Chapter 9—The Use of Budgets in Planning and Decision Making
MULTIPLE CHOICE
1. Budgets are:
a.
future oriented
b.
for managers only
c.
required by GAAP
d.
typically not used by small business
2. Which of the following statements regarding budgeting is false?
a.
The focus of budgeting is planning.
b.
Many companies use enterprise resource planning (ERP) systems as a budgeting tool.
c.
Budgeting is a bookkeeping task.
d.
Budgeting helps managers determine the resources needed to meet their goals and
objectives.
3. A budget built from the ground up each year rather than by simply adding a percentage increase to last
year’s numbers is called:
a.
a static budget.
b.
a flexible budget.
c.
a zero-based budget.
d.
a master budget.
4. Which of the following statements is true regarding budgeting?
a.
It is primarily focused on past performance.
b.
It is primarily a bookkeeping task.
c.
It should be built from the ground up each year.
d.
It involves input from a broad range of managers.
5. Which of the following statements regarding budgets is true?
a.
They rarely use estimates.
b.
They should not be used for performance evaluations.
c.
They should focus on past performance.
d.
They will likely require the input of more than one manager.
6. ____ activities involve developing objectives and goals for the organization as well as the actual
preparation of the budget.
a.
Operating
b.
Control
c.
Planning
d.
Flexible
7. Which type of activity includes ensuring that the objectives and goals developed by the organization
are being attained?
a.
Planning
b.
Operating
c.
Control
d.
Bookkeeping
8. The comparison of actual outcomes with desired outcomes is an example of a(n):
a.
planning activity.
b.
control activity.
c.
operating activity.
d.
static activity.
9. Which of the following is not an advantage of the budgeting process?
a.
It can help management identify potential bottlenecks.
b.
It can help facilitate goal congruence throughout the organization.
c.
It can force management to focus on the past and not be distracted by current activities of
the organization.
d.
It can increase communication between various departments in the organization.
10. Which of the following is an advantage of the budgeting process?
a.
It requires very little input from various departmental managers, leaving them more time
to devote to day-to–day activities.
b.
It can communicate to employees specific goals and objectives that may be used in
evaluating their job performance.
c.
It forces management to focus on the past and not be distracted by the day-to-day
operations of the business.
d.
It requires no communication between various managers in the organization.
11. Which of the following is not increased by the budgeting process?
a.
Communication throughout the organization.
b.
Identification of potential bottlenecks or constraints.
c.
Goal congruence between the personal goals of managers and the goals of the
organization.
d.
Management’s focus on past performance of the organization.
12. The alignment of the personal goals of an organization’s managers with the goals of the overall
organization is called:
a.
a bottleneck.
b.
benchmarks.
c.
goal congruence.
d.
static budgeting.
13. The usual starting point when developing a sales forecast is:
a.
the production budget.
b.
the cash budget.
c.
last year’s level of sales.
d.
competitor budget information.
14. In the budgeting process, which budget is typically prepared first?
a.
Cash budget
b.
Summary budget
c.
Sales budget
d.
Production budget
15. Which of the following is not a consideration in the preparation of a sales budget or sales forecast?
a.
General economic trends.
b.
Anticipated marketing or advertising plans.
c.
Issuance of the current year’s financial statements.
d.
Anticipated price changes in both purchasing costs and sales prices.
16. Which of the following statements is false regarding the process of preparing a sales forecast?
a.
It usually starts with last year’s level of sales.
b.
General economic trends are often considered.
c.
Since it involves estimates of future events, accuracy is of little importance.
d.
The larger the size and complexity of an organization, the more complex their sales
forecasting system will be.
17. Which of the following statements is false regarding sales forecasting?
a.
It may involve the use of elaborate planning models and regression analysis.
b.
It may rely heavily on the intuition and opinions of managers.
c.
Other budgets are rarely affected by errors in sales forecasts.
d.
The usual starting point is last year’s level of sales.
18. In order to prepare a sales budget, a ____ is required.
a.
production budget
b.
sales forecast
c.
static budget
d.
flexible budget
19. Milton Inc. has prepared the following first quarter sales forecast:
January
250,000 units
February
375,000 units
March
315,000 units
Each unit sells for $1.50.
The sales budget for the first quarter is:
a.
$1,410,000
b.
$ 940,000
c.
$ 626,667
d.
