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: $\begin{array}{lll} \text { January } & \$ 30,000 \\ \text { February } & \$ 36,000 \\ \text { March } & \$ 45,000 \\ \text { April } & \$ 48,000 \end{array}$ 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:

A) $18,000. B) $45,000. C) $41,400. D) $39,600. A) $18,000. B) $45,000. C) $41,400. D) $39,600.

Oakton Furniture provided the following information relevant to its sales for December Year 1 and the first quarter of Year 2: \[\begin{array} { l c c c c } & \begin{array} { c } \text { Dec. Year 1 } \\ \text { (Actual) } \end{array} & \begin{array} { c } \text { Jan Year 2 } \\ \text { (Budgeted) } \end{array} & \begin{array} { c } \text { Feb. Year 2 } \\ \text { (Budgeted) } \end{array} & \begin{array} { c } \text { Mar. Year 2 } \\ \text { (Budgeted) } \end{array} \\ \text { Credit sales } & \$ 120,000 & \$ 280,000 & \$ 310,000 & \$ 220,000 \\ \text { Cash sales } & \$ 20,000 & \$ 50,000 & \$ 60,000 & \$ 24,000 \end{array}\] 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:

A) $69,600. B) $81,200. C) $72,000. D) $84,000. A) $69,600. B) $81,200. C) $72,000. D) $84,000.

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: $\begin{array}{lccc} \text {Sales Budget}& \text { April } & \text { May } & \text { June}\\ \text {Cash Sales}&30,000 & 43,000&55,000 \\ \text { Sales on Account}&370,0 & 432,000&405,000 \\ &400,000&475,000&460,000 \end{array}$ 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 ending accounts receivable balance that would be reported on the pro forma balance sheet prepared as of June 30?

A) $164,700 B) $121,500 C) $283,500 D) $86,400 A) $164,700 B) $121,500 C) $283,500 D) $86,400

Exam 7: Planning for Profit and Cost Control

Spacely Sprockets' sales budget shows the following expected total sales: Month Sales January \ 30,000 February \ 40,000 March \ 35,000 April \ 30,000 The company expects 80% of its sales to be on account (credit sales).Credit sales are collected as follows: 30% in the month of sale and 68% in the month following the sale,with the remainder being uncollectible and written off in the month following the sale. Required: a)Calculate budgeted accounts receivable at the end of each month from February through April. b)Calculate budgeted cash inflows from collection of receivables for each month from February through April.

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Question 1

Correct Answer:

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a)Working Calculations:
$\begin{array}{lccccc}&&\text { (sales* } 80 \%)& \text { Collected in } & \text { Collected in }&\text { Written }\\\text { Month}&\text { Sales } & \text { Credit Sales }&\text { current month }&\text { next month } &\text { Off }\\\text { January } & \$ 30,000 & \$ 24,000 & \$ 7,200 & \$ 16,320 &\$480\\\text { February } & \$ 40,000 & \$ 32,000 & \$ 9,600 & \$ 21,760 &\$640\\ \text { March } & \$ 35,000 & \$ 28,000 & \$ 8,400 & \$ 19,040 &\$560\\\text { April } & \$ 30,000 & \$ 24000 & \$ 7200 & \$ 16,320&\$480 \\\end{array}$
Budgeted accounts receivable at the end of each month from February through April.
$\begin{array}{llllll}\text { Month}&\text { next month}&&\text { next month }\\\text { January } & \$ 16,320& + & \$ 480 & = \$ 16,800 \\\text { February } & \$ 21,760 & + & \$ 640 & =\$ 22,400 \\\text { March } & \$ 19,040& + & \$ 560 & =\$ 19,600 \\\text { April } & \$ 16,320 & + & \$ 480 & =\$ 16,80\end{array}$
b)Budgeted cash inflows from collection of receivables for each month from February through April.
$\begin{array}{lllll}&\text { Collections}& &\text { Collections} \\&\text { on current }&&\text { on last}\\\text { Month }& \text { sales }&& \text { month's sales }\\\text { February } & \$ 9,600 & + & \$ 16,320 & =\$ 25,920 \\\text { March } & \$ 8,400 & + & \$ 21,760 & =\$ 30,160 \\\text { April } & \$ 7,200 & + & \$ 19,040 & =\$ 26,240\end{array}$

Select the correct equation format for the purchases budget.

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Question 2

Correct Answer:

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D

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

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(True/False)

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Question 3

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False

Which of the following would be prepared first when a merchandising company uses a master budget?

(Multiple Choice)

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Question 4

Although only 20 units are on hand at the beginning of the year,World Company plans to sell 100 units during Year 2.Assuming the company desires an ending inventory of 10 units,it should plan to purchase 110 units.

(True/False)

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Question 5

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:

(Multiple Choice)

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Question 6

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: January \ 30,000 February \ 36,000 March \ 45,000 April \ 48,000 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:

(Multiple Choice)

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Question 7

Oakton Furniture provided the following information relevant to its sales for December Year 1 and the first quarter of Year 2: Dec. Year 1 (Actual) Jan Year 2 (Budgeted) Feb. Year 2 (Budgeted) Mar. Year 2 (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:

(Multiple Choice)

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Question 8

The budgeting technique that provides for employee input into the planning process is known as:

(Multiple Choice)

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Question 9

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 370,0 432,000 405,000 400,000 475,000 460,000 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 ending accounts receivable balance that would be reported on the pro forma balance sheet prepared as of June 30?

(Multiple Choice)

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Question 10

Indicate whether each of the following statements about a cash budget is true or false.

(Short Answer)

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Question 11

What information does the sales budget provide for pro forma financial statements?

(Multiple Choice)

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Question 12

Budgeting that involves decisions such as whether to buy or lease equipment or build a new factory is referred to as:

(Multiple Choice)

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Question 13

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

(True/False)

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Question 14

What is the role of top management in a participative budgeting system?

(Multiple Choice)

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Question 15

Pro forma financial statements are financial statements that are prepared based on budgeted future amounts.

(True/False)

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Question 16

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

(Short Answer)

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Question 17

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

(Multiple Choice)

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Question 18

Budgeted sales commissions would appear on the:

(Multiple Choice)

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Question 19

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

(Essay)

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Question 20

Select the correct equation format for the purchases budget.

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

Which of the following would be prepared first when a merchandising company uses a master budget?

Although only 20 units are on hand at the beginning of the year,World Company plans to sell 100 units during Year 2.Assuming the company desires an ending inventory of 10 units,it should plan to purchase 110 units.

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:

The budgeting technique that provides for employee input into the planning process is known as:

Indicate whether each of the following statements about a cash budget is true or false.

What information does the sales budget provide for pro forma financial statements?

Budgeting that involves decisions such as whether to buy or lease equipment or build a new factory is referred to as:

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

What is the role of top management in a participative budgeting system?

Pro forma financial statements are financial statements that are prepared based on budgeted future amounts.

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

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

Budgeted sales commissions would appear on the:

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

Management Accounting and Corporate Governance

Cost Behavior, operating Leverage, and Profitability Analysis

Analysis of Cost, volume, and Pricing to Increase Profitability

Cost Accumulation,tracing,and Allocation

Cost Management in an Automated Business Environment: ABC, ABM, and TQM

Relevant Information for Special Decisions

Performance Evaluation

Responsibility Accounting

Planning for Capital Investments

Product Costing in Service and Manufacturing Entities

Job-Order, process, and Hybrid Costing Systems

Financial Statement Analysis

Statement of Cash Flows

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