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Vdocuments - MX - Test Bank Chapter 9 Profit Planning
Vdocuments - MX - Test Bank Chapter 9 Profit Planning
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7. Sales forecasts are drawn up after the cash budget has been
F completed since only then are the funds available for marketing
Medium known.
10. In companies that have "no lay-off" policies, the total direct
F labor cost for a budget period is computed by multiplying the
Hard total direct labor hours needed to make the budgeted output of
completed units by the direct labor wage rate.
12. The beginning cash balance is not included on the cash budget
F since the cash budget deals exclusively with cash flows rather
Hard than with balance sheet amounts.
14. (Appendix) The economic order quantity is that point where the
T total costs of ordering inventory just equal the total costs of
Medium carrying inventory.
15. (Appendix) As the lead time increases, the safety stock should
T also increase.
Medium
Multiple Choice
16. The budget or schedule that provides necessary input data for
B the direct labor budget is the:
Easy a. raw materials purchases budget.
CMA b. production budget.
adapted c. schedule of cash collections.
d. cash budget.
17. The cash budget must be prepared before you can complete the:
B a. production budget.
Easy b. budgeted balance sheet.
CMA c. raw materials purchases budget.
adapted d. schedule of cash disbursements.
21. There are various budgets within the master budget. One of
C these budgets is the production budget. Which of the following
Easy BEST describes the production budget?
CMA a. It details the required direct labor hours.
adapted b. It details the required raw materials purchases.
c. It is calculated based on the sales budget and the desired
ending inventory.
d. It summarizes the costs of producing units for the budget
period.
23. (Appendix) The Stewart Company uses the Economic Order Quantity
D (EOQ) model in its inventory management. A decrease in which of
Medium the following variables would increase the company's EOQ?
CMA a. Annual sales.
adapted b. Cost per order.
c. Safety stock level.
d. Inventory carrying costs.
27. Parlee Company's sales are 30% in cash and 70% on credit. Sixty
D percent of the credit sales are collected in the month of sale,
Medium 25% in the month following sale, and 12% in the second month
following sale. The remainder are uncollectible. The following
are budgeted sales data:
28. Budgeted sales in Allen Company over the next four months are
Difficult given below:
Twenty-five percent of the company's sales are for cash and 75%
are on account. Collections for sales on account follow a
stable pattern as follows: 50% of a month's sales are collected
in the month of sale, 30% are collected in the month following
sale, and 15% are collected in the second month following sale.
The remainder are uncollectible. Given these data, cash
collections for December should be:
a. $153,000.
b. $138,000.
c. $120,000.
d. $103,500.
Month Sales
April ... $100,000
May ..... 120,000
June .... 110,000
30. Orion Corporation is preparing a cash budget for the six months
D beginning January 1. Shown below are the company's expected
Medium collection pattern and the budgeted sales for the period.
Budgeted sales:
January ....... $160,000
February ...... 185,000
March ......... 190,000
April ......... 170,000
May ........... 200,000
June .......... 180,000
31. Pardee Company plans to sell 12,000 units during the month of
A August. If the company has 2,500 units on hand at the start of
Easy the month, and plans to have 2,000 units on hand at the end of
the month, how many units must be produced during the month?
a. 11,500.
b. 12,500.
c. 12,000.
d. 14,000.
33. Friden Company has budgeted sales and production over the next
B quarter as follows:
Hard
April May June
Sales in units ......... 100,000 120,000 ?
Production in units .... 104,000 128,000 156,000
35. Superior Industries' sales budget shows quarterly sales for the
C next year as follows:
Medium
CMA Quarter Sales (units)
adapted First ..... 10,000
Second .... 8,000
Third ..... 12,000
Fourth .... 14,000
36. The Tobler Company has budgeted production for next year as
A follows:
Medium
Quarter ............... First Second Third Fourth
Production in units ... 10,000 12,000 16,000 14,000
38. The Waverly Company has budgeted sales for next year as
A follows:
Medium
Quarter .......... First Second Third Fourth
Sales in units ... 12,000 14,000 18,000 16,000
Expected Sales
January ....... $100,000
February ...... 120,000
March ......... 110,000
42. The Stacy Company makes and sells a single product, Product R.
B Budgeted sales for April are $300,000. Gross Margin is budgeted
Hard 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.