$ 472,500
20. In 2008, Wingen Inc. sold 650,000 units at $3 each. Sales volume is expected to increase by 20 percent
in 2009 while the price of each unit is expected to decrease by 20 percent. The expected sales revenue
for 2009 is:
a.
$ 780,000
b.
$1,872,000
c.
$1,950,000
d.
$1,560,000
21. In 2008, Truman Products sold 900,000 units at $9 each. Sales volume is expected to increase by 10
percent in 2009 while the price of each unit is expected to decrease by 15 percent. The expected sales
revenue for 2009 is:
a.
$8,761,500
b.
$1,336,500
c.
$7,573,500
d.
$6,885,000
22. Last year, Garrison Manufacturing sold 500,000 units at $4 each. Both sales volume and sales price are
expected to increase by 10 percent in the upcoming year. The expected sales revenue for the upcoming
year is:
a.
$2,420,000
b.
$2,200,000
c.
$2,255,000
d.
$2,000,000
23. Brady Inc. produced and sold 200,000 units for $50 each last year. For the upcoming year,
management believes that if they decrease the price of each unit by 5%, volume will increase 5%.
What are Brady’s expected sales revenues for the upcoming year?
a.
$ 9,450,000
b.
$10,000,000
c.
$10,500,000
d.
$ 9,975,000
24. Broughton Corp. has prepared a production budget for February. Management has determined that the
total required production for February is 360,000 units when an ending inventory of 40,000 units is
desired and the beginning inventory is 10,000 units.
Based on the above information, what were February’s budgeted sales?
a.
410,000 units
b.
360,000 units
c.
330,000 units
d.
390,000 units
25. Enloe Manufacturing has prepared a production budget for June. Management has determined that the
total required production for June is 680,000 units when an ending inventory of 50,000 units is desired
and the beginning inventory is 30,000 units.
Based on the above information, what were June’s budgeted sales?
a.
660,000 units
b.
700,000 units
c.
760,000 units
d.
680,000 units
26. Ligon Enterprises has prepared a production budget for October. Management has determined
that the total required production for October is 425,000 units when an ending inventory of
20,000 units is desired and the beginning inventory is 8,000 units.
Based on the above information, what were October’s budgeted sales?
a.
453,000 units
b.
413,000 units
c.
437,000 units
d.
425,000 units
27. The budget that forecasts how many units a manufacturing company should produce in order to meet
sales projections is called a:
a.
Sales Budget
b.
Materials Budget
c.
Production Budget
d.
Flexible Budget
28. Which of the following budgets would probably not be prepared using information provided by the
production budget?
a.
Direct materials budget
b.
Direct labor budget
c.
Manufacturing overhead budget
d.
Sales budget
29. Which of the following equations best depicts a basic production budget?
a.
Required Production = Projected Sales − Desired Ending Inventory + Beginning Inventory
b.
Required Production = Projected Sales + Desired Ending Inventory − Beginning Inventory
c.
Required Production = Projected Sales − Desired Ending Inventory − Beginning Inventory
d.
Required Production = Projected Sales + Desired Ending Inventory + Beginning Inventory
30. Newman Products is preparing their first quarter production budget. The desired ending inventory
of finished goods for the month of January becomes:
a.
the required production for the month of January.
b.
the budgeted sales for the month of February.
c.
the beginning inventory for the month of February.
d.
the required production for the month of February.
31. Porcelain Interiors sells a variety of porcelain products including porcelain sinks. At December 31, the
company had 200 sinks in inventory. The company’s policy is to maintain a sink inventory equal to 5%
of next month’s sales. The company expects the following sales activity for the first quarter of the year:
January
1,500 sinks
February
2,000 sinks
March
2,300 sinks
What is the projected production for February?
a.
2,115
b.
2,015
c.
1,985
d.
2,215
32. Homestyle Interiors sells a variety of home furnishings including sleeper sofas. At March 31, the
company had 400 sofas in inventory. The company’s policy is to maintain a sleeper sofa inventory
equal to 2% of next month’s sales. The company expects the following sales activity for the second
quarter of the year:
April
1,000 sofas
May
1,400 sofas
June
2,000 sofas
What is the projected production for May?
a.
1,332 sofas
b.
1,468 sofas
c.
1,388 sofas
d.
1,412 sofas
33. Homestyle Interiors sells a variety of home furnishings including entertainment centers. At March 31,
the company had 150 centers in inventory. The company’s policy is to maintain a entertainment center
inventory equal to 3% of next month’s sales. The company expects the following sales activity for the
second quarter of the year:
April
800 centers
May
1,200 centers
June
1,000 centers
What is the projected production for May?
a.
