Exam 14: Planning for Profit and Cost Control

Scranton Company expects to begin operating on July 1, Year 1. The company's master budget contained the following operating expense budget: 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 commissions payable that would appear on the company's pro forma balance sheet as of September 30, Year 1 is:

Sentra Sporting Company sells tennis rackets and other sporting equipment. The purchasing department manager prepared the inventory purchases budget. Sentra's policy is to maintain an ending inventory balance equal to 15% of the following month's cost of goods sold. January's budgeted cost of goods sold is $70,000. What would be the required purchases (on account) for December?

Hilliard Company budgeted the following transactions for April Year 2: The beginning cash balance was $50,000. The company desires to have a $25,000 ending cash balance. The surplus (or shortage) of cash before considering any financing activities (that is, borrowings or repayments) during in April would be:

Skymont Company wants an ending inventory each month equal to 30% of that month's cost of goods sold. Cost of goods sold for February is projected at $45,000. Ending inventory at the end of January was $12,000. Based on this information, purchases for February would be:

Budgeted cash payments for inventory would appear on the:

The type of planning that involves long term decisions, such as defining the scope of the business and deciding what products to make is known as:

With regards to financial statements, "pro forma" means:

Under continuous budgeting a new month is added to the end of the budget period each time the present month expires so that a twelve-month budget is available at all times.

The following budget information is available for Crescent Company for January Year 2: All operating expenses are paid in cash in the month incurred. The amount of expected cash outflow for selling and administrative expenses would be:

One company's practice is to provide bonuses to salespeople who exceed their sales targets. Which of the following advantages of budgeting enables the company to establish its recognition program?

The marketing department is primarily responsible for establishing the sales forecast.

Four purposes or advantages for budgeting involve planning, coordination, performance measurement, and punitive action.

Markham Company has completed its sales budget for the first quarter of Year 2. Projected credit sales for the first four months of the year are shown below: The company's past records show collection of credit sales as follows: 40% in the month of sale and the balance in the following month. The total cash collection from receivables in March is expected to be:

Budgeted depreciation expense would not appear on a:

Dobson Company expects to begin operating on January 1. The company's master budget contained the following operating expense budget: 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:

Select the correct statement about budgeting and human behavior.

The responsibility for the coordination of a company's budgeting activities normally rests with the Chief Financial Officer (CFO).

Select the incorrect statement about the planning process.

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

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