Question 1

A firm has beginning inventory of 400 units at a cost of $12 each. Production during the period was 700 units at $13 each. If sales were 800 units, what is the value of the ending inventory using LIFO?

Accepted Answer

Ending Inventory = 300 units @ $12 each = $3,600

Question 2

Pro forma financial statements are

Accepted Answer

Pro forma financial statements are projections of financial statements for a future period and are often required by prospective creditors. They are the most comprehensive means of financial forecasting and include projected income statements, balance sheets, and cash flow statements. Therefore, all of the options are correct.

Question 3

When the cost of raw materials is increasing, FIFO accounting

Accepted Answer

When the cost of raw materials is increasing, FIFO accounting yields higher ending inventory values than LIFO. This is because FIFO assumes that the earliest goods purchased are the first ones sold, leaving the most recently purchased goods in inventory. As the cost of raw materials increases, the value of the inventory under FIFO also increases because it is assumed that the most expensive goods are still in inventory. Therefore, A is the best choice.

Question 4

Required production during a planning period will depend on the

Accepted Answer

The required production during a planning period is influenced by all of the given options. The beginning inventory of products and the desired level of ending inventory will both affect the amount of production required, as they determine how much inventory needs to be maintained. Similarly, sales during the period indicate how much product needs to be produced to meet demand, which is a key component of production planning. Therefore, all of the options are relevant and impact the amount of production needed.

Question 5

Depending upon the state of the economy, Ables Manufacturing Corp. expects to sell the following number of prefabricated buildings. The probability of each state is indicated. What is the expected value of the total sales projection? $$\begin{array} { c c c c } 
\text { Outcome } & \text { Probability } & \text { Units } & \text { Price } \
\text { Bad } & 0.15 & 75 & \$ 25 \
\text { Normal } & 0.60 & 150 & \$ 35 \
\text { Great } & 0.25 & 200 & \$ 45
\end{array}$$

Accepted Answer

The expected value is calculated as: (0.15 * 75 * 25) + (0.60 * 150 * 35) + (0.25 * 200 * 45) = $5,625.

Question 6

MG Lighting had sales of 500 units at $100 per unit last year. The marketing manager projects a 15 percent decrease in unit volume this year because a 10 percent price increase is needed to pass rising costs through to customers. Returned merchandise will represent 3.2 percent of total sales. What is your net dollar sales projection for this year?

Accepted Answer

The answer of MG Lighting had sales of 500 units...

Question 7

A firm has beginning inventory of 450 units at a cost of $10 each. Production during the period was 500 units at $12 each. If sales were 700 units, what is the cost of goods sold (assume FIFO)?

Accepted Answer

Old inventory (450 units at $10) $ 4,500
Plus new production (500 units at $12) $ 6,000
Available $10,500
Less ending inventory (250 units at $12) $ 3,000
Cost of goods sold $ 7,500

Question 8

In calculating gross profits, a firm utilizing FIFO inventory accounting would assume that

Accepted Answer

FIFO (First-In, First-Out) inventory accounting assumes that the first units of inventory purchased or produced are sold first. Therefore, when calculating gross profits, a firm utilizing FIFO would assume that sales were made from beginning inventory until it was depleted, and then would use sales from the current production. This is because the oldest inventory (first in) is assumed to be sold first, leaving the newest inventory (current production) for sale at a later time.

Question 9

A rapid rate of growth in sales may require

Accepted Answer

Rapid growth in sales often requires increased resources, such as inventory, equipment, and labor, which may require additional financing. Increased borrowing can provide the necessary funds to support the growth while maintaining financial stability. Higher dividend payments, being more lenient with credit customers, and reducing sales forecasts are not directly related to supporting growth in sales.

Question 10

The pro forma income statement is important to the overall process of constructing pro forma statements because it allows us to determine a value for

Accepted Answer

The pro forma income statement helps determine the net income, which is used to calculate the change in retained earnings by adjusting for dividends paid.

Question 11

In developing the pro forma income statement, we follow four important steps: 1) Compute other expenses.
2) Determine a production schedule.
3) Establish a sales projection.
4) Determine profit by completing the actual pro forma statement.
What is the correct order for these four steps?