1,206 centers
b.
1,194 centers
c.
1,266 centers
d.
1,134 centers
34. Select Manufacturing sells a variety of office products including two-drawer file cabinets. On June 30,
the company had 300 cabinets in inventory. The company’s policy is to maintain a cabinet inventory
equal to 10% of next month’s sales. The company expects the following sales activity for the third
quarter of the year:
July
3,000 cabinets
August
4,000 cabinets
September
4,800 cabinets
In addition, October’s sales are projected to be 5,000 cabinets. What is the total required production for
the third quarter?
a.
12,980 cabinets
b.
12,300 cabinets
c.
12,000 cabinets
d.
11,800 cabinets
35. Keep-it-Cool Products Inc. manufactures a medium-sized drink cooler. At June 30, the company had
5,000 coolers in inventory. The company’s policy is to maintain a cooler inventory equal to 15% of
next month’s sales. The company expects the following sales activity for the third quarter of the year:
July
50,000 coolers
August
40,000 coolers
September
25,000 coolers
How many coolers should be produced in August?
a.
37,750 coolers
b.
36,250 coolers
c.
42,250 coolers
d.
43,750 coolers
36. Tunstall Manufacturing sells medical supplies, including stethoscopes. At September 30, the company
had 1,000 stethoscopes in inventory. The company’s policy is to maintain an inventory equal to 8% of
next month’s sales. The company expects the following sales activity for the fourth quarter of the year:
October
11,000 stethoscopes
November
15,000 stethoscopes
December
14,000 stethoscopes
In addition, January sales for the following year are projected to be 16,000 stethoscopes. What is the
total required production for the fourth quarter?
a.
40,280 stethoscopes
b.
39,000 stethoscopes
c.
39,720 stethoscopes
d.
41,280 stethoscopes
Managerial ACCT Test Bank Chapter 9 9
NARRBEGIN: Donnelly Manufacturing
Donnelly Manufacturing
Donnelly Manufacturing sells cedar birdhouses. The company has prepared the following forecast for
the third quarter of 2009:
July
5,000 units
August
6,000 units
September
10,000 units
Inventory at June 30, 2009 was budgeted at 1,000 units. Management would like the desired quantity
of finished goods inventory at the end of each month to be equal to 20% of next month’s budgeted unit
sales. October’s sales are projected to be 12,000 units.
Each completed unit of finished product requires 3 square feet of cedar at a cost of $1.50 per square
foot.
NARREND
37. Refer to the Donnelly Manufacturing information above. The company has determined that it needs 20
percent of next month’s raw material needs on hand at the end of each month.
The total required production of birdhouses for the third quarter of 2009 is:
a.
19,600 units
b.
22,400 units
c.
20,000 units
d.
23,400 units
38. Refer to the Donnelly Manufacturing information above. The company has determined that it needs 10
percent of next month’s raw material needs on hand at the end of each month.
The cost of the direct material that should be purchased in August is:
a.
$32,940
b.
$21,480
c.
$30,600
d.
$35,280
NARRBEGIN: Jones Manufacturing
Jones Manufacturing
Jones Manufacturing sells unique decorative water fountains. The company has prepared the following
forecast for the first quarter of 2010:
January
1,000 units
February
1,400 units
March
2,000 units
Ending inventory at December 31, 2009 was budgeted at 80 units. Management would like the desired
quantity of finished goods inventory at the end of each month to be equal to 10 percent of next month’s
budgeted unit sales. April’s sales are projected to be 1,600 units.
Each completed unit of finished product requires 3 pounds of compounding material at a cost of $2.00
per pound. The company has determined that it needs 15 percent of next month’s raw material needs
on hand at the end of each month.
NARREND
39. Refer to the Jones Manufacturing information above. The total required production of water fountains
for the first quarter of 2009 is:
a.
4,320 units
b.
4,560 units
c.
4,640 units
d.
4,480 units
NARRBEGIN: Thurston Products
Thurston Products
Thurston Products sells a popular style of running shoe. The company has prepared the following sales
forecast for the second quarter of 2010:
April
80,000 pairs
May
100,000 pairs
June
130,000 pairs
Ending inventory at March 31, 2010 was budgeted at 5,000 pairs. Management would like the desired
quantity of finished goods inventory at the end of each month to be equal to 6 percent of next month’s
budgeted unit sales. July’s sales are projected to be 120,000 pairs.
