Cost Accounting: A Managerial Emphasis, 6e
Chapter 6 – Master Budget and Responsibility Accounting
49) How many kilograms of material will need to be purchased for 2012 production and inventory
requirements?
A) 3,100 kg
B) 2,900 kg
C) 2,750 kg
D) 3,150 kg
E) 2,950 kg
50) On the 2012 budgeted income statement, what amount will be reported for cost of goods sold?
A) $91,500
B) $105,000
C) $90,000
D) $88,500
E) $72,000
51) What are the 2012 budgeted costs for direct manufacturing labour?
A) $62,000
B) $60,000
C) $61,000
D) $59,000
E) $63,000
Cost Accounting: A Managerial Emphasis, 6e
Chapter 6 – Master Budget and Responsibility Accounting
Use the information below to answer the following question(s).
Marguerite Inc.. expects to sell 20,000 pool cues for $20.00 each. Direct materials costs are $2.00, direct
manufacturing labour is $12.00, and manufacturing overhead is $0.80 per pool cue. Each pool cue
requires 0.5 kilograms (kg) of material which is all added at the start of production. The units in work–in–
process beginning and ending inventory were half complete as to direct labour and manufacturing
overhead costs; the units in beginning inventory are completed before new units are started.. Each pool
cue requires one hour of direct labour, and manufacturing overhead is allocated based on direct labour
hours. The following inventory levels are expected to apply to 2012:
Beginning inventory
Ending inventory
Direct materials
800 kg
1,000 kg
Work-in-process inventory
200 units
300 units
Finished goods inventory
2,000 units
2,500 units
52) On the 2012 budgeted income statement, what amount will be reported for gross margin?
A) $124,000
B) $104,000
C) $312,000
D) $160,000
E) $400,000
53) How many pool cues need to be produced in 2012?
A) 22,500 cues
B) 18,000 cues
C) 20,000 cues
D) 19,500 cues
E) 20,500 cues
Cost Accounting: A Managerial Emphasis, 6e
Chapter 6 – Master Budget and Responsibility Accounting
54) How many kilograms of material will need to be purchased for 2012 production and inventory
requirements?
A) 11,500 kg
B) 10,700 kg
C) 10,300 kg
D) 10,500 kg
E) 10,000 kg
55) On the 2012 budgeted income statement, what amount will be reported for cost of goods sold?
A) $296,000
B) $280,000
C) $276,000
D) $290,000
E) $292,000
56) What are the 2012 budgeted costs for direct manufacturing labour?
A) $248,000
B) $247,200
C) $249,000
D) $246,600
E) $246,000
Cost Accounting: A Managerial Emphasis, 6e
Chapter 6 – Master Budget and Responsibility Accounting
57) Shamokin Manufacturing produces two products, Big and Bigger. Shamokin expects to sell 10,000
units of product Bigger and to have an inventory of 2,000 units of Bigger on hand at the end of the period.
Currently, Shamokin has 800 units of Bigger on hand. Bigger requires two labour operations, molding
and polishing. Each unit of Bigger requires one hour of molding and two hours of polishing. The direct
labour rate for molding is $20 per molding hour and the direct labour rate for polishing is $25 per
polishing hour. The expected number of hours of direct labour for Bigger is
A) 8,800 hours of molding; 17,600 hours of polishing.
B) 11,200 hours of molding; 22,400 hours of polishing.
C) 17,600 hours of molding; 8,800 hours of polishing.
D) 22,400 hours of molding; 11,200 hours of polishing.
E) 10,000 hours of molding; 20,000 hours of polishing.
Cost Accounting: A Managerial Emphasis, 6e
Chapter 6 – Master Budget and Responsibility Accounting
58) Tripp Company sells three products with the following seasonal sales pattern:
Products
Quarter X Y Z
1 40% 30% 10%
2 30% 20% 40%
3 20% 20% 40%
4 10% 30% 10%
The annual sales budget shows forecasts for the different products and their expected selling price per
unit as follows:
Product Units Selling Price
X 40,000 $ 3
Y 100,000 $12
Z 50,000 $ 5
Required:
Prepare a revenue budget in dollars for each quarter. Present each quarter in a separate column and add a
column to show total year sales.
Cost Accounting: A Managerial Emphasis, 6e
Chapter 6 – Master Budget and Responsibility Accounting
59) Spirit Company sells three products with the following seasonal sales pattern:
Products
Quarter A B C
1 40% 30% 10%
2 30% 20% 40%
3 20% 20% 40%
4 10% 30% 10%
The annual sales budget shows forecasts for the different products and their expected selling price per
unit as follows:
Product Units Selling Price
A 50,000 $4
B 125,000 10
C 62,500 6
Required:
Prepare a sales budget, in units and dollars, by quarters for the company for the coming year.
