Test Bank - Chapter 9 Profit Planning

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Chapter 9

Profit Planning

True/False

1.

F

Medium

The usual starting point in budgeting is to make a forecast of

cash receipts and cash disbursements.

2.

F

Medium

Budgets are used for planning rather than for control of

operations.

3.

T

Easy

A continuous or perpetual budget is one which covers a 12-month

period but which is constantly adding a new month on the end as

the current month is completed.

4.

F

Easy

Control involves developing objectives and preparing the

various budgets to achieve those objectives.

5.

T

Easy

One of the distinct advantages of a budget is that it can help

to uncover potential bottlenecks before they occur.

6.

T

Easy

A self-imposed budget can be a very effective control device in

an organization.

7.

F

Medium

Sales forecasts are drawn up after the cash budget has been

completed since only then are the funds available for marketing

known.

8.

T

Medium

A production budget is to a manufacturing firm as a merchandise

purchases budget is to a merchandising firm.

9.

F

Medium

The direct materials to be purchased for a period can be

obtained by subtracting the desired ending inventory of direct

materials from the total direct materials needed for theperiod.

10.

F

Hard

In companies that have "no lay-off" policies, the total direct

labor cost for a budget period is computed by multiplying the

total direct labor hours needed to make the budgeted output of

completed units by the direct labor wage rate.

Managerial Accounting, 9/e 65



11.

F

Medium

In the merchandise purchases budget, the required purchases (in

units) for a period can be determined by subtracting the

beginning merchandise inventory (in units) from the budgeted

sales (in units).

12.F

Hard

The beginning cash balance is not included on the cash budgetsince the cash budget deals exclusively with cash flows rather

than with balance sheet amounts.

13.

F

Easy

When using the self-imposed budget approach, it is generally

best for top management to accept all budget estimates without

question in order to minimize adverse behavioral responses from

employees.

14.

T

Medium

(Appendix) The economic order quantity is that point where the

total costs of ordering inventory just equal the total costs of

carrying inventory.

15.T

Medium

(Appendix) As the lead time increases, the safety stock shouldalso increase.

Multiple Choice

16.

B

Easy

CMA

adapted

The budget or schedule that provides necessary input data for

the direct labor budget is the:

a. raw materials purchases budget.

b. production budget.

c. schedule of cash collections.

d. cash budget.

17.

B

Easy

CMA

adapted

The cash budget must be prepared before you can complete the:

a. production budget.

b. budgeted balance sheet.

c. raw materials purchases budget.

d. schedule of cash disbursements.

18.

C

Easy

Which of the following is not a benefit of budgeting?

a. It uncovers potential bottlenecks before they occur.

b. It coordinates the activities of the entire organization by

integrating the plans and objectives of the various parts.

c. It ensures that accounting records comply with generally

accepted accounting principles.

d. It provides benchmarks for evaluating subsequent

performance.

Managerial Accounting, 9/e66



19.

B

Easy

The materials purchase budget:

a. is the beginning point in the budget process.

b. must provide for desired ending inventory as well as for

production.

c. is accompanied by a schedule of cash collections.

d. is completed after the cash budget.

20.

C

Easy

CMA

adapted

The master budget process usually begins with the:

a. production budget.

b. operating budget.

c. sales budget.

d. cash budget.

21.

C

Easy

CMA

adapted

There are various budgets within the master budget. One of

these budgets is the production budget. Which of the following

BEST describes the production budget?

a. It details the required direct labor hours.

b. It details the required raw materials purchases.

c. It is calculated based on the sales budget and the desiredending inventory.

d. It summarizes the costs of producing units for the budget

period.

22.

C

Medium

(Appendix) The economic order quantity (EOQ) in an inventory

management system is:

a. the order quantity that yields the lowest unit purchase

cost.

b. the order quantity that yields the lowest inventory handling

cost.

c. the order quantity that yields the lowest total cost of

ordering and carrying inventory.

d. the order quantity with the largest purchase discount.

23.

D

Medium

CMA

adapted

(Appendix) The Stewart Company uses the Economic Order Quantity

(EOQ) model in its inventory management. A decrease in which of

the following variables would increase the company's EOQ?

a. Annual sales.

b. Cost per order.

c. Safety stock level.

d. Inventory carrying costs.

24.

D

Medium

(Appendix) The level of safety stock depends on all of the

following except:

a. the level of uncertainty of the sales forecast.

b. the level of customer dissatisfaction when goods are

unavailable.

c. the level of uncertainty in the lead time for shipments from

suppliers.

d. the ordering cost per order.




25.

B

Easy

CMA

adapted

A method of budgeting in which the cost of each program must be

justified every year is called:

a. operational budgeting.

b. zero-based budgeting.

c. continuous budgeting.

d. responsibility accounting.

26.

A

Easy

CMA

adapted

Fairmont Inc. uses an accounting system that charges costs to

the manager who has been delegated the authority to make

decisions concerning the costs. For example, if the sales

manager accepts a rush order that will result in higher than

normal manufacturing costs, these additional costs are charged

to the sales manager because the authority to accept or decline

the rush order was given to the sales manager. This type of

accounting system is known as:

a. responsibility accounting.

b. contribution accounting.

c. absorption accounting.

d. operational budgeting.

