Professional Documents
Culture Documents
Business Planning
Business Planning
Multiple Choice
b 6. A flexible budget is
a. one that can be changed whenever a manager so desires.
b. adjusted to reflect expected costs at the actual level of activity.
c. one that uses the formula total cost = cost per unit x units
produced.
d. the same as a continuous budget.
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d 8. Budgets set at very high levels of performance (i.e., very low costs)
a. assist in planning the operations of the company.
b. stimulate people to perform better than they ordinarily would.
c. are helpful in evaluating the performance of managers.
d. can lead to low levels of performance.
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b 16. Which of the following will occur if X Co.'s actual sales in May are
lower than its budgeted sales for that month?
a. X won't have enough cash to cover bills requiring payment in May.
b. X's actual inventory at the end of May will be higher than budgeted.
c. X's actual purchases in June will be higher than budgeted.
d. All of the above.
a 18. If cash receipts from customers are greater than sales, which of the
following is most likely to be true?
a. The balance of accounts receivable will decrease.
b. The company's outstanding debt will decrease.
c. The company's cash balance will increase.
d. The company will show a profit.
a 20. Which of the following is LEAST likely to be affected if unit sales for
this month are lower than budgeted?
a. Production for this month.
b. Production for next month.
c. Cash receipts for next month.
d. Inventory at the end of this month.
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c 24. The type of company most likely to run short of cash during the year is
one with
a. little seasonality.
b. high contribution margin percentage.
c. high seasonality and rapid sales growth.
d. relatively low fixed costs.
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a 31. Wildwood Company budgeted purchases of 20,000 units. The budgeted
beginning inventory was 4,800 units and the budgeted ending inventory
was 6,000 units. Budgeted sales were
a. 18,800 units.
b. 21,200 units.
c. 24,800 units.
d. 26,000 units.
b 34. Equinox Company budgeted sales of 44,000 units for January, 60,000 for
February. The budgeted beginning inventory for January 1 was 14,000
units. Equinox desires an ending inventory equal to one-half of the
following month's sales needs. Budgeted production for January is
a. 74,000 units.
b. 60,000 units.
c. 52,000 units.
d. 28,000 units.
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c 37. Bryce Company budgeted sales of 50,000 units for January, 60,000 for
February. Bryce Company desires an ending inventory equal to one-half
of the following month's sales needs. Inventory on January 1 was as
desired. Budgeted production for January is
a. 22,000 units.
b. 52,000 units.
c. 55,000 units.
d. 74,000 units.
c 40. Acker Company has prepared the following flexible budget for production
costs: total production costs = $260,000 + $5X, where X is the number
of machine hours. Acker produced 20,000 units, using 34,000 machine
hours at a total cost of $425,000. The flexible budget allowance for
production costs is
a. $260,000.
b. $425,000.
c. $430,000.
d. $525,000.
d 42. Rundall Co. makes payments for purchases 30% during the month of
purchase and the remainder the following month. April purchases are
projected to be $160,000; May purchases will be $240,000. Cash payments
in May will be
a. $ 72,000.
b. $108,000.
c. $168,000.
d. $184,000.
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c 43. Randall Co. makes payments for purchases 30% during the month of
purchase and the remainder the following month. April purchases are
projected to be $80,000; May purchases will be $120,000. The accounts
payable balance on May 31 will be
a. $36,000.
b. $54,000.
c. $84,000.
d. $92,000.
c 44. Alfuth Co. makes payments for purchases 10% during the month of
purchase, 60% in the following month, and the remainder in the second
month following the purchase. Purchases are projected to be $260,000 in
January, $280,000 in February, and $320,000 in March. March payments
will be
a. $ 32,000.
b. $168,000.
c. $278,000.
d. some other number.
d 45. Reid Co. makes payments for purchases 10% during the month of purchase,
60% in the following month, and the remainder in the second month
following the purchase. Purchases are projected to be $130,000 in
January, $140,000 in February, and $160,000 in March. The March 31
accounts payable balance will be
a. $48,000.
b. $96,000.
c. $144,000.
d. $186,000.
c 46. Andover Inc. has projected sales to be: February, $10,000; March,
$9,000; April, $8,000; May, $10,000; and June, $11,000. Andover has 30%
cash sales and 70% sales on account. Accounts are collected 40% in the
month following the sale and 55% collected the second month. Total cash
receipts in May would be
a. $3,000.
b. $8,150.
c. $8,705.
d. some other number.
d 47. Conde Inc. has projected sales to be: February, $20,000; March,
$18,000; April, $16,000; May, $20,000; and June, $22,000. Conde has 30%
cash sales and 70% sales on account. Accounts are collected 40% in the
month following the sale and 60% collected the second month. Accounts
receivable for May 31 would be
a. $ 6,160.
b. $13,300.
c. $14,000.
d. $20,720.
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c 49. Danner Inc. has projected sales to be $100,000 in June, $90,000 in
July, and $70,000 in August. Danner collects 50% of a month's sales in
the month of sale, 30% in the month following the sale, and 16% in the
second month following the sale. Cash collections in August would be
a. $35,000.
b. $62,000.
c. $78,000.
d. $86,000.
True-False
F 3. The purchases budget is prepared before the sales budget because the
company cannot estimate what it will sell until it has some idea of
what will be on hand.
F 4. The longer the time period covered by a budget, the more useful the
budget will be for controlling operations.
F 8. The budget for a retailer is likely to be more complex than that for a
manufacturer because a retailer has a wider variety of customers.
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Problems
1. Ballan Inc. estimates its units sales for the coming months to be as
follows:
March 280,000
April 260,000
May 250,000
June 230,000
July 240,000
August 225,000
Ballan maintains inventory at budgeted sales needs for the next month.
March 1 inventory will be 248,000 units.
SOLUTION:
SOLUTION:
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c. June materials purchases: 71,500 pounds; $214,500
3. Ironwood sells a single product for $10. The purchase cost is $4 per unit
and Ironwood pays a 20% sales commission. Fixed costs are $45,000 per
month including $12,000 depreciation, and the company maintains inventory
equal to budgeted sales needs for the following month. The following
budgeted data are available.
SOLUTION:
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c. Budgeted purchases: 25,000 units; $100,000
b. Find the amount and direction of the budget variance for 20X4 for
production overhead. (favorable unfavorable) Circle one answer.
SOLUTION:
5. Acme Inc. estimates its dollar sales for the coming months to be as
follows.
June $340,000
July 360,000
August 300,000
September 260,000
October 240,000
November 200,000
Acme has an average gross margin of 40% of sales and maintains inventory
at 75% of budgeted sales needs for the next month. Acme began June with
$150,000 in inventory.
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SOLUTION:
b. Find the amount and direction of the budget variance for 20X2 for
production overhead. (favorable unfavorable) Circle one answer.
SOLUTION:
January $200,000
February $240,000
March $300,000
April $360,000
Cost of sales is 70% of sales. Sales are collected 40% in the month of
sale and 60% in the following month. Webster keeps inventory equal to
double the coming month's budgeted sales requirements. It pays for
purchases 80% in the month of purchase and 20% in the month after
purchase. Inventory at the beginning of January is $190,000. Webster
has monthly fixed costs of $30,000 including $6,000 depreciation. Fixed
costs requiring cash are paid as incurred.
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d. Compute budgeted purchases in February.
SOLUTION:
January $200,000
February 210,000
March 225,000
April 230,000
May 245,000
June 240,000
Weasel collects 40% of its sales in the month of sale, 45% in the month
following the sale and 13% in the second month following the sale. Records
show that sales were $225,000 in November and $208,000 in December 20X2.
a. Prepare a schedule of cash receipts for the first three months of 20X3.
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SOLUTION:
March $300,000
April $312,000
May $320,000
June $348,000
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SOLUTION:
10. Hicks Company has the following sales projections for 20X4:
Hicks collects 30% of its sales in the month of sale, 45% in the month
following the sale, and 24% in the second month following the sale.
Records show that sales were $160,000 in November and $168,000 in December
20X3.
a. Prepare a schedule of cash receipts for the first three months of 20X4.
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SOLUTION:
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