Each completed unit of finished product requires 1.5 pounds of rubber material at a cost of $.75 per
pound. The company has determined that it needs 10 percent of next month’s raw material needs on
hand at the end of each month.
NARREND
40. Refer to the Thurston Products information above. The total required production of running shoes for
the second quarter of 2010 is:
a.
317,200 pairs
b.
312,200 pairs
c.
307,800 pairs
d.
323,600 pairs
41. Robusto Coffee Traders Inc. sells prepackaged coffees to a variety of businesses throughout the East
Coast. Robusto purchases the coffee in bulk from a wholesale distributor and packages the coffee
themselves to sell to customers. The company expects to sell 500,000 and 600,000 one-pound
packages of coffee during 2008 and 2009, respectively. The company had 18,000 one-pound packages
on hand at the beginning of 2008, and the company has a policy of maintaining an ending inventory
equal to 10 percent of the packages needed for next year’s expected sales.
How many packages of coffee should the company plan to purchase in 2008?
a.
560,000
b.
542,000
c.
458,000
d.
532,000
42. Woodsman Inc. produces a variety of wood finishing products including gallons of varnish that it
manufactures and packages under its own name. The company has computed the required production
of gallons of varnish it will need for the first three months of 2009 as follows:
January
300,000 gallons
February
340,000 gallons
March
400,000 gallons
Each gallon of varnish requires 10 ounces of a special chemical. This chemical costs $.25 per ounce.
The company has determined that it needs 20 percent of next month’s raw material needs on hand at
the end of each month.
The cost of the direct material that should be purchased in February is:
a.
$920,000
b.
$950,000
c.
$880,000
d.
$850,000
43. Crafty Cathy Products Inc. manufactures a product sold in most craft stores which requires non-soluble
glue as one of the key ingredients. The company has already estimated that it needs to produce the
following number of units of product for the second quarter of 2009:
April
75,000 units
May
90,000 units
June
84,000 units
Each unit requires .5 ounces of glue at a cost of $.30 an ounce. The company has determined that it
needs 15 percent of next month’s raw material needs on hand at the end of each month.
The cost of the glue that should be purchased in May is:
a.
$13,365
b.
$13,500
c.
$15,390
d.
$13,635
Managerial ACCT Test Bank Chapter 9 12
NARRBEGIN: Carteret Inc.
Carteret Inc.
Carteret Inc. manufactures hammocks under various brand names. The company sells most of its
hammocks in the second quarter of each year. Their production budget for the second quarter shows
the following number of hammocks needs to be produced:
April
6,000 units
May
10,000 units
June
15,000 units
Each unit requires 30 feet of cotton rope cord which costs $.50 per foot. The company has determined
that it needs 20 percent of next month’s raw material needs on hand at the end of each month.
In addition, each hammock requires 45 minutes of direct labor for assembly and inspection at a cost of
$.25 per minute. The company currently applies manufacturing overhead to production at the rate of
$8 per direct labor hour.
NARREND
44. Refer to the Carteret Inc. information above. The cost of the rope cord that should be purchased in
May is:
a.
$195,000
b.
$150,000
c.
$165,000
d.
$135,000
45. Refer to the Carteret Inc. information above. The total cost of direct labor and manufacturing overhead
for the month of May is:
a.
$192,500
b.
$ 82,500
c.
$172,500
d.
$168,750
46. Sellars Inc. manufactures widgets. At June 30, the company had 2,000 widgets in inventory. The
company’s policy is to maintain a widget ending inventory equal to 10% of next month’s sales. In
addition, each widget manufactured requires 6 minutes of assembly and inspecting time at a cost of
$.25 per minute.
The company expects the following sales activity for the third quarter of the year:
July
25,000 units
August
38,000 units
September
30,000 units
What is the projected direct labor cost for August?
a.
$55,800
b.
$57,000
c.
$61,500
d.
$58,200
47. Carson Products Inc. manufactures LEDs (light emitting diodes) for use in vehicles. At September 30,
the company had 5,000 LED units in inventory. The company’s policy is to maintain a LED ending
inventory equal to 25% of next month’s sales. In addition, each LED manufactured requires 2 minutes
of assembly and inspecting time at a cost of $.30 per minute.