27.

D

Medium

Parlee Company's sales are 30% in cash and 70% on credit. Sixty

percent of the credit sales are collected in the month of sale,

25% in the month following sale, and 12% in the second month

following sale. The remainder are uncollectible. The following

are budgeted sales data:

January February March April

Total sales $60,000 $70,000 $50,000 $30,000

Total cash receipts in April would be budgeted to be:

a. $38,900.

b. $47,900.

c. $27,230.

d. $36,230.

28.

Difficult

Budgeted sales in Allen Company over the next four months are

given below:

September October November December

Budgeted sales $100,000 $160,000 $180,000 $120,000

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.




29.

D

Medium

The PDQ Company makes collections on credit sales according to

the following schedule:

25% in month of sale

70% in month following sale

4% in second month following sale

1% uncollectible

The following sales have been budgeted:

Month Sales

April ... $100,000

May ..... 120,000

June .... 110,000

Cash collections in June would be:

a. $113,400.

b. $110,000.

c. $111,000.

d. $115,500.

30.

D

Medium

Orion Corporation is preparing a cash budget for the six months

beginning January 1. Shown below are the company's expected

collection pattern and the budgeted sales for the period.

Expected collection pattern:

65% collected in the month of sale

20% collected in the month after sale

10% collected in the second month after sale

4% collected in the third month after sale

1% uncollectible

Budgeted sales:

January ....... $160,000

February ...... 185,000

March ......... 190,000

April ......... 170,000

May ........... 200,000

June .......... 180,000

The estimated total cash collections during April from sales

and accounts receivables would be:

a. $155,900.

b. $167,000.

c. $171,666.

d. $173,400.




31.

A

Easy

Pardee Company plans to sell 12,000 units during the month of

August. If the company has 2,500 units on hand at the start of

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.

32.

C

Medium

Modesto Company produces and sells Product AlphaB. To guard

against stockouts, the company requires that 20% of the next

month's sales be on hand at the end of each month. Budgeted

sales of Product AlphaB over the next four months are:

June July August September

Budgeted sales in units 30,000 40,000 60,000 50,000

Budgeted production for August would be:

a. 62,000 units.b. 70,000 units.

c. 58,000 units.

d. 50,000 units.

33.

B

Hard

Friden Company has budgeted sales and production over the next

quarter as follows:

April May June

Sales in units ......... 100,000 120,000 ?

Production in units .... 104,000 128,000 156,000

The company has 20,000 units of product on hand at April 1. A

minimum of 20% of the next month's sales needs in units must be

on hand at the end of each month. July sales are expected to be

140,000 units. Budgeted sales for June would be (in units):

a. 188,000.

b. 160,000.

c. 128,000.

d. 184,000.

34.

B

Medium

Walsh Company expects sales of Product W to be 60,000 units in

April, 75,000 units in May and 70,000 units in June. The

company desires that the inventory on hand at the end of each

month be equal to 40% of the next month's expected unit sales.

Due to excessive production during March, on March 31 there

were 25,000 units of Product W in the ending inventory. Given

this information, Walsh Company's production of Product W for

the month of April should be:

a. 60,000 units.

b. 65,000 units.

c. 75,000 units.

d. 66,000 units.




35.

C

Medium

CMA

adapted

Superior Industries' sales budget shows quarterly sales for the

next year as follows:

Quarter Sales (units)

First ..... 10,000

Second .... 8,000

Third ..... 12,000 Fourth .... 14,000

Company policy is to have a finished goods inventory at the end

of each quarter equal to 20% of the next quarter's sales.

Budgeted production for the second quarter should be:

a. 7,200 units.

b. 8,000 units.

c. 8,800 units.

d. 8,400 units.

36.

A

Medium

The Tobler Company has budgeted production for next year as

follows:

Quarter ............... First Second Third Fourth

Production in units ... 10,000 12,000 16,000 14,000

Four pounds of raw materials are required for each unit

produced. Raw materials on hand at the start of the year totals

4,000 lbs. The raw materials inventory at the end of each

quarter should equal 10% of the next quarter's production

needs. Budgeted purchases of raw materials in the third quarter

would be:

a. 63,200 lbs.

b. 62,400 lbs.

c. 56,800 lbs.

d. 50,400 lbs.

37.

D

Hard

Marple Company's budgeted production in units and budgeted raw

materials purchases over the next three months are given below:

January February March

Budgeted production (in units) .. 60,000 ? 100,000

Budgeted raw materials

purchases (in pounds) ........ 129,000 165,000 188,000

Two pounds of raw materials are required to produce one unit of

product. The company wants raw materials on hand at the end of

each month equal to 30% of the following month's production

needs. The company is expected to have 36,000 pounds of raw

materials on hand on January 1. Budgeted production for

February should be:

a. 105,000 units.

b. 82,500 units.

c. 150,000 units.

d. 75,000 units.




