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Question TypeDifficultyLO1: Budget processLO2: Sales budgetLO3: Production budgetLO4: Direct materials budgetLO5: Direct labor budgetLO6: Manufacturing overhead budgetLO7: Selling & administrative budgetLO8: Cash budgetLO9: Budgeted income statementLO10:Budgeted balance sheetProfessional exam adapted

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8-1Copyright 2015 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education.Chapter 08Master Budgeting

True / False Questions1.The cash budget is usually prepared after the budgeted income statement.TrueFalse

2.The manufacturing overhead budget is typically prepared before the production budget.TrueFalse

3.Self-imposed budgets prepared by lower-level managers should be scrutinized by higher levels of management.TrueFalse

4.The basic idea underlying responsibility accounting is that each manager should be held responsible for the overall profit of the company to ensure that all managers are acting together.TrueFalse

5.Budgets are used to plan and to control operations.TrueFalse

6.The sales budget is usually prepared before the production budget.TrueFalse

7.A continuous or perpetual budget is a budget that almost never needs to be revised.TrueFalse

8.The cash budget is typically prepared before the direct materials budget.TrueFalse

9.In business, a budget is a method for putting a limit on spending.TrueFalse

10.Planning involves gathering feedback to ensure that the plan is being properly executed or modified as circumstances change.TrueFalse

11.A benefit of self-imposed budgeting is that it may allow lower-level managers to create budgetary slack.TrueFalse

12.The first budget a company prepares in a master budget is the production budget.TrueFalse

13.One disadvantage of a self-imposed budget is that budget estimates prepared by front-line managers are often less accurate and reliable than estimates prepared by top managers.TrueFalse

14.The direct materials budget is typically prepared before the production budget.TrueFalse

15.A self-imposed budget is a budget that is prepared with the full cooperation and participation of managers at all levels.TrueFalse

16.The sales budget often includes a schedule of expected cash collections.TrueFalse

17.The number of units to be produced in a period can be determined by adding the expected sales to the beginning inventory and then deducting the desired ending inventory.TrueFalse

18.In a merchandising company, the required merchandise purchases for a period are determined by subtracting the desired ending inventory from the sum of the units to be sold during the period and the units in beginning inventory.TrueFalse

19.When preparing a direct materials budget, the units of raw material needed to meet production should be added to desired ending inventory and the beginning inventory for raw materials should be subtracted to determine the amount of raw materials to be purchased.TrueFalse

20.In companies that do not 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.TrueFalse

21.The direct labor budget shows the direct labor-hours required to produce the desired ending inventory.TrueFalse

22.The manufacturing overhead budget lists all costs of production other than selling and administrative expenses.TrueFalse

23.Only variable manufacturing overhead costs are included in the manufacturing overhead budget.TrueFalse

24.The budgeted selling and administrative expense is calculated by multiplying the budgeted unit sales by the selling and administrative expense per unit.TrueFalse

25.Both variable and fixed manufacturing overhead costs are included in the selling and administrative expense budget.TrueFalse

26.On a cash budget, the total amount of budgeted cash payments for manufacturing overhead should not include any amounts for depreciation on factory equipment.TrueFalse

Multiple Choice Questions27.Which of the following budgets are prepared before the production budget?

A.Option A

B.Option B

C.Option C

D.Option D

28.Which of the following represents the normal sequence in which the below budgets are prepared?

A.Sales Budget, Budgeted Balance Sheet, Budgeted Income Statement

B.Budgeted Balance Sheet, Sales Budget, Budgeted Income Statement

C.Sales Budget, Budgeted Income Statement, Budgeted Balance Sheet

D.Budgeted Income Statement, Sales Budget, Budgeted Balance Sheet

29.Which of the following is NOT an objective of the budgeting process?

A.To communicate management's plans throughout the entire organization.

B.To provide a means of allocating resources to those parts of the organization where they can be used most effectively.

C.To ensure that the company continues to grow.

D.To uncover potential bottlenecks before they occur.

30.Which of the following benefits could an organization reasonably expect from an effective budget program?

A.Option A

B.Option B

C.Option C

D.Option D

31.The budget method that maintains a constant twelve-month planning horizon by adding a new month on the end as the current month is completed is called:

A.an operating budget.

B.a capital budget.

C.a continuous budget.

D.a master budget.

32.All the following are considered to be benefits of participative budgeting, except for:

A.Individuals at all organizational levels are recognized as being part of a team; this results in greater support for the organization.

B.The budget estimates are prepared by those in directly involved in activities.

C.When managers set their own targets for the budget, top management need not be concerned with the overall profitability of operations.

D.Managers are held responsible for reaching their goals and cannot easily shift responsibility by blaming unrealistic goals set by others.

33.When preparing a production budget, the required production equals:

A.budgeted sales + beginning inventory + desired ending inventory.

B.budgeted sales - beginning inventory + desired ending inventory.

C.budgeted sales - beginning inventory - desired ending inventory.

D.budgeted sales + beginning inventory - desired ending inventory.

34.The direct labor budget is based on:

A.the desired ending inventory of finished goods.

B.the beginning inventory of finished goods.

C.the required production for the period.

D.the required materials purchases for the period.

35.Which of the following might be included as a disbursement on a cash budget?

A.Option A

B.Option B

C.Option C

D.Option D

36.The WRT Corporation makes collections on sales according to the following schedule:

25% in month of sale65% in month following sale5% in second month following sale5% uncollectible

The following sales have been budgeted:

Budgeted cash collections in June would be:

A.$27,500

B.$98,500

C.$71,000

D.$115,500

37.Trumbull Corporation budgeted sales on account of $120,000 for July, $211,000 for August, and $198,000 for September. Experience indicates that none of the sales on account will be collected in the month of the sale, 60% will be collected the month after the sale, 36% in the second month, and 4% will be uncollectible. The cash receipts from accounts receivable that should be budgeted for September would be:

A.$169,800

B.$147,960

C.$197,880

D.$194,760

38.Sioux Corporation is estimating the following sales for the first four months of next year:

Sales are normally collected 60% in the month of sale, 35% in the month following the sale, and the remaining 5% being uncollectible. Based on this information, how much cash should Sioux expect to collect during the month of April?

A.$286,500

B.$320,000

C.$192,000

D.$94,500

39.Seventy percent of Parlee Corporation's sales are collected in the month of sale, 25% in the month following sale, and 5% in the second month following sale. The following are budgeted sales data for the company:

Total budgeted cash collections in April would be:

A.$35,000

B.$125,000

C.$210,000

D.$370,000

40.Budgeted sales in Acer Corporation over the next four months are 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 credit 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.$103,875

B.$98,125

C.$136,375

D.$119,500

41.All of Porter Corporation's sales are on account. Sixty percent of the credit sales are collected in the month of sale, 25% in the month following sale, and 10% in the second month following sale. The remainder are uncollectible. The following are budgeted sales data for the company:

Cash receipts in April are expected to be:

A.$420,000

B.$545,000

C.$605,000

D.$185,000

42.Paradise Corporation budgets on an annual basis for its fiscal year. The following beginning and ending inventory levels (in units) are planned for next year.

*Three pounds of raw material are needed to produce each unit of finished product.

If Paradise Corporation plans to sell 480,000 units during next year, the number of units it would have to manufacture during the year would be:

A.440,000 units

B.480,000 units

C.510,000 units

D.450,000 units

43.Frodic Corporation has budgeted sales and production over the next quarter as follows:

The company has 4,000 units of product on hand at July 1. 10% of the next month's sales in units should be on hand at the end of each month. October sales are expected to be 71,500 units. Budgeted sales for September would be (in units):

A.65,000

B.61,000

C.55,000

D.57,000

44.JT Department Store expects to generate the following sales for the next three months:

JT's cost of gods sold is 60% of sales dollars. At the end of each month, JT wants a merchandise inventory balance equal to 20% of the following month's expected cost of goods sold. What dollar amount of merchandise inventory should JT plan to purchase in August?

A.$257,400

B.$314,600

C.$352,800

D.$327,800

45.Fab Manufacturing Corporation manufactures and sells stainless steel coffee mugs. Expected mug sales at Fab (in units) for the next three months are as follows:

Fab likes to maintain a finished goods inventory equal to 30% of the next month's estimated sales. How many mugs should Fab plan on producing during the month of November?

A.23,200 mugs

B.26,800 mugs

C.25,900 mugs

D.34,300 mugs

46.The following information was taken from the production budget of Paeke Corporation for next quarter:

How many units is the company expecting to sell in the month of February?

A.132,000

B.138,000

C.135,000

D.140,000

47.On November 1, Barnes Corporation has 8,000 units of Product A on hand. During the month, the company plans to sell 30,000 units of Product A, and plans to have 6,500 units on hand at end of the month. How many units of Product A must be produced during the month?

A.28,500

B.31,500

C.30,000

D.36,500

48.Mutskic Corporation produces and sells Product BetaC. To guard against stockouts, the company requires that 30% of the next month's sales be on hand at the end of each month. Budgeted sales of Product BetaC over the next four months are:

Budgeted production for August would be:

A.83,000 units

B.107,000 units

C.77,000 units

D.80,000 units

49.Parsons Corporation plans to sell 18,000 units during August. If the company has 5,500 units on hand at the start of the month, and plans to have 6,000 units on hand at the end of the month, how many units must be produced during the month?

A.24,000

B.18,500

C.19,500

D.17,500

50.Starg Corporation, a retailer, plans to sell 25,000 units of Product X during the month of August. If the company has 9,000 units on hand at the start of the month, and plans to have 7,000 units on hand at the end of the month, how many units of Product X must be purchased from the supplier during the month?

A.32,000

B.23,000

C.27,000

D.25,000

51.The following information relates to Marter Manufacturing Corporation for next quarter:

How many units should the company plan on producing for the month of February?

A.360,000 units

B.362,000 units

C.358,000 units

D.398,000 units

52.Shocker Corporation's sales budget shows quarterly sales for the next year as follows:Unit sales

Corporation 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 of the next year would be:

A.7,200 units

B.8,000 units

C.8,800 units

D.8,400 units

53.The following are budgeted data:

Two pounds of material are required for each finished unit. The inventory of materials at the end of each month should equal 20% of the following month's production needs. Purchases of raw materials for May should be:

A.39,200 pounds

B.52,000 pounds

C.36,800 pounds

D.38,000 pounds

54.G Products, Inc. manufactures garlic gravy. G's production budget indicated the following units (jars) of gravy to be produced for the upcoming months indicated:

Five grams of garlic are needed for every jar of gravy. G also likes to have enough garlic on hand at the end of the month to cover 10% of the next month's production requirements for garlic. How many grams of garlic should G plan on purchasing during the month of May?

A.397,500 grams

B.399,500 grams

C.407,500 grams

D.437,500 grams

55.Marst Corporation's budgeted production in units and budgeted raw materials purchases over the next three months are given below:

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 30,000 pounds of raw materials on hand on January 1. Budgeted production for February should be:

A.60,000 units

B.54,000 units

C.84,000 units

D.108,000 units


One pound of material is required for each finished unit. The inventory of materials at the end of each month should equal 20% of the following month's production needs. Purchases of raw materials for February would be budgeted to be:

A.19,000 pounds

B.19,200 pounds

C.23,000 pounds

D.18,800 pounds

57.Rhett Corporation manufactures and sells dress shirts. Each shirt (unit) requires 3 yards of cloth. Selected data from Rhett's master budget for next quarter are shown below:

How many yards of cloth should Rhett plan on purchasing in May?

A.84,700 yards

B.96,700 yards

C.98,100 yards

D.98,800 yards

58.Prester Corporation has budgeted production for next year as follows:

Two pounds of material A are required for each unit produced. The company has a policy of maintaining a stock of material A on hand at the end of each quarter equal to 25% of the next quarter's production needs for material A. A total of 30,000 pounds of material A are on hand to start the year. Budgeted purchases of material A for the second quarter would be:

A.145,000 pounds

B.140,000 pounds

C.180,000 pounds

D.135,000 pounds

59.Milano Corporation is working on its direct labor budget for the next two months. Each unit of output requires 0.50 direct labor-hours. The direct labor rate is $9.80 per direct labor-hour. The production budget calls for producing 6,400 units in October and 6,300 units in November. If the direct labor work force is fully adjusted to the total direct labor-hours needed each month, what would be the total combined direct labor cost for the two months?

A.$30,870

B.$31,360

C.$62,230

D.$31,115

60.Morie Corporation is working on its direct labor budget for the next two months. Each unit of output requires 0.75 direct labor-hours. The direct labor rate is $8.10 per direct labor-hour. The production budget calls for producing 2,000 units in March and 2,300 units in April. The company guarantees its direct labor workers a 40-hour paid work week. With the number of workers currently employed, that means that the company is committed to paying its direct labor work force for at least 1,760 hours in total each month even if there is not enough work to keep them busy. What would be the total combined direct labor cost for the two months?

A.$28,512.00

B.$26,406.00

C.$28,228.50

D.$26,122.50

61.For July, White Corporation has budgeted production of 6,000 units. Each unit requires 0.10 direct labor-hours at a cost of $8.50 per direct labor-hour. How much will White Corporation budget for labor in July?

A.$51,000

B.$5,160

C.$600

D.$5,100

62.Triste Corporation manufactures and sells women's skirts. Each skirt (unit) requires 2.6 yards of cloth. Selected data from Triste's master budget for next quarter are shown below:

Each unit requires 1.6 hours of direct labor, and the average hourly cost of Triste's direct labor is $15. What is the cost of Triste Corporation's direct labor in September?

A.$336,000

B.$240,000

C.$150,000

D.$210,000

63.The manufacturing overhead budget at Amrein Corporation is based on budgeted direct labor-hours. The direct labor budget indicates that 4,900 direct labor-hours will be required in August. The variable overhead rate is $9.40 per direct labor-hour. The company's budgeted fixed manufacturing overhead is $96,040 per month, which includes depreciation of $7,350. All other fixed manufacturing overhead costs represent current cash flows. The August cash disbursements for manufacturing overhead on the manufacturing overhead budget should be:

A.$88,690

B.$134,750

C.$46,060

D.$142,100

64.The manufacturing overhead budget at Pendley Corporation is based on budgeted direct labor-hours. The direct labor budget indicates that 8,900 direct labor-hours will be required in August. The variable overhead rate is $5.50 per direct labor-hour. The company's budgeted fixed manufacturing overhead is $133,500 per month, which includes depreciation of $30,260. All other fixed manufacturing overhead costs represent current cash flows. The company recomputes its predetermined overhead rate every month. The predetermined overhead rate for August should be:

A.$5.50

B.$17.10

C.$20.50

D.$15.00

65.Axsom Inc. bases its manufacturing overhead budget on budgeted direct labor-hours. The direct labor budget indicates that 1,300 direct labor-hours will be required in March. The variable overhead rate is $8.90 per direct labor-hour. The company's budgeted fixed manufacturing overhead is $20,020 per month, which includes depreciation of $2,600. All other fixed manufacturing overhead costs represent current cash flows. The company recomputes its predetermined overhead rate every month. The predetermined overhead rate for March should be:

A.$22.30

B.$24.30

C.$15.40

D.$8.90

66.Morrish Inc. bases its manufacturing overhead budget on budgeted direct labor-hours. The direct labor budget indicates that 7,100 direct labor-hours will be required in January. The variable overhead rate is $1.80 per direct labor-hour. The company's budgeted fixed manufacturing overhead is $102,950 per month, which includes depreciation of $19,880. All other fixed manufacturing overhead costs represent current cash flows. The January cash disbursements for manufacturing overhead on the manufacturing overhead budget should be:

A.$115,730

B.$95,850

C.$12,780

D.$83,070

67.The selling and administrative expense budget of Ruffing Corporation is based on budgeted unit sales, which are 4,800 units for February. The variable selling and administrative expense is $8.10 per unit. The budgeted fixed selling and administrative expense is $71,520 per month, which includes depreciation of $16,800 per month. The remainder of the fixed selling and administrative expense represents current cash flows. The cash disbursements for selling and administrative expenses on the February selling and administrative expense budget should be:

A.$38,880

B.$54,720

C.$110,400

D.$93,600

68.Vandel Inc. bases its selling and administrative expense budget on budgeted unit sales. The sales budget shows 6,600 units are planned to be sold in April. The variable selling and administrative expense is $9.70 per unit. The budgeted fixed selling and administrative expense is $127,380 per month, which includes depreciation of $8,580 per month. The remainder of the fixed selling and administrative expense represents current cash flows. The cash disbursements for selling and administrative expenses on the April selling and administrative expense budget should be:

A.$191,400

B.$118,800

C.$64,020

D.$182,820

69.Laurey Inc. is working on its cash budget for May. The budgeted beginning cash balance is $45,000. Budgeted cash receipts total $129,000 and budgeted cash disbursements total $124,000. The desired ending cash balance is $60,000. To attain its desired ending cash balance for May, the company needs to borrow:

A.$110,000

B.$0

C.$60,000

D.$10,000

70.Arakaki Inc. is working on its cash budget for January. The budgeted beginning cash balance is $41,000. Budgeted cash receipts total $114,000 and budgeted cash disbursements total $113,000. The desired ending cash balance is $60,000. The excess (deficiency) of cash available over disbursements for January will be:

A.$42,000

B.$155,000

C.$40,000

D.$1,000

71.Sparks Corporation has a cash balance of $7,500 on April 1. The company must maintain a minimum cash balance of $6,000. During April, expected cash receipts are $48,000. Cash disbursements during the month are expected to total $52,000. Ignoring interest payments, during April the company will need to borrow:

A.$3,500

B.$2,500

C.$6,000

D.$4,000

72.For May, Young Corporation has budgeted its cash receipts at $125,000 and its cash disbursements at $138,000. The company's cash balance on May 1 is $17,000. If the desired May 31 cash balance is $20,000, then how much cash must the company borrow during the month (before considering any interest payments)?

A.$4,000

B.$8,000

C.$12,000

D.$16,000

73.Harrti Corporation has budgeted for the following sales:

Sales are collected as follows: 10% in the month of sale; 60% in the month following the sale; and the remaining 30% in the second month following the sale. In Razz's budgeted balance sheet at December 31, at what amount will accounts receivable be shown?

A.$680,000

B.$612,000

C.$826,500

D.$214,500

The Khaki Corporation has the following budgeted sales data:

The regular pattern of collection of credit sales is 40% in the month of sale, 50% in the month following sale, and the remainder in the second month following the month of sale. There are no bad debts.

74.The budgeted accounts receivable balance on February 28 would be:

A.$250,000

B.$210,000

C.$175,000

D.$215,000

75.The budgeted cash receipts for April would be:

A.$350,000

B.$320,000

C.$313,000

D.$383,000

Home Corporation will open a new store on January 1. Based on experience from its other retail outlets, Home Corporation is making the following sales projections:

Home Corporation estimates that 70% of the credit sales will be collected in the month following the month of sale, with the balance collected in the second month following the month of sale.

76.Based on these data, the balance in accounts receivable on January 31 will be:

A.$40,000

B.$28,000

C.$12,000

D.$58,000

77.The March 31 balance in accounts receivable will be:

A.$100,000

B.$60,000

C.$95,000

D.$75,000

78.In a cash budget for April, the total cash receipts will be:

A.$74,000

B.$57,000

C.$114,000

D.$97,000

Richards Corporation has the following budgeted sales for the first half of next 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:

The accounts receivable balance on January 1 is $70,000. Of this amount, $60,000 represents uncollected December sales and $10,000 represents uncollected November sales.

79.The total cash collected during January would be:

A.$270,000

B.$420,000

C.$345,000

D.$360,000

80.What is the budgeted accounts receivable balance on May 30?

A.$81,000

B.$68,000

C.$60,000

D.$141,000

Bracken Corporation is a small wholesaler of gourmet food products. Data regarding the store's operations follow:

Sales are budgeted at $330,000 for November, $340,000 for December, and $340,000 for January. Collections are expected to be 80% in the month of sale, 17% in the month following the sale, and 3% uncollectible. The cost of goods sold is 75% of sales. The company would like to maintain ending merchandise inventories equal to 70% of the next month's cost of goods sold. Payment for merchandise is made in the month following the purchase. Other monthly expenses to be paid in cash are $21,800. Monthly depreciation is $19,000. Ignore taxes.

81.Expected cash collections in December are:

A.$340,000

B.$328,100

C.$272,000

D.$56,100

82.The cost of December merchandise purchases would be:

A.$225,000

B.$178,500

C.$247,500

D.$255,000

83.December cash disbursements for merchandise purchases would be:

A.$178,500

B.$225,000

C.$255,000

D.$252,750

84.The difference between cash receipts and cash disbursements for December would be:

A.$34,000

B.$19,550

C.$87,550

D.$53,550

Dilbert Farm Supply is located in a small town in the rural west. Data regarding the store's operations follow:

Sales are budgeted at $260,000 for November, $230,000 for December, and $210,000 for January. Collections are expected to be 80% in the month of sale, 19% in the month following the sale, and 1% uncollectible. The cost of goods sold is 65% of sales. The company desires to have an ending merchandise inventory at the end of each month equal to 60% of the next month's cost of goods sold. Payment for merchandise is made in the month following the purchase. Other monthly expenses to be paid in cash are $20,300. Monthly depreciation is $20,000. Ignore taxes.

85.Expected cash collections in December are:

A.$230,000

B.$184,000

C.$233,400

D.$49,400

86.The cost of December merchandise purchases would be:

A.$141,700

B.$169,000

C.$81,900

D.$149,500

87.December cash disbursements for merchandise purchases would be:

A.$141,700

B.$149,500

C.$157,300

D.$81,900

88.The difference between cash receipts and cash disbursements for December would be:

A.$55,800

B.$37,900

C.$93,700

D.$17,900

89.The net income for December would be:

A.$60,200

B.$37,900

C.$40,200

D.$55,800

90.The cash balance at the end of December would be:

A.$180,500

B.$153,500

C.$82,800

D.$27,000

91.The accounts receivable balance, net of uncollectible accounts, at the end of December would be:

A.$46,000

B.$93,100

C.$43,700

D.$81,300

92.Accounts payable at the end of December would be:

A.$81,900

B.$141,700

C.$59,800

D.$149,500

93.Retained earnings at the end of December would be:

A.$380,400

B.$418,300

C.$471,300

D.$466,400

The following are budgeted data for the Bingham Corporation, a merchandising company:

94.Assuming that the Bingham Corporation had inventory on hand of $70,000 (at cost) on January 1, the purchases for January (at cost) would be:

A.$180,000

B.$250,000

C.$263,000

D.$110,000

95.The desired ending inventory (at cost) for February would be:

A.$180,000

B.$300,000

C.$240,000

D.$160,000

96.Assume that all purchases are paid for in the month following the month of purchase. The cash disbursements for purchases that would appear in the April cash budget would be:

A.$180,000

B.$157,500

C.$240,000

D.$217,500

Harris, Inc., has budgeted sales in units for the next five months as follows:

Past experience has shown that the ending inventory for each month should be equal to 20% of the next month's sales in units. The inventory on May 31 contained 1,880 units. The company needs to prepare a production budget for the next five months.

97.The beginning inventory for September should be:

A.820 units

B.1,880 units

C.1,460 units

D.1,080 units

98.The total number of units produced in July should be:

A.9,260 units

B.7,700 units

C.7,800 units

D.7,900 units

May Corporation, a merchandising firm, has budgeted sales as follows for the third quarter of the year:

Cost of goods sold is equal to 65% of sales. The company wants to maintain a monthly ending inventory equal to 130% of the Cost of Goods Sold for the following month. The inventory on June 30 is less than this ideal since it is only $65,000. The company is now preparing a Merchandise Purchases Budget.

99.The desired beginning inventory for September is:

A.$117,000

B.$76,050

C.$91,000

D.$59,150

100.The budgeted purchases for July are:

A.$52,000

B.$63,050

C.$47,450

D.$91,050

Noel Enterprises has budgeted sales in units for the next five months as follows:

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 400 units. The company needs to prepare a production budget for the second quarter of the year.

101.The beginning inventory in units for September is:

A.380 units

B.460 units

C.4,600 units

D.720 units

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

A.5,580 units

B.5,400 units

C.6,120 units

D.5,220 units

103.The desired ending inventory for August is:

A.720 units

B.460 units

C.540 units

D.380 units

Sarter Corporation is in the process of preparing its annual budget. The following beginning and ending inventory levels are planned for the year.

Each unit of finished goods requires 3 grams of raw material. The company plans to sell 880,000 units during the year.

104.The number of units the company would have to manufacture during the year would be:

A.900,000 units

B.930,000 units

C.880,000 units

D.830,000 units

105.How much of the raw material should the company purchase during the year?

A.2,550,000 grams

B.2,490,000 grams

C.2,480,000 grams

D.2,500,000 grams

The TS Corporation has budgeted sales for the year as follows:

The ending inventory of finished goods for each quarter should equal 25% of the next quarter's budgeted sales in units. The finished goods inventory at the start of the year is 2,500 units. Four pounds of raw materials are required for each unit produced. Raw materials on hand at the start of the year total 4,200 pounds. The raw materials inventory at the end of each quarter should equal 10% of the next quarter's production needs in material.

106.Scheduled production for the third quarter should be:

A.14,500 units

B.18,500 units

C.15,500 units

D.13,500 units

107.Scheduled purchases of raw materials for the second quarter should be:

A.50,000 pounds

B.55,800 pounds

C.50,800 pounds

D.55,000 pounds

Roberts Corporation manufactures home cleaning products. One of the products, Quickclean, requires 2 pounds of Material A and 5 pounds of Material B per unit manufactured. Material A is purchased from the supplier for $0.30 per pound and Material B is purchased for $0.50 per pound. The finished goods inventory on hand at the end of each month should equal 4,000 units plus 25% of the next month's sales. The raw materials inventory on hand at the end of each month (for either Material A or Material B) should equal 80% of the following month's production needs.

The production budget calls for 26,000 units of Quickclean to be manufactured in June and 32,000 units of Quickclean to be manufactured in July. On May 31 there will be 41,600 pounds of Material A and 104,000 pounds of Material B in inventory.

108.Assume that on January 1 the inventory of Quickclean was 8,000 units. Expected sales in January are 14,000 units and expected sales in February are 18,000 units. The number of units needed to be produced in January would be:

A.10,500

B.14,000

C.14,500

D.15,000

109.The number of pounds of Material A needed for production during June would be:

A.61,600

B.51,200

C.35,600

D.52,000

110.The number of pounds of Material B to be purchased during June would be:

A.128,000

B.130,000

C.154,000

D.160,000

LFM Corporation makes and sells a product called Product WZ. Each unit of Product WZ requires 3.5 hours of direct labor at the rate of $16.00 per direct labor-hour. Management would like you to prepare a Direct Labor Budget for June.

111.The budgeted direct labor cost per unit of Product WZ would be:

A.$4.57

B.$19.50

C.$16.00

D.$56.00

112.The company plans to sell 31,000 units of Product WZ in June. The finished goods inventories on June 1 and June 30 are budgeted to be 100 and 600 units, respectively. Budgeted direct labor costs for June would be:

A.$1,764,000

B.$504,000

C.$1,708,000

D.$1,736,000

Cashan Corporation makes and sells a product called a Miniwarp. One Miniwarp requires 1.5 kilograms of the raw material Jurislon. Budgeted production of Miniwarps for the next five months is as follows:

The company wants to maintain monthly ending inventories of Jurislon equal to 30% of the following month's production needs. On July 31, this requirement was not met since only 10,400 kilograms of Jurislon were on hand. The cost of Jurislon is $4.00 per kilogram. The company wants to prepare a Direct Materials Purchase Budget for the next five months.

113.The desired ending inventory of Jurislon for September is:

A.$29,640

B.$29,520

C.$44,460

D.$44,280

114.The total cost of Jurislon to be purchased in August is:

A.$149,860

B.$252,400

C.$191,460

D.$147,000

Cowles Corporation, Inc. makes and sells a single product, Product R. Three yards of Material K are needed to make one unit of Product R. Budgeted production of Product R for the next five months is as follows:

The company wants to maintain monthly ending inventories of Material K equal to 30% of the following month's production needs. On July 31, this requirement was not met because only 3,500 yards of Material K were on hand. The cost of Material K is $0.80 per yard. The company wants to prepare a Direct Materials Purchase Budget for the rest of the year.

115.The total cost of Material K to be purchased in August is:

A.$47,650

B.$38,120

C.$30,350

D.$24,280

116.The desired ending inventory of Material K for September is:

A.12,750 yards

B.12,500 yards

C.13,050 yards

D.12,150 yards

117.The total needs (i.e., production requirements plus desired ending inventory) of Material K for November are:

A.40,800 yards

B.44,940 yards

C.37,380 yards

D.52,410 yards

Adi Manufacturing Corporation is estimating the following raw material purchases for the final four months of the year:

At Adi, 30% of raw materials purchases are normally paid for in the month of purchase. The remaining 70% is paid for in the month following the purchase.

118.How much cash should Adi expect to pay out for raw material purchases during November?

A.$896,000

B.$392,000

C.$644,000

D.$252,000

119.In Adi's budgeted balance sheet at December 31, at what amount will accounts payable for raw materials be shown?

A.$760,000

B.$532,000

C.$228,000

D.$588,000

The Gerald Corporation makes and sells a single product called a Clop. Each Clop requires 1.1 direct labor-hours at $8.20 per direct labor-hour. The direct labor workforce is fully adjusted each month to the required workload. The company is preparing a Direct Labor Budget for the first quarter of the year.

120.The budgeted direct labor cost per Clop is closest to:

A.$7.45

B.$8.20

C.$9.02

D.$9.76

121.If the company has budgeted to produce 20,000 Clops in January, then the budgeted direct labor cost for January is:

A.$164,000

B.$180,400

C.$172,200

D.$195,600

122.If the budgeted direct labor cost for February is $162,360, then the budgeted production of Clops for February is:

A.23,200 units

B.21,000 units

C.19,800 units

D.18,000 units

The LFG Corporation makes and sells a single product, Product T. Each unit of Product T requires 1.4 direct labor-hours at a rate of $9.80 per direct labor-hour. The direct labor workforce is fully adjusted each month to the required workload. LFG Corporation needs to prepare a Direct Labor Budget for the second quarter of next year.

123.The budgeted direct labor cost per unit of Product T is closest to:

A.$9.80

B.$11.83

C.$7.00

D.$13.72

124.The company has budgeted to produce 24,000 units of Product T in June. The finished goods inventories on June 1 and June 30 were budgeted at 600 and 800 units, respectively. Budgeted direct labor costs for June would be:

A.$332,024

B.$329,280

C.$235,200

D.$326,536

The Covey Corporation is preparing its Manufacturing Overhead Budget for the fourth quarter of the year. The budgeted variable manufacturing overhead rate is $4.00 per direct labor-hour; the budgeted fixed manufacturing overhead is $64,000 per month, of which $18,000 is factory depreciation.

125.If the budgeted direct labor time for October is 8,000 hours, then the total budgeted manufacturing overhead for October is:

A.$96,000

B.$78,000

C.$64,000

D.$76,000

126.If the budgeted cash disbursements for manufacturing overhead for November are $90,000, then the budgeted direct labor-hours for November must be:

A.11,000 direct labor-hours

B.22,500 direct labor-hours

C.6,500 direct labor-hours

D.2,000 direct labor-hours

127.If the budgeted direct labor time for December is 4,000 hours, then the average budgeted manufacturing overhead per direct labor-hour is:

A.$16.00 per direct labor-hour

B.$15.50 per direct labor-hour

C.$20.00 per direct labor-hour

D.$24.50 per direct labor-hour

Cartier Inc. bases its manufacturing overhead budget on budgeted direct labor-hours. The variable overhead rate is $5.80 per direct labor-hour. The company's budgeted fixed manufacturing overhead is $39,930 per month, which includes depreciation of $12,870. All other fixed manufacturing overhead costs represent current cash flows. The direct labor budget indicates that 3,300 direct labor-hours will be required in April.

128.The April cash disbursements for manufacturing overhead on the manufacturing overhead budget should be:

A.$59,070

B.$46,200

C.$27,060

D.$19,140

129.The company recomputes its predetermined overhead rate every month. The predetermined overhead rate for April should be:





Davey Corporation is preparing its Manufacturing Overhead Budget for the fourth quarter of the year. The budgeted variable manufacturing overhead rate is $3.00 per direct labor-hour; the budgeted fixed manufacturing overhead is $66,000 per month, of which $10,000 is factory depreciation.

130.If the budgeted direct labor time for October is 6,000 hours, then the total budgeted manufacturing overhead for October is:

A.$28,000

B.$56,000

C.$74,000

D.$84,000

131.If the budgeted direct labor time for November is 9,000 hours, then the total budgeted cash disbursements for manufacturing overhead for November must be:

A.$56,000

B.$83,000

C.$37,000

D.$93,000

132.If the budgeted direct labor time for December is 4,000 hours, then the predetermined manufacturing overhead per direct labor-hour for December would be:

A.$3.00

B.$19.50

C.$5.50

D.$17.00

The manufacturing overhead budget at Cardera Corporation is based on budgeted direct labor-hours. The direct labor budget indicates that 2,300 direct labor-hours will be required in January. The variable overhead rate is $1.00 per direct labor-hour. The company's budgeted fixed manufacturing overhead is $28,060 per month, which includes depreciation of $4,600. All other fixed manufacturing overhead costs represent current cash flows.

133.The company recomputes its predetermined overhead rate every month. The predetermined overhead rate for January should be:





134.The January cash disbursements for manufacturing overhead on the manufacturing overhead budget should be:

A.$30,360

B.$2,300

C.$23,460

D.$25,760

Poriss Corporation makes and sells a single product called a Yute. The company is in the process of preparing its Selling and Administrative Expense Budget for the last quarter of the year. The following budget data are available:

All of these expenses (except depreciation) are paid in cash in the month they are incurred.

135.If the company has budgeted to sell 19,000 Yutes in November, then the total budgeted selling and administrative expenses for November would be:

A.$546,000

B.$280,000

C.$266,000

D.$536,000

136.If the company has budgeted to sell 16,000 Yutes in December, then the budgeted total cash disbursements for selling and administrative expenses for December would be:

A.$280,000

B.$494,000

C.$224,000

D.$504,000

137.If the total budgeted selling and administrative expense for October is $459,200, then how many Yutes does the company plan to sell in October?

A.13,300 units

B.12,500 units

C.13,000 units

D.12,800 units

The Prattle Corporation makes and sells only one product called a Deb. The company is in the process of preparing its Selling and Administrative Expense Budget for next year. The following budget data are available:

All of these expenses (except depreciation) are paid in cash in the month they are incurred.

138.If the company has budgeted to sell 17,000 Debs in January, then the total budgeted variable selling and administrative expenses for January will be:

A.$34,000

B.$39,100

C.$18,700

D.$25,500

139.If the company has budgeted to sell 16,000 Debs in February, then the total budgeted fixed selling and administrative expenses for February is:

A.$75,000

B.$70,000

C.$110,000

D.$100,000

140.If the company has budgeted to sell 20,000 Debs in March, then the average budgeted selling and administrative expenses per unit sold for March is closest to:

A.$7.80 per unit

B.$9.00 per unit

C.$8.50 per unit

D.$6.80 per unit

141.If the budgeted cash disbursements for selling and administrative expenses for April total $144,390, then how many Debs does the company plan to sell in April?

A.17,500 units

B.18,250 units

C.20,000 units

D.19,300 units

Rogers Corporation is preparing its cash budget for July. The budgeted beginning cash balance is $25,000. Budgeted cash receipts total $141,000 and budgeted cash disbursements total $139,000. The desired ending cash balance is $30,000.

142.The excess (deficiency) of cash available over disbursements for July is:

A.$23,000

B.$2,000

C.$166,000

D.$27,000

143.To attain its desired ending cash balance for July, the company should borrow:

A.$30,000

B.$0

C.$3,000

D.$57,000

Muecke Inc. is working on its cash budget for April. The budgeted beginning cash balance is $40,000. Budgeted cash receipts total $150,000 and budgeted cash disbursements total $158,000. The desired ending cash balance is $50,000.

144.The excess (deficiency) of cash available over disbursements for April will be:

A.$32,000

B.$190,000

C.$48,000

D.($8,000)

145.To attain its desired ending cash balance for April, the company needs to borrow:

A.$18,000

B.$0

C.$50,000

D.$82,000

The Adams Corporation, a merchandising firm, has budgeted its activity for November according to the following information:

Sales at $450,000, all for cash. Merchandise inventory on October 31 was $200,000. The cash balance November 1 was $18,000. Selling and administrative expenses are budgeted at $60,000 for November and are paid for in cash. Budgeted depreciation for November is $25,000. The planned merchandise inventory on November 30 is $230,000. The cost of goods sold is 70% of the selling price. All purchases are paid for in cash. There is no interest expense or income tax expense.

146.The budgeted cash receipts for November are:

A.$315,000

B.$450,000

C.$135,000

D.$475,000

147.The budgeted cash disbursements for November are:

A.$345,000

B.$375,000

C.$530,000

D.$405,000

148.The budgeted net income for November is:

A.$50,000

B.$68,000

C.$75,000

D.$135,000

Carter Lumber sells lumber and general building supplies to building contractors in a medium-sized town in Montana. Data regarding the store's operations follow:

Sales are budgeted at $380,000 for November, $390,000 for December, and $400,000 for January. Collections are expected to be 70% in the month of sale, 27% in the month following the sale, and 3% uncollectible. The cost of goods sold is 65% of sales. The company desires to have an ending merchandise inventory equal to 80% of the following month's cost of goods sold. Payment for merchandise is made in the month following the purchase. Other monthly expenses to be paid in cash are $22,000. Monthly depreciation is $20,000. Ignore taxes.

149.The net income for December would be:

A.$114,500

B.$94,500

C.$101,400

D.$82,800

150.The cash balance at the end of December would be:

A.$182,400

B.$114,400

C.$13,000

D.$195,400

151.The accounts receivable balance, net of uncollectible accounts, at the end of December would be:

A.$105,300

B.$88,700

C.$117,000

D.$207,900

152.Accounts payable at the end of December would be:

A.$253,500

B.$50,700

C.$208,000

D.$258,700

153.Retained earnings at the end of December would be:

A.$259,600

B.$342,400

C.$422,000

D.$445,100

Essay Questions154.Caprice Corporation is a wholesaler of industrial goods. Data regarding the store's operations follow:

Sales are budgeted at $350,000 for November, $320,000 for December, and $300,000 for January. Collections are expected to be 80% in the month of sale, 16% in the month following the sale, and 4% uncollectible. The cost of goods sold is 70% of sales. The company desires an ending merchandise inventory equal to 60% of the cost of goods sold in the following month. Payment for merchandise is made in the month following the purchase. The November beginning balance in the accounts receivable account is $78,000. The November beginning balance in the accounts payable account is $254,000.

Required:

a. Prepare a Schedule of Expected Cash Collections for November and December.b. Prepare a Merchandise Purchases Budget for November and December.

155.Clay Corporation has projected sales and production in units for the second quarter of the coming year as follows:

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 $410,000 from March's sales).

Required:

a. Prepare a schedule for each month showing budgeted cash disbursements for Clay Corporation.b. Prepare a schedule for each month showing budgeted cash receipts for Clay Corporation.

156.Mate Boomerang Corporation manufactures and sells plastic boomerangs. Expected boomerang sales (in units) for the upcoming months are as follows:

Mate likes to maintain a finished goods inventory equal to 10% of the next month's estimated sales. Seven ounces of plastic resin are needed to produce every boomerang. Mate likes to have enough plastic resin on hand at the end of the month to cover 25% of the next month's production requirements.

Required:

How many ounces of plastic resin should Mate plan on purchasing during the month of October?

157.Weldon Industrial Gas Corporation supplies acetylene and other compressed gases to industry. Data regarding the store's operations follow:

Sales are budgeted at $360,000 for November, $380,000 for December, and $350,000 for January. Collections are expected to be 75% in the month of sale, 20% in the month following the sale, and 5% uncollectible. The cost of goods sold is 65% of sales. The company desires an ending merchandise inventory equal to 60% of the cost of goods sold in the following month. Payment for merchandise is made in the month following the purchase. Other monthly expenses to be paid in cash are $21,900. Monthly depreciation is $20,000. Ignore taxes.

