Exam 14: Planning for Profit and Cost Control

Dobson Company expects to begin operating on January 1. The company's master budget contained the following operating expense budget: January February March Salary expenses \ 40,000 \ 36,000 \ 36,000 Sales commissions, 5\% Utilities 2,800 2,800 2,800 Depreciation on store equipment 1,800 1,800 1,800 Rent 7,200 7,200 7,200 Miscellaneous operating expenses Sales commissions are paid in cash in the month following the month in which the expense is recognized. All other expense items requiring cash payment are paid in the month in which they are recognized. The amount of cash to be paid for operating expenses during the month of January is:

Depreciation expense will appear on the schedule of cash payments for selling and administrative expenses.

Which of the following is not an advantage of budgeting?

Oakton Furniture provided the following information relevant to its sales for December Year 1 and the first quarter of Year 2: Dec. Year 1 Jan. Year 2 Feb. Year 2 Mar. Year (Actual) (Budgeted) (Budgeted) (Budgeted) Credit sales \ 120,000 \ 280,000 \ 310,000 \ 220,000 Cash sales \ 20,000 \ 50,000 \ 60,000 \ 24,000 Based on the company's collection history, 42% of credit sales are collected in month of sale, and the remainder is collected in the following month. Cash collections in January from December credit sales would be:

Virginia Jackson is opening Jackson Realty on January 2. For several weeks she has been busy putting together an operating budget for the first quarter of operation for her new business. Virginia has estimated her selling and administrative (S&A) costs as follows: January February March Depreciation \ 1,000 \ 1,000 \ 1,000 Marketing expenses 2,000 1,400 1,000 Miscellaneous costs 500 400 400 Rent expense 5,000 5,000 5,000 Salary expense 4,000 8,000 8,000 Sales commissions 1,000 1,200 1,400 Utilities expense 1,000 800 1,000 Total S\&A cost before interest \ 14,500 \ 17,800 \ 17,800 All selling and administrative costs are paid when incurred except utilities, marketing expenses, and sales commissions. These items are paid in the month following the month incurred.Required:Prepare a schedule of cash payments for selling and administrative expenses for January through March.What liabilities, in what amounts, would be reported on the pro forma balance sheet as of March 31?

Planning concerned with long-range decisions such as defining the scope of the business is referred to as:

The following budget information is available for the Arch Company for January Year 2: Sales \8 60,000 Cost of goods sold 540,000 Utilities expense 2,800 Administrative salaries 100,000 Sales commissions 5 \% of Sales Advertising 20,000 Depreciation on store equipment 50,000 Rent on administration building 60,000 Miscellaneous administrative expenses 10,000 All operating expenses are paid in cash in the month incurred. Compute the total budgeted selling and administrative expenses (excluding interest) amount for January Year 2.

Bright Minds Toy Company prepared the following sales budget for the second quarter. Projected sales for each of the first three months of operations are as follows: Sales Budget April May June Cash sales 30,000 43,000 55,000 Sales on account - Bright Minds expects to collect 70% of the sales on account in the month of sale, 20% in the month following the sale, and the remainder in the second month following the sale. What is the amount of budgeted cash collections for June?

Pro forma financial statements are prepared at the end of the year and are used to evaluate the performance of managers.

Indicate whether each of the following statements is true or false.

Select the term from the list of terms that best matches the description provided.

Select the incorrect statement regarding the human factor in the budgeting process.

Which of the following items would be least useful in preparing a schedule of cash receipts?

The selling and administrative expense budget is prepared prior to the cash budget.

The cash budget is not the same as the pro forma cash flow statement.

Strategic planning deals with the establishment of long-term company objectives.