Financial Management: Core Concepts, 4e (Brooks)
Chapter 12 Forecasting and Short-Term Financial Planning
1) One of the functions of a finance manager is ________.
A) to forecast for the coming period
B) to forecast for the present period
C) to forecast for the past period
D) to forecast for the present and future periods
2) Forecasting entails drawing a financial picture of a company for the ________.
A) year
B) month
C) quarter
D) All of these
3) There are two primary tools used to forecast and set in action a company plan. Which of the
tools below is one of these?
A) Statements of retained earnings
B) Profit budgets
C) Income statements
D) Pro forma statements
4) As with a lot of planning, the financial forecast begins with ________ estimates and ________
schedules.
A) sales; production
B) sales; profit
C) dividends; production
D) profits; dividend
5) Financial forecasts are seldom right on the money, so to speak, but they do provide a yardstick
by which a company can measure ________.
A) its past adherence to its long-term plan
B) its past deviation from its long-term plan
C) its adherence to or deviation from its short-term plan
D) its current deviation from its future plan
6) Which of the statements below is FALSE?
A) We can separate short-term and long-term decisions into three dimensions: the length of
impact, the cost, and the degree of information gathering prior to the decision.
B) The longer the impact and the higher the cost associated with a decision, the greater the time
and degree for gathering information on choices and the more complex the decision model.
C) Long-term decisions are called capital budgeting decisions and are typically viewed as
decisions that have long-term impacts that are not easily reversed or that can be changed only at
great cost.
D) An example of a short-term decision is determining the number of manufacturing facilities
that the firm should operate.
7) Short-term decisions are viewed as decisions that have short-term impacts and can be changed
or modified at ________.
A) relatively low costs
B) relatively high costs
C) relatively high time requirements
D) relatively low costs with high time requirements
8) Which of the statements below is FALSE?
A) The ultimate goal of cash management is to have sufficient cash on hand to meet business
obligations in a timely and appropriate manner.
B) Although the cash-management process will usually start with inventory forecasting,
managers will look at the “final product” first to get an idea of where the company is ultimately
heading and why it needs to look at sales forecasts and production schedules.
C) The cash forecast is the analytical tool that estimates the future timing of cash inflow and that
projects potential shortfalls and excess.
D) The amount of inventory can be changed with the next order if a product’s sales are faster or
slower than originally anticipated.
9) For the month of March, Rogue Retail will have cash receipts of $165,000 and cash
disbursements of $150,000. If its beginning cash is $12,000 and its desired reserve is $20,000,
what will be its shortfall or excess in cash for the month?
A) -$8,000
B) -$4,000
C) $0
D) $7,000
10) In March, The Wonder Emporium will have cash receipts of $107,000 and cash
disbursements of $110,000. If its beginning cash is $6,000 and its desired reserve is $5,000, what
will be its shortfall in cash for the month?
A) There is no shortfall in cash but an excess of cash.
B) -$1,000
C) -$8,000
D) -$5,000
11) Pixi Boutique will have cash receipts of $57,000 in December and cash disbursements of
$51,000 for this month. If its beginning cash is $12,000 and its desired reserve is $9,000, what
will its excess be for December?
A) There is no excess but a shortfall.
B) $6,000
C) $9,000
D) $18,000
12) Pancake Castle will have cash receipts of $75,000 in June and cash disbursements of $40,000
for this month. If its beginning cash is $8,000 and its desired reserve is $10,000, what will its
excess be for April?
A) There is no excess but a shortfall.
B) $8,000
C) $25,000
D) $33,000
13) Which of the below is a SOURCE of cash?
A) Cash Sales
B) Wages and Salaries
C) Rent or Lease payments
D) Dividend payments
14) Which of the below is a USE of cash?
A) Credit Sales
B) Retirement of debt (paying off loans and bonds)
C) Bank loans
D) Cash sales of equipment or other assets of the company
15) Northwest Outdoor Store will have cash receipts of $83,000 in December and cash
disbursements of $78,000 for this month. If its beginning cash is $3,000 and its desired reserve is
$15,000, what will its excess be for December?
A) There is no excess but a shortfall.
B) $6,000
C) $11,000
D) $14,000
16) For June, Rogue River Rafting will have cash receipts of $94,000 and cash disbursements of
$75,000. If its beginning cash is $2,000 and its desired reserve is $15,000, what will be its excess
in cash for the month?
A) -$11,000
B) -$8,000
C) $0
D) $6,000
17) A USE of cash is interest payments received.
18) A SOURCE of cash is utility payments.
19) For a firm, bank loans can be a source of cash and interest payments to the bank can be a use
of cash.
20) Briefly explain the difference between a USE of cash and a SOURCE of cash. Give
examples of each. Briefly explain why managers want to know the uses and sources of cash.
21) Bacon Signs will have cash receipt of $80,000 in December and cash disbursements in
December of $70,000. If its beginning cash is $4,000 and its desired reserve is $15,000, what
will Bacon Signs’ cash situation be at the end of December?