Cost Accounting: A Managerial Emphasis, 6e
Chapter 6 – Master Budget and Responsibility Accounting
60) Frame Antique manufactures picture frames. Sales for May are expected to be 20,000 units of various
sizes. Historically, the average frame requires three metres of framing, one square metre of glass, and two
square metres of backing. Beginning inventory includes 3,000 metres of framing, 1,000 square metres of
glass, and 1,000 square metres of backing. Current prices are $0.20 per metre of framing, $4.00 per square
metre of glass, and $1.50 per square metre of backing. Ending inventory should be 150 percent of
beginning inventory. Purchases are paid for in the month acquired.
Required:
a. Determine the quantity of framing, glass, and backing that is to be purchased during May.
b. Determine the total costs of direct materials for May purchases.
Cost Accounting: A Managerial Emphasis, 6e
Chapter 6 – Master Budget and Responsibility Accounting
61) Picture Pretty manufactures picture frames. Sales for August are expected to be 10,000 units of
various sizes. Historically, the average frame requires four metres of framing, one square metre of glass,
and two square metres of backing. Beginning inventory includes 1,500 metre of framing, 500 square
metres of glass, and 500 square metres of backing. Current prices are $0.30 per metre of framing, $6.00 per
square metre of glass, and $2.25 per square metre of backing. Ending inventory should be 150% of
beginning inventory. Purchases are paid for in the month acquired.
Required:
a. Determine the quantity of framing, glass, and backing that is to be purchased during August.
b. Determine the total costs of direct materials for August purchases.
Cost Accounting: A Managerial Emphasis, 6e
Chapter 6 – Master Budget and Responsibility Accounting
62) Budget Corporation has the following budgeted sales for the next six-month period:
Month Unit Sales
September 60,000
October 80,000
November 140,000
December 100,000
January 120,000
February 80,000
There were 30,000 units of finished goods in inventory at the beginning of September. Plans are to have
an inventory of finished products that equal 20 percent of the unit sales for the next month.
Five kilograms of materials are required for each unit produced. Each kilogram of material costs $10.
Inventory levels for materials are equal to 30 percent of the needs for the next month. Materials inventory
on September 1 was 10,000 kilograms.
Required:
a. Prepare production budgets in units for October, November, and December.
b. Prepare a purchases budget in kilograms for October, November, and December, and give total
purchases in both kilograms and dollars for each month.
Cost Accounting: A Managerial Emphasis, 6e
Chapter 6 – Master Budget and Responsibility Accounting
63) Lubriderm Corporation has the following budgeted sales for the next six-month period:
Month Unit Sales
June 90,000
July 120,000
August 210,000
September 150,000
October 180,000
November 120,000
There were 30,000 units of finished goods in inventory at the beginning of June. Plans are to have an
inventory of finished products that equal 20 percent of the unit sales for the next month.
Five pounds of materials are required for each unit produced. Each pound of material costs $8. Inventory
levels for materials are equal to 30 percent of the needs for the next month. Materials inventory on June 1
was 15,000 pounds.
Required:
a. Prepare production budgets in units for July, August, and September.
b. Prepare a purchases budget in pounds for July, August, and September, and give total purchases in
both pounds and dollars for each month.
64) Gerdie Company has the following information:
Month Budgeted Sales
March $50,000
April 53,000
May 51,000
June 54,500
July 52,500
In addition, the gross profit rate is 40% and the desired ending inventory level is 30% of next month’s cost
of sales.
Required:
Prepare a purchases budget for April through June.
Cost Accounting: A Managerial Emphasis, 6e
Chapter 6 – Master Budget and Responsibility Accounting
65) The Doran Company prepared the following revenue budget:
Month Budgeted Sales
March $250,000
April 265,000
May 255,000
June 272,500
July 262,500
In addition, the gross profit rate is 40 percent and the desired inventory level is 30 percent of next month’s
cost of goods sold.
Required:
Prepare a purchases budget for April through June.
66) Favata Company has the following information:
Month Budgeted Sales
June $60,000
July 51,000
August 40,000
September 70,000
October 72,000
In addition, the cost of goods sold rate is 70% and the desired inventory level is 30% of next month’s cost
of sales.
Required:
Prepare a purchases budget for July through September.
Cost Accounting: A Managerial Emphasis, 6e
Chapter 6 – Master Budget and Responsibility Accounting
67) Fashion Company has the following projected account balances for April 30, 2012:
Accounts payable $20,000 Sales $400,000
Accounts receivable 50,000 Capital stock 200,000
Amortization, factory 12,000 Retained earnings ?
