978-0077826482 Chapter 8 Part 7

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Chapter 08 Budgetary Planning Answer Key

True / False Questions

1. Control is a forward-looking process while planning is a backward-looking one.

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Learning Objective: 08-01 Describe (a) how and why organizations use budgets for planning and control and (b) potential

behavioral issues to consider when implementing a budget.

Topic: Planning and control cycle

2. The budget translates a company’s objectives into financial terms.

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Learning Objective: 08-01 Describe (a) how and why organizations use budgets for planning and control and (b) potential

behavioral issues to consider when implementing a budget.

Topic: Planning and control cycle

3. An advantage of budgeting is that it provides a benchmark for evaluating performance.

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Learning Objective: 08-01 Describe (a) how and why organizations use budgets for planning and control and (b) potential

behavioral issues to consider when implementing a budget.

Topic: Benefits of budgeting

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4. One advantage of participative budgeting is managers can build in budgetary slack.

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Learning Objective: 08-01 Describe (a) how and why organizations use budgets for planning and control and (b) potential

behavioral issues to consider when implementing a budget.

Topic: Behavioral effects of budgets

5. Participative budgeting allows employees throughout the organization to have input into the

budget-setting process.

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Learning Objective: 08-01 Describe (a) how and why organizations use budgets for planning and control and (b) potential

behavioral issues to consider when implementing a budget.

Topic: Behavioral effects of budgets

6. Participative budgeting is more likely to motivate people to work toward the organization’s

goals than is a top-down approach.

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Learning Objective: 08-01 Describe (a) how and why organizations use budgets for planning and control and (b) potential

behavioral issues to consider when implementing a budget.

Topic: Behavioral effects of budgets

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7. Operating budgets focus on the financial resources needed to support operations.

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Learning Objective: 08-02 Describe the major components of the master budget and their interrelationships.

Topic: Components of the master budget

8. The production budget must be prepared before the sales budget can be prepared.

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Learning Objective: 08-02 Describe the major components of the master budget and their interrelationships.

Topic: Components of the master budget

9. Preparing the sales budget includes calculating the revenues to be earned from units sold in

addition to the number of units to be sold.

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Learning Objective: 08-03a Prepare the following components of the operating budget: Sales budget.

Topic: Sales budget

10. If a company produces and sells goods to order, the sales budget and production budget are

identical.

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Learning Objective: 08-03b Prepare the following components of the operating budget: Production budget.

Topic: Production budget

11. Manufacturing firms prepare a separate raw materials purchases budget for each material

used in production.

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Learning Objective: 08-03c Prepare the following components of the operating budget: Raw materials purchases budget.

Topic: Raw materials purchases budget

12. The direct labor budget is based on budgeted sales levels.

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Learning Objective: 08-03d Prepare the following components of the operating budget: Direct labor budget.

Topic: Direct labor budget

13. Budgeted manufacturing overhead includes indirect manufacturing costs, but not selling or

administrative costs.

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Learning Objective: 08-03e Prepare the following components of the operating budget: Manufacturing overhead budget.

Topic: Manufacturing overhead budget

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14. The selling and administrative expense budget is based on the production budget.

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Learning Objective: 08-03g Prepare the following components of the operating budget: Selling and administrative expense

budget.

Topic: Selling and administrative expense budget

15. Budgeted cash collections are based on the sales budget.

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Learning Objective: 08-04 Prepare the cash budget and describe the relationships among the operating budgets, cash budget,

and budgeted balance sheet.

Topic: Budgeted cash receipts

Multiple Choice Questions

16. Which of the following is the forward-looking phase of the planning and control cycle?

B. Directing/Leading

C. Organizing

D. Control

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behavioral issues to consider when implementing a budget.

Topic: Planning and control cycle

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17. Creating a budget is an important part of which phase of the planning and control process?

B. Controlling

C. Implementing

D. Executing

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Learning Objective: 08-01 Describe (a) how and why organizations use budgets for planning and control and (b) potential

behavioral issues to consider when implementing a budget.

Topic: Planning and control cycle

18. A short-term objective is:

A. a specific action managers use to reach their long-term goals.

B. a specific tactic put in place to support the strategic plan.

term goals.

D. a specific component of the budgeted income statement.

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Learning Objective: 08-01 Describe (a) how and why organizations use budgets for planning and control and (b) potential

behavioral issues to consider when implementing a budget.

Topic: Planning and control cycle

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19. Which of the following statements is true about the strategic plan?

term.

B. It is created by employees of a company and shared with management for execution.

C. It is management’s vision of individual professional development goals over the long term.

D. It is created as a thought exercise for long-term planning purposes, but it does not relate to

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Learning Objective: 08-01 Describe (a) how and why organizations use budgets for planning and control and (b) potential

behavioral issues to consider when implementing a budget.

Topic: Planning and control cycle

20. A detailed plan that translates the company’s objectives into financial terms, identifying the

resources and expenditures that will be required over the planning horizon is a:

A. Strategic plan

C. Tactic

D. Long-term objective

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Topic: Planning and control cycle

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21. Which of the following is the backward-looking phase of the planning and control cycle?

A. Planning

B. Implementing

C. Executing

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Learning Objective: 08-01 Describe (a) how and why organizations use budgets for planning and control and (b) potential

behavioral issues to consider when implementing a budget.

Topic: Planning and control cycle

22. ____________ are the specific actions managers use to achieve their goals.

A. Strategic plans

B. Long-term objectives

C. Short-term objectives

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Learning Objective: 08-01 Describe (a) how and why organizations use budgets for planning and control and (b) potential

behavioral issues to consider when implementing a budget.

Topic: Planning and control cycle

23. _____________ are the specific goals that managers want to achieve over a 5- to 10-year

horizon.

A. Strategic plans

C. Short-term objectives

D. Tactics

A long-term objective is a specific goal that managers want to achieve over a five- to ten-year

period (i.e., longer than one year).

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Difficulty: 1 Easy

Learning Objective: 08-01 Describe (a) how and why organizations use budgets for planning and control and (b) potential

behavioral issues to consider when implementing a budget.

Topic: The planning and control cycle

24. A _____________ is the vision of what management wants the organization to achieve over

the long term.

B. Long-term objective

C. Short-term objective

D. Tactic

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Learning Objective: 08-01 Describe (a) how and why organizations use budgets for planning and control and (b) potential

behavioral issues to consider when implementing a budget.

Topic: Planning and control cycle

25. Which of the following terms is generally not used to describe the forward-oriented nature of

the budgeting process?

A. Predicted

B. Estimated

D. Expected

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Learning Objective: 08-01 Describe (a) how and why organizations use budgets for planning and control and (b) potential

behavioral issues to consider when implementing a budget.

Topic: Planning and control cycle

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26. Which of the following is not a benefit of budgeting?

A. It forces managers to look to the future.

B. It plays an important role in communication within the organization.

C. It serves an important role in motivating and rewarding employees.

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Learning Objective: 08-01 Describe (a) how and why organizations use budgets for planning and control and (b) potential

behavioral issues to consider when implementing a budget.

Topic: Benefits of budgeting

27. Top-down budgeting is:

A. when the local managers impose a budget on the top management.

C. when customers impose a budget on top management of the company.

D. when top management imposes a budget on the board of directors.

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Learning Objective: 08-01 Describe (a) how and why organizations use budgets for planning and control and (b) potential

behavioral issues to consider when implementing a budget.

Topic: Behavioral effects of budgets

28. A top-down approach to budgeting is one that is:

A. participative.

B. motivational.

C. imposed.

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Learning Objective: 08-01 Describe (a) how and why organizations use budgets for planning and control and (b) potential

behavioral issues to consider when implementing a budget.

Topic: Behavioral effects of budgets

29. Participative budgeting is an approach to budgeting that:

A. is top-down in nature.

B. allows top management to set the budget.

C. discourages budget slack.

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Learning Objective: 08-01 Describe (a) how and why organizations use budgets for planning and control and (b) potential

behavioral issues to consider when implementing a budget.

Topic: Behavioral effects of budgets

30. From a managerial perspective, which budget is most likely to motivate people to succeed in

executing it?

B. A budget that is easy to achieve, because it inspires confidence.

C. A budget that is difficult to achieve, because it encourages people to aim high.

D. A budget that is tight, and nearly impossible to achieve, because it creates camaraderie

and an “us versus them” mentality.

Budgets that are tight but attainable are more likely to motivate people than budgets that are

either too easy or too difficult to achieve.

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Learning Objective: 08-01 Describe (a) how and why organizations use budgets for planning and control and (b) potential

behavioral issues to consider when implementing a budget.

