × 75%) × 40% | |(105,000) |

| | ($320,000 × 75%) × 60% | |(144,000) |

| |Other cash monthly expenses |(24,700) |(24,700) |

| |Net cash inflow(outflow) per month |$ 95,300 |$ 42,300 |

| |Beginning cash balance, October 31 |$ 19,000 |

| |Add November net cash inflow |95,300 |

| |Add December net cash inflow |42,300 |

| |Ending cash balance, December 31 |$156,600 |

111. The accounts receivable balance, net of uncollectible accounts, at the end of December would be:

A) $53,600

B) $83,400

C) $25,600

D) $32,000

Ans:  C AACSB:  Analytic AICPA BB:  Critical Thinking AICPA FN:  Reporting LO:  10 Level:  Hard

Solution:

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112. Accounts payable at the end of December would be:

A) $231,000

B) $96,000

C) $135,000

D) $240,000

Ans:  A AACSB:  Analytic AICPA BB:  Critical Thinking AICPA FN:  Reporting LO:  10 Level:  Hard

Solution:

| | |Sales |Cost of Goods Sold |

| |November |$350,000 |$262,500 |

| |December |$320,000 |$240,000 |

| |January |$300,000 |$225,000 |

Purchases in December = ($225,000 × 60%) + ($240,000 × 40%)

= $135,000 + $96,000 = $231,000

113. Retained earnings at the end of December would be:

A) $289,600

B) $276,200

C) $236,400

D) $203,500

Ans:  B AACSB:  Analytic AICPA BB:  Critical Thinking AICPA FN:  Reporting LO:  10 Level:  Hard

Solution:

| |Net income calculation for November: | |

| |Net sales ($350,000 × 98%) |$343,000 |

| |Less cost of goods sold ($350,000 × 75%) | 262,500 |

| |Gross margin |80,500 |

| |Less depreciation expense |16,000 |

| |Less selling and administrative expense | 24,700 |

| |Net income |$ 39,800 |

| |Net income calculation for December: | |

| |Net sales [$320,000 × (100% − 2%)] |$313,600 |

| |Less cost of goods sold ($320,000 × 75%) | 240,000 |

| |Gross margin |73,600 |

| |Less depreciation expense |16,000 |

| |Less selling and administrative expense | 24,700 |

| |Net income |$ 32,900 |

Retained earnings in December = Retained earnings in October + Net income in November + Net income in December = $203,500 + $39,800 + $32,900 = $276,200

Essay Questions

114. Weller Industrial Gas Corporation supplies acetylene and other compressed gases to industry. Data regarding the store's operations follow:

• Sales are budgeted at $330,000 for November, $300,000 for December, and $320,000 for January.

• Collections are expected to be 85% in the month of sale, 14% in the month following the sale, and 1% uncollectible.

• The cost of goods sold is 60% of sales.

• The company purchases 80% of its merchandise in the month prior to the month of sale and 20% in the month of sale. Payment for merchandise is made in the month following the purchase.

• Other monthly expenses to be paid in cash are $21,200.

• Monthly depreciation is $21,000.

• Ignore taxes.

| |Statement of Financial Position | |

| |October 31 | |

| |Assets: | |

| |Cash |$    22,000 |

| |Accounts receivable (net of allowance for uncollectible accounts) |83,000 |

| |Inventory |158,400 |

| |Property, plant and equipment (net of $594,000 accumulated depreciation) | 1,004,000 |

| |Total assets |$1,267,400 |

| | | |

| |Liabilities and Stockholders’ Equity: | |

| |Accounts payable |$   196,000 |

| |Common stock |620,000 |

| |Retained earnings |     451,400 |

| |Total liabilities and stockholders’ equity |$1,267,400 |

Required:

a. Prepare a Schedule of Expected Cash Collections for November and December.

b. Prepare a Merchandise Purchases Budget for November and December.

c. Prepare Cash Budgets for November and December.

d. Prepare Budgeted Income Statements for November and December.

e. Prepare a Budgeted Balance Sheet for the end of December.

