Name:
Class:
Date:
Indicate whether the statement is true or false.
1. The sales budget is derived from the production budget.
a.
True
b.
False
2. A process whereby the effect of fluctuations in the level of activity is built into the budgeting system is referred to as
flexible budgeting.
a.
True
b.
False
3. Supervisor salaries, maintenance, and indirect factory wages would normally appear in the selling and administrative
expenses budget.
a.
True
b.
False
4. In preparing flexible budgets, the first step is to identify the fixed and variable components of the various costs and
expenses being budgeted.
a.
True
b.
False
5. Flexible budgeting builds the effect of changes in level of activity into the budget system.
a.
True
b.
False
6. After the sales budget is prepared, the production budget is normally prepared next.
a.
True
b.
False
7. Part of the cash budget is based on information drawn from the capital expenditures budget.
a.
True
b.
False
8. A formal written statement of management’s plans for the future, expressed in financial terms, is called a budget.
a.
True
b.
False
9. Employees view budgeting more positively when goals are established for them by senior management.
a.
True
b.
False
10. The sales budget is the starting point for preparation of the direct labor cost budget.
a.
True
b.
False
11. The cash budget summarizes future plans for the acquisition of fixed assets.
Name:
Class:
Date:
a.
True
b.
False
12. If Division Inc. expects to sell 200,000 units in the current year, desires ending inventory of 24,000 units, and has
22,000 units on hand as of the beginning of the year, the budgeted volume of production for the year is 198,000 units.
a.
True
b.
False
13. The capital expenditures budget summarizes plans for acquiring fixed assets.
a.
True
b.
False
14. The capital expenditures budget is part of the planned investing activities of a company.
a.
True
b.
False
15. Supervisor salaries, maintenance, and indirect factory wages would normally appear in the factory overhead cost
budget.
a.
True
b.
False
16. A capital expenditures budget is prepared before the operating budgets.
a.
True
b.
False
17. The budgeted direct materials purchases is normally computed as the sum of (1) the materials for production and (2)
the desired ending inventory.
a.
True
b.
False
18. The responsibility for coordinating the preparation of the annual budget should be assigned to the CEO of a firm.
a.
True
b.
False
19. The task of preparing a budget should be the sole task of the most important department in an organization.
a.
True
b.
False
20. The primary budget in nonmanufacturing businesses is the staffing budget.
a.
True
b.
False
21. When budget goals are set too tight, the budget becomes less effective as a tool for planning and controlling
operations.
a.
True
b.
False
Name:
Class:
Date:
32. The cash budget presents the expected inflows and outflows of cash for a specified period of time.
22. Flexible budgeting requires managers to estimate sales, production, and other operating data as though operations
were being started for the first time.
a.
True
b.
False
23. After the sales budget is prepared, the capital expenditures budget is normally prepared next.
a.
True
b.
False
24. The financial budgets are prepared before the operating budgets.
a.
True
b.
False
25. Budgeting involves (1) establishing specific goals for future operations, (2) executing plans to achieve the goals, and
(3) periodically comparing actual results with the goals.
a.
True
b.
False
26. Past performance is the best overall basis for evaluating current performance and assessing the need for corrective
action.
a.
True
b.
False
27. Most companies prepare a master budget on a yearly basis.
a.
True
b.
False
28. The budgeted volume of production is normally computed as the sum of (1) the expected sales volume and (2) the
desired ending inventory.
a.
True
b.
False
29. The flexible budget is, in effect, a series of static budgets for different levels of activity.
a.
True
b.
False
30. Supervisor salaries and indirect factory wages would normally appear in the direct labor cost budget.
a.
True
b.
False
31. Detailed supplemental schedules based on department responsibility are often prepared for major items in the
operating expenses budget.
a.
True
b.
False
Name:
Class:
Date:
a.
True
b.
False
33. The budget procedure that requires managers to estimate sales, production, and other operating data as though
operations were being started for the first time is called continuous budgeting.
a.
True
b.
False
34. The first budget to be prepared is usually the production budget.
a.
True
b.
False
35. The cash budget is affected by the sales budget, the various budgets for manufacturing costs and operating expenses,
and the capital expenditures budget.
a.
True
b.
False
36. The operating budgets are used to prepare the budgeted income statement.
a.
True
b.
False
37. The master budget is an integrated set of budgets that tie together a company’s operating, financing and investing
activities into an integrated plan for the coming year.
a.
True
b.
False
38. Goal conflict can be avoided if budget goals are carefully designed for consistency across all areas of the organization.
a.
True
b.
False
39. Budgets are normally used only by profit-making businesses.
a.
True
b.
False
40. The production budget is the starting point for preparation of the direct labor cost budget.
a.
True
b.
False
41. The first budget to be prepared is usually the sales budget.
a.
True
b.
False
42. Budgets are prepared in the Accounting Department and monitored by various department managers.
a.
True
b.
False
Name:
Class:
Date:
b.
False
43. Once a static budget has been determined, it is changed regularly as the underlying activity changes.
a.
True
b.
False
44. The budgeted direct materials purchases is based on the sum of (1) the materials needed for production and (2) the
desired ending materials inventory, less (3) the estimated beginning materials inventory.
a.
True
b.
False
45. The budgeted balance sheet assumes that all operating and financial plans are met.
a.
True
b.
False
46. The budgeted volume of production is based on the sum of (1) the expected sales volume and (2) the desired ending
inventory, less (3) the estimated beginning inventory.
a.
True
b.
False
47. The financial budgets of a business include the cash budget, the capital expenditures budget, and the budgeted balance
sheet.
a.
True
b.
False
48. A budgeted income statement integrates the sales budget, cost of goods sold budget, and selling and administrative
expenses budget, but excludes estimates of other revenue, other expense, and income tax.
a.
True
b.
False
49. A budget procedure that provides for the maintenance at all times of a 12-month projection into the future is called
continuous budgeting.
a.
True
b.
False
50. The staffing budget in a nonmanufacturing business is highly inflexible to service demands.
a.
True
b.
False
51. A budget procedure that provides for the maintenance at all times of a 12-month projection into the future is called
master budgeting.
a.
True
b.
False
52. The budget procedure that requires managers to estimate sales, production, and other operating data as though
operations were being started for the first time is called zero-based budgeting.
a.
True
Name:
Class:
Date:
Desired inventory (units), June 30
9,000
53. Budgetary slack can be avoided if lower and mid–level managers are required to support all of their spending
requirements with specific operational plans.
a.
True
b.
False
54. The budgeted balance sheet is also called a pro forma balance sheet.
a.
True
b.
False
55. If Division Inc. expects to sell 200,000 units in the current year, desires ending inventory of 24,000 units, and has
22,000 units on hand as of the beginning of the year, the budgeted volume of production for the year is 202,000 units.
a.
True
b.
False
56. Budget preparation is best determined in a top-down managerial approach.
a.
True
b.
False
57. Consulting the persons affected by a budget when it is prepared can provide an effective means of motivation and
cooperation.
a.
True
b.
False
Indicate the answer choice that best completes the statement or answers the question.