38.

A

Medium

The Waverly Company has budgeted sales for next year as

follows:

Quarter .......... First Second Third Fourth

Sales in units ... 12,000 14,000 18,000 16,000

The ending inventory of finished goods for each quarter shouldequal 25% of the next quarter's budgeted sales in units. The

finished goods inventory at the start of the year is 3,000

units. Scheduled production for the third quarter should be:

a. 17,500.

b. 18,500.

c. 22,000.

d. 13,500.

39.

A

Hard

The Willsey Merchandise Company has budgeted $40,000 in sales

for the month of December. The company's cost of goods sold is

30% of sales. If the company has budgeted to purchase $18,000

in merchandise during December, then the budgeted change in

inventory levels over the month of December is:a. $6,000 increase.

b. $10,000 decrease.

c. $22,000 decrease.

d. $15,000 increase.

40.

B

Easy

ABC Company has a cash balance of $9,000 on April 1. The

company must maintain a minimum cash balance of $6,000. During

April expected cash receipts are $45,000. Expected cash

disbursements during the month total $52,000. During April the

company will need to borrow:

a. $2,000.

b. $4,000.

c. $6,000.

d. $8,000.




41.

D

Easy

Avril Company makes collections on sales according to the

following schedule:

30% in the month of sale

60% in the month following sale

8% in the second month following sale

The following sales are expected:

Expected Sales

January ....... $100,000

February ...... 120,000

March ......... 110,000

Cash collections in March should be budgeted to be:

a. $110,000.

b. $110,800.

c. $105,000.

d. $113,000.

42.

B

Hard

The Stacy Company makes and sells a single product, Product R.

Budgeted sales for April are $300,000. Gross Margin is budgeted

at 30% of sales dollars. If the net income for April is

budgeted at $40,000, the budgeted selling and administrative

expenses are:

a. $133,333.

b. $50,000.

c. $102,000.

d. $78,000.

43.

A

Hard

CMA

adapted

(Appendix) Canesco Enterprises uses 84,000 units of Part 256 in

its production over a 300-day work year. The usual lead time

for delivery of the part from the supplier is six days;

occasionally, the lead time has been as high as eight days. The

company wants to implement a safety stock policy (it presently

carries no safety stocks). The safety stock size, the likely

effect on stockout costs of implementing the safety stock, and

the likely effect on carrying costs of implementing the safety

stock, respectively, would be:

a. 560 units, decrease, increase.

b. 560 units, increase, decrease.

c. 1,680 units, decrease, increase.

d. 1,680 units, increase, no change.




44.

B

Medium

(Appendix) Karpov Enterprises, a wholesaler of electronic

instruments, uses the economic order quantity model in its

inventory management. Data concerning one product appear below:

Total units purchased annually .............. 810

Costs to place one order .................... $10

Selling price per unit ...................... $40 Annual cost to carry one unit in stock ...... $ 2

The economic order quantity (EOQ) for this product would be:

a. 18 units.

b. 90 units.

c. 81 units.

d. 180 units.

45.

D

Medium

CPA

adapted

(Appendix) The Aron Company requires 40,000 units of Product Q

for the year. The units will be used evenly throughout the

year. It costs $60 to place an order. It costs $10 to carry a

unit in inventory for the year. What is the economic order

quantity (EOQ) rounded to the nearest whole unit?a. 400.

b. 490.

c. 600.

d. 693.

46.

A

Medium

CPA

adapted

(Appendix) The following data relate to a part used by the

Henry Company:

Units required per year .......... 30,000

Cost of placing an order ......... $ 400

Unit carrying cost per year ...... $ 600

Assuming that the units will be used evenly throughout the

year, what is the economic order quantity (EOQ)?

a. 200.

b. 300.

c. 400.

d. 500.

47.

D

Hard

CPA

adapted

(Appendix) Politan Company manufactures 4,000 bookcases a year.

Set-up costs are $20 for a production run. Using the economic

order quantity (EOQ) approach, the optimal production lot size

would be 200 units when the cost of carrying one bookcase in

inventory for one year is:

a. $0.50.

b. $1.00.

c. $2.00.

d. $4.00.




48.

A

Hard

CMA

adapted

(Appendix) Moss Converters Inc. uses 100,000 kilograms of raw

material annually in its production processes. The raw material

costs $12 per kilogram. The cost to process a purchase order is

$45, which includes variable costs of $35 and allocated fixed

costs of $10. Out-of-pocket storage costs are $4.20 per

kilogram per year. Moss's economic order quantity (EOQ) is:

a. 1,291 units.b. 1,464 units.

c. 1,708 units.

d. 1,936 units.

49.

C

Medium

(Appendix) Jasper Inc. produces automobile headlight assemblies

for sports-utility vehicles. Data concerning a particular metal

fastener that is used in a one of the company's products appear

below.

Economic order quantity ..... 600 units

Average weekly usage ........ 150 units

Maximum weekly usage ........ 175 units

Lead time ................... 2 weeks

The safety stock would be:

a. 350 units.

b. 175 units.

c. 50 units.

d. 75 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.

