Professional Documents
Culture Documents
Operational and Financial Budgeting: Multiple Choice
Operational and Financial Budgeting: Multiple Choice
Multiple Choice
d 5. Which of the following equations can be used to budget purchases? (BI = beginning inventory, EI = ending
inventory desired, CGS = budgeted cost of goods sold)
a. Budgeted purchases = CGS + BI - EI
b. Budgeted purchases = CGS + BI
c. Budgeted purchases = CGS + EI + BI
d. Budgeted purchases = CGS + EI - BI
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.
b 7. The use of flexible (as opposed to static) budget allowances is LEAST important for which of the following?
a. Costs of the production department.
b. Costs of the general accounting department.
c. Costs of the product shipping department.
d. Costs of the material receiving department.
74
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.
c 11. Which of the following is a difference between a static budget and a flexible budget?
a. A flexible budget includes only variable costs, a static budget includes only fixed costs.
b. A flexible budget includes all costs, a static budget includes only fixed costs.
c. A flexible budget gives different allowances for different levels of activity; a static budget does not.
d. None of the above.
75
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.
76
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.
a 26. One difference between budgeting in for-profit and not-for-profit entities is that not-for-profit entities usually
a. budget expenses before revenues.
b. don't need a cash budget.
c. are less likely to use incremental budgeting.
d. use computer software-packages to facilitate the budgeting process.
d 27. To prepare its cash disbursements budget, a company uses information from
a. its balance sheet at the end of the prior period.
b. its purchases budget.
c. its capital budget.
d. all of the above sources.
c 29. Quorum Company desires an ending inventory of $120,000. It expects sales of $240,000 and has a beginning
inventory of $80,000. Cost of sales is 60% of sales. Budgeted purchases are
a. $120,000.
b. $144,000.
c. $184,000.
d. $264,000.
d 30. Garamond Company budgeted purchases of $200,000. Cost of sales was $240,000 and the desired ending
inventory was $84,000. The beginning inventory was
a. $40,000.
b. $64,000.
c. $84,000.
d. $124,000.
77
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.
c 32. Menomonie Company budgeted sales of 18,000 units. The budgeted beginning inventory was 3,000 units and
the budgeted ending inventory was 5,000 units. Budgeted production is
a. 23,000 units.
b. 21,000 units.
c. 20,000 units.
d. 16,000 units.
d 33. Baker Company budgets supplies as $20,000 + ($1.20 x direct labor hours). Baker has budgeted 18,000 direct
labor hours, $130,000 direct labor cost. The flexible budget allowance for supplies is
a. $18,000.
b. $20,000.
c. $150,000.
d. some other number.
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.
c 35. Sams Company manufactures a single product. It keeps its inventory of finished goods at 75% the coming
month's budgeted sales, inventory of raw materials at 50% of the coming month's budgeted production
needs. Each unit of product requires two pounds of materials. The production budget is, in units: May,
1,000; June, 1,200; July, 1,300; August, 1,600. Raw material purchases in June would be
a. 1,525 pounds.
b. 2,550 pounds.
c. 2,800 pounds.
d. 3,050 pounds.
a 36. Hayward Company desires an ending inventory of $70,000. It expects sales of $400,000 and has a beginning
inventory of $65,000. Cost of sales is 65% of sales. Budgeted purchases are
a. $265,000.
b. $395,000.
c. $405,000.
d. $535,000.
78
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 38. Chetek Company budgeted purchases of 19,000 units. The budgeted beginning inventory was 12,400 units and
the budgeted ending inventory was 13,000 units. Budgeted sales were
a. 32,000 units.
b. 31,400 units.
c. 18,400 units.
d. 19,600 units.
d 39. Barron Company manufactures a single product. Barron keeps inventory of raw materials at 50% of the
coming month's budgeted production needs. Each unit of product requires three pounds of materials. The
production budget is, in units: May, 1,000; June, 1,200; July, 1,300; August, 1,600. Raw material purchases
in July would be
a. 1,450 pounds.
b. 2,400 pounds.
c. 3,900 pounds.
d. some other number.
