Refer to Exhibit 18-5. Given the information above, total wages and salaries expense for January would be:
80. Exhibit 18-5
Dr. Gatten began practicing dentistry on January 1, 2011. During January she served 250 patients who had their
teeth examined and cleaned. The following information is known in relation to each patient visit:
Cost of supplies used to clean teeth
$3
Cost of items in “clean teeth” bag, given to each patient
$4
Charges for dental hygienist
$15 an hour, 1.5 hours per patient
Charges for dentist
$40 an hour, 1 hour per patient
Overhead costs per patient
$10
Refer to Exhibit 18-5. Given the information above, total service cost per patient served in January would be:
81. If actual variable costs per unit are equal to estimated variable costs per unit and a static budget is used,
fewer units produced will show:
82. Which of the following types of budgeting procedures is the most effective for measuring performance?
83. Flexible budgeting can be used with which of the following types of manufacturing costs?
84. A budget that is based on only one estimate of production or sales volume is a:
85. A static budget would be appropriate for:
86. A budget that allows for comparisons of actual and budgeted amounts at varying activity levels is:
87. The flexible budget:
88. Producing outside the relevant range can result in:
89. A department has a budgeted monthly manufacturing overhead cost of $160,000 plus $16 per direct labor
hour. If a flexible budget reflects $388,000 for total manufacturing overhead cost for the month, the actual
direct labor hours would be:
90. If a company plans to sell 77,000 units of product but sells 132,000 units, the most appropriate comparison
of the cost data associated with the sales can be done using a budget based on which of the following number of
units?
91. Exhibit 18-6
The July manufacturing overhead budget of Kyoto Corporation, shown below, was constructed assuming an
activity level of 48,000 direct labor hours:
Variable
costs:
Indirect labor
$48,000
Indirect materials
24,000
Factory supplies
19,200
$ 91,200
Fixed
costs:
Depreciation
$38,400
Supervision
69,600
Property taxes
36,000
144,000
Total
overhead
costs
$235,200
Refer to Exhibit 18-6. If management prepared a flexible budget for July using 54,000 direct labor hours, what amount would this flexible budget
show for indirect labor?
92. Exhibit 18-6
The July manufacturing overhead budget of Kyoto Corporation, shown below, was constructed assuming an
activity level of 48,000 direct labor hours:
Variable costs:
Indirect labor
Indirect materials
Factory supplies
$ 91,200
Fixed costs:
Depreciation
Supervision
Property taxes
144,000
Total overhead
costs
Refer to Exhibit 18-6. If management prepared a flexible budget for July using 40,000 direct labor hours, what amount would this flexible budget
show for total variable costs?
93. Exhibit 18-6
The July manufacturing overhead budget of Kyoto Corporation, shown below, was constructed assuming an
activity level of 48,000 direct labor hours:
Variable
costs:
Indirect labor
$48,000
Indirect materials
24,000
Factory supplies
19,200
$ 91,200
Fixed
costs:
Depreciation
$38,400
Supervision
69,600
Property taxes
36,000
144,000
Total
overhead
costs
$235,200
Refer to Exhibit 18-6. If management prepared a flexible budget for July using 52,000 direct labor hours, what amount would this flexible budget
show for total overhead costs?
94. Exhibit 18-7
Cedar Corporation uses a flexible budget for manufacturing overhead based on direct labor hours. Variable
manufacturing overhead costs per direct labor hour are as follows:
Indirect labor
$12.00
Indirect materials
6.00
Maintenance
2.00
Utilities
1.00
Fixed overhead costs per month are:
Supervision
$8,000
Insurance
1,600
Factory rent
1,300
Depreciation
1,900
Refer to Exhibit 18-7. If Cedar prepares a flexible budget for 4,000 direct labor hours, what amount will this budget show for variable
manufacturing overhead costs?
95. Exhibit 18-7
Cedar Corporation uses a flexible budget for manufacturing overhead based on direct labor hours. Variable
manufacturing overhead costs per direct labor hour are as follows:
Indirect labor
$12.00
Indirect materials
6.00
Maintenance
2.00
Utilities
1.00
Fixed overhead costs per month are:
Supervision
$8,000
Insurance
1,600
Factory rent
1,300
Depreciation
1,900
Refer to Exhibit 18-7. If Cedar prepares a flexible budget for 6,000 direct labor hours, what amount will this budget show for total manufacturing
overhead costs?