C

Easy

CMA

adapted

Refer To:

9-1

The amount of cash collected during the month of June should

be:

a. $32,000.

b. $40,000.

c. $40,400.

d. $41,000.




51.

B

Easy

CMA

adapted

Refer To:

9-1

The cash disbursements during the month of June for goods

purchased for resale and for operating expenses should be:

a. $40,000.

b. $41,000.

c. $42,500.

d. $43,500.

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.

52.

D

Medium

Refer To:

9-2

In a budgeted income statement for the month of February, net

income would be:

a. $9,000.

b. $1,800.

c. $0.

d. $4,200.

53.

A

Medium

Refer To:

9-2

In a budgeted balance sheet, the Merchandise Inventory on

February 28 would be:

a. $4,800.

b. $7,500.

c. $9,600.

d. $3,200.




54.

C

Medium

Refer To:

9-2

The Accounts Receivable balance that would appear in the March

31 budgeted balance sheet would be:

a. $15,000.

b. $16,000.

c. $8,800.

d. $12,400.

55.

A

Medium

Refer To:

9-2

In a budget of cash receipts for March, the total cash receipts

would be:

a. $17,800.

b. $8,200.

c. $20,200.

d. $16,000.

56.

B

Hard

Refer To:

9-2

In a budget of cash disbursements for March, the total cash

disbursements would be:

a. $11,200.

b. $13,900.

c. $22,300.d. $16,900.

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.

B

Medium

Refer To:

9-3

The expected cash collections from customers during April would

be:

a. $150,000.

b. $137,000.

c. $139,000.

d. $117,600.




58.

D

Easy

Refer To:

9-3

The expected cash disbursements during April for inventory

purchases would be:

a. $100,000.

b. $97,000.

c. $90,000.

d. $87,300.

59.

B

Easy

Refer To:

9-3

The expected cash disbursements during April for operating

expenses would be:

a. $38,000.

b. $30,000.

c. $23,000.

d. $15,000.

60.

A

Hard

Refer To:

9-3

The expected cash balance on April 30 would be:

a. $54,700.

b. $62,700.

c. $19,700.

d. $28,700.

Reference: 9-4

The LaPann Company has obtained the following sales forecast data:

July August September October

Cash sales ..... $ 80,000 $ 70,000 $ 50,000 $ 60,000

Credit sales ... $240,000 $220,000 $180,000 $200,000

The regular pattern of collection of credit sales is 20% in the month of

sale, 70% in the month following the month of sale, and the remainder in the

second month following the month of sale. There are no bad debts.

61.

C

Medium

Refer To:

9-4

The budgeted accounts receivable balance on September 30 is:

a. $126,000.

b. $148,000.

c. $166,000.

d. $190,000.

62.

B

Medium

Refer To:

9-4

The budgeted cash receipts for October are:

a. $188,000.

b. $248,000.

c. $226,000.

d. $278,000.




Reference: 9-5

The LaGrange Company had the following budgeted sales for the first half of

the current year:

Cash Sales Credit Sales

January ............ $70,000 $340,000February ........... 50,000 190,000

March .............. 40,000 135,000

April .............. 35,000 120,000

May ................ 45,000 160,000

June ............... 40,000 140,000

The company is in the process of preparing a cash budget and must determine

the expected cash collections by month. To this end, the following

information has been assembled:

Collections on sales: 60% in month of sale

30% in month following sale

10% in second month following sale

The accounts receivable balance on January 1 of the current year was

$70,000, of which $50,000 represents uncollected December sales and $20,000

represents uncollected November sales.

63.

D

Hard

Refer To:

9-5

The total cash collected by LaGrange Company during January

would be:

a. $410,000.

b. $254,000.

c. $344,000.

d. $331,500.

64.

C

Hard

Refer To:

9-5

What is the budgeted accounts receivable balance on June 1 of

the current year?

a. $56,000.

b. $64,000.

c. $76,000.

d. $132,000.




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.

D

Easy

CMA

adapted

Refer To:

9-6

If Pardise Company plans to sell 480,000 units during July, the

number of units it would have to manufacture during July would

be:

a. 440,000 units.

b. 480,000 units.

c. 510,000 units.

d. 450,000 units.

66.

C

Easy

CMA

adapted

Refer To:

9-6

If 500,000 finished units were to be manufactured during July,

the units of raw material needed to be purchased would be:

a. 1,000,000 units.

b. 1,020,000 units.

c. 1,010,000 units.

d. 990,000 units.

Reference: 9-7

Barley Enterprises has budgeted unit sales for the next four months as

follows:

October 4,800 units

November 5,800 units

December 6,400 units

January 5,200 units

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.

67.

B

Medium

Refer To:

9-7

The total units to be produced in October is:

a. 4,530.

b. 5,070.

c. 5,670.

d. 5,890.




68.

C

Easy

Refer To:

9-7

The desired ending inventory for December is:

a. 960.

b. 870.

c. 780.

d. 690.

