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103. Dolce Co. estimates its sales at 180,000 units in the first quarter and that sales will
increase by 18,000 units each quarter over the year. They have, and desire, a 25%
ending inventory of finished goods. Each unit sells for $25. 40% of the sales are for cash.
70% of the credit customers pay within the quarter. The remainder is received in the
quarter following sale.
Production in units for the third quarter should be budgeted at
a. 220,500.
b. 207,000.
c. 274,500.
d. 216,000.
104. Dolce Co. estimates its sales at 180,000 units in the first quarter and that sales will
increase by 18,000 units each quarter over the year. They have, and desire, a 25%
ending inventory of finished goods. Each unit sells for $25. 40% of the sales are for cash.
70% of the credit customers pay within the quarter. The remainder is received in the
quarter following sale.
Cash collections for the third quarter are budgeted at
a. $3,051,000.
b. $4,428,000.
c. $5,319,000.
d. $6,156,000.
105. Bear, Inc. estimates its sales at 200,000 units in the first quarter and that sales will
increase by 20,000 units each quarter over the year. They have, and desire, a 25%
ending inventory of finished goods. Each unit sells for $35. 40% of the sales are for cash.
70% of the credit customers pay within the quarter. The remainder is received in the
quarter following sale.
Production in units for the third quarter should be budgeted at
a. 245,000.
b. 230,000.
c. 305,000.
d. 240,000.
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106. Bear, Inc. estimates its sales at 200,000 units in the first quarter and that sales will
increase by 20,000 units each quarter over the year. They have, and desire, a 25%
ending inventory of finished goods. Each unit sells for $35. 40% of the sales are for cash.
70% of the credit customers pay within the quarter. The remainder is received in the
quarter following sale.
Cash collections for the third quarter are budgeted at
a. $4,746,000.
b. $6,888,000.
c. $8,274,000.
d. $9,576,000.
107. A company determined that the budgeted cost of producing a product is $30 per unit. On
June 1, there were 80,000 units on hand, the sales department budgeted sales of 300,000
units in June, and the company desires to have 120,000 units on hand on June 30. The
budgeted cost of goods manufactured for June would be
a. $7,800,000.
b. $11,400,000.
c. $9,000,000.
d. $10,200,000.
108. Of the following items, which one is not obtained from an individual operating budget?
a. Selling and administrative expenses
b. Accounts receivable
c. Cost of goods sold
d. Sales
109. Which of the following statements about a budgeted income statement is not true?
a. The budgeted income statement is prepared after the financial budgets are prepared.
b. The budgeted income statement is prepared on the accrual basis of accounting.
c. The budgeted income statement can be prepared in a multiple-step format.
d. The budgeted income statement is prepared using the individual operating budgets.
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110. A company has budgeted direct materials purchases of $300,000 in July and $480,000 in
August. Past experience indicates that the company pays for 70% of its purchases in the
month of purchase and the remaining 30% in the next month. During August, the following
items were budgeted:
Wages Expense $150,000
Purchase of office equipment 72,000
Selling and Administrative Expenses 48,000
Depreciation Expense 36,000
The budgeted cash disbursements for August are
a. $648,000.
b. $426,000.
c. $696,000.
d. $732,000.
111. Astor Manufacturing has the following budgeted sales: January $120,000, February
$180,000, and March $150,000. 40% of the sales are for cash and 60% are on credit. For
the credit sales, 50% are collected in the month of sale, and 50% the next month. The
total expected cash receipts during March are:
a. $168,000.
b. $159,000.
c. $157,500.
d. $150,000.
112. Garnett Co. expects to purchase $180,000 of materials in July and $210,000 of materials
in August. Three-fourths of all purchases are paid for in the month of purchase, and the
other one-fourth are paid for in the month following the month of purchase. How much will
August’s cash disbursements for materials purchases be?
a. $135,000
b. $157,500
c. $202,500
d. $210,000
113. The single most important output in preparing financial budgets is the
a. sales forecast.
b. determination of the unit cost of the product.
c. cash budget.
d. budgeted income statement.
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114. Which of the following does not appear as a separate section on the cash budget?
a. Cash receipts
b. Cash disbursements
c. Capital expenditures
d. Financing
115. The financing section of a cash budget is needed if there is a cash deficiency or if the
ending cash balance is less than
a. the prior years.
b. management’s minimum required balance.
c. the amount needed to avoid a service charge at the bank.
d. the industry average.
116. Beginning cash balance plus total receipts
a. equals ending cash balance.
b. must equal total disbursements.
c. equals total available cash.
d. is the excess of available cash over disbursements.