Nuthatch Corporation began its operations on September 1 of the current year. Budgeted sales for the first three months of
business—September, October, and November—are $260,000, $375,000, and $400,000, respectively. The company
expects to sell 30% of its merchandise for cash. Of sales on account, 80% are expected to be collected in the month of the
sale and 20% in the month following the sale.
58. The cash collections expected in October from accounts receivable are estimated to be
a.
$246,400
b.
$262,500
c.
$210,000
d.
$294,500
59. Which of the following budgets is not directly associated with the production budget?
a.
direct materials purchases budget
b.
sales budget
c.
capital expenditures budget
d.
direct labor cost budget
60. Production and sales estimates for June for Robin Co. are as follows:
Estimated inventory (units), June 1
8,000
Name:
Class:
Date:
Expected sales volume (units):
Territory X
4,000
Territory Y
10,000
Territory Z
6,000
Unit sales price
$25
The budgeted total sales for June is
a.
$225,000
b.
$500,000
c.
$525,000
d.
$200,000
61. If the expected sales volume for the current period is 9,000 units, the desired ending inventory is 200 units, and the
beginning inventory is 300 units, the number of units set forth in the production budget, representing total production for
the current period, is
a.
9,000 units
b.
8,900 units
c.
8,700 units
d.
9,100 units
62. Southern Company is preparing a cash budget for April. The company has $12,000 cash at the beginning of April and
anticipates $30,000 in cash receipts and $34,500 in cash disbursements during April. Southern Company has an
agreement with its bank to maintain a minimum cash balance of $10,000. To maintain the required balance during April,
the company must
a.
borrow $4,500
b.
borrow $2,500
c.
borrow $7,500
d.
borrow $5,000
63. The primary budget in a nonmanufacturing business is the _____ budget.
a.
capital expenditures
b.
selling and administrative expenses
c.
cash
d.
staffing
64. Production and sales estimates for April for Crane Co. are as follows:
Estimated inventory (units), April 1
19,000
Desired inventory (units), April 30
18,000
Expected sales volume (units):
Territory A
3,000
Territory B
4,750
Territory C
4,250
Unit sales price
$20
The number of units expected to be manufactured in April is
a.
11,000 units
b.
9,500 units
Name:
Class:
Date:
c.
12,000 units
d.
13,000 units
Cardinal Company has finished goods inventory of 55,000 units on January 1. Its projected sales for the next four months
are: January, 200,000 units; February, 180,000 units; March, 210,000 units; and April, 230,000 units. Cardinal Company
wishes to maintain a desired ending finished goods inventory of 20% of the following month’s sales.
65. The budgeted units of inventory for March 31
a.
would be 46,000 units
b.
would be 36,000 units
c.
cannot be determined from the data given
d.
would be 42,000 units
66. Motorcycle Manufacturers, Inc., projected sales of 78,000 machines for the year. The estimated January 1 inventory is
6,500 units, and the desired December 31 inventory is 6,000 units. The budgeted production for the year is
a.
78,500 units
b.
70,000 units
c.
77,500 units
d.
70,500 units
Cardinal Company has finished goods inventory of 55,000 units on January 1. Its projected sales for the next four months
are: January, 200,000 units; February, 180,000 units; March, 210,000 units; and April, 230,000 units. Cardinal Company
wishes to maintain a desired ending finished goods inventory of 20% of the following month’s sales.
67. The budgeted units of production for January would be
a.
236,000 units
b.
181,000 units
c.
200,000 units
d.
219,000 units
Mandy Corporation sells a single product. Budgeted sales for the year are anticipated to be 640,000 units, estimated
beginning inventory is 98,000 units, and desired ending inventory is 80,000 units. The quantities of direct materials
expected to be used for each unit of finished product are given below.
Material A: 0.5 lb. per unit @ $0.60 per pound
Material B: 1.0 lb. per unit @ $1.70 per pound
Material C: 1.2 lbs. per unit @ $1.00 per pound
68. The dollar amount of Material C used in production during the year is
a.
$746,400
b.
$724,800
c.
$824,400
d.
$758,160
Below is budgeted production and sales information for Flushing Company for the month of December.
Name:
Class:
Date:
Product XXX
Product ZZZ
Estimated beginning inventory
32,000 units
20,000 units
Desired ending inventory
34,000 units
17,000 units
Region I, anticipated sales
320,000 units
260,000 units
Region II, anticipated sales
180,000 units
140,000 units
The unit selling price for product XXX is $5 and for product ZZZ is $15.
69. Budgeted production for product ZZZ during the month is
a.
403,000 units
b.
380,000 units
c.
397,000 units
d.
417,000 units
70. For March, sales revenue is $1,000,000, sales commissions are 5% of sales, the sales manager’s salary is $80,000,
advertising expenses are $65,000, shipping expenses total 1% of sales, and miscellaneous selling expenses are $2,100 plus
1% of sales. Total selling expenses for the month of March are
a.
$217,100
b.
$205,000
c.
$207,100
d.
$142,100
71. Which of the following budgets allows for adjustments in activity levels?
a.
static budget
b.
continuous budget
c.
zero-based budget
d.
flexible budget
72. Stephanie Corporation sells a single product. Budgeted sales for the year are anticipated to be 640,000 units, estimated
beginning inventory is 108,000 units, and desired ending inventory is 90,000 units. The quantities of direct materials
expected to be used for each unit of finished product are given below.
Material A 0.50 lb. per unit @ $0.70 per pound
Material B 1.00 lb. per unit @ $1.70 per pound
Material C 1.20 lbs. per unit @ $1.00 per pound
The dollar amount of Material A used in production during the year is
a.
$217,700
b.
$528,700
c.
$311,000
d.
$224,600
73. Estimated cash payments are planned reductions in cash from all of the following except
a.
manufacturing and operating expenses
b.
capital expenditures
c.
notes and accounts receivable collections
d.
payments for interest or dividends
Name:
Class:
Date:
Cardinal Company has finished goods inventory of 55,000 units on January 1. Its projected sales for the next four months
are: January, 200,000 units; February, 180,000 units; March, 210,000 units; and April, 230,000 units. Cardinal Company
wishes to maintain a desired ending finished goods inventory of 20% of the following month’s sales.
74. The budgeted units of production for March would be
a.
256,000 units
b.
206,000 units
c.
214,000 units
d.
298,000 units
75. Tara Company’s budget shows the following credit sales for the current year: September, $25,000; October, $36,000;
November, $30,000; December, $32,000. Experience has shown that payment for credit sales is received as follows: 15%
in the month of sale, 60% in the first month after sale, 20% in the second month after sale, and 5% is uncollectible. The
amount of cash Tara Company will expect to collect in November as a result of current and past credit sales is
a.
$19,700
b.
$28,400
c.
$30,000
d.
$31,100
Dove Corporation began its operations on September 1 of the current year. Budgeted sales for the first three months of
business are $250,000, $320,000, and $410,000, respectively, for September, October, and November. The company
expects to sell 25% of its merchandise for cash. Of sales on account, 70% are expected to be collected in the month of the
sale and 30% in the month following the sale.