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 forthe second quarter of the year.

69.

D

Medium

Refer To:

9-8

The opening inventory in units for September is:

a. 370 units.

b. 6,700 units.

c. 530 units.

d. 670 units.

70.

C

Medium

Refer To:

9-8

The total number of units to be produced in July is:

a. 7,630 units.

b. 7,100 units.

c. 6,920 units.

d. 7,280 units.

71.

B

Easy

Refer To:

9-8

The desired ending inventory for August is:

a. 530 units.

b. 670 units.

c. 710 units.

d. 370 units.

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.




72.

B

Medium

Refer To:

9-9

The opening inventory in units for April is:

a. 380 units.

b. 460 units.

c. 4,600 units.

d. 720 units.

73.

A

Medium

Refer To:

9-9

The total number of units to be produced in February is:

a. 5,580 units.

b. 5,400 units.

c. 6,120 units.

d. 5,220 units.

74.

B

Medium

Refer To:

9-9

The desired ending inventory for March is:

a. 720 units.

b. 460 units.

c. 540 units.

d. 380 units.

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:

Part A19 Part B12 Tricycles Bicycles

Beginning inventory ... 3,500 1,200 800 2,150

Ending inventory ...... 2,000 1,800 1,000 900

Unit cost ............. $1.20 $4.50 $54.50 $89.60

Projected unit sales .. 96,000 130,000

Component usage:

Tricycles ....... 2 per unit 1 per unit

Bicycles ........ 2 per unit 4 per unit

75.

B

Hard

CMA

adapted

Refer To:

9-10

The budgeted dollar value of Wellfleet Company's purchases of

Part A19 for next year is:

a. $383,580.

b. $538,080.

c. $540,600.

d. $480,000.

76.

D

Hard

CMA

adapted

Refer To:

9-10

(Appendix) If the economic order quantity (EOQ) for Part B12 is

70,000 units, the number of times that Wellfleet Company should

purchase this part next year is:

a. four times.

b. seven times.

c. eight times.

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.

B

Easy

Refer To:

9-11

The budgeted direct labor cost per unit of Product T would be:

a. $9.10.

b. $11.83.

c. $7.00.

d. $10.40.

78.

C

Medium

Refer To:

9-11

The company has budgeted to produce 25,000 units of Product T

in June. The finished goods inventories on June 1 and June 30

were budgeted at 500 and 700 units, respectively. Budgeted

direct labor costs incurred in June would be:

a. $293,384.

b. $304,031.

c. $295,750.d. $227,500.

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.

79.

C

Medium

Refer To:

9-12

If the company has budgeted to sell 25,000 units of Product SW

in July, then the total budgeted selling and administrative

expenses for July will be:

a. $56,250.

b. $78,000.

c. $134,250.

d. $123,250.




80.

A

Medium

Refer To:

9-12


in October then the total budgeted variable selling and

administrative expenses for October will be:

a. $45,000.

b. $40,000.

c. $56,250.d. $78,000.

81.

B

Hard

Refer To:

9-12

If the budgeted cash disbursements for selling and

administrative expenses for November total $123,250, then how

many units of Product SW does the company plan to sell in

November (rounded to the nearest whole unit)?

a. 33,444 units.

b. 25,000 units.

c. 22,952 units.

d. 20,111 units.

82.

DMedium

Refer To:

9-12


in September, then the total budgeted fixed selling andadministrative expenses for September would be:

a. $54,000.

b. $48,000.

c. $67,000.

d. $78,000.

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.

D

Easy

Refer To:

9-13

If the budgeted production for July is 6,000 units, then the

total budgeted factory overhead for July is:

a. $77,000.

b. $82,000.

c. $85,000.

d. $93,000.

84.

B

Easy

Refer To:

9-13

If the budgeted production for August is 5,000 units, then the

total budgeted factory overhead per unit is:

a. $15.

b. $18.

c. $20.

d. $22.




85.

D

Medium

Refer To:

9-13

If the budgeted cash disbursements for factory overhead for

September are $80,000, then the budgeted production for

September must be:

a. 7,400 units.

b. 6,200 units.

c. 6,500 units.d. 7,000 units.

Reference: 9-14

The Bandeiras Company, a merchandising firm, has budgeted its activity for

December according to the following information:

I. Sales at $550,000, all for cash.

II. Merchandise inventory on November 30 was $300,000.

III. Budgeted depreciation for December is $35,000.

IV. The cash balance at December 1 was $25,000.

V. Selling and administrative expenses are budgeted at $60,000 for

December and are paid in cash. VI. The planned merchandise inventory on December 31 is $270,000.

VII. The invoice cost for merchandise purchases represents 75% of the sales

price. All purchases are paid for in cash.

86.

D

Easy

Refer To:

9-14

The budgeted cash receipts for December are:

a. $412,500.

b. $137,500.

c. $585,000.

d. $550,000.

87.

B

Hard

Refer To:

9-14

The budgeted cash disbursements for December are:

a. $382,500.

b. $442,500.

c. $472,500.

d. $477,500.