117. The projection of financial position at the end of the budget period is found on the
a. budgeted income statement.
b. cash budget.
c. budgeted balance sheet.
d. sales budget.
118. What is the proper preparation sequencing of the following budgets?
1. Budgeted Balance Sheet
2. Sales Budget
3. Selling and Administrative Budget
4. Budgeted Income Statement
a. 1, 2, 3, 4
b. 2, 3, 1, 4
c. 2, 3, 4, 1
d. 2, 4, 1, 3
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119. Kam Department Store reported the following information for 2013:
October November December
Budgeted sales $1,240,000 $1,160,000 $1,440,000
• All sales are on credit.
• Customer amounts on account are collected 50% in the month of sale and 50% in the
following month.
How much cash will Kam receive in November?
a. $580,000
b. $1,300,000
c. $1,200,000
d. $1,160,000
120. The following information was taken from Southgate Industry’s cash budget for the month
of July:
Beginning cash balance $480,000
Cash receipts 304,000
Cash disbursements 544,000
If the company has a policy of maintaining a minimum end of the month cash balance of
$400,000, the amount the company would have to borrow is
a. $160,000.
b. $80,000.
c. $240,000.
d. $96,000.
121. The cash budget reflects
a. all revenues and all expenses for a period.
b. expected cash receipts and cash disbursements from all sources.
c. all the items that appear on a budgeted income statement.
d. all the items that appear on a budgeted balance sheet.
122. The following credit sales are budgeted by Terra Co.:
January $204,000
February 300,000
March 420,000
April 360,000
The company’s past experience indicates that 70% of the accounts receivable are
collected in the month of sale, 20% in the month following the sale, and 8% in the second
month following the sale. The anticipated cash inflow for the month of April is
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MC. 122 (cont.)
a. $370,320.
b. $336,000.
c. $360,000.
d. $352,800.
123. Hyde Corp.’s cash budget showed total available cash less cash disbursements. What
does this amount equal?
a. Ending cash balance
b. Total cash receipts
c. The excess of available cash over cash disbursements
d. The amount of financing required
124. Which one of the following sections would not appear on a cash budget?
a. Cash receipts
b. Financing
c. Investing
d. Cash disbursements
125. A company’s past experience indicates that 60% of its credit sales are collected in the
month of sale, 30% in the next month, and 5% in the second month after the sale; the
remainder is never collected. Budgeted credit sales were:
January $360,000
February 216,000
March 540,000
The cash inflow in the month of March is expected to be
a. $406,800.
b. $307,800.
c. $324,000.
d. $388,800.
126. Which one of the following items would never appear on a cash budget?
a. Office salaries expense
b. Interest expense
c. Depreciation expense
d. Travel expense
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127. Correy Inc. reported the following information for 2013:
October November December
Budgeted sales $460,000 $440,000 $540,000
Budgeted purchases $240,000 $256,000 $288,000
• All sales are on credit.
• Customer amounts on account are collected 50% in the month of sale and 50% in the
following month.
• Cost of goods sold is 35% of sales.
• Correy purchases and pays for merchandise 60% in the month of acquisition and 40%
in the following month.
• Accounts payable is used only for inventory acquisitions.
How much cash will Correy receive during November?
a. $220,000
b. $490,000
c. $450,000
d. $440,000
128. Correy Company reported the following information for 2013:
October November December
Budgeted sales $460,000 $440,000 $540,000
Budgeted purchases $240,000 $256,000 $288,000
• Cost of goods sold is 35% of sales.
• Correy purchases and pays for merchandise 60% in the month of acquisition and 40%
in the following month.
• Accounts payable is used only for inventory acquisitions.
How much is the budgeted balance for Accounts Payable at October 31, 2013?
a. $96,000
b. $144,000
c. $204,000
d. $102,400
129. Petal Co. reported the following information for 2013:
October November December
Budgeted sales $930,000 $870,000 $1,080,000
• All sales are on credit.
• Customer amounts on account are collected 50% in the month of sale and 50% in the
following month.
How much is the November 30, 2013 budgeted Accounts Receivable?
a. $900,000
b. $540,000
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MC. 129 (cont.)
c. $465,000
d. $435,000
130. Bean Manufacturing reported the following information for 2013:
October November December
Budgeted purchases $240,000 $256,000 $288,000
• Operating expenses are: Salaries, $100,000; Depreciation, $40,000; Rent, $20,000;
Utilities, $28,000
• Operating expenses are paid during the month incurred.
• Accounts payable is used only for inventory acquisitions.