Required:

a. Prepare a Schedule of Expected Cash Collections for November and December.b. Prepare a Merchandise Purchases Budget for November and December.c. Prepare Cash Budgets for November and December.d. Prepare Budgeted Income Statements for November and December.e. Prepare a Budgeted Balance Sheet for the end of December.

158.The following information is budgeted for McCracken Plumbing Supply Corporation for next quarter:

All sales at McCracken are on credit. Forty percent are collected in the month of sale, 58% in the month following the sale, and the remaining 2% are uncollectible. Merchandise purchases are paid in full the month following the month of purchase. The selling and administrative expenses above include $8,000 of depreciation on display fixtures and warehouse equipment. All other selling and administrative expenses are paid as incurred. McCracken wants to maintain a cash balance of $15,000. Any amount below this can be borrowed from a local bank as needed in increments of $1,000. All borrowings are made at month end.

Required:

Prepare McCracken's cash budget for May. McCracken expects to have $24,000 of cash on hand at the beginning of May.

159.The Fraley Corporation, a merchandising firm, has planned the following sales for the next four months:

Sales are made 40% for cash and 60% on account. From experience, the company has learned that a month's sales on account are collected according to the following pattern:

The company requires a minimum cash balance of $4,000 to start a month.

Required:

a. Compute the budgeted cash receipts for June.b. Assume the following budgeted data for June:

Using this data, along with your answer to part (a) above, prepare a cash budget for June. Clearly show any borrowing needed during the month. The company can borrow in any dollar amount, but will not pay any interest until the following month.

160.Bredder Supply Corporation manufactures and sells cotton gauze. Expected sales of gauze (in boxes) for upcoming months are as follows:

Management likes to maintain a finished goods inventory equal to 20% of the next month's estimated sales.

Required:

Prepare the company's production budget for the third quarter of this year (the months of July, August and September). Include a column for each month and a total column for the entire quarter.

161.A sales budget is given below for one of the products manufactured by the OMI Co.:

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:

a. Prepare a budget showing the required production each month for January, February, March, and April.b. Prepare a budget showing the quantity of switches to be purchased each month for January, February, and March.

162.Chow Corporation manufactures children's chairs made of PVS plastic tubing and heavy canvas material. Each chair requires eight feet of the PVC tubing and three yards of material. Budgeted sales are 20,000 chairs for June, 25,000 chairs for July and 30,000 chairs for August. Ending finished goods inventory is budgeted at 10% of the current month's sales. Ending materials inventories are budgeted at 10% of the current month's production.

Required:

a. Prepare a production budget for each of the months of June, July and August. Assume the beginning inventory of chairs in June will be 2,500 units.b. Prepare schedules showing purchase requirements for PVC tubing and for material for each of the months of June, July and August. Assume 16,000 feet of PVC tubing and 6,000 yards of material are on hand at the beginning of June.

163.Two yards of a fabric are required for each blouse produced by Northern Shirt Corporation. The cost of the fabric is $4 per yard. Budgeted production of blouses is given below for the fourth quarter and the first month of the following quarter.

To prevent against stock outs of the fabric, the company maintains an ending inventory each month equal to 10% of the next month's production needs. The beginning inventory of the fabric in October will be 3,600 yards.

Required:

Prepare a direct materials budget for the fabric, by month and in total for the fourth quarter. Be sure to include both the quantity to be purchased and its cost for each month.

164.The production department of Tadris Corporation has submitted the following forecast of units to be produced by quarter for the upcoming fiscal year.

Each unit requires 0.25 direct labor-hours at $18.00 per hour.

Required:

Prepare a direct labor budget for the upcoming fiscal year, assuming that the direct labor work force is adjusted each quarter to match the number of hours required to produce the budgeted production.

165.Rehmer Corporation is working on its direct labor budget for the next two months. Each unit of output requires 0.61 direct labor-hours. The direct labor rate is $8.90 per direct labor-hour. The production budget calls for producing 2,600 units in June and 2,100 units in July.

Required:

Construct the direct labor budget for the next two months, assuming that the direct labor work force is fully adjusted to the total direct labor-hours needed each month.

166.Kouba Corporation is working on its direct labor budget for the next two months. Each unit of output requires 0.23 direct labor-hours. The direct labor rate is $11.20 per direct labor-hour. The production budget calls for producing 4,000 units in April and 3,400 units in May. The company guarantees its direct labor workers a 40-hour paid work week. With the number of workers currently employed, that means that the company is committed to paying its direct labor work force for at least 920 hours in total each month even if there is not enough work to keep them busy.

Required:

Construct the direct labor budget for the next two months.

167.The direct labor budget of Faier Corporation for the upcoming year contains the following details concerning budgeted direct labor-hours.

The company's variable manufacturing overhead rate is $3.50 per direct labor-hour, and the company's fixed manufacturing overhead is $65,000 per quarter. The only noncash item included in the fixed manufacturing overhead is depreciation which is $22,000 per quarter.

Required:

Prepare Faier Corporation's manufacturing overhead budget for the upcoming fiscal year. Show both manufacturing overhead expense and cash disbursements for manufacturing overhead.

168.Edgington Inc. bases its manufacturing overhead budget on budgeted direct labor-hours. The variable overhead rate is $4.90 per direct labor-hour. The company's budgeted fixed manufacturing overhead is $39,590 per month, which includes depreciation of $5,920. All other fixed manufacturing overhead costs represent current cash flows. The November direct labor budget indicates that 3,700 direct labor-hours will be required in that month.

Required:

a. Determine the cash disbursements for manufacturing overhead for November.b. Determine the predetermined overhead rate for November.

169.The manufacturing overhead budget of Paparella Corporation is based on budgeted direct labor-hours. The November direct labor budget indicates that 6,000 direct labor-hours will be required in that month. The variable overhead rate is $2.00 per direct labor-hour. The company's budgeted fixed manufacturing overhead is $79,200 per month, which includes depreciation of $21,000. All other fixed manufacturing overhead costs represent current cash flows.

Required:

a. Determine the cash disbursements for manufacturing overhead for November. Show your work!b. Determine the predetermined overhead rate for November. Show your work!

170.The selling and administrative expense budget of Gullette Corporation is based on the number of units sold, which are budgeted to be 2,700 units in April. The variable selling and administrative expense is $1.90 per unit. The budgeted fixed selling and administrative expense is $35,640 per month, which includes depreciation of $7,290. The remainder of the fixed selling and administrative expense represents current cash flows.

Required:

Prepare the selling and administrative expense budget for April.

171.Skeete Inc. bases its selling and administrative expense budget on the number of units sold. The variable selling and administrative expense is $1.70 per unit. The budgeted fixed selling and administrative expense is $57,720 per month, which includes depreciation of $9,360. The remainder of the fixed selling and administrative expense represents current cash flows. The sales budget shows 3,900 units are planned to be sold in November.

Required:

Prepare the selling and administrative expense budget for November.

172.Parliman Corporation is preparing its cash budget for August. The budgeted beginning cash balance is $12,000. Budgeted cash receipts total $159,000 and budgeted cash disbursements total $162,000. The desired ending cash balance is $20,000. The company can borrow up to $160,000 at any time from a local bank, with interest not due until the following month.

Required:

Prepare the company's cash budget for August in good form.

173.Freet Inc. is preparing its cash budget for November. The budgeted beginning cash balance is $11,000. Budgeted cash receipts total $126,000 and budgeted cash disbursements total $130,000. The desired ending cash balance is $20,000. The company can borrow up to $170,000 at any time from a local bank, with interest not due until the following month.

Required:

Prepare the company's cash budget for November in good form. Make sure to indicate what borrowing, if any, would be needed to attain the desired ending cash balance.

Chapter 08 Master Budgeting Answer Key

True / False Questions1.The cash budget is usually prepared after the budgeted income statement.FALSE

AACSB: Reflective ThinkingAICPA BB: Critical ThinkingAICPA FN: MeasurementBlooms: RememberDifficulty: 1 EasyLearning Objective: 08-01 Understand why organizations budget and the processes they use to create budgets.

