27) Steve Corporation is using the kaizen approach to budgeting for 2015. The budgeted income
statement for January 2015 is as follows:
Sales (240,000 units) $360,000
Less: Cost of goods sold 240,000
Gross margin 120,000
Operating expenses (includes $32,000 of fixed costs) 96,000
Net income $ 24,000
Under the kaizen approach, cost of goods sold and variable operating expenses are budgeted to decline
by 1% per month.
Required:
Prepare a kaizen-based budgeted income statement for March of 2015.
28) Describe the concept of kaizen budgeting.
29) Describe some of the drawbacks of using the operating budget as a control device.
30) What is budgetary slack? What are the pros and cons of building slack into the budget from the point
of view of (a) an employee and (b) a senior manager?
31) How is budgeting for a multinational corporation different than budgeting for a corporation that is
strictly domestic?
Objective 6.7
1) Which of the following is a reason why budgets in multinational companies are not used to evaluate
the firm’s performance relative to its budgets?
A) Evaluations based on budgets can be meaningless due to factors such as exchange rate risk and other
volatility.
B) Evaluations based on budgets are not possible because of cultural differences in the budgeting
approach.
C) Evaluations based on relative regional performance are considered more meaningful as compared to
evaluations against budgets.
D) Evaluations based on budgets are harder when managers use sophisticated techniques to minimize
foreign currency exposure.
2) Which of the following statements is true in the case of budgeting for multinational companies?
A) While budgeting for multinational companies, managers consider difference in tax statutes as an
uncontrollable factor.
B) While budgeting for multinational companies, managers do not account for foreign exchange
fluctuations as the operating profits are reported in different currencies.
C) While budgeting for multinational companies, managers must be aware that budgets will not be used
for evaluating performance.
D) While budgeting for multinational companies, managers are not concerned about the domestic factors
of the different countries in which they operate.
3) Budgeting for a multinational company is made more complex due to the possibility of exchange rate
fluctuations.
4) The possibility of exchange rate fluctuations does NOT influence the budgeting procedures in a
multinational corporation.
5) In a multinational company, budgeting is primarily done to evaluate the firm’s performance relative to
its budgets.
Objective 6.A
1) The ________ is required to prepare the cash budget of an organization.
A) statement of shareholder’s equity
B) budgeted balance sheet
C) capital expenditures budget
D) budgeted statement of cash flow
2) Financial analysts use the projected cash flow statement to ________.
A) determine the tax effect of cash expenses
B) plan for short-term cash investments
C) analyze the impact of non-cash expense on income statement
D) project depreciation expense
3) The cash flow statement includes ________.
A) cash discount on sales
B) cash outflow towards insurance premium
C) sales revenues of the organization
D) interest accrued on an investment
4) The cash budget is a schedule of expected cash receipts and disbursements that ________.
A) requires an aging of accounts receivable and accounts payable
B) is a self-liquidating cycle
C) is prepared immediately after the sales forecast
D) predicts the effect on the cash position at given levels of operations
Answer the following questions using the information below:
The following information pertains to Hepburn Company:
Month Sales Purchases
January $60,000 $32,000
February $80,000 $40,000
March $100,000 $56,000
• Cash is collected from customers in the following manner:
Month of sale 30%
Month following the sale 70%
• 40% of purchases are paid for in cash in the month of purchase, and the balance is paid the
following month.
• Labor costs are 20% of sales. Other operating costs are $30,000 per month (including $8,000 of
depreciation). Both of these are paid in the month incurred.
• The cash balance on March 1 is $8,000. A minimum cash balance of $6,000 is required at the end
of the month. Money can be borrowed in multiples of $1,000.
5) How much cash will be collected from customers in March?
A) $94,000
B) $86,000
C) $100,000
D) $110,000
6) How much cash will be paid to suppliers in March?
A) $46,400
B) $56,000
C) $88,000
D) $92,000
7) How much cash will be disbursed in total in March?
A) $42,000
B) $50,000
C) $88,400
D) $96,400
8) What is the ending cash balance for March?
A) ($50,000)
B) $6,000
C) $5,600
D) $6,600
Answer the following questions using the information below:
Finmin Company has the following sales budget for the last six months of 2015:
July $200,000 October $180,000
August 160,000 November 200,000
September 200,000 December 180,000
Sales are immediately due, however the cash collection of sales, historically, has been as follows:
65% of sales collected in the month of sale,
25% of sales collected in the month following the sale,
8% of sales collected in the second month following the sale, and
2% of sales are uncollectible.
