Exam 24: The Budgeting Process

Fantastic Futons manufactures futons. The estimated number of futon sales for the first three months of 2010 are as follows: January 40,000 February 50,000 March 60,000 Finished goods inventory at the end of 2009 was 12,000 units. On average, 25 percent of the futons are produced during the month before they are sold, which normally accounts for the ending balance in finished goods inventory. The planned selling price is $150 per unit. What would be the sales budget for March?

Once cash receipts and cash payments have been established, the cash increase or decrease is added to the period's beginning balance to arrive at a projected cash balance at period end.

Which of the following budgets should be prepared before the others listed?

J. J. Johnson has decided to supplement his income by selling beehives. He expects to sell 25,000 hives in 2010. He ended 2009 with 2,500 completed hives in inventory and would like to complete operations in 2010 with at least 2,800 completed hives in inventory. There is no ending work in process inventory. One beehive holds about 250 bees. The bees are purchased for $4.00 per 1,000 bees. The hives sell for $15.00 each. What would be the total of the 2010 period sales budget?

Fallgatter, Inc., expects to sell 18,000 units. Each unit requires 3 pounds of direct materials at $12 per pound and 2 direct labor hours at $10 per direct labor hour. The overhead rate is $8 per direct labor hour. The beginning inventories are as follows: direct materials, 2,000 pounds; finished goods, 2,500 units. The planned ending inventories are as follows: direct materials, 3,900 pounds; finished goods, 3,000 units. What is the planned production?

Budgets facilitate congruence between organizational and personal goals.

Which of the following would most likely be considered a short-term goal?

Which of the following is not true about the direct materials purchases budget?

Assume that the forecasted cost of goods sold is $800,000, budgeted selling and administrative expenses are $320,000, planned capital expenditures are $320,000, and the tax rate is 40 percent. What is the forecasted net income if each unit will sell for $150 and the sales forecast is for 15,000 units to be sold?

The budgeting function begins with the preparation of the direct materials purchases budget.

Leaverton's forecast of sales is as follows: July, $60,000; August, $90,000; September, $130,000. Sales are normally 80 percent cash and 20 percent credit in any month. Credit sales are collected in full in the following month. Merchandise cost averages 60 percent of sales price. The company desires an inventory as of September 30 of $52,000. The inventory as of June 30 was $25,000. The July 31 balance of accounts receivable will be

The cash budget is derived exclusively from the sales and production budgets.

Which of the following is not a guideline for budget preparation?

XYZ Company expects to sell 51,000 units of its product in the coming year. Each unit sells for $45. Sales brochures and supplies for the year are expected to cost $7,000. Three sales representatives cover the Southeast region. Each one's base salary is $25,000, and each earns a sales commission of 5 percent of the selling price of the units he or she sells. The sales representatives supply their own transportation; they are reimbursed for travel at a rate of $0.40 per mile. The company estimates that the sales representatives will drive a total of 75,000 miles next year. From the information provided, calculate XYZ Company's budgeted selling expenses for the coming year.

Place the letter of the appropriate description beside the budget that it describes. a. Is prepared after the production budget has been completed and the desired ending direct materials inventory amount is known b. Can be determined as soon as the unit production budget has been completed and the labor rates are known c. The starting point of the budgeting process d. Can be prepared as soon as the sales budget has been completed and is made up of period expenses that are both fixed and variable with sales e. Has two purposes, one of which is computing the overhead rates for the forthcoming accounting period f. Is determined from the unit sales forecast and unit selling prices g. Influences the cash budget as well as the interest expense on the forecasted income statement and the Plant and Equipment account on the budgeted balance sheet h. Is determined from the unit sales forecast and the desired change in the ending finished goods inventory _____ 1. Unit sales forecast _____ 2. Production budget _____ 3. Sales budget _____ 4. Direct materials purchases budget _____ 5. Direct labor budget _____ 6. Overhead budget _____ 7. Selling and administrative expense budget _____ 8. Capital expenditures budget

Participative budgeting involves only personnel at top levels of the organization.

Participative budgeting seeks to motivate employees.

Preparation of a production budget requires knowledge of the sales target in sales dollars.

Selling and administrative expenses are billed and paid the month after they occur. Selling and administrative expenses have both a fixed and a variable component. The fixed component is a constant $4,700 a month. The variable component equals 5 percent of revenues. Given revenues of $300,000 for January, $350,000 for February, and $400,000 for March, what would be the budgeted selling and administrative expenses that would be paid in March?

A combined set of operational budgets and a set of financial budgets for the entire organization is known as a