71. Upton Products Inc. would like to prepare a summary cash budget for the first quarter of 2009. The
following information regarding operating activities from the cash receipts and cash disbursements budgets are
available:
January
February
March
Cash receipts
$15,000
$23,000
$34,000
Cash disbursements
13,000
26,000
30,000
The following information is also available:
The cash balance on January 1, 2009 was $2,000.
Equipment costing $4,000 will be purchased in February. A down payment of $1,000 will be made in February and payments of $1,000
will be made in each subsequent month thereafter.
Dividends in the amount of $2,000 will be paid in March.
What is the cash balance at the end of March expected to be?
72. Diamonde Products Inc. would like to prepare a summary cash budget for the second quarter of 2009. The
following information regarding operating activities from the cash receipts and cash disbursements budgets are
available:
April
May
June
Cash receipts
$10,000
$16,000
$25,000
Cash disbursements
8,000
18,000
16,000
The following information is also available:
The cash balance on March 31, 2009 was $3,000.
Equipment costing $6,000 will be purchased in May. A down payment of $2,000 will be made in May and payments of $2,000 will be
made in each subsequent month thereafter until the equipment is paid in full.
Dividends in the amount of $1,000 will be paid in June.
What is the cash balance at the end of June expected to be?
73. Vela Enterprises Inc. would like to prepare a summary cash budget for March. The following information is
available:
The cash balance at March 1 was estimated to be $3,000.
March sales, all on account, were estimated to be $50,000. Sales are collected over a two-month period with 65 percent collected in the
month of sale and the remainder in the subsequent month. February sales on account were $60,000.
Inventory purchases are expected to be $20,000 in March. The company pays for one-half of inventory purchases in the month of purchase
and the remainder in the subsequent month. February’s purchases were $18,000.
Cash disbursements for selling and administrative expenses are expected to be $4,000 in March.
Depreciation expense for March is expected to be $5,000.
Loan and interest payments for March are expected to be $25,000.
What is the cash balance at the end of March expected to be?
74. Avery Inc. would like to prepare a summary cash budget for June. The following information is available:
The cash balance at June 1 was estimated to be $6,000.
June sales, all on account, were estimated to be $75,000. Sales are collected over a two-month period with 60 percent collected in the
month of sale and the remainder in the subsequent month. May sales on account were $70,000.
Inventory purchases are expected to be $50,000 in June. The company pays for one-half of inventory purchases in the month of purchase
and the remainder in the subsequent month. May purchases were $60,000.
Cash disbursements for selling and administrative expenses are expected to be $9,000 in June.
Depreciation expense for June is expected to be $3,000.
What is the cash balance at the end of June expected to be?
75. Which of the following statements is false regarding a company’s budgeted financial statements?
76. Which of the following would not appear on a budgeted income statement?
77. For a manufacturing company, which of the following budgets does not have to be prepared before a
budgeted income statement is prepared?
78. For companies that operate in a just-in-time (JIT) environment, which two budgets are essentially the
same?
79. Which of the following budgets would be prepared by both manufacturing companies and merchandising
companies?
80. Which of the following budgets would be prepared by manufacturing companies but not merchandising
companies?
81. Which of the following budgets is often more of a focus for a service company than a manufacturing
company?
82. Which of the following is an example of a nonfinancial budget?
83. Which of the following statements is true regarding nonfinancial budgets?
84. A budget that is established at the beginning of the period and not adjusted for different levels of actual
sales activity is called a:
85. A budget that budgets costs for the actual number of units produced is called a:
86. Which type(s) of activities are static budgets less useful for?
87. Which type(s) of activities are flexible budgets most useful for?
88. Ashland Inc. is a manufacturer of small appliances. For which of the following activities would Ashland be
more likely to use a static budget than a flexible budget?
89. Pellini Products Inc. is a manufacturer of paper products. For which of the following activities would Pellini
be more likely to use a flexible budget than a static budget?
90. Prior to the start of 2009, Bellamy Inc. estimated budgeted sales at 60,000 units. During 2009, 68,000 units
were produced out of which 65,000 units were sold. How many units should Bellamy’s 2009 flexible sales
budget be based upon?
91. Prior to the start of 2009, Proctor Inc. estimated budgeted sales at 225,000 units. At the start of 2009, there
were 8,000 units in beginning finished goods. During 2009, 215,000 units were produced and 220,000 units
were sold. How many units should Proctor’s 2009 flexible sales budget be based upon?
92. Vestal Products Inc. had the following information available for 2009:
Budgeted sales for 2009
90,000 units
Units in beginning inventory (1/1/08)
4,000 units
Units produced during 2009
100,000 units
Units in ending inventory (12/31/08)
6,000 units
How many units should Vestal’s 2009 flexible sales budget be based upon?
93. Baker Inc., a local manufacturer of cooking tools, had the following information available for 2009:
Budgeted sales for 2009
250,000 units
Units in beginning inventory (1/1/08)
5,000 units
Units produced during 2009
265,000 units
Units in ending inventory (12/31/08)
2,000 units
How many units should Baker’s 2009 flexible sales budget be based upon?