How much is the budgeted amount of cash to be paid for operating expenses in
November?
a. $404,000
b. $148,000
c. $188,000
d. $444,000
131. During September, the capital expenditure budget indicates a $420,000 purchase of
equipment. The ending September cash balance from operations is budgeted to be
$60,000. The company wants to maintain a minimum cash balance of $30,000. What is
the minimum cash loan that must be planned to be borrowed from the bank during
September?
a. $330,000
b. $360,000
c. $450,000
d. $390,000
132. Young Co. has budgeted its activity for December according to the following information:
1. Sales at $600,000, all for cash.
2. Budgeted depreciation for December is $15,000.
4. The cash balance at December 1 was $15,000.
5. Selling and administrative expenses are budgeted at $60,000 for December and
are paid for in cash.
6. The planned merchandise inventory on December 31 and December 1 is $18,000.
7. The invoice cost for merchandise purchases represents 75% of the sales price. All
purchases are paid in cash.
How much are the budgeted cash disbursements for December?
a. $345,000
b. $510,000
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MC. 132 (cont.)
c. $525,000
d. $492,000
133. Dex Industries expects to purchase $120,000 of materials in March and $140,000 of
materials in April. Three-fourths of all purchases are paid for in the month of purchase, and
the other one-fourth are paid for in the month following the month of purchase. In addition, a
2% discount is received for payments made in the month of purchase. How much will
April’s cash disbursements for materials purchases be?
a. $88,200
b. $108,200
c. $132,900
d. $120,000
134. On January 1, Witt Company has a beginning cash balance of $126,000. During the year,
the company expects cash disbursements of $1,020,000 and cash receipts of $870,000. If
Witt requires an ending cash balance of $120,000, Witt Company must borrow
a. $96,000.
b. $120,000.
c. $144,000.
d. $276,000.
135. Mapleview, Inc. has the following budgeted sales: July $200,000, August $300,000, and
September $250,000. 40% of the sales are for cash and 60% are on credit. For the credit
sales, 50% are collected in the month of sale, and 50% the next month. The total
expected cash receipts during September are
a. $280,000.
b. $265,000.
c. $262,500.
d. $250,000.
136. Burr, Inc.’s direct materials budget shows total cost of direct materials purchases for April
$400,000, May $480,000 and June $560,000. Cash payments are 60% in the month of
purchase and 40% in the following month. The budgeted cash payments for June are
a. $528,000.
b. $512,000.
c. $480,000.
d. $416,000.
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137. Which one of the following budgets would be prepared for a manufacturer but not for a
merchandiser?
a. Direct labor budget
b. Cash budget
c. Sales budget
d. Budgeted income statement
138. The formula for determining budgeted merchandise purchases is budgeted
a. production + desired ending inventory – beginning inventory.
b. sales + beginning inventory – desired ending inventory.
c. cost of goods sold + desired ending inventory – beginning inventory.
d. cost of goods sold + beginning inventory – desired ending inventory.
139. Which one of the following is a problem resulting from a service company being
overstaffed?
a. Labor costs will be disproportionately low.
b. Profits will be higher because of the additional salaries.
c. Staff turnover may increase.
d. Revenue may be lost.
140. The master budget for a service enterprise
a. will have the same types of budgets as a merchandiser.
b. may include a sales budget for sales revenue.
c. will not include a budgeted income statement.
d. includes a service revenue budget based on expected client billings.
141. Budgeting in not-for-profit organizations
a. is not important because they are not profit-oriented.
b. usually starts with budgeting expenditures, rather than receipts.
c. is necessary only if some product is produced and sold.
d. consists entirely of budgeted contributions.
142. For a merchandiser, the starting point in the development of the master budget is the
a. cash budget.
b. sales budget.
c. selling and administrative expenses budget.
d. budgeted income statement.
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143. Instead of a production budget, a merchandiser will prepare a
a. pseudo-production budget.
b. merchandise purchases budget.
c. master time sheet.
d. sales forecast.
144. Orange Co. is a manufacturer and Pineapple Company is a merchandiser. What is the
difference in the budgets the two entities will prepare?
a. Orange Co. will prepare a production budget, and Pineapple Company will prepare a
merchandise purchases budget.
b. Orange Co. will prepare a sales forecast, and Pineapple Company will prepare a sales
budget.
c. Pineapple Company will prepare a production budget, and Orange Co. will prepare a
merchandise purchases budget.
d. Both companies will prepare the same types of budgets.
145. An appropriate activity index for a college or university for budgeting faculty positions
would be the
a. faculty hours worked.
b. number of administrators.
c. credit hours taught by a department.
d. number of days in the school term.
146. A critical factor in budgeting for a service firm is to
a. hire professional staff to perform the budgeting work.
b. coordinate professional staff needs with anticipated services.
c. classify all personnel as either variable or fixed.
d. budget expenditures before anticipated receipts.