2.The manufacturing overhead budget is typically prepared before the production budget.FALSE


3.Self-imposed budgets prepared by lower-level managers should be scrutinized by higher levels of management.TRUE


4.The basic idea underlying responsibility accounting is that each manager should be held responsible for the overall profit of the company to ensure that all managers are acting together.FALSE


5.Budgets are used to plan and to control operations.TRUE

AACSB: Reflective ThinkingAICPA BB: Critical ThinkingAICPA FN: MeasurementBlooms: UnderstandDifficulty: 1 EasyLearning Objective: 08-01 Understand why organizations budget and the processes they use to create budgets.

6.The sales budget is usually prepared before the production budget.TRUE


7.A continuous or perpetual budget is a budget that almost never needs to be revised.FALSE


8.The cash budget is typically prepared before the direct materials budget.FALSE


9.In business, a budget is a method for putting a limit on spending.FALSE


10.Planning involves gathering feedback to ensure that the plan is being properly executed or modified as circumstances change.FALSE


11.A benefit of self-imposed budgeting is that it may allow lower-level managers to create budgetary slack.FALSE


12.The first budget a company prepares in a master budget is the production budget.FALSE


13.One disadvantage of a self-imposed budget is that budget estimates prepared by front-line managers are often less accurate and reliable than estimates prepared by top managers.FALSE


14.The direct materials budget is typically prepared before the production budget.FALSE


15.A self-imposed budget is a budget that is prepared with the full cooperation and participation of managers at all levels.TRUE


16.The sales budget often includes a schedule of expected cash collections.TRUE

AACSB: Reflective ThinkingAICPA BB: Critical ThinkingAICPA FN: MeasurementBlooms: RememberDifficulty: 1 EasyLearning Objective: 08-02 Prepare a sales budget; including a schedule of expected cash collections.

17.The number of units to be produced in a period can be determined by adding the expected sales to the beginning inventory and then deducting the desired ending inventory.FALSE

AACSB: Reflective ThinkingAICPA BB: Critical ThinkingAICPA FN: MeasurementBlooms: UnderstandDifficulty: 2 MediumLearning Objective: 08-03 Prepare a production budget.

18.In a merchandising company, the required merchandise purchases for a period are determined by subtracting the desired ending inventory from the sum of the units to be sold during the period and the units in beginning inventory.FALSE

AACSB: Reflective ThinkingAICPA BB: Critical ThinkingAICPA FN: MeasurementBlooms: RememberDifficulty: 2 MediumLearning Objective: 08-03 Prepare a production budget.

19.When preparing a direct materials budget, the units of raw material needed to meet production should be added to desired ending inventory and the beginning inventory for raw materials should be subtracted to determine the amount of raw materials to be purchased.TRUE

AACSB: Reflective ThinkingAICPA BB: Critical ThinkingAICPA FN: MeasurementBlooms: RememberDifficulty: 1 EasyLearning Objective: 08-04 Prepare a direct materials budget; including a schedule of expected cash disbursements for purchases of materials.

20.In companies that do not 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.TRUE

AACSB: Reflective ThinkingAICPA BB: Critical ThinkingAICPA FN: MeasurementBlooms: UnderstandDifficulty: 2 MediumLearning Objective: 08-05 Prepare a direct labor budget.

21.The direct labor budget shows the direct labor-hours required to produce the desired ending inventory.FALSE

AACSB: Reflective ThinkingAICPA BB: Critical ThinkingAICPA FN: MeasurementBlooms: RememberDifficulty: 1 EasyLearning Objective: 08-05 Prepare a direct labor budget.

22.The manufacturing overhead budget lists all costs of production other than selling and administrative expenses.FALSE

AACSB: Reflective ThinkingAICPA BB: Critical ThinkingAICPA FN: MeasurementBlooms: RememberDifficulty: 1 EasyLearning Objective: 08-06 Prepare a manufacturing overhead budget.

23.Only variable manufacturing overhead costs are included in the manufacturing overhead budget.FALSE

AACSB: Reflective ThinkingAICPA BB: Critical ThinkingAICPA FN: MeasurementBlooms: RememberDifficulty: 1 EasyLearning Objective: 08-06 Prepare a manufacturing overhead budget.

24.The budgeted selling and administrative expense is calculated by multiplying the budgeted unit sales by the selling and administrative expense per unit.FALSE

AACSB: Reflective ThinkingAICPA BB: Critical ThinkingAICPA FN: MeasurementBlooms: UnderstandDifficulty: 2 MediumLearning Objective: 08-07 Prepare a selling and administrative expense budget.

25.Both variable and fixed manufacturing overhead costs are included in the selling and administrative expense budget.FALSE

AACSB: Reflective ThinkingAICPA BB: Critical ThinkingAICPA FN: MeasurementBlooms: RememberDifficulty: 1 EasyLearning Objective: 08-07 Prepare a selling and administrative expense budget.

26.On a cash budget, the total amount of budgeted cash payments for manufacturing overhead should not include any amounts for depreciation on factory equipment.TRUE

AACSB: Reflective ThinkingAICPA BB: Critical ThinkingAICPA FN: MeasurementBlooms: UnderstandDifficulty: 2 MediumLearning Objective: 08-08 Prepare a cash budget.

Multiple Choice Questions27.Which of the following budgets are prepared before the production budget?

A.Option A

B.Option B

C.Option C

D.Option D

AACSB: Reflective ThinkingAICPA BB: Critical ThinkingAICPA FN: MeasurementBlooms: UnderstandDifficulty: 2 MediumLearning Objective: 08-01 Understand why organizations budget and the processes they use to create budgets.

28.Which of the following represents the normal sequence in which the below budgets are prepared?

A.Sales Budget, Budgeted Balance Sheet, Budgeted Income Statement

B.Budgeted Balance Sheet, Sales Budget, Budgeted Income Statement

C.Sales Budget, Budgeted Income Statement, Budgeted Balance Sheet

D.Budgeted Income Statement, Sales Budget, Budgeted Balance Sheet


29.Which of the following is NOT an objective of the budgeting process?

A.To communicate management's plans throughout the entire organization.

B.To provide a means of allocating resources to those parts of the organization where they can be used most effectively.

C.To ensure that the company continues to grow.

D.To uncover potential bottlenecks before they occur.


30.Which of the following benefits could an organization reasonably expect from an effective budget program?

A.Option A

B.Option B

C.Option C

D.Option D


31.The budget method that maintains a constant twelve-month planning horizon by adding a new month on the end as the current month is completed is called:

A.an operating budget.

B.a capital budget.

C.a continuous budget.

D.a master budget.


32.All the following are considered to be benefits of participative budgeting, except for:

A.Individuals at all organizational levels are recognized as being part of a team; this results in greater support for the organization.

B.The budget estimates are prepared by those in directly involved in activities.

C.When managers set their own targets for the budget, top management need not be concerned with the overall profitability of operations.

D.Managers are held responsible for reaching their goals and cannot easily shift responsibility by blaming unrealistic goals set by others.

AACSB: Reflective ThinkingAICPA BB: Critical ThinkingAICPA FN: MeasurementBlooms: RememberDifficulty: 1 EasyLearning Objective: 08-01 Understand why organizations budget and the processes they use to create budgets.Source: CMA, adapted

33.When preparing a production budget, the required production equals:

A.budgeted sales + beginning inventory + desired ending inventory.

B.budgeted sales - beginning inventory + desired ending inventory.

C.budgeted sales - beginning inventory - desired ending inventory.

D.budgeted sales + beginning inventory - desired ending inventory.

AACSB: Reflective ThinkingAICPA BB: Critical ThinkingAICPA FN: MeasurementBlooms: RememberDifficulty: 2 MediumLearning Objective: 08-03 Prepare a production budget.Source: CIMA, adapted

34.The direct labor budget is based on:

A.the desired ending inventory of finished goods.

B.the beginning inventory of finished goods.

C.the required production for the period.

D.the required materials purchases for the period.

AACSB: Reflective ThinkingAICPA BB: Critical ThinkingAICPA FN: MeasurementBlooms: RememberDifficulty: 1 EasyLearning Objective: 08-05 Prepare a direct labor budget.

35.Which of the following might be included as a disbursement on a cash budget?

A.Option A

B.Option B

C.Option C

D.Option D

AACSB: Reflective ThinkingAICPA BB: Critical ThinkingAICPA FN: MeasurementBlooms: UnderstandDifficulty: 1 EasyLearning Objective: 08-08 Prepare a cash budget.

36.The WRT Corporation makes collections on sales according to the following schedule:

25% in month of sale65% in month following sale5% in second month following sale5% uncollectible

The following sales have been budgeted:

Budgeted cash collections in June would be:

A.$27,500

B.$98,500

C.$71,000

D.$115,500

Cash collections for June:

AACSB: AnalyticAICPA BB: Critical ThinkingAICPA FN: MeasurementBlooms: ApplyDifficulty: 2 MediumLearning Objective: 08-02 Prepare a sales budget; including a schedule of expected cash collections.

37.Trumbull Corporation budgeted sales on account of $120,000 for July, $211,000 for August, and $198,000 for September. Experience indicates that none of the sales on account will be collected in the month of the sale, 60% will be collected the month after the sale, 36% in the second month, and 4% will be uncollectible. The cash receipts from accounts receivable that should be budgeted for September would be:

A.$169,800

B.$147,960

C.$197,880

D.$194,760

AACSB: AnalyticAICPA BB: Critical ThinkingAICPA FN: MeasurementBlooms: ApplyDifficulty: 2 MediumLearning Objective: 08-02 Prepare a sales budget; including a schedule of expected cash collections.Source: CMA, adapted

38.Sioux Corporation is estimating the following sales for the first four months of next year:

Sales are normally collected 60% in the month of sale, 35% in the month following the sale, and the remaining 5% being uncollectible. Based on this information, how much cash should Sioux expect to collect during the month of April?

A.$286,500

B.$320,000

C.$192,000

D.$94,500


39.Seventy percent of Parlee Corporation's sales are collected in the month of sale, 25% in the month following sale, and 5% in the second month following sale. The following are budgeted sales data for the company:

Total budgeted cash collections in April would be:

A.$35,000

B.$125,000

C.$210,000

D.$370,000

AACSB: AnalyticAICPA BB: Critical ThinkingAICPA FN: MeasurementBlooms: ApplyDifficulty: 1 EasyLearning Objective: 08-02 Prepare a sales budget; including a schedule of expected cash collections.

40.Budgeted sales in Acer Corporation over the next four months are 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 credit 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.$103,875

B.$98,125

C.$136,375

D.$119,500

Cash collections for December:


41.All of Porter Corporation's sales are on account. Sixty percent of the credit sales are collected in the month of sale, 25% in the month following sale, and 10% in the second month following sale. The remainder are uncollectible. The following are budgeted sales data for the company:

Cash receipts in April are expected to be:

A.$420,000

B.$545,000

C.$605,000

D.$185,000

Cash collections for April:

AACSB: AnalyticAICPA BB: Critical ThinkingAICPA FN: MeasurementBlooms: ApplyDifficulty: 1 EasyLearning Objective: 08-02 Prepare a sales budget; including a schedule of expected cash collections.

42.Paradise Corporation budgets on an annual basis for its fiscal year. The following beginning and ending inventory levels (in units) are planned for next year.

*Three pounds of raw material are needed to produce each unit of finished product.

If Paradise Corporation plans to sell 480,000 units during next year, the number of units it would have to manufacture during the year would be:

A.440,000 units

B.480,000 units

C.510,000 units

D.450,000 units

Finished goods:Beginning inventory + Units produced = Ending inventory + Units sold80,000 + Units produced = 50,000 + 480,000Units produced = 50,000 + 480,000 - 80,000 = 450,000

AACSB: AnalyticAICPA BB: Critical ThinkingAICPA FN: MeasurementBlooms: ApplyDifficulty: 2 MediumLearning Objective: 08-03 Prepare a production budget.Source: CMA, adapted

43.Frodic Corporation has budgeted sales and production over the next quarter as follows:

The company has 4,000 units of product on hand at July 1. 10% of the next month's sales in units should be on hand at the end of each month. October sales are expected to be 71,500 units. Budgeted sales for September would be (in units):

A.65,000

B.61,000

C.55,000

D.57,000

52,000 + 0.10X - 5,200 = 52,3000.10X = 5,500X = 55,000or7,150 + X - 0.10X = 56,6500.90X = 49,500X = 55,000

AACSB: AnalyticAICPA BB: Critical ThinkingAICPA FN: MeasurementBlooms: ApplyDifficulty: 3 HardLearning Objective: 08-03 Prepare a production budget.

44.JT Department Store expects to generate the following sales for the next three months:

JT's cost of gods sold is 60% of sales dollars. At the end of each month, JT wants a merchandise inventory balance equal to 20% of the following month's expected cost of goods sold. What dollar amount of merchandise inventory should JT plan to purchase in August?

A.$257,400

B.$314,600

C.$352,800

D.$327,800

Merchandise Purchases Budget

AACSB: AnalyticAICPA BB: Critical ThinkingAICPA FN: MeasurementBlooms: ApplyDifficulty: 2 MediumLearning Objective: 08-03 Prepare a production budget.

45.Fab Manufacturing Corporation manufactures and sells stainless steel coffee mugs. Expected mug sales at Fab (in units) for the next three months are as follows:

Fab likes to maintain a finished goods inventory equal to 30% of the next month's estimated sales. How many mugs should Fab plan on producing during the month of November?

A.23,200 mugs

B.26,800 mugs

C.25,900 mugs

D.34,300 mugs

AACSB: AnalyticAICPA BB: Critical ThinkingAICPA FN: MeasurementBlooms: ApplyDifficulty: 1 EasyLearning Objective: 08-03 Prepare a production budget.

46.The following information was taken from the production budget of Paeke Corporation for next quarter:

How many units is the company expecting to sell in the month of February?

A.132,000

B.138,000

C.135,000

D.140,000

35,000 + X - 32,000 = 138,000X = 138,000 - 35,000 + 32,000 = 135,000

AACSB: AnalyticAICPA BB: Critical ThinkingAICPA FN: MeasurementBlooms: ApplyDifficulty: 3 HardLearning Objective: 08-03 Prepare a production budget.

47.On November 1, Barnes Corporation has 8,000 units of Product A on hand. During the month, the company plans to sell 30,000 units of Product A, and plans to have 6,500 units on hand at end of the month. How many units of Product A must be produced during the month?

A.28,500

B.31,500

C.30,000

D.36,500


48.Mutskic Corporation produces and sells Product BetaC. To guard against stockouts, the company requires that 30% of the next month's sales be on hand at the end of each month. Budgeted sales of Product BetaC over the next four months are:

Budgeted production for August would be:

A.83,000 units

B.107,000 units

C.77,000 units

D.80,000 units


49.Parsons Corporation plans to sell 18,000 units during August. If the company has 5,500 units on hand at the start of the month, and plans to have 6,000 units on hand at the end of the month, how many units must be produced during the month?

A.24,000

B.18,500

C.19,500

D.17,500


50.Starg Corporation, a retailer, plans to sell 25,000 units of Product X during the month of August. If the company has 9,000 units on hand at the start of the month, and plans to have 7,000 units on hand at the end of the month, how many units of Product X must be purchased from the supplier during the month?

A.32,000

B.23,000

C.27,000

D.25,000


51.The following information relates to Marter Manufacturing Corporation for next quarter:

How many units should the company plan on producing for the month of February?

A.360,000 units

B.362,000 units

C.358,000 units

D.398,000 units


52.Shocker Corporation's sales budget shows quarterly sales for the next year as follows:Unit sales

Corporation 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 of the next year would be:

A.7,200 units

B.8,000 units

C.8,800 units

D.8,400 units

AACSB: AnalyticAICPA BB: Critical ThinkingAICPA FN: MeasurementBlooms: ApplyDifficulty: 2 MediumLearning Objective: 08-03 Prepare a production budget.Source: CMA, adapted


Two pounds of material are required for each finished unit. The inventory of materials at the end of each month should equal 20% of the following month's production needs. Purchases of raw materials for May should be:

A.39,200 pounds

B.52,000 pounds

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