94. McCourt Inc. manufacturers a unique product. The company’s controller has prepared the following static
budget for the month of February:
Estimated production
300 units
Direct labor per unit
1 hour
Direct labor required for estimated production
300 hours
Average direct labor rate per hour
$ 10
Estimated direct labor cost
$3,000
Actual production during February was 275 units and actual direct labor cost was $2,900.
If McCourt prepares a flexible budget for February, direct labor cost is estimated to be:
95. Camden Products Inc. manufacturers travel accessories. The company’s controller has prepared the
following static budget of one of the product lines for the month of November:
Estimated production
1,000 units
Direct labor per unit
12 minutes
Direct labor required for estimated production
200 hours
Average direct labor rate per hour
$ 9
Estimated direct labor cost
$1,800
Actual production during November was 1,300 units and actual direct labor cost was $2,520.
If Camden prepares a flexible budget for November, direct labor cost is estimated to be:
96. Colorado Springs Ltd. produces and sells bottled water. The company’s controller has the following
information available from the static budget of one of the product lines for the month of April:
Estimated production
20,000 units
Direct material per unit
2 ounces
Direct material cost per unit
$.15 per ounce
Actual production during April was 18,000 units and actual direct materials cost was $6,300.
If the company prepares a flexible budget for April, direct materials cost is estimated to be:
97. Global Products produces and sells limited edition decorative plates. The company’s controller has the
following information available from the static budget of one of the product lines for the month of April:
Estimated production
2,000 units
Direct material per unit
10 ounces
Direct material cost per unit
$.25 per ounce
Actual production during April was 1,900 units and actual direct materials cost was $4,940.
If the company prepares a flexible budget for April, direct materials cost is estimated to be:
98. Managers use budgets for three types of activities. Describe and give a brief example of each of these three
activities.
99. There are many advantages of budgeting. List four of these advantages.
100. Other than prior years’ sales, list two other factors that are often used in the development of a sales
forecast.
101. On a production budget, what is the basic formula for computing the required production for a certain
period of time?
102. For a manufacturing company, which two budgets should be prepared before the direct materials purchases
budget is prepared?
103. If a company has prepared a sales budget, is it still necessary for them to prepare a cash receipts budget?
Why or why not?
104. List and describe the three sections that comprise a summary cash budget. For each section, give an
example of a type of activity that would be shown in that section.
105. The following are various transactions that Titan Inc. expects to occur during 2009. For each of the
transactions, indicate which section, if any, of the summary cash budget the transaction would be found on.
Use the following key:
O
=
operating activity
I
=
investing activity
F
=
financing activity
N
=
none of the above
a.
Cash received from customers.
b.
Cash paid for the purchase of direct materials.
c.
Depreciation expense.
d.
Cash received from a five-year bank loan.
e.
Cash paid for income taxes.
f.
Cash paid to employees.
g.
Cash received from stockholders.
h.
Cash paid for purchase of machinery and equipment.
106. Will the adoption of a just-in-time (JIT) system simplify the budgeting process or make it more
complicated? Explain.
107. Your company, based in the United States, is considering expanding its customer base to include foreign
markets. When preparing budgets for the upcoming year, discuss two factors related to international operations
that should be considered.
a.
O
b.
O
c.
N
d.
F
e.
O
O
g.
F
h.
I
108. What is the difference between a static budget and a flexible budget?
109. Which type of budget, static or flexible, should be used by managers for control activities? Explain your
answer.
110. ABC Manufacturing sells widgets for $6.00 each. The marketing department has prepared the following
second quarter sales forecast (in units) for 2009:
April
15,000
May
23,000
June
20,000
Total
58,000
Required: Prepare a sales budget for each month and the total for the quarter. Include all column and row headings.
ABC Manufacturing
Sales Budget
Quarter ending June 30, 2009
April
May
June
Total
Estimated sales (units)
15,000
23,000
20,000
58,000
Sales price per unit
$ 6.00
$ 6.00
$ 6.00
$ 6.00
Total budgeted sales
$90,000
$138,000
$120,000
$348,000
111. Keep-it-Hot Inc. manufactures popular thermoses. On June 30, the company had 1,000 thermoses in
inventory. Each thermos sells for $8.00. The company’s policy is to maintain a thermos inventory equal to 10%
of next month’s sales. The company expects the following sales activity for the third quarter of the year:
July
7,000 units
August
15,000 units
September
10,000 units
In addition, October’s sales are expected to be 9,000 units.
Required:
Prepare a sales budget for the third quarter of the year.
Prepare a production budget for the third quarter of the year.
Sales Budget
Quarter ending September 30
July
August
September
Total
Estimated sales (units)
7,000
15,000
10,000
32,000
Sales price per unit
$ 8.00
$ 8.00
$ 8.00
$ 8.00
Total budgeted sales
$56,000
$120,000
$80,000
$256,000
Production Budget
Quarter ending September 30
July
August
September
Total
Estimated sales (units)
7,000
15,000
10,000
32,000
Add: Desired ending inventory
1,500
1,000
900
900
Total budgeted production needs
8,500
16,000
10,900
32,900
Less: Beginning ending inventory
(1,000)
(1,500)
(1,000)
(1,000)
Required production
7,500
14,500
9,900
31,900