147. The primary benefits of budgeting include all of the following except it
a. requires only top management to plan ahead and formalize their future goals.
b. provides definite objectives for evaluating performance.
c. creates an early warning system for potential problems.
d. motivates personnel throughout the organization.
148. The responsibility for expressing management’s budgeting goals in financial terms is
performed by the
a. accounting department.
b. top management.
c. lower level of management.
d. budget committee.
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149. Coordinating the preparation of the budget is the responsibility of the
a. treasurer.
b. president.
c. chief accountant.
d. budget committee.
150. For better management acceptance, the flow of input data for budgeting should begin with the
a. accounting department.
b. top management.
c. lower levels of management.
d. budget committee.
151. In the direct materials budget, the quantity of direct materials to be purchased is computed
by adding direct materials required for production to
a. desired ending direct materials.
b. beginning direct materials.
c. desired ending direct materials less beginning direct materials.
d. beginning direct materials less desired ending direct materials.
152. Grey Company has 24,000 units in beginning finished goods. If sales are expected to be
120,000 units for the year and Grey desires ending finished goods of 30,000 units, how
many units must the company produce?
a. 114,000
b. 120,000
c. 126,000
d. 150,000
153. The important end-product of the operating budgets is the
a. budgeted income statement.
b. cash budget.
c. production budget.
d. budgeted balance sheet.
154. On January 1, Kale Company has a beginning cash balance of $42,000. During the year,
the company expects cash disbursements of $340,000 and cash receipts of $290,000. If
Kale requires an ending cash balance of $40,000, the company must borrow
a. $32,000.
b. $40,000.
c. $48,000.
d. $92,000.
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155. The budget that is often considered to be the most important financial budget is the
a. cash budget.
b. capital expenditure budget.
c. budgeted income statement.
d. budgeted balance sheet.
156. Lark Corp.’s direct materials budget shows total cost of direct materials purchases for
January $250,000, February $300,000 and March $350,000. Cash payments are 60% in
the month of purchase and 40% in the following month. The budgeted cash payments for
March are
a. $330,000.
b. $320,000.
c. $300,000.
d. $260,000.
157. A purchases budget is used instead of a production budget by
a. merchandising companies.
b. service enterprises.
c. not–for-profit organizations.
d. manufacturing companies.
158. Which of the following statements is incorrect?
a. A continuous twelve-month budget results from dropping the month just ended and
adding a future month.
b. The production budget is derived from the direct materials and direct labor budgets.
c. The cash budget shows anticipated cash flows.
d. In the budget process for not–for-profit organizations, the emphasis is on cash flow
rather than on revenue and expenses.
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BRIEF EXERCISES
BE 159
Wynn, Inc. manufactures beanies. The budgeted units to be produced and sold are below:
Expected Production Expected Sales
August 3,500 2,900
September 2,800 3,900
It takes 18 yards of yarn to produce a beanie. The company‘s policy is to maintain yarn at the end
of each month equal to 5% of next month’s production needs and to maintain a finished goods
inventory at the end of each month equal to 20% of next month’s anticipated production needs.
The cost of yarn is $0.20 a yard. At August 1, 3,150 yards of yarn were on hand.
Instructions
Compute the budgeted cost of purchases.
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BE 160
The budget components for Birk Company for the quarter ended June 30 appear below. Birk sells
trash cans for $12 each. Budgeted production for the next three months is:
April 26,000 units
May 46,000 units
June 29,000 units
Birk desires to have trash cans on hand at the end of each month equal to 20 percent of the
following month’s budgeted sales in units. On March 31, Birk had 4,000 completed units on hand.
Five pounds of plastic are required for each trash can. At the end of each month, Birk desires to
have 10 percent of the following month’s production material needs on hand. At March 31, Birk
had 13,000 pounds of plastic on hand. The materials used in production costs $0.60 per pound.
Each trash can produced requires 0.10 hours of direct labor.
Instructions
Compute the cost of the plastic inventory at the end of May.
BE 161
Smoke, Inc. makes and sells buckets. Each bucket uses 1/2 pound of plastic. Budgeted
production of buckets in units for the next three months is as follows:
April May June
Budgeted production 21,000 22,000 24,000
The company wants to maintain monthly ending inventories of plastic equal to 25% of the
following month’s budgeted production needs. The cost of plastic is $2.20 per pound.
Instructions
Prepare a direct materials purchases budget for the month of May.