Accepted Answer

The correct order starts with establishing a sales projection (3), then determining a production schedule (2), computing other expenses (1), and finally determining profit by completing the pro forma statement (4).

Question 12

The need for an increase or decrease in short-term borrowing can be predicted by

Accepted Answer

A cash budget helps in predicting the expected cash inflows and outflows, which in turn can give an idea about the need for short-term borrowing. If the expected cash inflows are less than the expected cash outflows, the company may need to increase short-term borrowing to meet its obligations. On the other hand, if the expected cash inflows are more than the expected cash outflows, the company may have excess cash and may be able to decrease short-term borrowing. Ratio analysis and trend analysis may provide insights into the company's financial performance, but they may not directly help in predicting the need for short-term borrowing. An income statement shows the company's revenue, expenses, and net income, but it does not provide information on its cash flows or the need for short-term borrowing.

Question 13

XYZ Co. has forecasted June sales of 400 units and July sales of 700 units. The company maintains ending inventory equal to 125% of next month's sales. June beginning inventory reflects this policy. What is June's required production?

Accepted Answer

To calculate the required production for June, we need to first calculate the ending inventory for July. July sales are forecasted to be 700 units, so the ending inventory for July will be 125% of 700, which is 875 units. Since ending inventory for July is equal to June's production, plus June's beginning inventory, minus June's sales, we can use this formula to solve for June's required production:

875 = X + (400*1.25) - 400
875 = X + 500 - 400
875 = X + 100
X = 775

Therefore, the required production for June is 775 units.

Question 14

A firm has forecasted sales of $4,500 in April, $3,000 in May, and $5,000 in June. All sales are on credit. 30% is collected in the month of the sale, and the remainder in the following month. What will be the balance in accounts receivable at the beginning of July?

Accepted Answer

The answer of A firm has forecasted sales of $4,500...

Question 15

GS Cookie Co. forecasts cash receipts for January and February of $18,000 and $20,000, respectively. Cash Payments of $6,000 and $8,000 are expected in these two months. GS Cookie's cash balance at the beginning of January was $5,000, a level that it attempts to maintain. At the beginning of the year, GS Cookie has a $15,000 balance outstanding on its line of credit at the local bank. Based on its cash budget, how much of the line of credit can GS Cookie repay in January and February?

Accepted Answer

The answer of GS Cookie Co. forecasts cash receipts for...

Question 16

In order to estimate production requirements, we

Accepted Answer

To estimate production requirements, you add projected sales in units to the desired ending inventory and then subtract the beginning inventory. This ensures that you have enough production to meet sales demands and maintain the desired inventory level.

Question 17

In financial statements, the number of units shown in cost of goods sold as compared to the number of the units actually produced

Accepted Answer

The number of units shown in cost of goods sold can be either higher or lower than the number of units produced, depending on inventory changes. If inventory decreases, COGS units are higher; if inventory increases, COGS units are lower.

Question 18

In general, the larger the portion of a firm's sales that are on credit, the

Accepted Answer

If a firm is making more sales on credit, it means that they are not receiving cash up front and therefore have a greater need for working capital. In order to meet this need, the firm may need to borrow money. Therefore, the answer is B - the higher will be the firm's need to borrow.

Question 19

Wiggles Right forecasted sales of $5,000 in October, $4,000 in November, and $4,000 in December. All sales are on credit. 40% is collected in the month of the sale, and the remainder in the following month. How much is collected from accounts receivable in November?

Accepted Answer

The answer of Wiggles Right forecasted sales of $5,000 in...

Question 20

In calculating gross profits, a firm utilizing LIFO inventory accounting would assume that

Accepted Answer

LIFO (Last In, First Out) inventory accounting assumes that the most recently acquired or produced inventory is sold first. Therefore, in calculating gross profits, a firm utilizing LIFO inventory accounting would assume that sales were from current production until the current production was depleted, and then would use sales from beginning inventory. This is because under LIFO, the cost of goods sold is calculated using the cost of the most recent inventory purchases, which are typically the highest in cost, leading to a lower gross profit than if FIFO (First In, First Out) inventory accounting was used.

Quiz 4: Financial Forecasting