9) Cash collections for September are ________.
A) $143,000
B) $170,000
C) $186,000
D) $204,000
10) What is the ending balance of accounts receivable for the end of September, assuming uncollectible
balances are written off at the end of the second month following the sale?
A) $199,000
B) $97,000
C) $89,800
D) $86,000
11) Cash collections for October are ________.
A) $117,000
B) $179,800
C) $194,000
D) $176,400
Answer the following questions using the information below:
Estate Corp., has the following information:
Month Budgeted Purchases
January $26,800
February 29,000
March 28,500
April 29,480
May 26,680
Purchases are paid for in the following manner:
10% of the purchase amount in the month of purchase
50% of the purchase amount in the month after purchase
40% of the purchase amount in the second month after purchase
12) What is the expected balance in Accounts Payable as of March 31?
A) $37,250
B) $18,312
C) $2,900
D) $30,520
13) What is the expected balance in Accounts Payable as of April 30?
A) $37,250
B) $37,932
C) $28,500
D) $17,688
14) What is the expected Accounts Payable balance as of May 31?
A) $41,792
B) $37,932
C) $35,804
D) $2,948
Answer the following questions using the information below:
The following information pertains to the January operating budget for Casey Corporation.
• Budgeted sales for January $200,000 and February $100,000.
• Collections for sales are 60% in the month of sale and 40% the next month.
• Gross margin is 30% of sales.
• Administrative costs are $10,000 each month.
• Beginning accounts receivable is $20,000.
• Beginning inventory is $14,000.
• Beginning accounts payable is $65,000. (All from inventory purchases.)
• Purchases are paid in full the following month.
• Desired ending inventory is 20% of next month’s cost of goods sold (COGS).
15) For January, budgeted cash collections are ________.
A) $200,000
B) $140,000
C) $120,000
D) $20,000
16) At the end of January, budgeted accounts receivable is ________.
A) $40,000
B) $80,000
C) $120,000
D) $160,000
17) For January, budgeted cost of goods sold is ________.
A) $200,000
B) $140,000
C) $126,000
D) $112,000
18) For January, budgeted net income is ________.
A) $60,000
B) $50,000
C) $40,000
D) $30,000
19) For January, budgeted cash payments for purchases are ________.
A) $100,000
B) $70,000
C) $65,000
D) $50,000
20) At the end of January, budgeted ending inventory is ________.
A) $10,000
B) $14,000
C) $20,000
D) $22,000
21) The cash budget is a schedule of expected cash receipts and disbursements.
22) Cash budgets help avoid unnecessary idle cash and unexpected cash deficiencies.
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23) Russell Company has the following projected account balances for June 30, 2015:
Accounts payable $80,000 Sales $1,600,000
Accounts receivable 200,000 Capital stock 800,000
Depreciation, factory 48,000 Retained earnings ?
Inventories (5/31 & 6/30) 360,000 Cash 112,000
Direct materials used 400,000 Equipment, net 480,000
Office salaries 160,000 Buildings, net 800,000
Insurance, factory 8,000 Utilities, factory 32,000
Plant wages 280,000 Selling expenses 120,000
Bonds payable 320,000 Maintenance, factory 56,000
Required:
a. Prepare a budgeted income statement for June 2015
b. Prepare a budgeted balance sheet as of June 30, 2015.
24) Duffy Corporation has prepared the following sales budget:
Month Cash Sales Credit Sales
May $16,000 $68,000
June 20,000 80,000
July 18,000 74,000
August 24,000 92,000
September 22,000 76,000
Collections are 40% in the month of sale, 45% in the month following the sale, and 10% two months
following the sale. The remaining 5% is expected to be uncollectible.
Required:
Prepare a schedule of cash collections for July through September.
25) The following information pertains to Amigo Corporation:
Month Sales Purchases
July $30,000 $10,000
August 34,000 12,000
September 38,000 14,000
October 42,000 16,000
November 48,000 18,000
December 60,000 20,000
• Cash is collected from customers in the following manner:
Month of sale (2% cash discount) 30%
Month following sale 50%
Two months following sale 15%
Amount uncollectible 5%
• 40% of purchases are paid for in cash in the month of purchase, and the balance is paid the following
month.
Required:
a. Prepare a summary of cash collections for the 4th quarter.
b. Prepare a summary of cash disbursements for the 4th quarter.