Operational Budgeting True/False
2. The typical starting point of a master budget would be to prepare prepare a budgeted balance sheet. Answer: False 4. A company that is profitable may not have sufficient cash on hand to meet their immediate immediate needs. Answer: True 5. In a master budget the sales forecast would be dependent upon the budgeted budgeted production figures. Answer: False . The behavioral approach to budgeting budgeting has as its goal the complete elimination of inefficiency. inefficiency. Answer: False !. A budget prepared using the total "uality management management approach is always achievable by departments departments within a company. Answer: False ##. A company$s operating cycle is the time between purchases purchases of direct materials and conversion of these materials bac% into cash. Answer: True #2. The operating cycle cycle is the average time re"uired to to manufacture products for sale. sale. Answer: False #&. 'ecause a budget is merely a forecast of future events( its benefits are e)tremely narrow and limited. Answer: False #5. If the behavioral approach is employed to determine determine the levels at which budgeted amounts are set( then reasonable and achievable levels should be used. Answer: True #*. A master budget is a comprehensive financial plan setting setting forth the financial and operational goals goals of a business. Answer: True #+. A master budget actually actually includes a number of related related budgets. Answer: True #. In preparing a master budget( budgeted levels for production( production( manufacturing costs( and operating operating e)penses normally are determined after preparing the sales forecast. Answer: True
2,. A cash budget determines the ma)imum limit amount of money that can be spent during during the period. Answer: False
+&
2#. The preparation of a budgeted balance sheet re"uires re"uires consideration of the budgeted capital capital e)penditures and budgeted net income. Answer: True 22. A debt service budget budget summari-es cash payments re"uired re"uired for interest( and includes includes those re"uired to to pay down principal. principal. Answer: True 2&. If a budget is to provide a basis for evaluating departmental performance( performance( departmental managers should not %now what their budget targets are until after the budget period has ended. Answer: False Multiple Choices:
25. A budget that adds a new month when the current month ends is called a: A /apital budget. ' 0aster budget. / 1olling budget. There is no such budget. Answer: / 2*. The benefits of budgeting include all of the following f ollowing e)cept: A 3nabling the company company to produce more for less cost. cost. ' Assigning responsibility responsibility for situations that re"uire re"uire corrective action. / /oordinating activities activities between departments within the the organi-ation. /reating standards standards for evaluating performance. Answer: A 2+. A master budget usually includes all of the following e)cept: A A sales forecast. ' A cash budget. / A proected ta) return. return. roected financial statements. Answer: / 2. A master budget budget can be used as a6n: A Aid to planning. ' 3valuation tool. / 0eans to coordinate coordinate activities. activities. All of the above. Answer:
. 7hich of the following is not a benefit of a careful and thorough budgeting budgeting process8 A 'udgeting increases management$s management$s awareness of the company$s e)ternal economic environment. environment. ' 'udgeted net income assures assures the company of operating operating profitably. / The budget may provide advance advance warning of pending pending problems. 'udgets provide a yardstic% yardstic% for evaluating evaluating future performance. Answer: ' +4
&5. 7hen budgeted amounts are set at reasonable r easonable and achievable levels: A They reflect a 9total "uality "uality management9 philosophy philosophy of management. ' A highly efficient department should should fall slightly short of budget standards. standards. / 0eeting the budgeted amounts amounts ensures a ma)imum ma)imum level of profitability. profitability. Failure to stay within within the budget is viewed viewed as an unacceptable level level of performance. Answer: &*. A segment of a master budget relating to that portion of a business under the control of a particular manager is termed a: A erformance report. ' roduction report. / 1esponsibility budget. /ash budget. Answer: / &+. 7hich of the following following is not considered considered an operating budget8 budget8 A 0anufacturing cost budget. ' roduction schedule. / /apital e)penditures e)penditures budget. ales forecast. Answer: /