96. The section of a cash budget that identifies amounts that must be borrowed is called the:
97. The cash payments section of a cash budget has information from which of the following:
98. Cash budgets should EXCLUDE costs incurred for:
99. Which of the following budgets will most likely be prepared last?
100. A line of credit with a bank enables a company to:
101. Exhibit 18-8
Cheroke Company had an accounts receivable balance of $60,000 at December 31, 2011. Projected sales for the
first three months of 2012 are:
January
$120,000
February
130,000
March
100,000
All sales are credit sales. Cheroke Company usually collects 40% of its sales during the month of sale, 50% in the month following the sale, and 10%
in the second month following the sale.
Refer to Exhibit 18-8. Given the information above, cash collections during January should be:
102. Exhibit 18-8
Cheroke Company had an accounts receivable balance of $60,000 at December 31, 2011. Projected sales for the
first three months of 2012 are:
January
$120,000
February
130,000
March
100,000
All sales are credit sales. Cheroke Company usually collects 40% of its sales during the month of sale, 50% in the month following the sale, and 10%
in the second month following the sale.
Refer to Exhibit 18-8. Given the information above, cash collections during February should be:
103. Exhibit 18-8
Cheroke Company had an accounts receivable balance of $60,000 at December 31, 2011. Projected sales for the
first three months of 2012 are:
January
$120,000
February
130,000
March
100,000
All sales are credit sales. Cheroke Company usually collects 40% of its sales during the month of sale, 50% in the month following the sale, and 10%
in the second month following the sale.
Refer to Exhibit 18-8. Given the information above, cash collections during March should be:
104. Exhibit 18-9
Winthrop Merchandising is preparing its budget for 2011 (its first year of operation). Sales for the year are
budgeted at $1,500,000; 20% are cash sales and 80% are credit sales. The company expects to collect 60% of all
credit sales in 2011. Budgeted expenses are $1,200,000. These expenditures include $37,500 for depreciation
and $745,500 for variable manufacturing overhead.
Refer to Exhibit 18-9. Given the information above, total cash outflows for 2011 would be:
105. Exhibit 18-9
Winthrop Merchandising is preparing its budget for 2011 (its first year of operation). Sales for the year are
budgeted at $1,500,000; 20% are cash sales and 80% are credit sales. The company expects to collect 60% of all
credit sales in 2011. Budgeted expenses are $1,200,000. These expenditures include $37,500 for depreciation
and $745,500 for variable manufacturing overhead.
Refer to Exhibit 18-9. If the desired ending cash balance is $45,000, how much must Winthrop borrow during
the year?
106. For 2011, Raster Graphics forecasts cash receipts of $405,000 and cash disbursements of $430,000. If the
beginning cash balance is $35,000 and the desired ending balance is $21,000, how much must Raster borrow
during the year?
107. LeMinton Company expects the following credit sales for the first five months of the year: January,
$25,000; February, $40,000; March, $30,000; April, $36,000, May $40,000. Experience has shown that
payment for the credit sales is received as follows: 60% in the month of sale, 25% in the first month after sale,
12% in the second month after sale, and the remainder is uncollectible. How much cash can LeMinton
Company expect to collect in March as a result of credit sales?
108. Burke Corporation had accounts receivable of $44,400 on April 1 and $33,600 on April 30. How much
cash was collected from accounts receivable during April if Burke’s April sales on account totaled $134,400?
109. Blake Company has $15,000 cash at the beginning of June and anticipates $50,000 in cash receipts and
$34,500 in cash disbursements. Blake Company requires a minimum cash balance of $10,000 and maintains no
more than $20,000 on hand. Any excess cash over the maximum is used to pay down debts. The firm has an
agreement with its bank to borrow as needed or repay loans as funds become available. As of May 31, the
company owes $15,000 to the bank. The balance of the loan on June 30 will be:
110. Pro-forma financial statements typically include all of the following EXCEPT:
111. Which of the following serve as a basis for key management decisions?
112. A pro-forma income statement usually includes all of the following EXCEPT:
113. Exhibit 18-10
Streamer Company sells float-tubes for recreational fly-fishing. A review of the company’s historical operations
shows that gross margin consistently averages 40% of sales. Company guidelines indicate that ending inventory
at the end of any quarter should always be 25% of the next quarter’s budgeted cost of goods sold. The expected
sales for Streamer’s next four quarters are shown below.
First quarter
$800,000
Second quarter
950,000
Third quarter
900,000
Fourth quarter
850,000
Refer to Exhibit 18-10. If Streamer prepares a pro-forma income statement for the first quarter, what amount would be shown for purchases (assume
the year end inventory balance is $120,000)?
114. Exhibit 18-10
Streamer Company sells float-tubes for recreational fly-fishing. A review of the company’s historical operations
shows that gross margin consistently averages 40% of sales. Company guidelines indicate that ending inventory
at the end of any quarter should always be 25% of the next quarter’s budgeted cost of goods sold. The expected
sales for Streamer’s next four quarters are shown below.
First quarter
$800,000
Second quarter
950,000
Third quarter
900,000
Fourth quarter
850,000
Refer to Exhibit 18-10. If Streamer prepares a pro-forma income statement for the third quarter, what amount would be shown for inventory
available for sale?
115. Michele has a salary of $56,000 per year. Michele estimates her living expenses are approximately as
follows:
Federal, state, and FICA taxes amount to
35% of income
Car payment
$305/month
Rent
$1,500/month
Insurance
$120/month
401(k)
4% of gross pay
Gas and maintenance on car
$175/month
Entertainment
$150/month
Utilities
$250/month
Food
$200/month
Prepare Michele’s budget for the year.
116. Describe the differences between authoritative budgeting and participative budgeting. Include advantages
of each type of budgeting.
117. The Sho-lo Company makes measuring devices. The unit sales forecasts for measuring devices for the four
quarters of 2011 and the first quarter of 2012 are as follows:
Measuring Devices
1st Quarter, 2011
30,000
2nd Quarter, 2011
35,000
3rd Quarter, 2011
33,000
4th Quarter, 2011
40,000
1st Quarter, 2012
32,000
Net take-home pay
$ 36,400
Car payment
$ 3,660
Rent payment
18,000
401(k) (4%)
2,240
(23,900)
$ 12,500
Insurance
$ 1,440
Gas and maintenance on car
2,100
Entertainment
1,800
Utilities
3,000
Food
2,400
(10,740)
$ 1,760
As of December 31, 2012, Sho-lo has 6,000 units in inventory. The company likes to maintain 20% of the next quarter’s sales in inventory.
Prepare a production budget for each of the four quarters of 2011 for measuring devices.
118. Maid-Sweet makes a frozen yogurt dessert. Each frozen yogurt dessert requires 12 ounces of yogurt. The
production budget for the first four months of 2012 is as follows:
January
February
April
Budgeted production
55,000
58,000
76,000
January
February
March
Expected production in units
55,000
58,000
62,000
Yogurt required per unit
´ 12
´ 12
Direct materials needed for production
660,000
696,000
744,000
Add desired ending materials inventory
139,200
148,800
182,400
Total needed
799,200
844,800
926,400
Less beginning materials inventory
80,000
139,200
148,800
Budgeted purchases in units
719,200
705,600
777,600
Times unit cost
´ $0.10
´ $0.10
´ $0.10
Total direct materials cost
$71,920
$70,560
$77,760
119. Mark-A-Date Corporation makes pocket and wall calendars. The production budget for the next three
months for each of the calendars is as follows:
Pocket
Wall
Calendars
Calendars
June
30,000
30,000
July
24,000
28,000
August
36,000
32,000
1st Quarter
2nd Quarter
3rd Quarter
4th Quarter
Expected sales in units
30,000
35,000
33,000
40,000
Add desired ending inventory
7,000
6,600
8,000
6,400
Total needed
37,000
41,600
41,000
46,400
Less beginning inventory
6,000
7,000
6,600
8,000
Budgeted production
31,000
34,600
34,400
38,400
From past experience, Mark-A-Date’s management knows that it takes approximately 5 minutes to make a pocket calendar and 3 minutes to make a
wall calendar. Mark-A-Date pays its employees $14 per hour. Prepare a direct labor budget for each of the three months in both hours and costs.
120. General Telephone makes telephones and fax machines. During the past several years, management has
kept accurate records of costs and resource requirements, determining that the following is needed to make
121. The following information is available for Eastham Company:
Expected sales volume:
July
1,200 units
August
1,100 units
September
1,300 units
Selling price per unit
$135
Desired finished goods
inventory, September 30
230 units
Beginning finished goods
inventory, July 1
190 units
Prepare sales budgets and production budgets for July, August and September. The desired finished goods inventory every month is 20% of the next
month’s sales.
