Learning Objective 22-1: Chapter 22 Master Budgets

Horngren's Accounting, 10e, Global Edition (Nobles/Mattison/Matsumura)
Chapter 22 Master Budgets
Learning Objective 22-1
1) A budget is a financial plan that managers use to coordinate a business's activities.

Answer: TRUE
Diff: 1
LO: 22-1
AACSB: Concept
AICPA Functional: Measurement
2) Budgeting requires managers to decide upon the course of action and then to plan for the same.
Answer: TRUE
Diff: 1
LO: 22-1
AACSB: Concept
3) Budgets provide a benchmark that motivates employees and helps managers evaluate performance.
Answer: TRUE
Diff: 1
LO: 22-1
AACSB: Concept
4) A goal of the budgeting process is to communicate a consistent set of plans throughout the company.
Answer: TRUE
Diff: 1
LO: 22-1
AACSB: Concept
5) Developing a budget reduces coordination and communication at different levels in an organization.

Answer: FALSE
Diff: 1
LO: 22-1
AACSB: Concept
6) After comparing budgets with actual results, corrective action will be taken based on the differences.
Answer: TRUE
Diff: 1
LO: 22-1
AACSB: Concept
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7) A budget represents the plans that a company has in place to achieve its goals.
Answer: TRUE
Diff: 1
LO: 22-1
AACSB: Concept
8) All organizations use one standardized budgeting process.

Answer: FALSE
Diff: 1
LO: 22-1
AACSB: Concept
9) Which of the following statements is true of the budgeting process?

A) It includes qualitative targets of the company, not just quantitative.
B) It is a continuous process.
C) It shows the actual performance of the business.
D) Its success is not dependent on human behavior.
Answer: B
Diff: 1
LO: 22-1
AACSB: Concept
10) Which of the following is an example of the planning function of a budget?

A) A budget demands integrated input from different business units and functions.
B) Employees are motivated to achieve the goals set by the budget.
C) Budget figures are used to evaluate the performance of managers.
D) The budget outlines a specific course of action for the coming period.
Answer: D
Diff: 1
LO: 22-1
AACSB: Concept
11) Which of the following is an example of the coordination and communication function of a budget?
B) Employees are motivated to achieve the goals set by the budget.
Answer: A
Diff: 1
LO: 22-1
AACSB: Concept
2
12) Which of the following is an example of the benchmarking function of a budget?
B) Budgeting requires close cooperation between accountants and operational personnel.
Answer: C
Diff: 1
LO: 22-1
AACSB: Concept
13) An intentional understatement of expected revenues or overstatement of expected expenses by

managers in order to have a favorable performance evaluation is known as:
A) benchmarking.
B) appropriation.
C) budgetary slack.
D) variance analysis.
Answer: C
Diff: 1
LO: 22-1
AACSB: Concept
1) A strategic budget is a long-term financial plan used to coordinate the activities needed to achieve the
long-term goals of the company.
Answer: TRUE
Diff: 1
LO: 22-2
AACSB: Concept
2) An operating budget is a short-term financial plan that coordinates activities to achieve short-term
goals.
Answer: TRUE
Diff: 1
LO: 22-2
AACSB: Concept
3) A strategic budget will be as detailed as an operating budget.

Answer: FALSE
Diff: 1
LO: 22-2
AACSB: Concept
3
4) A static budget is a financial plan for a particular level of sales volume.
Answer: TRUE
Diff: 1
LO: 22-2
AACSB: Concept
5) A flexible budget is prepared to represent different levels of sales volume.

Answer: TRUE
Diff: 1
LO: 22-2
AACSB: Concept
6) A master budget is the financial plan for a specific segment of an organization.

Answer: FALSE
Diff: 1
LO: 22-2
AACSB: Concept
7) Budgeted financial statements are financial statements based on budgeted amounts rather than actual
amounts.
Answer: TRUE
Diff: 1
LO: 22-2
AACSB: Concept
8) Components of the master budget are: the operating budget, the capital expenditures budget and the
financial budget.
Answer: TRUE
Diff: 1
LO: 22-2
AACSB: Concept
9) Preparation of the production budget is the first step in the preparation of operating budget.
Answer: FALSE
Diff: 1
LO: 22-2
AACSB: Concept
4
10) The capital expenditures budget represents the company's plan for purchasing the long-term assets.
Answer: TRUE
Diff: 1
LO: 22-2
AACSB: Concept
11) Which of the following budgets focuses on the income statement and its supporting schedules?
A) The operating budget
B) The cash budget
C) The capital expenditures budget
D) The sales budget
Answer: A
Diff: 1
LO: 22-2
AACSB: Concept
12) The starting point in the budgeting process is the preparation of the:
A) cash budget.
B) production budget.
C) sales budget.
D) budgeted income statement.
Answer: C
Diff: 1
LO: 22-2
AACSB: Concept
13) The ________ details how the business expects to go from the beginning cash balance to the desired
ending cash balance.
A) capital expenditures budget
B) budgeted income statement
C) cash flow statement
D) cash budget
Answer: D
Diff: 2
LO: 22-2
AACSB: Concept
5
14) The cash budget and the budgeted financial statements are collectively known as the:
A) operating budget.
B) master budget.
C) financial budget.
D) production budget.
Answer: C
Diff: 2
LO: 22-2
AACSB: Concept
15) Which of the following statements is true of the operating budget?

A) It is a part of the financial budget.
B) It includes the capital expenditures budget.
C) It includes the sales revenue budget.
D) Its final component is the cash budget.
Answer: C
Diff: 1
LO: 22-2
AACSB: Concept
16) Which of the following statements is true of the capital expenditures budget?
A) It is a part of the financial budget.
B) It must be completed after the budgeted income statement is prepared.
C) It includes the sales budget.
D) It must be completed before the cash budget is prepared.
Answer: D
Diff: 1
LO: 22-2
AACSB: Concept
1) The production budget determines the number of units to be produced during the period.
Answer: TRUE
Diff: 1
LO: 22-3
AACSB: Concept
6
2) If the cost of indirect materials needed for production is insignificant, it should not be included in the
budgeting process.
Answer: TRUE
Diff: 1
LO: 22-3
AACSB: Concept
3) A manufacturer has budgeted sales for the first quarter of the next year to be 30,000 units. The
inventory in hand at the beginning of quarter is 5,000 units. The desired ending inventory is 10,000 units.
Calculate the budgeted production for the quarter.
A) 10,000 units
B) 35,000 units
C) 25,000 units
D) 40,000 units
Answer: B
Explanation: B)
Calculation of budgeted production units:
(units)
Sales for the quarter 30,000
Plus: Ending inventory 10,000
Less: Beginning inventory 5,000
Budgeted units to be produced 35,000
Diff: 2
LO: 22-3
AACSB: Application
4) The direct material budget is prepared on the basis of the:

A) cash budget.
B) master budget.
C) capital expenditure budget.
D) production budget.
Answer: D
Diff: 2
LO: 22-3
AACSB: Concept
7
5) The budgeted production of Gunix Inc. is 8,000 units. Each unit requires 40 minutes of direct labor
work to complete. The direct labor rate is $100 per hour. Calculate the budgeted cost of direct labor for
the month.
A) $533,333.33
B) $500,000.00
C) $566,666.66
D) $633,333.33
Answer: A
Explanation: A)
Budgeted production units for the month 8,000.00
Direct labor time required per unit 40 minutes
Direct labor hours for budgeted production 5,333.33
Direct labor rate per hour $100.00
Budgeted direct labor cost $533,333.33
Diff: 2
LO: 22-3
AACSB: Application
6) Caplico Company has prepared the following sales budget:
Month Budgeted Sales

March $200,000
April 180,000
May 220,000
June 260,000
Cost of goods sold is budgeted at 60% of sales and the inventory at the end of February was $36,000.
Desired inventory levels at the end of each month are 20% of the next month's cost of goods sold. What is
the desired beginning inventory on June 1?
A) $52,000
B) $26,400
C) $43,200
D) $31,200
Answer: D
Explanation: D)
Calculation of beginning inventory on June 1:
Sales for the month of June $260,000

Cost of goods sold for the month of June ($260,000 × 60%) 156,000
Beginning inventory on June 1 ($156,000 × 20%) $31,200
Diff: 3
LO: 22-3
AACSB: Application
8
7) Which of the following is true of the sales budget?
A) It provides sales values that are used to prepare financial statements for external reporting purposes.
B) It captures the variable and fixed expenses of the business.
C) It is used in the production budget.
D) It shows the value of expected production in a period.
Answer: C
Diff: 1
LO: 22-3
AACSB: Concept
8) Which of the following describes the cash budget?

A) It aids in planning to ensure the company has adequate inventory and cash on hand.
B) It captures the variable and fixed expenses of the business.
C) It depicts the breakdown of sales based on terms of collection.
D) It helps in planning to ensure the business has adequate cash.
Answer: D
Diff: 1
LO: 22-3
AACSB: Concept
9) Which of the following describes the selling and administrative expenses budget?
A) It aids in planning to ensure the company has adequate inventory on hand.
B) It captures the variable and fixed components of selling and administrative expenses of the business.
C) It depicts the breakdown of sales based on terms of collection.
Answer: B
Diff: 1
LO: 22-3
AACSB: Concept
10) Which of the following describes the production budget?

A) It aids in planning to ensure the company has adequate inventory and cash on hand.
B) It gives the quantity of finished goods to be manufactured during a budget period.
C) It depicts the breakdown of sales on the basis of terms and conditions of collection of sales revenue.
Answer: B
Diff: 1
LO: 22-3
AACSB: Concept
9
11) Kapital Inc. has prepared the operating budget for the first quarter of 2015. They forecast sales of
$50,000 in January, $60,000 in February, and $70,000 in March. Variable and fixed expenses are as follows:
Variable: Power cost (40% of Sales)

Miscellaneous expenses: (5% of Sales)
Fixed: Salary expense: $8,000 per month
Rent expense: $5,000 per month
Depreciation expense: $1,200 per month
Power cost/fixed portion: $800 per month
Miscellaneous expenses/fixed portion: $1,000 per month
Calculate total selling and administrative expenses for the month of January.
A) $38,500
B) $47,500
C) $41,700
D) $43,000
Answer: A
Explanation: A) Calculation of total selling and administrative expenses for the month of January:
Jan Feb Mar

Sales budget $50,000 $60,000 $70,000
Selling and Administrative Expenses

budget Jan Feb Mar
Variable S & A expense
Power cost (40% of sales) $20,000 $24,000 $28,000
Misc. expenses (5% of sales) 2,500 3,000 3,500
Fixed S & A expenses
Salary expense 8,000 8,000 8,000
Rent expense 5,000 5,000 5,000
Depreciation expense 1,200 1,200 1,200
Power cost (fixed portion) 800 800 800
Misc. expenses (fixed portion) 1,000 1,000 1,000
Total selling and administrative
expenses $38,500 $43,000 $47,500
Diff: 1
LO: 22-3
AACSB: Application
10
12) Kapital Inc. has prepared the operating budget for the first quarter of 2015. They forecast sales of
$50,000 in January, $60,000 in February, and $70,000 in March. Variable and fixed expenses are as follows:
Variable: Power cost (40% of Sales)

Miscellaneous expenses: (5% of Sales)
Fixed: Salary expense: $8,000 per month
Rent expense: $5,000 per month
Depreciation expense: $1,200 per month
Power cost/fixed portion: $800 per month
Miscellaneous expenses/fixed portion: $1,000 per month
Using the information above, calculate the amount of selling and administrative expenses for the month
of February.
A) $38,500
B) $47,500
C) $41,700
D) $43,000
Answer: D
Explanation: D) Calculation of total selling and administrative expenses for the month of February:
Selling and Administrative Expenses

budget Jan Feb Mar
Variable S & A expense
Power cost (40% of sales) $20,000 $24,000 $28,000
Misc. expenses (5% of sales) 2,500 3,000 3,500
Fixed S & A expenses
Salary expense 8,000 8,000 8,000
Rent expense 5,000 5,000 5,000
Depreciation expense 1,200 1,200 1,200
Power cost (fixed portion) 800 800 800
Misc. expenses (fixed portion) 1,000 1,000 1,000
Total selling and administrative
expenses $38,500 $43,000 $47,500
Diff: 1
LO: 22-3
AACSB: Application
11
13) Fly GenX Inc. has the following budgeted sales for the next quarter.
Month: 1 2 3
Units 10,000 11,000 12,000
Inventory of finished goods on hand at the beginning of the quarter is 4,000 units. The company desires
to maintain ending inventory equal to beginning inventory plus 1,000 units every month.
Calculate the quantity to be produced during the quarter.
Answer: Calculation of budgeted production units:
1 2 3
Sales units 10,000 11,000 12,000
Plus: Ending inventory
(4,000 + 1,000; 5,000+1,000; 6,000+1,000) 5,000 6,000 7,000
Total requirement in units 15,000 17,000 19,000
Less: Beginning inventory
(ending inventory of previous month) 4,000 5,000 6,000
Budgeted production units 11,000 12,000 13,000
Diff: 2
LO: 22-3
AACSB: Application
12
14) From the following details provided by NutShell Inc., prepare the manufacturing overhead budget for
the year 2015.
First Second Third Fourth

Quarter Quarter Quarter Quarter
Budgeted production units 15,000 18,000 21,000 24,000
Variable overhead cost per unit $45 $45 $45 $45
Fixed overhead costs:
Depreciation $3,000 $3,000 $3,000 $3,000
Supplies, insurance 5,000 5,750 6,250 7,250
Direct labor hours 12,500 7,500 17,200 12,800
Prepare the manufacturing overhead budget for the year 2015. Also, calculate the overhead allocation
rate, using direct labor hours as the allocation base.
Answer:
NutShell Inc.
Manufacturing Overhead Budget
For the Year Ended December 31, 2015