Ans:

|a. | |November |December |

| |Sales |$330,000 |$300,000 |

| | | | |

| |Schedule of Expected Cash Collections | | |

| |Accounts receivable |$ 83,000 | |

| |November sales | 280,500 |$ 46,200 |

| |December sales | | 255,000 |

| |Total cash collections |$363,500 |$301,200 |

|b. | |November |December |

| |Cost of goods sold |$198,000 |$180,000 |

| | | | |

| |Merchandise Purchases Budget | | |

| |November sales |$ 39,600 | |

| |December sales | 144,000 |$ 36,000 |

| |January sales | | 153,600 |

| |Total purchases |$183,600 |$189,600 |

| | | | |

| |Disbursements for merchandise |$196,000 |$183,600 |

|c. | |November |December |

| |Cash receipts |$363,500 |$301,200 |

| |Cash disbursements: | | |

| |Disbursements for merchandise |196,000 |183,600 |

| |Other monthly expenses |   21,200 |   21,200 |

| |Total cash disbursements | 217,200 | 204,800 |

| |Excess (deficiency) of cash available over disbursements |$146,300 |$ 96,400 |

|d. | |November |December |

| |Sales |$330,000 |$300,000 |

| |Bad debt expense |3,300 |3,000 |

| |Cost of goods sold | 198,000 | 180,000 |

| |Gross margin | 128,700 | 117,000 |

| |Other monthly expenses |21,200 |21,200 |

| |Depreciation |   21,000 |   21,000 |

| |Net operating income |$ 86,500 |$ 74,800 |

|e. |Statement of Financial Position | |

| |December 31 | |

| |Assets: | |

| |Cash |$  264,700 |

| |Accounts receivable (net of allowance for uncollectible accounts) |42,000 |

| |Inventory |153,600 |

| |Property, plant and equipment (net of $636,000 accumulated depreciation) |    962,000 |

| |Total assets |$1,422,300 |

| | | |

| |Liabilities and Stockholders’ Equity: | |

| |Accounts payable |$   189,600 |

| |Common stock |620,000 |

| |Retained earnings |    612,700 |

| |Total liabilities and stockholders’ equity |$1,422,300 |

AACSB:  Analytic AICPA BB:  Critical Thinking AICPA FN:  Reporting, Measurement LO:  2,3,8,9,10 Level:  Hard

115. At March 31 Streuling Enterprises, a merchandising firm, had an inventory of 38,000 units, and it had accounts receivable totaling $85,000. Sales, in units, have been budgeted as follows for the next four months:

| |April |60,000 |

| |May |75,000 |

| |June |90,000 |

| |July |81,000 |

Streuling's board of directors has established a policy to commence in April that the inventory at the end of each month should contain 40% of the units required for the following month's budgeted sales.

The selling price is $2 per unit. One-third of sales are paid for by customers in the month of the sale, the balance is collected in the following month.

Required:

a. Prepare a merchandise purchases budget showing how many units should be purchased for each of the months April, May, and June.

b. Prepare a schedule of expected cash collections for each of the months April, May, and June.

Ans:

|a. | |April |May |June |July |

| |Budgeted sales, in units |60,000 |75,000 |90,000 |81,000 |

| |Desired ending inventory (40%) | 30,000 | 36,000 | 32,400 | |

| |Total needs |90,000 |111,000 |122,400 | |

| |Less beginning inventory | 38,000 | 30,000 | 36,000 | |

| |Required purchases | 52,000 | 81,000 | 86,400 | |

|b. | |April |May |June | |

| |Budgeted sales, at $2 per unit |$120,000 |$150,000 |$180,000 | |

| |March 31 accounts receivable |$ 85,000 | | | |

| |April sales |   40,000 |$ 80,000 | | |

| |May sales | |   50,000 |$100,000 | |

| |June sales | | |   60,000 | |

| |Total cash collections |$125,000 |$130,000 |$160,000 | |

AACSB:  Analytic AICPA BB:  Critical Thinking AICPA FN:  Reporting, Measurement LO:  2,3 Level:  Medium

116. Capes Corporation is a wholesaler of industrial goods. Data regarding the store's operations follow:

• Sales are budgeted at $390,000 for November, $360,000 for December, and $340,000 for January.

• Collections are expected to be 85% in the month of sale, 10% in the month following the sale, and 5% uncollectible.

• The cost of goods sold is 80% of sales.

• The company purchases 40% of its merchandise in the month prior to the month of sale and 60% in the month of sale. Payment for merchandise is made in the month following the purchase.

• The November beginning balance in the accounts receivable account is $77,000.

