23) Caskill Company forecasts $40,000 of sales in January, $38,000 in February, $30,000 in March, and $32,000 in
April. Cost of goods sold is budgeted at 75% of sales. Caskill should have inventory on hand at the end of each
month equal to $5,000 plus 20% of the following month’s cost of goods sold.
How much are budgeted purchases for February?
A) $22,800
B) $27,300
C) $29,700
D) $24,900
24) Caskill Company forecasts $40,000 of sales in January, $38,000 in February, $30,000 in March, and $32,000 in
April. Cost of goods sold is budgeted at 75% of sales. Caskill should have inventory on hand at the end of each
month equal to $5,000 plus 20% of the following month’s cost of goods sold.
How much are budgeted purchases for March?
A) $22,800
B) $27,300
C) $29,700
D) $24,900
25) Dahl Manufacturing is making its operating budget for the 4th quarter of 2012. Sales are forecast at $60,000 in
October, $65,000 in November, and $70,000 in December. Cost of goods sold it 40% of sales. Expenses are
budgeted as follows:
Variable: Miscellaneous: 5% of sales
Fixed: Salary expense: $12,600 per month
Rent expense: $5,200 per month
Depreciation expense: $4,000 per month
Admin expense: $5,000 per month
How much are the total operating expenses in October?
A) $29,800
B) $30,300
C) $30,050
D) $29,990
26) Dahl Manufacturing is making its operating budget for the 4th quarter of 2012. Sales are forecast at $60,000 in
October, $65,000 in November, and $70,000 in December. Cost of goods sold it 40% of sales. Expenses are
budgeted as follows:
Variable: Miscellaneous: 5% of sales
Fixed: Salary expense: $12,600 per month
Rent expense: $5,200 per month
Depreciation expense: $4,000 per month
Admin expense: $5,000 per month
How much are the total operating expenses in November?
A) $29,800
B) $30,300
C) $30,050
D) $29,990
27) Dahl Manufacturing is making its operating budget for the 4th quarter of 2012. Sales are forecast at $60,000 in
October, $65,000 in November, and $70,000 in December. Cost of goods sold it 40% of sales. Expenses are
budgeted as follows:
Variable: Miscellaneous: 5% of sales
Fixed: Salary expense: $12,600 per month
Rent expense: $5,200 per month
Depreciation expense: $4,000 per month
Admin expense: $5,000 per month
How much are the total operating expenses in December?
A) $29,800
B) $30,300
C) $30,050
D) $29,990
28) Dahl Manufacturing is making its operating budget for the 4th quarter of 2012. Sales are forecast at $60,000 in
October, $65,000 in November, and $70,000 in December. Cost of goods sold it 40% of sales. Expenses are
budgeted as follows:
Variable: Miscellaneous: 5% of sales
Fixed: Salary expense: $12,600 per month
Rent expense: $5,200 per month
Depreciation expense: $4,000 per month
Admin expense: $5,000 per month
How much is the net operating income/(loss) in October?
A) $6,200
B) $11,700
C) $7,480
D) $8,950
29) Dahl Manufacturing is making its operating budget for the 4th quarter of 2012. Sales are forecast at $60,000 in
October, $65,000 in November, and $70,000 in December. Cost of goods sold it 40% of sales. Expenses are
budgeted as follows:
Variable: Miscellaneous: 5% of sales
Fixed: Salary expense: $12,600 per month
Rent expense: $5,200 per month
Depreciation expense: $4,000 per month
Admin expense: $5,000 per month
How much is the net operating income/(loss) in November?
A) $6,200
B) $11,700
C) $7,480
D) $8,950
30) Dahl Manufacturing is making its operating budget for the 4th quarter of 2012. Sales are forecast at $60,000 in
October, $65,000 in November, and $70,000 in December. Cost of goods sold it 40% of sales. Expenses are
budgeted as follows:
Variable: Miscellaneous: 5% of sales
Fixed: Salary expense: $12,600 per month
Rent expense: $5,200 per month
Depreciation expense: $4,000 per month
Admin expense: $5,000 per month
How much is the net operating income/(loss) in December?
A) $6,200
B) $11,700
C) $7,480
D) $8,950
31) Hi-value Products Company is creating an operating budget for the 3rd quarter and will begin with a sales
budget. Budgeted sales are $100,000 in July, $120,000 in August, and $160,000 in September. 75% of sales are
cash and 25% of sales are on account. Please use the following format and prepare a sales budget.
Sales Budget Jul Aug Sep
Cash sales: 75%
Credit sales: 25%
Total sales
32) Hi-value Products Company is creating an operating budget for the 3rd quarter. Budgeted sales are $100,000 in
July, $120,000 in August, $160,000 in September, and $200,000 in October. Cost of goods sold is 60% of sales.
The desired ending inventory is 50% of the Cost of goods sold for the following month, plus a “safety cushion” of
$2,000.
The inventory balance at the end of June was $50,000. Using the format below, please prepare a budget for
Inventory, Purchases and Cost of goods sold.
Inventory, Purchases and C.O.G.S. Budget Jul Aug Sep
Cost of goods sold (a)
Desired ending inventory(b)
Total inventory required
less Beginning inventory
Purchases
(a) COGS = 60% of sales
(b) $2,000 + 50% of COGS for next month
33) Hi-value Products Company is creating an operating budget for the 3rd quarter, and is now preparing the
operating expense budget. Assumptions for operating expenses are as follows:
Miscellaneous expense — variable portion: 10% of sales revenue
Miscellaneous expense — fixed portion: $4,200 per month
Salary expense — fixed: $12,000 per month
Rent expense — fixed: $8,000 per month
Depreciation expense — fixed: $5,600 per month
Sales for July, August and September were budgeted at $100.000, $120,000, and $160,000.
Using the format below, please prepare an operating expense budget.
Operating Expenses Budget Jul Aug Sep
Variable operating expenses:
Misc. expense (10% of sales)
Total variable expenses
Fixed operating expenses:
Salary expense
Rent expense
Depreciation expense
Misc. expense (fixed portion)
Total fixed expenses
Total operating expenses
30
34) Hi-value Products Company is creating an operating budget for the 3rd quarter. Please review the following
budgets:
Sales Budget Jul Aug Sep
Cash sales: 75% $75,000 $90,000 $120,000
Credit sales: 25% 25,000 30,000 40,000
Total sales $100,000 $120,000 $160,000
Inventory, Purchases and COGS. Budget Jul Aug Sep
Cost of goods sold $60,000 $72,000 $96,000
Desired ending inventory 38,000 50,000 62,000
Total inventory required 98,000 122,000 158,000
less Beginning inventory (50,000) (38,000) (50,000)
Purchases $48,000 $84,000 $108,000
Operating Expenses Budget Jul Aug Sep
Variable operating expenses:
Misc. expense (10% of sales) $10,000 $12,000 $16,000
Total variable expenses 10,000 12,000 16,000
Fixed operating expenses:
Salary expense 12,000 12,000 12,000
Rent expense 8,000 8,000 8,000
Depreciation expense 5,600 5,600 5,600
Misc. expense (fixed portion) 4,200 4,200 4,200
Total fixed expenses 29,800 29,800 29,800
Total operating expenses $39,800 $41,800 $45,800
Using the format below, please prepare a budgeted income statement.
Budgeted Income Statement Jul Aug Sep
Sales revenue
Cost of goods sold
Gross profit
Variable operating expenses:
Misc. expense
Total variable expenses
Contribution margin
Fixed operating expenses
Salary expense
Rent expense
Depreciation expense
Misc. expense (fixed portion)
Total fixed expenses
Operating income/(loss)
Interest expense
Net income/(loss)
Learning Objective 22-4
1) The budgeted cash collections for the current month typically take into consideration collections pertaining to
credit sales of prior months.
2) The cash budget can be prepared before the sales budget.
3) The cash budget may be used to determine whether a company will need additional financing for the coming
period.
4) The budgeted “Cash payments for purchases” must be completed before the “Inventory, Purchases and Cost of
goods sold budget” can be prepared.
5) Della Company prepared the following purchases budget:
Month Budgeted Purchases
June $67,000
July $72,500
August $76,300
September $73,700
October $69,200
All purchases are paid for as follows: 10% in the month of purchase, 50% in the following month, and 40% two
months after purchase.
What are the total cash payments made in August for purchases?
A) $72,630
B) $70,680
C) $70,520
D) $63,500
6) Della Company prepared the following purchases budget:
Month Budgeted Purchases
June $67,000
July $72,500
August $76,300
September $73,700
October $69,200
All purchases are paid for as follows: 10% in the month of purchase, 50% in the following month, and 40% two
months after purchase.
What are the total cash payments made in October for purchases?
A) $77,680
B) $79,480
C) $69,330
D) $74,290
7) Fast Foods has budgeted sales for June and July at $520,000 and $480,000, respectively. Sales are 80% credit, of
which 50% is collected in the month of sale and 50% is collected in the following month. What is the accounts
receivable balance on July 31?
A) $192,000
B) $240,000
C) $384,000
D) $400,000
8) Walnut Company’s budgeted inventory purchases are as follows:
October: $300,000
November: $350,000
December: $390,000
Walnut pays for 20% of their purchases during the month of purchase, 70% during the month following the
purchase, and the remaining 10% two months after the month of purchase. What is the budgeted accounts payable
balance on December 31st?
A) $312,000
B) $347,000
C) $390,000
D) $425,000
9) Craig Manufacturing Company’s budgeted income statement includes the following data:
Data extracted from budgeted income statement Mar Apr May Jun
Sales $120,000 $90,000 $95,000 $100,000
Commission exp. – 15% of sales 18,000 13,500 14,250 15,000
Salary exp 30,000 30,000 30,000 30,000
Miscellaneous expense — 4% of sales 4,800 3,600 3,800 4,000
Rent expense 3,600 3,600 3,600 3,600
Utility expense 1,900 1,900 1,900 1,900
Insurance expense 2,100 2,100 2,100 2,100
Depreciation expense 4,400 4,400 4,400 4,400
The budget assumes that 60% of commission expenses are paid in the month they were incurred and the remaining
40% are paid one month later. In addition, 50% of salary expenses are paid in the month incurred and the remaining
50% are paid one month later. Miscellaneous expenses, rent expense and utility expenses are assumed to be paid in
the same month in which they are incurred. Insurance was prepaid for the year on January 1.
How much is the total of the budgeted cash payments for operating expenses for the month of April?
A) $54,200
B) $53,250
C) $54,400
D) $53,900
10) Craig Manufacturing Company’s budgeted income statement includes the following data:
Data extracted from budgeted income statement Mar Apr May Jun
Sales $120,000 $90,000 $95,000 $100,000
Commission exp. – 15% of sales 18,000 13,500 14,250 15,000
Salary exp 30,000 30,000 30,000 30,000
Miscellaneous expense — 4% of sales 4,800 3,600 3,800 4,000
Rent expense 3,600 3,600 3,600 3,600
Utility expense 1,900 1,900 1,900 1,900
Insurance expense 2,100 2,100 2,100 2,100
Depreciation expense 4,400 4,400 4,400 4,400
The budget assumes that 60% of commission expenses are paid in the month they were incurred and the remaining
40% are paid one month later. In addition, 50% of salary expenses are paid in the month incurred and the remaining
50% are paid one month later. Miscellaneous expenses, rent expense and utility expenses are assumed to be paid in
the same month in which they are incurred. Insurance was prepaid for the year on January 1.
How much is the total of the budgeted cash payments for operating expenses for the month of May?
A) $54,200
B) $53,250
C) $54,400
D) $53,900
11) Craig Manufacturing Company’s budgeted income statement includes the following data:
Data extracted from budgeted income statement Mar Apr May Jun
Sales $120,000 $90,000 $95,000 $100,000
Commission exp. – 15% of sales 18,000 13,500 14,250 15,000
Salary exp 30,000 30,000 30,000 30,000
Miscellaneous expense — 4% of sales 4,800 3,600 3,800 4,000
Rent expense 3,600 3,600 3,600 3,600
Utility expense 1,900 1,900 1,900 1,900
Insurance expense 2,100 2,100 2,100 2,100
Depreciation expense 4,400 4,400 4,400 4,400
The budget assumes that 60% of commission expenses are paid in the month they were incurred and the remaining
40% are paid one month later. In addition, 50% of salary expenses are paid in the month incurred and the remaining
50% are paid one month later. Miscellaneous expenses, rent expense and utility expenses are assumed to be paid in
the same month in which they are incurred. Insurance was prepaid for the year on January 1.
How much is the total of the budgeted cash payments for operating expenses for the month of June?
A) $54,200
B) $53,250
C) $54,400
D) $53,900
12) California Products Company has the following data as part of its budget for the 2nd quarter:
Apr May Jun
Cash collections $30,000 $32,000 $36,000
Cash payments:
Purchases of inventory 4,500 4,600 3,800
Operating expenses 7,200 7,600 8,000
Capital expenditures 0 24,500 5,200
The cash balance at April 1 is forecast to be $8,200. Assume that there will be no financing transactions or costs
during the quarter. Based on the above information only, what will the cash balance be at April 30?
A) $26,500
B) $40,800
C) $33,900
D) $21,800
13) California Products Company has the following data as part of its budget for the 2nd quarter:
Apr May Jun
Cash collections $30,000 $32,000 $36,000
Cash payments:
Purchases of inventory 4,500 4,600 3,800
Operating expenses 7,200 7,600 8,000
Capital expenditures 0 24,500 5,200
The cash balance at April 1 is forecast to be $8,200. Assume that there will be no financing transactions or costs
during the quarter. Based on the above information only, what will the cash balance be at May 31?
A) $26,500
B) $40,800
C) $33,900
D) $21,800
14) California Products Company has the following data as part of its budget for the 2nd quarter:
Apr May Jun
Cash collections $30,000 $32,000 $36,000
Cash payments:
Purchases of inventory 4,500 4,600 3,800
Operating expenses 7,200 7,600 8,000
Capital expenditures 0 24,500 5,200
The cash balance at April 1 is forecast to be $8,200. Assume that there will be no financing transactions or costs
during the quarter. Based on the above information only, what will the cash balance be at June 30?
A) $26,500
B) $40,800
C) $33,900
D) $21,800