&. 7hich element of a master budget budget would normally normally be prepared first8 A A production production budget. ' A cash budget. / A budget of operating e)penses. A sales forecast. Answer: &!. 7hich of the following following is a maor component component of a master budget8 A A production production throughput throughput schedule. ' A machinery maintenance schedule. / A manufacturing manufacturing cost budget. An employee employee training budget. Answer: / 4,. 7hich of the following following is considered an operating operating budget estimate8 estimate8 A The prepayments prepayments budget. ' The debt service budget. budget. / The manufacturing manufacturing cost budget. The capital e)penditures budget. Answer: / 4#. The sales forecast forecast directly affects affects many elements of the master budget. budget. 7hich of the the following would be least affected by short;term fluctuations in the sales forecasts8 A The production production schedule. ' The budgeted budgeted income statement. / The capital e)penditures budget. The operating operating e)pense e)pense budget. Answer: /
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42. The production production schedule in units: A /annot be prepared until until the budgeted income income statement is completed. completed. ' Is dependent upon the the sales forecast for the period. period. / Is based upon the manufacturing cost budget( budget( that is( upon the level of funds available for manufacturing costs. Is the starting point point in the preparation of of the master budget. Answer: ' 4&. reparation of a budgeted budgeted income statement does not not re"uire: A 3stimates of cost cost of goods sold. ' 3stimates of the timing timing of cash receipts and payments. payments. / reparation of a sales forecast. Anticipation of operating e)penses. Answer: '
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44. 7hich of the following following is considered a financial financial budget estimate8 estimate8 A The manufacturing manufacturing cost cost budget. ' The cost of of goods sold sold budget. budget. / The operating operating e)pense e)pense budget. The prepayments prepayments budget. Answer: 45. 7hich element of a master budget budget would normally normally be prepared last8 A A cash budget. ' A budgeted budgeted balance sheet. / A budgeted budgeted income statement. A production production budget. Answer: ' 4*. A cash budget is affected directly by each of the following following e)cept: A A capital e)penditures budget. budget. ' A sales sales forecast. forecast. / A manufacturing manufacturing cost budget. A budgeted budgeted income statement. Answer: 4+. In a cash budget( the budgeted level of cash receipts depends on all of the following following e)cept: A The sales forecast. ' The credit terms offered to customers. / The credit terms offered by suppliers. suppliers. 3)perience in collecting receivables. Answer: /
55. 1efer to the information information above. For the year( budgeted budgeted purchases of direct materials materials amounted to: to: A =&42(,,,. ' =&2*(,,,. / =&5(,,,. =&*(,,,. Answer: /
Response: 84,000 + x _0342,000 = 100,000 X = 358,000 5*. 1efer to the information information above. For the year( budgeted budgeted cash payments payments to suppliers suppliers amounted to: to: A =&42(,,,. ' =&4(,,,.
++
/ =&&2(,,,. =&52(,,,. Answer: '
Feedback: 52,000 + 358,000 – x = 62,000 X = 348,000 5+. horeline /orporation has budgeted budgeted a total of =&*#(,, in costs and e)penses for the upcoming "uarter. >f this amount( =45(,,, represents depreciation depreciation e)pense and =+(&,, represents the the e)piration of prepayments. horeline $s current payables payables balance is =2*5(,,, =2*5(,,, at the beginning of the "uarter. 'udgeted payments on current payables payables for the "uarter amount amount to =&+,(,,,. The company$s estimated estimated current payables balance at the the end of the "uarter is: A =#+!(5,,. ' =2,4(5,,. / =2,&(5,,. =,(,,,. Answer: '
Feedback: 265,000 + (361,800 – 45,000 – 7,300 ! 370,000 = 204,500
5. olphin has budgeted budgeted sales for the upcoming upcoming "uarter as follows: follows:
The desired ending finished goods inventory for each month is one;half of ne)t m onth$s budgeted sales. Three pounds of direct material are re"uired for each unit produced. If direct material costs =4 per pound( and must be paid for in the month of purchase( the budgeted direct materials purchases 6in dollars for April are: A =#!(!,. ' =2,(+,,. / =#!(,,. =#(,,,. Answer: /
Feedback: "5(1,500 + "5(1,800 = 1,650 x 3 = 4,#50 x 4 = 1#,800 1eference: 2&?,2 n 0arch #( @rant /orporation plans to borrow =45,(,,, from the Ireland tate 'an% by signing a #2( #5;year note payable. The note calls for #, monthly payments of =5(,,,( which includes includes both interest and principal components. 5!. 1efer to the information information above. @rant $s budgeted budgeted interest e)pense for 0arch is:
+
A =5,,. ' =4(,,,. / =4(5,,. =5(,,,. Answer: /
Feedback: 450,000 x "01 = 4,500 *,. 1efer to the information information above. >f @rant $s budgeted budgeted debt service cost of =5(,,, in 0arch( 0arch( the amount applied to the principal of the note totals: A =5,,. ' =4(,,,. / =4(5,,. =5(,,,. Answer: A
Feedback: 5,000 – 4,500 = 500
*#. 1efer to the information information above. 7hat are 0orrow $s budgeted collections for Buly8 A =,,(,,,. ' =!&!(,,,. / =#(,&(,,,. =!#5(,,,. Answer: '
Feedback: "7(1,250,000 + "2(240,000 + "1(160,000 = #3#,000 *2. 1efer to the information information above. 7hat is the budgeted balance balance of 0orrow $s accounts receivable receivable as of Buly A =&+5(,,,. ' =&!!(,,,. / =4#5(,,,. =&!*(,,,. Answer: '
Feedback: "3(1,250,000 + "1(240,000 = 3##,000 n >ctober # of the current year( Bac%son /orporation prepared a cash budget for >ctober( Dovember( and ecember. All of Bac%sonEs Bac%sonEs sales are made made on account. The following following information was was used in preparing estimated cash cash collections:
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Appro)imately *, of all sales are collected in the month of the sale( &, is collected in the following month( and #, is collected in the month thereafter. *&. 1efer to the information information above. 'udgeted collections collections from customers customers in >ctober total: A =52(,,,. ' =&!(,,,. / =4#(,,,. =*&(,,,. Answer: /
Feedback: "6(30,000 + "3(60,000 + "1(50,000 = 41,000 *4. 1efer to the information information above. 'udgeted collections collections from customers customers in Dovember total: A =42(,,,. ' =*&(,,,. / =*!(,,,. =5(,,,. Answer: '
Feedback: "6(80,000 + "3(30,000 + "1(60,000 = 63,000 *5. 1efer to the information above. above. 'udgeted collections collections from customers in ecember total: total: A =*5(,,,. ' =+,(,,,. / =+4(,,,. =*!(,,,. Answer:
Feedback: "6(70,000 + "3(80,000 + "1(30,000 = 6#,000 **. /apricorn( Inc. uses a fle)ible budget. /apricorn produced #*(,,, units in 0ay incurring incurring direct materials cost of =2,(4,. Its master budget for the year proected direct materials cost of =&*2(5,,( =&*2(5,,( at a production volume volume of 2!,(,,, units. A fle)ible fle)ible budget for 0ay should should reflect direct materials materials cost of: A =2,(4,. ' =2,(,,,. / =2#(,,,. =#!(+5,. Answer: '
Feedback: 362,500$2#0,000 = 1"25 x 16,000 = 20,000 1eference: 2&?,*
,
Essay +&. teps in the budgeting budgeting process isted below are eight operating budget estimates. In the space provided( list which of these estimates is typically made first( second( third( etc. 6a ____>perating e)pense budget 6b ____'udgeted income statement 6c ____3nding finished goods forecast 6d ____roduction schedule 6in units 6e ____0anufacturing cost estimates 6f ____/ost of goods sold budget 6g ____ales forecast 6h ____0anufacturing cost budget Answer: 6a + 6or * 6b 6c 5 6d 2 6e & 6f * 6or + 6g # 6h 4
+4. 'udgeted material purchases purchases and payments to suppliers suppliers >n Banuary # of the current period( 0atson /orporation has direct materials materials on hand of =,(,,,. >f this amount( 0atson owes suppliers =4!(,,, on account. The company has prepared the following budget estimates for Banuary:
6a urchases of direct materials budgeted in Banuary amount to: =??????????????? 6b /ash payments to suppliers budgeted in Banuary amount to: =??????????????? /omputations
#
Answer: 6a =(,,, =(,,, 6b =&,4(,,, =&,4(,,, /omputations:
+5. roduction and purchases budgets tewart Furniture( Inc. manufactures a variety of des%s( chairs( tables( and shelf units which are sold to public school systems systems throughout the the 0idwest. The controller of the company$s company$s chool es% ivision ivision is currently preparing a budget for the second "uarter of 2,,. The following sales forecast forecast has been developed by the division$s sales manager:
The inventory of finished des% and chair sets at the end of each month must be e"ual to &, of the budgeted sales for the the ne)t month. >n April #( there will will be 2(5,, units of des% and and chair sets on hand. 7or%;in;process inventories inventories are negligible and can be safely ignored. 3ach des% and chair set re"uires #, board feet of pine plan%s. ine plan%s cost =,.+, per board foot( and the division ends each month with enough pine to cover 2, of the ne)t month$s production re"uirements. This re"uirement will will be met on April # of 2,,. 2,,. 1e"uired. repare a production budget and a materials purchases budget budget for April( 0ay( and Bune and in total for the three;month period.