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BE 162
The budget components for Park Company for the quarter ended June 30 appear below. Park
sells trash cans for $12 each. Budgeted sales and production for the next three months are:
Sales Production
April 20,000 units 26,000 units
May 50,000 units 46,000 units
June 30,000 units 29,000 units
Park desires to have trash cans on hand at the end of each month equal to 20 percent of the
following month’s budgeted sales in units. On March 31, Park had 4,000 completed units on
hand. Five pounds of plastic are required for each trash can. At the end of each month, Park
desires to have 10 percent of the following month’s production material needs on hand. At March
31, Park had 13,000 pounds of plastic on hand. The materials used in production cost $0.60 per
pound. Each trash can produced requires 0.10 hours of direct labor.
Instructions
Determine how much the materials purchases budget will be for the month ending April 30.
BE 163
Jent Company reported the following information for 2013:
October November December
Budgeted sales $320,000 $340,000 $360,000
Budgeted purchases $120,000 $128,000 $144,000
• All sales are on credit.
• Customer amounts on account are collected 40% in the month of sale and 60% in the
following month.
Instructions
Compute the amount of cash Jent will receive during November.
Budgetary Planning
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Solution 163 (3 min.)
BE 164
Plack Company budgeted the following information for 2013:
May June July
Budgeted purchases $104,000 $110,000 $102,000
• Cost of goods sold is 40% of sales. Accounts payable is used only for inventory acquisitions.
• Plack purchases and pays for merchandise 60% in the month of acquisition and 40% in the
following month.
• Selling and administrative expenses are budgeted at $30,000 for May and are expected to
increase 5% per month. They are paid during the month of acquisition. In addition, budgeted
depreciation is $10,000 per month.
• Income taxes are $38,400 for July and are paid in the month incurred.
Instructions
Compute the amount of budgeted cash disbursements for July.
BE 165
Sable, Inc. has budgeted direct materials purchases of $400,000 in March and $500,000 in April.
Past experience indicates that the company pays for 60% of its purchases in the month of
purchase and the remaining 40% in the next month. Other costs are all paid during the month
incurred. During April, the following items were budgeted:
Wages expense $120,000
Purchase of office equipment 200,000
Selling and administrative expenses 126,000
Depreciation expense 18,000
Instructions
Compute the amount of budgeted cash disbursements for April.
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Solution 165 (4 min.)
BE 166
Chain Inc. provided the following information:
April May June
Projected merchandise purchases $92,000 $80,000 $66,000
• Chain pays 40% of merchandise purchases in the month purchased and 60% in the following
month.
• General operating expenses are budgeted to be $31,000 per month of which depreciation is
$3,000 of this amount. Chain pays operating expenses in the month incurred.
• Chain makes loan payments of $4,000 per month of which $450 is interest and the remainder
is principal.
Instructions
Calculate budgeted cash disbursements for May.
BE 167
Beal, Inc. provided the following information:
March April May
Projected merchandise purchases $65,000 $75,000 $80,000
• Beal pays 40% of merchandise purchases in the month purchased and 60% in the following
month.
• General operating expenses are budgeted to be $20,000 per month of which depreciation is
$2,000 of this amount. Beal pays operating expenses in the month incurred.
Instructions
Calculate Beal’s budgeted cash disbursements for May.
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Solution 167 (4 min.)
BE 168
The beginning cash balance is $15,000. Sales are forecasted at $800,000 of which 80% will be
on credit. 70% of credit sales are expected to be collected in the year of sale. Cash expenditures
for the year are forecasted at $475,000. Accounts Receivable from previous accounting periods
totaling $9,000 will be collected in the current year. The company is required to make a $15,000
loan payment and an annual interest payment on the last day of every year. The loan balance as
of the beginning of the year is $90,000, and the annual interest rate is 10%.
Instructions
Compute the excess of cash receipts over cash disbursements.
EXERCISES
Ex. 169
Delta Manufacturing has budgeted the following unit sales:
2012 Units
April 25,000
May 40,000
June 60,000
July 45,000
Of the units budgeted, 40% are sold by the Coastal Division at an average price of $15 per unit
and the remainder are sold by the Central Division at an average price of $12 per unit.
Instructions
Prepare separate sales budgets for each division and for the company in total for the second
quarter of 2013.
Test Bank for Accounting, Tools for Business Decision Making, Fifth Edition
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Solution 169 (15–20 min.)
Ex. 170
Pitt Corp. makes and sells a single product, widgets. Two pounds of sand are needed to make
one widget. Budgeted production of widgets for the next few months follows:
September 25,000 units
October 31,000 units
The company wants to maintain monthly ending inventories of sand equal to 20% of the following
month’s production needs. On August 31, 10,000 pounds of sand were on hand.
Instructions
How much sand should be purchased in September?