Topic: Behavioral effects of budgets

8-11

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31. Which of the following is correct about budgetary slack?

will be met.

B. Managers may include budgetary slack by overstating budgeted sales figures.

C. Managers may include budgetary slack by understating budgeted expense figures.

D. Budgetary slack helps managers make responsible spending decisions since it removes

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Learning Objective: 08-01 Describe (a) how and why organizations use budgets for planning and control and (b) potential

behavioral issues to consider when implementing a budget.

Topic: Behavioral effects of budgets

32. Which of the following is not a way to reduce the dysfunctional behaviors associated with

budgeting?

B. Use different budgets for planning and for performance evaluation.

C. Use a continuous or rolling budget approach.

D. Use a zero-based budgeting approach.

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Learning Objective: 08-01 Describe (a) how and why organizations use budgets for planning and control and (b) potential

behavioral issues to consider when implementing a budget.

Topic: Behavioral effects of budgets

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33. Which of the following statements about employee motivation is true?

A. A budget that is too easy to achieve is more likely to motivate than a budget that is too

difficult or that is tight but attainable.

B. A budget that is too difficult to achieve is more likely to motivate than a budget that is too

easy or that is tight but attainable.

or too difficult to achieve.

D. Budgets are difficult to use for motivation.

Research suggests that budgets that are tight but attainable are more likely to motivate people

than budgets that are either too easy or too difficult to achieve.

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Learning Objective: 08-01 Describe (a) how and why organizations use budgets for planning and control and (b) potential

behavioral issues to consider when implementing a budget.

Topic: Behavioral effects of budgets

34. How might the budgeting process be used ethically within an organization?

A. A sales manager defers sales to future periods once she has met her quota for the month

to avoid having her budgeted quota increased in future periods. (She worries an increased

quota would prevent her from spending time with her ailing father.)

B. A production manager begins production on orders that have not been placed in order to

meet a budgetary goal for production units started during a period. (She worries that failing

to meet a production goal will cause her department to forfeit their bonuses for the year.)

C. An entrepreneur offers a steep discount on services to increase the number of clients

served during the quarter. (He worries his investor will withdraw funding if the service

numbers aren’t met and employees will lose their jobs.)

impact of the production process, striving to reduce emissions from the factory. (She

worries not enough emphasis is placed on the non-financial measures of success.)

Budgetary goals—and the budget process more broadly—may be used within an organization

to encourage focus on sustainability measures. Unfortunately, the converse—that budgetary

goals may inspire unethical behavior, often when tied to performance results—is often true.

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Learning Objective: 08-01 Describe (a) how and why organizations use budgets for planning and control and (b) potential

behavioral issues to consider when implementing a budget.

Topic: Behavioral effects of budgets

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35. Which of the following is not a component of the master budget?

A. Operating budget

B. Budgeted income statement

C. Budgeted balance sheet

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Learning Objective: 08-02 Describe the major components of the master budget and their interrelationships.

Topic: Components of the master budget

36. Which of the following is not a component of the operating budget?

B. Sales budget

C. Selling and administrative budget

D. Raw materials purchases budget

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Learning Objective: 08-02 Describe the major components of the master budget and their interrelationships.

Topic: Components of the master budget

37. The starting point for preparing the master budget is the:

A. inventory budget.

C. production budget.

D. budgeted balance sheet.

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Learning Objective: 08-02 Describe the major components of the master budget and their interrelationships.

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Topic: Components of the master budget

38. Which of the following budgets shows how many units will be produced each period?

A. Direct materials budget

B. Direct labor budget

C. Sales budget

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Learning Objective: 08-02 Describe the major components of the master budget and their interrelationships.

Topic: Components of the master budget

39. A component of the financial budget is the:

A. production budget.

C. inventory budget.

D. selling and administrative budget.

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Learning Objective: 08-02 Describe the major components of the master budget and their interrelationships.

Topic: Components of the master budget

40. Which of the following sequences is correct?

B. Budgeted income statement – direct materials budget – production budget – sales budget

C. Cash receipts budget – sales budget – production budget – budgeted income statement

D. Inventory budget – production budget – sales budget – selling and administrative budget

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Learning Objective: 08-02 Describe the major components of the master budget and their interrelationships.

Topic: Components of the master budget

41. The number of units included in the production budget:

A. are always the same as the number of units in the sales budget.

B. depends on the raw materials purchases budget.

C. is based on the number of units in the sales budget, and increased for increases in the

selling and administrative expense budget to account for increased demand.

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Learning Objective: 08-02 Describe the major components of the master budget and their interrelationships.

Topic: Components of the master budget

42. Which of the following is not a source that can be used in preparing the sales budget?

A. Prior sales.

C. Industry trends.

D. Marketing activities.

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Learning Objective: 08-03a Prepare the following components of the operating budget: Sales budget.

Topic: Sales budget

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43. Parker Corp., which operates on a calendar year, expects to sell 4,000 units in October, and

expects sales to increase 20% each month thereafter. Sales price is expected to stay constant

at $8 per unit. What are budgeted revenues for the fourth quarter?

A. $32,000

B. $96,000

C. $115,200

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Learning Objective: 08-03a Prepare the following components of the operating budget: Sales budget.

Topic: Sales budget

44. Budgeted production is calculated by:

A. adding budgeted unit sales to budgeted beginning finished goods inventory, and

subtracting budgeted ending finished goods inventory.

B. adding budgeted unit sales to budgeted beginning work in process inventory, and

subtracting budgeted ending work in process inventory.

budgeted beginning finished goods inventory.

D. adding budgeted unit sales to budgeted ending work in process inventory, and subtracting

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Learning Objective: 08-03b Prepare the following components of the operating budget: Production budget.

Topic: Production budget

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45. If a company is planning to build inventory:

B. sales should exceed production.

C. production should equal sales.

D. production should equal inventory.

To build inventory (i.e., make the inventory balance greater), production levels must be greater

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Learning Objective: 08-03b Prepare the following components of the operating budget: Production budget.

Topic: Production budget

46. Lea Company produces hand tools. Budgeted sales for March are 10,000 units. Beginning

finished goods inventory in March is budgeted to be 1,300 units, and ending finished goods

inventory is budgeted to be 1,400 units. How many units will be produced in March?

A. 9,900

B. 10,000

D. 12,700

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Learning Objective: 08-03b Prepare the following components of the operating budget: Production budget.

Topic: Production budget

8-18

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47. Meadow Company produces hand tools. A sales budget for the next four months is as follows:

March 10,000 units, April 13,000, May 16,000 and June 21,000. Meadow Company’s ending

finished goods inventory policy is 10% of the following month’s sales. What is budgeted ending

finished goods inventory for May?

A. 1,000

B. 1,300

C. 1,600

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Learning Objective: 08-03b Prepare the following components of the operating budget: Production budget.

Topic: Production budget

48. Meadow Company produces hand tools. A sales budget for the next four months is as follows:

March 10,000 units, April 13,000, May 16,000 and June 21,000. Meadow Company’s ending

finished goods inventory policy is 10% of the following month’s sales. March 1 beginning

inventory is projected to be 1,400 units. How many units will be produced in March?

A. 10,000

C. 13,000

D. 10,100

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Learning Objective: 08-03b Prepare the following components of the operating budget: Production budget.

Topic: Production budget

8-19

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49. Meadow Company produces hand tools. A sales budget for the next four months is as follows:

March 10,000 units, April 13,000, May 16,000 and June 21,000. Meadow Company’s ending

finished goods inventory policy is 10% of the following month’s sales. March 1 beginning

inventory is projected to be 1,400 units. How many units will be produced in April?

B. 15,900

C. 12,700

D. 13,000

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Learning Objective: 08-03b Prepare the following components of the operating budget: Production budget.

Topic: Production budget

50. Marlow Company produces hand tools. A production budget for the next four months is as

follows: March 10,300 units, April 13,300, May 16,500, and June 21,800. Marlow Company’s

ending finished goods inventory policy is 10% of the following month’s sales. Meadow plans to

sell 16,000 units in May. How many units will be sold in April?

A. 12,380

C. 13,570

D. 13,620

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Learning Objective: 08-03b Prepare the following components of the operating budget: Production budget.

Topic: Production budget

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51. Marlow Company produces hand tools. A production budget for the next four months is as

follows: March 10,300 units, April 13,300, May 16,500, and June 21,800. Marlow Company’s

ending finished goods inventory policy is 10% of the following month’s sales. Marlow plans to

sell 16,000 units in May. What is budgeted ending inventory for March?

A. 1,030

C. 1,330

D. 1,650

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Learning Objective: 08-03b Prepare the following components of the operating budget: Production budget.