Quarter Quarter Quarter Quarter Total
Budgeted units to be
produced 15,000 18,000 21,000 24,000 78,000
VOH* cost per unit $45 $45 $45 $45 $45
Budgeted VOH $675,000 $810,000 $945,000 $1,080,000 $3,510,000
Budgeted FOH**
Depreciation $3,000 $3,000 $3,000 $3,000 $12,000
Supplies, insurance 5,000 5,750 6,250 7,250 24,250
Total budgeted FOH $8,000 $8,750 $9,250 $10,250 $36,250
Budgeted manufacturing
overhead costs $683,000 $818,750 $954,250 $1,090,250 $3,546,250
Direct labor hours (DLHr) 12,500 7,500 17,200 12,800 50,000
Budgeted manufacturing
overhead costs $3,546,250
Predetermined overhead
allocation rate $70.9250
*VOH - Variable Manufacturing Overhead

**FOH - Fixed Manufacturing Overhead
Diff: 3
LO: 22-3
AACSB: Application
13
15) From the following details provided by NutShell Inc., prepare the cost of goods sold budget for the
year 2015.
Direct material per unit $65

Direct labor hours per unit 2 hours
Direct labor rate per hour $50
Manufacturing overhead cost per direct labor hour $20
Beginning inventory units 1,000
Selling price per unit $250

Budgeted units to be produced 15,000 18,000 21,000 24,000
Assume that Nutshell Inc. has no closing stock at the end of each month.
Answer:
NutShell Inc.
Cost of Goods Sold Budget
For the Year Ended December 31, 2015

Beginning inventory (1,000 units)* $205,000
Units produced and sold in 2015
@ $205 each 3,075,000 $3,690,000 $4,305,000 $4,920,000
(15,000, 18,000, 21,000, 24,000
units per quarter) _________ _________ _________ _________
Total budgeted cost of goods sold $3,280,000 $3,690,000 $4,305,000 $4,920,000
*Calculation of cost of beginning inventory:
Direct materials cost per unit $65

Direct labor cost per unit (2 DLHr per unit × $50) $100
Manufacturing overhead cost per tablet (2 DLHr per unit × $20 per DLHr) $40
Total projected manufacturing cost per unit for 2015 $205
Beginning inventory units 1,000
Cost of beginning inventory ($205 × 1,000) $205,000
Diff: 3
LO: 22-3
AACSB: Concept
14
1) The capital expenditures budget is prepared before the preparation of the cash budget.
Answer: TRUE
Diff: 1
LO: 22-4
AACSB: Application
2) For any organization, the primary source of cash is from its customers.
Answer: TRUE
Diff: 1
LO: 22-4
AACSB: Concept
3) The cash budget is the prerequisite for the master budget.

Answer: FALSE
Diff: 1
LO: 22-4
AACSB: Application
4) The output of a cash budget is input for an operating budget.

Answer: FALSE
Diff: 1
LO: 22-4
AACSB: Concept
15
5) Delleate Inc. has prepared the following purchases budget:
Month Budgeted Purchases

June $67,000
July 72,500
August 76,300
September 73,700
October 69,200
All purchases are paid for as follows: 10% in the month of purchase, 50% in the following month, and
40% two months after purchase. Calculate total cash payments made in October for purchases.
A) $72,630
B) $70,680
C) $70,520
D) $74,290
Answer: D
Explanation:
D) Payment in October:
For Oct purchases
(10% × $69,200) $6,920
For Sep purchases
(50% × $73,700) 36,850
For Aug purchases
(40% × $76,300) 30,520
Total cash paid $74,290
Diff: 2
LO: 22-4
AACSB: Application
16
6) Delleate Inc. has prepared the following purchases budget:
Month Budgeted Purchases

June $67,000
July 72,500
August 76,300
September 73,700
October 69,200
All purchases are paid for as follows: 10% in the month of purchase, 50% in the following month, and
40% two months after purchase. Calculate balance of Accounts payable at the end of October.
A) $77,680
B) $91,760
C) $69,330
D) $74,290
Answer: B
Explanation: B)
Accounts Payable balance at the end of October:
For October purchases (90% × $69,200) $62,280
For September purchases (40% × $73,700) 29,480
Balance at the end: $91,760
Diff: 2
LO: 22-4
AACSB: Application
7) Junk Fries has budgeted sales for June and July at $680,000 and $720,000, respectively. Sales are 80%
credit, of which 70% is collected in the month of sale and 30% is collected in the following month. What is
the accounts receivable balance on July 31?
A) $200,500
B) $172,800
C) $158,200
D) $225,320
Answer: B
Explanation: B)
Balance of accounts receivable on July 31st:
For July sales ($720,000 × 80% × 30%) $172,800
Diff: 2
LO: 22-4
AACSB: Application
17
8) Dry Fruit Grocers a local grocer has budgeted inventory purchases as follows:
October: $300,000
November: $350,000
December: $390,000
Dry Fruit Grocers pays for 20% of their purchases during the month of purchase, 70% during the month
following the purchase, and the remaining 10% two months after the month of purchase. What is the
budgeted accounts payable balance on December 31?
A) $312,000
B) $347,000
C) $390,000
D) $425,000
Answer: B
Explanation: B)
Budgeted Accounts Payable balance on Dec31st
For October purchases 0

For November purchases
(10% × $350,000) $35,000
For December purchases
(80% × $390,000) 312,000
Balance at the end $347,000
Diff: 2
LO: 22-4
AACSB: Application
18
9) A manufacturing company's budgeted income statement includes the following data:
Data extracted from budgeted

income statement Mar Apr May Jun
Sales $120,000 $90,000 $95,000 $100,000
Commission expense (15% of sales) 18,000 13,500 14,250 15,000
Salaries expense 30,000 30,000 30,000 30,000
Miscellaneous expense—4% of sales 4,800 3,600 3,800 4,000
Rent expense 3,600 3,600 3,600 3,600
Utility expense 1,900 1,900 1,900 1,900
Insurance expense 2,100 2,100 2,100 2,100
Depreciation expense 4,400 4,400 4,400 4,400
The budget assumes that 60% of commission expenses are paid in the month they are incurred and the
remaining 40% are paid one month later. In addition, 50% of salary expenses are paid in the same month
and the remaining 50% are paid one month later. Miscellaneous expenses, rent expense and utility
expenses are assumed to be paid in the same month in which they are incurred. Insurance has been paid
in advance for the year on January 1st.
Calculate total budgeted cash payments for selling and administrative expenses for the month of April.
A) $54,200
B) $53,250
C) $54,400
D) $53,900
Answer: C
Explanation: C)
Payment for selling and administrative expenses for the month of April:
Commission expense (15% of sales)
For April $8,100
For March 7,200
Total $15,300
Salaries expense
For April $15,000
For March 15,000
Total Salaries expense 30,000
Misc. expense (4% of sales) 3,600
Rent expense 3,600
Utility 1,900
Insurance (already paid in advance) 0
Depreciation 0
$54,400
Diff: 2
LO: 22-4
AACSB: Application
19
10) A manufacturing company's budgeted income statement includes the following data:
Data extracted from budgeted

income statement Mar Apr May Jun
Sales $120,000 $90,000 $95,000 $100,000
Commission expense (15% of sales) 18,000 13,500 14,250 15,000
Miscellaneous expense—4% of sales 4,800 3,600 3,800 4,000
Rent expense 3,600 3,600 3,600 3,600
Utility expense 1,900 1,900 1,900 1,900
The budget assumes that 60% of commission expenses are paid in the month they were incurred and the
remaining 40% are paid one month later. In addition, 50% of salary expenses are paid in the month
incurred and the remaining 50% are paid one month later. Miscellaneous expenses, rent expense and
utility expenses are assumed to be paid in the same month in which they are incurred. Insurance was
prepaid for the year on January 1.
How much is the total of the budgeted cash payments for selling and administrative expenses for the
month of May?
A) $54,200
B) $53,250
C) $54,400
D) $53,900
Answer: B
Explanation: B)
Payment for selling and administrative expenses for the month of May:
Commission expense (15% of sales)
For April $5,400
For May 8,550
Total $13,950
Salaries expense
For April $15,000
For May 15,000
Total Salaries expense 30,000
Misc. expense (4% of sales) 3,800
Rent expense 3,600
Utility 1,900
Insurance 0
Depreciation 0
Total cash paid $53,250
Diff: 3
LO: 22-4
AACSB: Application
20
11) Diemans Corp. has provided a part of its budget for the 2nd quarter:
Apr May June

Cash collections $40,000 $45,000 $52,000
Cash payments:
Purchases of inventory 4,500 7,200 4,500
Operating expenses 7,900 5,600 9,000
Capital expenditures 0 20,000 4,600
The cash balance on April 1 is $12,000. Assume that there will be no financing transactions or costs during
the quarter. Calculate the cash balance at the end of April.
A) $50,000
B) $40,200
C) $39,600
D) $51,800
Answer: C
Explanation: C)
April May June
Cash balance at the beginning $12,000 $39,600 $51,800
Plus: Receipts from customers 40,000 45,000 52,000
Total cash available $52,000 $84,600 $103,800
Less: Payment for purchase of
inventory 4,500 7,200 4,500
Balance at the end $39,600 $51,800 $85,700
Diff: 2
LO: 22-4
AACSB: Application
21
12) Diemans Corp. has provided a part of its budget for the 2nd quarter:
Apr May June

Cash payments:
the quarter. Calculate the cash balance at the end of May.
A) $51,800
B) $40,800
C) $33,900
D) $21,800
Answer: A
Explanation: A)
April May June
inventory 4,500 7,200 4,500
Diff: 2
LO: 22-4
AACSB: Application
22
13) Diemans Corp .has provided a part of its budget for the 2nd quarter:
Apr May June

Cash payments:
the quarter. Calculate the cash balance at the end of June.
A) $26,500
B) $40,800
C) $85,700
D) $21,800
Answer: C
Explanation: C) April May June
inventory 4,500 7,200 4,500
Diff: 2
LO: 22-4
AACSB: Application
23
14) Nobell Inc. has a cash balance of $20,000 on April 1, 2015. They are now preparing the cash budget for
the second quarter. Budgeted cash collections and payments are as follows:
Apr May June

Cash payments:
There are no budgeted capital expenditures or financing transactions during the quarter. Based on the
above data, calculate the projected cash balance at the end of April.
A) $22,000
B) $35,700
C) $23,700
D) $22,400
Answer: B
Explanation: B) April May June
Beginning cash balance $20,000 $35,700 $46,100
Plus: Cash receipts 25,000 22,000 20,000
Cash available $45,000 $57,700 $66,100
Less Cash payments:
Ending cash balance $35,700 $46,100 $54,600
Diff: 2
LO: 22-4
AACSB: Application
24
Apr May June

Cash payments:
above data, calculate the projected cash balance at the end of May.
A) $22,000
B) $21,900
C) $23,700
D) $46,100
Answer: D
Explanation: D) April May June
Cash available $45,000 $57,700 $66,100
Less: Cash payments:
Diff: 2
LO: 22-4
AACSB: Application
25
Apr May June

Cash payments:
above data, calculate the projected cash balance at the end of June.
A) $35,700
B) $21,900
C) $46,100
D) $54,600
Answer: D
Explanation: D) April May June
Cash available $45,000 $57,700 $66,100
Diff: 2
LO: 22-4
AACSB: Application
26
17) Fulkron Manufacturing provides the following data excerpted from its 3rd quarter budget:
Jul Aug Sep

Cash payments:
The cash balance on June 30 is projected to be $10,000. Based on the above data, calculate the shortfall the
company is projected to have at the end of August.
A) $32,000
B) $43,000
C) $37,000
D) $16,000
Answer: C
Explanation: C) July Aug Sep
Beginning cash balance $10,000 $16,000 -$37,000
Cash available $76,000 $58,000 $8,000
Ending cash balance $16,000 -$37,000 -$43,000
Diff: 2
LO: 22-4
AACSB: Application
27
18) Fulkron Manufacturing provides the following data excerpted from its 3rd quarter budget:
Jul Aug Sep

Cash payments:
The cash balance on June 30 is projected to be $10,000. Based on the above data, calculate the shortfall the
company is projected to have at the end of September.
A) $43,000
B) $28,000
C) $35,000
D) $40,000
Answer: A
Explanation: A) July Aug Sep
Beginning cash balance $10,000 $16,000 -$37,000
Cash available $76,000 $58,000 $8,000
Ending cash balance $16,000 -$37,000 -$43,000
Diff: 1
LO: 22-4
AACSB: Application
28
19) A3+ has prepared its 3rd quarter budget and provided the following data:
Jul Aug Sep

Cash payments:
Capital expenditures 13,000 25,000 0
The cash balance on June 30 is projected to be $4,000. The company has to maintain a minimum cash
balance of $5,000 and is authorized to borrow at the end of each month to make up any shortfalls. It may
borrow in increments of $5,000 and has to pay interest every month at an annual rate of 5%. All financing
transactions are assumed to take place at the end of the month. The loan balance should be repaid in
increments of $5,000 whenever there is surplus cash.
How much will the company have to borrow at the end of July?
A) $0
B) $5,000
C) $15,000
D) $10,000
Answer: D
Explanation: D)
Cash budget Jul Aug Sep
Plus: Cash collections 50,000 40,000 48,000
Cash available $54,000 $48,000 $54,958
Cash payments:
Less: Total cash payments $56,000 $56,000 $29,600
Ending cash balance before financing -$2,000 -$8,000 $25,358
Minimum cash balance required -5,000 -5,000 -5,000
Cash excess/(deficiency) -$7,000 -$13,000 $20,358
Financing
Borrowing at end of month 10,000 15,000
Principal payments at end of month -20,000
Interest expense at 5% _____ -42 -104
Total effects of financing 10,000 14,958 -20,104
Diff: 1
LO: 22-4
AACSB: Application
29
Jul Aug Sep

Cash payments:
increments of $5,000 whenever there is surplus cash.
How much will the company have to borrow at the end of August?
A) $15,000
B) $5,000
C) $10,000
D) $20,000
Answer: A
Explanation: A)
Cash available $54,000 $48,000 $54,958
Cash payments:
Purchases of inventory $31,000 $22,000 $18,000
Financing
Borrowing at end of month $10,000 $15,000
Principal payments at end of month -$20,000
Interest expense at 5% ______ -42 -104
Total effects of financing $10,000 $14,958 -$20,104
Diff: 2
LO: 22-4
AACSB: Application
30
Jul Aug Sep

Cash payments:
increments of $5,000 whenever there is surplus cash. Calculate the ending cash balance before financing
for August.
A) $9,000
B) $5,000
C) $3,000
D) ($8,000)
Answer: D
Explanation: D)
Cash available $54,000 $48,000 $54,958
Cash payments:
Financing
Diff: 3
LO: 22-4
AACSB: Application
31
Jul Aug Sep

Cash payments:
increments of $5,000 whenever there is surplus cash. Calculate the final cash balance at the end of August
taking into consideration all the financing transactions.
A) $6,958
B) $5,254
C) $7,100
D) $4,320
Answer: A
Explanation: A)
Cash available $54,000 $48,000 $54,958
Cash payments:
Financing
Ending cash balance
(including minimum balance, $5,000) $8,000 $6,958 $5,254
Diff: 3
LO: 22-4
AACSB: Application
32
Jul Aug Sep

Cash payments:
increments of $5,000 whenever there is surplus cash. Calculate the amount of principal repayment at the
end of September.
A) $5,000
B) $10,000
C) $15,000
D) $20,000
Answer: D
Explanation: D)
Cash available $54,000 $48,000 $54,958
Cash payments:
Financing
Interest expense at 5% _______ -42 -104
Ending cash balance
Diff: 3
LO: 22-4
AACSB: Application
33
Jul Aug Sep

Cash payments:
increments of $5,000 whenever there is surplus cash. Calculate the final projected cash balance at the end
of September.
A) $6,000
B) $5,254
C) $6,133
D) $7,200
Answer: B
Explanation: B)
Cash available $54,000 $48,000 $54,958
Cash payments:
Financing
Ending cash balance
Diff: 3
LO: 22-4
AACSB: Application
34
25) June sales were $40,000 while projected sales for July and August were $50,000 and $60,000,
respectively. Sales are 40% cash and 60% credit. All credit sales are collected in the month following the
sale. Calculate expected collections for July.
A) $36,000
B) $44,000
C) $50,000
D) $54,000
Answer: B
Explanation: B)
Calculation of expected collections for the month of July:
June sales (60% × $40,000) $24,000

July sales (40% × $50,000) 20,000
Total expected collections for July $44,000
Diff: 1
LO: 22-4
AACSB: Application
26) Purchases for May were $100,000, while expected purchases for June and July are $110,000 and
$125,000, respectively. All purchases are paid 25% in the month of purchase and 75% the following
month. Calculate the budgeted payments for the month of June.
A) $102,500
B) $107,500
C) $110,000
D) $121,250
Answer: A
Explanation: A)
Calculation of budgeted payment for the month of June:
Payment for June purchases

(25% × $110,000) $27,500
Payment for May purchases
(75% × $100,000) 75,000
Total budgeted payments $102,500
Diff: 2
LO: 22-4
AACSB: Application
35
27) Farmerlands Enterprises has budgeted sales for the months of September and October at $300,000 and
$280,000, respectively. Monthly sales are 80% credit and 20% cash. Of the credit sales, 50% are collected in
the month of sale and 50% are collected in the following month. Calculate cash collections for the month
of October.
A) $168,000
B) $232,000
C) $288,000
D) $290,000
Answer: C
Explanation: C)
Calculations of collections for the month of October:
Collections for October sales

(20% × $280,000) + (50% × 80% × $280,000) $168,000
Collections for September sales
(50% × 80% × $300,000) 120,000
Total collections for the month of October $288,000
Diff: 3
LO: 22-4
AACSB: Application
28) A company has prepared the operating budget and the cash budget and is now preparing the
budgeted balance sheet. While doing so, the cash balance can be taken from:
A) the operational budget.
B) the budgeted income statement.
C) the cash budget.
D) the sales budget.
Answer: C
Diff: 1
LO: 22-4
AACSB: Concept
budgeted balance sheet. The balance of Accounts Receivable can be obtained from:
A) the inventory, purchases and cost of goods sold budget.
B) cash receipts from customers.
C) the capital expenditures budget.
D) the selling and administrative expenses budget.
Answer: B
Diff: 1
LO: 22-4
AACSB: Concept
36
budgeted balance sheet. The balance of Inventory can be taken from:
A) production budget and cost of goods sold budget.
B) the financial budget.
C) the cash budget.
Answer: A
Diff: 1
LO: 22-4
AACSB: Concept
budgeted balance sheet. The balance of Accounts Payable can be taken from:
B) the budgeted cash payments for purchases.
C) the cash budget.
Answer: B
Diff: 1
LO: 22-4
AACSB: Application
budgeted balance sheet. The balance of retained earnings can be taken from:
B) the operating budget.
C) the cash budget.
D) the budgeted income statement plus the balance sheet from the prior year.
Answer: D
Diff: 1
LO: 22-4
AACSB: Concept
37
33) On June 30, 2015, Alpha Company's cash balance is $4,000. Alpha is now preparing their cash budget
for the third quarter of 2015. The following data is provided:

Cash available $54,000 $48,000 $54,958
Cash payments:
Purchase of inventory 31,000 22,000 18,000
Minimum cash balance desired -5,000 -5,000 -5,000
Financing
Borrowing at end of month 10,000 15,000
Principal repayments at end of month -$20,000
Interest expense at 5% -42 -104
Total effects of financing 10,000 14,958 -20,104
The amount of cash that should be shown in the budgeted balance sheet as on September 30th would be:
A) $6,958.
B) $8,000.
C) $5,254.
D) $4,297.
Answer: C
Diff: 3
LO: 22-4
AACSB: Application
38
34) Nobula Corp. is preparing their budget for the 2nd quarter and provides the following data:
Apr May Jun

Budgeted purchases $20,000 $24,000 $18,000
Budgeted Cash Payments for Inventory
Purchases Apr May Jun
60% of previous month purchases $6,000 $12,000 $14,400
40% of current month purchases 8,000 9,600 7,200
Total cash payments $14,000 $21,600 $21,600
Assume that accounts payable pertains only to suppliers of inventory. Based on the above data, the
amount of Accounts Payable that should be shown in the budgeted balance sheet as on June 30th is:
A) $12,000.
B) $3,600.
C) $10,800.
D) $5,400.
Answer: C
Explanation: C) Account Payable = $18,000 × 60% = $10,800
Diff: 1
LO: 22-4
AACSB: Concept
35) When a company is preparing a budgeted statement of cash flows, the payments to suppliers for
purchases of inventory can be obtained from:
A) the cash budget.
B) the sales budget.
C) budgeted cash collections.
D) the budgeted balance sheet.
Answer: A
Diff: 1
LO: 22-4
AACSB: Concept
36) When a company is preparing a budgeted statement of cash flows, the payments for selling and
administrative expenses can be obtained from:
A) budgeted payments for purchases.
B) the sales budget.
C) the cash budget.
D) the budgeted balance sheet.
Answer: C
Diff: 1
LO: 22-4
AACSB: Concept
39
37) Chaterlain Company is preparing its budget for the 3rd quarter. The cash balance on June 30 was
$30,000. Additional budgeted data is provided here:
Jul Aug Sep

Cash payments:
Capital expenditures 5,000 9,000 16,000
What amount should be shown in the cash budget for the cash balance at the end of July?
A) $19,100
B) $30,000
C) $29,050
D) $42,200
Answer: B
Explanation: B)
Balance at the beginning $30,000
Plus: Cash collections 50,000
Cash available $80,000
Less: Payments for:
Purchase of inventory 20,000
Operating expenses 25,000
Capital expenditures 5,000
Diff: 1
LO: 22-4
AACSB: Application
40
38) Chaterlain Company is preparing its budget for the 3rd quarter. Cash balance on July 31 was $30,000.
Assume there is no minimum balance of cash required and no borrowing is undertaken. Additional
budgeted data is provided here:
Jul Aug Sep

Cash payments:
Capital expenditures 5,000 9,000 16,000
Calculate the balance of cash at the end of August.

A) $19,100
B) $28,800
C) $29,050
D) $32,000
Answer: D
Explanation: D)
Balance at the beginning $30,000
Plus: Cash collections 51,000
Less: Payments for:
Operating expenses 21,000
Diff: 1
LO: 22-4
AACSB: Application
41
39) Gamma Corp. has prepared a preliminary cash budget for the 3rd quarter as shown below:
Cash Budget Jul Aug Sep

Cash available $81,400 $55,400 $51,500
Subsequently, the marketing department revised its figures for cash collections. New data are as follows:
$52,000 in July, $50,000 in August, and $42,000 in September. Based on the new data, calculate the new
projected cash balance at the end of July.
A) $8,500
B) $2,400
C) $7,000
D) $900
Answer: C
Explanation: C)
Cash available $84,000 $57,000 $50,500
Ending cash balance $7,000 $8,500 $900
Diff: 1
LO: 22-4
AACSB: Application
42

Cash available $81,400 $55,400 $51,500
projected cash balance at the end of August.
A) $8,500
B) $2,400
C) $7,000
D) $900
Answer: A
Explanation: A)
Cash available $84,000 $57,000 $50,500
Diff: 2
LO: 22-4
AACSB: Application
43

Cash available $81,400 $55,400 $51,500
projected cash balance at the end of September.
A) $8,500
B) $2,400
C) $7,000
D) $900
Answer: D
Explanation: D)
Cash available $84,000 $57,000 $50,500
Diff: 2
LO: 22-4
AACSB: Application
44
42) Cirag Manufacturing Company's budgeted income statement includes the following data:
Mar Apr May Jun

Sales $320,000 $340,000 $360,000 $380,000
Commission expense:15% of sales 48,000 51,000 54,000 57,000
Miscellaneous expense: 4% of sales 12,800 13,600 14,400 15,200
Rent expense 4,000 4,000 4,000 4,000
Utility expense 2,000 2,000 2,000 2,000
The budget assumes that 60% of commission expenses are paid in the month in which they are incurred
and the remaining 40% are paid one month later. In addition, 50% of salaries expenses are paid in the
month in which they are incurred and the remaining 50% are paid one month later. Miscellaneous
expenses, rent expense and utility expenses are assumed to be paid in the same month in which they are
incurred. Insurance was prepaid for the year on January 1. Calculate the budgeted cash payments for
selling and administrative expenses for the quarter ending June 30.
Answer:
Budget of Cash Payments for Selling and
Administrative Expenses April May June
Variable expenses
40% of last month's commission expenses $19,200 $20,400 $21,600
60% of this month's commission expenses 30,600 32,400 34,200
Misc. expenses - 4% of sales 13,600 14,400 15,200
Total variable operating expenses $63,400 $67,200 $71,000
Fixed expenses
50% of last month's salary expense $25,000 $25,000 $25,000
50% of this month's salary expense 25,000 25,000 25,000
Rent expense 4,000 4,000 4,000
Utility expense 2,000 2,000 2,000
Total payments for fixed operating. expenses $56,000 $56,000 $56,000
Total payments for operating expenses $119,400 $123,200 $127,000
*Insurance has already been paid for and hence will not affect cash.
Diff: 3
LO: 22-4
AACSB: Application
45
43) Search Engine Corp. has provided the following details concerning budgeted sales.
Budgeted Sales
Jan $75,000
Feb 69,000
March 80,000
April 82,000
May 80,500
June 92,000
The collection policy of the company is to collect 20% in the month of sale, 40% in the following month,
and remaining 40% in the second month after the month of sale. All sales are made on account.
Calculate the cash receipts from customers for the first six months.
Answer: Calculation of cash receipts for the first six months:
Jan Feb March April May June

Budgeted sales $75,000 $69,000 $80,000 $82,000 $80,500 $92,000
Cash Receipts from

customers:
Month of sale (20%) $15,000 $13,800 $16,000 $16,400 $16,100 $18,400
First month after sale (40%) 30,000 27,600 32,000 32,800 $32,200
Second month after sale (40%) 30,000 27,600 32,000 32,800
Total collection from
customers $15,000 $43,800 $73,600 $76,000 $80,900 $83,400
Diff: 3
LO: 22-4
AACSB: Application
46
44) A manufacturer has provided the following details for goods purchased on account in different
months.
Jan $35,000
Feb 28,000
March 34,000
April 39,000
May 32,000
June 29,000
The terms of payment offered by the suppliers are to pay 70% in the month of purchase and 30% in the
following month. Calculate the payments on account made during the first six months.
Answer:
Jan Feb March April May June
Purchases on account: $35,000 $28,000 $34,000 $39,000 $32,000 $29,000
Cash payments to
suppliers:
In the month of purchase
(70%) 24,500 19,600 23,800 27,300 22,400 20,300
In the next month: (30%) 10,500 8,400 10,200 11,700 9,600
Total payments to
suppliers $24,500 $30,100 $32,200 $37,500 $34,100 $29,900
Diff: 3
LO: 22-4
AACSB: Application
1) Use of advanced technology makes it more cost effective for managers to conduct sensitivity analysis.
Answer: TRUE
Diff: 1
LO: 22-5
AACSB: Concept
2) Sensitivity analysis is a what-if technique.