2
Answer:
+*. 'udgeted debt debt service service costs >n April #( /rawford /orporation borrowed =4,,(,,, from its ban% by signing a !( 5;year note payable. The note calls for *, monthly monthly payments of =*(#5,( =*(#5,( which includes both interest and principal principal components. 6a Interest e)pense budgeted for April amounts to: =??????????????? 6b The carrying value of the note to be reported in the company$s budgeted balance sheet as of April &, is: =??????????????? =??????????????? 6c Interest e)pense budgeted for 0ay amounts to 6round to nearest whole dollar: =??????????????? 6d The carrying value of the note to be reported in the company$s budgeted balance sheet as of 0ay is 6round to nearest whole dollar: =??????????????? /omputations Answer: 6a =&(,,, 6b =&!*(5, 6c =2(!+*.& 6d =&!&(*+*.&
&
/omputations
++. /ash receipts receipts budget budget The director of budgeting for 7ard roducts is beginning the process of preparing a cash budget for each month of the coming year. The sales forecast for the month of Banuary is as follows:
In the past( the accounts receivable originating from credit sales have been collected in the following pattern:
4
/redit sales in the last two months of the current year( some of which remain r emain uncollected at year;end( were as follows:
/ompute the amount of cash e)pected to be collected from customers in Banuary of the coming year. =??????????????? /omputations /ash e)pected to be collected in Banuary: From Dovember credit sales =???????? Answer: =+2(5,, /omputations
+. reparation of cash budget nly #, of credit sales are collected in the month in which the sale is made. Total fi)ed e)penses are =5,(,,, per month( including including =24(,,, depreciation. Gariable e)penses are 55 of sales. All e)penses re"uiring re"uiring payment are paid in cash cash when incurred. A =5,(,,, note payable must be paid on Bune &,. As of 0ay ( the cash balance is =4(,,,.
5
Answer:
+!. Fle)ible budget;variances The cost accountant for Fleming( Inc.( prepared the following monthly performance report relating to the Finishing epartment:
6a /ompute the amounts that should be included for each of the following in a fle)ible budget prepared for a *(5,,;unit level of production: 6# irect materials: =??????????????? 62 irect labor: =??????????????? 6& Fi)ed manufacturing overhead: =??????????????? =??????????????? 6b Assume that a revised performance report is prepared for the *(5,,;unit level of production using a fle)ible budget approach. /ompute the cost variances for each of the following. Indicate whether each variance is favorable 6F or unfavorable 6<. 6# irect materials: =??????????????? 62 irect labor: =??????????????? 6& Fi)ed manufacturing overhead: =??????????????? =???????????????
*
Answer:
,. 3lements of of the master budget escribe briefly the purpose of a master budget and discuss its elements. Answer: A master budget is a group of related budgets and forecasts which( together( summari-e and coordinate all planned activities activities of a business. The master budget usually usually consists of a sales sales forecast( a production schedule( a manufacturing costs budget( an operating e)pense budget( a capital e)penditures budget( and proected financial statements. statements. The number and type type of individual budgets budgets and schedules which which ma%e up the master budget depend upon the si-e and the characteristics of the business. &. 'isset /ompany e)pected sales to be 5,(,,, units in February( February( 45(,,, in 0arch and 55(,,, units in April. 3ach unit sells sells for =#*.,, each. The following costs pertain to each unit: unit:
'isset is considering an advertising campaign which will cost =#,(,,, per month from Banuary to 0arch and is e)pected to increase sales by a month. At the same time 'isset will reduce sales prices to =#5.,, per unit while %eeping costs steady. 1e"uired: 6A. 7hat will operating income be in each of the three months before the advertising campaign8 6'. If 'isset goes ahead with the advertising campaign( how much would operating income increase or decrease each month8 7ould you advise them them to go ahead with the campaign8 campaign8
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Answer:
Total operating income for the three months decreases decreases at all sales levels. There is no financial advantage to have the advertising campaign.
