Question 1

Next year's sales forecast shows that 20,000 units of Product A and 22,000 units of Product B are going to be sold for prices of $10 and $12 per unit, respectively. The desired ending inventory of Product A is 20% higher than its beginning inventory of 2,000 units. The beginning inventory of Product B is 2,500 units. The desired ending inventory of B is 3,000 units. Budgeted purchases of Product B for the year would be:

Accepted Answer

The desired ending inventory of Product B is 3,000 units, and the beginning inventory is 2,500 units. So, the net increase in inventory is 3,000 - 2,500 = 500 units. Add this to the forecasted sales of 22,000 units, and we get the total units that need to be purchased: 22,000 + 500 = 22,500 units.

Question 2

Yadkin Valley's April sales forecast projects that 6,000 units will sell at a price of $10.50 per unit. The desired ending inventory is 30% higher than the beginning inventory, which was 1,000 units. Budgeted purchases of units in April would be:

Accepted Answer

To determine the budgeted purchases, we need to calculate the total units needed for sales and ending inventory.

Sales forecast = 6,000 units 
Desired ending inventory = 1,000 x 1.30 = 1,300 units

Total units needed = Sales forecast + Desired ending inventory = 6,000 + 1,300 = 7,300 units

However, we already have 1,000 units in the beginning inventory, so the actual units to purchase would be:

Actual purchases = Total units needed - Beginning inventory = 7,300 - 1,000 = 6,300 units

Therefore, the answer is C) 6,300 units.

Question 3

A sporting goods store purchased $7,000 of ski boots in October. The store had $3,000 of ski boots in inventory at the beginning of October, and expects to have $2,000 of ski boots in inventory at the end of October to cover part of anticipated November sales. What is the budgeted cost of goods sold for October?

Accepted Answer

The budgeted cost of goods sold for October can be calculated as follows:

Beginning Inventory + Purchases - Ending Inventory = Cost of Goods Sold

$3,000 + $7,000 - $2,000 = $8,000

Therefore, the budgeted cost of goods sold for October is $8,000.

Option C is the closest answer.

Question 4

Which of the following would not be used in preparing a cash budget for October?

Accepted Answer

Estimated depreciation expense for October is a non-cash expense and therefore is not relevant in preparing a cash budget. The other options are all necessary components of a cash budget.

Question 5

Heedy Company is trying to decide how many units of merchandise to order each month. The company policy is to have 20% of the next month's sales in inventory at the end of each month. Projected sales for August, September, and October are 30,000 units, 20,000 units, and 40,000 units, respectively. How many units must be purchased in September?

Accepted Answer

To have 20% of the next month's sales in inventory at the end of September, Heedy Company must have 20% of October's sales in inventory at the end of September. 20% of 40,000 units is 8,000 units. Since Heedy Company already has 30,000 units in inventory at the end of August, it must purchase 8,000 units in September to have 20% of October's sales in inventory at the end of September.

Question 6

Tara Company's budget includes the following credit sales for the current year: September, $25,000; October, $36,000; November, $30,000; December, $32,000. Experience has shown that payment for the credit sales is received as follows: 15% in the month of sale, 60% in the first month after sale, 20% in the second month after sale, and 5% is uncollectible. How much cash can Tara Company expect to collect in November as a result of current and past credit sales?

Accepted Answer

The answer of Tara Company's budget includes the following credit...

Question 7

A company's history indicates that 20% of its sales are for cash and the rest are on credit. Collections on credit sales are 20% in the month of the sale, 50% in the next month, 25% the following month, and 5% is uncollectible. Projected sales for December, January, and February are $60,000, $85,000, and $95,000, respectively. The February expected cash receipts from all current and prior credit sales is:

Accepted Answer

December sales on credit: $60,000 x 80% = $48,000January sales on credit: $85,000 x 80% = $68,000February sales on credit: $95,000 x 80% = $76,000Collections on December credit sales:In December: $48,000 x 20% = $9,600In January: $48,000 x 50% = $24,000In February: $48,000 x 25% = $12,000Collections on January credit sales:In January: $68,000 x 20% = $13,600In February: $68,000 x 50% = $34,000In March: $68,000 x 25% = $17,000Collections on February credit sales:In February: $76,000 x 20% = $15,200Total expected cash receipts in February:$9,600 + $24,000 + $12,000 + $13,600 + $34,000 + $17,000 + $15,200 = $125,600Less: Uncollectible accounts: $125,600 x 5% = $6,300Expected cash receipts in February: $125,600 - $6,300 = $119,300

Question 8

At the beginning of the period, the Cutting Department budgeted direct labor of $30,000 and supervisor salaries of $20,000 for 3,000 hours of production. The department actually completed 5,000 hours of production. Determine the budget for the department assuming that it uses flexible budgeting?

Accepted Answer

The answer of At the beginning of the period, the...

Question 9

A department store has budgeted sales of 12,000 men's suits in September. Management wants to have 6,000 suits in inventory at the end of the month to prepare for the winter season. Beginning inventory for September is expected to be 4,000 units. What is the dollar amount of the purchase of suits? Each suit has a cost of $75.

Accepted Answer

To find the dollar amount of the purchase, calculate the number of suits needed: (Sales + Ending Inventory - Beginning Inventory) = (12,000 + 6,000 - 4,000) = 14,000 suits. Multiply by the cost per suit: 14,000 suits * $75 = $1,050,000.

Question 10

To meet projected annual sales, Greenleaf Manufacturers, Inc. needs to produce 75,000 machines for 2012. The estimated January 1, 2012, inventory is 7,000 units, and the desired December 31, 2012, inventory is 12,000 units. What are projected sales units for 2012?

Accepted Answer

The answer of To meet projected annual sales, Greenleaf Manufacturers,...

Question 11

Next year's sales forecast shows that 20,000 units of Product A and 22,000 units of Product B are going to be sold for prices of $10 and $12 per unit, respectively. The desired ending inventory of Product A is 20% higher than its beginning inventory of 2,000 units. The beginning inventory of Product B is 2,500 units. The desired ending inventory of B is 3,000 units. Total budgeted sales of both products for the year would be:

Accepted Answer

First, we need to calculate the desired ending inventory for Product A:

Desired Ending Inventory for A = Beginning Inventory for A x 1.2 = 2,000 x 1.2 = 2,400

Next, we need to calculate the total units of each product needed for the year:

Total A units = Beginning inventory + Sales forecast - Desired ending inventory 
Total A units = 2,000 + 20,000 - 2,400 = 19,600

Total B units = Beginning inventory + Sales forecast - Desired ending inventory 
Total B units = 2,500 + 22,000 - 3,000 = 21,500

Now we can calculate the total budgeted sales for both products:

Total budgeted sales = (Total A units x price per unit of A) + (Total B units x price per unit of B) 
Total budgeted sales = (19,600 x $10) + (21,500 x $12) 
Total budgeted sales = $196,000 + $258,000 
Total budgeted sales = $464,000

Therefore, the correct answer is D) $464,000.

Question 12

An August sales forecast projects 6,000 units are going to be sold at a price of $11.50 per unit. The desired ending iventory in units is 15% higher than the beginning inventory of 1,000 units. Total August sales are anticipated to be:

Accepted Answer

Total August sales are calculated by multiplying the projected units sold (6,000) by the price per unit ($11.50), resulting in $69,000.

Question 13

When preparing the cash budget, all the following should be considered except:

Accepted Answer

Depreciation expense is a non-cash expense and therefore should not be included in the cash budget. The cash budget only focuses on actual cash inflows and outflows.

Question 14

Next year's sales forecast shows that 20,000 units of Product A and 22,000 units of Product B are going to be sold for prices of $10 and $12 per unit, respectively. The desired ending inventory of Product A is 20% higher than its beginning inventory of 2,000 units. The beginning inventory of Product B is 2,500 units. The desired ending inventory of B is 3,000 units. Budgeted purchases of Product A for the year would be:

Accepted Answer

The answer of Next year's sales forecast shows that 20,000...