88.

C

Hard

Refer To:

9-14

The budgeted net income for December is:

a. $107,500.

b. $137,500.

c. $42,500.

d. $77,500.




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.

C

Medium

Refer To:

9-15

The collections from customers during the first quarter (item

a) are:

a. $50.

b. $60.

c. $57.

d. $73.

90.

D

Easy

Refer To:

9-15

The borrowing required during the first quarter to meet the

minimum cash balance (item b) is:

a. $0.

b. $7.

c. $10.

d. $3.

91.

D

Hard

Refer To:

9-15

The cash disbursed for purchases during the second quarter

(item c) is:

a. $13.

b. $55.

c. $9.

d. $21.




92.

A

Medium

Refer To:

9-15

The repayment (including interest) of financing during the

second quarter (item d) is:

a. $4.

b. $0.

c. $17.

d. $7.

93.

A

Easy

Refer To:

9-15

The cash balance at the beginning of the second quarter (item

e) is:

a. $10.

b. $14.

c. $0.

d. $7.

94.

C

Easy

Refer To:

9-15

The total disbursements during the third quarter (item f) is:

a. $84.

b. $78.

c. $82.

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.

C

Medium

CMA

adapted

Refer To:

9-16

If RCF does not maintain a safety stock, the estimated total

inventory carrying costs for the chairs for the coming year

based on their current production schedule is:

a. $4,000.

b. $5,000.

c. $6,250.

d. $12,500.

96.

D

Medium

CMA

adapted

Refer To:

9-16

The number of production runs per year that would minimize the

sum of the inventory carrying costs and set-up costs for the

coming year is:

a. 1 production run.

b. 2 production runs.

c. 4 production runs.

d. 5 production runs.




97.

C

Medium

CMA

adapted

Refer To:9-16

A safety stock of a five-day supply of computer chairs would

increase RCF's planned average inventory by:

a. 20 units.

b. 5 units.

c. 100 units.

d. 50 units.

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.

98.B

Hard

CMA

adapted

Refer To:

9-17

If Cantor Creations does not maintain a safety stock, theestimated total carrying costs for the desks for the coming

year is:

a. $5,000.

b. $6,250.

c. $4,000.

d. $10,250.

99.

A

Hard

CMA

adapted

Refer To:

9-17

If Cantor Creations were to schedule only two equal production

runs of the desks for the coming year, the sum of carrying

costs and set-up costs would increase (decrease) by:

a. $4,250.

b. $(2,000).

c. $6,250.

d. $(250).

100.

B

Hard

CMA

adapted

Refer To:

9-17

A safety stock of a five-day supply of desks would increase the

number of units in Cantor Creations' planned average inventory

by:

a. 50 units.

b. 100 units.

c. 250 units.

d. 500 units.

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.

101.

C

Medium

CMA

adapted

Horun Corporation should carry a safety stock of:

a. 5,000 units.

b. 6,750 units.

c. 1,750 units.

d. 5,250 units.




Refer To:

9-18

102.

B

Medium

CMA

adapted

Refer To:

9-18

Huron Corporation should reorder headbands when the quantity in

inventory reaches:

a. 5,000 units.

b. 6,750 units.

c. 1,750 units.

d. 5,250 units.

Essay

103.

Medium

Clay Company has projected sales and production in units for

the second quarter of the coming year as follows:

April May June Sales ......... 50,000 40,000 60,000

Production .... 60,000 50,000 50,000

Cash-related production costs are budgeted at $5 per unit

produced. Of these production costs, 40% are paid in the month

in which they are incurred and the balance in the following

month. Selling and administrative expenses will amount to

$100,000 per month. The accounts payable balance on March 31

totals $190,000, which will be paid in April.

All units are sold on account for $14 each. Cash

collections from sales are budgeted at 60% in the month of

sale, 30% in the month following the month of sale, and the

remaining 10% in the second month following the month of sale.

Accounts receivable on April 1 totaled $500,000 ($90,000 from

February's sales and the remainder from March).

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:

April May June

Production units................... 60,000 50,000 50,000

Cash required per unit............. $5 $5 $5

Production costs................... $300,000 $250,000 $250,000

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

Payments relating to the prior month (March) in April represent

the balance of accounts payable at March 31.

April May June

Sales units........................ 50,000 40,000 60,000Sales price........................ X $14 x $14 x $14

Total sales........................ $700,000 $560,000 $840,000

April May June

Cash receipts:

February sales................... $ 90,000

March sales...................... 307,500 $102,500

April sales...................... 420,000 210,000 $ 70,000

May sales........................ 336,000 168,000

June sales....................... ________ ________ 504,000

Total receipts..................... $817,500 $648,500 $742,000




104.

Medium

Tilson Company has projected sales and production in units for

the second quarter of the coming year as follows:

April May June

Sales ............ 55,000 45,000 65,000

Production ....... 65,000 55,000 55,000

Cash-related production costs are budgeted at $7 per unit

produced. Of these production costs, 40% are paid in the month

in which they are incurred and the balance in the following

month. Selling and administrative expenses will amount to

$110,000 per month. The accounts payable balance on March 31

totals $193,000, which will be paid in April.