The economic order quantity (EOQ) for this product would be:
a. 18 units.
b. 90 units.
c. 81 units.
d. 180 units.
Reference: 9-1
KAB Inc., a small retail store, had the following results for May. The
budgets for June and July are also given.
May June July
(actual) (budget) (budget)
Sales ........................ $42,000 $40,000 $45,000
Cost of sales ................ 21,000 20,000 22,500
Gross margin ................. 21,000 20,000 22,500
Operating expenses ........... 20,000 20,000 20,000
Operating income ............. $ 1,000 $ 0 $ 2,500
Sales are collected 80% in the month of the sale and the balance in the
month following the sale. (There are no bad debts.) The goods that are
sold are purchased in the month prior to sale. Suppliers of the goods are
paid in the month following the sale. The "operating expenses" are paid in
the month of the sale.
50. The amount of cash collected during the month of June should
C be:
Easy a. $32,000.
CMA b. $40,000.
adapted c. $40,400.
Refer To: d. $41,000.
9-1
51. The cash disbursements during the month of June for goods
B purchased for resale and for operating expenses should be:
Easy a. $40,000.
CMA b. $41,000.
adapted c. $42,500.
Refer To: d. $43,500.
9-1
Reference: 9-2
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.
Expected
Sales
January ....... $10,000
February ...... 24,000
March ......... 16,000
April ......... 25,000
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 operating expenses should be 10% of sales and
fixed expenses (all depreciation) should be $3,000 per month. Cash payments
for the variable operating expenses are made during the month the expenses
are incurred.
54. The Accounts Receivable balance that would appear in the March
C 31 budgeted balance sheet would be:
Medium a. $15,000.
Refer To: b. $16,000.
9-2 c. $8,800.
d. $12,400.
55. In a budget of cash receipts for March, the total cash receipts
A would be:
Medium a. $17,800.
Refer To: b. $8,200.
9-2 c. $20,200.
d. $16,000.
Reference: 9-3
Information on the actual sales and inventory purchases of the Law Company
for the first quarter follow:
Inventory
Sales Purchases
January ...... $120,000 $60,000
February ..... $100,000 $78,000
March ........ $130,000 $90,000
Collections from Law Company's customers are normally 60% in the month of
sale, 30% in the month following sale, and 8% in the second month following
sale. The balance is uncollectible. Law Company takes full advantage of the
3% discount allowed on purchases paid for by the end of the following month.
The company expects sales in April of $150,000 and inventory purchases of
$100,000. Operating expenses for the month of April are expected to be
$38,000, of which $15,000 is salaries and $8,000 is depreciation. The
remaining operating expenses are variable with respect to the amount of
sales in dollars. Those operating expenses requiring a cash outlay are paid
for during the month incurred. Law Company's cash balance on March 1 was
$43,000, and on April 1 was $35,000.
57. The expected cash collections from customers during April would
B be:
Medium a. $150,000.
Refer To: b. $137,000.
9-3 c. $139,000.
d. $117,600.
Reference: 9-4
The LaPann Company has obtained the following sales forecast data:
Reference: 9-5
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:
Reference: 9-6
Pardise Company plans the following beginning and ending inventory levels
(in units) for July:
July 1 July 30
Raw material 40,000 50,000
Work in process 10,000 10,000
Finished goods 80,000 50,000
Two units of raw material are needed to produce each unit of finished
product.
65. If Pardise Company plans to sell 480,000 units during July, the
D number of units it would have to manufacture during July would
Easy be:
CMA a. 440,000 units.
adapted b. 480,000 units.
Refer To: c. 510,000 units.
9-6 d. 450,000 units.
Reference: 9-7
Barley Enterprises has budgeted unit sales for the next four months as
follows:
The ending inventory for each month should be equal to 15% of the next
month's sales in units. The inventory on September 30 was below this level
and contained only 600 units.
Reference: 9-8
Roberts Enterprises has budgeted sales in units for the next five months as
follows:
June ............ 4,500 units
July ............ 7,100 units
August .......... 5,300 units
September ....... 6,700 units
October ......... 3,700 units
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.
Reference: 9-9
Noel Enterprises has budgeted sales in units for the next five months as
follows:
January ..... 6,800 units
February .... 5,400 units
March ....... 7,200 units
April ....... 4,600 units
May ......... 3,800 units
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 December
31 contained 400 units. The company needs to prepare a production budget for
the second quarter of the year.