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12.2 Cash Budgeting and the Sales Forecast
1) We start the process of building a cash forecast with predicting the cash inflow from future
sales. This is called ________.
A) a sales forecast
B) a cash forecast
C) a monetary forecast
D) an expense forecast
2) Which of the statements below is FALSE?
A) A key element in a sales forecast is that the timing of the sale and the cash inflow from the
sale often happen at different times.
B) The amount and timing of sales are usually provided by the finance department.
C) We start the process of building a cash forecast with predicting the cash inflow from future
sales: a sales forecast.
D) The time when a sale is recorded is often different from the time cash is actually received.
3) The amount and timing of sales are usually provided by the ________ department.
A) advertising or finance
B) accounting or sales
C) sales or marketing
D) marketing or planning
4) Based on the sales forecast, the finance manager estimates the receipt of cash based on cash
and ________.
A) credit sales
B) inventory sales
C) accounts receivables
D) net income
5) The amount of sales a company predicts is a function of two types of data. Which of the types
below is one of these two types?
A) Accounting data
B) Internal data
C) Rationing data
D) Legal data
6) ________ consists of items such as the current interest rates, housing starts, gross national
product (GNP), disposable income estimates, or other economic indicators.
A) Accounting data
B) Internal data
C) External data
D) Financial data
7) ________ consists of items such as number of sales personnel in the field and average sales
per representative, competitors and alternative products, and production capabilities and
schedules as well as other factors known mainly to the company.
A) External data
B) Product data
C) Employee data
D) Internal data
8) Which of the statements below is FALSE?
A) A company can take a simple approach to estimating next year’s growth in revenue by taking
just the prior year’s growth rate.
B) A company can take a simple approach to estimating next year’s growth in revenue by having
a number of departments supply input.
C) A company can take a simple approach to estimating next year’s growth in revenue by using
the average dollar increase in sales from the past two years.
D) A company can take a simple approach to estimating next year’s growth in revenue by
averaging the previous two years’ annual growth rates.
9) Which of the statements below is TRUE?
A) A company’s average cost of installing its product for a customer is an example of internal
data.
B) A company’s success rate in getting contractors to use its product is an example of external
data.
C) A marketing department’s discovery of published data related to its industry from another
country is an example of internal data.
D) A marketing department’s discovery of published data related to its product from another state
is an example of internal data.
10) Which of the statements below is FALSE?
A) The marketing department finds published data related to its product from another state. This
is an example of internal data.
B) Once the sales estimate is in, the finance manager must estimate the cash flow from these
sales in terms of timing.
C) A company’s average cost of installing its product for a customer is an example of internal
data.
D) A company could take a simple approach to estimating revenue for the upcoming year by
simply averaging the two previous growth rates; taking just the prior year’s growth rate; or, using
the average dollar increase in sales from the past two years.
11) Managers know that for cash and credit sales completed in one month that all will be
recorded as sales revenue in that month, but that the actual cash flow will take place over a
longer period of time because of ________.
A) credit sales
B) erosion
C) foreclosure
D) transit time
12) The sales for October, November and December are $20,000, $22,000 and $28,000,
respectively. For any particular month of sales, the following percentages are received over time
in cash: 40% in cash from that same month of sales; 40% in cash from the previous month’s
sales; and, 20% in cash from the sales from two months ago. What amount of cash will be
received during December?
A) $24,000
B) $18,000
C) $9,600
D) $9,000
13) The sales for January, February, and March are $150,000, $180,000 and $220,000,
respectively. For any particular month of sales, the following percentages are received over time
in cash: 40% in cash from that same month of sales; 50% in cash from the previous month’s
sales; and, 10% in cash from the sales from two months ago. What amount of cash will be
received during March?
A) $93,000
B) $107,500
C) $148,000
D) $193,000
14) The sales for January, February, and March are $22,000, $36,000 and $50,000, respectively.
For any particular month of sales the following percentages are received over time in cash for
any given month: 60% in cash from that same month of sales; 30% in cash from the previous
month’s sales; and 10% in cash from the sales from two months ago. What amount of cash will
be received during March?
A) $81,200
B) $50,000
C) $43,000
D) $26,600
15) A financial manager needs to know if any of the credit sales will not be paid by customers.
This situation will entail a reduction in the estimate of the cash flow due to “bad debts.”
16) Sales from a company’s products and services are the only source of cash inflow.
17) For estimating cash budget timing, the sale of equipment might occur in one month and the
tax consequence in another month.
18) Sales made and actual cash received may differ for any particular month. However, sales and
cash received must be equal for a calendar year.
19) The sales for October, November, and December are $2,000, $6,000 and $10,000,
respectively. For any particular month of sales, the following percentages are received over time
in cash for any given month: 20% in cash from that same month of sales; 50% in cash from the
previous month’s sales; and 30% in cash from the sales from two months ago. What percentage
of cash will be received during December compared to the sales for December?
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Copyright © 2019 Pearson Education, Inc.
12.3 Cash Outflow from Production
1) Cash disbursements or ________ are closely tied to the sales forecast as the sales forecasts are
typically used for scheduling production.
A) expenditures
B) receipts
C) revenues
D) sales
2) The ________ schedule will usually be based on the ________ forecast.
A) sales; production
B) production; sales
C) forecast; scheduled
D) production; cash
3) Which one of the costs below is NOT a production cost?
A) The wages paid to workers
B) The raw materials for manufacturing products
C) The dividends paid to shareholders
D) The shipping costs that get the product to the customer
4) Smith Frozen Foods Inc. estimates the following expenditures: total shipping costs of
$10,100; wages paid to workers of $39,600; overhead costs of $8,300; raw materials of $15,000;
and, dividends and interest paid of $2,200. What is the total production cost from all of these
costs?
A) $75,200
B) $61,100
C) $50,100
D) $73,000
5) A company estimates the following expenditures: preferred dividends paid of $12,200; wages
paid to workers of $79,600; overhead costs of $14,300; raw materials of $25,000; shipping costs
of $18,100. What are the total production costs?
A) $131,000
B) $137,000
C) $149,200
D) $153,200
6) Rogue Distribution Inc. estimates the following expenditures: interest paid of $27,500; wages
paid to workers of $94,600; overhead costs of $22,300; raw materials of $35,000; shipping costs
of $8,100 and dividends paid to common stockholders of $15,000. What are the total production
costs?
A) $149,000
B) $160,000
C) $166,500
D) $187,500
7) Bandamere Lighting Inc. uses the sales forecast to plan production. The company produces
the magnetic light bulb called “Bright-1” one month in advance of the forecasted sale. The
January sales forecast of 38 units of these bulbs will be scheduled for December production.
However, the company also notes that sales forecasts and actual sales can differ, and the
company has precisely calculated that it needs about 18.42% in inventory to accommodate sales
above forecast. Raw materials for Bright-1 are acquired the month ahead (in this case,
November). Wages are paid in the current month of production (December). Utilities are paid a
month after production (January), and shipping is paid a month after the sale (two months after
production, February). Finally, an inventory count reveals that there are currently 3 units on hand
above the projected sales for November (at the start of November when the raw material order is
placed). Unit production costs are $50 for raw materials, $30 for wages, $20 for utilities, and $10
for shipping. Determine the cash outflows for December’s production.
A) Raw material of $1,900 paid in November, Wages of $1,140 paid in December, Utilities of
$380 paid in January, Shipping of $760 paid in February
B) Raw material of $1,900 paid in November, Wages of $1,000 paid in December, Utilities of
$760 paid in January, Shipping of $380 paid in February
C) Raw material of $1,200 paid in November, Wages of $1,140 paid in December, Utilities of
$760 paid in January, Shipping of $380 paid in February
D) Raw material of $2,100 paid in November, Wages of $1,260 paid in December, Utilities of
$840 paid in January, Shipping of $420 paid in February
8) Buckeye Inc. uses the sales forecast to plan production. The company produces a glow-in-the-
dark cup called “Lights-Out” one month in advance of the forecasted sale. The January sales
forecast of 20 units of these cups will be scheduled for December production. However, the
company also notes that sales forecasts and actual sales can differ, and the company has a policy
of having 20% in inventory to accommodate sales above forecast. Raw materials for Lights-Out
are acquired the month ahead (in this case, November). Wages are paid in the current month of
production (December). Utilities are paid a month after production (January) and shipping is paid
a month after the sale (two months after production, February). Finally, an inventory count
reveals that there are currently 4 units on hand above the projected sales for November (at the
start of November when the raw material order is placed). Unit production costs are $40 for raw
materials, $20 for wages, $10 for utilities, and $5 for shipping. Determine the amounts of cash
outflows for December’s production.
A) Raw material of $800 paid in November, Wages of $400 paid in December, Utilities of $200
paid in January, Shipping of $100 paid in February
B) Raw material of $800 paid in November, Wages of $400 paid in December, Utilities of $100
paid in January, Shipping of $100 paid in February
C) Raw material of $800 paid in November, Wages of $400 paid in December, Utilities of $200
paid in January, Shipping of $200 paid in February
D) Raw material of $400 paid in November, Wages of $800 paid in December, Utilities of $200
paid in January, Shipping of $100 paid in February
9) It is ________ of cash flow that is important to the financial manager.
A) the timing and amount
B) just the timing
C) just the amount
D) None of the above
10) The timing and the amount of cash flow is important to the financial manager and estimating
these cash outflows is part of the ________ process
A) income forecasting
B) revenue forecasting
C) cash forecasting
D) cost forecasting
11) Which of the statements below is FALSE?
A) Cash disbursements (expenditures) are closely tied to the sales forecast as these forecasts are
typically used for scheduling production.
B) Production costs include the wages paid to workers, the raw materials for manufacturing
products, the overhead (such as electricity, water, plant space, and so on), and the shipping costs
that get the product to the customer.
C) Once all the expenditures and receipts are determined, a financial manager can determine the
exact cash excess or cash shortfall in upcoming periods.
D) It’s the timing and the amount of cash flow that is important to the financial manager and
estimating these cash outflows is part of the cash forecasting process.