• The November beginning balance in the accounts payable account is $320,000.

Required:

a. Prepare a Schedule of Expected Cash Collections for November and December.

b. Prepare a Merchandise Purchases Budget for November and December.

Ans:

|a. | |November |December |

| |Sales |$390,000 |$360,000 |

| | | | |

| |Schedule of Expected Cash Collections | | |

| |Accounts receivable |$ 77,000 | |

| |November sales | 331,500 |$ 39,000 |

| |December sales | | 306,000 |

| |Total cash collections |$408,500 |$345,000 |

|b. | |November |December |

| |Cost of goods sold |$312,000 |$288,000 |

| | | | |

| |Merchandise Purchases Budget | | |

| |November sales |$187,200 | |

| |December sales | 115,200 |$172,800 |

| |January sales | | 108,800 |

| |Total purchases |$302,400 |$281,600 |

| | | | |

| |Disbursements for merchandise |$320,000 |$302,400 |

AACSB:  Analytic AICPA BB:  Critical Thinking AICPA FN:  Reporting, Measurement LO:  2,3 Level:  Medium

117. Clay Company has projected sales and production in units for the second quarter of the coming year as follows:

| | |April |May |June |

| |Sales |50,000 |40,000 |60,000 |

| |Production |60,000 |50,000 |50,000 |

Cash-related production costs are budgeted at $5 per unit produced. Of these production costs, 40% are paid in the month in which they are incurred and the balance in the following month. Selling and administrative expenses will amount to $100,000 per month. The accounts payable balance on March 31 totals $190,000, which will be paid in April.

All units are sold on account for $14 each. Cash collections from sales are budgeted at 60% in the month of sale, 30% in the month following the month of sale, and the remaining 10% in the second month following the month of sale. Accounts receivable on April 1 totaled $500,000 $(90,000 from February's sales and the remainder from March).

Required:

a. Prepare a schedule for each month showing budgeted cash disbursements for the Clay Company.

b. Prepare a schedule for each month showing budgeted cash receipts for Clay Company.

Ans:

|a. | |April |May |June |

| |Production units |60,000 |50,000 |50,000 |

| |Cash required per unit |× $5 |× $5 |× $5 |

| |Production costs |$300,000 |$250,000 |$250,000 |

| | | | | |

| |Cash disbursements: | | | |

| | |April |May |June |

| |Production this month (40%) |$120,000 |$100,000 |$100,000 |

| |Production prior month (60%) |190,000 |180,000 |150,000 |

| |Selling and administrative | 100,000 | 100,000 | 100,000 |

| |Total disbursements |$410,000 |$380,000 |$350,000 |

Payments relating to the prior month (March) in April represent the balance of accounts payable at March 31.

|b. | |April |May |June |

| |Sales units |50,000 |40,000 |60,000 |

| |Sales price |× $14 |× $14 |× $14 |

| |Total sales |$700,000 |$560,000 |$840,000 |

| | | | | |

| | |April |May |June |

| |Cash receipts: | | | |

| |February sales |$ 90,000 | | |

| |March sales |307,500 |$102,500 | |

| |April sales | 420,000 |210,000 |$ 70,000 |

| |May sales | | 336,000 |168,000 |

| |June sales | | | 504,000 |

| |Total receipts |$817,500 |$648,500 |$742,000 |

AACSB:  Analytic AICPA BB:  Critical Thinking AICPA FN:  Reporting, Measurement LO:  2,4 Level:  Hard

118. The Doley Company has planned the following sales for the next three months:

| | |Jan |Feb |Mar |

| |Budgeted sales |$40,000 |$50,000 |$70,000 |

Sales are made 20% for cash and 80% on account. From experience, the company has learned that a month’s sales on account are collected according to the following pattern:

| |Month of sale |60% |

| |First month following sale |30% |

| |Second month following sale |8% |

| |Uncollectible |2% |

The company requires a minimum cash balance of $5,000 to start a month. The beginning cash balance in March is budgeted to be $6,000.

Required:

a. Compute the budgeted cash receipts for March.

b. The following additional information has been provided for March:

| |Inventory purchases (all paid in March) |$28,000 |

| |Selling and administrative expenses (all paid in March) |$40,000 |

| |Depreciation expense for March |$5,000 |

| |Dividends paid in March |$4,000 |

Prepare a cash budget in good form for the month of March, using this information and the budgeted cash receipts you computed for part (1) above. The company can borrow in any dollar amount and will not pay interest until April.