Reference: 9-10
Wellfleet Company manufactures children’s' recreational equipment. The
Purchasing Department is finalizing plans for next year and has gathered the
following information regarding two of the components used in both tricycles
and bicycles:
76. (Appendix) If the economic order quantity (EOQ) for Part B12 is
D 70,000 units, the number of times that Wellfleet Company should
Hard purchase this part next year is:
CMA a. four times.
adapted b. seven times.
Refer To: c. eight times.
9-10 d. nine times.
Reference: 9-11
The LFM Company makes and sells a single product, Product T. Each unit of
Product T requires 1.3 hours of labor at a labor rate of $9.10 per hour. LFM
Company needs to prepare a Direct Labor Budget for the second quarter of
next year.
77. The budgeted direct labor cost per unit of Product T would be:
B a. $9.10.
Easy b. $11.83.
Refer To: c. $7.00.
9-11 d. $10.40.
Reference: 9-12
The International Company makes and sells only one product, Product SW. The
company is in the process of preparing its Selling and Administrative
Expense Budget for the last half of the year. The following budget data are
available:
Variable Cost
Per Unit Sold Monthly Fixed Cost
Sales commissions ................... $0.70
Shipping ............................ $1.10
Advertising ......................... $0.20 $14,000
Executive salaries .................. - $34,000
Depreciation on office equipment .... - $11,000
Other ............................... $0.25 $19,000
All expenses other than depreciation are paid in cash in the month they are
incurred.
Reference: 9-13
The Culver Company is preparing its Manufacturing Overhead Budget for the
third quarter of the year. Budgeted variable factory overhead is $3.00 per
unit produced; budgeted fixed factory overhead is $75,000 per month, with
$16,000 of this amount being factory depreciation.
83. If the budgeted production for July is 6,000 units, then the
D total budgeted factory overhead for July is:
Easy a. $77,000.
Refer To: b. $82,000.
9-13 c. $85,000.
d. $93,000.
84. If the budgeted production for August is 5,000 units, then the
B total budgeted factory overhead per unit is:
Easy a. $15.
Refer To: b. $18.
9-13 c. $20.
d. $22.
Reference: 9-14
The Bandeiras Company, a merchandising firm, has budgeted its activity for
December according to the following information:
Reference: 9-15
A cash budget by quarters for the Carney Company is given below (note that
some data are missing). Missing data amounts have been keyed with either
question marks or lower case letters (a, b, c, etc.); these lower case
letters will be referred to in the questions that follow. (It may be
necessary to calculate a value for items where a question mark appears.)
The company requires a minimum cash balance of at least $10,000 to start a
quarter. All data are in thousands.
Carney Corporation
Cash Budget
Quarters o
1 2 3 4
Cash balance, beginning .................... $16 $ e $13 $10
Add collections from customers ............. a 70 67 80
Total cash available .................... ? ? 80 90
Less disbursements:
Purchase of inventory ................... 31 c 40 35
Operating expenses ...................... 35 22 ? 15
Equipment purchases ..................... 10 14 19 0
Dividends ............................... 0 6 0 5
Total disbursements ................. 66 ? f 55
Excess (deficiency) of cash available
over disbursements ...................... 7 17 (2) 35
Financing:
Borrowings .............................. b -- 12 --
Repayments (including interest) ......... -- d -- (21)
Total financing ...................... ? ? 12 (21)
Cash balance, ending ....................... 10 ? $10 $14
89. The collections from customers during the first quarter (item
C a) are:
Medium a. $50.
Refer To: b. $60.
9-15 c. $57.
d. $73.
90. The borrowing required during the first quarter to meet the
D minimum cash balance (item b) is:
Easy a. $0.
Refer To: b. $7.
9-15 c. $10.
d. $3.
91. The cash disbursed for purchases during the second quarter
D (item c) is:
Hard a. $13.
Refer To: b. $55.
9-15 c. $9.
d. $21.
93. The cash balance at the beginning of the second quarter (item
A e) is:
Easy a. $10.
Refer To: b. $14.
9-15 c. $0.
d. $7.
94. The total disbursements during the third quarter (item f) is:
C a. $84.
Easy b. $78.
Refer To: c. $82.
9-15 d. $59.