Inventories (3/31 & 4/30) 90,000 Cash 28,000
Direct materials used 100,000 Equipment, net 120,000
Office salaries 40,000 Buildings, net 200,000
Insurance, factory 2,000 Utilities, factory 8,000
Plant wages 70,000 Selling expenses 30,000
Bonds payable 80,000 Maintenance, factory 14,000
Required:
a. Prepare a budgeted income statement for April 2012.
b. Prepare a budgeted balance sheet as of April 30, 2012.
Cost Accounting: A Managerial Emphasis, 6e
Chapter 6 – Master Budget and Responsibility Accounting
68) Russell Company has the following projected account balances for June 30, 2012:
Accounts payable $40,000 Sales $800,000
Accounts receivable 100,000 Capital stock 400,000
Depreciation, factory 24,000 Retained earnings ?
Inventories (5/31 & 6/30) 180,000 Cash 56,000
Direct materials used 200,000 Equipment, net 240,000
Office salaries 80,000 Buildings, net 400,000
Insurance, factory 4,000 Utilities, factory 16,000
Plant wages 140,000 Selling expenses 60,000
Bonds payable 160,000 Maintenance, factory 28,000
Required:
a. Prepare a budgeted income statement for June 2012.
b. Prepare a budgeted balance sheet as of June 30, 2012.
Cost Accounting: A Managerial Emphasis, 6e
Chapter 6 – Master Budget and Responsibility Accounting
69) Barrieland Merchandising Firm is developing its budgets for 2012. The 2011 income statement is as
follows:
Sales (100,000 units) $250,000
Less: Cost of goods sold 150,000
Gross profit $100,000
Operating expenses (includes
$10,000 of Amortization) 60,000
Net income $40,000
Selling prices will increase by 10 percent and sales volume in units will decrease by 5 percent. The cost of
goods sold as a percent of sales will increase to 62 percent. Other than amortization, all operating costs
are variable.
Required:
Prepare a budgeted income statement for 2012.
Cost Accounting: A Managerial Emphasis, 6e
Chapter 6 – Master Budget and Responsibility Accounting
70) Shamokin Manufacturing produces two products, Big and Bigger. Shamokin expects to sell 20,000
units of Big and 10,000 units of Bigger. Shamokin plans on having an ending inventory of 4,000 units of
Big and 2,000 units of Bigger. Currently, Shamokin has 1,000 units of Big in its inventory and 800 units of
Bigger. Each product requires two labour operations: molding and polishing. Product Big requires one
hour of molding time and one hour of polishing time. Product Bigger requires one hour of molding time
and two hours of polishing time. The direct labour rate for molders is $20 per molding hour, and the
direct labour rate for polishers is $25 per polishing hour.
Required:
Prepare a direct labour budget in hours and dollars for each product.
Cost Accounting: A Managerial Emphasis, 6e
Chapter 6 – Master Budget and Responsibility Accounting
71) Describe the benefits to an organization of preparing an operating budget.
72) Discuss the importance of the sales forecast and items that influence its accuracy.
Cost Accounting: A Managerial Emphasis, 6e
Chapter 6 – Master Budget and Responsibility Accounting
73) What is budgetary slack?
What are the pros and cons of building slack into the budget from the point of view of (a) an employee
and (b) a senior manager?
74) Listed below are elements of the master budget. Determine whether each budget is an operating
budget or a financial budget. Place an O for operating budget or F for a financial budget.
1. Capital expenditures budget
2. Cost of goods sold budget
3. Revenues budget
4. Budgeted statement of cash flows
5. Distribution costs budget
6. Marketing costs budget
7. Cash budget
8. Direct materials cost budget
9. Budgeted balance sheet
10. Budgeted income statement
Cost Accounting: A Managerial Emphasis, 6e
Chapter 6 – Master Budget and Responsibility Accounting
75) Describe operating and financial budgets and give at least two examples of each discussed in the
textbook.
6.3 Prepare a cash budget.
1) Beginning with the cash budget, each budget supporting the master budget follows step by step in
logical fashion.
2) The cash budget helps avoid unnecessary idle cash and at the same time maintain minimum cash
balances.
3) Cash receipts depend on collections of accounts payable, cash sales, and miscellaneous sources, such as
rental income.
4) The budgeted balance sheet must be prepared prior to the cash budget so that the required cash
balance can be determined.
Cost Accounting: A Managerial Emphasis, 6e
Chapter 6 – Master Budget and Responsibility Accounting
5) The cash cycle describes the movement of cash from producing inventories to receivables from sales
and back to cash from collections.
6) Boone Hobbies, a wholesaler, has a sales budget for next month of $600,000. Cost of units sold is
expected to be 40 percent of sales. All units are paid for in the month following purchase. The beginning
inventory of units is $20,000, and an ending amount of $24,000 is desired. Beginning accounts payable is
$152,000.
Boone Hobbies should budget cash used to pay accounts payable for the month totalling
A) $244,000.
B) $240,000.
C) $156,000.
D) $152,000.
E) $148,600.