Topic: Production budget

52. The formula for budgeted raw materials purchases is:

A. Budgeted production units + Ending raw materials inventory – Beginning raw materials

inventory

B. Budgeted production units + Beginning raw materials inventory – Ending raw materials

inventory

materials inventory

D. Materials needed for production + Beginning raw materials inventory – Ending raw

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Learning Objective: 08-03c Prepare the following components of the operating budget: Raw materials purchases budget.

Topic: Raw materials purchases budget

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53. When calculating raw materials purchases, the starting point should be:

A. actual materials purchases from the previous year.

B. budgeted sales.

D. budgeted cost of raw materials.

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Learning Objective: 08-03c Prepare the following components of the operating budget: Raw materials purchases budget.

Topic: Raw materials purchases budget

54. Jeremy Inc. produces leather handbags. The production budget for the next four months is:

July 5,000 units, August 7,000, September 7,500, October 8,000. Each handbag requires 0.5

square meters of leather. Jeremy Inc.’s leather inventory policy is 30% of next month’s

production needs. If the leather policy is met, what will the July 1 inventory be?

B. 1,050 square meters

C. 1,825 square meters

D. 300 square meters

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Learning Objective: 08-03c Prepare the following components of the operating budget: Raw materials purchases budget.

Topic: Raw materials purchases budget

8-22

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55. Johnson Inc. produces leather handbags. Johnson Inc. estimates it will use 3,500 square

meters of leather in production in August, and 3,750 square meters of leather in production in

September. Johnson Inc.’s leather inventory policy is 30% of next month’s production needs.

What will leather purchases be in August?

A. 3,425 square meters

B. 3,500 square meters

D. 4,625 square meters

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Learning Objective: 08-03c Prepare the following components of the operating budget: Raw materials purchases budget.

Topic: Raw materials purchases budget

56. Jackson Inc. produces leather handbags. The production budget for the next four months is:

July 5,000 units, August 7,000, September 7,500, October 8,000. Each handbag requires 0.5

square meters of leather. Jackson Inc.’s leather inventory policy is 30% of next month’s

production needs. On July 1 leather inventory was expected to be 1,000 square meters. What

will leather purchases be in August?

A. 7,150 square meters

C. 7,075 square meters

D. 3,425 square meters

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Learning Objective: 08-03c Prepare the following components of the operating budget: Raw materials purchases budget.

Topic: Raw materials purchases budget

8-23

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57. Jackson Inc. produces leather handbags. The production budget for the next four months is:

July 5,000 units, August 7,000, September 7,500, October 8,000. Each handbag requires 0.5

square meters of leather. Jackson Inc.’s leather inventory policy is 30% of next month’s

production needs. On July 1 leather inventory was expected to be 1,000 square meters. What

will leather purchases be in July?

A. 2,300 square meters

C. 2,700 square meters

D. 3,575 square meters

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Difficulty: 2 Medium

Learning Objective: 08-03c Prepare the following components of the operating budget: Raw materials purchases budget.

Topic: Raw materials purchases budget

58. Jackson Inc. produces leather handbags. The production budget for the next four months is:

July 5,000 units, August 7,000, September 7,500, October 8,000. Each handbag requires 0.5

square meters of leather. Jackson Inc.’s leather inventory policy is 30% of next month’s

production needs. On July 1 leather inventory was expected to be 1,000 square meters.

Leather is expected to cost $5.00 per square meter in June, but go up to $6.00 per square

meter in July. What is the expected cost of leather purchases in July?

A. $13,800

C. $16,200

D. $16,300

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Blooms: Apply

Difficulty: 3 Hard

Learning Objective: 08-03c Prepare the following components of the operating budget: Raw materials purchases budget.

Topic: Raw materials purchases budget

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McGraw-Hill Education.

59. Jared Inc. produces leather handbags. The sales budget for the next four months is: July

5,000 units, August 7,000, September 7,500, October 8,000. Each handbag requires 0.5

square meters of leather. Jared Inc.’s finished goods inventory policy is 10% of next month’s

sales needs. Jared Inc.’s leather inventory policy is 30% of next month’s production needs.

What will leather purchases be in August?

A. 3,425 square meters

B. 3,450 square meters

C. 3,508 square meters

AICPA: FN Measurement

Accessibility: Keyboard Navigation

Blooms: Apply

Difficulty: 3 Hard

Learning Objective: 08-03c Prepare the following components of the operating budget: Raw materials purchases budget.

Topic: Raw materials purchases budget

60. Budgeted direct labor hours are calculated as:

A. Budgeted production units × Direct labor requirements per unit + Ending inventory –

Beginning inventory

B. Budgeted production units × Direct labor requirements per unit + Beginning inventory –

Ending inventory

D. Budgeted sales units × Direct labor requirements per unit

AICPA: BB Critical Thinking

Accessibility: Keyboard Navigation

Blooms: Remember

Difficulty: 1 Easy

Learning Objective: 08-03d Prepare the following components of the operating budget: Direct labor budget.

Topic: Direct labor budget

8-25

McGraw-Hill Education.

61. When calculating the direct labor budget, the starting point should be:

A. actual direct labor hours from the previous year.

B. budgeted sales.

D. budgeted cost of direct labor.

AICPA: FN Measurement

Accessibility: Keyboard Navigation

Blooms: Remember

Difficulty: 1 Easy

Learning Objective: 08-03d Prepare the following components of the operating budget: Direct labor budget.

Topic: Direct labor budget

62. Jillian Inc. produces leather handbags. The production budget for the next four months is: July

5,000 units, August 7,000, September 7,500, October 8,000. Each handbag requires 1.3 hours

of unskilled labor (paid $8 per hour) and 2.2 hours of skilled labor (paid $15 per hour). How

many unskilled labor hours will be budgeted for August?

A. 7,000

C. 15,400

D. 24,500

AICPA: FN Measurement

Accessibility: Keyboard Navigation

Blooms: Apply

Difficulty: 1 Easy

Learning Objective: 08-03d Prepare the following components of the operating budget: Direct labor budget.

Topic: Direct labor budget

8-26

McGraw-Hill Education.

63. Jillian Inc. produces leather handbags. The production budget for the next four months is: July

5,000 units, August 7,000, September 7,500, October 8,000. Each handbag requires 1.3 hours

of unskilled labor (paid $8 per hour) and 2.2 hours of skilled labor (paid $15 per hour). How

many total labor hours will be budgeted for September?

A. 7,500

B. 9,750

C. 16,500

AICPA: FN Measurement

Accessibility: Keyboard Navigation

Blooms: Apply

Difficulty: 1 Easy

Learning Objective: 08-03d Prepare the following components of the operating budget: Direct labor budget.

Topic: Direct labor budget

64. Jillian Inc. produces leather handbags. The production budget for the next four months is: July

5,000 units, August 7,000, September 7,500, October 8,000. Each handbag requires 1.3 hours

of unskilled labor (paid $8 per hour) and 2.2 hours of skilled labor (paid $15 per hour). How

much will be paid to skilled labor during the three months July through September?

A. $742,500

C. $4,387,500

D. $292,500

AICPA: FN Measurement

Accessibility: Keyboard Navigation

Blooms: Apply

Difficulty: 2 Medium

Learning Objective: 08-03d Prepare the following components of the operating budget: Direct labor budget.

Topic: Direct labor budget

8-27

McGraw-Hill Education.

65. Jillian Inc. produces leather handbags. The production budget for the next four months is: July

5,000 units, August 7,000, September 7,500, October 8,000. Each handbag requires 1.3 hours

of unskilled labor (paid $8 per hour) and 2.2 hours of skilled labor (paid $15 per hour). What

will be the total labor cost for the month of August?

B. $231,000

C. $121,500

D. $161,000

AICPA: FN Measurement

Accessibility: Keyboard Navigation

Blooms: Apply

Difficulty: 2 Medium

Learning Objective: 08-03d Prepare the following components of the operating budget: Direct labor budget.

Topic: Direct labor budget

66. Jaybird Inc. produces leather handbags. The sales budget for the next four months is: July

5,000 units, August 7,000, September 7,500, October 8,000. Jaybird Inc.’s ending finished

goods inventory policy is 10% of the following month’s sales. Each handbag requires 1.3 hours

of unskilled labor (paid $8 per hour) and 2.2 hours of skilled labor (paid $15 per hour). What

will be the total labor cost for the month of August?

A. $24,675

B. $225,680

C. $303,800

AICPA: FN Measurement

Accessibility: Keyboard Navigation

Blooms: Apply

Difficulty: 3 Hard

Learning Objective: 08-03b Prepare the following components of the operating budget: Production budget.