76. The cash collections in November are
a.
$317,750
b.
$389,750
c.
$490,000
d.
$410,000
77. Truliant Co. sells a product called Withitall and has predicted the following sales for the first four months of the
current year:
January
February
March
April
Sales in units
1,700
1,900
2,100
1,600
Ending inventory for each month should be 20% of next month’s sales. The number of units produced in February should
be
a.
1,940 units
b.
1,800 units
c.
1,900 units
d.
1,850 units
78. If budgeted beginning finished goods inventory is $8,000, budgeted ending finished goods inventory is $9,400, and
budgeted cost of goods sold is $10,260, budgeted cost of goods manufactured should be
a.
$1,400
Name:
Class:
Date:
b.
$9,600
c.
$11,660
d.
$11,550
79. The first budget customarily prepared as part of an entity’s master budget is the _____ budget.
a.
production
b.
cash
c.
sales
d.
direct materials purchases
Finch Company began its operations on March 31 of the current year. Finch has the following projected costs:
April
May
June
Manufacturing costs*
$156,800
$195,200
$217,600
Insurance expense**
1,000
1,000
1,000
Depreciation expense
2,000
2,000
2,000
Property tax expense***
500
500
500
*Of the manufacturing costs, three-fourths is paid for in the month they are incurred; one-fourth is paid in the
following month.
**Insurance expense is $1,000 a month; however, the insurance is paid four times yearly in the first month of the
quarter (i.e., January, April, July, and October).
***Property tax is paid once a year in November.
80. The cash payments expected for Finch Company in the month of May are
a.
$185,600
b.
$149,900
c.
$187,600
d.
$189,100
Next year’s sales forecast shows that 20,000 units of Product A and 22,000 units of Product B are going to be sold for
prices of $10 and $12 per unit, respectively. The desired ending inventory of Product A is 20% higher than its beginning
inventory of 2,000 units. The beginning inventory of Product B is 2,500 units. The desired ending inventory of Product B
is 3,000 units.
81. Budgeted production of Product B for the year would be
a.
24,500 units
b.
22,500 units
c.
26,500 units
d.
23,200 units
82. Planning for capital expenditures is necessary for all of the following reasons except
a.
machinery and other fixed assets wear out
b.
expansion may be necessary to meet increased demand
c.
amounts spent for office equipment may be immaterial
d.
fixed assets may fall below minimum standards of efficiency
Name:
Class:
Date:
The number of units expected to be manufactured in March is
83. Which of the following would not be used in preparing a cash budget for October?
a.
beginning cash balance on October 1
b.
budgeted salaries expense for October
c.
estimated depreciation expense for October
d.
budgeted sales and collections for October
84. As of January 1 of the current year, Gunner Company had accounts receivable of $50,000. The sales for January,
February, and March were $120,000, $140,000, and $150,000, respectively. Of each month’s sales, 20% are for cash. Of
the remaining 80% (the credit sales), 60% are collected in the month of sale, with the remaining 40% collected in the
following month. The accounts receivable balance as of March 31 is
a.
$72,000
b.
$48,000
c.
$58,720
d.
$60,000
85. The operating budgets of a company include the
a.
cash budget
b.
capital expenditures budget
c.
financial budgets
d.
production budget
86. Production and sales estimates for April for Ibis Co. are as follows:
Estimated inventory (units), April 1
9,000
Desired inventory (units), April 30
8,000
Expected sales volume (units):
Territory A
3,500
Territory B
4,750
Territory C
4,250
Unit sales price
$20
The budgeted total sales for April is
a.
$200,000
b.
$230,000
c.
$270,000
d.
$250,000
87. Production and sales estimates for March for Robin Co. are as follows:
Estimated inventory (units), March 1
18,000
Desired inventory (units), March 31
21,600
Expected sales volume (units):
Territory M
7,000
Territory L
8,000
Territory O
9,000
Unit sales price
$15
Name:
Class:
Date:
a.
24,000 units
b.
27,000 units
c.
27,600 units
d.
21,600 units
88. As of January 1 of the current year, Grackle Company had accounts receivable of $50,000. The sales for January,
February, and March were $120,000, $140,000, and $150,000, respectively. Of each month’s sales, 20% are for cash. Of
the remaining 80% (the credit sales), 60% are collected in the month of sale, with the remaining 40% collected in the
following month. The total cash collected (both from accounts receivable and cash sales) in the month of March is
a.
$74,800
b.
$146,800
c.
$102,000
d.
$116,800
89. Carillon’s Department Stores is planning its staffing for the upcoming holiday season. From past history, the store
determines that it needs one additional sales clerk for each $15,000 in daily sales. The average daily sales is anticipated to
increase by $135,000 from Black Friday until Christmas Eve, or 27 shopping days. Each additional sales clerk will work a
six-hour shift and will be paid $16 per hour. The amount to budget for additional sales clerks for the holiday season is
a.
$14,580
b.
$23,328
c.
$31,104
d.
$209,952
90. A variant of fiscal-year budgeting whereby a 12-month projection into the future is maintained at all times is termed
_____ budgeting.
a.
flexible
b.
continuous
c.
zero-based
d.
master
91. Laurie Inc.’s static budget for 10,000 units of production includes $60,000 for direct materials, $44,000 for direct
labor, fixed utilities costs of $5,000, and supervisor salaries of $25,000. A flexible budget for 12,000 units of production
would show
a.
the same cost structure in total
b.
direct materials of $72,000, direct labor of $52,800, fixed utilities of $5,000, and supervisor salaries of
$25,000
c.
total variable costs of $159,800
d.
direct materials of $60,000, direct labor of $52,800, fixed utilities of $6,000, and supervisor salaries of
$25,000
Below is budgeted production and sales information for Bluebird Company for the month of December.
Product XXX
Product ZZZ
Estimated beginning inventory
30,000 units
18,000 units
Desired ending inventory
32,000 units
15,000 units
Anticipated sales
520,000 units
460,000 units
Name:
Class:
Date:
The unit selling price for Product XXX is $5 and for Product ZZZ is $14.
92. Budgeted production for Product XXX during the month is
a.
522,000 units
b.
552,000 units
c.
518,000 units
d.
520,000 units
93. A disadvantage of static budgets is that they
a.
are dependent on the previous year’s actual results
b.
cannot be used by service companies
c.
do not allow for possible changes in activity levels
d.
show the expected results of a responsibility center for several levels of activity
94. A company’s history indicates that 20% of its sales are for cash and the rest are on credit. Collections on credit sales
are 20% in the month of the sale, 50% in the next month, 25% the following month, and 5% is uncollectible. Projected
sales for December, January, and February are $60,000, $85,000, and $95,000, respectively. The February expected cash
receipts from all current and prior credit sales are
a.
$61,200
b.
$57,000
c.
$66,400
d.
$90,250
Dove Corporation began its operations on September 1 of the current year. Budgeted sales for the first three months of
business are $250,000, $320,000, and $410,000, respectively, for September, October, and November. The company
expects to sell 25% of its merchandise for cash. Of sales on account, 70% are expected to be collected in the month of the
sale and 30% in the month following the sale.
