EXAM 7

1.
The LaGrange Company had the following budgeted sales for the first half of the current
year:

The company is in the process of preparing a cash budget and must determine the
expected cash collections by month. To this end, the following information has been
assembled:

Collections on sales: 60% in month of sale

30% in month following sale
10% in second month following sale

The accounts receivable balance on January 1 of the current year was $70,000, of which
$50,000 represents uncollected December sales and $20,000 represents uncollected
November sales.

The total cash collected during January by LaGrange Company would be:
A) $410,000
B) $254,000
C) $344,000
D) $331,500

Feedback:

* December credit sales must be calculated as follows: $50,000 = (30% + 10%) x

November sales, or $125,000.
Points Earned: 0.0/1.0
Correct Answer(s): D

2.
Justin's Plant Store, a retailer, started operations on January 1. On that date, the only
assets were $16,000 in cash and $3,500 in merchandise inventory. For purposes of budget
preparation, assume that the company's cost of goods sold is 60% of sales. Expected sales
for the first four months appear below.

The company desires that the merchandise inventory on hand at the end of each month be
equal to 50% of the next month's merchandise sales (stated at cost). All purchases of
merchandise inventory must be paid in the month of purchase. Sixty percent of all sales
should be for cash; the balance will be on credit. Seventy-five percent of the credit sales
should be collected in the month following the month of sale, with the balance collected
in the following month. Variable selling and administrative expenses should be 10% of
sales and fixed expenses (all depreciation) should be $3,000 per month. Cash payments
for the variable selling and administrative expenses are made during the month the
expenses are incurred.

The Accounts Receivable balance that would appear in the March 31 budgeted balance
sheet would be:
A) $15,000
B) $16,000
C) $8,800
D) $12,400

Feedback:

Points Earned: 1.0/1.0

Correct Answer(s): C

3.
The selling and administrative expense budget of Spurlock Corporation is based on
budgeted unit sales, which are 6,300 units for February. The variable selling and
administrative expense is $9.30 per unit. The budgeted fixed selling and administrative
expense is $118,440 per month, which includes depreciation of $19,530 per month. The
remainder of the fixed selling and administrative expense represents current cash flows.
The cash disbursements for selling and administrative expenses on the February selling
and administrative expense budget should be:
A) $98,910
B) $157,500
C) $58,590
 D) $177,030

Feedback:
Cash disbursements for December = (Variable selling and administrative cost x Number
of direct-labor hours) + (Fixed manufacturing overhead less depreciation) = (6,300 x
$9.30) + ($118,440 - $19,530) = $58,590 + $98,910 = $157,500
Points Earned: 1.0/1.0
Correct Answer(s): B

4.
The Charade Company is preparing its Manufacturing Overhead budget for the fourth
quarter of the year. The budgeted variable factory overhead is $5.00 per direct labor-
hour; the budgeted fixed factory overhead is $75,000 per month, of which $15,000 is
factory depreciation.

If the budgeted direct labor time for December is 8,000 hours, then total budgeted factory
overhead per direct labor-hour is (rounded):
A) $14.38
B) $9.38
C) $12.50
D) $16.25

Feedback:

Points Earned: 0.0/1.0

Correct Answer(s): A

5.
Dilom Farm Supply is located in a small town in the rural west. Data regarding the store's
operations follow:

• Sales are budgeted at $260,000 for November, $230,000 for December, and $210,000
for January.
• Collections are expected to be 55% in the month of sale, 40% in the month following
the sale, and 5% uncollectible.
• The cost of goods sold is 80% of sales.
• The company purchases 50% of its merchandise in the month prior to the month of sale
and 50% in the month of sale. Payment for merchandise is made in the month following
the purchase.
• Other monthly expenses to be paid in cash are $21,700.
• Monthly depreciation is $17,000.
• Ignore taxes.

The cost of December merchandise purchases would be:

A) $176,000
B) $208,000
C) $184,000
D) $84,000

Feedback:

Points Earned: 1.0/1.0

Correct Answer(s): A

6.
Coles Company, Inc. makes and sells a single product, Product R. Three yards of
Material K are needed to make one unit of Product R. Budgeted production of Product R
for the next five months is as follows:
The company wants to maintain monthly ending inventories of Material K equal to 20%
of the following month's production needs. On July 31, this requirement was not met
since only 2,500 yards of Material K were on hand. The cost of Material K is $0.85 per
yard. The company wants to prepare a Direct Materials Purchase Budget for the rest of
the year.

