April May June June
Sales in Units ……….. 240 280 300 240
Although each month’s ending inventory of finished units should be 60% of the next month’s
sales, the March 31 finished goods inventory is only 100 units. A finished unit requires five
pounds of raw material B. The March 31 raw materials inventory has 200 pounds of B. Each
month’s ending inventory of raw materials should be 30% of the following month’s production
needs. The budgeted purchases of pounds of raw material B during May should be:
A. 1,418 lb.
B. 1,460 lb.
C. 1,502 lb.
D. 264 lb.
E. 283 lb.
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104. Kent Company’s May sales budget calls for sales of $900,000. The store expects to
begin May with $50,000 of inventory and to end the month with $55,000 of inventory. Gross
margin is typically 45% of sales. Compute the budgeted cost of merchandise purchases for
May.
A. $550,000.
B. $500,000.
C. $495,000.
D. $460,000.
E. $490,000.
105. Kent Company anticipates total sales for April, May, and June of $800,000, $900,000,
and $950,000 respectively. Cash sales are normally 25% of total sales. Of the credit sales,
30% are collected in the same month as the sale, 65% are collected during the first month
after the sale, and the remaining 5% are not collected. Compute the amount of cash received
from credit sales for May.
A. $561,500.
B. $652,500.
C. $817,500.
D. $592,500.
E. $890,000.
106. Kent Company anticipates total sales for April, May, and June of $800,000, $900,000,
and $950,000 respectively. Cash sales are normally 25% of total sales. Of the credit sales,
30% are collected in the same month as the sale, 65% are collected during the first month
after the sale, and the remaining 5% are not collected. Compute the amount of cash received
from total sales for May.
A. $561,500.
B. $652,500.
C. $817,500.
D. $592,500.
E. $890,000.
107. Kent Company anticipates total sales for April, May, and June of $800,000, $900,000,
and $950,000 respectively. Cash sales are normally 25% of total sales. Of the credit sales,
30% are collected in the same month as the sale, 65% are collected during the first month
after the sale, and the remaining 5% are not collected. Compute the amount of cash received
from credit sales for June.
A. $561,500.
B. $652,500.
C. $817,500.
D. $592,500.
E. $890,000.
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108. Kent Company anticipates total sales for April, May, and June of $800,000, $900,000,
and $950,000 respectively. Cash sales are normally 25% of total sales. Of the credit sales,
30% are collected in the same month as the sale, 65% are collected during the first month
after the sale, and the remaining 5% are not collected. Compute the amount of cash received
from total sales for June.
A. $561,500.
B. $652,500.
C. $817,500.
D. $592,500.
E. $890,000.
109. Kent Company anticipates total sales for April, May, and June of $800,000, $900,000,
and $950,000 respectively. Cash sales are normally 25% of total sales. Of the credit sales,
30% are collected in the same month as the sale, 65% are collected during the first month
after the sale, and the remaining 5% are collected in the second month. Compute the amount
of accounts receivable reported on the company’s budgeted balance sheet for June 30.
A. $561,500.
B. $712,500.
C. $463,125.
D. $496,875.
E. $617,500.
110. Use the following information to determine the ending cash balance to be reported on the
month ended June 30 cash budget.
a. Beginning cash balance on June 1, $94,000.
b. Cash receipts from sales, $413,000.
c. Budgeted cash disbursements for purchases, $268,000.
d. Budgeted cash disbursements for salaries, $95,000.
e. Other budgeted expenses, $57,000.
f. Cash repayment of bank loan, $32,000.
g. Budgeted depreciation expense, $34,000.
A. $55,000.
B. $21,000.
C. $87,000.
D. $112,000.
E. $78,000.
111. Keegan Company manufactures a single product and has a JIT policy that ending
inventory must equal 10% of the next month’s sales. It estimates that May’s ending inventory
will consist of 20,000 units. June and July sales are estimated to be 280,000 and 290,000
units, respectively. Compute the number of units to be produced that would appear on the
company’s production budget for the month of June.
A. 288,000.
B. 260,000.
C. 289,000.
D. 280,000.
E. 309,000.
112. Keegan Company manufactures a single product and has a JIT policy that ending
inventory must equal 10% of the next month’s sales. It estimates that May’s ending inventory
will consist of 20,000 units. June and July sales are estimated to be 280,000 and 290,000
units, respectively. Keegan assigns variable overhead at a rate of $1.80 per unit of production.
Fixed overhead equals $400,000 per month. Compute the number of units to be produced and
use this amount to compute the total budgeted overhead that would appear on the factory
overhead budget for month ended June 30.
A. $520,200.
B. $920,200.
C. $922,000.
D. $904,000.
E. $905,800.
113. Grafton sells a product for $700. Unit sales for May were 400 and a 3% growth in unit
sales is forecasted for each month. Compute the total sales to be reported on the sales budget
for month ended June 30.
