Question 1

What is the sequence of steps in preparing the master budget?

Accepted Answer

The sequence of steps in preparing the master budget typically begins with the operating budget, which outlines the expected sales, production costs, and operating expenses. This budget is then used to prepare the financial budget, which includes the expected cash flows, capital expenditures, and other financial aspects of the business. Therefore, the output from the operating budget is used to prepare the financial budget.

Question 2

The first step in preparing the master budget is the ________.

Accepted Answer

The first step in preparing the master budget is to create the sales budget, which estimates the sales revenue for the budget period. Only after the sales budget is determined can the other budgets (such as the operating expense budget and cash budget) be created. The capital budget is not typically the first step in preparing the master budget, as it focuses on long-term investments rather than short-term operations.

Question 3

Diamond Company has the following sales budget for the last six months of 2010:  Historically,the cash collection of sales has been as follows:
65% of sales collected in month of sale
25% of sales collected in month following sale
8% of sales collected in second month following sale
2% of sales uncollectible
What is the expected cash collection of sales in October?

Accepted Answer

To calculate the expected cash collection of sales in October, we need to look at the sales budget for July, August, and September, which would be the sales that generate cash inflows in October.

July Sales: 70,000 x 65% = $45,500 
August Sales: 80,000 x 65% = $52,000 
September Sales: 90,000 x 65% = $58,500

Total expected cash collection from these sales in October: $45,500 + $52,000 + $58,500 = $156,000

However, we also need to consider the uncollectible sales and the sales that will generate cash inflows in November and December:

Total uncollectible sales: $240,000 x 2% = $4,800 
Sales collected in November: $156,000 x 25% = $39,000 
Sales collected in December: $156,000 x 8% = $12,480

Expected cash collection in October: $156,000 - $4,800 - $39,000 - $12,480 = $99,720

Therefore, the best choice is C.

Question 4

Happy Hotels operates a 100-room property in Palm Harbor,Florida.Occupancy rates average 97% in March and 90% in April.The average room rental rate is $150 per night.Expected revenues for April are ________.

Accepted Answer

Expected revenues for April = Number of rooms * Occupancy rate * Average room rental rate * Number of days in April= 100 * 90% * $150 * 30= $405,000

Question 5

Jaggers Company has the following data:  The cost of goods sold percentage is 65% of sales and the desired ending inventory level is 25% of next month's sales at cost.What are the expected total purchases for June?

Accepted Answer

Step 1: Calculate the cost of goods sold.
Cost of goods sold = 65% x Sales
= 0.65 x TB4157
= 0.65 x 4,000
= 2,600

Step 2: Calculate the desired ending inventory.
Desired ending inventory = 25% x Next month's sales at cost
= 0.25 x TB4157
= 0.25 x 4,000
= 1,000

Step 3: Calculate the required purchases.
Required purchases = Cost of goods sold + Desired ending inventory - Beginning inventory
We are not given the beginning inventory, so we cannot calculate this directly. However, we can use the equation:
Beginning inventory = Ending inventory of previous month

Assuming the company wants to maintain the same level of inventory from May to June, we can use the given ending inventory level for May as the beginning inventory for June:
Beginning inventory = 1,500

Required purchases = Cost of goods sold + Desired ending inventory - Beginning inventory
= 2,600 + 1,000 - 1,500
= 3,100

Therefore, the expected total purchases for June is $32,825 (Choice C)

Question 6

Jaeger Company has the following data:  The cost of goods sold percentage is 65% of sales and the desired ending inventory is 25% of next month's sales at cost.What are the total purchases budgeted for July?

Accepted Answer

The answer of Jaeger Company has the following data: ...

Question 7

Falcons Company expects May sales to be $10,000.Approximately 40% of sales are cash sales.Collection of credit sales are 50% in the month of sale,40% in the month following sale and 5% two months following sale.The remaining 5% is uncollectible.________ is the expected cash collection in May from May sales.

Accepted Answer

Out of the total sales of $10,000, 40% are cash sales, which results in $4,000 cash collection in May. For credit sales, 50% are collected in the month of sale, which amounts to $3,000. Additionally, 40% of credit sales are collected in the following month (June), which amounts to $2,400. 5% of credit sales are collected in the second month after the sale (July), which amounts to $300. 5% of credit sales are uncollectible, which amounts to $300. Thus, the expected cash collection in May from May sales is $7,000 ($4,000 + $3,000).

Question 8

The first step in preparing the operating budget is the ________.