Learning Objective: 08-03d Prepare the following components of the operating budget: Direct labor budget.

Topic: Direct labor budget

8-28

McGraw-Hill Education.

67. Jaybird Inc. produces leather handbags. The sales budget for the next four months is: July

5,000 units, August 7,000, September 7,500, October 8,000. Jaybird Inc.’s ending finished

goods inventory policy is 10% of the following month’s sales. Each handbag requires 1.3 hours

of unskilled labor (paid $8 per hour) and 2.2 hours of skilled labor (paid $15 per hour). How

much is total labor cost during the three months July through September?

A. $69,300

B. $327,670

C. $846,300

AICPA: FN Measurement

Accessibility: Keyboard Navigation

Blooms: Apply

Difficulty: 3 Hard

Learning Objective: 08-03b Prepare the following components of the operating budget: Production budget.

Learning Objective: 08-03d Prepare the following components of the operating budget: Direct labor budget.

Topic: Direct labor budget

68. Skylark has forecast production for the next three months as follows: July 4,900 units, August

6,600 units, September 7,500 units. Monthly manufacturing overhead is budgeted to be

$17,000 plus $6 per unit produced. What is budgeted manufacturing overhead for July?

A. $29,400

B. $47,000

D. $17,000

AICPA: FN Measurement

Accessibility: Keyboard Navigation

Blooms: Apply

Difficulty: 1 Easy

Learning Objective: 08-03e Prepare the following components of the operating budget: Manufacturing overhead budget.

Topic: Manufacturing overhead budget

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McGraw-Hill Education.

69. Skylark has forecast production for the next three months as follows: July 4,900 units, August

6,600 units, September 7,500 units. Monthly manufacturing overhead is budgeted to be

$17,000 plus $6 per unit produced. What is budgeted manufacturing overhead for August?

B. $17,000

C. $39,600

D. $62,000

AICPA: FN Measurement

Accessibility: Keyboard Navigation

Blooms: Apply

Difficulty: 1 Easy

Learning Objective: 08-03e Prepare the following components of the operating budget: Manufacturing overhead budget.

Topic: Manufacturing overhead budget

70. Larken has forecast sales for the next three months as follows: July 4,000 units, August 6,000

units, September 7,500 units. Larken’s policy is to have an ending inventory of 40% of the next

month’s sales needs on hand. July 1 inventory is projected to be 1,500 units. Monthly

manufacturing overhead is budgeted to be $17,000 plus $6 per unit produced. What is

budgeted manufacturing overhead for July?

A. $29,400

B. $41,000

D. $17,000

AICPA: FN Measurement

Accessibility: Keyboard Navigation

Blooms: Apply

Difficulty: 2 Medium

Learning Objective: 08-03b Prepare the following components of the operating budget: Production budget.

Learning Objective: 08-03e Prepare the following components of the operating budget: Manufacturing overhead budget.

Topic: Manufacturing overhead cost budget

8-30

McGraw-Hill Education.

71. Larken has forecast sales for the next three months as follows: July 4,000 units, August 6,000

units, September 7,500 units. Larken’s policy is to have an ending inventory of 40% of the next

month’s sales needs on hand. July 1 inventory is projected to be 1,500 units. Monthly

manufacturing overhead is budgeted to be $17,000 plus $6 per unit produced. What is

budgeted manufacturing overhead for August?

B. $17,000

C. $53,000

D. $38,600

AICPA: FN Measurement

Accessibility: Keyboard Navigation

Blooms: Apply

Difficulty: 2 Medium

Learning Objective: 08-03b Prepare the following components of the operating budget: Production budget.

Learning Objective: 08-03e Prepare the following components of the operating budget: Manufacturing overhead budget.

Topic: Manufacturing overhead cost budget

72. Skybird has forecast sales for the next three months as follows: July 4,000 units, August 6,000

units, September 7,500 units. Skybird’s policy is to have an ending inventory of 40% of the

next month’s sales needs on hand. July 1 inventory is projected to be 1,500 units. Monthly

costs are budgeted as follows:

Fixed manufacturing costs $17,000

Fixed selling costs $10,000

Fixed administrative costs $8,300

Variable manufacturing costs $6 per unit produced

Variable selling costs $3 per unit sold

What is budgeted manufacturing overhead cost for July?

A. $32,000

B. $41,000

D. $17,000

AICPA: FN Measurement

Accessibility: Keyboard Navigation

Blooms: Apply

Difficulty: 2 Medium

Learning Objective: 08-03b Prepare the following components of the operating budget: Production budget.

Learning Objective: 08-03e Prepare the following components of the operating budget: Manufacturing overhead budget.

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McGraw-Hill Education.

Topic: Manufacturing overhead cost budget

73. Pacific has forecast sales for the next three months as follows: July 4,000 units, August 6,000

units, September 7,500 units. Pacific’s policy is to have an ending inventory of 40% of the next

month’s sales needs on hand. July 1 inventory is projected to be 1,500 units. Monthly costs

are budgeted as follows:

Fixed manufacturing costs $17,000

Fixed selling costs $10,000

Fixed administrative costs $8,300

Variable manufacturing costs $5 per unit produced

Variable selling costs $3 per unit sold

What is budgeted manufacturing overhead cost for August?

B. $47,000

C. $33,000

D. $32,000

AICPA: FN Measurement

Accessibility: Keyboard Navigation

Blooms: Apply

Difficulty: 2 Medium

Learning Objective: 08-03b Prepare the following components of the operating budget: Production budget.

Learning Objective: 08-03e Prepare the following components of the operating budget: Manufacturing overhead budget.

Topic: Manufacturing overhead cost budget

74. Budgeted cost of goods manufactured reflects:

A. all the costs required to manufacture and sell the product.

C. all the costs required to sell the product, but not manufacture it.

D. direct costs required to manufacture a product, but not indirect manufacturing costs (like

AICPA: FN Measurement

Accessibility: Keyboard Navigation

Blooms: Remember

Difficulty: 1 Easy

Learning Objective: 08-03f Prepare the following components of the operating budget: Cost of goods sold budget.

Topic: Budgeted cost of goods sold

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McGraw-Hill Education.

75. Budgeted cost of goods sold should include which of the following?

A. Raw materials and direct labor

C. Raw materials, direct labor, manufacturing overhead, and selling expenses

D. Raw materials, direct labor, manufacturing overhead, selling expenses, and administrative

AICPA: BB Critical Thinking

Accessibility: Keyboard Navigation

Blooms: Remember

Difficulty: 1 Easy

Learning Objective: 08-03f Prepare the following components of the operating budget: Cost of goods sold budget.

Topic: Budgeted cost of goods sold

76. Harney, Inc. has prepared the following budgets for March. In March, budgeted production

equals budgeted sales, and raw materials inventory will stay constant.

Direct materials $5,200

Direct labor $9,360

Manufacturing overhead $13,000

Selling and administrative expense $10,400

What is budgeted cost of goods sold for March?

A. $14,560

B. $24,960

D. $37,960

AICPA: FN Measurement

Accessibility: Keyboard Navigation

Blooms: Apply

Difficulty: 1 Easy

Learning Objective: 08-03f Prepare the following components of the operating budget: Cost of goods sold budget.

Topic: Budgeted cost of goods sold

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McGraw-Hill Education.

77. Atlantic, Inc. has prepared the following budgets for March. In March, budgeted production

equals budgeted sales of 1,000 units, and raw materials inventory will stay constant.

Direct materials $6.00 per unit

Direct labor $10.80 per unit

Variable manufacturing overhead $7.50 per unit

Fixed manufacturing overhead $7,500

What is budgeted cost of goods sold for March?

A. $16,800

B. $24,300

D. $43,800

AICPA: FN Measurement

Accessibility: Keyboard Navigation

Blooms: Apply

Difficulty: 1 Easy

Learning Objective: 08-03f Prepare the following components of the operating budget: Cost of goods sold budget.

Topic: Budgeted cost of goods sold

78. Crystal, Inc. has prepared the following budgets for March. In March, budgeted production is

1,000 units, budgeted sales is 1,200 units, and raw materials inventory will stay constant.

Direct materials $4.00 per unit

Direct labor $7.20 per unit

Manufacturing overhead $10.00 per unit

Selling and administrative expense $8.00 per unit

What is budgeted cost of goods sold for March?

A. $20,367

B. $21,200

D. $35,040

AICPA: FN Measurement

Accessibility: Keyboard Navigation

Blooms: Apply

Difficulty: 2 Medium

Learning Objective: 08-03f Prepare the following components of the operating budget: Cost of goods sold budget.