A. $280,000.
B. $297,000.
C. $271,600.
D. $288,400.
E. $364,000.
114. Grafton sells a product for $700. Unit sales for May were 400 and a 3% growth in unit
sales is forecasted for each month. Grafton pays a sales manager a monthly salary of $3,000
and a commission of 2% of sales in dollars. Compute the projected selling expense to be
reported on the selling expense budget for the manager for month ended June 30.
A. $8,600.
B. $11,652.
C. $8,652.
D. $5,768.
E. $8,768.
115. Grafton sells a product for $700. Unit sales for May were 400 and a 3% growth in unit
sales is forecasted for each month. Grafton pays a sales manager a monthly salary of $3,000
and a commission of 2% of sales in dollars. Assume 30% of Grafton’s sales are for cash. The
remaining 70% are credit sales; these customers pay in the month following the sale. Compute
the budgeted cash receipts for June.
A. $282,520.
B. $196,000.
C. $201,880.
D. $280,000.
E. $285,880.
116. Grafton budgets production of 300 units in June and 310 units in July. Each finished unit
requires 4 pounds of raw material K, which costs $5 per pound. Each month’s ending
inventory of raw materials should be 30% of the following month’s budgeted production. The
June 1 raw materials inventory has 360 pounds of raw material K. Compute budgeted
purchases for raw material K for June.
A. 1,200 lbs.
B. 1,240 lbs.
C. 1,212 lbs.
D. 1,220 lbs.
E. 880 lbs.
117. Grafton budgets production of 300 units in June and 310 units in July. Each unit requires
1.5 hours of direct labor. The direct labor rate if $14 per hour. The indirect labor rate is
$21.00 per hour. Compute the budgeted direct labor cost for July.
A. $6,300.
B. $6,510.
C. $9,450.
D. $9,765.
E. $16,275.
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118. Grafton is preparing a cash budget for June. The company has $25,000 cash at the
beginning of June and anticipates $95,000 in cash receipts and $111,290 in cash
disbursements during June. Compute the amount the company must borrow, if any, to
maintain a $20,000 cash balance. The company has no loans outstanding on June 1.
A. $28,710.
B. $12,290.
C. $16,290.
D. $11,290
E. $6,290.
119. Match the definitions 1 through 9 with the correct term or phrase a through i.
(a) Master budget
(b) General and administrative expense budget
(c) Budget
(d) Safety stock
(e) Budgeted income statement
(f) Budgeted balance sheet
(g) Sales budget
(h) Cash budget
(i) Merchandise purchases budget
______(1) A plan that shows the units or costs of merchandise to be purchased by a
merchandising company during the budget period.
______(2) An accounting report that presents predicted amounts of the company’s assets,
liabilities, and equity balances at the end of the budget period.
______(3) A plan showing the units of goods to be sold and the sales to be derived; the usual
starting point in the budgeting process.
______(4) An accounting report that presents predicted amounts of the company’s revenues
and expenses for the budgeting period.
______(5) A quantity of inventory or materials over the minimum to reduce the risk of
running short.
______(6) A comprehensive business plan that includes specific plans for expected sales, the
units of product to be produced, the merchandise or materials to be purchased, the expenses to
be incurred, the long-term assets to be purchased, and the amounts of cash to be borrowed or
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loans to be repaid, as well as a budgeted income statement and balance sheet.
______(7) A formal statement of a company’s future plans, usually expressed in monetary
terms.
______(8) A plan that shows predicted operating expenses not included in the selling
expenses budget.
______(9) A plan that shows the expected cash inflows and cash outflows during the budget
period, including receipts from any loans needed to maintain a minimum cash balance and
repayments of such loans.
120. Presented below are terms or phrases preceded by letters a through j and followed by a
list of definitions 1 through 10. Match the correct definitions with the terms or phrases by
placing the letter of the term or phrase in the answer space provided at the beginning of the
definition.
(a) Budget
(b) Capital expenditure budget
(c) Manufacturing budget
(d) Sales budget
(e) Production budget
(f) Cash budget
(g) Budgeted balance sheet
(h) Continuous budgeting
(i) Selling expense budget
(j) Rolling budgets
_____ (1) A plan that lists the types and amounts of selling expenses expected during the
budget period.
_____ (2) A plan that shows the predicted costs for direct materials, direct labor, and
overhead costs to be incurred in manufacturing the units in the production budget.
_____ (3) An accounting report that presents predicted amounts of the company’s assets,
liabilities, and equity as of the end of the budget period.
_____ (4) A formal statement of future plans, usually expressed in monetary terms.
_____ (5) A plan showing the units of goods to be sold and the sales to be derived; usually
the starting point in the budgeting process.