Question 15

If budgeted beginning inventory is $8,300, budgeted ending inventory is $9,400, and budgeted cost of goods sold is $10,260, budgeted purchases should be:

Accepted Answer

Budgeted purchases = Budgeted cost of goods sold + Budgeted ending inventory - Budgeted beginning inventory = $10,260 + $9,400 - $8,300 = $11,360.

Question 16

Gilbert's expects its September sales to be 20% higher than its August sales of $150,000. Purchases were $100,000 in August and are expected to be $120,000 in September. All sales are on credit and are collected as follows: 30% in the month of the sale and 70% in the following month. Merchandise purchases are paid as follows: 25% in the month of purchase and 75% in the following month. The beginning cash balance on September 1 is $7,500. The ending balance on September 30 would be:

Accepted Answer

September sales = $150,000 x 1.20 = $180,000September collections:From August sales: $150,000 x 0.70 = $105,000From September sales: $180,000 x 0.30 = $54,000Total collections = $105,000 + $54,000 = $159,000September payments:For August purchases: $100,000 x 0.75 = $75,000For September purchases: $120,000 x 0.25 = $30,000Total payments = $75,000 + $30,000 = $105,000Ending cash balance = $7,500 + $159,000 - $105,000 = $61,500

Question 17

Truliant co. sells a product called Withall and has predicted the following sales for the first four months of the current year:  Ending inventory for each month should be 20% of next month's sales, and the December 31 inventory is consistent with that policy. How many units should be purchased in February?

Accepted Answer

To determine how many units should be purchased in February, we need to first calculate the expected sales for the months of February, March, and April.

March's predicted sales = 11,000 * 1.05 = 11,550
April's predicted sales = 11,550 * 1.05 = 12,128

Next, we need to calculate the ending inventory for each month using the 20% rule:

February's ending inventory = 11,550 * 0.2 = 2,310
March's ending inventory = 12,128 * 0.2 = 2,426.4

Finally, we can calculate February's required purchases:

February's required purchases = March's predicted sales - February's ending inventory = 11,550 - 2,310 = 9,240

Therefore, the answer is A) 1,940.

Question 18

Crow Manufacturers, Inc. projected sales of 75,000 bicycles for 2012. The estimated January 1, 2012, inventory is 5,000 units, and the desired December 31, 2012, inventory is 8,000 units. What is the budgeted production (in units) for 2012?

Accepted Answer

The answer of Crow Manufacturers, Inc. projected sales of 75,000...

Question 19

Magnolia, Inc. manufactures bedding sets. The budgeted production is for 55,000 comforters in 2012. Each comforter requires 7 yards of material. The estimated January 1, 2012, beginning inventory is 31,000 yards. The desired ending balance is 30,000 yards of material. If the material costs $4.00 per yard, determine the materials budget for 2012.

Accepted Answer

The answer of Magnolia, Inc. manufactures bedding sets. The budgeted...

Question 20

Southern Company is preparing a cash budget for April. The company has $12,000 cash at the beginning of April and anticipates $30,000 in cash receipts and $34,500 in cash disbursements during April. Southern Company has an agreement with its bank to maintain a cash balance of at least $10,000. To maintain the $10,000 required balance, during April the company must:

Accepted Answer

To maintain a minimum balance of $10,000, Southern Company needs to have at least $10,000 cash at the end of April. 
Beginning cash balance = $12,000 
Total cash receipts = $30,000 
Total cash disbursements = $34,500 
Net cash flow = $30,000 - $34,500 = -$4,500 
Ending cash balance without borrowing = $12,000 - $4,500 = $7,500 
Since the ending cash balance without borrowing is less than the required minimum of $10,000, Southern Company needs to borrow an amount that will bring its ending cash balance to at least $10,000. 
Borrowing = $10,000 - $7,500 = $2,500 
Therefore, the company must borrow $2,500.

Quiz 22: Budgeting