All units are sold on account for $16 each. Cash

collections from sales are budgeted at 60% in the month of

sale, 30% in the month following the month of sale, and the

remaining 10% in the second month following the month of sale.

Accounts receivable on April 1 totaled $520,000 ($100,000 from

February's sales and the remainder from March).

Required:

a. Prepare a schedule for each month showing budgeted cash

disbursements for the Tilson Company.

b. Prepare a schedule for each month showing budgeted cash

receipts for Tilson Company.

Answer:

April May June

Production units................... 65,000 55,000 55,000

Cash required per unit............. $7 $7 $7

Production costs................... $455,000 $385,000 $385,000

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




Payments relating to the prior month (March) in April represent

the balance of accounts payable at March 31.

April May June

Sales units....................... 55,000 45,000 65,000

Sales price....................... X $16 x $16 __ x $16

Total sales....................... $880,000 $720,000 $1,040,000

April May June

Cash receipts:

February sales.................. $100,000

March sales..................... 315,000 $105,000

April sales..................... 528,000 264,000 $ 88,000

May sales....................... 432,000 216,000

June sales...................... 624,000

Total receipts.................... $943,000 $801,000 $928,000

105.

Medium

At March 31 Streuling Enterprises, a merchandising firm, had an

inventory of 38,000 units, and it had accounts receivable

totaling $85,000. Sales, in units, have been budgeted asfollows for the next four months:

April ............... 60,000

May ................. 75,000

June ................ 90,000

July ................ 81,000

Streuling's board of directors has established a policy to

commence in April that the inventory at the end of each month

should contain 40% of the units required for the following

month's budgeted sales.

The selling price is $2 per unit. One-third of sales are paid

for by customers in the month of the sale, the balance is

collected in the following month.

Required:

a. Prepare a merchandise purchases budget showing how many

units should be purchased for each of the months April, May,

and June.

b. Prepare a schedule of expected cash collections for each of

the months April, May, and June.




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

b. April May June

Budgeted sales,

at $2 per unit .......... $120,000 $150,000 $180,000

March 31 Accounts Receivable $85,000

April sales ............... 40,000 $ 80,000

May sales ................. 50,000 $100,000

June sales ................ 60,000

Total cash collections ..... $125,000 $130,000 $160,000

106.

Hard

TabComp Inc. is a retail distributor for MZB-33 computer hardware

and related software. TabComp prepares annual sales forecasts ofwhich the first six months of the coming year are presented

below.

Hardware Hardware Total

Units Dollars Software Sales

January ....... 130 $390,000 $160,000 $550,000

February ...... 120 360,000 140,000 500,000

March ......... 110 330,000 150,000 480,000

April ......... 90 270,000 130,000 400,000

May ........... 100 300,000 125,000 425,000

June .......... 125 375,000 225,000 600,000

Cash sales account for 25% of TabComp's total sales, 30% of

the total sales are paid by bank credit card, and the remaining

45% are on open account (TabComp's own charge accounts). The

cash and bank credit card sale payments are received in the

month of the sale. Bank credit card sales are subject to a four

percent discount which is deducted immediately. The cash

receipts for sales on open account are 70% in the month

following the sale, 28% in the second month following the sale,

and the remaining are uncollectible.

TabComp's month-end inventory requirements for computer

hardware units are 30% of the next month's sales. The units

must be ordered two months in advance due to long lead times

quoted by the manufacturer.




Required:

a. Calculate the cash that TabComp can expect to collect during

April. Show all of your calculations.

b. Determine the number of computer hardware units that shouldbe ordered in January. show all of your calculations.

Answer:

a. The cash that TabComp can expect to collect during April is

calculated below.

April cash receipts:

April cash sales ($400,000 x 0.25)............. $100,000

April credit card sales ($400,000 x 0.30 x 0.96) 115,200

Collections on open account:

March ($480,000 x 0.45 x 0.70)................. 151,200

February ($500,000 x 0.45 x 0.28).............. 63,000

January (uncollectible)........................ 0 Total collections............................ $429,400

b. The number of units that TabComp should order in January is

calculated as follows.

March sales ..................................... 110 units

Add desired ending inventory (90 units x 0.30) .. 27 units

Total needs ..................................... 137 units

Less beginning inventory (110 units x 0.30) ..... 33 units

Required purchases .............................. 104 units

107.

Medium

The Doley Company has planned the following sales for the next

three months:

Jan Feb Mar

Budgeted sales ...... $40,000 $50,000 $70,000

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:

Month of sale ................ 60%

First month following sale ... 30%

Second month following sale .. 8%

Uncollectible ................ 2%

The company requires a minimum cash balance of $5,000 to start

a month. The beginning cash balance in March is budgeted to be

$6,000.