Ans:

|a. |Cash sales, March: $70,000 × 20% |$14,000 |

| |Collections on account: | |

| |Jan. sales: $40,000 × 80% × 8% |2,560 |

| |Feb. sales: $50,000 × 80% × 30% |12,000 |

| |Mar. sales: $70,000 × 80% × 60% | 33,600 |

| |Total cash receipts |$62,160 |

|b. |Cash balance, beginning |$ 6,000 |

| |Add cash receipts from sales | 62,160 |

| |Total cash available | 68,160 |

| | | |

| |Less disbursements: | |

| |Inventory purchases |28,000 |

| |Selling and administrative expenses |40,000 |

| |Dividends |  4,000 |

| |Total disbursements | 72,000 |

| |Cash excess (deficiency) |(3,840) |

| |Financing–borrowing |   8,840 |

| |Cash balance, ending |$ 5,000 |

AACSB:  Analytic AICPA BB:  Critical Thinking AICPA FN:  Reporting, Measurement LO:  2,8 Level:  Medium

119. A sales budget is given below for one of the products manufactured by the Key Co.:

| |January |21,000 units |

| |February |36,000 units |

| |March |61,000 units |

| |April |41,000 units |

| |May |31,000 units |

| |June |25,000 units |

The inventory of finished goods at the end of each month should equal 20% of the next month's sales. However, on December 31 the finished goods inventory totaled only 4,000 units.

Each unit of product requires three specialized electrical switches. Since the production of these specialized switches by Key's suppliers is sometimes irregular, the company has a policy of maintaining an ending inventory at the end of each month equal to 30% of the next month's production needs. This requirement had been met on January 1 of the current year.

Required:

Prepare a budget showing the quantity of switches to be purchased each month for January, February, and March and in total for the quarter.

Ans:

| |January |February |March |April |

|Budgeted sales (units) |21,000 |36,000 |61,000 |41,000 |

|Add: Desired ending inventory | 7,200 |12,200 | 8,200 | 6,200 |

|Total needs |28,200 |48,200 |69,200 |47,200 |

|Deduct: Beginning inventory | 4,000 | 7,200 |12,200 | 8,200 |

|Units to be produced |24,200 |41,000 |57,000 |39,000 |

| |January |February |March |Quarter |

|Units to be produced |24,200 |41,000 |57,000 |122,200 |

|Switches per unit |×3 |×3 |×3 |×3 |

|Production needs |72,600 |123,000 |171,000 |366,600 |

|Add: Desired ending inventory | 36,900 | 51,300 | 35,100 | 35,100 |

|Total needs |109,500 |174,300 |206,100 |401,700 |

|Deduct: Beginning inventory | 21,780 | 36,900 | 51,300 | 21,780 |

|Required purchases | 87,720 |137,400 |154,800 |379,920 |

Beginning inventory, January 1: 72,600 × 0.3 = 21,780

Ending inventory, March 31: (39,000 × 3) × 0.3 = 35,100

AACSB:  Analytic AICPA BB:  Critical Thinking AICPA FN:  Reporting, Measurement LO:  4 Level:  Hard

120. One quarter gram of a rare seasoning is required for each bottle of Dipping Oil, a very popular product sold through gourmet shops that is produced by The Lucas Company. The cost of the seasoning is $16 per gram. Budgeted production of Dipping Oil is given below for the second quarter, and the first month of the third quarter.

| | |April |May |June |July |

| |Required production bottles |5,000 |8,000 |15,000 |10,000 |

The seasoning is so difficult to get that the company must have on hand at the end of each month 20% of the next month's production needs. A total of 250 grams will be on hand at the beginning of April.

Required:

Prepare a direct materials budget for the seasoning, by month and in total for the second quarter. Be sure to include both the quantity to be purchased and its cost for each month.

Ans:

|Lucas Company |

|Direct Materials Budget for the Second Quarter |

| |April |May |June |Total |

|Required production (bottles) |5,000 |8,000 |15,000 |28,000 |

|Seasoning required per bottle (grams) |×0.25 |×0.25 |×0.25 |×0.25 |

|Production needs (grams) |1,250 |2,000 |3,750 |7,000 |

|Add desired ending inventory of seasoning |   400 |   750 |   500 |   500 |

|Total needs |1,650 |2,750 |4,250 |7,500 |

|Less beginning inventory of seasoning |   250 |   400 |   750 |   250 |

|Seasoning to be purchased (grams) |1,400 |2,350 |3,500 |7,250 |

|Cost of seasoning per gram |× $16 |× $16 |× $16 |× $16 |

|Cost of seasoning to be purchased |$22,400 |$37,600 |$56,00 |$116,000 |

AACSB:  Analytic AICPA BB:  Critical Thinking AICPA FN:  Reporting, Measurement LO:  4 Level:  Easy

121. Whitmer Corporation is working on its direct labor budget for the next two months. Each unit of output requires 0.05 direct labor-hours. The direct labor rate is $11.80 per direct labor-hour. The production budget calls for producing 7,100 units in February and 6,800 units in March.

Required:

Construct the direct labor budget for the next two months, assuming that the direct labor work force is fully adjusted to the total direct labor-hours needed each month.

Ans:

| |February |March |

|Required production in units |7,100 |6,800 |

|Direct labor-hours per unit |0.05 |0.05 |

|Total direct labor-hours needed |355 |340 |

|Direct labor cost per hour |$11.80 |$11.80 |

|Total direct labor cost |$4,189 |$4,012 |

AACSB:  Analytic AICPA BB:  Critical Thinking AICPA FN:  Reporting, Measurement LO:  5 Level:  Easy

122. Sthilaire Corporation is working on its direct labor budget for the next two months. Each unit of output requires 0.34 direct labor-hours. The direct labor rate is $11.10 per direct labor-hour. The production budget calls for producing 8,000 units in April and 8,300 units in May. The company guarantees its direct labor workers a 40-hour paid work week. With the number of workers currently employed, that means that the company is committed to paying its direct labor work force for at least 2,840 hours in total each month even if there is not enough work to keep them busy.

Required:

Construct the direct labor budget for the next two months.

Ans:

| |April |May |

|Required production in units |8,000 |8,300 |

|Direct labor-hours per unit |0.34 |0.34 |

|Total direct labor-hours needed |2,720 |2,822 |

|Total direct labor-hours paid |2,840 |2,840 |

|Direct labor cost per hour |$11.10 |$11.10 |

|Total direct labor cost |$31,524 |$31,524 |

AACSB:  Analytic AICPA BB:  Critical Thinking AICPA FN:  Reporting, Measurement LO:  5 Level:  Medium

123. Brockney Inc. bases its manufacturing overhead budget on budgeted direct labor-hours. The variable overhead rate is $8.60 per direct labor-hour. The company's budgeted fixed manufacturing overhead is $107,970 per month, which includes depreciation of $9,760. All other fixed manufacturing overhead costs represent current cash flows. The July direct labor budget indicates that 6,100 direct labor-hours will be required in that month.

Required:

a. Determine the cash disbursement for manufacturing overhead for July.

b. Determine the predetermined overhead rate for July.

Ans:

|a. | |July |

| |Budgeted direct labor-hours |6,100 |

| |Variable overhead rate |$8.60 |

| |Variable manufacturing overhead |$ 52,460 |

| |Fixed manufacturing overhead | 107,970 |

| |Total manufacturing overhead |160,430 |

| |Less depreciation |     9,760 |

| |Cash disbursement for manufacturing overhead |$150,670 |

|b. |Total manufacturing overhead (a) |$160,430 |

| |Budgeted direct labor-hours (b) |6,100 |

| |Predetermined overhead rate for the month (a)/(b) |$26.30 |

AACSB:  Analytic AICPA BB:  Critical Thinking AICPA FN:  Reporting, Measurement LO:  6 Level:  Easy

124. The manufacturing overhead budget of Reigle Corporation is based on budgeted direct labor-hours. The February direct labor budget indicates that 5,800 direct labor-hours will be required in that month. The variable overhead rate is $4.60 per direct labor-hour. The company's budgeted fixed manufacturing overhead is $82,360 per month, which includes depreciation of $16,820. All other fixed manufacturing overhead costs represent current cash flows.

Required:

a. Determine the cash disbursement for manufacturing overhead for February. Show your work!

b. Determine the predetermined overhead rate for February. Show your work!

Ans:

|a. | |February |

| |Budgeted direct labor-hours |5,800 |

| |Variable overhead rate |$4.60 |

| |Variable manufacturing overhead |$ 26,680 |

| |Fixed manufacturing overhead |  82,360 |

| |Total manufacturing overhead |109,040 |

| |Less depreciation |  16,820 |

| |Cash disbursement for manufacturing overhead |$ 92,220 |

|b. |Total manufacturing overhead (a) |$109,040 |

| |Budgeted direct labor-hours (b) |5,800 |

| |Predetermined overhead rate for the month (a)/(b) |$18.80 |

AACSB:  Analytic AICPA BB:  Critical Thinking AICPA FN:  Reporting, Measurement LO:  6 Level:  Easy

125. Wala Inc. bases its selling and administrative expense budget on the number of units sold. The variable selling and administrative expense is $8.20 per unit. The budgeted fixed selling and administrative expense is $132,800 per month, which includes depreciation of $14,400. The remainder of the fixed selling and administrative expense represents current cash flows. The sales budget shows 8,000 units are planned to be sold in July.

Required:

Prepare the selling and administrative expense budget for July.

Ans:

| |July |

|Budgeted unit sales |8,000 |

|Variable selling and administrative expense per unit |$8.20 |

|Budgeted variable expense |$ 65,600 |

|Budgeted fixed selling and administrative expense | 132,800 |

|Total budgeted selling and administrative expense |198,400 |

|Less depreciation |   14,400 |

|Cash disbursements for selling and administrative expenses |$184,000 |

AACSB:  Analytic AICPA BB:  Critical Thinking AICPA FN:  Reporting, Measurement LO:  7 Level:  Easy

126. The selling and administrative expense budget of Garney Corporation is based on the number of units sold, which are budgeted to be 1,800 units in October. The variable selling and administrative expense is $2.00 per unit. The budgeted fixed selling and administrative expense is $22,680 per month, which includes depreciation of $7,020. The remainder of the fixed selling and administrative expense represents current cash flows.

Required:

Prepare the selling and administrative expense budget for October.

Ans:

| |October |

|Budgeted unit sales |1,800 |

|Variable selling and administrative expense per unit |$2.00 |

|Budgeted variable expense |$ 3,600 |

|Budgeted fixed selling and administrative expense | 22,680 |

|Total budgeted selling and administrative expense |26,280 |

|Less depreciation |   7,020 |

|Cash disbursements for selling and administrative expenses |$19,260 |

AACSB:  Analytic AICPA BB:  Critical Thinking AICPA FN:  Reporting, Measurement LO:  7 Level:  Easy

127. Romeiro Corporation is preparing its cash budget for September. The budgeted beginning cash balance is $46,000. Budgeted cash receipts total $160,000 and budgeted cash disbursements total $152,000. The desired ending cash balance is $70,000. The company can borrow up to $120,000 at any time from a local bank, with interest not due until the following month.

Required:

Prepare the company's cash budget for September in good form.

Ans:

|Cash balance, beginning |$ 46,000 |

|Add cash receipts | 160,000 |

|Total cash available |206,000 |

|Less cash disbursements | 152,000 |

|Excess (deficiency) of cash available over disbursements |54,000 |

|Borrowings |   16,000 |

|Cash balance, ending |$ 70,000 |

AACSB:  Analytic AICPA BB:  Critical Thinking AICPA FN:  Reporting, Measurement LO:  8 Level:  Easy

128. Zolezzi Inc. is preparing its cash budget for March. The budgeted beginning cash balance is $42,000. Budgeted cash receipts total $178,000 and budgeted cash disbursements total $175,000. The desired ending cash balance is $50,000. The company can borrow up to $160,000 at any time from a local bank, with interest not due until the following month.

Required:

Prepare the company's cash budget for March in good form. Make sure to indicate what borrowing, if any, would be needed to attain the desired ending cash balance.

Ans:

|Cash balance, beginning |$ 42,000 |

|Add cash receipts | 178,000 |

|Total cash available |220,000 |

|Less cash disbursements | 175,000 |

|Excess (deficiency) of cash available over disbursements |45,000 |

|Borrowings |     5,000 |

|Cash balance, ending |$ 50,000 |

AACSB:  Analytic AICPA BB:  Critical Thinking AICPA FN:  Reporting, Measurement LO:  8 Level:  Easy

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