95. The cash collections expected in October are
a.
$320,000
b.
$248,000
c.
$304,250
d.
$382,500
96. Chelsa Manufacturing Co.’s static budget at 5,000 units of production includes $40,000 for direct labor and $5,000 for
variable electric power. Total fixed costs are $23,000. At 8,000 units of production, a flexible budget would show
a.
variable costs of $64,000 and $28,000 of fixed costs
b.
variable costs of $64,000 and $23,000 of fixed costs
c.
variable costs of $72,000 and $23,000 of fixed costs
d.
variable and fixed costs totaling $107,000
Finch Company began its operations on March 31 of the current year. Finch has the following projected costs:
April
May
June
Manufacturing costs*
$156,800
$195,200
$217,600
Insurance expense**
1,000
1,000
1,000
Name:
Class:
Date:
Depreciation expense
2,000
2,000
2,000
Property tax expense***
500
500
500
*Of the manufacturing costs, three-fourths is paid for in the month they are incurred; one-fourth is paid in the
following month.
**Insurance expense is $1,000 a month; however, the insurance is paid four times yearly in the first month of the
quarter (i.e., January, April, July, and October).
***Property tax is paid once a year in November.
97. The cash payments expected for Finch Company in the month of April are
a.
$122,600
b.
$120,600
c.
$123,100
d.
$121,100
98. Willow Valley’s April sales forecast projects that 7,000 units will sell at a price of $10.50 per unit. The desired ending
inventory is 30% higher than the beginning inventory, which was 1,000 units. Budgeted production in April would be
a.
8,000 units
b.
7,000 units
c.
7,300 units
d.
6,300 units
99. For February, sales revenue is $700,000, sales commissions are 5% of sales, the sales manager’s salary is $96,000,
advertising expenses are $90,000, shipping expenses total 2% of sales, and miscellaneous selling expenses are $2,500 plus
1/2 of 1% of sales. Total selling expenses for the month of February are
a.
$161,000
b.
$237,500
c.
$235,000
d.
$241,000
Production estimates for July for Starling Co. are as follows:
Estimated inventory (units), July 1
8,500
Desired inventory (units), July 31
10,500
Expected sales volume (units), July
76,000
For each unit produced, the direct materials requirements are as follows:
Material A ($5 per lb.)
3.0 lbs.
Material B ($18 per lb.)
0.5 lb.
100. The number of pounds of Materials A and B required for July production is
a.
216,000 lbs. of A; 36,000 lbs. of B
b.
216,000 lbs. of A; 72,000 lbs. of B
c.
234,000 lbs. of A; 39,000 lbs. of B
d.
225,000 lbs. of A; 37,500 lbs. of B
101. Based on the following production and sales estimates for May for Heron Company, determine the number of units
expected to be manufactured in May.
Name:
Class:
Date:
Estimated inventory (units), May 1
30,000
Desired inventory (units), May 31
25,000
Expected sales volume (units):
South region
20,000
West region
40,000
North region
20,000
Unit sales price
$10
a.
85,000 units
b.
80,000 units
c.
75,000 units
d.
105,000 units
Production estimates for August for Jay Company are as follows:
Estimated inventory (units), August 1
12,000
Desired inventory (units), August 31
9,000
Expected sales volume (units), August
75,000
For each unit produced, the direct materials requirements are as follows:
Material A ($5 per lb.)
3.0 lbs.
Material B ($18 per lb.)
0.5 lb.
102. The number of pounds of Materials A and B required for August production is
a.
216,000 lbs. of A; 72,000 lbs. of B
b.
216,000 lbs. of A; 36,000 lbs. of B
c.
225,000 lbs. of A; 37,500 lbs. of B
d.
234,000 lbs. of A; 39,000 lbs. of B
Mandy Corporation sells a single product. Budgeted sales for the year are anticipated to be 640,000 units, estimated
beginning inventory is 98,000 units, and desired ending inventory is 80,000 units. The quantities of direct materials
expected to be used for each unit of finished product are given below.
Material A: 0.5 lb. per unit @ $0.60 per pound
Material B: 1.0 lb. per unit @ $1.70 per pound
Material C: 1.2 lbs. per unit @ $1.00 per pound
103. The dollar amount of Material B used in production during the year is
a.
$1,057,400
b.
$1,193,400
c.
$1,026,800
d.
$1,224,000
104. As of January 1 of the current year, Grackle Company had accounts receivable of $50,000. The sales for January,
February, and March were $120,000, $140,000, and $150,000, respectively. Of each month’s sales, 20% are for cash. Of
the remaining 80% (the credit sales), 60% are collected in the month of sale, with the remaining 40% collected in the
following month. The total cash collected (both from accounts receivable and cash sales) in the month of February is
a.
$129,600
Name:
Class:
Date:
b.
$62,400
c.
$133,600
d.
$91,200
105. Heedy Company is trying to decide how many units of merchandise to produce each month. The company policy is
to have 20% of the next month’s sales in inventory at the end of each month. Projected sales for August, September, and
October are 30,000 units, 20,000 units, and 40,000 units, respectively. The number of units that must be produced in
September is
a.
24,000 units
b.
18,000 units
c.
28,000 units
d.
22,000 units
106. Consider Derek’s budget information: Materials to be used total $64,750; direct labor totals $198,400; factory
overhead totals $394,800; work in process inventory on January 1 is $189,100; and work in progress inventory on
December 31 is $197,600. The budgeted cost of goods manufactured for the year is
a.
$649,450
b.
$657,950
c.
$197,600
d.
$1,044,650
107. Production and sales estimates for June for Cardinal Co. are as follows:
Estimated inventory (units), June 1
20,000
Desired inventory (units), June 30
19,000
Expected sales volume (units):
Territory X
7,000
Territory Y
4,000
Territory Z
5,500
Unit sales price
$20
The number of units expected to be manufactured in June is
a.
11,000 units
b.
12,500 units
c.
15,500 units
d.
13,500 units
Nuthatch Corporation began its operations on September 1 of the current year. Budgeted sales for the first three months of
business—September, October, and November—are $260,000, $375,000, and $400,000, respectively. The company
expects to sell 30% of its merchandise for cash. Of sales on account, 80% are expected to be collected in the month of the
sale and 20% in the month following the sale.
108. The cash collections expected in November from accounts receivable are projected to be
a.
$280,000
b.
$316,400
c.
$295,200
d.
$276,500
Name:
Class:
Date:
113. The amount of cash excess or deficiency (after considering the minimum cash balance required) for February is a(n)
109. For April, sales revenue is $700,000, sales commissions are 5% of sales, the sales manager’s salary is $98,000,
advertising expenses are $90,000, shipping expenses total 2% of sales, and miscellaneous selling expenses are $2,100 plus
1/2 of 1% of sales. Total selling expenses for the month of April are
a.
$159,100
b.
$242,600
c.
$186,000
d.