The company expects the following sales activity for the fourth quarter of the year:
October
90,000 units
November
100,000 units
December
80,000 units
What is the projected direct labor cost for November?
a.
$72,000
b.
$63,000
c.
$60,000
d.
$57,000
48. Grisham Products Inc. manufactures engines for small scooters. At September 30, the company had
2,500 engines in inventory. The company’s policy is to maintain an ending inventory equal to 8% of
next month’s sales. Each engine manufactured requires 45 minutes of assembly and inspecting time at
a cost of $.30 per minute. Grisham applies overhead to engines at a rate of $.15 per direct labor
minute.
The company expects the following sales activity for the fourth quarter of the year:
October
12,000 units
November
20,000 units
December
35,000 units
What is the projected applied manufacturing overhead cost for November?
a.
$153,900
b.
$143,100
c.
$ 42,930
d.
$126,900
49. Which of the following statements regarding cash flows is true?
a.
Many managers consider cash flow budgets to be the least important of all the budgets.
b.
As long as accounting revenues exceed accounting expenses, cash flow budgets do not
have to be prepared.
c.
It is possible for cash receipts to exceed revenues earned in a given month.
d.
As long as a manager is confident that there will eventually be a cash receipt from a
customer, the timing of the cash receipt is not important.
50. The “Beginning Cash Balance” would most likely appear on which type of budget?
a.
Cash Receipts Budget
b.
Summary Cash Budget
c.
Sales Budget
d.
Cash Disbursements Budget
51. Which of the following is not one of the sections that appears on a summary cash budget?
a.
Cash flows from manufacturing activities
b.
Cash flows from financing activities
c.
Cash flows from investing activities
d.
Cash flows from operating activities
52. Cash paid for the purchase of property, plant, and equipment will be shown:
a.
on the materials purchases budget.
b.
in the investing activity section of the cash summary budget.
c.
on the cash disbursements budget.
d.
in the operating activity section of the cash summary budget.
53. Cash paid for the retirement of long-term debt will be shown:
a.
in the financing activity section of the cash summary budget.
b.
in the investing activity section of the cash summary budget.
c.
on the cash disbursements budget.
d.
in the operating activity section of the cash summary budget.
54. Cash received from the borrowing of long-term debt will be shown:
a.
in the financing activity section of the cash summary budget.
b.
in the investing activity section of the cash summary budget.
c.
on the cash receipts budget.
d.
in the operating activity section of the cash summary budget.
Managerial ACCT Test Bank Chapter 9 15
55. Ingalls Mercantile Inc. sells bolts of fabric to retailers for $80 per bolt. The company’s accountant has
prepared the following sales forecast (in bolts) for the first quarter of 2009:
January
600 bolts
February
1,000 bolts
March
700 bolts
Historically, the cash collection of sales has been as follows: 60 percent in the month of sale, 30
percent in the month following sale, and 9 percent in the second month following sale.
Cash receipts for March are expected to be:
a.
$ 61,920
b.
$182,160
c.
$ 33,600
d.
$ 57,840
56. Blooming Products Inc. sells flower bulbs to local nurseries. Each bag of bulbs sells for $2. The
company’s accountant has prepared the following sales forecast (in bags) for the fourth quarter of
2009:
October
5,000 bags
November
9,000 bags
December
8,000 bags
Historically, the cash collection of sales has been as follows: 50 percent in the month of sale, 40
percent in the month following sale, and 10 percent in the second month following sale.
Cash receipts for December are expected to be:
a.
$13,800
b.
$ 8,000
c.
$16,200
d.
$ 8,100
57. Cicero Manufacturing Inc. sells gloves at local ski resorts during the winter months. Each pair of
gloves sells for $15. The following sales forecast (in units) has been prepared for October 2008
through March 2009:
October
500
November
800
December
1,000
January
1,200
February
900
March
600
Historically, the cash collection of sales has been as follows: 60 percent in the month of sale, 35
percent in the month following sale, and 4 percent in the second month following sale. The remaining
1 percent is uncollectible.
Managerial ACCT Test Bank Chapter 9 16
Cash receipts for January are expected to be:
a.
$13,170
b.
$51,975
c.
$10,800
d.
$16,530
58. Taylor Inc. sells and installs residential water heaters. Its customers pay for their water heaters over
four months by paying in equal, monthly installments. The sales price of an installed water heater is
$600. Taylor sold and installed the following number of water heaters in the first six months of 2009:
January
80 units
February
100 units
March
70 units
April
84 units
May
90 units
June
75 units
Cash receipts for June are expected to be:
a.