Answer: TRUE
Diff: 1
LO: 22-5
AACSB: Concept
47
3) A company with different segments using different software configurations can easily combine budget
data of different segments to create the master budget.
Answer: FALSE
Diff: 1
LO: 22-5
AACSB: Concept
4) Which of the following best describes the term sensitivity analysis?

A) It is a testing technique to determine how results would differ if key assumptions are changed.
B) It is an analysis of the emotional sensitivity of a company's employees.
C) It is an evaluation of the accuracy of the assumptions.
D) It evaluates a company's financial condition by doing financial statement analysis.
Answer: A
Diff: 2
LO: 22-5
AACSB: Concept
5) At a company with different business units, individual managers make decisions by changing various
assumptions of their budget in order to determine how the modifications would affect the operational
and financial results. This is an example of:
A) financial statement analysis.
B) responsibility accounting.
C) sensitivity analysis.
D) zero-based budgeting.
Answer: C
Diff: 1
LO: 22-5
AACSB: Concept
6) Which of the following is useful to combine the data of different segments using different software, for
the purpose of creating companywide budgets?
A) Accounting development manual
B) Budgeting software
C) Financial analysis software
D) Budget creation manual
Answer: B
Diff: 1
LO: 22-5
AACSB: Concept
48
1) Unlike a manufacturing company, the cash budget is the cornerstone for the master budget of a
merchandiser.
Answer: FALSE
Diff: 1
LO: 22-6
AACSB: Concept
2) For a merchandiser, the budgeted sales equals the number of units budgeted for sale multiplied by the
budgeted selling price per unit.
Answer: TRUE
Diff: 1
LO: 22-6
AACSB: Concept
3) While preparing the budgeted balance sheet of a merchandiser, the amount of merchandise inventory
can be obtained from:
A) the merchandise inventory account.
B) the inventory, purchases and cost of goods sold budget.
C) the production budget
D) the capital expenditure budget and cash budget.
Answer: B
Diff: 1
LO: 22-6
AACSB: Concept
49
4) Freighters Inc. has the following budgeted figures:
Calculate the budgeted purchases for the month of January.

A) $40,250
B) $52,000
C) $33,750
D) $51,750
Answer: C
Explanation: C) Jan Feb Mar
Cost of goods sold $30,000 $39,000 $48,000
Plus: Ending merchandise inventory 31,250 35,000 38,750
Total merchandise inventory required $61,250 $74,000 $86,750
Less: Beginning merchandise inventory 27,500 31,250 35,000
Budgeted purchases $33,750 $42,750 $51,750
Diff: 2
LO: 22-6
AACSB: Application
Calculate cost of goods sold for the month of February.

A) $40,250
B) $52,000
C) $33,750
D) $39,000
Answer: D
Explanation: D) COGS = $65,000 × 60% = $39,000.
Diff: 1
LO: 22-6
AACSB: Application
50
Calculate the ending merchandise inventory for the month of March.

A) $38,750
B) $52,000
C) $33,750
D) $39,000
Answer: A
Explanation: A) Ending merchandise inventory for March = $15,000 + ($95,000 × 25%) = $38,750.
Diff: 1
LO: 22-6
AACSB: Application
7) Gamma Corp. is preparing their budget for the 1st quarter of 2015. The following data is provided:
Inventory, Purchases and COGS Budget Jan Feb Mar

Cost of goods sold (a) $30,000 $28,500 $22,500
Desired ending inventory(b) 10,700 9,500 9,800
Total inventory required 40,700 38,000 32,300
less Beginning inventory -11,000 -10,700 -9,500
Purchases 29,700 27,300 22,800
(a) COGS = 75% of sales
(b) $5,000 + 20% of COGS for next month
The amount of Merchandise Inventory to be shown on the budgeted balance sheet at March 31 would be:
A) $9,500.
B) $10,700.
C) $8,750.
D) $9,800.
Answer: D
Diff: 1
LO: 22-6
AACSB: Application
51
8) From the following details, provided by a merchandiser, prepare the selling and administrative
expenses budget for the first quarter of the next year.
Rent Expense $8,000 per month

Depreciation Expense $ 3,500 per month
Insurance Expense $1,250 per month
Miscellaneous Expense 2% of sales, paid as incurred
Commissions Expense 10% of sales
Salaries Expense $7,000 per month
Jan Feb March

Sales $50,000 $65,000 $80,000
Answer:
Selling and Administrative Expenses Budget
For First Quarter
Jan Feb March
Variable expenses:
Commissions Expense (10% of sales) $5,000 $6,500 $8,000
Miscellaneous Expenses (2% of sales) 1,000 1,300 1,600
Total variable expenses $6,000 $7,800 $9,600
Fixed expenses:
Salaries Expense $7,000 $7,000 $7,000
Rent Expense 8,000 8,000 8,000
Depreciation Expense 3,500 3,500 3,500
Insurance Expense 1,250 1,250 1,250
Total fixed expenses $19,750 $19,750 $19,750
Total selling and administrative expenses $25,750 $27,550 $29,350
Diff: 1
LO: 22-6
AACSB: Application
1) The financial budget of a merchandiser is similar to that of a manufacturer.

Answer: TRUE
Diff: 1
LO: 22-7
AACSB: Application
52
2) The budgeted income statements of both manufacturing and merchandising companies include a
calculation of gross profit.
Answer: TRUE
Diff: 1
LO: 22-7
AACSB: Application
3) While calculating the cash payments for budgeted selling and administrative expenses, non-cash
expenses like depreciation are also considered.
Answer: FALSE
Diff: 1
LO: 22-7
AACSB: Application
4) Freightcan Holders has provided the following extracts from their budget for the first quarter of the
forthcoming year:
Jan Feb March

Sales (30% cash) $500,000 $750,000 $1,000,000
The company collects 60% of credit sales in the same month and the balance in the next month. Calculate
the collections from the customers for the month of February.
A) $ 580,000
B) $720,000
C) $680,000
D) $490,000
Answer: C
Explanation: C) Feb
Collection for cash sale ($750,000 × 30%) $225,000
Collection for credit sale:
For Feb sales ($750,000 × 70% × 60%) 315,000
For Jan sales ($500,000 × 70% × 40%) 140,000
Total cash collection $680,000
Diff: 1
LO: 22-7
AACSB: Application
53
5) Freightcan Holders has provided the following extracts from their budget for the first quarter of the
forthcoming year:
Jan Feb March

Purchases on account $280,000 $295,000 $310,000
The vendors allowed terms of payment as follows:
Month of purchase 25%

First month after the purchase 50% of the balance
Second month after the purchase balance 50%
Calculate the total payment on account for the month of March.