$182,100
110. Fashion Jeans, Inc., sells two lines of jeans: Simple Life and Fancy Life. Simple Life sells for $85, and Fancy Life
sells for $100. The company sells all of its jeans on credit and estimates that 60% is collected in the month of the sale,
35% is collected in the following month, and the rest is considered to be uncollectible. The estimated sales for Simple are:
January, 20,000 pairs of jeans; February, 27,500 pairs of jeans; and March, 25,000 pairs of jeans. The estimated sales for
Fancy are: January, 18,000 pairs of jeans; February, 19,000 pairs of jeans; and March, 20,500 pairs of jeans. The expected
cash receipts for the month of March is
a.
$3,988,125
b.
$2,505,000
c.
$2,125,000
d.
$4,175,000
Cardinal Company has finished goods inventory of 55,000 units on January 1. Its projected sales for the next four months
are: January, 200,000 units; February, 180,000 units; March, 210,000 units; and April, 230,000 units. Cardinal Company
wishes to maintain a desired ending finished goods inventory of 20% of the following month’s sales.
111. The budgeted units of production for February would be
a.
186,000 units
b.
181,000 units
c.
222,000 units
d.
174,000 units
112. As of January 1 of the current year, Grayson Company had accounts receivable of $40,000. The sales for January,
February, and March were $120,000, $140,000, and $150,000, respectively. Of each month’s sales, 20% are for cash. Of
the remaining 80% (the credit sales), 60% are collected in the month of sale, with the remaining 40% collected in the
following month. The total cash collected (both from accounts receivable and for cash sales) in the month of January is
a.
$64,000
b.
$107,000
c.
$61,600
d.
$121,600
A company is preparing its cash budget. Its cash balance on January 1 is $290,000, and it has a minimum cash
requirement of $340,000. The following data have been provided:
January
February
March
Cash receipts
$1,061,200
$1,182,400
$1,091,700
Cash payments
984,500
1,210,000
1,075,000
Name:
Class:
Date:
a.
deficiency of $109,100
b.
excess of $10,900
c.
deficiency of $900
d.
excess of $109,100
114. The budgeted finished goods inventory and cost of goods sold for a manufacturing company for the year are as
follows: January 1 finished goods, $765,000; December 31 finished goods, $640,000; and cost of goods sold, $2,560,000.
The budgeted cost of goods manufactured is
a.
$1,405,000
b.
$2,560,000
c.
$2,435,000
d.
$3,965,000
115. The process of developing budget estimates by requiring managers to estimate sales, production, and other operating
data as though operations were being initiated for the first time is referred to as _____ budgeting.
a.
flexible
b.
continuous
c.
zero-based
d.
master
Below is budgeted production and sales information for Bluebird Company for the month of December.
Product XXX
Product ZZZ
Estimated beginning inventory
30,000 units
18,000 units
Desired ending inventory
32,000 units
15,000 units
Anticipated sales
520,000 units
460,000 units
The unit selling price for Product XXX is $5 and for Product ZZZ is $14.
116. Budgeted production for Product ZZZ during the month is
a.
460,000 units
b.
475,000 units
c.
457,000 units
d.
463,000 units
Production estimates for August for Jay Company are as follows:
Estimated inventory (units), August 1
12,000
Desired inventory (units), August 31
9,000
Expected sales volume (units), August
75,000
For each unit produced, the direct materials requirements are as follows:
Material A ($5 per lb.)
3.0 lbs.
Material B ($18 per lb.)
0.5 lb.
117. The total direct materials purchases (assuming no beginning or ending inventory of material) of Materials A and B
required for August production is
a.
$1,080,000 for A; $1,296,000 for B
Name:
Class:
Date:
b.
$1,080,000 for A; $648,000 for B
c.
$1,125,000 for A; $675,000 for B
d.
$1,170,000 for A; $702,000 for B
118. An October sales forecast projects 7,000 units are going to be sold at a price of $11.50 per unit. The desired ending
inventory in units is 15% higher than the beginning inventory of 1,000 units. Total October sales are anticipated to be
a.
$69,000
b.
$80,500
c.
$70,000
d.
$92,000
119. Principal components of a master budget include
a.
production budget
b.
sales budget
c.
capital expenditures budget
d.
all of these choices
A company is preparing its cash budget. Its cash balance on January 1 is $290,000, and it has a minimum cash
requirement of $340,000. The following data have been provided:
January
February
March
Cash receipts
$1,061,200
$1,182,400
$1,091,700
Cash payments
984,500
1,210,000
1,075,000
120. The amount of cash excess or deficiency (after considering the minimum cash balance required) for March is a(n)
a.
excess of $214,200
b.
excess of $15,800
c.
deficiency of $60,000
d.
excess of $25,300
121. When a manager seeks to achieve personal departmental objectives that may work to the detriment of the overall
firm, the manager is experiencing
a.
budgetary slack
b.
padding
c.
goal conflict
d.
cushions
122. The budgetary unit of an organization that is led by a manager who has both the authority over and responsibility for
the unit’s performance is known as a
a.
control center
b.
budgetary area
c.
responsibility center
d.
managerial department
123. At the beginning of the period, the Cutting Department budgeted direct labor of $155,000, direct materials of
$165,000, and fixed factory overhead of $15,000 for 9,000 hours of production. The department actually completed
Name:
Class:
Date:
10,000 hours of production. The appropriate total budget for the department, assuming it uses flexible budgeting, is
a.
$416,000
b.
$370,500
c.
$368,889
d.
$335,000
124. The budget that summarizes future plans for the acquisition of fixed assets is the _____ budget.
a.
direct materials purchases
b.
production
c.
sales
d.
capital expenditures
125. A series of budgets for varying levels of activity is termed a(n) _____ budget.
a.
flexible
b.
variable
c.
master
d.
activity
126. When preparing the cash budget, all the following should be considered except
a.
cash receipts from customers
b.
depreciation expense
c.
cash payments to suppliers
d.
cash payments for equipment
Production estimates for July for Starling Co. are as follows:
Estimated inventory (units), July 1
8,500
Desired inventory (units), July 31
10,500
Expected sales volume (units), July
76,000
For each unit produced, the direct materials requirements are as follows:
Material A ($5 per lb.)
3.0 lbs.
Material B ($18 per lb.)
0.5 lb.
127. The total direct materials purchases of Materials A and B (assuming no beginning or ending materials inventory)
required for July production is
a.
$1,080,000 for A; $648,000 for B
b.
$1,080,000 for A; $1,296,000 for B
c.
$1,170,000 for A; $702,000 for B
d.
$1,125,000 for A; $675,000 for B
128. Production and sales estimates for June are as follows:
Estimated inventory (units), June 1
16,000
Desired inventory (units), June 30
18,000
Expected sales volume (units):
Territory X
4,000
Territory Y
6,000
Name:
Class:
Date:
Territory Z
5,500
Unit sales price
$20
The number of units expected to be manufactured in June is
a.
15,500 units
b.
17,500 units
c.
16,500 units
d.
13,500 units
Next year’s sales forecast shows that 20,000 units of Product A and 22,000 units of Product B are going to be sold for
prices of $10 and $12 per unit, respectively. The desired ending inventory of Product A is 20% higher than its beginning
inventory of 2,000 units. The beginning inventory of Product B is 2,500 units. The desired ending inventory of Product B
is 3,000 units.