Required:

a. Compute the budgeted cash receipts for March.

b. The following additional information has been provide for

March:

Inventory purchases (all paid in March) $28,000 Operating expenses (all paid in March) $40,000

Depreciation expense for March ........ $5,000

Dividends paid in March ............... $4,000

Prepare a cash budget in good form for the month of March,

using this information and the budgeted cash receipts you

computed for part (1) above. The company can borrow in any

dollar amount and will not pay interest until April.

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

b. Cash balance, beginning ......................... $ 6,000

Add cash receipts from sales .................... 62,160

Total cash available ......................... $68,160

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

108.

Medium

CPA

adapted

Montero Corporation, a merchandising company, has provided the

following budget data:

Purchases Sales

January ........ $42,000 $72,000

February........ 48,000 66,000

March .......... 36,000 60,000

April .......... 54,000 78,000

May ............ 60,000 66,000

Collections from customers are normally 70% in the month of

sale, 20% in the month following the sale, and 9% in the second

month following the sale. The balance is expected to be

uncollectible. Montero pays for purchases in the month

following the purchase. Cash disbursements for expenses other

than merchandise purchases are expected to be $14,400 for May.

Montero's cash balance at May 1 was $22,000.




Required:

a. Compute the expected cash collections during May.

b. Compute the expected cash balance at May 31.

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

Expected collections ................. 67,200

Expected disbursements

April purchases to be paid in May .. $54,000 Cash disbursements for expenses .... 14,400

Total disbursements............... 68,400

(1,200)

Expected ending balance .............. $20,800

109.

Hard

A sales budget is given below for one of the products

manufactured by the Key Co.:

January ......... 21,000 units

February ........ 36,000 units

March ........... 61,000 units

April ........... 41,000 units

May ............. 31,000 units

June ............ 25,000 units

The inventory of finished goods at the end of each month

should equal 20% of the next month's sales. However, on

December 31 the finished goods inventory totaled only 4,000

units.

Each unit of product requires three specialized electrical

switches. Since the production of these specialized switches by

Key's suppliers is sometimes irregular, the company has a

policy of maintaining an ending inventory at the end of each

month equal to 30% of the next month's production needs. This

requirement had been met on January 1 of the current year.

Required:

Prepare a budget showing the quantity of switches to be

purchased each month for January, February, and March and in

total for the quarter.




Answer:


Budgeted sales (units)....... 21,000 36,000 61,000 41,000

Add: Desired ending inventory 7,200 12,200 8,200 6,200

Total needs.................. 28,200 48,200 69,200 47,200

Deduct: Beginning inventory. 4,000 7,200 12,200 8,200Units to be produced......... 24,200 41,000 57,000 39,000

January February March Quarter

Units to be produced........ 24,200 41,000 57,000 122,200

Switches per unit........... x 3 x 3 x 3 x 3

Production needs............ 72,600 123,000 171,000 366,600

Add: Desired

ending inventory 36,900 51,300 35,100 35,100

Total needs................. 109,500 174,300 206,100 401,700

Deduct: Beginning inventory. 21,780 36,900 51,300 21,780

Required purchases.......... 87,720 137,400 154,800 379,920

Beginning inventory, January 1: 72,600 x 0.3 = 21,780.

Ending inventory, March 30: (39,000 x 3) x 0.3 = 35,100.

110.

Hard

A sales budget is given below for one of the products

manufactured by the OMI Co.:

January ...... 25,000 units

February ..... 40,000 units

March ........ 65,000 units

April ........ 45,000 units

May .......... 35,000 units

June ......... 30,000 units

The inventory of finished goods at the end of each month

must equal 20% of the next month's sales. However, on December

31 the finished goods inventory totaled only 4,000 units.

Each unit of product requires three pounds of specialized

material. Since the production of this specialized material by

OMI's suppliers is sometimes irregular, the company has a

policy of maintaining an ending inventory at the end of each

month equal to 30% of the next month's production needs. This

requirement had been met on January 1 of the current year.

Required:

Prepare a budget showing the quantity of material to be

purchased each month for January, February, and March and in

total for the quarter.




Answer:


Budgeted sales (units)... 25,000 40,000 65,000 45,000

Add: Desired

ending inventory 8,000 13,000 9,000 7,000

Total needs.............. 33,000 53,000 74,000 52,000Deduct:

Beginning inventory 4,000 8,000 13,000 9,000

Units to be produced...... 29,000 45,000 61,000 43,000

January February March Quarter

Units to be produced..... 29,000 45,000 61,000 135,000

Switches per unit........ x 3 x 3 x 3 x 3

Production needs......... 87,000 135,000 183,000 405,000

Add: Desired

ending inventory. 40,500 54,900 38,700 38,700

Total needs.............. 127,500 189,900 221,700 443,700

Deduct:

Beginning inventory... 26,100 40,500 54,900 26,100Required purchases....... 101,400 149,400 166,800 417,600

Beginning inventory, January 1: 87,000 x 0.3 = 26,100.

Ending inventory, March 30: (43,000 x 3) x 0.3 = 38,700.

Test Bank - Chapter 9 Profit Planning

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