A) $259,625
B) $563,245
C) $325,643
D) $293,125
Answer: D
Explanation: D) March
For March purchases
(25% × $310,000) $77,500
For Feb purchases
(50% × 75% × $295,000) 110,625
For Jan purchases
(50% × 75% × $280,000) 105,000
Total payment on account $293,125
Diff: 1
LO: 22-7
AACSB: Application
54
6) The following details have been extracted from the budget of a merchandiser.
Rent Expense $8,000 per month

Depreciation Expense $ 3,500 per month
Insurance Expense $1,250 per month
Miscellaneous Expense 2% of sales, paid as incurred
Commissions Expense 10% of sales
Salaries Expense $7,000 per month
Dec Jan Feb March

Sales $45,000 $50,000 $65,000 $80,000
Commission and salaries expenses are paid 50% in the month to which they relate and the balance in the
next month.
Rent and miscellaneous expenses are paid as and when they occur. Insurance is prepaid at the beginning
of the quarter. Calculate cash payments for the selling and administrative expenses for the first quarter of
the next year.
A) $70,400
B) $50,500
C) $75,000
D) $62,750
Answer: A
Explanation: A) Budgeted Cash Payments for Selling and Administrative Expenses
For First Quarter
Jan Feb March Total
Variable expenses:
50% of last month's Commissions Expense $2,250 $2,500 $3,250 $8,000
50% of this month's Commission Expense 2,500 3,250 4,000 9,750
Miscellaneous Expenses 1,000 1,300 1,600 3,900
Total payments for variable expenses $5,750 $7,050 $8,850 $21,650
Fixed expenses:
50% of last month's Salaries Expense $3,500 $3,500 $3,500 $10,500
50% of this month's Salaries Expense 3,500 3,500 3,500 10,500
Rent Expense 8,000 8,000 8,000 24,000
Insurance paid in advance ($1,250 × 3) 3,750 0 0 3,750
Total payments for fixed expenses $18,750 $15,000 $15,000 $48,750
Total payments for S&A expenses $24,500 $22,050 $23,850 $70,400
Diff: 3
LO: 22-7
AACSB: Application
55
7) Uncle's Caps, a merchandiser, has provided the following budgeted amounts for the next budget
period.
Balance of cash at the beginning $30,000

Cash collections 680,000
Payments for:
Selling and administrative expenses 70,400
A minimum cash balance of $250,000 is required to be maintained. The company can borrow in
increments of $10,000 as and when required. Assume the company can borrow the needed funds at the
end of the period. Calculate the ending cash balance for the budget period.
A) $320,300
B) $250,600
C) $300,000
D) $540,230
Answer: B
Explanation: B) Budget period
Beginning cash balance $30,000
Cash receipts 680,000
Cash payments:
Purchases of merchandise inventory 350,000
Selling and administrative expenses 70,400
Total cash payments $509,400
Ending cash balance before financing $200,600
Minimum cash balance desired $250,000
Projected cash excess (deficiency) $49,400
Financing:
Borrowing $50,000
Principal repayments 0
Total effects of financing $50,000
Ending cash balance $250,600
Diff: 3
LO: 22-7
AACSB: Application
56
8) While preparing the budgeted income statement of a merchandiser, the amount of cost of goods sold
can be taken from:
A) the budgeted balance sheet.
B) the budgeted cash flow statement.
C) the inventory, purchases and COGS budget.
D) the payment for cost of goods sold.
Answer: C
Diff: 1
LO: 22-7
AACSB: Concept
9) Uncle's Caps, a merchandiser, wants to prepare the budgeted balance sheet for the next budget period.
For this purpose the amount of ending cash balance can be retrieved from:
A) the sales budget.
B) the budgeted funds flow statement.
C) the cash budget.
D) the Cost of Goods Sold budget.
Answer: C
Diff: 1
LO: 22-7
AACSB: Concept
10) The amount of accumulated depreciation for the budgeted balance sheet can be obtained from:
A) the selling and administrative expenses budget.
B) the selling and administrative expenses budget and the prior balance sheet.
C) the cash payments for S&A expenses budget.
D) the financial budget.
Answer: B
Diff: 1
LO: 22-7
AACSB: Concept
11) The final step in the process of creating the master budget is the preparation of:
A) the operating budget
B) the budgeted balance sheet.
C) the budgeted cash flow statement.
D) the cash payments for expenses.
Answer: C
Diff: 1
LO: 22-7
AACSB: Concept
57
12) In the cash flow statement, all cash receipts and payments are categorized into: Operating activities,
Financing activities and:
A) Investing activities.
B) Merchandising activities.
C) Budgeting activities.
D) Controlling activities.
Answer: A
Diff: 1
LO: 22-7
AACSB: Concept
58

Learning Objective 22-1: Chapter 22 Master Budgets

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Learning Objective 22-1: Chapter 22 Master Budgets

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Horngren's Accounting, 10e, Global Edition (Nobles/Mattison/Matsumura)

Chapter 22 Master Budgets

Learning Objective 22-1

1) A budget is a financial plan that managers use to coordinate a business's activities.

5) Developing a budget reduces coordination and communication at different levels in an organization.

8) All organizations use one standardized budgeting process.

9) Which of the following statements is true of the budgeting process?

10) Which of the following is an example of the planning function of a budget?

13) An intentional understatement of expected revenues or overstatement of expected expenses by

Learning Objective 22-2

3) A strategic budget will be as detailed as an operating budget.

5) A flexible budget is prepared to represent different levels of sales volume.

6) A master budget is the financial plan for a specific segment of an organization.

15) Which of the following statements is true of the operating budget?

Learning Objective 22-3

4) The direct material budget is prepared on the basis of the:

6) Caplico Company has prepared the following sales budget:

Month Budgeted Sales

Sales for the month of June $260,000

8) Which of the following describes the cash budget?

10) Which of the following describes the production budget?

Variable: Power cost (40% of Sales)

Jan Feb Mar

Selling and Administrative Expenses

Variable: Power cost (40% of Sales)

Selling and Administrative Expenses

First Second Third Fourth

First Second Third Fourth

*VOH - Variable Manufacturing Overhead

Direct material per unit $65

First Second Third Fourth

Quarter Quarter Quarter Quarter

First Second Third Fourth

*Calculation of cost of beginning inventory:

Direct materials cost per unit $65

3) The cash budget is the prerequisite for the master budget.

4) The output of a cash budget is input for an operating budget.

Month Budgeted Purchases

Month Budgeted Purchases

For October purchases 0

Data extracted from budgeted

Data extracted from budgeted

Apr May June

Apr May June

Apr May June

Apr May June

Apr May June

Apr May June

Jul Aug Sep

Jul Aug Sep

Jul Aug Sep

Jul Aug Sep

Jul Aug Sep

Jul Aug Sep

Jul Aug Sep

Jul Aug Sep

June sales (60% × $40,000) $24,000

Payment for June purchases

Collections for October sales

Cash budget Jul Aug Sep

Apr May Jun

Jul Aug Sep

Jul Aug Sep