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Exam 22: Master Budgets and Planning

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Question 1

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The process of planning future business actions and expressing them as a formal plan is called:

A) Budgeting.
B) Cost accounting.
C) Managerial accounting.
D) Variance analysis.
E) Standard cost analysis.

F) None of the above
G) A) and B)

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Question 2

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

A) 1,860.
B) 1,900.
C) 1,940.
D) 1,980
E) 2,320.

F) C) and E)
G) A) and B)

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Question 3

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Pantheon Company has prepared the following forecasts of monthly sales: Pantheon has decided that the number of units in its inventory at the end of each month should equal 25% of the next month's sales.The budgeted cost per unit is $30. (1)How many units should be in July's beginning inventory? (2)What amount should be budgeted for the cost of merchandise purchases in July? (3)How many units should be purchased in September?

The financial budgets of a business include the cash budget,the budgeted income statement,and the budgeted balance sheet.

The practice of preparing budgets for each of several future periods and revising those budgets as each period is completed,adding a new budget each period so that the budgets always cover the same number of future periods,is called:

Which of the following budgets must be completed before a cash budget can be prepared?

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 suits.What is the dollar amount of the purchase of suits? Each suit has a cost of $75.

Past performance is the best overall basis for evaluating current performance and assessing the need for corrective action.

A budget is a formal statement of future plans,usually expressed in monetary terms.

A comprehensive or overall formal plan for a business that includes specific plans for expected sales,the units of product to be produced,the merchandise or materials to be purchased,the expenses to be incurred,the long-term assets to be purchased,and the amounts of cash to be borrowed or loans to be repaid,as well as a budgeted income statement and balance sheet,is called a:

If budgeted beginning inventory is $8,300,budgeted ending inventory is $9,400,and cost of goods sold is expected to be $10,260,then budgeted purchases should be $9,160.

Describe at least five benefits of budgeting.

The following information is available for Hammel Company: a.The Cash Budget for March shows a bank loan of $10,000 and an ending cash balance of $48,000. b.The Sales Budget for March indicates sales of $120,000.Accounts receivable is expected to be 70% of the current-month sales. c.The Merchandise Purchases Budget indicates that $90,000 in merchandise will be purchased in March on account and ending inventory for March is predicted to be 600 units @ $35.Purchases on account are paid 100% in the month following the purchase. d.The Budgeted Income Statement shows a net income of $48,000 and $26,000 in income tax expense for the quarter ended March 31.Accrued taxes will be paid in April. e.The Balance Sheet for February shows equipment of $84,000 with accumulated depreciation of $30,000,common stock of $25,000 and ending retained earnings of $8,000.There are no changes budgeted in the equipment or common stock accounts. Prepare a budgeted balance sheet for March.

The budget process is a continuous activity of planning,revising,and evaluating business activities.

List the three important guidelines that should be followed in the budgeting process.

Grafton is preparing a cash budget for June.The company has $25,000 cash at the beginning of June and anticipates $95,000 in cash receipts and $111,290 in cash disbursements during June.Compute the amount the company must borrow,if any,to maintain a $20,000 cash balance.The company has no loans outstanding on June 1.

Grafton sells a product for $700.Unit sales for May were 400 and a 3% growth in unit sales is forecasted for each month.Compute the total sales to be reported on the sales budget for month ended June 30.

The Palos Company expects sales for June,July,and August of $48,000,$54,000,and $44,000,respectively.Experience suggests that 40% of sales are for cash and 60% are on credit.The company collects 50% of its credit sales in the month following sale,45% in the second month following sale,and 5% are not collected.What are the company's expected cash receipts for August from its current and past sales?

The master budget process usually ends with:

Which of the following factors is least likely to be considered in preparing a sales budget?