Sales Budgets
July
Expected sales (units)
1,200
Selling price per units
´ $135
Total sales revenue
$175,500
Expected sales (units)
1,200
Add desired ending inventory
220
Total needed
1,530
Less beginning inventory
190
Budgeted production
1,230
Telephone
Requirements
Unit Cost
Plastic
3 pounds ´ $2.00
$ 6.00
Components
4 pieces ´ $8.00
32.00
Direct labor
1 hour ´ $18.00
18.00
Manufacturing overhead
1 hour ´ $9.00
9.00
$ 65.00
Production
Fax
Requirements
Unit Cost
Plastic
12 pounds ´ $2.00
$ 24.00
Components
8 pieces ´ $8.00
64.00
Direct labor
3 hours ´ $18.00
54.00
Manufacturing overhead
3 hours ´ $9.00
27.00
$169.00
122. The following information is available for Alastair Company, a merchandising firm:
Expected sales volume:
October
5,000 units
November
4,250 units
December
6,200 units
Selling price per unit
$65
Desired finished goods inventory, December 31
1,150 units
Beginning finished goods inventory, October 1
950 units
Prepare sales budgets and purchases budgets for October, November, and December. The desired finished goods inventory every month is 30% of the
next month’s sales.
Sales Budgets
123. Merrill & Merrill is planning for tax season (February, March, April). Merrill & Merrill earns all of its
revenue through 1040 preparation and generally charges $1,000 per tax return. The following information has
been gathered about Merrill & Merrill:
Expected Tax Returns:
February
150
March
200
April
225
Wages and salaries (per tax
return):
Preparer fee
$ 600
Reviewer fee
$ 200
Overhead Costs (per month):
Utilities
$1,000
Postage
$1,500
Misc. Costs
$9,000
Supplies (per tax return):
$ 5
October
November
December
Expected sales (units)
5,000
4,250
6,200
Selling price per units
´ $65
´ $65
´ $65
Total sales revenue
$325,000
$276,250
$403,000
October
November
December
Expected sales (units)
5,000
4,250
6,200
Add desired ending inventory
1,275
1,860
1,150
Total needed
6,275
6,110
7,350
Less beginning inventory
950
1,275
1,860
Budgeted purchases
5,325
4,835
5,490
Prepare revenue budgets, supplies budgets, wages and salaries budgets, and overhead budgets for the months of February, March, and April (this year
is not leap year).
Revenue Budgets
124. The Powder Peaks Resort is planning for the winter ski season (December, January, and February). Powder
Peaks has 200 available rooms to rent and charges its customers $150 per room each night. The following
information has also been gathered about Powder Peaks Resort:
Expected Capacity:
December
80%
January
95%
February
90%
Wages and salaries (per room):
Cleaning fee
$ 30
Other wages
$ 20
Overhead Costs (per month):
Utilities
$7,000
Cable
$ 250
Misc. Costs
$5,500
Supplies (per room):
Linens and toiletries
$ 12
Food
$ 40
Other
$ 15
February
March
April
Number of tax returns
Tax return rate
´ $1,000
´ $1,000
´ $1,000
Revenue
$150,000
$200,000
$225,000
February
March
April
Total tax returns (Revenue Budget)
Supplies needed per tax return:
´ $5
´ $5
´ $5
Total supplies cost
$750
$1,000
$1,125
February
March
April
Total tax returns (Revenue Budget)
Wages and salaries per room:
Preparer fee ($600 each)
90,000
120,000
135,000
Reviewer fees ( $200 each)
30,000
40,000
45,000
Total wages
120,000
160,000
180,000
February
March
April
Utilities
$ 1,000
$ 1,000
$ 1,000
Postage
1,500
1,500
1,500
Miscellaneous costs
9,000
9,000
9,000
Total overhead costs
$11,500
$11,500
$11,500
Prepare revenue budgets, supplies budgets, wages and salaries budgets, and overhead budgets for the months of December, January, and February
(this year is not leap year).