The total needs (i.e., production requirements plus desired ending inventory) of Material
K for the month of November are:
A) 37,800 yards
B) 44,940 yards
C) 37,380 yards
D) 45,360 yards

Feedback:

Points Earned: 0.0/1.0

Correct Answer(s): B

7.
Dilom Farm Supply is located in a small town in the rural west. Data regarding the store's
operations follow:

• Sales are budgeted at $260,000 for November, $230,000 for December, and $210,000
for January.
• Collections are expected to be 55% in the month of sale, 40% in the month following
the sale, and 5% uncollectible.
• The cost of goods sold is 80% of sales.
• The company purchases 50% of its merchandise in the month prior to the month of sale
and 50% in the month of sale. Payment for merchandise is made in the month following
the purchase.
• Other monthly expenses to be paid in cash are $21,700.
• Monthly depreciation is $17,000.
• Ignore taxes.
December cash disbursements for merchandise purchases would be:
A) $184,000
B) $196,000
C) $176,000
D) $84,000

Feedback:

Points Earned: 1.0/1.0

Correct Answer(s): B

8.
Modesto Company produces and sells Product AlphaB. To guard against stockouts, the
company requires that 20% of the next month's sales be on hand at the end of each
month. Budgeted sales of Product AlphaB over the next four months are:

Budgeted production for August would be:

A) 62,000 units
B) 70,000 units
C) 58,000 units
D) 50,000 units
Feedback:
Units produced = Ending inventory + Units sold - Beginning inventory
= (20% x 50,000) + 60,000 - (20% x 60,000)
= 10,000 + 60,000 - 12,000 = 58,000
Points Earned: 0.0/1.0
Correct Answer(s): C

9.
Dilom Farm Supply is located in a small town in the rural west. Data regarding the store's
operations follow:

• Sales are budgeted at $260,000 for November, $230,000 for December, and $210,000
for January.
• Collections are expected to be 55% in the month of sale, 40% in the month following
the sale, and 5% uncollectible.
• The cost of goods sold is 80% of sales.
• The company purchases 50% of its merchandise in the month prior to the month of sale
and 50% in the month of sale. Payment for merchandise is made in the month following
the purchase.
• Other monthly expenses to be paid in cash are $21,700.
• Monthly depreciation is $17,000.
• Ignore taxes.

Retained earnings at the end of December would be:

 A) $342,000
B) $362,600
C) $337,800
D) $338,100

Feedback:

Points Earned: 1.0/1.0

Correct Answer(s): D

10.
Dilom Farm Supply is located in a small town in the rural west. Data regarding the store's
operations follow:

• Sales are budgeted at $260,000 for November, $230,000 for December, and $210,000
for January.
• Collections are expected to be 55% in the month of sale, 40% in the month following
the sale, and 5% uncollectible.
• The cost of goods sold is 80% of sales.
• The company purchases 50% of its merchandise in the month prior to the month of sale
and 50% in the month of sale. Payment for merchandise is made in the month following
the purchase.
• Other monthly expenses to be paid in cash are $21,700.
• Monthly depreciation is $17,000.
• Ignore taxes.
The accounts receivable balance, net of uncollectible accounts, at the end of December
would be:
A) $89,500
B) $92,000
C) $103,500
D) $196,000

Feedback:
Sales in December not yet collected ($230,000 x 40%) = $92,000
Points Earned: 0.0/1.0
Correct Answer(s): B

11.
The manufacturing overhead budget at Waycaster Corporation is based on budgeted
direct labor-hours. The direct labor budget indicates that 6,000 direct labor-hours will be
required in February. The variable overhead rate is $3.40 per direct labor-hour. The
company's budgeted fixed manufacturing overhead is $81,600 per month, which includes
depreciation of $18,000. All other fixed manufacturing overhead costs represent current
cash flows.

The company recomputes its predetermined overhead rate every month. The
predetermined overhead rate for February should be:
A) $17.00
B) $13.60
C) $14.00
D) $3.40

Feedback:

Points Earned: 1.0/1.0

Correct Answer(s): A

12.
Dano Inc. bases its manufacturing overhead budget on budgeted direct labor-hours. The
variable overhead rate is $1.50 per direct labor-hour. The company's budgeted fixed
manufacturing overhead is $110,200 per month, which includes depreciation of $28,880.
All other fixed manufacturing overhead costs represent current cash flows. The direct
labor budget indicates that 7,600 direct labor-hours will be required in December.
The December cash disbursements for manufacturing overhead on the manufacturing
overhead budget should be:
A) $92,720
B) $121,600
C) $81,320
D) $11,400

Feedback:

Points Earned: 1.0/1.0

Correct Answer(s): A

13.
The budget or schedule that provides necessary input data for the direct labor budget is
the:
A) raw materials purchases budget.
B) production budget.
Feedback:
correct

C) schedule of cash collections.

D) cash budget.

Points Earned: 1.0/1.0

Correct Answer(s): B

14.
Noskey Corporation is a merchandising firm. Information pertaining to the company's
sales revenue is presented in the following table.

