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1

Which of the following is not a benefit of budgeting?

The budgeting process can uncover potential bottlenecks before (rather than as) they occur.

2

The system of accountability in which managers are held responsible for those items of revenue and costs—and only those items—over which they can exert significant control is referred to as ________.

responsibility accounting

The basic idea underlying responsibility accounting is that a manager should be held responsible for those items—and only those items—that the manager can actually control to a significant extent.

3

Which of the following explains why operating budgets generally span a period of one year?

Companies choose a span of one year to correspond to their fiscal years.

Operating budgets generally cover a one-year period to correspond to the company’s fiscal year.

4

Which of the following is not a benefit of self-imposed budgets?

Lower-level managers are encouraged to create budgetary slack since they are more knowledgeable of day-to-day operations.

5

Which of the following is true of self-imposed (participative) budgets?

Self-imposed budgets give managers at all levels of an organization an opportunity to provide input into the budgeting process.

6

The budgeting process begins with the preparation of the ______ budget.

sales

7

What is the amount of budgeted sales revenue for the fourth quarter?
Budgeted unit sales 1,500 1,300 1,400 1,300 5,500



Percentage of sales collected in the quarter of the sale 75%
Percentage of sales collected in the quarter after the sale 25%

$32,500

Budgeted sales revenue for the fourth quarter = 1,300 units × $25 = $32,500

8

What is the amount of cash that is expected to be collected during the second quarter as a result of sales made during the first quarter?
Budgeted unit sales 1,500 1,300 1,400 1,300 5,500



Percentage of sales collected in the quarter of the sale 75%
Percentage of sales collected in the quarter after the sale 25%

$9,375

First quarter sales = 1,500 units × $25 per unit = $37,500

Amount of cash expected to be collected during the second quarter from sales made during the first quarter = First quarter sales of $37,500 × 25% = $9,375

9

What is the total amount of expected cash collections for the third quarter?
Budgeted unit sales 1,500 1,300 1,400 1,300 5,500



Percentage of sales collected in the quarter of the sale 75%
Percentage of sales collected in the quarter after the sale 25%

$34,375

Second quarter sales = 1,300 units × $25 per unit = $32,500

Third quarter sales = 1,400 units × $25 per unit = $35,000

Total expected cash collections during the third quarter = Amount collected from second quarter sales of $8,125 (or $32,500 × 25%)+ Amount collected from third quarter sales of $26,250 (or $35,000 × 75%) = $34,375

10

For a production budget, the ______ is the beginning inventory for the year.

beginning inventory for the first quarter

11

Which of the following is a major factor that should be taken into consideration while planning the desired level of inventories?

Costs of carrying inventory.

12

Vineyard Corporation, a manufacturer of fine wines, began the year with 20,000 bottles in inventory. The company estimated the budgeted sales for the four quarters of the current year to be 200,000 bottles, 150,000 bottles, 250,000 bottles, and 400,000 bottles, respectively. The management feels that an ending inventory of 10% of the subsequent quarter's sales is appropriate. What are the production needs for the first quarter?

195,000 bottles

Production needs for the first quarter = Budgeted sales of 200,000 bottles + Ending inventory of 15,000 bottles – Beginning inventory of 20,000 bottles = 195,000 bottles

13

Vineyard Corporation, a manufacturer of fine wines, began the year with 20,000 bottles in inventory. The company estimated the budgeted sales for the four quarters of the current year to be 200,000 bottles, 150,000 bottles, 250,000 bottles, and 400,000 bottles, respectively. The management feels that an ending inventory of 10% of the subsequent quarter's sales is appropriate. What is the desired ending inventory for the second quarter?

25,000 bottles


The desired ending inventory for the second quarter = Third quarter sales of 250,000 bottles × Ending inventory percentage of 10% = 25,000 bottles

14

The purpose of preparing a direct materials budget is to ________.

estimate the quantity of raw materials to be purchased

15

In a direct materials budget, the desired ending raw materials inventory for the year is equal to the ________.

desired ending raw materials inventory for the last period

16

Perry, Inc. desires to maintain the ending inventory of raw materials at 40 percent of the next quarter's raw material needs. What is the cost of raw materials to be purchased in the first quarter?

Required production in units of finished goods 15,000 12,500 7,500 15,000
Required production in units of finished goods 4 4 4 4
Units of raw materials needed to meet production 60,000 50,000 30,000 60,000
Desired units of ending raw materials inventory 24,000
Total units of raw materials needed
Units of beginning raw materials inventory 16,000
Units of raw materials to be purchased
Unit cost of raw materials $ 5 $ 5 $ 5 $ 5
Cost of raw materials to be purchased

$320,000

Desired units of ending raw materials inventory in first quarter = Second quarter’s raw materials needs of 50,000 units × 40% = 20,000 units

Units of raw materials to be purchased = Units of raw materials needed to meet production of 60,000 units + Desired units of ending raw materials inventory of 20,000 units – Units of beginning raw materials inventory of 16,000 units = 64,000 units

Cost of raw materials to be purchased in the first quarter = Units of raw materials to be purchased of 64,000 units × $5 per unit = $320,000

17

Companies prepare direct labor budgets to ________.

avoid labor shortages

18

Pro Clean Company, a manufacturer of hand sanitizers, intends to produce 40,000 units in the third quarter and 35,000 units in the fourth quarter. Each unit requires 0.50 direct labor-hours (DLHs) and the cost of direct labor per hour is $18. What would be the total direct labor cost for the fourth quarter?