Topic: Budgeted cost of goods sold

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McGraw-Hill Education.

79. Crystal, Inc. has prepared the following budgets for March. In March, budgeted production is

1,000 units, budgeted sales is 1,200 units, and raw materials inventory unit costs will stay

constant.

Direct materials $6.00 per unit

Direct labor $10.80 per unit

Variable manufacturing overhead $7.50 per unit

Fixed manufacturing overhead $7,500

What is budgeted cost of goods sold for March?

A. $30,551

B. $31,800

C. $36,660

AICPA: FN Measurement

Accessibility: Keyboard Navigation

Blooms: Apply

Difficulty: 2 Medium

Learning Objective: 08-03f Prepare the following components of the operating budget: Cost of goods sold budget.

Topic: Budgeted cost of goods sold

80. Lemon, Inc. has prepared the following budgets for March. In March, budgeted production is

1,000 units, budgeted sales is 1,200 units, and raw materials inventory and unit costs will stay

constant.

Direct materials $8,000

Direct labor $14,400

Manufacturing overhead $20,000

Selling and administrative expense $16,000

What is budgeted cost of goods sold for March?

A. $40,734

B. $42,400

C. $48,880

AICPA: FN Measurement

Accessibility: Keyboard Navigation

8-35

McGraw-Hill Education.

Blooms: Apply

Difficulty: 2 Medium

Learning Objective: 08-03f Prepare the following components of the operating budget: Cost of goods sold budget.

Topic: Budgeted cost of goods sold

81. Which of the following would not be an example of a cost to include in a selling and

administrative expense budget?

A. Legal expenses

B. Accounting services

D. Franchise fees

AICPA: BB Critical Thinking

Accessibility: Keyboard Navigation

Blooms: Remember

Difficulty: 1 Easy

Learning Objective: 08-03g Prepare the following components of the operating budget: Selling and administrative expense

budget.

Topic: Selling and administrative expense budget

82. Walnut has forecast sales for the next three months as follows: July 4,000 units, August 6,000

units, September 7,500 units. Walnut’s policy is to have an ending inventory of 40% of the next

month’s sales needs on hand. July 1 inventory is projected to be 1,500 units. Selling and

administrative costs are budgeted to be $15,000 per month plus $5 per unit sold. What are

budgeted selling and administrative expenses for July?

A. $24,500

B. $39,500

D. $30,500

AICPA: FN Measurement

Accessibility: Keyboard Navigation

Blooms: Apply

Difficulty: 2 Medium

Learning Objective: 08-03g Prepare the following components of the operating budget: Selling and administrative expense

budget.

Topic: Selling and administrative expense budget

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McGraw-Hill Education.

83. Walnut has forecast sales for the next three months as follows: July 4,000 units, August 6,000

units, September 7,500 units. Walnut’s policy is to have an ending inventory of 40% of the next

month’s sales needs on hand. July 1 inventory is projected to be 1,500 units. Selling and

administrative costs are budgeted to be $15,000 per month plus $5 per unit sold. What are

budgeted selling and administrative expenses for September?

A. $30,000

B. $67,500

C. $32,500

AICPA: FN Measurement

Accessibility: Keyboard Navigation

Blooms: Apply

Difficulty: 2 Medium

Learning Objective: 08-03g Prepare the following components of the operating budget: Selling and administrative expense

budget.

Topic: Selling and administrative expense budget

84. The budgeted income statement is a combination of:

B. All the operating budgets plus the budgeted balance sheet.

C. The direct materials budget, the direct labor budget, and the manufacturing overhead

budget.

D. The production budget, the cost of goods sold budget, and the selling and administrative

AICPA: BB Critical Thinking

Accessibility: Keyboard Navigation

Blooms: Understand

Difficulty: 2 Medium

Learning Objective: 08-03h Prepare the following components of the operating budget: Budgeted income statement.

Topic: Budgeted income statement

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85. The purpose of the cash budget is to:

A. be used as a basis for the operating budgets.

B. provide external users with an estimate of future cash flows.

their operating needs.

D. summarize the cash flowing into and out of the business during the past period.

AICPA: BB Critical Thinking

Accessibility: Keyboard Navigation

Blooms: Remember

Difficulty: 1 Easy

Learning Objective: 08-04 Prepare the cash budget and describe the relationships among the operating budgets, cash budget,

and budgeted balance sheet.

Topic: Budgeted cash payments

Topic: Budgeted cash receipts

86. The basic form of the cash budget is:

A. Budgeted cash collections – Budgeted cash payments +/- Cash borrowed or repaid =

Ending cash balance

borrowed or repaid = Ending cash balance

C. Beginning cash balance – Budgeted cash collections + Budgeted cash payments +/- Cash

borrowed or repaid = Ending cash balance

D. Beginning cash balance + Budgeted cash collections – Budgeted cash payments = Cash

borrowed or repaid

The formula for the cash budget is the sum of beginning cash balance and budgeted cash

collections, les budgeted cash payments, plus or minus cash borrowed or repaid. This amount

equals the ending cash balance.

AICPA: FN Measurement

Accessibility: Keyboard Navigation

Blooms: Remember

Difficulty: 1 Easy

Learning Objective: 08-04 Prepare the cash budget and describe the relationships among the operating budgets, cash budget,

and budgeted balance sheet.

Topic: Budgeted cash payments

Topic: Budgeted cash receipts

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87. Which of the following is not a component of the cash budget?

A. Budgeted cash collections

B. Budgeted cash payments

D. Cash borrowed or repaid

AICPA: FN Measurement

Accessibility: Keyboard Navigation

Blooms: Remember

Difficulty: 1 Easy

Learning Objective: 08-04 Prepare the cash budget and describe the relationships among the operating budgets, cash budget,

and budgeted balance sheet.

Topic: Cash budget

88. Which component of the cash budget is shown as a line item on the budgeted balance sheet?

A. Budgeted cash collections

B. Budgeted cash payments

C. Cash repaid

AICPA: BB Critical Thinking

Accessibility: Keyboard Navigation

Blooms: Remember

Difficulty: 1 Easy

Learning Objective: 08-04 Prepare the cash budget and describe the relationships among the operating budgets, cash budget,

and budgeted balance sheet.

Topic: Cash budget

89. Grover has forecast sales to be $125,000 in February, $135,000 in March, $150,000 in April,

and $140,000 in May. The average cost of goods sold is 70% of sales. All sales are on made

on credit and sales are collected 60% in the month of sale, and 40% the month following.

What are budgeted cash receipts in March?

B. $135,000

C. $94,500

D. $91,700

AICPA: FN Measurement

Accessibility: Keyboard Navigation

Blooms: Apply

8-39

McGraw-Hill Education.

Difficulty: 2 Medium

Learning Objective: 08-04 Prepare the cash budget and describe the relationships among the operating budgets, cash budget,

and budgeted balance sheet.

Topic: Cash budget

90. Grover has forecast sales to be $125,000 in February, $135,000 in March, $150,000 in April,

and $140,000 in May. The average cost of goods sold is 70% of sales. All sales are made on

credit and sales are collected 60% in the month of sale, and 40% the month following. What

are budgeted cash receipts in April?

A. $105,000

B. $141,000

C. $150,000

AICPA: FN Measurement

Accessibility: Keyboard Navigation

Blooms: Apply

Difficulty: 2 Medium

Learning Objective: 08-04 Prepare the cash budget and describe the relationships among the operating budgets, cash budget,

and budgeted balance sheet.

Topic: Cash budget

91. Dayton has forecast sales to be $205,000 in February, $270,000 in March, $290,000 in April,

and $310,000 in May. The average cost of goods sold is 60% of sales. All sales are made on

credit and sales are collected 50% in the month of sale, 30% the month following and the

remainder two months after the sale. What are budgeted cash receipts in May?

A. $267,000

C. $161,250

D. $241,500

AICPA: FN Measurement

Accessibility: Keyboard Navigation

Blooms: Apply

Difficulty: 2 Medium

Learning Objective: 08-04 Prepare the cash budget and describe the relationships among the operating budgets, cash budget,

and budgeted balance sheet.

Topic: Cash budget

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McGraw-Hill Education.

92. Blue has forecast sales to be $410,000 in February, $540,000 in March, $580,000 in April, and

$620,000 in May. The average cost of goods sold is 60% of sales. All sales are made on credit

and sales are collected 50% in the month of sale, 30% the month following and the remainder

two months after the sale. What are budgeted cash receipts in May?