Management estimates that 5% of credit sales are uncollectible. Of the credit sales that
are collectible, 60% are collected in the month of sale and the remainder in the month
following the sale. Purchases of inventory are equal to next month's cost of goods sold.
The cost of goods sold is 70% of the selling price. All purchases of inventory are on
account; 25% are paid in the month of purchase, and the remainder is paid in the month
following the purchase.

Noskey Corporation's budgeted cash collections in July from June credit sales are:
A) $144,000
B) $136,800
C) $96,000
D) $91,200

Feedback:
Cash collections in July from June credit sales
= ($240,000 x 95% collectible portion) x 40% = $91,200
Points Earned: 0.0/1.0
Correct Answer(s): D

15.
Roberts Enterprises has budgeted sales in units for the next five months as follows:

Past experience has shown that the ending inventory for each month must be equal to
10% of the next month's sales in units. The inventory on May 31 contained 410 units.
The company needs to prepare a production budget for the second quarter of the year.

The beginning inventory in units for September is:

A) 370 units
B) 6,700 units
C) 530 units
D) 670 units

Feedback:
Beginning inventory for September = Ending inventory for August
Ending inventory for August = 10% x September sales
= 10% x 6,700 = 670 units
Points Earned: 1.0/1.0
Correct Answer(s): D
16.
Justin's Plant Store, a retailer, started operations on January 1. On that date, the only
assets were $16,000 in cash and $3,500 in merchandise inventory. For purposes of budget
preparation, assume that the company's cost of goods sold is 60% of sales. Expected sales
for the first four months appear below.

The company desires that the merchandise inventory on hand at the end of each month be
equal to 50% of the next month's merchandise sales (stated at cost). All purchases of
merchandise inventory must be paid in the month of purchase. Sixty percent of all sales
should be for cash; the balance will be on credit. Seventy-five percent of the credit sales
should be collected in the month following the month of sale, with the balance collected
in the following month. Variable selling and administrative expenses should be 10% of
sales and fixed expenses (all depreciation) should be $3,000 per month. Cash payments
for the variable selling and administrative expenses are made during the month the
expenses are incurred.

In a budgeted income statement for the month of February, net income would be:
A) $9,000
B) $1,800
C) $0
D) $4,200

Feedback:

Points Earned: 0.0/1.0

Correct Answer(s): D

17.
Coles Company, Inc. makes and sells a single product, Product R. Three yards of
Material K are needed to make one unit of Product R. Budgeted production of Product R
for the next five months is as follows:
The company wants to maintain monthly ending inventories of Material K equal to 20%
of the following month's production needs. On July 31, this requirement was not met
since only 2,500 yards of Material K were on hand. The cost of Material K is $0.85 per
yard. The company wants to prepare a Direct Materials Purchase Budget for the rest of
the year.

The desired ending inventory of Material K for the month of September is:
A) 7,560 yards
B) 8,400 yards
C) 8,700 yards
D) 9,300 yards

Feedback:

Points Earned: 1.0/1.0

Correct Answer(s): D

18.
The Stacy Company makes and sells a single product, Product R. Budgeted sales for
April are $300,000. Gross Margin is budgeted at 30% of sales dollars. If the net income
for April is budgeted at $40,000, the budgeted selling and administrative expenses are:
A) $133,333
B) $50,000
C) $102,000
D) $78,000

Feedback:

* Solve backwards for this figure: $90,000 - $40,000 = $50,000

Points Earned: 1.0/1.0
Correct Answer(s): B

19.
Fab Manufacturing Corporation manufactures and sells stainless steel coffee mugs.
Expected mug sales at Fab (in units) for the next three months are as follows:

Fab likes to maintain a finished goods inventory equal to 30% of the next month's
estimated sales. How many mugs should Fab plan on producing during the month of
November?
A) 23,200 mugs
B) 26,800 mugs
C) 25,900 mugs
D) 34,300 mugs

Feedback:
Units produced = Ending inventory + Units sold - Beginning inventory
= (30% x 31,000) + 25,000 - (25,000 x 30%)
= 9,300 + 25,000 - 7,500 = 26,800
Points Earned: 0.0/1.0
Correct Answer(s): B

20.
Castil Corporation makes and sells a product called a Miniwarp. One Miniwarp requires
2.5 kilograms of the raw material Jurislon. Budgeted production of Miniwarps for the
next five months is as follows:

The company wants to maintain monthly ending inventories of Jurislon equal to 20% of
the following month's production needs. On July 31, this requirement was not met since
only 9,700 kilograms of Jurislon were on hand. The cost of Jurislon is $5.00 per
kilogram. The company wants to prepare a Direct Materials Purchase Budget for the next
five months.

The desired ending inventory of Jurislon for the month of September is:
A) $20,900
B) $52,000
C) $52,250
D) $20,800
Feedback:

Points Earned: 0.0/1.0

Correct Answer(s): B