Accepted Answer

The first step in preparing the operating budget is to forecast the expected sales for the budget period, which means creating a sales budget. This budget provides a foundation for creating the rest of the operating budget, including the operating expense budget, which outlines the anticipated expenses necessary to generate those sales. The cash budget and capital budget are usually prepared after the operating budget has been finalized.

Question 9

Full Hotels operates a 100-room property in Naples,Florida.Occupancy rates average 95% in March and 80% in April.The average room rental rate is $150 per night.Expected revenues for March are ________.

Accepted Answer

The answer of Full Hotels operates a 100-room property in...

Question 10

Atlanta Company expects June sales to be $20,000.Of these sales,credit sales are expected to be $12,000.Collection of credit sales are 50% in the month of sale,40% in the month following sale and 5% two months following sale.The remaining 5% is uncollectible.________ is the expected cash collection in June from June sales.

Accepted Answer

The expected cash collection in June from June sales includes 50% of the credit sales collected in the month of sale ($12,000 * 50% = $6,000) plus the cash sales ($20,000 - $12,000 = $8,000). Therefore, the total expected cash collection in June is $6,000 + $8,000 = $14,000.

Question 11

Caravan Company has the following data:  The cost of goods sold percentage is 70% of sales and the desired ending inventory level is 25% of next month's sales at cost.________ was the beginning inventory on May 1.

Accepted Answer

The answer of Caravan Company has the following data: ...

Question 12

San Francisco Company expects August sales to be $32,000.Approximately 40% of sales are cash sales.Collection of credit sales are 50% in the month of sale,40% in the month following sale and 5% two months following sale.The remaining 5% is uncollectible.________ is the expected cash collection in August from August sales.

Accepted Answer

Cash sales = 40% of $32,000 = $12,800Credit sales = 60% of $32,000 = $19,200Cash collection from credit sales in August = 50% of $19,200 = $9,600Total cash collection in August = $12,800 + $9,600 = $22,400

Question 13

Voyager Company has the following data:  The cost of goods sold percentage is 80% of sales and the desired ending inventory level is 25% of next month's sales at cost.What is the beginning inventory on August 1?

Accepted Answer

To calculate the beginning inventory on August 1, we need to first determine the cost of goods sold (COGS) and the desired ending inventory level for September.

COGS = 80% of sales = 0.8 * TB4157 = $9,600

Desired ending inventory for September = 25% of next month's sales at cost = 0.25 * TB4157 = $3,250

Using the formula:

Beginning Inventory + Purchases - COGS = Ending Inventory

We can rearrange the equation to solve for the beginning inventory:

Beginning Inventory = Ending Inventory - Purchases + COGS

Plugging in the numbers:

Beginning Inventory = $3,250 - Purchases + $9,600

Since we don't have information on purchases, we can simplify the equation by assuming that all inventory on August 1 comes from beginning inventory.

Beginning Inventory = $3,250 - $0 + $9,600 = $12,850

Therefore, the best choice is C, $9,600.

Question 14

Pinto Company has the following data:  Cost of goods sold average 60% of sales.The inventory at December 31 was $19,440.Desired ending inventory levels are 30% of next month's sales at cost.What is the desired ending inventory value at February 28?

Accepted Answer

First, we need to calculate the cost of goods sold (COGS) for the next month, March.
If the inventory at December 31 was $19,440, then the cost of goods sold for the current month (January) was:

COGS = Sales x Cost of goods sold percentage 
COGS = x 60% =

We don't know the exact sales figure, but we do know that the desired ending inventory for February is 30% of March's sales at cost. Therefore, we can set up the following equation:

Desired Ending Inventory at Cost = 30% x Cost of Goods Sold for March

We can solve for the Cost of Goods Sold for March:

Cost of Goods Sold for March = Desired Ending Inventory at Cost ÷ 30%
Cost of Goods Sold for March = $25,920 ÷ 30%
Cost of Goods Sold for March = $86,400

Now we can calculate the desired ending inventory for February:

Desired Ending Inventory for February = 30% x Cost of Goods Sold for March - Inventory at December 31
Desired Ending Inventory for February = 30% x $86,400 - $19,440
Desired Ending Inventory for February = $25,920

Question 15

Yesterday Company has a sales budget for next month of $300,000.Cost of goods sold is expected to be 40% of sales.All units are paid for in the month following purchase.The beginning inventory is $10,000 and an ending inventory of $12,000 is desired.Beginning accounts payable is $76,000.The purchases for next month are ________.

Accepted Answer

The answer of Yesterday Company has a sales budget for...

Question 16

For next year,Dummie Company has budgeted sales of 7,000 units,target ending inventory of 1,000 units and a beginning inventory of 300 units.How many units should be purchased?

