Exam 7: Planning for Profit and Cost Control

Managerial accounting is not bound by generally accepted accounting principles (GAAP) but clearly is influenced by GAAP. How do budgets and the budgeting process demonstrate connections to GAAP?

The master budget details:

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

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

The pro forma income statement gives managers an advance estimate of a company's profitability.

Select the incorrect statement about the planning process.

Payne Company provided the following information relevant to its inventory sales and purchases for December Year 1 and the first quarter of Year 2: Desired ending inventory levels are 25% of the following month's projected cost of goods sold. The company purchases all inventory on account. January Year 2 budgeted purchases are $150,000. The normal schedule for inventory payments is 60% payment in month of purchase and 40% payment in month following purchase.Budgeted cash payments for inventory in February Year 2 would be: Dec. Year 1 Jan. Year 2 Feb. Year 2 Mar. Year 2 (Actual) (Budgeted) (Budgeted) (Budgeted) Cost of goods sold \ 80,000 \ 140,000 \ 180,000 \ 120,000

The first budget prepared in a master budget is the cash receipts budget.

Which of the following accounts would appear on the sales budget and the pro forma income statement?

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:

Which of the following items will not appear on a cash budget?

How can participative budgeting improve the effectiveness of a company's budgeting process?

Which of the following would not be included in a selling and administrative expenses budget?

What would be the required purchases (on account) for December?

What is the amount of cost of goods sold the company will report on its fourth quarter pro forma income statement?

The capital budget does not affect any of a company's operating budgets.

Vector Company seeks input from salespeople regarding the number of units they believe they can sell during the upcoming budget period. This is an example of participative budgeting.

How do budget expectations influence a company's employees?

Rachel Robinson owns a small retail store in Cairo, Georgia. The following summary information regarding expectations for the month of January is provided: As of December 31 there is $1,000 in the bank and the balance in accounts receivable is $5,000. Budgeted cash and credit sales for January are $6,000 and $4,000, respectively. Ninety percent of credit sales are collected in the month of sale and the remainder is collected in the following month. Rachel's suppliers do not extend credit. Cash payments for January are expected to be $24,000. Rachel has a line of credit that enables the store to borrow funds on demand. However, funds must be borrowed on the first day of the month and interest paid in cash on the last day of the month. Rachel's bank charges annual interest of 12% per year. Rachel desires a minimum $1,000 cash balance at the end of each month.Required: 1) Compute the amount of funds that needs to be borrowed.2) Compute the amount of interest expense that will appear on the January 31 pro forma income statement.

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