NAME NAME
#
10-MINUTE QUIZ A
ECTI!N
Indicate the best answer for each "uestion in the space provided. 1
7hich of the following is not normally normally a characteristic of a profit rich( cash poor company8 a ow inventory turnover. " High accounts receivable turnover. c High operating income( but low cash flow from operations. A long operating cycle.
$
7hich of the following is not considered considered a benefit from budgeting8 perspectives. a imited managerial perspectives. Advance warning of problems. " c 'etter coordination among activities. A measure of performance evaluation.
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7hich of the following is a characteristic of the behavioral approach to setting budget targets8 a /omplete elimination of inefficiency. non;value;adding activities. " /omplete elimination of non;value;adding c /onstant need for improvement. e)pectations. Achievable performance e)pectations.
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7hich of the following is not normally normally considered an element of a master budget8 a The production schedule. " The employee turnover budget. c The operating e)pense budget. The cash budget.
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7hich budget typically serves as a starting point in developing a master budget8 a The sales budget. " The cost of goods sold budget. c The employee turnover budget. The manufacturing cost budget.
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NAME 10-MINUTE QUIZ (
# ECTI!N
Use the following data for questions 1 through 3.
The follow following ing budget for the ,(,,, ,(,,,;un ;unit it produc productt level level was prepar prepared ed for the roduc roduction tion epartment for eptember:
(u)ete *+0,000 Uits.
Gariable costs: ire irect ct mate materi rial alss cost cost... ...... ...... ...... ...... ...... ...... ...... ...... ...... ...... ...... ...... ...... ...... ...... ...... ...... ...... ...... ...... ...... ...... ...... ..... .. irect rect labo labor. r... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... ..... ...... ...... ..... Garia ariab ble over overh head. ead... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... ..... ...... ...... ...... ... Fi)ed costs: 0anu 0anufa fact ctur urin ing g over overhe head ad... ...... ...... ...... ...... ...... ...... ...... ...... ...... ...... ...... ...... ...... ...... ....... ........ ........ ........ ........ ...... .. Tota Totall manu manufa fact ctur urin ing g cost costs. s.... ...... ...... ...... ...... ...... ...... ...... ...... ...... ...... ...... ...... ...... ...... ...... ...... ...... ....... ....... ....... ...... ..
= 42(, 42(,,, ,, 5,(, 5,(,,, ,, &4(, &4(,,, ,, **(, **(,,, ,, =#!2 =#!2(, (,,, ,,
uring eptember( the roduction epartment actually produced !,(,,, units at a total manufacturing cost of =2,2(,,,.
an accurate amount to be included 1 Refer to the above data. data. 7hich of the following is not an in a fle)ible budget prepared for the !,(,,,;unit level of production8 a Total overhead cost( =#,4(25,. " Total manufacturing costs( =2,(+5,. c irect materials( =4+(25,. irect labor( =5*(25,. $ Refer to the above above data. A performance report prepared for eptember operations under a fle)ible budget approach would show: a Actual costs under budget by =5(+5,. " Total costs per fle)ible budget of =2,5(,,,. c Actual costs under budget by =(,,,. Actual costs over budget by =#,(,,,. % Refer to the above data. The cost;volume relationship used to prepare the fle)ible budget for this department includes: a 0anufacturing overhead cost of =#.,, per unit. " Fi)ed cost of =,.& per unit. c Total cost of =2.4, per unit. Gariable costs of =#.5 per unit.
!,
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The /ompanys actual manufacturing costs for the month of 0ay totaled =+2(,,,( while the budgeted budgeted manufacturing manufacturing costs were =,(,,,. /omparison /omparison of the budgeted budgeted costs with actual amounts: a Is not significant unless the budgeted and actual figures are based upon the same level of production. " emonstrates that the 0anufacturing epartment operated very efficiently during 0ay. c Indicates that production cost per unit was #, below budgeted cost per unit. Indicates that the /ompany produced only !, of the number of units budgeted for production production in in 0ay.
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A fle)ible budget is used to evaluate: a /osts that should have been incurred for a level of output achieved. " /osts that should have been incurred for a level of output considered to be normal. c How variable unit costs change as output changes. How fle)ible management was at adapting to changes in business conditions.
