Question 1

Budgeting that involves the development of a master budget to direct the firm's activities over the short term is referred to as:

Accepted Answer

A)   capital budgeting.
B)   operations budgeting.
C)   strategic planning.
D)   None of these answers is correct. B

Question 2

The budgeting process formalizes and documents managerial plans to clearly communicate objectives to both superiors and subordinates. This budgeting requirement is an example of:

Accepted Answer

A)   performance measurement.
B)   planning.
C)   budget coordination.
D)   taking corrective action. B

Question 3

Payne Company provided the following information relevant to its inventory sales and purchases for December Year 1 and the first quarter of Year 2: $\begin{array}{llcc}
&\text { Dec. Year } 1 &\text { Jan. Year } 2 &\text { Feb. Year } 2 &\text { Mar. Year }\
&\text { (Actual) }&\text {(Budgeted) }&\text {(Budgeted) }&\text {(Budgeted) }\
\text { Cost of goods}& \$80,000 &\$140,000 &\$180,000 &\$ 120,000 \
\text { sold }
\end{array}$
 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:

Accepted Answer

A)   $132,600.
B)   $152,600.
C)   $99,000.
D)   $159,000.  D

Question 4

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?

Accepted Answer

The answer of Managerial accounting is not bound by generally...

Question 5

Hernandez Company expects credit sales for January to be $48,000. Cash sales are expected to be $28,000. The company expects credit and cash sales to increase 10% for the month of February. Credit sales are collected in the month following the month in which sales are made. Based on this information, the amount of cash collections in February would be:

Accepted Answer

A)   $78,800.
B)   $83,600.
C)   $76,000.
D)   $80,800.

Question 6

Chu Company provided the following information related to its inventory sales and purchases for December Year 1 and the first quarter of Year 2: $\begin{array}{llcc}
&\text { Dec. Year } 1 &\text { Jan. Year } 2 &\text { Feb. Year } 2 &\text { Mar. Year }\
&\text { (Actual) }&\text {(Budgeted) }&\text {(Budgeted) }&\text {(Budgeted) }\
\text { Cost of goods}& \$80,000 &\$140,000 &\$180,000 &\$ 120,000 \
\text { sold }
\end{array}$
 Desired ending inventory levels are 25% of the following month's projected cost of goods sold. Budgeted purchases of inventory in February Year 2 would be:

Accepted Answer

A)   $135,000.
B)   $165,000.
C)   $180,000.
D)   $225,000.

Question 7

The budgeting process that involves adding a month to the end of the budget period at the end of each month, thus maintaining a twelve-month planning horizon, is referred to as:

Accepted Answer

A)   participative budgeting.
B)   capital budgeting.
C)   continuous budgeting.
D)   zero-based budgeting.

Question 8

Greenhill Company's balance sheet as of December 31, Year 1 is provided below:
 $\begin{array}{c}
\text {Washington Company}\
\text {Balance Sheet}\
\text {December 31, Year 1}\\
\begin{array}{lr}
\text { Assets }\\
\text { Cash } & \$ 35,000 \
\text { Accounts receivable } & 40,000 \
\text { Inventory } &25,000 \
\text { Plant and equipment, net of depreciation } & \underline{ 300,000} \
\text { Total assets } & \underline{ \$400,000}\
\text { Liabilities and stockholders' equity }\\
\text { Accounts payable } & \$30,000 \
\text { Notes payable } &50,000 \
\text { Capital stock, no par } & 200,000 \
\text { Retained earnings } & \underline{ 120,000 }\
\text { Total liabilities and stockholder's equity } &  \underline{\$ 400,000}
\end{array}\end{array}$   In anticipation of preparing the company's operating budget for the upcoming period, the company's accountant has gathered the following information:December Year 1 sales were $220,000. Sales are expected to grow at a rate of 8% per month. Half of all sales are for cash and half are on account.Inventory purchases are expected to total $100,000 during January, and the inventory account is expected to have a $28,000 balance at January 31, Year 2. All inventory purchases are on account.Selling and administrative expenses for January Year 2 are budgeted at $60,000 (exclusive of depreciation) plus 10% of sales. Selling and administrative expenses are paid in cash. Depreciation is budgeted at $3,000 for the month.The notes payable will be paid in January, Year 2. The amount due will be $50,500. The $500 represents interest expense for the month of January, Year 2.The company expects to purchase a new machine during January Year 2 at a cost of $5,000.Required:Prepare a budgeted income statement for the month of January Year 2. Use the traditional income statement format and ignore income taxes.

Accepted Answer

The answer of Greenhill Company's balance sheet as of December...

Question 9

Select the correct statement.