129. Total budgeted sales of both products for the year would be
a.
$42,000
b.
$200,000
c.
$264,000
d.
$464,000
130. Jase Manufacturing Co.’s static budget at 10,000 units of production includes $40,000 for direct labor and $4,000 for
electric power. Total fixed costs are $24,000. At 12,000 units of production, a flexible budget would show
a.
variable costs of $52,800 and $29,000 of fixed costs
b.
variable costs of $44,000 and $24,000 of fixed costs
c.
variable costs of $52,800 and $24,000 of fixed costs
d.
variable and fixed costs totaling $68,000
A company is preparing its cash budget. Its cash balance on January 1 is $290,000, and it has a minimum cash
requirement of $340,000. The following data have been provided:
January
February
March
Cash receipts
$1,061,200
$1,182,400
$1,091,700
Cash payments
984,500
1,210,000
1,075,000
131. The amount of the deficiency or excess cash (after considering the minimum cash balance required) for January is
a(n)
a.
excess of $26,700
b.
deficiency of $136,700
c.
excess of $356,700
d.
excess of $60,000
Below is budgeted production and sales information for Flushing Company for the month of December.
Product XXX
Product ZZZ
Estimated beginning inventory
32,000 units
20,000 units
Desired ending inventory
34,000 units
17,000 units
Region I, anticipated sales
320,000 units
260,000 units
Name:
Class:
Date:
Region II, anticipated sales
180,000 units
140,000 units
The unit selling price for product XXX is $5 and for product ZZZ is $15.
132. Budgeted sales for the month is
a.
$3,180,000
b.
$5,820,000
c.
$1,800,000
d.
$8,500,000
133. Woodpecker Co. has $296,000 in accounts receivable on January 1. Budgeted sales for January are $860,000.
Woodpecker Co. expects to sell 20% of its merchandise for cash. Of the remaining 80% of sales on account, 75% are
expected to be collected in the month of sale and the remainder the following month. The January cash collections from
sales are
a.
$812,000
b.
$688,000
c.
$468,000
d.
$984,000
134. Gilbert’s expects its September sales to be 20% higher than its August sales of $150,000. Manufacturing costs were
$100,000 in August and are expected to be $120,000 in September. All sales are on credit and are collected as follows:
30% in the month of the sale and 70% in the following month. Payments of manufacturing costs are as follows: 25% in
the month of production and 75% in the following month. The beginning cash balance on September 1 is $7,500. The
ending balance on September 30 would be
a.
$61,500
b.
$75,000
c.
$72,300
d.
$71,500
135. The primary difference between a static budget and a flexible budget is that a static budget
a.
is suitable in a volatile demand situation while a flexible budget is suitable in a stable demand situation
b.
is concerned only with future acquisitions of fixed assets, whereas a flexible budget is concerned with
expenses that vary with sales
c.
includes only fixed costs, whereas a flexible budget includes only variable costs
d.
is a plan for a single level of activity, whereas a flexible budget adjusts for changes in the activity level
136. Budgets need to be fair and attainable for employees to consider the budget important in their normal daily activities.
Which of the following situations will not lead to human behavior problems?
a.
setting goals among managers that conflict with one another
b.
setting goals too tightly making it difficult to meet performance expectations
c.
allowing employees the opportunity to be a part of the budget process
d.
setting goals too loosely, creating a budgetary slack
137. The production budget is used to prepare which of the following budgets?
a.
operating expenses
b.
direct materials purchases, direct labor cost, and factory overhead cost
Name:
Class:
Date:
c.
sales in dollars
d.
sales in units
138. If the expected sales volume for the current period is 8,000 units, the desired ending inventory is 1,400 units, and the
beginning inventory is 1,200 units, the number of units set forth in the production budget, representing total production for
the current period, is
a.
10,600 units
b.
8,200 units
c.
66,000 units
d.
6,800 units
Below is budgeted production and sales information for Flushing Company for the month of December.
Product XXX
Product ZZZ
Estimated beginning inventory
32,000 units
20,000 units
Desired ending inventory
34,000 units
17,000 units
Region I, anticipated sales
320,000 units
260,000 units
Region II, anticipated sales
180,000 units
140,000 units
The unit selling price for product XXX is $5 and for product ZZZ is $15.
139. Budgeted production for product XXX during the month is
a.
498,000 units
b.
502,000 units
c.
534,000 units
d.
566,000 units
140. A formal written statement of management’s plans for the future, expressed in financial terms, is a
a.
gross profit report
b.
responsibility report
c.
budget
d.
performance report
141. The budgeted finished goods inventory and cost of goods sold for a manufacturing company for the year are as
follows: January 1 finished goods, $765,000; December 31 finished goods, $540,000; and cost of goods sold for the year,
$2,560,000. The budgeted cost of goods manufactured for the year is
a.
$1,255,000
b.
$2,335,000
c.
$2,785,000
d.
$3,100,000
Nuthatch Corporation began its operations on September 1 of the current year. Budgeted sales for the first three months of
business—September, October, and November—are $260,000, $375,000, and $400,000, respectively. The company
expects to sell 30% of its merchandise for cash. Of sales on account, 80% are expected to be collected in the month of the
sale and 20% in the month following the sale.
142. The cash collections expected in September from accounts receivable are estimated to be
Name:
Class:
Date:
a.
$223,600
b.
$145,600
c.
$182,000
d.
$168,000
143. At the beginning of the period, the Assembly Department budgeted direct labor of $110,000, direct materials of
$170,000, and fixed factory overhead of $28,000 for 8,000 hours of production. The department actually completed
10,000 hours of production. The appropriate total budget for the department, assuming it uses flexible budgeting, is
a.
$288,000
b.
$305,000
c.
$350,000
d.
$378,000
Next year’s sales forecast shows that 20,000 units of Product A and 22,000 units of Product B are going to be sold for
prices of $10 and $12 per unit, respectively. The desired ending inventory of Product A is 20% higher than its beginning
inventory of 2,000 units. The beginning inventory of Product B is 2,500 units. The desired ending inventory of Product B
is 3,000 units.
144. Budgeted production of Product A for the year would be
a.
22,400 units
b.
20,400 units
c.
20,000 units
d.
12,200 units
145. Pelican Roost Hotel has 100 rooms. For a normal February, it averages 60% capacity. However, there are three 3-day
events scheduled for February in which the hotel expects to be completely booked. Of the additional guests coming for the
events, one-half will likely attach an extra day before or after the event to enjoy the beach and/or other local sights. You
have determined that the housekeeping staff requires 30 minutes to clean each occupied room. The housekeeping staff is
paid $14 per hour. The housekeeping labor cost is fully variable to the number of occupied rooms. Assuming it is not a
leap year, the total housekeeping budget for February is
a.
$14,420
b.
$14,700
c.
$28,840
d.