Revenue Budgets
125. The Mt. Airy Bed and Breakfast is planning for the summer tourist season and needs to prepare a flexible
budget. The accountant has accumulated the following information:
Fixed expenses:
Maid salaries
$70,000
Mortgage payments
33,000
Property taxes
6,000
Other
5,000
Variable expenses (per guest):
Linens and toiletries
$10
Food
60
Other
15
December
January
February
Number of rooms
Number of days in month
´ 31
´ 28
Potential rental volume
6,200
6,200
5,600
Occupancy rate
´ 80%
´ 95%
´ 90%
Rented rooms
4,960
5,890
5,040
Room rate
´ $150
´ $150
´ $150
Revenue
$744,000
$883,500
$756,000
December
January
February
Supplies needed per room:
Food ($40 each)
198,400
235,600
201,600
Other ($15 each)
74,400
88,350
75,600
Total supplies cost
$332,320
$394,630
$337,680
December
January
February
Cleaning fee ($30 each)
148,800
176,700
151,200
Other wages ( $20 each)
99,200
117,800
100,800
Total wages
248,000
294,500
December
January
February
Utilities
$ 7,000
$ 7,000
$ 7,000
Cable
Miscellaneous costs
5,500
5,500
5,500
Total overhead costs
$12,750
$12,750
$12,750
Prepare a flexible budget showing expected total costs for 200, 300, and 400 guests.
126. Kittitas Company provided the following budgeted information for the month:
Fixed expenses:
Utilities
$250,000
Rent
900,000
Insurance
75,000
Variable expenses:
Operating expenses
$980,000
Supplies expense
80,000
Other
440,000
Assuming the budgeted information provided is for an activity level of 10,000 units, prepare a flexible budget for 8,000, 10,000 and 12,000 units.
8,000 units
Variable expenses
Operating expenses*
$1,176,000
Supplies*
96,000
Other*
528,000
Total variable expenses
$1,200,000
Fixed expenses
Utilities
$ 250,000
Rent
900,000
Insurance
75,000
Total fixed expenses
$1,225,000
Total expenses
$2,425,000
*
Unit Costs:
Operating expenses: $980,000 / 10,000 = $98
Supplies: $80,000 / 10,000 = $8
Other: $440,000 / 10,000 = $44
Variable expenses
Linens and toiletries
$ 2,000
$ 3,000
$ 4,000
Food
12,000
18,000
24,000
Other
3,000
4,500
6,000
Total variable expenses
$ 17,000
$ 25,500
$ 34,000
Fixed expenses
Maid salaries
$ 70,000
$ 70,000
$ 70,000
Mortgage payments
33,000
33,000
33,000
Property taxes
6,000
6,000
6,000
Other
5,000
5,000
5,000
Total fixed expenses
$114,000
$114,000
$114,000
Total expenses
$131,000
$139,500
$148,000
127. The Storm Meadows Resort is preparing a cash budget for March 2011. Management has collected the
following information:
·
The cash balance on February 28, 2011 is $215,000.
·
Actual services provided in January and February and projected
services for March are:
March
Cash services
$120,000
Credit services
752,000
40% of credit services are collected in the month of service, and
60% are collected in the month following service.
·
During March, $100,000 of cleaning supplies will be purchased.
Accounts are usually paid for over two months: 80% in the month
of purchase, 20% in the month following purchase. Accounts
payable on February 28 is $34,000.
·
Salaries and wages paid in March will be $650,000.
·
Depreciation on equipment used for the resort for March will be
$104,000.
·
Other cash expenses for March will be $155,000.
·
The resort must repay a short-term loan during March. The
payment is $80,000, including interest.
Prepare a cash budget for March 2011.
128. Given the following projected information for Lacey Inc. for 2011, prepare a pro-forma balance sheet and
income statement.
Ending common stock
$70,000
Beginning retained earnings
28,000
Ending accounts payable
6,000
Ending equipment
200,000
Ending accumulated depreciation
40,000
Ending accounts receivable
19,000
Ending cash
18,000
Interest expense
2,500
Salary expense
105,000
Other expenses (including depreciation)
37,500
Service revenue
300,000
Income tax rate
40%
Cash receipts
Beginning cash balance, March 1
$ 215,000
Cash services
120,000
Collections from credit services
[($835,000 ´ 0.60) + ($752,000 ´ 0.40)]
801,800
Total cash available
$1,136,800
Cash expenditures
Purchase of supplies
[$34,000 + ($100,000 ´ 0.80)]
$ 114,000
Salaries and wages
650,000
Other cash expenses
155,000
Repayment of loan
80,000
Total expenditures
$ 999,000
Ending cash balance, March 31
$ 137,800