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.
c 41. Scooter Inc. has projected sales to be $130,000 in June, $135,000 in July and $150,000 in August. Scooter
collects 30% of a month's sales in the month of sale, 50% in the month following the sale, and 16% in the
second month following the sale. Cash collections in August would be
a. $ 45,000.
b. $127,300.
c. $133,300.
d. $138,500.
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.
79
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.
d 48. Holmgren estimates its supplies purchases to be $21,000 in August and $28,000 in September. Holmgren pays
70% of its accounts in the month of purchase with the remainder paid the following month. September
payments would be
a. $14,700.
b. $19,600.
c. $23,100.
d. $25,900.
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.
80
a 50. Clearwater Inc. has projected sales to be $160,000 in April, $200,000 in May, and $240,000 in June.
Clearwater collects 40% of a month's sales in the month of sale, 40% in the month following the sale, and
20% in the second month following the sale. The accounts receivable balance on June 30 would be
a. $184,000.
b. $144,000.
c. $ 40,000.
d. some other number.
True-False
T 2. A flexible budget allowance is NOT especially useful for budgeting discretionary costs.
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 5. A purchases budget is normally prepared after the company has forecast how much cash it will have available
to pay for purchases.
F 6. Imposed budgets are exceptionally ambitious goals not likely to be achieved without making fundamental
changes in the way a job is done.
F 7. A JIT manufacturer that maintains no inventory doesn't need a cash disbursements budget.
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.
F 9. The increasing public demand for accountability from governmental and other not-for-profit organizations has
resulted in an increased use of incremental budgeting.
81
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:
2. Superior Company manufactures a single product. It keeps its inventory of finished goods at twice the coming
month's budgeted sales and inventory of raw materials at 150% of the coming month's budgeted production.
Each unit of product requires five pounds of materials, which cost $3 per pound. The sales budget is, in units:
May, 10,000; June, 12,400; July, 12,600; August, 13,200.
SOLUTION:
82
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:
83
c. Budgeted purchases: 25,000 units; $100,000
4. Westrum estimates production overhead costs equal to $300,000 + $2X, where X is the number of machine hours
used. Westrum budgeted 40,000 machine hours for 20X4. Westrum produced 23,000 units in 20X4, each
requiring 3 machine hours. Actual production costs were $420,000.
a. Calculate the flexible budget allowance for production overhead costs for 20X4.
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.
84
SOLUTION:
6. Bay City estimates production overhead costs equal to $200,000 + $4X + $7Y, where X is the number of direct
labor hours used and Y is the number of machine hours used. Bay City budgeted 20,000 direct labor hours and
50,000 machine hours for 20X2. Bay City produced 30,000 units in 20X2, each requiring 1 direct labor hour
and 2.5 machine hours. Actual production costs were $890,000.
a. Calculate the flexible budget allowance for production overhead costs for 20X2.
b. Find the amount and direction of the budget variance for 20X2 for production overhead. (favorable
unfavorable) Circle one answer.
SOLUTION:
a. Flexible budget allowance, $845,000 [$200,000 + (30,000 x 1 x $4) + (30,000 x 2.5 x 7)]
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.
e. March purchases are $290,000. Compute budgeted cash payments in March to suppliers of goods.
85
g. Cash at the end of February is $45,000. Cash disbursements are not required for anything other than payments
to suppliers and fixed costs. Compute the budgeted cash balance at the end of March.
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.
b. What would be the accounts receivable (net of bad debts) balance on March 31, 20X3?
86
SOLUTION:
March $300,000
April $312,000
May $320,000
June $348,000
Cost of sales is 55% of sales. Bismarck keeps an inventory equal to one-fourth the coming month's budgeted
sales requirements. It pays for purchases 40% in the month of purchase and 60% in the month after purchase.
Accounts Payable is $94,800 on March 1.
87
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.
b. What would be the accounts receivable balance (net of bad debts) on March 31, 20X4?
88
SOLUTION:
89