B. $620,000

C. 310,000

D. $483,334

AICPA: FN Measurement

Accessibility: Keyboard Navigation

Blooms: Apply

Difficulty: 2 Medium

Learning Objective: 08-04 Prepare the cash budget and describe the relationships among the operating budgets, cash budget,

and budgeted balance sheet.

Topic: Cash budget

93. Dane Inc. has forecast purchases on account to be $465,000 in March, 555,000 in April,

$630,000 in May, and $735,000 in June. Seventy percent of purchases are paid for in the

month of purchase, the remaining 30% are paid in the following month. What are budgeted

cash payments for April?

B. $577,500

C. $388,500

D. $189,000

AICPA: FN Measurement

Accessibility: Keyboard Navigation

Blooms: Apply

Difficulty: 2 Medium

Learning Objective: 08-04 Prepare the cash budget and describe the relationships among the operating budgets, cash budget,

and budgeted balance sheet.

Topic: Cash budget

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McGraw-Hill Education.

94. Ivory Inc. has forecast purchases on account to be $310,000 in March, $370,000 in April,

$420,000 in May, and $490,000 in June. Seventy percent of purchases are paid for in the

month of purchase, the remaining 30% are paid in the following month. What are budgeted

cash payments for June?

A. $441,000

C. $343,000

D. $294,000

AICPA: FN Measurement

Accessibility: Keyboard Navigation

Blooms: Apply

Difficulty: 2 Medium

Learning Objective: 08-04 Prepare the cash budget and describe the relationships among the operating budgets, cash budget,

and budgeted balance sheet.

Topic: Cash budget

95. Cedar Co. has forecast purchases to be $330,000 in June, $375,000 in July, $310,000 in

August, and $270,000 in September. Purchases average 30% paid in cash, 70% are on credit.

Credit purchases are paid 60% in the month of purchase, 30% during the month following, and

10% the second month following the purchase. Cash disbursements in September would be:

A. $113,400

B. $204,750

C. $261,450

AICPA: FN Measurement

Accessibility: Keyboard Navigation

Blooms: Apply

Difficulty: 3 Hard

Learning Objective: 08-04 Prepare the cash budget and describe the relationships among the operating budgets, cash budget,

and budgeted balance sheet.

Topic: Cash budget

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McGraw-Hill Education.

96. Arbor Co. has forecast sales to be $400,000 in May, $475,000 in June, $575,000 in July and

$700,000 in August. Forty percent of sales are made in cash, the remainder is on credit. Credit

sales are collected 60% in the month of sale, the remaining the following month. What are

budgeted cash collections for July?

A. $230,000

B. $334,000

C. $459,000

AICPA: FN Measurement

Accessibility: Keyboard Navigation

Blooms: Apply

Difficulty: 3 Hard

Learning Objective: 08-04 Prepare the cash budget and describe the relationships among the operating budgets, cash budget,

and budgeted balance sheet.

Topic: Cash budget

97. Ebony Co. has forecast sales to be $300,000 in May, $375,000 in June, $475,000 in July and

$600,000 in August. Forty percent of sales are made in cash, the remainder is on account.

Credit sales are partially collected in the month of sale, with all collections completed by the

end of the month following the sale. The August 31 accounts receivable is budgeted to be

$108,000. What are budgeted cash collections for July?

A. $389,500

B. $267,000

D. $415,000

For August, $600,000 × 60% = $360,000 of sales are on account. $108,000/$360,000 = 30%

of credit sales are still not collected at the end of August, so 70% are collected in the month of

sale. For July, then, collections will be $475,000 × 40% = $190,000 in cash, plus ($475,000 ×

AICPA: FN Measurement

Accessibility: Keyboard Navigation

Blooms: Apply

Difficulty: 3 Hard

Learning Objective: 08-04 Prepare the cash budget and describe the relationships among the operating budgets, cash budget,

and budgeted balance sheet.

Topic: Cash budget

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98. Which of the following budgets do not provide information needed for the budgeted balance

sheet?

A. Materials purchases budget

B. Production budget

D. Cash budget

AICPA: BB Critical Thinking

Accessibility: Keyboard Navigation

Blooms: Understand

Difficulty: 2 Medium

Learning Objective: 08-04 Prepare the cash budget and describe the relationships among the operating budgets, cash budget,

and budgeted balance sheet.

Topic: Budgeted balance sheet

99. Orchard has forecast sales to be $250,000 in February, $270,000 in March, $300,000 in April,

and $280,000 in May. The average cost of goods sold is 70% of sales. All sales are made on

credit and sales are collected 60% in the month of sale, and 40% the month following. What is

the budgeted Accounts Receivable balance on May 31?

A. $196,000

B. $117,600

D. $168,000

AICPA: FN Measurement

Accessibility: Keyboard Navigation

Blooms: Apply

Difficulty: 2 Medium

Learning Objective: 08-04 Prepare the cash budget and describe the relationships among the operating budgets, cash budget,

and budgeted balance sheet.

Topic: Budgeted balance sheet

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McGraw-Hill Education.

100. Boxwood Inc. has forecast purchases on account to be $620,000 in March, $740,000 in April,

$840,000 in May, and $980,000 in June. Seventy percent of purchases are paid for in the

month of purchase, the remaining 30% are paid in the following month. What is the budgeted

Accounts Payable balance for June 30?

A. $588,000

B. $686,000

D. $252,000

AICPA: FN Measurement

Accessibility: Keyboard Navigation

Blooms: Apply

Difficulty: 2 Medium

Learning Objective: 08-04 Prepare the cash budget and describe the relationships among the operating budgets, cash budget,

and budgeted balance sheet.

Topic: Budgeted balance sheet

101. Audrey has forecast sales to be $205,000 in February, $270,000 in March, $290,000 in April,

and $310,000 in May. The average cost of goods sold is 60% of sales. All sales are made on

credit and sales are collected 50% in the month of sale, 30% the month following and the

remainder two months after the sale. What is the budgeted Accounts Receivable balance on

May 31?

A. $155,000

C. $127,800

D. $186,000

AICPA: FN Measurement

Accessibility: Keyboard Navigation

Blooms: Apply

Difficulty: 3 Hard

Learning Objective: 08-04 Prepare the cash budget and describe the relationships among the operating budgets, cash budget,

and budgeted balance sheet.

Topic: Budgeted balance sheet

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102. Which of the following budgets would not exist for a merchandising firm?

A. Sales budget

B. Purchases budget

D. Selling and administrative expense budget

AICPA: FN Measurement

Accessibility: Keyboard Navigation

Blooms: Understand

Difficulty: 1 Easy

Learning Objective: 08-05 Prepare a merchandise purchases budget for a merchandising firm.

Topic: Budgeting in nonmanufacturing firms

103. Clare purchases a single product for $15 and sells it for $30. Forecasted sales for the next

three months are July 4,000 units, August 6,000 units, September 7,500 units. Clare’s policy is

to have an ending inventory of 40% of the next month’s sales needs on hand. July 1 inventory

is projected to be 1,500 units. What are budgeted purchases in units for August?

B. 10,400 units

C. 5,400 units

D. 600 units

AICPA: FN Measurement

Accessibility: Keyboard Navigation

Blooms: Apply

Difficulty: 2 Medium

Learning Objective: 08-05 Prepare a merchandise purchases budget for a merchandising firm.

Topic: Budgeting in nonmanufacturing firms

104. Parsley Inc., a merchandising firm, has forecasted sales to be $125,000 in February, $135,000

in March, $150,000 in April, and $140,000 in May. The average cost of goods sold is 60% of

sales. The merchandise inventory policy is to carry 50% of next month’s sales needs. If actual

February 1 inventory is $40,000, what will the cost of March purchases be?

A. $58,500

B. $142,500

C. $81,000

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AICPA: FN Measurement

Accessibility: Keyboard Navigation

Blooms: Apply

Difficulty: 3 Hard

Learning Objective: 08-05 Prepare a merchandise purchases budget for a merchandising firm.

Topic: Budgeting in nonmanufacturing firms

Essay Questions

105. Mango Place has forecast its sales for the coming months as follows:

Standard Units Deluxe Units

April 100 75

May 115 80

June 135 90

July 150 100

The standard unit sells for $200, the deluxe unit sells for $350.

Required:

Prepare a sales budget for each of the three months April through June as well as the total for

the quarter. Present the budget for each product as well as total sales.

AICPA: FN Measurement

Blooms: Apply

Difficulty: 1 Easy

Learning Objective: 08-03a Prepare the following components of the operating budget: Sales budget.

Topic: Sales budget

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106. Edna Inc. has forecast its sales for the coming months as follows:

Standard

Units

Economy

Units

Deluxe

Units

July 500 1,100 750

August 525 1,200 800

September 575 1,400 900

October 650 1,500 1,000

The standard model sells for $28, the economy model sells for $21, and the deluxe model

sells for $49.