Accepted Answer

A)   The four advantages of budgeting include planning, coordination, performance measurement, and reporting.
B)   In a participative budgeting system, budget information flows in one direction only, from bottom to top.
C)   The three major categories of the master budget are operating budgets, capital budgets, and pro forma financial statements.
D)   The accounting department normally coordinates the development of the sales forecast.

Question 10

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.

Accepted Answer

A) True 
 B)False

Question 11

If a company purchases its inventory on account, it need not prepare a schedule of cash payments for inventory purchases.

Accepted Answer

A) True 
 B)False

Question 12

Which of the following budgets needs to be prepared prior to preparing an inventory purchases budget?

Accepted Answer

A)   Selling and administrative expense budget
B)   Sales budget
C)   Cash budget
D)   All of the answers are correct.

Question 13

Select the correct statement about budgeting and human behavior.

Accepted Answer

A)   People are usually very comfortable with budgets.
B)   The attitudes of upper managers significantly impact budget effectiveness.
C)   Budgets increase individual freedom within an organization.
D)   Participative budgeting contributes to fear and resentment.

Question 14

Select the incorrect statement regarding the cash budget.

Accepted Answer

A)   The cash budget helps managers to anticipate cash shortages and excess cash balances.
B)   Cash inflows and outflows indicated on the cash budget are reported on a company's pro forma statement of cash flows.
C)   Cash payments may include outflows for inventory, selling and administrative expenses, and equipment purchases.
D)   The total cash available is calculated by adding cash receipts and the ending cash balance.SHORT ANSWER. Write the word or phrase that best completes each statement or answers the question.125)  How do short-term plans differ from long-term plans?

Question 15

How might a company develop sales estimates to be used in preparing a sales budget?

Accepted Answer

The answer of How might a company develop sales estimates...

Question 16

Which of the following would not be included in the cash budget?

Accepted Answer

A)   Receipts from customers
B)   Ending cash balance
C)   Interest expense
D)   Depreciation expense

Question 17

Which of the following is a benefit associated with budgeting?

Accepted Answer

A)   Promotes planning and coordination.
B)   The ability to take corrective action to improve performance.
C)   Enhances performance measurement.
D)   All of the answers are correct.

Question 18

The master budget generally starts with a sales forecast.

Accepted Answer

A) True 
 B)False

Question 19

Tableware Unlimited Company plans to sell china and other dining-related items over the internet. The company plans to begin business on January 1, Year 1. The company's accountant has prepared the following sales budget for the first quarter of Year 1:
 $$\begin{array} { r c c c c } 
& \text { January } & \text { February } & \text { March } & \text { First Quarter } \
\text { Budgeted Sales } & \$ 200,000 & \$ 250,000 & \$ 300,000 & \$ 750,000
\end{array}$$ In anticipation of preparing a cash budget, the accountant needs to compute the expected monthly cash collections. Because the company is new and has no collection experience of its own, the accountant contacted an industry trade group and obtained the following industry collection data:
Collections on account:70% in the month of sale20% in the month following sale6% in the second month following sale
Uncollectible accounts have averaged 4% of receivables. The company gives a 2% discount for payments made by customers during the month of sale.
Required:
Prepare a schedule of cash collections from sales by month and in total for the first quarter.

Accepted Answer

The answer of Tableware Unlimited Company plans to sell china...

Question 20

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: $\begin{array}{lccc}
\text { Sales Budget } & \text { April } & \text { May } & \text { June } \
\text { Cash sales } & 30,000 & 43,000 & 55,000 \
\text { Sales on account } & \underline{ 370,000 }&  \underline{432,000 }& \underline{ 405,000}\
& \underline{400,000}& \underline{475,000}& \underline{460,000}
\end{array}$

- 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 amount of sales revenue that the company will report on the second quarter pro forma income statement?

Accepted Answer

A)   $1,335,000
B)   $1,129,800
C)   $1,207,000
D)   $1,001,800

Exam 14: Planning for Profit and Cost Control

Budgeting that involves the development of a master budget to direct the firm's activities over the short term is referred to as:

The budgeting process formalizes and documents managerial plans to clearly communicate objectives to both superiors and subordinates. This budgeting requirement is an example of:

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 budgeting process that involves adding a month to the end of the budget period at the end of each month, thus maintaining a twelve-month planning horizon, is referred to as:

Select the correct statement.

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.

If a company purchases its inventory on account, it need not prepare a schedule of cash payments for inventory purchases.

Which of the following budgets needs to be prepared prior to preparing an inventory purchases budget?

Select the correct statement about budgeting and human behavior.

Select the incorrect statement regarding the cash budget.

How might a company develop sales estimates to be used in preparing a sales budget?

Which of the following would not be included in the cash budget?

Which of the following is a benefit associated with budgeting?

The master budget generally starts with a sales forecast.