Accepted Answer

The answer of For next year,Dummie Company has budgeted sales...

Question 17

Taurus Company has the following data:  The gross profit rate is 40% of sales and ending inventory at December 31 was $19,440.Desired ending inventory levels are 30% of next month's sales at cost.What are the expected total purchases for February?

Accepted Answer

To calculate the expected total purchases for February, we need to first find the cost of goods sold (COGS):
COGS = Sales x (100% - Gross profit rate)
COGS = Sales x (100% - 40%)
COGS = 0.6 x Sales

We also know that ending inventory at December 31 was $19,440 and desired ending inventory for January is 30% of next month's sales at cost:
Desired ending inventory = 30% x Next month's sales x Cost of goods sold percentage
$19,440 = 0.3 x Next month's sales x 0.6
Next month's sales = $108,000

Now we can calculate the value of COGS for February:
COGS = 0.6 x $108,000
COGS = $64,800

To find the expected total purchases for February, we use the formula:
Expected total purchases = COGS + Ending inventory - Beginning inventory
Beginning inventory is not given, so we assume it is the same as ending inventory for December ($19,440):
Expected total purchases = $64,800 + (0.3 x $108,000) - $19,440
Expected total purchases = $81,360

Therefore, the best choice is B.

Question 18

An operating budget is the major part of the master budget that focuses on the balance sheet and supporting schedules.

Accepted Answer

The operating budget focuses on the income statement and cash flow statement, not the balance sheet. The supporting schedules may include details on accounts receivable, accounts payable, and inventory, but the main focus is on revenue and expenses.

Question 19

For next year,Dunphy Company has budgeted sales of 30,000 units,target ending inventory of 1,000 units and a beginning inventory of 800 units.How many units should be purchased?

Accepted Answer

To determine how many units need to be purchased, we need to calculate the total units needed for sales and inventory:
Total units = Budgeted sales + Target ending inventory - Beginning inventory
Total units = 30,000 + 1,000 - 800
Total units = 30,200
Therefore, the company needs to purchase 30,200 units. Option C is the best choice.

Question 20

Haggle Company has a sales budget for next month of $400,000.Cost of goods sold is expected to be 35% of sales.All units are paid for in the month following purchase.The beginning inventory is $10,000 and an ending inventory of $12,000 is desired.Beginning accounts payable is $76,000.The cost of goods sold for next month is ________.

Accepted Answer

The cost of goods sold is calculated as 35% of the sales budget. Therefore, $400,000 * 35% = $140,000.

Quiz 7: Introduction to Budgets and Preparing the Master Budget

What is the sequence of steps in preparing the master budget?

The first step in preparing the master budget is the ________.

Happy Hotels operates a 100-room property in Palm Harbor,Florida.Occupancy rates average 97% in March and 90% in April.The average room rental rate is $150 per night.Expected revenues for April are ________.

Jaggers Company has the following data: The cost of goods sold percentage is 65% of sales and the desired ending inventory level is 25% of next month's sales at cost.What are the expected total purchases for June?

Jaeger Company has the following data: The cost of goods sold percentage is 65% of sales and the desired ending inventory is 25% of next month's sales at cost.What are the total purchases budgeted for July?

The first step in preparing the operating budget is the ________.

Full Hotels operates a 100-room property in Naples,Florida.Occupancy rates average 95% in March and 80% in April.The average room rental rate is $150 per night.Expected revenues for March are ________.

Caravan Company has the following data: The cost of goods sold percentage is 70% of sales and the desired ending inventory level is 25% of next month's sales at cost.________ was the beginning inventory on May 1.

Voyager Company has the following data: The cost of goods sold percentage is 80% of sales and the desired ending inventory level is 25% of next month's sales at cost.What is the beginning inventory on August 1?

Pinto Company has the following data: Cost of goods sold average 60% of sales.The inventory at December 31 was $19,440.Desired ending inventory levels are 30% of next month's sales at cost.What is the desired ending inventory value at February 28?

For next year,Dummie Company has budgeted sales of 7,000 units,target ending inventory of 1,000 units and a beginning inventory of 300 units.How many units should be purchased?

Taurus Company has the following data: The gross profit rate is 40% of sales and ending inventory at December 31 was $19,440.Desired ending inventory levels are 30% of next month's sales at cost.What are the expected total purchases for February?

An operating budget is the major part of the master budget that focuses on the balance sheet and supporting schedules.

For next year,Dunphy Company has budgeted sales of 30,000 units,target ending inventory of 1,000 units and a beginning inventory of 800 units.How many units should be purchased?