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NAME # 10-MINUTE QUIZ C
ECTI!N
The cost accountant for unbars /o. prepared the following monthly performance report relating to the roduction epartment. (u)ete rouctio 610,000 U Uits.
Actual rouctio *11,000 U Uits.
=2#,(,, (,,, +,(,,, &,(,,, #&,(,,,
=2&,(,, (,,, #(,,, &5(,,, #&4(,,,
irect mat materi erials used.... ...... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .. irect labor ..................................................................... Gariable manufacturing overhead....................................... Fi)ed manufacturing overhead............................. ...... ...... ....... ...... .... 1
Refer to the the above data. data. /ompute the amounts that should be included for each of the following in a fle)ible budget prepared at an ##(,,,;unit level of production: a
irect materials: =???????????? =????????????
=???????????? " irect labor: =????????????
c
$
manufacturing overhead: =???????????? =???????????? Fixed manufacturing
Refer to the the above above data. data. Assume that a revised performance report is prepared for the ##(,,,;unit level of production using a fle)ible fle)ible budget approach. /ompute the cost variances for each of the following. following. Indicate whether each variance is favorable 6F or unfavorable 6<. a
irect materials variance from fle)ible budget: =????????????
=???????????? " irect labor variance from fle)ible budget: =????????????
c
!2
Total manufacturing overhead variance from fle)ible budget: =????????????
NAME 10-MINUTE QUIZ 1
# ECTI!N
Hayden /orporation budgeted budgeted its cost of finished finished goods manufactured manufactured at =5,,(,,, for 0ay. Its 0ay finished goods inventory inventory budgeted to be twice the level of its 0ay # finished goods inventory. inventory. The cost of goods sold budget for 0ay has been set at =45,(,,,. Haydens finished goods inventory at 0ay is budgeted at: =????????????
$
uffol% /orporation e)pects to incur =&*,(,,, in e)penses during Bune 6e)cluding interest and ta)es. >f this amount( amount( depreciat depreciation ion is budgeted budgeted at =+,(,,,( =+,(,,,( and e)pired e)pired prepayments prepayments are budgeted budgeted at =&5(,,,. uffol%s current payables total total =*,(,,, at Bune # and are budgeted to increase to =+,(,,, by Bune &,. ayments on current payables budgeted for Bune total: =???????????? =????????????
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7eaver 7eaver /orporation /orporation pays its debt service service costs in full each month. month. April debt debt service costs costs are budgeted budgeted at =!(,,,. =!(,,,. However( However( of this amount( amount( only =#(,,, =#(,,, represent representss a reduction reduction principa principal. l. The company e)pects to issue no new debt during the month. 7hat cash disbursement amount will be shown on 7eavers debt service budget8 =????????????
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'ergen /orporations accounts receivable remain outstanding appro)imately 42 days( whereas its inventory remains in stoc% appro)imately appro)imately #2 days before it is sold. It ta%es suppliers appro)imately appro)imately + days to deliver inventory to 'ergen once an order is received. Baspers operating cycle is: ?????????? days
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As bud budget geted ed outpu outputt per the the fle)ib fle)ible le bud budget get increa increases ses(( per;un per;unit it fi)ed fi)ed costs costs 6incre 6increase aseJde Jdecre crease ase: : ???????? ??????????? ???
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EF-TET QUETI!N F2!M TE3T(!!4
/hoose the best answer for each of the following "uestions and insert the identifying letter in the space provided.
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1
7hich of the following following statements statements correctly correctly describe describe relations relationships hips within the master master budget8 budget8 60ore than one answe answerr may be correct correct. . The manufacturing budget is based in large part upon the sales forecast. a In many elements of the master budget( the amounts budgeted for the upcoming " "uarter are reviewed and subdivided into monthly budget figures. The manufacturing cost budget affects the budgeted income statement( the cash c budget( budget( and and the the budgeted budgeted balance balance sheet. sheet. The capital e)penditures budget has a greater effect upon the budgeted income statement than it does upon the budgeted balance sheet.