$ 74,850
b.
$118,050
c.
$ 47,850
d.
$191,400
59. Browning Inc. has projected the following sales information for the fourth quarter of 2009:
October
November
December
Cash sales
$19,000
$26,000
$32,000
Credit sales
35,000
45,000
60,000
Total sales
$54,000
$71,000
$92,000
Credit sales are collected over a two-month period, with 60 percent collected in the month of sale and
40 percent collected in the month following sale.
Total cash collections for December are:
a.
$86,000
b.
$54,000
c.
$83,600
d.
$68,000
60. Boylan Inc. has projected the following sales information for the first quarter of 2009:
January
February
March
Cash sales
$20,000
$35,000
$40,000
Credit sales
43,000
57,000
55,000
Total sales
$63,000
$92,000
$95,000
Managerial ACCT Test Bank Chapter 9 17
Credit sales are collected over a two-month period, with 55 percent collected in the month of sale and
45 percent collected in the month following sale.
Total cash collections for March are:
a.
$55,900
b.
$93,650
c.
$70,250
d.
$95,900
61. Becham Inc. had the following purchases budgeted for the last quarter of 2009:
October
$75,000
November
90,000
December
84,000
Becham pays one-half of a month’s purchases in the month of purchase and the remainder in the
following month. What are expected cash disbursements for the month of December?
a.
$124,500
b.
$ 84,000
c.
$ 87,000
d.
$ 42,000
62. Holmes Manufacturing Inc. had the following purchases budgeted for the last six months of 2009:
July
$60,000
August
45,000
September
52,000
October
60,000
November
80,000
December
85,000
Holmes pays one-half of a month’s purchases in the month of purchase and the remainder in the
following month. What are expected total cash disbursements for the last quarter of 2009?
a.
$112,500
b.
$225,000
c.
$182,500
d.
$208,500
63. Merrell Enterprises had the following purchases budgeted for the last six months of 2009:
July
$100,000
August
80,000
September
90,000
October
70,000
November
90,000
December
100,000
Merrell pays one-half of a month’s purchases in the month of purchase and the remainder in the
following month. What are expected total cash disbursements for the last quarter of 2009?
a.
$210,000
b.
$255,000
c.
$130,000
d.
$260,000
64. In December of 2008, Jones Inc. was formed as a corporation. The company plans to start its
operations in early January of 2009. They have the following purchases budgeted for the first quarter
of 2009:
January
$600,000
February
500,000
March
300,000
Jones has worked out agreements with its various suppliers to pay for one-fourth of a month’s
purchases each month, beginning in the month of purchase, until the purchases are paid in full. No
purchases were made prior to January.
What are total cash disbursements expected for the first quarter of 2009?
a.
$425,000
b.
$625,000
c.
$775,000
d.
$350,000
65. In September of 2009, Mitford Products Inc. began doing business as a corporation. The company
plans to start making its first purchases in October of 2009. They have the following purchases
budgeted for the last quarter of 2009:
October
$850,000
November
600,000
December
720,000
Mitford has worked out agreements with its various suppliers to pay for one-third of a month’s
purchases each month, beginning in the month of purchase, until the purchases are paid in full. No
purchases were made prior to October.
What are expected total cash disbursements for the last quarter of 2009?
a.
$1,490,000
b.
$ 723,333
c.
$1,006,667
d.
$1,446,667
Managerial ACCT Test Bank Chapter 9 19
66. Griswald Inc. would like to prepare a summary cash budget for the first quarter of 2009. The following
information from the cash receipts and cash disbursements budgets are available:
January
February
March
Cash receipts
$50,000
$72,000
$80,000
Cash disbursements
42,000
75,000
71,000
The company has a beginning cash balance on January 1, 2009 of $5,000. No other receipts and
disbursements in the first quarter are expected. What is the cash balance at the end of March expected
to be?
a.
$14,000
b.
$19,000
c.
$ 9,000
d.
$34,000
67. 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?
a.
$(1,000)
b.
$ 0
c.
$ 1,000
d.
$ 2,000
68. 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
Managerial ACCT Test Bank Chapter 9 20
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?
a.
$1,000
b.
$7,000
c.
$4,000
d.
$5,000
69. 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?
a.
$ 8,500
b.
$ (3,500)
c.
$ 3,500
d.
$26,500
70. 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.