$29,400
146. Miller and Sons’ static budget for 10,000 units of production includes $50,000 for direct materials, $44,000 for direct
labor, variable utilities of $5,000, and supervisor salaries of $24,000. A flexible budget for 12,000 units of production
would show
a.
the same cost structure in total
b.
direct materials of $60,000, direct labor of $52,800, utilities of $6,000, and supervisor salaries of $29,000
c.
total variable costs of $148,000
d.
direct materials of $60,000, direct labor of $52,800, utilities of $6,000, and supervisor salaries of $24,000
147. The budgeting process does not involve which of the following activities?
a.
establishment of specific goals
Name:
Class:
Date:
b.
periodic comparison of actual results to goals
c.
execution of plans to achieve goals
d.
increased marketing efforts to boost sales
148. Which of the following budgets provides the starting point for the preparation of the direct labor cost budget?
a.
direct materials purchases budget
b.
cash budget
c.
production budget
d.
sales budget
149. If the expected sales volume for the current period is 7,000 units, the desired ending inventory is 400 units, and the
beginning inventory is 400 units, the number of units set forth in the production budget, representing total production for
the current period, is
a.
6,700 units
b.
7,400 units
c.
7,100 units
d.
7,000 units
150. The budget process involves all of the following except
a.
establishing specific goals
b.
executing plans to achieve the goals
c.
periodically comparing actual results with the goals
d.
dismissing all managers who fail to achieve operational goals specified in the budget
Finch Company began its operations on March 31 of the current year. Finch has the following projected costs:
April
May
June
Manufacturing costs*
$156,800
$195,200
$217,600
Insurance expense**
1,000
1,000
1,000
Depreciation expense
2,000
2,000
2,000
Property tax expense***
500
500
500
*Of the manufacturing costs, three-fourths is paid for in the month they are incurred; one-fourth is paid in the
following month.
**Insurance expense is $1,000 a month; however, the insurance is paid four times yearly in the first month of the
quarter (i.e., January, April, July, and October).
***Property tax is paid once a year in November.
151. The cash payments for Finch Company expected in the month of June are
a.
$215,500
b.
$188,800
c.
$214,000
d.
$212,000
152. Production and sales estimates for May for Cardinal Co. are as follows:
Estimated inventory (units), May 1
19,500
Name:
Class:
Date:
Desired inventory (units), May 31
19,300
Expected sales volume (units):
Territory W
6,000
Territory X
7,000
Territory Y
8,000
Unit sales price
$20
The number of units expected to be sold in May is
a.
21,000 units
b.
3,700 units
c.
22,800 units
d.
18,300 units
Match each phrase that follows with the term (a–f) it describes.
a.
Budget
b.
Capital expenditures budget
c.
Sales budget
d.
Production budget
e.
Cash budget
f.
Budgeted balance sheet
153. An accounting report that presents predicted amounts of the company’s assets, liabilities, and equity as of the end of
the budget period
154. Plays an important role for organizations in planning, directing, and controlling a company’s future goals
155. A plan showing the units of goods to be sold and the dollar sales to be derived; usually the starting point in the
budgeting process
156. A plan that lists dollar amounts to be spent on purchasing additional fixed assets to carry out the budgeted business
activities
157. A plan showing the number of units to be produced each month
158. A plan that shows the expected cash receipts (inflows) and payments (outflows) during the budget period, including
receipts from loans needed to maintain a minimum cash balance and repayments of such loans
Match each phrase that follows with the term (a–e) it describes.
a.
Static budget
b.
Flexible budget
c.
Master budget
d.
Sales budget
e.
Production budget
159. Integrated set of operating and financial budgets for a period of time
160. Begins by estimating the quantity of sales
Name:
Class:
Date:
Material B
1.00 lb. per unit
161. Shows expected results at several activity levels
162. Estimates the number of units to be manufactured to meet budgeted sales and desired inventory levels
163. Shows expected results at only one activity level
Match each phrase that follows with the term (a–e) it describes.
a.
Planning
b.
Directing
c.
Controlling
d.
Budget slack
e.
Goal conflict
164. Actions to achieve budgeted goals
165. Setting goals
166. Occurs when budgets are too loose
167. Occurs when employee self-interests are different from company goals
168. Comparing actual performance against budgeted goals
169. Diamond Company manufactures two models of cassette recorders: VCH and MTV. Based on the following
production data for April, prepare a production budget.
VCH
MTV
Estimated inventory (units), April 1
2,900
4,000
Desired inventory (units), April 30
6,900
5,250
Expected sales volume (units):
Eastern zone
12,500
12,960
Midwest zone
19,000
19,800
Western zone
14,500
9,840
170. Purple Co.’s production budget for Product X for the year ending December 31 is as follows:
Product X
Expected units to be sold
640,000
Desired ending inventory, December 31
85,000
Total units available
725,000
Estimated beginning inventory, January 1
(90,000)
Total units to be produced
635,000
In Purple’s production operations, Materials A, B, and C are required to make Product X. The quantities of direct materials
expected to be used for each unit of product are as follows:
Product X
Material A
0.50 lb. per unit
Name:
Class:
Date:
Material C
1.20 lbs. per unit
The prices of direct materials are as follows:
Material A
$0.60 per pound
Material B
$1.70 per pound
Material C
$1.00 per pound
Prepare a direct materials purchases budget for Product X, assuming that there are no beginning or ending inventories for
direct materials (all units purchased are used in production).
171. Big Wheel, Inc., collects 25% of its sales on account in the month of the sale and 75% in the month following the
sale. Sales on account are budgeted to be $225,000 for March and $250,000 for April. What are the budgeted cash receipts
from sales on account for April?
172. What is a capital expenditures budget?
173. Kid’s World Industries has projected sales of 67,000 machines for the current year. The estimated January 1
inventory is 6,000 units, and the desired December 31 inventory is 15,000 units. What is the budgeted production (in
units) for the year?
174. Based on the following production and sales data of Frixion Co. for March of the current year, prepare (a) a sales
budget and (b) a production budget.
Product T
Product X
Estimated inventory, March 1
28,000 units
20,000 units
Desired inventory, March 31
32,000 units
15,000 units
Expected sales volume:
Territory I
320,000 units
260,000 units
Territory II
190,000 units
130,000 units
Unit sales price
$6
$14
175. Good Night, Inc., manufactures comforters. The estimated inventories on January 1 for finished goods, work in
process, and materials were $51,000, $28,000, and $33,000, respectively. The desired inventories on December 31 for
finished goods, work in process, and materials were $48,000, $35,000, and $29,000, respectively. Direct materials
purchases were $555,000. Direct labor was $252,000 for the year. Factory overhead was $176,000. Prepare a cost of
goods sold budget for Good Night, Inc.
176. Describe a master budget and the sequence in which the individual budgets within the master budget are prepared.
177. Big Wheel, Inc., collects 25% of its sales on account in the month of the sale and 75% in the month following the
sale. Sales on account are budgeted to be $150,000 for March and receipts from sales on account total $162,500 in April.
What are the budgeted sales on account for April?