$
uring the first "uarter of its operations( 0orris 0fg. /o. e)pects to sell 5,(,,, units and create an ending invent inventory ory of 2,(,,, units. units. Gariable manufacturing manufacturing costs are budgeted at at =#, per unit( and fi)ed manufactur manufacturing ing costs at =#,,(,,, =#,,(,,, per "uarter. The companys companys treasurer e)pects that , of the variable manufacturing costs will re"uire cash payment during the "uarter and that 2, will be financed through accounts payable and accrued liabiliti liabilities. es. >nly 5, of the fi)ed manufactu manufacturing ring costs costs are e)pected to re"uire re"uire cash payments payments durin during g the "uarter. "uarter. In the cash budget( payments for manufacturing costs during the "uarter will total: =,,(,,,. a =*#,(,,,. " =*,,(,,,. c =45,(,,,.
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1odgers 1odgers 0fg. /o. prepares prepares a fle)ible fle)ible budget. budget. The original original budget forecasted forecasted sales sales of #,,(,, #,, (,,, , units units K =2,( =2,( and operatin operating g e)pen e)penses ses of =&, =&,,(, ,(,,, ,, fi)ed fi)ed plus plus =2 per unit. unit. roduction also was budgeted budgeted at #,,(,,, units. units. Actual sales and production production for the period totaled totaled ##,(,,, units. units. 7hen the budget budget is adusted adusted to reflect these new activity activity levels( levels( which of the following budgeted amounts will increase( but by less than #,8 ales revenue. a Gariable manufacturing costs. " Fi)ed manufacturing costs. c Total operating e)penses.
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amberton 0anufactur 0anufacturing ing /ompany has ust ust completed its master master budget. The budget indicates that the companys operating cycle needs to be shortened. Thus( the company will li%ely attempt: ecreasing its inventory turnover. a ecreasing its accounts receivable turnover. " Tighten credit policies. c Done of the the above above select selections ions is correct correct..
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7hich of the following is not an an element of the master budget8 The capital e)penditures budget. a The production schedule. " The operating e)pense budget. c All of the above are elements of the master budget.
5
7hich of the following is not a a potential benefit of using budgets8 3nhanced coordination of firm activities. a 0ore motivated managers. " 0ore accurate e)ternal financial statements. c Improved interdepartmental communication. communication.
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!UTI!N T! - 10-MINUTE 10-MINUTE QUIZZE QUIZ A ' 1 A $ % ' & A '
QUIZ ( ' 1 A $ % A & A '
%ea&n'n )b*ec'e: 1 – 4
%ea&n'n )b*ec'e: 6
QUIZ C 1 6=2#,(,,,J#,(,,, 6=2#,(,,,J#,(,,, units ) ##(,,, units L =2(,,, a "
6=+,(,,,J#,(,,, 6=+,(,,,J#,(,,, units ) ##(,,, units L =++(,,,
c
=#&,(,,, 6Fi)ed costs remain unchanged throughout throughout a relevant range of production production
$ a
=2(,,, fle)ible budget ; =2&,(,,, actual cost L =#(,,, F
"
=++(,,, fle)ible budget ; =#(,,, actual cost L =4(,,, <
c
=*(,,, < Total overhead per fle)ible budget: Fi)e Fi)ed. d.... ...... ...... ...... ...... ...... ...... ...... ...... ...... ...... ...... ...... ...... ...... ...... ...... ...... ...... ...... ...... ...... ...... ...... ....... ........ ....... ... Gariable 6=&,(,,,J#,(,,, ) ##(,,,..... .......... .......... ...... .... .... .... .... .... .... .... .... .... .... ..
=#*&(,,,
Actual overhead 6=#&4(,,, M =&5(,,,......................................
6#*!(,,,
/ost variance;total manufacturing overhead...............................
=*(,,, <
%ea&n'n )b*ec'e: 5, 6
!*
=#&, =#&,(, (,,, ,, &&(,,,
QUIZ 1 et N L Finished @oods Inventory( 0ay # N M =5,,(,,, ; 2N L =45,(,,, N L =5,(,,, 2N L Finished @oods Inventory( 0ay L=#,,(,,, $ 6=&*,(,,, ; =+,(,,, ;=&5(,,, M =*,(,,, ;=+,(,,, L =245(,,, % =!(,,, & 42 days M #2 days L 54 days ' ecrease
%ea&n'n )b*ec'e: 5, 6
!UTI!N T!
# a( b( c * c
EF-TET QUETI!N F2!M TE3T(!!4
2 b 6+,(,,, units ) =#, per unit ) , M 6=#,,(,,, ) 5, L =*#,(,,, & d
4 c
5 d
!+