Required:

Prepare a sales budget for each of the three months July through September as well as the

total for the quarter. Present the budget for each product as well as total sales.

AICPA: FN Measurement

Blooms: Apply

Difficulty: 1 Easy

Learning Objective: 08-03a Prepare the following components of the operating budget: Sales budget.

Topic: Sales budget

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107. In 2014, a design service firm served 12 clients (approximately one per month). The average

client project lasted 20 (business) days and the clients were served evenly throughout the

year. The firm expects 100% growth in the number of clients served in 2015.

a. Prepare a sales forecast based on this information for 2015.

b. In December of 2014, an influential journalist wrote an article about the type of approach

this design firm used, generating 30 new potential client inquiries for the firm. Historically, 50%

of the inquiries result in new projects within a six-month period. (Assume the projects begin

evenly throughout the period.) Prepare a sales forecast based on this information for 2015.

c. To capitalize on the publicity generated by the article, the firm invests in a robust marketing

strategy in June. Based on its projections, the marketing efforts will result in an additional 50%

growth in clients for the six-month period July through December. Prepare a sales forecast

based on this information for 2015.

2014

Actua

a. 2015

Projecte

(100%

growth)

b. 2015

Projecte

(100%

growth,

plus PR)

c. 2015

Projected

(100%

growth,

plus

PR, plus

marketing

)

January 1

February 1

March 1

April 1

May 1

June 1

July 1

August 1

Septembe

October 1

November 1

December 1

Total 12

AICPA: BB Critical Thinking

Blooms: Analyze

Difficulty: 3 Hard

Learning Objective: 08-03a Prepare the following components of the operating budget: Sales budget.

Topic: Sales budget

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108. Willow Products expects the following sales of its single product:

Units

March 5,000

April 6,000

May 7,500

June 8,000

July 8,800

Willow Products desires an ending finished goods inventory to be equal to 30% of the next

month’s sales needs. Actual March 1 inventory is projected to be 1,300 units.

Required:

Prepare a production budget for Willow Products for as many months as is possible.

AICPA: FN Measurement

Blooms: Apply

Difficulty: 2 Medium

Learning Objective: 08-03b Prepare the following components of the operating budget: Production budget.

Topic: Production budget

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109. Heather Products expects the following sales of its single product:

Units

May 15,000

June 16,000

July 17,500

August 18,000

September 19,000

Heather desires an ending finished goods inventory to be equal to 20% of the next month’s

sales needs. Actual May 1 inventory will be 3,300 units.

Required:

Prepare a production budget for Heather for as many months as is possible.

AICPA: FN Measurement

Blooms: Apply

Difficulty: 2 Medium

Learning Objective: 08-03b Prepare the following components of the operating budget: Production budget.

Topic: Production budget

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110. Wheat Inc. has forecast its sales for the coming months as follows:

Standard

Units

Deluxe

Units

April 100 75

May 115 80

June 135 90

July 150 100

Wheat maintains finished goods inventory equal to 20% of the next month’s sales

requirements. April 1 inventories were 14 standard units and 10 deluxe.

Required:

Prepare a production schedule for April through June.

AICPA: FN Measurement

Blooms: Apply

Difficulty: 2 Medium

Learning Objective: 08-03b Prepare the following components of the operating budget: Production budget.

Topic: Production budget

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111. Cherry Inc. has forecast its sales for the coming months as follows:

Standard Units Economy Units

April 200 150

May 230 160

June 270 180

July 300 200

Cherry maintains finished goods inventory equal to 40% of the next month’s sales

requirements. April 1 inventories were 74 standard units and 72 deluxe.

Required:

Prepare a production schedule for April through June.

AICPA: FN Measurement

Blooms: Apply

Difficulty: 2 Medium

Learning Objective: 08-03b Prepare the following components of the operating budget: Production budget.

Topic: Production budget

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112. Gertrude Products expects the following sales of its single product:

Units

July 6,000

August 6,500

September 7,200

October 7,800

November 8,800

Gertrude desires an ending finished goods inventory to be equal to 10% of the next month’s

sales needs. July 1 inventory is projected to be 800 units. Each unit requires 5 pounds of

Chemical A and 14 pounds of Chemical B. July 1 materials inventory includes 8,600 pounds of

Chemical A and 76,000 pounds of Chemical B. Gertrude desires to maintain a Chemical A

inventory equal to 20% of next month’s production needs and a Chemical B inventory equal to

100% of next month’s production needs.

a. Prepare a production budget for Gertrude for as many months as is possible.

b. Prepare a raw materials purchases budget for both Chemical A and Chemical B for the

months of July through September.

AICPA: FN Measurement

Blooms: Apply

Difficulty: 3 Hard

Learning Objective: 08-03b Prepare the following components of the operating budget: Production budget.

Learning Objective: 08-03c Prepare the following components of the operating budget: Raw materials purchases budget.

Topic: Production budget

Topic: Raw materials purchases budget

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113. Crest Products expects the following sales of its single product:

Units

August 25,000

September 24,000

October 22,000

November 20,000

December 17,500

Crest desires an ending finished goods inventory to be equal to 30% of the next month’s sales

needs. August 1 inventory is projected to be 7,800 units. Each finished unit requires 2 units of

component X and 11 units of component Z. August 1 materials inventory includes 5,000 units

of component X and 184,000 units of component Z. Crest desires to maintain a component X

inventory equal to 10% of next month’s production needs and a component Z inventory equal

to 70% of next month’s production needs.

a. Prepare a production budget for Crest for as many months as is possible.

b. Prepare a raw materials purchases budget for both Component X and Component Z for the

months of August through October.

AICPA: FN Measurement

Blooms: Apply

Difficulty: 3 Hard

Learning Objective: 08-03b Prepare the following components of the operating budget: Production budget.

Learning Objective: 08-03c Prepare the following components of the operating budget: Raw materials purchases budget.

Topic: Production budget

Topic: Raw materials purchases budget

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114. Honeysuckle Inc. produces canvas bags. The production budget for the next four months is:

July 5,000 units, August 7,000, September 7,500, October 8,000. Each bag requires 2.6 hours

of unskilled labor (paid $8 per hour) and 4.4 hours of skilled labor (paid $15 per hour).

Required:

Prepare a labor budget for the three months July through September. Provide the labor

requirements according to skill level in hours and in labor cost as well as in total. Provide the

budget monthly as well as a total for the quarter.

2.6)

Skilled

hours (×

4.4)

22,00

30,80

33,00

85,80

Total

labor

hours

35,000 49,000 52,500 136,500

Unskilled

cost ($8) $104,000 $145,60

0$156,000 $405,600

Skilled

cost

($15)

330,00

462,00

0 495,000 1,287,00

Total

labor

cost

434,000 607,600 651,000 1,692,60

Feedback: Budgeted direct labor cost = Budgeted production × Direct labor requirements per

unit × Direct labor cost per hour.

AACSB: Analytical Thinking

AICPA: FN Measurement

Blooms: Apply

Difficulty: 3 Hard

Learning Objective: 08-03d Prepare the following components of the operating budget: Direct labor budget.

Topic: Direct labor budget

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115. Maple Inc. produces wooden boxes. The production budget for the next four months is: July

15,000 units, August 17,000, September 17,500. Each box requires three skill levels: 1.0 hours

of unskilled labor (paid $8 per hour), 1.5 hours of semi-skilled labor (paid $10) and 2.0 hours of

skilled labor (paid $15 per hour).

Required:

Prepare a labor budget for the three months July – September. Provide the labor requirements

according to skill level in hours and in labor cost as well as in total. Provide the budget monthly

as well as a total for the quarter.

1.0)

Semiskille

d (× 1.5) 22,500 25,500 26,250 74,250

Skilled (×

2.0)

30,00

34,00

0 35,000 99,00

Total labor

hours 67,500 76,500 78,750 222,750

Unskilled

cost ($8)

$120,00

$136,00

$140,00

0$396,000

Semiskille

d ($10) 225,000 255,000 262,500 742,500

Skilled

($15)

450,00

510,00

525,00

1,485,00

Total labor

cost 795,000 901,000 927,500 2,623,500

Feedback: Budgeted direct labor cost = Budgeted production × Direct labor requirements per

unit × Direct labor cost per hour

AACSB: Analytical Thinking

AICPA: FN Measurement

Blooms: Apply

Difficulty: 3 Hard

Learning Objective: 08-03d Prepare the following components of the operating budget: Direct labor budget.