Reference: 9-16
(Appendix) Ryerson Computer Furniture Inc. (RCF) manufactures a line of
office chairs. The annual demand for the chairs is 5,000 units. The annual
cost to carry one chair in inventory is $10 and the cost to set up a
production run is $1,000. There are no chairs on hand in inventory, and RCF
management has scheduled four production runs of chairs for the coming year,
the first of which is to be run immediately. A total of 1,250 chairs will be
produced in each of the production runs. RCF has 250 business days per year
and sales occur uniformly throughout the year.
95. If RCF does not maintain a safety stock, the estimated total
C inventory carrying costs for the chairs for the coming year
Medium based on their current production schedule is:
CMA a. $4,000.
adapted b. $5,000.
Refer To: c. $6,250.
9-16 d. $12,500.
96. The number of production runs per year that would minimize the
D sum of the inventory carrying costs and set-up costs for the
Medium coming year is:
CMA a. 1 production run.
adapted b. 2 production runs.
Refer To: c. 4 production runs.
9-16 d. 5 production runs.
Reference: 9-17
(Appendix) Cantor Creations, which has 250 business days per year,
manufactures desks for desktop workstations. The annual demand for the desks
is estimated to be 5,000 units. The annual cost of carrying one unit in
inventory is $10, and the cost to set up a production run is $1,000. Cantor
has scheduled four equal production runs for the coming year, the first to
begin immediately. Currently, there are no desks on hand. Assume that sales
occur uniformly throughout the year and that production is instantaneous.
Reference: 9-18
(Appendix) The Huron Corporation purchases 60,000 headbands per year. The
average purchase lead time is 20 working days. Maximum lead time is 27
working days. The corporation works 240 days per year.
Refer To:
9-18
Essay
103. Clay Company has projected sales and production in units for
Medium the second quarter of the coming year as follows:
Required:
a. Prepare a schedule for each month showing budgeted cash
disbursements for the Clay Company.
b. Prepare a schedule for each month showing budgeted cash
receipts for Clay Company.
Answer:
Cash disbursements:
April May June
Production this month (40%)........ $120,000 $100,000 $100,000
Production prior month (60%)....... 190,000 180,000 150,000
Selling and administrative......... 100,000 100,000 100,000
Total disbursements................ $410,000 $380,000 $350,000
104. Tilson Company has projected sales and production in units for
Medium the second quarter of the coming year as follows:
Required:
Answer:
Cash disbursements:
April May June
Production this month (40%)........ $182,000 $154,000 $154,000
Production prior month (60%)....... 193,000 273,000 231,000
Selling and administrative......... 110,000 110,000 110,000
Total disbursements................ $485,000 $537,000 $495,000
Required:
Answer:
a. April May June July
Budgeted sales, in units ..... 60,000 75,000 90,000 81,000
Desired ending inventory (40%) 30,000 36,000 32,400
Total needs .................. 90,000 111,000 122,400
Less beginning inventory ..... 38,000 30,000 36,000
Required purchases ........... 52,000 81,000 86,400
Required:
Answer:
a. The cash that TabComp can expect to collect during April is
calculated below.
107. The Doley Company has planned the following sales for the next
Medium three months:
Sales are made 20% for cash and 80% on account. From
experience, the company has learned that a month's sales on
account are collected according to the following pattern:
Required:
Answer:
a. Cash sales, March: $70,000 x 20% ............... $14,000
Collections on account:
Jan. sales: $40,000 x 80% x 8% .............. 2,560
Feb. sales: $50,000 x 80% x 30% ............. 12,000
Mar. sales: $70,000 x 80% x 60% ............. 33,600
Total cash receipts ............................. $62,160
Less disbursements:
Inventory purchases .......................... 28,000
Operating expenses ........................... 40,000
Dividends .................................... 4,000
Total disbursements ............................. 72,000
Cash excess (deficiency) ........................ (3,840)
Financing - borrowing ........................... 8,840
Cash balance, ending ............................ $ 5,000
Required:
Answer:
a. Expected
Sales Collections
March ............ $60,000 x 9% = $ 5,400
April ............ $78,000 x 20% = $15,600
May .............. $66,000 x 70% = $46,200
Total .......... $67,200
b.
Balance, May 1 ....................... $22,000
Required:
Answer:
Required:
Answer: