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Chapter 9 Profit Planning

True/False Questions

1. The usual starting point in budgeting is to make a forecast of net income.

Ans: False AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Reporting LO: 1,9 Level: Easy

2. A budget committee helps provide consistency in the budgeting process because it prepares all of the budgets for the various segments of the organization.

Ans: False AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Reporting LO: 1 Level: Easy

3. 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.

Ans: True AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Reporting LO: 1 Level: Easy

4. Control involves developing objectives and preparing the various budgets to achieve those objectives.


5. A self-imposed budget is one prepared by top management and passed downward through an organization.


6. 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.

Ans: False AACSB: Reflective Thinking AICPA BB: Resource Management, Critical Thinking AICPA FN: Reporting LO: 1 Level: Easy

Garrison/Noreen/Brewer, Managerial Accounting, Twelfth Edition 9-5


7. Cash collections in a schedule of cash collections typically consist of collections on sales made to customers in prior periods plus collections on sales made in the current budget period.


8. In a production budget, if the number of units in finished goods inventory at the end of the period is less than the number of units in finished goods inventory at the beginning of the period, then the expected number of units sold is greater than the number of units to be produced during the period.

Ans: True AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Reporting LO: 3 Level: Medium

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


10. 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 the period.

Ans: False AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Reporting LO: 4 Level: Medium

11. The direct labor budget begins with sales in units from the sales budget.


12. The selling and administrative expense budget lists all costs of production other than direct materials and direct labor.

Ans: False AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Reporting LO: 6,7 Level: Easy

9-6 Garrison/Noreen/Brewer, Managerial Accounting, Twelfth Edition


13. In the manufacturing overhead budget, the non-cash charges (such as depreciation) are deducted from the total budgeted manufacturing overhead to determine the expected cash disbursements for manufacturing overhead.


14. The selling and administrative expense budget lists the budgeted expenses for areas other than manufacturing.


15. The disbursements section of a cash budget consists of all cash payments for the period except cash payments for dividends.

Ans: False AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Reporting LO: 8 Level: Medium

16. Which of the following budgets are prepared before the sales budget?

Budgeted Income Statement Direct Labor BudgetA) Yes YesB) Yes NoC) No YesD) No No

Ans: D AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Reporting LO: 1 Level: Easy

17. The usual starting point for a master budget is:A) the direct materials purchase budget.B) the budgeted income statement.C) the sales forecast or sales budget.D) the production budget.

Ans: C AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Reporting LO: 1 Level: Easy



18. Which of the following budgets are prepared before the cash budget?

Selling and Administrative Expense Budget Production BudgetA) Yes YesB) Yes NoC) No YesD) No No

Ans: A AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Reporting LO: 1 Level: Medium

19. Which of the following benefits could an organization reasonably expect from an effective budget program?A) Better control of the organization's costs.B) Better coordination of an organization's activities.C) Better communication of the organization's objectives.D) All of the above.

Ans: D AACSB: Reflective Thinking AICPA BB: Resource Management, Critical Thinking AICPA FN: Reporting LO: 1 Level: Easy

20. An organization's budget program should not be used:A) to motivate employees.B) to assign blame to managers that do not meet budgetary goals.C) to help evaluate managers.D) to allocate resources to the various parts of an organization.

Ans: B AACSB: Reflective Thinking AICPA BB: Resource Management, Critical Thinking AICPA FN: Reporting LO: 1 Level: Easy

21. A basic idea underlying __________________ is that a manager should be held responsible only for those items that the manager can actually control to a significant extent.A) participative budgetingB) planning and controlC) responsibility accountingD) the master budget

Ans: C AACSB: Reflective Thinking AICPA BB: Resource Management, Critical Thinking AICPA FN: Reporting LO: 1 Level: Easy



22. When preparing a merchandise purchases budget, the required purchases in units equals:A) budgeted unit sales + beginning merchandise inventory + desired merchandise

ending inventory.B) budgeted unit sales - beginning merchandise inventory + desired merchandise

ending inventory.C) budgeted unit sales - beginning merchandise inventory - desired merchandise

ending inventory.D) budgeted unit sales + beginning merchandise inventory - desired merchandise

ending inventory.

Ans: B AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Reporting LO: 3 Level: Easy

23. When preparing a direct materials budget, the required purchases of raw materials in units equals:A) raw materials needed to meet the production schedule + desired ending

inventory of raw materials - beginning inventory of raw materials.B) raw materials needed to meet the production schedule - desired ending inventory

of raw materials - beginning inventory of raw materials.C) raw materials needed to meet the production schedule - desired ending inventory

of raw materials + beginning inventory of raw materials.D) raw materials needed to meet the production schedule + desired ending

inventory of raw materials + beginning inventory of raw materials.

Ans: A AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Reporting LO: 4 Level: Easy

24. Which of the following statements is NOT correct concerning the Manufacturing Overhead Budget?A) The Manufacturing Overhead Budget provides a schedule of all costs of

production other than direct materials and labor costs.B) The Manufacturing Overhead Budget shows only the variable portion of

manufacturing overhead.C) The Manufacturing Overhead Budget shows the expected cash disbursements

for manufacturing overhead.D) The Manufacturing Overhead Budget is prepared after the Sales Budget.

Ans: B AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Reporting LO: 6 Level: Easy



25. Which of the following statements is NOT correct concerning the Cash Budget?A) It is not necessary to prepare any other budgets before preparing the Cash

Budget.B) The Cash Budget should be prepared before the Budgeted Income Statement.C) The Cash Budget should be prepared before the Budgeted Balance Sheet.D) The Cash Budget builds on earlier budgets and schedules as well as additional

data.

Ans: A AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Reporting LO: 8 Level: Easy

26. Pitkins Company collects 20% of a month's sales in the month of sale, 70% in the month following sale, and 6% in the second month following sale. The remainder is uncollectible. Budgeted sales for the next four months are:

January February March AprilBudgeted sales....... $200,000 $300,000 $350,000 $250,000

Cash collections in April are budgeted to be:A) $321,000B) $313,000C) $320,000D) $292,000

Ans: B AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting LO: 2 Level: Easy

Solution:

April sales ($250,000 × 20%).............. $ 50,000March sales ($350,000 × 70%)........... 245,000February sales ($300,000 × 6%)......... 18,000 Total.................................................... $313,000



27. Sioux Company is estimating the following sales for the first six months of next year:

January....... $250,000February..... $220,000March......... $240,000April........... $300,000May............ $360,000

Sales at Sioux are normally collected as 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) $250,800B) $264,000C) $290,700D) $306,000

Ans: B AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting LO: 2 Level: Medium

Solution:

April sales ($300,000 × 60%)............. $180,000March sales ($240,000 × 35%)........... 84,000 Total.................................................... $264,000



28. All of Gaylord Company's sales are on account. Thirty-five percent of the credit sales are collected in the month of sale, 45% in the month following sale, and the rest are collected in the second month following sale. Bad debts are negligible and should be ignored. The following are budgeted sales data for the company:

January February March AprilTotal sales.............. $50,000 $60,000 $40,000 $30,000

What is the amount of cash that should be collected in March?A) $39,000B) $37,000C) $27,500D) $51,000

Ans: D AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting LO: 2 Level: Easy

Solution:

March sales ($40,000 × 35%).............. $14,000February sales ($60,000 × 45%)......... 27,000January sales ($50,000 × 20%*)......... 10,000 Total.................................................... $51,000

*100% − 35% − 45% = 20%

29. On January 1, Barnes Company has 8,000 units of Product A on hand. During the year, the company plans to sell 30,000 units of Product A, and plans to have 6,500 units on hand at year end. How many units of Product A must be produced during the year?A) 28,500B) 31,500C) 30,000D) 36,500

Ans: A AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting LO: 3 Level: Easy

Solution:

Units produced = Ending inventory + Units sold − Beginning inventory= 6,500 + 30,000 − 8,000= 28,500



30. Betz Company's sales budget shows the following projections for next year:

Sales in unitsFirst Quarter....................... 60,000Second Quarter................... 80,000Third Quarter..................... 45,000Fourth Quarter.................... 55,000

Inventory at the beginning of the year was 18,000 units. The finished goods inventory at the end of each quarter is to equal 30% of the next quarter's budgeted unit sales. How many units should be produced during the first quarter?A) 24,000B) 48,000C) 66,000D) 72,000

Ans: C AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting LO: 3 Level: Medium Source: CPA, adapted

Solution:

Units produced = Ending inventory + Units sold + Beginning inventory= (30% × 80,000) + 60,000 − 18,000= 24,000 + 60,000 − 18,000 = 66,000



31. The following information relates to Minorca Manufacturing Corporation for next quarter:

January February MarchExpected sales (in units)............................ 440,000 390,000 400,000Desired ending finished goods inventory

(in units)................................................. 28,000 30,000 35,000

How many units should Minorca plan on producing for the month of February?A) 360,000 unitsB) 388,000 unitsC) 392,000 unitsD) 420,000 units

Ans: C AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting LO: 3 Level: Medium

Solution:Ending inventory + Units sold − Beginning inventory= 30,000 + 390,000 - 28,000 = 392,000



32. MJ Department Store expects to generate the following sales figures for the next three months:

July August SeptemberExpected sales........ $480,000 $560,000 $600,000

MJ's gross profit rate is 45% of sales dollars. At the end of each month, MJ wants a merchandise inventory balance equal to 30% of the following month's expected sales, stated at cost. What dollar amount of merchandise inventory should MJ plan to purchase in August?A) $257,400B) $314,600C) $320,000D) $327,800

Ans: B AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting LO: 3 Level: Hard

Solution:

Inventory cost is 55% of sales dollars (1 – 45% gross profit rate)Inventory purchased = Ending inventory + Sales − Beginning inventory= [($600,000 × 30%) × 55%] + ($560,000 × 55%) − [($560,000 × 30%) × 55%]= ($180,000 × 55%) + $308,000 − ($168,000 × 55%)= $99,000 + $308,000 − $92,400 = $314,600

33. On October 1, The Gala Manufacturing Company has 300 units of Product XYZ on hand. The company plans to sell 1,200 units of Product XYZ during October, and plans to have 500 units on hand October 31. How many units of Product XYZ must be produced during October?A) 1,400B) 1,500C) 1,000D) 2,000


Solution:Units produced = Ending inventory + Units sold − Beginning inventory= 500 + 1,200 − 300 = 1,400



34. The following are budgeted data:

Month 1 Month 2 Month 3Sales in units...................... 15,000 20,000 18,000Production in units............. 16,000 22,000 15,000

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. At the beginning of Month 1, 3,200 lbs. of materials were on hand. Purchases of raw materials for Month 2 would be budgeted to be:A) 17,600 poundsB) 23,400 poundsC) 20,600 poundsD) 25,000 pounds


Solution:

Materials purchased = Ending inventory + Materials used − Beginning inventory= (20% × 15,000) + 22,000 − (20% × 22,000)= 3,000 + 22,000 − 4,400 = 20,600

35. Alexis Fabrication, Inc. manufactures and sells box trailers for semi trucks. Each trailer requires two (2) axles. For next quarter, Alexis has scheduled 720 trailers for production and 750 for sale. Alexis is also moving to just-in-time purchasing next quarter and plans on reducing its inventory of trailer axles by 100. How many axles should Alexis budget for purchase for next quarter?A) 1,240 axlesB) 1,300 axlesC) 1,340 axlesD) 1,400 axles


Solution:

Materials to be purchased = Ending inventory + Materials to be used − Beginning inventory= Materials to be used + (Ending inventory − Beginning inventory)= (720 × 2) − 100 = 1,440 − 100 = 1,340



36. Garry Manufacturing Corporation's most recent production budget indicates the following required production:

October November DecemberRequired production (units)........... 210,000 175,000 110,000

Each unit of finished product requires 5 pounds of raw materials. The company maintains raw materials inventory equal to 25% of the next month's expected production needs. How many pounds of raw material should Garry plan on purchasing for the month of November?A) 1,006,250B) 793,750C) 1,012,500D) 893,500


Solution:

Materials to be purchased = Ending inventory + Materials to be used − Beginning inventory= (25% × 110,000 × 5) + (175,000 × 5) − (25% × 175,000 × 5)= 137,500 + 875,000 − 218,750 = 793,750

37. Depasquale Corporation is working on its direct labor budget for the next two months. Each unit of output requires 0.41 direct labor-hours. The direct labor rate is $8.10 per direct labor-hour. The production budget calls for producing 5,000 units in May and 5,400 units in June. 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) $16,605.00B) $17,933.40C) $17,269.20D) $34,538.40


Solution:

Total direct labor-hours = 0.41 × (5,000 + 5,400) = 4,264Direct labor cost = 4,264 × $8.10 = $34,538.40



38. Pooler Corporation is working on its direct labor budget for the next two months. Each unit of output requires 0.15 direct labor-hours. The direct labor rate is $7.00 per direct labor-hour. The production budget calls for producing 6,500 units in April and 6,200 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 1,000 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) $13,825.00B) $13,335.00C) $14,000.00D) $13,510.00

Ans: C AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting LO: 5 Level: Easy

Solution:

Direct labor-hours needed for production in April = 0.15 × 6,500 = 975Direct labor-hours needed for production in May = 0.15 × 6,200 = 930Even though both months’ production needs would require less than 1,000 hours, the company has committed to paying a minimum of 1,000 hours per month.Total direct labor-hours = 1,000 + 1,000 = 2,000Direct labor cost = 2,000 × $7 = $14,000



39. Traverse Company manufactures and sells women's skirts. Each skirt (unit) requires 2.5 yards of cloth. Selected data from Traverse's master budget for next quarter are shown below:

July August SeptemberBudgeted sales (in units)................ 6,000 8,000 9,000Budgeted production (in units)...... 8,000 10,500 12,000

Each unit requires 1.5 hours of direct labor, and the average hourly cost of Traverse's direct labor is $10. What is the cost of Traverse Company's direct labor in September?A) $135,000B) $180,000C) $157,500D) $120,000


Solution:

12,000 × 1.5 × $10 = $180,000

40. Haylock Inc. bases its manufacturing overhead budget on budgeted direct labor-hours. The direct labor budget indicates that 5,600 direct labor-hours will be required in August. The variable overhead rate is $5.40 per direct labor-hour. The company's budgeted fixed manufacturing overhead is $69,440 per month, which includes depreciation of $15,680. 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) $99,680B) $84,000C) $53,760D) $30,240


Solution:

Variable manufacturing overhead + Fixed manufacturing overhead= (5,600 × $5.40) + ($69,440 − $15,680)= $30,240 + $53,760 = $84,000



41. Arciba Inc. bases its manufacturing overhead budget on budgeted direct labor-hours. The direct labor budget indicates that 7,400 direct labor-hours will be required in January. The variable overhead rate is $9.50 per direct labor-hour. The company's budgeted fixed manufacturing overhead is $130,980 per month, which includes depreciation of $10,360. All other fixed manufacturing overhead costs represent current cash flows. The company recomputes its predetermined overhead rate every month. The predetermined overhead rate for January should be:A) $27.20B) $25.80C) $17.70D) $9.50


Solution:

$9.50 + ($130,980 ÷ 7,400) = $9.50 + $17.70 = $27.20

42. The manufacturing overhead budget at Foshay Corporation is based on budgeted direct labor-hours. The direct labor budget indicates that 5,800 direct labor-hours will be required in May. The variable overhead rate is $9.10 per direct labor-hour. The company's budgeted fixed manufacturing overhead is $104,400 per month, which includes depreciation of $8,120. All other fixed manufacturing overhead costs represent current cash flows. The company recomputes its predetermined overhead rate every month. The predetermined overhead rate for May should be:A) $9.10B) $27.10C) $18.00D) $25.70


Solution:

$9.10 + ($104,400 ÷ 5,800) = $9.10 + $18 = $27.10



43. The manufacturing overhead budget at Franklyn Corporation is based on budgeted direct labor-hours. The direct labor budget indicates that 4,400 direct labor-hours will be required in January. The variable overhead rate is $1.30 per direct labor-hour. The company's budgeted fixed manufacturing overhead is $60,280 per month, which includes depreciation of $17,160. 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) $5,720B) $43,120C) $48,840D) $66,000


Solution:

(4,400 × $1.30) + ($60,280 − $17,160) = $5,720 + $43,120 = $48,840

44. Schuepfer Inc. bases its selling and administrative expense budget on budgeted unit sales. The sales budget shows 1,300 units are planned to be sold in March. The variable selling and administrative expense is $4.20 per unit. The budgeted fixed selling and administrative expense is $19,240 per month, which includes depreciation of $3,380 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 March selling and administrative expense budget should be:A) $15,860B) $5,460C) $24,700D) $21,320


Solution:

(1,300 × $4.20) + ($19,240 − $3,380) = $5,460 + $15,860 = $21,320



45. The selling and administrative expense budget of Choo Corporation is based on budgeted unit sales, which are 4,600 units for August. The variable selling and administrative expense is $7.30 per unit. The budgeted fixed selling and administrative expense is $51,980 per month, which includes depreciation of $6,440 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 August selling and administrative expense budget should be:A) $85,560B) $45,540C) $79,120D) $33,580


Solution:

(4,600 × $7.30) + ($51,980 − $6,440) = $33,580 + $45,540 = $79,120

46. Sedita Inc. is working on its cash budget for July. The budgeted beginning cash balance is $46,000. Budgeted cash receipts total $175,000 and budgeted cash disbursements total $174,000. The desired ending cash balance is $50,000. The excess (deficiency) of cash available over disbursements for July will be:A) $47,000B) $221,000C) $45,000D) $1,000


Solution:

Excess cash available = Beginning cash balance + Cash receipts − Cash disbursements = $46,000 + $175,000 − $174,000 = $47,000



47. Bustillo Inc. is working on its cash budget for March. The budgeted beginning cash balance is $35,000. Budgeted cash receipts total $142,000 and budgeted cash disbursements total $151,000. The desired ending cash balance is $30,000. To attain its desired ending cash balance for March, the company needs to borrow:A) $0B) $4,000C) $56,000D) $30,000


Solution:

Actual ending cash balance = Beginning cash balance + Cash receipts − Cash disbursements = $35,000 + $142,000 − $151,000 = $26,000Amount borrowed = Desired ending cash balance − Actual ending cash balance= $30,000 − $26,000 = $4,000

48. Francis Manufacturing Company is currently preparing its cash budget for next month and has gathered the following information:

Expected cash receipts............................... $39,400Expected disbursements:

Direct materials....................................... $12,000Direct labor............................................. $9,000Manufacturing overhead......................... $11,500Selling and administrative expenses....... $22,000

The beginning cash balance will be $6,000 and the company requires a minimum cash balance at the end of the month of $5,000. How much will Francis Manufacturing need to borrow to meet its cash needs for the month?A) $9,100B) $14,100C) $20,100D) None of the above.




Solution:Actual ending cash balance = Beginning cash balance + Cash receipts − Cash disbursements = $6,000 + $39,400 − ($12,000 + $9,000 + $11,500 + $22,000)= $45,400 − $54,500 = ($9,100)Amount borrowed = Desired ending cash balance − Actual ending cash balance= $5,000 − ($9,100) = $14,100

Use the following to answer questions 49-50:

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 $45,000Less cost of goods sold............................... 21,000 20,000 22,500 Gross margin............................................... 21,000 20,000 22,500Less selling and administrative expenses.... 20,000 20,000 20,000 Net 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 "selling and administrative expenses" are paid in the month of the sale.

49. The amount of cash collected during the month of June should be:A) $32,000B) $40,000C) $40,400D) $41,000

Ans: C AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting LO: 2 Level: Easy Source: CMA, adapted

Solution:

June sales ($40,000 × 80%)................. $32,000May sales ($42,000 × 20%)................. 8,400 Total.................................................... $40,400



50. The cash disbursements during the month of June for goods purchased for resale and for selling and administrative expenses should be:A) $40,000B) $41,000C) $42,500D) $43,500

Ans: B AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting LO: 3,4 Level: Easy Source: CMA, adapted

Solution:

May purchases of goods.................................. $21,000June selling and administrative expenses........ 20,000 Total................................................................. $41,000




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

Sales are budgeted at $290,000 for November, $310,000 for December, and $210,000 for January.

Collections are expected to be 65% in the month of sale, 33% in the month following the sale, and 2% uncollectible.

The cost of goods sold is 80% of sales. The company purchases 70% of its merchandise in the month prior to the month of

sale and 30% in the month of sale. Payment for merchandise is made in the month following the purchase.

Other monthly expenses to be paid in cash are $21,100. Monthly depreciation is $21,000. Ignore taxes.

Statement of Financial PositionOctober 31

Assets:Cash............................................................................................... $ 25,000Accounts receivable

(net of allowance for uncollectible accounts)............................ 77,000Inventory........................................................................................ 162,400Property, plant and equipment

(net of $624,000 accumulated depreciation).............................. 1,026,000 Total assets..................................................................................... $1,290,400

Liabilities and Stockholders’ Equity:Accounts payable........................................................................... $ 239,000Common stock............................................................................... 740,000Retained earnings........................................................................... 311,400 Total liabilities and stockholders’ equity....................................... $1,290,400



51. Expected cash collections in December are:A) $310,000B) $95,700C) $297,200D) $201,500

Ans: C AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting LO: 2 Level: Hard

Solution:

December sales ($310,000 × 65%)..... $201,500November sales ($290,000 × 33%)..... 95,700 Total.................................................... $297,200

52. The cost of December merchandise purchases would be:A) $248,000B) $232,000C) $117,600D) $192,000

Ans: D AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting LO: 3 Level: Hard

Solution:

SalesCost of

Goods SoldNovember............................................ $290,000 $232,000December............................................ $310,000 $248,000January................................................ $210,000 $168,000

Merchandise purchases = Ending inventory + Cost of goods sold − Beginning inventory = ($168,000 × 70%) + $248,000 − ($248,000 × 70%)= $117,600 + $248,000 − $173,600 = $192,000



53. December cash disbursements for merchandise purchases would be:A) $192,000B) $243,200C) $117,600D) $248,000


Solution:

SalesCost of


December cash disbursements = 70% of December Cost of Goods Sold + 30% of November Cost of Good Sold = (70% × $248,000) + (30% × $232,000)= $173,600 + $69,600 = $243,200

54. The excess (deficiency) of cash available over disbursements for December would be:A) $46,600B) $19,200C) $13,700D) $32,900


Solution:

Cash collections − Cash disbursements − Other monthly expenses= $297,200 − $243,200 − $21,100 = $32,900



55. The net income for December would be:A) $13,700B) $32,900C) $40,900D) $19,900

Ans: A AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting LO: 9 Level: Hard

Solution:

Sales.................................................... $310,000Less uncollectible ($310,000 × 2%).... 6,200 Net sales.............................................. 303,800Cost of goods sold ($310,000 × 80%). 248,000Other expenses.................................... 21,100Depreciation expenses......................... 21,000 Net income.......................................... $ 13,700



56. The cash balance at the end of December would be:A) $63,300B) $25,000C) $57,900D) $38,300


Solution:

November DecemberOctober Accounts Receivable Balance ..... $ 77,000Collection of November Sales................... $290,000 × 65%...................................... 188,500 $290,000 × 33%...................................... $ 95,700Collection of December Sales.................... $310,000 × 65%...................................... 201,500October Accounts Payable Balance........... (239,000)Payment for November Purchases............. ($290,000 × 80%) × 30%........................ (69,600) ($310,000 × 80%) × 70%........................ (173,600)Other cash monthly expenses..................... (21,100) (21,100)Net cash inflow(outflow) per month.......... $ 5,400 $ 32,900

Beginning cash balance, October 31.......................... $25,000Add November net cash inflow.................................. 5,400Add December net cash inflow.................................. 32,900Ending cash balance, December 31............................ $63,300

57. The accounts receivable balance, net of uncollectible accounts, at the end of December would be:A) $102,300B) $198,000C) $83,200D) $108,500


Solution:

From December sales ($310,000 × 33%): $102,300



58. Accounts payable at the end of December would be:A) $192,000B) $248,000C) $117,600D) $74,400


Solution:

SalesCost of



59. Retained earnings at the end of December would be:A) $325,100B) $311,400C) $335,200D) $347,200


Solution:

Net income in November:Sales.................................................... $290,000Less uncollectible ($290,000 × 2%).... 5,800 Net sales.............................................. 284,200Cost of goods sold ($290,000 × 80%). 232,000Other expenses.................................... 21,100Depreciation expenses......................... 21,000 Net income.......................................... $ 10,100

Retained earnings in December = Retained earnings in October + Net income in November + Net income in December = $311,400 + $10,100 + $13,700 = $335,200




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







Assets:Cash............................................................................................. $ 20,000Accounts receivable (net of allowance for uncollectible

accounts).................................................................................. 70,000Inventory..................................................................................... 153,000Property, plant and equipment (net of $572,000 accumulated

depreciation)............................................................................ 1,094,000 Total assets.................................................................................. $1,337,000

Liabilities and Stockholders’ Equity:Accounts payable........................................................................ $ 254,000Common stock............................................................................ 820,000Retained earnings........................................................................ 263,000 Total liabilities and stockholders’ equity.................................... $1,337,000



60. Expected cash collections in December are:A) $54,400B) $256,000C) $320,000D) $310,400


Solution:

December sales ($320,000 × 80%)..... $256,000November sales ($340,000 × 16%)..... 54,400 Total.................................................... $310,400

61. The cost of December merchandise purchases would be:A) $255,000B) $139,500C) $235,500D) $240,000


Solution:

SalesCost of





62. December cash disbursements for merchandise purchases would be:A) $139,500B) $246,000C) $240,000D) $235,500


Solution:

November purchases = Ending inventory + Cost of good sold − Beginning inventory = ($240,000 × 60%) + $255,000 − ($255,000 × 60%)= $144,000 + $255,000 − $153,000 = $246,000December cash disbursements = November purchases = $246,000

63. The excess (deficiency) of cash available over disbursements for December would be:A) $40,400B) $68,600C) $28,200D) $12,200


Solution:

December sales ($320,000 × 80%)..... $256,000November sales ($340,000 × 16%)..... 54,400 Total cash collections in December.. . . $310,400

November purchases = Ending inventory + Cost of good sold − Beginning inventory = ($240,000 × 60%) + $255,000 − ($255,000 × 60%)= $144,000 + $255,000 − $153,000 = $246,000December cash disbursements = November purchases = $246,000

Cash collections − Cash disbursements − Other monthly expenses= $310,400 − $246,000 − $24,000 = $40,400




Information on the actual sales and inventory purchases of the Law Company for the first quarter follow:

Sales Inventory PurchasesJanuary................... $120,000 $60,000February................. $100,000 $78,000March..................... $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. Selling and administrative 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 selling and administrative expenses are variable with respect to the amount of sales in dollars. Those selling and administrative 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.

64. The expected cash collections from customers during April would be:A) $150,000B) $137,000C) $139,000D) $117,600


Solution:

April sales ($150,000 × 60%)............. $ 90,000March sales ($130,000 × 30%)........... 39,000February sales ($100,000 × 8%)......... 8,000 Expected cash collections.................... $137,000



65. The expected cash disbursements during April for inventory purchases would be:A) $100,000B) $97,000C) $90,000D) $87,300


Solution:

Expected cash disbursements for April for inventory purchases = March inventory purchases × (100% − discount percentage for paying by end of month)= $90,000 × (100% − 3%) = $90,000 × 97% = $87,300

66. The expected cash disbursements during April for selling and administrative expenses would be:A) $38,000B) $30,000C) $23,000D) $15,000


Solution:

Expected cash disbursements during April for selling and administrative expenses = Total selling and administrative expenses − Depreciation= $38,000 − $8,000 = $30,000



67. The expected cash balance on April 30 would be:A) $54,700B) $62,700C) $19,700D) $28,700


Solution:

April sales ($150,000 × 60%)............. $ 90,000March sales ($130,000 × 30%)........... 39,000February sales ($100,000 × 8%)......... 8,000 Expected cash collections.................... $137,000

Expected cash disbursements for April for inventory purchases = March inventory purchases × (100% − discount percentage for paying by end of month)= $90,000 × (100% − 3%) = $90,000 × 97% = $87,300

Expected cash disbursements = Total selling and administrative expenses − Depreciation = $38,000 − $8,000 = $30,000

Expected cash balance = Beginning cash balance + Total cash receipts − Expected cash disbursements for inventory purchases − Expected cash disbursements for selling and administrative expenses= $35,000 + $137,000 − $87,300 − $30,000= $35,000 + $19,700 = $54,700


The LaPann Company has obtained the following sales forecast data:

July August September OctoberCash sales............... $80,000 $70,000 $50,000 $60,000Credit 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.



68. The budgeted accounts receivable balance on September 30 is:A) $126,000B) $148,000C) $166,000D) $190,000


Solution:

September sales ($180,000 × 80%*)... $144,000August sales ($220,000 × 10%**)...... 22,000 Total.................................................... $166,000

*100% − 20%**100% − 20% − 70%

69. The budgeted cash receipts for October are:A) $188,000B) $248,000C) $226,000D) $278,000


Solution:

October cash sales............................................ $ 60,000October credit sales ($200,000 × 20%)............ 40,000September credit sales ($180,000 × 70%)....... 126,000August credit sales ($220,000 × 10%)............. 22,000 Total................................................................. $248,000




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

Beginning Inventory Ending InventoryFinished goods (units)........ 20,000 30,000Raw material (grams)......... 50,000 40,000

Each unit of finished goods requires 7 grams of raw material.

70. If the company plans to sell 270,000 units during the year, the number of units it would have to manufacture during the year would be:A) 300,000 unitsB) 270,000 unitsC) 260,000 unitsD) 280,000 units


Solution:

Units produced = Ending inventory + Units sold − Beginning inventory= 30,000 + 270,000 − 20,000 = 280,000

71. How much of the raw material should the company purchase during the year?A) 1,960,000 gramsB) 1,950,000 gramsC) 1,970,000 gramsD) 2,000,000 grams


Solution:

Materials purchased = Ending inventory + Materials to be used − Beginning inventory = 40,000 + (280,000 × 7) − 50,000= 40,000 + 1,960,000 − 50,000 = 1,950,000




LBC 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 $14.50 per direct labor-hour. Management would like you to prepare a Direct Labor Budget for June.

72. The budgeted direct labor cost per unit of Product WZ would be:A) $50.75B) $14.50C) $4.14D) $18.00


Solution:

Budgeted direct labor cost per unit = Direct labor-hours per unit × Direct labor rate= 3.5 × $14.50 = $50.75

73. The company plans to sell 39,000 units of Product WZ in June. The finished goods inventories on June 1 and June 30 are budgeted to be 200 and 100 units, respectively. Budgeted direct labor costs for June would be:A) $1,984,325B) $1,974,175C) $1,979,250D) $564,050


Solution:

Units produced = Ending inventory + Units sold − Beginning inventory= 100 + 39,000 − 200 = 38,900Budgeted direct labor cost per unit = Direct labor-hours per unit × Direct labor rate= 3.5 × $14.50 = $50.75Budgeted direct labor cost = Units produced × Budgeted direct labor cost per unit= 38,900 × $50.75 = $1,974,175




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

October................... 4,800 unitsNovember............... 5,800 unitsDecember............... 6,400 unitsJanuary................... 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.

74. The total units to be produced in October are:A) 4,530B) 5,070C) 5,670D) 5,890


Solution:

Units produced = Ending inventory + Units sold − Beginning inventory= (15% × 5,800) + 4,800 − 600 = 870 + 4,800 − 600 = 5,070

75. The desired ending inventory for December is:A) 960B) 870C) 780D) 690


Solution:

Desired ending inventory for December = 15% of January’s sales in units= 15% × 5,200 = 780




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

June........................ 7,000 unitsJuly......................... 5,300 unitsAugust.................... 7,100 unitsSeptember.............. 6,800 unitsOctober................... 4,900 units

Past experience has shown that the ending inventory for each month should be equal to 15% of the next month's sales in units. The inventory on May 31 contained 1,050 units. The company needs to prepare a production budget for the next five months.

76. The beginning inventory for September should be:A) 1,020 unitsB) 1,050 unitsC) 1,065 unitsD) 735 units


Solution:

The beginning inventory for September is equal to the ending inventory for August.Desired ending inventory for August = 15% × September’s sales in units= 15% × 6,800 = 1,020



77. The total number of units produced in July should be:A) 5,300 unitsB) 6,365 unitsC) 5,570 unitsD) 5,030 units


Solution:

Units produced = Ending inventory + Units sold − Beginning inventory= (7,100 × 15%) + 5,300 − (5,300 × 15%)= 1,065 + 5,300 − 795 = 5,570


Caspion Corporation makes and sells a product called a Miniwarp. One Miniwarp requires 2.5 kilograms of the raw material Jurislon. Budgeted production of Miniwarps for the next five months is as follows:

August.................... 22,600 unitsSeptember.............. 21,300 unitsOctober................... 22,700 unitsNovember............... 23,900 unitsDecember............... 23,600 units

The company wants to maintain monthly ending inventories of Jurislon equal to 20% of the following month's production needs. On July 31, this requirement was not met since only 10,800 kilograms of Jurislon were on hand. The cost of Jurislon is $18.00 per kilogram. The company wants to prepare a Direct Materials Purchase Budget for the next five months.



78. The desired ending inventory of Jurislon for the month of September is:A) $81,720B) $76,680C) $191,700D) $204,300

Ans: D AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting LO: 4 Level: Medium

Solution:

Desired ending inventory = 20% × Direct materials needed for October × Cost per kilogram of Jurislon = 20% × (22,700 × 2.5) × $18 = 11,350 × $18 = $204,300

79. The total cost of Jurislon to be purchased in August is:A) $1,839,600B) $1,014,300C) $1,208,700D) $1,017,000


Solution:

Materials purchased = Ending inventory + Materials used − Beginning inventory= (20% × 21,300 × 2.5) + (22,600 × 2.5) − 10,800= 10,650 + 56,500 − 10,800 = 56,350Total cost of purchase = 56,350 × $18 = $1,014,300




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............................... $0.70Shipping............................................... $1.10Advertising........................................... $0.20 $14,000Executive salaries................................. $34,000Depreciation on office equipment........ $11,000Other.................................................... $0.25 $19,000

All expenses other than depreciation are paid in cash in the month they are incurred.

80. 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) $56,250B) $78,000C) $134,250D) $123,250

Ans: C AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting LO: 6 Level: MediumSolution:

Variable cost per unit = ($0.70 + $1.10 + $0.20 + $0.25) = $2.25Fixed cost = $14,000 + $34,000 + $11,000 + $19,000 = $78,000Total budgeted selling and administrative expenses = Variable cost + Fixed cost= ($2.25 × 25,000) + $78,000 = $56,250 + $78,000 = $134,250



81. If the company has budgeted to sell 20,000 units of Product SW in October then the total budgeted variable selling and administrative expenses for October will be:A) $45,000B) $40,000C) $56,250D) $78,000

Ans: A AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting LO: 6 Level: Medium

Solution:

Variable cost per unit = ($0.70 + $1.10 + $0.20 + $0.25) = $2.25Total budgeted variable selling and administrative expenses = Variable cost per unit × Units sold = $2.25 × 20,000 = $45,000

82. 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 unitsB) 25,000 unitsC) 22,952 unitsD) 20,111 units


Solution:

Variable cost per unit = ($0.70 + $1.10 + $0.20 + $0.25) = $2.25Cash disbursements = Variable cost + (Fixed cost − Depreciation)$123,250 = ($2.25 × Units sold) + ($78,000 − $11,000) $123,250 = ($2.25 × Units sold) - $67,000Units sold = ($123,250 − $67,000) ÷ $2.25Units sold = $56,250 ÷ $2.25Units sold = 25,000 units



83. If the company has budgeted to sell 24,000 units of Product SW in September, then the total budgeted fixed selling and administrative expenses for September would be:A) $54,000B) $48,000C) $67,000D) $78,000


Solution:Monthly

Fixed CostAdvertising........................................... $14,000Executive salaries................................. 34,000Depreciation on office equipment........ 11,000Other.................................................... 19,000 Total..................................................... $78,000


Davis Corporation is preparing its Manufacturing Overhead Budget for the fourth quarter of the year. The budgeted variable factory overhead rate is $1.70 per direct labor-hour; the budgeted fixed factory overhead is $116,000 per month, of which $30,000 is factory depreciation.

84. If the budgeted direct labor time for October is 8,000 hours, then the total budgeted factory overhead for October is:A) $129,600B) $43,600C) $99,600D) $86,000


Solution:

Total budgeted factory overhead = Variable manufacturing overhead + Fixed manufacturing overhead = (8,000 × $1.70) + $116,000 = $13,600 + $116,000 = $129,600



85. If the budgeted direct labor time for November is 7,000 hours, then the total budgeted cash disbursements for November must be:A) $41,900B) $127,900C) $86,000D) $97,900


Solution:

Cash disbursements = Variable manufacturing overhead + Fixed manufacturing overhead − Depreciation = (7,000 × $1.70) + $116,000 − $30,000= $11,900 + $116,000 − $30,000 = $97,900

86. If the budgeted direct labor time for December is 4,000 hours, then the predetermined factory overhead per direct labor-hour for December would be:A) $9.20B) $30.70C) $23.20D) $1.70


Solution:

Predetermined factory overhead rate = Variable overhead rate per direct labor hour + Fixed factory overhead rate per hour = $1.70 + ($116,000 ÷ 4,000) = $1.70 + $29 = $30.70


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.



87. The April cash disbursements for manufacturing overhead on the manufacturing overhead budget should be:A) $59,070B) $46,200C) $27,060D) $19,140


Solution:

Cash disbursements for April = (Variable overhead rate × Number of direct-labor hours) + (Fixed manufacturing overhead less depreciation)= ($5.80 × 3,300) + ($39,930 − $12,870) = $19,140 + $27,060 = $46,200

88. The company recomputes its predetermined overhead rate every month. The predetermined overhead rate for April should be:A) $14.00B) $5.80C) $17.90D) $12.10


Solution:

Predetermined factory overhead rate = Variable overhead rate per direct labor hour + Fixed factory overhead rate per hour = $5.80 + ($39,930 ÷ 3,300) = $5.80 + $12.10 = $17.90


Avril Inc. bases its manufacturing overhead budget on budgeted direct labor-hours. The variable overhead rate is $4.60 per direct labor-hour. The company's budgeted fixed manufacturing overhead is $54,080 per month, which includes depreciation of $3,840. All other fixed manufacturing overhead costs represent current cash flows. The direct labor budget indicates that 3,200 direct labor-hours will be required in October.



89. The October cash disbursements for manufacturing overhead on the manufacturing overhead budget should be:A) $68,800B) $64,960C) $14,720D) $50,240


Solution:

Cash disbursements for October = (Variable overhead rate × Number of direct-labor hours) + (Fixed manufacturing overhead less depreciation)= ($4.60 × 3,200) + ($54,080 − $3,840) = $14,720 + $50,240 = $64,960

90. The company recomputes its predetermined overhead rate every month. The predetermined overhead rate for October should be:A) $4.60B) $21.50C) $20.30D) $16.90


Solution:

Predetermined factory overhead rate = Variable overhead rate per direct labor hour + Fixed factory overhead rate per hour= $4.60 + ($54,080 ÷ 3,200) = $4.60 + $16.90 = $21.50


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.



91. The company recomputes its predetermined overhead rate every month. The predetermined overhead rate for January should be:A) $1.00B) $12.20C) $11.20D) $13.20


Solution:

Predetermined factory overhead rate = Variable overhead rate per direct labor hour + Fixed factory overhead rate per hour= $1 + ($28,060 ÷ 2,300) = $1 + $12.20 = $13.20

92. The January cash disbursements for manufacturing overhead on the manufacturing overhead budget should be:A) $30,360B) $2,300C) $23,460D) $25,760


Solution:

Cash disbursements for January = (Variable overhead rate × Number of direct-labor hours) + (Fixed manufacturing overhead less depreciation)= (2,300 × $1) + ($28,060 − $4,600) = $2,300 + $23,460 = $25,760


The manufacturing overhead budget at Polich Corporation is based on budgeted direct labor-hours. The direct labor budget indicates that 1,600 direct labor-hours will be required in February. The variable overhead rate is $3.40 per direct labor-hour. The company's budgeted fixed manufacturing overhead is $28,320 per month, which includes depreciation of $3,680. All other fixed manufacturing overhead costs represent current cash flows.



93. The company recomputes its predetermined overhead rate every month. The predetermined overhead rate for February should be:A) $3.40B) $21.10C) $17.70D) $18.80


Solution:

Predetermined factory overhead rate = Variable overhead rate per direct labor hour + Fixed factory overhead rate per hour = $3.40 + ($28,320 ÷ 1,600)= $3.40 + $17.70 = $21.10

94. The February cash disbursements for manufacturing overhead on the manufacturing overhead budget should be:A) $24,640B) $33,760C) $30,080D) $5,440


Solution:

Cash disbursements for February = (Variable overhead rate × Number of direct-labor hours) + (Fixed manufacturing overhead less depreciation)= (1,600 × $3.40) + ($28,320 − $3,680) = $5,440 + $24,640 = $30,080




Porter 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:

Variable Cost Per Yute Sold

Monthly Fixed Cost

Sales commissions.................................. $5.90Shipping.................................................. $5.30Advertising.............................................. $8.90 $32,000Executive salaries.................................... $178,000Depreciation on office equipment........... $7,000Other....................................................... $0.60 $20,000

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

95. If the company has budgeted to sell 14,000 Yutes in November, then the total budgeted selling and administrative expenses for November would be:A) $526,800B) $289,800C) $237,000D) $519,800

Ans: A AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting LO: 7 Level: Medium

Solution:

Total budgeted selling and administrative expenses = Variable cost + Fixed cost = [14,000 × ($5.90 + $5.30 + $8.90 + $ 0.60)] + ($32,000 + $178,000 + $7,000 + $20,000) = (14,000 × $20.70) + $237,000 = $526,800



96. If the company has budgeted to sell 12,000 Yutes in December, then the budgeted total cash disbursements for selling and administrative expenses for December would be:A) $237,000B) $485,400C) $248,400D) $478,400


Solution:

Variable cost per unit = $5.90 + $5.30 + $8.90 + $0.60 = $20.70Fixed cost total = $32,000 + $178,000 + $7,000 + $20,000 = $237,000Cash disbursements for December = (Variable selling and administrative cost × Number of direct-labor hours) + (Fixed manufacturing overhead less depreciation)= (12,000 × $20.70) + ($237,000 − $7,000) = $248,400 + $230,000 = $478,400

97. If the budgeted cash disbursements for selling and administrative expenses for October total $518,520, then how many Yutes does the company plan to sell in October?A) 13,300 unitsB) 14,100 unitsC) 13,800 unitsD) 13,600 units


Solution:

($20.70 × Units sold) + $237,000 = $518,520($20.70 × Units) = $518,520 − $237,000Units = $281,520 ÷ $20.70 = 13,600




The Bandeiras Company, a merchandising firm, has budgeted its activity for December according to the following information:

Sales at $550,000, all for cash. Merchandise inventory on November 30 was $300,000. Budgeted depreciation for December is $35,000. The cash balance at December 1 was $25,000. Selling and administrative expenses are budgeted at $60,000 for December and are

paid in cash. The planned merchandise inventory on December 31 is $270,000. The invoice cost for merchandise purchases represents 75% of the sales price. All

purchases are paid for in cash.

98. The budgeted cash receipts for December are:A) $412,500B) $137,500C) $585,000D) $550,000


Solution:

Since all sales are on a cash basis, the cash receipts for December will be equal to the sales in December of $550,000.



99. The budgeted cash disbursements for December are:A) $382,500B) $442,500C) $472,500D) $477,500


Solution:

Purchases = Ending inventory + Cost of goods sold − Beginning inventory= $270,000 + ($550,000 × 75%) − $300,000 = $382,500Cash disbursements = Purchases + Selling and administrative expenses= $382,500 + $60,000 = $442,500

100. The budgeted net income for December is:A) $107,500B) $137,500C) $42,500D) $77,500


Solution:

Sales............................................................................ $550,000Cost of goods sold ($550,000 × 75%)........................ 412,500 Gross margin.............................................................. 137,500Depreciation expense.................................................. 35,000Selling and administrative expense............................ 60,000 Net income.................................................................. $ 42,500


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.



101. The excess (deficiency) of cash available over disbursements for July is:A) $23,000B) $2,000C) $166,000D) $27,000


Solution:

Excess cash available over disbursements = Beginning cash balance + Budgeted cash receipts - Budgeted cash disbursements= $25,000 + $141,000 - $139,000 = $27,000

102. To attain its desired ending cash balance for July, the company should borrow:A) $30,000B) $0C) $3,000D) $57,000


Solution:

Excess cash available over disbursements = Beginning cash balance + Budgeted cash receipts - Budgeted cash disbursements = $25,000 + $141,000 − $139,000 = $27,000Borrowing = Desired ending cash balance − Excess cash available over disbursements = $30,000 − $27,000 = $3,000


Bries Corporation is preparing its cash budget for January. The budgeted beginning cash balance is $18,000. Budgeted cash receipts total $183,000 and budgeted cash disbursements total $188,000. The desired ending cash balance is $30,000.



103. The excess (deficiency) of cash available over disbursements for January is:A) $23,000B) $13,000C) ($5,000)D) $201,000


Solution:

Excess cash available over disbursements = Beginning cash balance + Budgeted cash receipts − Budgeted cash disbursements = $18,000 + $183,000 − $188,000 = $13,000

104. To attain its desired ending cash balance for January, the company should borrow:A) $17,000B) $0C) $30,000D) $43,000


Solution:

Excess cash available over disbursements = Beginning cash balance + Budgeted cash receipts − Budgeted cash disbursements = $18,000 + $183,000 − $188,000 = $13,000Borrowing = Desired ending cash balance − Excess cash available over disbursements = $30,000 − $13,000 = $17,000


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.



105. The excess (deficiency) of cash available over disbursements for April will be:A) $32,000B) $190,000C) $48,000D) ($8,000)


Solution:


106. To attain its desired ending cash balance for April, the company needs to borrow:A) $18,000B) $0C) $50,000D) $82,000


Solution:

Excess cash available over disbursements = Beginning cash balance + Budgeted cash receipts - Budgeted cash disbursements = $40,000 + $150,000 - $158,000 = $32,000Borrowing = Desired ending cash balance − Excess cash available over disbursements = $50,000 − $32,000 = $18,000


Varughese Inc. is working on its cash budget for March. The budgeted beginning cash balance is $33,000. Budgeted cash receipts total $182,000 and budgeted cash disbursements total $191,000. The desired ending cash balance is $40,000.



107. The excess (deficiency) of cash available over disbursements for March will be:A) $215,000B) $42,000C) $24,000D) ($9,000)


Solution:


108. To attain its desired ending cash balance for March, the company needs to borrow:A) $40,000B) $0C) $16,000D) $64,000


Solution:

Excess cash available over disbursements = Beginning cash balance + Budgeted cash receipts − Budgeted cash disbursements = $33,000 + $182,000 − $191,000 = $24,000Borrowing = Desired ending cash balance − Excess cash available over disbursements = $40,000 − $24,000 = $16,000




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







Assets:Cash.................................................................................................. $ 19,000Accounts receivable (net of allowance for uncollectible accounts). 77,000Inventory........................................................................................... 157,500Property, plant and equipment (net of $502,000 accumulated

depreciation).................................................................................. 1,002,000 Total assets........................................................................................ $1,255,500

Liabilities and Stockholders’ Equity:Accounts payable.............................................................................. $ 272,000Common stock.................................................................................. 780,000Retained earnings.............................................................................. 203,500 Total liabilities and stockholders’ equity.......................................... $1,255,500



109. The net income for December would be:A) $32,900B) $42,300C) $39,300D) $55,300


Solution:

Net sales [$320,000 × (100% − 2%)]......................... $313,600Cost of goods sold ($320,000 × 75%)........................ 240,000 Gross margin.............................................................. 73,600Depreciation expense.................................................. 16,000Selling and administrative expense............................ 24,700 Net income.................................................................. $ 32,900

110. The cash balance at the end of December would be:A) $19,000B) $156,600C) $61,300D) $137,600


Solution:

November DecemberOctober Accounts Receivable

Balance ...................................................................$ 77,000Collection of November Sales.................................... $350,000 × 90%......................................................315,000 $350,000 × 8%........................................................ $ 28,000Collection of December Sales.................................... $320,000 × 90%...................................................... 288,000October Accounts Payable Balance............................(272,000)Payment for November Purchases.............................. ($350,000 × 75%) × 40%........................................ (105,000) ($320,000 × 75%) × 60%........................................ (144,000)Other cash monthly expenses.....................................(24,700) (24,700)Net cash inflow(outflow) per month..........................$ 95,300 $ 42,300



Beginning cash balance, October 31.......................... $ 19,000Add November net cash inflow.................................. 95,300Add December net cash inflow.................................. 42,300Ending cash balance, December 31............................ $156,600

111. The accounts receivable balance, net of uncollectible accounts, at the end of December would be:A) $53,600B) $83,400C) $25,600D) $32,000


Solution:

112. Accounts payable at the end of December would be:A) $231,000B) $96,000C) $135,000D) $240,000


Solution:

SalesCost of


Purchases in December = ($225,000 × 60%) + ($240,000 × 40%)= $135,000 + $96,000 = $231,000



113. Retained earnings at the end of December would be:A) $289,600B) $276,200C) $236,400D) $203,500


Solution:

Net income calculation for November:Net sales ($350,000 × 98%)....................................... $343,000Less cost of goods sold ($350,000 × 75%)................ 262,500 Gross margin.............................................................. 80,500Less depreciation expense.......................................... 16,000Less selling and administrative expense..................... 24,700 Net income.................................................................. $ 39,800

Net income calculation for December:Net sales [$320,000 × (100% − 2%)]......................... $313,600Less cost of goods sold ($320,000 × 75%)................ 240,000 Gross margin.............................................................. 73,600Less depreciation expense.......................................... 16,000Less selling and administrative expense..................... 24,700 Net income.................................................................. $ 32,900

Retained earnings in December = Retained earnings in October + Net income in November + Net income in December = $203,500 + $39,800 + $32,900 = $276,200



Essay Questions

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







Assets:Cash.................................................................................................. $ 22,000Accounts receivable (net of allowance for uncollectible accounts). 83,000Inventory........................................................................................... 158,400Property, plant and equipment (net of $594,000 accumulated

depreciation).................................................................................. 1,004,000 Total assets $1,267,400

Liabilities and Stockholders’ Equity:Accounts payable.............................................................................. $ 196,000Common stock.................................................................................. 620,000Retained earnings.............................................................................. 451,400 Total liabilities and stockholders’ equity.......................................... $1,267,400

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.



Ans:

a. November DecemberSales........................................................... $330,000 $300,000

Schedule of Expected Cash CollectionsAccounts receivable................................... $ 83,000November sales.......................................... 280,500 $ 46,200December sales.......................................... 255,000 Total cash collections................................. $363,500 $301,200

b. November DecemberCost of goods sold...................................... $198,000 $180,000

Merchandise Purchases BudgetNovember sales.......................................... $ 39,600December sales.......................................... 144,000 $ 36,000January sales.............................................. 153,600 Total purchases.......................................... $183,600 $189,600

Disbursements for merchandise................. $196,000 $183,600

c. November DecemberCash receipts.............................................. $363,500 $301,200Cash disbursements:

Disbursements for merchandise.............. 196,000 183,600Other monthly expenses.......................... 21,200 21,200 Total cash disbursements........................ 217,200 204,800

Excess (deficiency) of cash available over disbursements......................................... $146,300 $ 96,400

d. November DecemberSales........................................................... $330,000 $300,000Bad debt expense....................................... 3,300 3,000Cost of goods sold...................................... 198,000 180,000 Gross margin.............................................. 128,700 117,000 Other monthly expenses............................. 21,200 21,200Depreciation............................................... 21,000 21,000 Net operating income................................. $ 86,500 $ 74,800



e. Statement of Financial PositionDecember 31

Assets:Cash............................................................................ $ 264,700Accounts receivable (net of allowance for

uncollectible accounts)............................................ 42,000Inventory..................................................................... 153,600Property, plant and equipment (net of $636,000

accumulated depreciation)...................................... 962,000 Total assets.................................................................. $1,422,300

Liabilities and Stockholders’ Equity:Accounts payable........................................................ $ 189,600Common stock............................................................ 620,000Retained earnings........................................................ 612,700 Total liabilities and stockholders’ equity.................... $1,422,300

AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting, Measurement LO: 2,3,8,9,10 Level: Hard

115. 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 as follows for the next four months:

April....................... 60,000May........................ 75,000June........................ 90,000July......................... 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.



Ans:

a. April May June JulyBudgeted sales, in units............... 60,000 75,000 90,000 81,000Desired ending inventory (40%). 30,000 36,000 32,400 Total needs.................................. 90,000 111,000 122,400Less beginning inventory............ 38,000 30,000 36,000 Required purchases..................... 52,000 81,000 86,400

b. April May JuneBudgeted sales, at $2 per unit...... $120,000 $150,000 $180,000March 31 accounts receivable..... $ 85,000April sales.................................... 40,000 $ 80,000May sales..................................... 50,000 $100,000June sales..................................... 60,000 Total cash collections.................. $125,000 $130,000 $160,000

AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting, Measurement LO: 2,3 Level: Medium



116. Capes Corporation is a wholesaler of industrial goods. Data regarding the store's operations follow:





The November beginning balance in the accounts receivable account is $77,000. The November beginning balance in the accounts payable account is $320,000.

Required:

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

Ans:

a. November DecemberSales........................................................ $390,000 $360,000

Schedule of Expected Cash CollectionsAccounts receivable................................ $ 77,000November sales....................................... 331,500 $ 39,000December sales........................................ 306,000 Total cash collections.............................. $408,500 $345,000

b. November DecemberCost of goods sold................................... $312,000 $288,000

Merchandise Purchases BudgetNovember sales....................................... $187,200December sales........................................ 115,200 $172,800January sales............................................ 108,800 Total purchases........................................ $302,400 $281,600

Disbursements for merchandise.............. $320,000 $302,400




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

April May JuneSales....................... 50,000 40,000 60,000Production.............. 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.



Ans:

a. April May JuneProduction units........................... 60,000 50,000 50,000Cash required per unit................. × $5 × $5 × $5Production costs........................... $300,000 $250,000 $250,000

Cash disbursements:April May June

Production this month (40%)....... $120,000 $100,000 $100,000Production prior month (60%)..... 190,000 180,000 150,000Selling 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.

b. April May JuneSales units................................... 50,000 40,000 60,000Sales price................................... × $14 × $14 × $14Total sales................................... $700,000 $560,000 $840,000

April May JuneCash receipts:February sales............................. $ 90,000March sales................................. 307,500 $102,500April sales................................... 420,000 210,000 $ 70,000May sales..................................... 336,000 168,000June sales..................................... 504,000 Total receipts............................... $817,500 $648,500 $742,000

AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting, Measurement LO: 2,4 Level: Hard



118. The Doley Company has planned the following sales for the next three months:

Jan Feb MarBudgeted 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 provided for March:

Inventory purchases (all paid in March).............................. $28,000Selling and administrative expenses (all paid in March)..... $40,000Depreciation expense for March......................................... $5,000Dividends 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.



Ans:

a. Cash sales, March: $70,000 × 20%......... $14,000Collections on account:Jan. sales: $40,000 × 80% × 8%.............. 2,560Feb. sales: $50,000 × 80% × 30%........... 12,000Mar. sales: $70,000 × 80% × 60%.......... 33,600 Total cash receipts................................... $62,160

b. Cash balance, beginning.......................... $ 6,000Add cash receipts from sales................... 62,160 Total cash available................................. 68,160

Less disbursements:Inventory purchases................................. 28,000Selling and administrative expenses....... 40,000Dividends................................................ 4,000 Total disbursements................................. 72,000 Cash excess (deficiency)......................... (3,840)Financing–borrowing.............................. 8,840 Cash balance, ending............................... $ 5,000




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

January................... 21,000 unitsFebruary................. 36,000 unitsMarch..................... 61,000 unitsApril....................... 41,000 unitsMay........................ 31,000 unitsJune........................ 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.

Ans:January February March April

Budgeted sales (units).................... 21,000 36,000 61,000 41,000Add: Desired ending inventory...... 7,200 12,200 8,200 6,200 Total needs..................................... 28,200 48,200 69,200 47,200Deduct: Beginning inventory......... 4,000 7,200 12,200 8,200 Units to be produced...................... 24,200 41,000 57,000 39,000

January February March QuarterUnits to be produced 24,200 41,000 57,000 122,200Switches per unit ×3 ×3 ×3 ×3Production needs 72,600 123,000 171,000 366,600Add: Desired ending inventory 36,900 51,300 35,100 35,100 Total needs 109,500 174,300 206,100 401,700Deduct: 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 × 0.3 = 21,780Ending inventory, March 31: (39,000 × 3) × 0.3 = 35,100

AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting, Measurement LO: 4 Level: Hard



120. One quarter gram of a rare seasoning is required for each bottle of Dipping Oil, a very popular product sold through gourmet shops that is produced by The Lucas Company. The cost of the seasoning is $16 per gram. Budgeted production of Dipping Oil is given below for the second quarter, and the first month of the third quarter.

April May June JulyRequired production bottles........... 5,000 8,000 15,000 10,000

The seasoning is so difficult to get that the company must have on hand at the end of each month 20% of the next month's production needs. A total of 250 grams will be on hand at the beginning of April.

Required:

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

Ans:Lucas Company

Direct Materials Budget for the Second Quarter

April May June TotalRequired production (bottles)............ 5,000 8,000 15,000 28,000Seasoning required per bottle

(grams)........................................... ×0.25 ×0.25 ×0.25 ×0.25Production needs (grams).................. 1,250 2,000 3,750 7,000Add desired ending inventory of

seasoning........................................ 400 750 500 500 Total needs......................................... 1,650 2,750 4,250 7,500Less beginning inventory of

seasoning........................................ 250 400 750 250 Seasoning to be purchased (grams).... 1,400 2,350 3,500 7,250Cost of seasoning per gram................ × $16 × $16 × $16 × $16Cost of seasoning to be purchased..... $22,400 $37,600 $56,00 $116,000

AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting, Measurement LO: 4 Level: Easy



121. Whitmer Corporation is working on its direct labor budget for the next two months. Each unit of output requires 0.05 direct labor-hours. The direct labor rate is $11.80 per direct labor-hour. The production budget calls for producing 7,100 units in February and 6,800 units in March.

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.

Ans:February March

Required production in units.......... 7,100 6,800Direct labor-hours per unit............. 0.05 0.05Total direct labor-hours needed..... 355 340Direct labor cost per hour.............. $11.80 $11.80Total direct labor cost.................... $4,189 $4,012


122. Sthilaire Corporation is working on its direct labor budget for the next two months. Each unit of output requires 0.34 direct labor-hours. The direct labor rate is $11.10 per direct labor-hour. The production budget calls for producing 8,000 units in April and 8,300 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 2,840 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.

Ans:April May

Required production in units.......... 8,000 8,300Direct labor-hours per unit............. 0.34 0.34Total direct labor-hours needed..... 2,720 2,822Total direct labor-hours paid.......... 2,840 2,840Direct labor cost per hour.............. $11.10 $11.10Total direct labor cost.................... $31,524 $31,524

AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting, Measurement LO: 5 Level: Medium



123. Brockney Inc. bases its manufacturing overhead budget on budgeted direct labor-hours. The variable overhead rate is $8.60 per direct labor-hour. The company's budgeted fixed manufacturing overhead is $107,970 per month, which includes depreciation of $9,760. All other fixed manufacturing overhead costs represent current cash flows. The July direct labor budget indicates that 6,100 direct labor-hours will be required in that month.

Required:

a. Determine the cash disbursement for manufacturing overhead for July.b. Determine the predetermined overhead rate for July.

Ans:

a. JulyBudgeted direct labor-hours............................................ 6,100Variable overhead rate.................................................... $8.60Variable manufacturing overhead................................... $ 52,460Fixed manufacturing overhead....................................... 107,970 Total manufacturing overhead........................................ 160,430Less depreciation............................................................ 9,760 Cash disbursement for manufacturing overhead............. $150,670

b. Total manufacturing overhead (a)................................... $160,430Budgeted direct labor-hours (b)...................................... 6,100Predetermined overhead rate for the month (a)/(b)......... $26.30




124. The manufacturing overhead budget of Reigle Corporation is based on budgeted direct labor-hours. The February direct labor budget indicates that 5,800 direct labor-hours will be required in that month. The variable overhead rate is $4.60 per direct labor-hour. The company's budgeted fixed manufacturing overhead is $82,360 per month, which includes depreciation of $16,820. All other fixed manufacturing overhead costs represent current cash flows.

Required:

a. Determine the cash disbursement for manufacturing overhead for February. Show your work!

b. Determine the predetermined overhead rate for February. Show your work!

Ans:

a. FebruaryBudgeted direct labor-hours............................................ 5,800Variable overhead rate..................................................... $4.60Variable manufacturing overhead................................... $ 26,680Fixed manufacturing overhead........................................ 82,360 Total manufacturing overhead......................................... 109,040Less depreciation............................................................. 16,820 Cash disbursement for manufacturing overhead............. $ 92,220

b. Total manufacturing overhead (a)................................... $109,040Budgeted direct labor-hours (b)....................................... 5,800Predetermined overhead rate for the month (a)/(b)......... $18.80




125. Wala Inc. bases its selling and administrative expense budget on the number of units sold. The variable selling and administrative expense is $8.20 per unit. The budgeted fixed selling and administrative expense is $132,800 per month, which includes depreciation of $14,400. The remainder of the fixed selling and administrative expense represents current cash flows. The sales budget shows 8,000 units are planned to be sold in July.

Required:

Prepare the selling and administrative expense budget for July.

Ans:

JulyBudgeted unit sales.................................................................... 8,000Variable selling and administrative expense per unit................ $8.20Budgeted variable expense........................................................ $ 65,600Budgeted fixed selling and administrative expense.................. 132,800 Total budgeted selling and administrative expense................... 198,400Less depreciation....................................................................... 14,400 Cash disbursements for selling and administrative expenses.... $184,000




126. The selling and administrative expense budget of Garney Corporation is based on the number of units sold, which are budgeted to be 1,800 units in October. The variable selling and administrative expense is $2.00 per unit. The budgeted fixed selling and administrative expense is $22,680 per month, which includes depreciation of $7,020. The remainder of the fixed selling and administrative expense represents current cash flows.

Required:

Prepare the selling and administrative expense budget for October.

Ans:October

Budgeted unit sales..................................................................... 1,800Variable selling and administrative expense per unit................. $2.00Budgeted variable expense......................................................... $ 3,600Budgeted fixed selling and administrative expense.................... 22,680 Total budgeted selling and administrative expense.................... 26,280Less depreciation........................................................................ 7,020 Cash disbursements for selling and administrative expenses..... $19,260




127. Romeiro Corporation is preparing its cash budget for September. The budgeted beginning cash balance is $46,000. Budgeted cash receipts total $160,000 and budgeted cash disbursements total $152,000. The desired ending cash balance is $70,000. The company can borrow up to $120,000 at any time from a local bank, with interest not due until the following month.

Required:

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

Ans:

Cash balance, beginning........................................................... $ 46,000Add cash receipts...................................................................... 160,000 Total cash available................................................................... 206,000Less cash disbursements........................................................... 152,000 Excess (deficiency) of cash available over disbursements....... 54,000Borrowings................................................................................ 16,000 Cash balance, ending................................................................ $ 70,000




128. Zolezzi Inc. is preparing its cash budget for March. The budgeted beginning cash balance is $42,000. Budgeted cash receipts total $178,000 and budgeted cash disbursements total $175,000. The desired ending cash balance is $50,000. 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 March in good form. Make sure to indicate what borrowing, if any, would be needed to attain the desired ending cash balance.

Ans:

Cash balance, beginning......................................................... $ 42,000Add cash receipts.................................................................... 178,000 Total cash available................................................................ 220,000Less cash disbursements......................................................... 175,000 Excess (deficiency) of cash available over disbursements..... 45,000Borrowings............................................................................. 5,000 Cash balance, ending.............................................................. $ 50,000



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