Topic: Direct labor budget

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116. Sugar Co. has forecast sales for the next three months as follows: July 4,000 units, August

6,000 units, September 7,500 units, and October 8,000 units. Sugar’s policy is to have an

ending inventory of 40% of the next month’s sales needs on hand. July 1 inventory is projected

to be 1,500 units. Manufacturing overhead is budgeted to be $17,000 plus $5 per unit

produced.

a. Prepare a production budget for Sugar for as many months as is possible.

b. Prepare a manufacturing overhead budget for the three months July – September. Be sure

to include a total for the quarter as well.

AICPA: FN Measurement

Blooms: Apply

Difficulty: 3 Hard

Learning Objective: 08-03b Prepare the following components of the operating budget: Production budget.

Learning Objective: 08-03e Prepare the following components of the operating budget: Manufacturing overhead budget.

Topic: Manufacturing overhead budget

Topic: Production budget

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117. Butler Corp. has forecast sales for the next three months as follows: July 14,000 units, August

16,000 units, September 17,500 units, October 18,000 units. Butler’s policy is to have an

ending inventory of 20% of the next month’s sales needs on hand. July 1 inventory is projected

to be 2,500 units. Manufacturing overhead is budgeted to be $18,000 (depreciation $2,000,

supervision $7,000, factory lease $1,500, maintenance $4,000, training $3,500) plus $5 per

unit produced ($3 indirect materials, $2 utilities).

a. Prepare a production budget for Butler for as many months as is possible.

b. Prepare a manufacturing overhead budget for the three months July through September. Be

sure to include a total for the quarter as well.

AICPA: FN Measurement

Blooms: Apply

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Difficulty: 3 Hard

Learning Objective: 08-03b Prepare the following components of the operating budget: Production budget.

Learning Objective: 08-03e Prepare the following components of the operating budget: Manufacturing overhead budget.

Topic: Manufacturing overhead cost budget

Topic: Production budget

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118. Bear Corp. sells its product for $120. Forecasted sales are 1,200 units in October, 1,500 in

November, and 1,600 in December. Variable costs are based on sales, and consist of

commissions (7% of sales), advertising (3%) and shipping (5%). Fixed costs per month are

$4,000 sales salaries, $3,300 office salaries, $2,000 depreciation, $1,800 office rent, $750

insurance and $900 utilities.

Required:

Prepare Bear Corp’s selling and administrative expense budget for the period October

through December. Present monthly totals as well as a 3-month total.

AICPA: FN Measurement

Blooms: Apply

Difficulty: 3 Hard

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Learning Objective: 08-03a Prepare the following components of the operating budget: Sales budget.

Learning Objective: 08-03g Prepare the following components of the operating budget: Selling and administrative expense

budget.

Topic: Selling and administrative expense budget

119. Rapid Corp. sells its product for $200. Forecasted sales are 1,500 units in January, 1,800 in

February, and 1,600 in March. Variable costs are based on sales, and consist of commissions

(6% of sales), cooperative advertising (2%) and shipping (6%). Monthly fixed costs are $7,000

sales salaries, $6,500 office salaries, $2,500 depreciation, $1,800 office rent, $900 insurance

and $1,200 utilities.

a. Prepare Rapid’s selling and administrative expense budget for the period January through

March. Present monthly totals as well as a 3-month total.

AICPA: FN Measurement

Blooms: Apply

Difficulty: 3 Hard

Learning Objective: 08-03a Prepare the following components of the operating budget: Sales budget.

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Learning Objective: 08-03g Prepare the following components of the operating budget: Selling and administrative expense

budget.

Topic: Selling and administrative expense budget

120. Meredith Company has budgeted sales for the upcoming months as follows:

April $360,000

May $372,000

June $392,000

July $412,000

August $400,000

September $380,000

Forty percent of the sales are credit sales, the remainder are made in cash. Credit sales are

collected 50% in the month of sale, 40% in the month following the sale, and 8% in the second

month following the sale.

a. Compute Meredith Company’s cash receipts for June.

b. Compute Meredith Company’s cash receipts for July.

c. Compute Meredith Company’s cash receipts for August.

AICPA: FN Measurement

Blooms: Apply

Difficulty: 2 Medium

Learning Objective: 08-04 Prepare the cash budget and describe the relationships among the operating budgets, cash budget,

and budgeted balance sheet.

Topic: Cash budget

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121. Spencer Company has budgeted sales for the upcoming months as follows:

February $600,000

March $615,000

April $645,000

May $670,000

Seventy percent of the sales are credit sales, the remainder are made in cash. Credit sales

are collected 40% in the month of sale, 50% in the month following the sale, and 10% in the

second month following the sale.

a. Compute Spencer’s cash receipts for April.

b. Compute Spencer’s cash receipts for May.

c. Compute the accounts receivable balance for May 31.

AICPA: FN Measurement

Blooms: Apply

Difficulty: 2 Medium

Learning Objective: 08-04 Prepare the cash budget and describe the relationships among the operating budgets, cash budget,

and budgeted balance sheet.

Topic: Budgeted balance sheet

Topic: Cash budget

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122. Blair is a retailer of assorted baby products. The sales forecast for the coming months is:

Revenues

April (actual) $175,000

May (actual) $200,000

June $225,000

July $240,000

August $230,000

All sales are credit sales. The cash collection pattern is 20% in the month of sale, 70% in the

month following the sale, and the remainder in the second month following the sale. Accounts

receivable on June 1 were $177,500.

a. Prepare a cash receipts schedule for the period June through August (by month).

b. What will the Accounts Receivable balance be on August 31?

AICPA: FN Measurement

Blooms: Apply

Difficulty: 2 Medium

Learning Objective: 08-04 Prepare the cash budget and describe the relationships among the operating budgets, cash budget,

and budgeted balance sheet.

Topic: Budgeted balance sheet

Topic: Cash budget

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123. Portia is a retailer of scrapbooking products. The sales forecast for the coming months is:

Revenues

April (actual) $250,000

May (actual) $275,000

June $300,000

July $350,000

August $350,000

Portia’s sales are all credit. The collection pattern is 60% in the month of sale, 35% the

following month and the remainder in the second month following the sale. Accounts

receivable on April 1 were $122,500.

a. Prepare a cash receipts schedule for the period June through August (by month).

b. What will the Accounts Receivable balance be on August 31?

AICPA: FN Measurement

Blooms: Apply

Difficulty: 2 Medium

Learning Objective: 08-04 Prepare the cash budget and describe the relationships among the operating budgets, cash budget,

and budgeted balance sheet.

Topic: Budgeted balance sheet

Topic: Cash budget

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124. Young is a retailer of assorted baby products. The sales forecast for the coming months is:

Revenues

April $175,000

May $200,000

June $225,000

July $240,000

August $230,000

Young’s cost of sales averages 60% of revenues. The inventory policy is to carry 30% of next

month’s sales needs. April 1 inventory will be as expected under the policy. Young pays for

purchases 80% in the month of purchase and 20% the following month. Accounts payable on

April 1 is $22,400.

a. Prepare a purchases budget for as many months as is possible.

b. Prepare a cash payments budget for April through July.

AICPA: FN Measurement

Blooms: Apply

Difficulty: 3 Hard

Learning Objective: 08-04 Prepare the cash budget and describe the relationships among the operating budgets, cash budget,

and budgeted balance sheet.

Learning Objective: 08-05 Prepare a merchandise purchases budget for a merchandising firm.

Topic: Budgeting in nonmanufacturing firms

Topic: Cash budget

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125. Carmen is a retailer of scrapbooking products. The sales forecast for the coming months is:

Revenues

April $250,000

May $275,000

June $300,000

July $350,000

August $350,000

Carmen’s sales are 70% cash and 30% store credit. The credit sales are collected 60% in the

month of sale, the remainder the following month. Accounts receivable on April 1 are $32,000.

Carmen’s cost of sales averages 65% of revenues. The inventory policy is to carry 40% of

next month’s sales needs. April 1 inventory will be as expected under the policy. Carmen pays

for purchases 30% in the month of purchase and 70% the following month. Accounts payable

on April 1 is $125,000.

a. Prepare a purchases budget for as many months as is possible.

b. Prepare a cash payments budget for April through July.

c. Prepare a cash receipts budget for April through July.

AICPA: FN Measurement

Blooms: Apply

Difficulty: 3 Hard

Learning Objective: 08-04 Prepare the cash budget and describe the relationships among the operating budgets, cash budget,

and budgeted balance sheet.

Learning Objective: 08-05 Prepare a merchandise purchases budget for a merchandising firm.

Topic: Budgeting in nonmanufacturing firms

Topic: Cash budget

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