$315,000

Total direct labor cost for the fourth quarter = 35,000 units × 0.50 DLHs per unit × $18 = $315,000

19

William Corporation has a contract with the labor union which guarantees its workers pay for at least 40,000 hours every quarter. Based on its direct labor budget for the current year, the company estimated it will need 39,000 direct labor-hours during the fourth quarter to produce 13,000 units of finished goods. Each unit requires 3 direct labor-hours (DLHs) and the cost of direct labor per hour is $12 per hour. What is the total direct labor cost for the fourth quarter?

$480,000


Even though the total direct labor-hours worked in the fourth quarter were 39,000 hours, William’s contract with the labor union guarantees its workers pay for at least 40,000 hours every quarter.

As a result:

Fourth quarter total direct labor cost = 40,000 hours × $12 = $480,000

20

What is the budgeted variable manufacturing overhead for the year?


Precision Company estimates its machine-hour requirements for the four quarters to be 35,000 hours, 20,000 hours, 15,000 hours, and 30,000 hours respectively. The variable manufacturing overhead rate is $4 per machine-hour. The fixed manufacturing overhead is $50,000 per quarter, which includes $20,000 of depreciation expense.

$400,000

Variable manufacturing overhead for the year = Variable manufacturing overhead rate per machine-hour × Total machine-hours required for the year

Variable manufacturing overhead for the year = $4 × 100,000 machine-hours = $400,000

21

What is the predetermined overhead rate for the year?

Precision Company estimates its machine-hour requirements for the four quarters to be 35,000 hours, 20,000 hours, 15,000 hours, and 30,000 hours respectively. The variable manufacturing overhead rate is $4 per machine-hour. The fixed manufacturing overhead is $50,000 per quarter, which includes $20,000 of depreciation expense.

$6 per machine hour

Predetermined overhead rate = (Variable manufacturing overhead + Fixed manufacturing overhead) ÷ Total machine-hours required

Predetermined overhead rate = [($4 × 100,000 machine-hours) + ($50,000 per quarter × 4 quarters)] ÷ 100,000 machine-hours or ($400,000 + $200,000) / 100,000 machine-hours = $6 per machine hour

22

The value of the ending inventory is calculated by multiplying the number of units in ending inventory by the ________.

unit product cost

23

Which of the following is deducted from the total selling and administrative expense budget to determine the cash disbursements for selling and administrative expense budget?

Depreciation expense

24

A company determines that the number of units sold is the cost driver for its variable selling and administrative expense budget. The product of its variable selling and administrative rate and budgeted unit sales will be ________.

total budgeted variable selling and administrative expenses

25

How much cash will the company need to borrow?

Striker Company estimates its expected cash receipts for the period to be $80,000 and its expected cash disbursements to be $70,000. The beginning cash balance for the period was $5,000. The management wants to maintain a minimum cash balance of $40,000.

$25,000

Excess (deficiency) of cash available over disbursements = Beginning cash balance + Cash receipts − Cash disbursements

Excess (deficiency) of cash available over disbursements = $5,000 + $80,000 − $70,000 = $15,000

Amount to be borrowed = Minimum cash balance − Excess (deficiency) of cash available over disbursements

Amount to be borrowed = $40,000 − $15,000 = $25,000

26

In a budgeted income statement, _________ is subtracted from sales to arrive at gross margin.

cost of goods sold

27

Smarton Company is in the process of preparing its budgeted income statement. It has determined its estimated gross margin to be $90,000. The company also expects to incur selling and administrative expenses of $30,000 and interest expense of $12,000. What is Smarton's budgeted net income?

$48,000

Budgeted net income = Gross margin – Selling and administrative expenses – Interest expense

Budgeted net income = $90,000 – $30,000 – $12,000 = $48,000

28

For the budget period ending December 31 of the current year, Aaron Corporation estimates its ending balances for cash as $4,000, accounts receivable as $16,000, finished goods inventory as $12,000, and raw materials inventory as $8,000. Invoices relating to raw materials in the amount of $14,000 are expected to be unpaid as of December 31. What is the amount of total current assets that will be reported on the budgeted balance sheet?

$40,000

Total current assets = Cash + Accounts receivable + Finished goods inventory + Raw materials inventory

Total current assets = $4,000 + $16,000 + $12,000 + $8,000 = $40,000

29

Film Studio, Inc. has beginning retained earnings of $80,000 and expects to earn net income of $70,000 during the budget period. What would be the budgeted ending balance in retained earnings if the company pays dividends of $50,000?

$100,000

Ending retained earnings = Beginning retained earnings + Net income - Dividends;

Ending retained earnings = $80,000 + $70,000 − $50,000 = $100,000

30

Budgeting expenses for areas other than manufacturing are shown on the ______ budget.

Selling and administrative