178. Doran Technologies produces a single product. Expected manufacturing costs are as follows:
Variable costs
Direct materials $4.00 per unit
Direct labor $1.20 per unit
Manufacturing overhead $0.95 per unit
Fixed costs per month
Depreciation $ 6,000
Supervisory salaries 13,500
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Other fixed costs 3,850
Estimate manufacturing costs for production levels of 25,000 units, 30,000 units, and 35,000 units per month.
179. To meet projected annual sales, Bluegill Manufacturers, Inc. needs to produce 75,000 machines for the year. The
estimated January 1 inventory is 7,000 units, and the desired December 31 inventory is 12,000 units. What are projected
sales units for the year?
180. At the beginning of the period, the Cutting Department budgeted direct labor of $30,000 and supervisor salaries of
$20,000 for 3,000 hours of production. The department actually completed 5,000 hours of production. Determine the
budget for the department assuming that it uses flexible budgeting.
181. Rodger’s Cabinet Manufacturers uses flexible budgets that are based on the following manufacturing data for the
month of July:
Direct materials
$8 per unit
Direct labor
$5 per unit
Electric power (variable)
$0.30 per unit
Electric power (fixed)
$4,000 per month
Supervisor salaries
$25,000 per month
Property taxes on factory
$4,000 per month
Straight-line depreciation
$2,900 per month
Prepare a flexible budget for Rodger’s based on production of 10,000, 15,000, and 20,000 units.
182. The treasurer of Calico Dreams Company has accumulated the following budget information for the first two months
of the coming fiscal year:
March
April
Sales.
$450,000
$520,000
Manufacturing costs
290,000
350,000
Selling and administrative expenses
41,400
46,400
Capital additions
250,000
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The company expects to sell about 35% of its merchandise for cash. Of sales on account, 80% are collected in full in the
month of the sale, and the remainder in the month following the sale. One-fourth of the manufacturing costs are paid in
the month in which they are incurred, and the other three-fourths in the following month. Depreciation, insurance, and
property taxes represent $6,400 of the monthly selling and administrative expenses. Insurance is paid in February, and
property taxes are paid yearly in September. A $40,000 installment on income taxes is to be paid in April. Of the
remainder of the selling and administrative expenses, one-half are to be paid in the month in which they are incurred and
the balance in the following month. Capital additions of $250,000 are paid in March.
Current assets as of March 1 are composed of cash of $45,000 and accounts receivable of $51,000. Current liabilities as of
March 1 are accounts payable of $121,500 ($102,000 for materials purchases and $19,500 for operating expenses).
Management desires to maintain a minimum cash balance of $25,000.
Prepare a monthly cash budget for March and April.
183. What is a cash budget? How does management use a cash budget?
184. Magnolia, Inc., manufactures bedding sets. The budgeted production is for 55,000 comforters this year. Each
comforter requires 7 yards of material. The estimated January 1 beginning inventory is 31,000 yards with the desired
ending balance of 30,000 yards of material. If the material costs $4 per yard, determine the materials budget for the year.
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185. At the beginning of the period, the Molding Department budgeted direct labor of $33,000 and supervisor salaries of
$24,000 for 3,000 hours of production. The department actually completed 2,500 hours of production. Determine the
budget for the department assuming that it uses flexible budgeting.
186. Tough Jeans Company produces two different styles of jeans: Working Life and Social Life. The company sales
budget estimates that 400,000 of the Working Life jeans and 250,000 of the Social Life jeans will be sold during the year.
The company begins with 9,000 pairs of Working Life and 18,000 pairs of Social Life. The company desires ending
inventory of 7,500 of Working Life and 10,000 Social Life. Prepare a production budget for the year.
187. Prepare a flexible production budget for the year ending December 31 for Cedar Jeans Company using production
levels of 16,000, 18,000, and 20,000 units produced. The following additional information is necessary to complete the
budget:
Variable costs:
Direct labor ($6.00 per unit)
Direct materials ($8.00 per unit)
Variable manufacturing costs ($2.50 per unit)
Fixed costs:
Supervisor’s salaries
$80,000
Rent
12,000
Depreciation on equipment
24,000
188. Future Technologies projected sales of 35,000 computers for this year. The estimated January 1 inventory is 3,000
units, and the desired December 31 inventory is 9,000 units. What is the budgeted production (in units) for the year?
189. Sleep Tight, Inc., manufactures comforters. The estimated inventories on January 1 for finished goods, work in
process, and materials were $39,000, $33,000, and $27,000, respectively. The desired inventories on December 31 for
finished goods, work in process, and materials were $42,000, $35,000, and $21,000, respectively. Direct materials
purchases were $575,000, direct labor was $212,000 for the year, and factory overhead was $156,000. Prepare a cost of
goods sold budget for Sleep Tight, Inc.
190. Prepare a monthly flexible selling expense budget for Cottonwood Company for sales volumes of $300,000,
$350,000, and $400,000, based on the following data:
Sales commissions
6% of sales
Sales manager’s salary
$120,000 per month
Advertising expense
$90,000 per month
Shipping expense
1% of sales
Miscellaneous selling expense
$6,000 per month plus 1.5% of sales
191. Sleep Tight, Inc., manufactures bedding sets. The budgeted production is for 52,000 comforters this year. Each
comforter requires 1.5 hours to cut and sew the material. The cost of cutting and sewing labor is $12.50 per hour.
Determine the direct labor budget for this year.
192. Good Eats Inc. manufactures flatware sets. The budgeted production is for 80,000 sets this year. Each set requires 2.5
hours to polish the material. If polishing labor costs $15 per hour, determine the direct labor cost budget for polishing for
the year.
193. Star Co. was organized on August 1 of the current year. Projected sales for the next three months are as follows:
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$250,000
September
200,000
October
275,000
The company expects to sell 50% of its merchandise for cash. Of the sales on account, 30% are expected to be collected in
the month of the sale and the remainder in the following month.
Prepare a schedule indicating cash collections for August, September, and October.
194. Flanders Industries collects 35% of its sales on account in the month of the sale and 65% in the month following the
sale. Sales on account are budgeted to be $175,000 for May and $225,000 for June. What are the budgeted cash receipts
from sales on account for June?
195. Why is the sales budget usually prepared first?
196. Osprey Cycles, Inc. projected sales of 75,000 bicycles for the year. The estimated January 1 inventory is 5,000 units,
and the desired December 31 inventory is 8,000 units. What is the budgeted production (in units) for the year?
197. Ruff Jeans Company produces two different types of jeans: Simple Life and Fancy Life. The company sales budget
estimates that 350,000 of the Simple Life jeans and 200,000 of the Fancy Life jeans will be sold during the current year.
The production budget requires 353,500 units of Simple Life and 196,000 units of Fancy Life to be manufactured. The
Simple Life jeans require 3 yards of denim material, a zipper, and 25 yards of thread. The Fancy Life jeans require 4.5
yards of denim material, a zipper, and 40 yards of thread. Each yard of denim material costs $3.25, the zippers cost $0.75
each, and the thread is $0.02 per yard. There is enough material to make 2,000 jeans of each type at the beginning of the
year. The desired ending inventory is to have enough materials to manufacture 3,500 jeans of each type. Prepare a direct
materials purchases budget.
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