_____ (6) A plan that lists dollar amounts to be both received from disposing of plant assets
and spent on purchasing additional plant assets to carry out the budgeted business activities.
______(7) The practice of preparing budgets for a selected number of several periods and
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revising those budgets as each period is completed.
______(8) A plan showing the number of units to be produced each month.
______ 9) A plan that shows the expected cash inflows and outflows during the budget
period, including receipts from loans needed to maintain a minimum cash balance and
repayments of such loans.
______(10) A new set of budgets added to replace the ones that have lapsed as each budget
period goes by.
121. Describe at least five benefits of budgeting.
122. List the three important guidelines that should be followed in the budgeting process.
123. What are rolling budgets? Why are rolling budgets prepared?
124. Briefly describe the process by which budgets are developed and administered.
125. Briefly describe a master budget and the sequence in which the individual budgets within
the master budget are prepared.
126. What is activity-based budgeting?
127. Why is the sales budget usually prepared first?
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128. What is a sales budget? How is the sales budget prepared?
129. What is a merchandise purchases budget? How is the merchandise purchases budget
constructed?
130. What is a capital expenditures budget?
131. What is a cash budget? How can management use a cash budget?
132. What is a production budget?
133. What is a manufacturing budget?
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Problems
134. A department store has budgeted cost of goods sold for August of $60,000 for its
women’s coats. Management wants to have $12,000 of coats in inventory at the end of the
month to prepare for the winter season. Beginning inventory in August was $8,000. What
dollar amount of coats should be purchased to meet the above plans?
135. A sporting goods store budgeted August purchases of ski jackets at $140,000. The store
had ski jackets costing $12,000 in its inventory at the beginning of August; and to cover part
of anticipated September sales, they expect to have $25,000 of ski jackets in inventory at the
end of the month of August. What is the budgeted cost of goods sold for August?
136. In preparing a budget for the last three months of the current year, Urban Company is
planning the units of merchandise it must order each month. The company’s policy is to have
15% of the next month’s sales in its inventory at the end of each month. Projected sales for
October, November, and December are 27,000 units, 29,500 units, and 32,500 units,
respectively. How many units must be ordered in November?
137. Nano, Inc. is preparing its budget for the second quarter. The following sales data have
been forecasted:
April May June July August
Unit sales……………….. 640 720 780 620 660
Additional information follows:
Inventory on March 31: 192 Units
Desired ending inventory each month: 30% of next month’s sales
How many units should be purchased in April, May, and June? How many units should be
purchased in the second quarter in total?
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138. Pantheon Company has prepared the following forecasts of monthly sales:
July August September October
Sales (in Units) ……….. 4,500 5,300 4,000 3,700
Pantheon has decided that the number of units in its inventory at the end of each month should
equal 25% of the next month’s sales. The budgeted cost per unit is $30.
(1) How many units should be in July’s beginning inventory?
(2) What amount should be budgeted for the cost of merchandise purchases in July?
(3) How many units should be purchased in September?
139. Tappet Corporation is preparing its master budget for the quarter ending March 31. It
sells a single product for $25 a unit. Budgeted sales are 40% cash and 60% on credit. All
credit sales are collected in the month following the sales. Budgeted sales for the next four
months follow:
January February March April
Sales in Units ………………. 1,200 1,000 1,600 1,400
At December 31, the balance in accounts receivable is $10,000, which represents the
uncollected portion of December sales. The company desires merchandise inventory equal to
30% of the next month’s sales in units. The December 31 balance of merchandise inventory is
340 units, and inventory cost is $10 per unit. Forty percent of the purchases are paid in the
month of purchase and 60% are paid in the following month. At December 31, the balance of
Accounts Payable is $8,000, which represents the unpaid portion of December’s purchases.
Operating expenses are paid in the month incurred and consist of:
· Sales commissions (10% of sales)
· Freight (2% of sales)
· Office salaries ($2,400 per month)
· Rent ($4,800 per month)
Depreciation expense is $4,000 per month. The income tax rate is 40%, and income taxes will
be paid on April 1. A minimum cash balance of $10,000 is required, and the cash balance at
December 31 is $10,200. Loans are obtained at the end of a month in which a cash shortage
occurs. Interest is 1% per month, based on the beginning of the month loan balance, and must
be paid each month. If an excess of cash exists, loan repayments are made at the end of the
month. At December 31, the loan balance is $0. Prepare a master budget (round all dollar
amounts to the nearest whole dollar) for each of the months of January, February, and March
that includes the:
· Sales budget
· Table of cash receipts
· Merchandise purchases budget
· Table of cash disbursements for merchandise purchases
· Table of cash disbursements for selling and administrative expenses
· Cash budget, including information on the loan balance
· Budgeted income statement