Edmonds 5e Chapter 14 TB PDF

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Survey of Accounting, 5e (Edmonds) Chapter 14 Planning for Profit and Cost Control 1) Expressing plans for a business in financial terms is commonly called: A) master planning. B) budgeting. C) strategic planning. D) operational planning. 2) A company's numerous specific budgets (sales, inventory purchases, etc.) together are referred to as the: A) grand plan. B) strategic plan. C) current budget. D) master budget. 3) Select the incorrect statement about budgeting committees. A) Membership on the budget committee is restricted most often to accountants because the budget involves numbers. B) Budget committees usually have responsibility for the coordination of budgeting activities. C) The budget committee is responsible for settling disputes between various departments over budget matters. D) One of the responsibilities of the budget committee is to monitor the organization's progress toward achieving its budget standards. 4) Select the incorrect statement about the planning process. A) The longer the time period, the more specific the plans. B) Planning decisions can often be sub-divided into three distinct planning phases, short-term, intermediate-term, and long-term. C) The nature of planning changes with the length of the time period being considered. D) The shorter the time period, the less general the plans. 5) Select the correct statement about the master budget. A) The master budget is a group of detailed budgets and schedules representing the company's operating and financial plans for the past accounting period. B) The master budget usually includes operating budgets and capital budgets, and pro forma financial statements. C) The budgeting process usually begins with preparing the strategic budgets. D) Preparing the master budget begins with the cash budget. 6) Planning concerned with long-range decisions such as defining the scope of the business is referred to as: A) operations budgeting. B) master planning. C) capital budgeting. D) strategic planning. 1 Copyright ©2018 McGraw-Hill

7) Budgeting that involves decisions such as whether to buy or lease equipment or build a new factory is referred to as: A) capital budgeting. B) operations budgeting. C) facilities planning. D) strategic planning. 8) Budgeting that involves the development of a master budget to direct the firm's activities over the short-term is referred to as: A) capital budgeting. B) operations budgeting. C) strategic planning. D) None of the choices. 9) The master budget normally covers: A) Three months. B) 1 year. C) 1-5 years. D) 5-10 years. 10) The budgeting process that involves adding a month to the end of the budget period at the end of each month, thus maintaining a twelve-month planning horizon, is referred to as: A) participative budgeting. B) capital budgeting. C) continuous budgeting. D) zero-based budgeting. 11) Which of the following is not an advantage of budgeting? A) Provides assurance that accounting records are in accordance with generally accepted accounting principles. B) Forces coordination among departments to promote decisions in the best interests of the company as a whole. C) Provides advance notice of potential shortages, bottlenecks, or other weaknesses in operating plans. D) Provides a way to evaluate performance. 12) The budgeting process formalizes and documents managerial plans to clearly communicate objectives to both superiors and subordinates. This budgeting requirement is an example of: A) performance measurement. B) planning. C) budget coordination. D) taking corrective action.

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13) When a company's district managers submitted their preliminary budget proposals, top management discovered that the southern district manager had requested a new project management information system. Unfortunately, the system is incompatible with the system used at headquarters. Which of the following advantages of budgeting reduces the likelihood that the company will end up with two incompatible systems? A) Planning B) Coordination C) Performance measurement D) Corrective measures 14) One company's practice is to provide bonuses to salespeople who exceed their sales targets. Which of the following advantages of budgeting enables the company to establish its recognition program? A) Planning B) Coordination C) Performance measurement D) Corrective action 15) Jason had been operating his machine for an entire month before he realized that it was generating more scrap than usual. Which advantage of budgeting would have helped him identify this problem sooner? A) Performance measurement B) Coordination C) Planning D) Corrective action 16) Which of the following would represent the order in which most master budgets are prepared? A) Sales, Income Statement, Cash, Purchases B) Purchases, Cash, Sales, Income Statement C) Purchases, Sales, Cash, Income Statement D) Sales, Purchases, Cash, Income Statement 17) Which of the following would be prepared first when a merchandising company uses a master budget? A) Selling and administrative expense budget B) Budgeted income statement C) Sales forecast D) Inventory purchases budget 18) Which of the following budgets needs to be prepared prior to preparing an inventory purchases budget? A) Selling and administrative expense budget B) Sales budget C) Cash budget D) All of the answers are correct. 3 Copyright ©2018 McGraw-Hill

19) Select the correct statement. A) The four advantages of budgeting include planning, coordination, performance measurement, and reporting. B) In a participative budgeting system, budget information flows in one direction only, from bottom to top. C) The three major categories of the master budget are operating budgets, capital budgets, and pro forma financial statements. D) The accounting department normally coordinates the development of the sales forecast. 20) Select the correct statement about budgeting and human behavior. A) People are usually very comfortable with budgets. B) The attitudes of upper managers significantly impact budget effectiveness. C) Budgets increase individual freedom within an organization. D) Participative budgeting contributes to fear and resentment. 21) Select the incorrect statement regarding the human factor in the budgeting process. A) Budgets force employees to follow the organization's plan. B) The evaluation feature of budget systems is frightening for many people. C) There is a tendency for people to be uncomfortable with budgets. D) Proper handling of human relations is essential to the establishment of an effective budget system. 22) The budgeting technique that provides for employee input into the planning process is known as: A) continuous budgeting. B) perpetual budgeting. C) participative budgeting. D) zero-based budgeting. 23) Which of the following is a benefit of participative budgeting? A) Employees tend to be more motivated to achieve the budget. B) A twelve-month planning horizon is maintained at all times. C) Budget planning is highly centralized. D) Communication is clearer because it flows in only one direction - upward. 24) What is the role of top management in a participative budgeting system? A) Top management has no role - the budget is entirely developed by the lower-level employees. B) Top management must always tighten employee-set budget standards to eliminate employees' attempts to build slack into the standards. C) Top management must ensure that employee-generated objectives are consistent with those of the company. D) All of the answers are correct.

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25) Which of the following items is not needed to prepare a sales budget by product line? A) Expected purchase price of each product. B) Expected unit sales of each product. C) Expected selling price of each product. D) All of the answers are correct. 26) Which of the following items would be least useful in preparing a schedule of cash receipts? A) Expected revenue from cash sales. B) Number of units expected to be purchased. C) Service charges for credit card sales. D) Past accounts receivable collection experience. 27) Markham Company has completed its sales budget for the first quarter of Year 2. Projected credit sales for the first four months of the year are shown below: January February March April

$ $ $ $

30,000 36,000 45,000 48,000

The company's past records show collection of credit sales as follows: 40% in the month of sale and the balance in the following month. The total cash collection from receivables in March is expected to be: A) $18,000. B) $45,000. C) $41,400. D) $39,600. 28) Compton Company expects the following total sales: Month March April May June

Sales $ 30,000 $ 20,000 $ 30,000 $ 25,000

The company expects 60% of its sales to be credit sales and 40% for cash. Credit sales are collected as follows: 30% in the month of sale, 70% in the month following the sale. The budgeted accounts receivable balance on May 31 is: A) $12,240. B) $12,600. C) $20,400. D) $21,000.

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29) Benton Company's sales budget shows the following expected total sales: Month January February March April

Sales $ 25,000 $ 30,000 $ 35,000 $ 40,000

The company expects 80% of its sales to be on account (credit sales). Credit sales are collected as follows: 25% in the month of sale, 72% in the month following the sale with the remainder being uncollectible and written off. The total cash receipts during April would be: A) $16,000. B) $28,160. C) $24,640. D) $36,160. 30) Oakton Furniture provided the following information relevant to its sales for December Year 1 and the first quarter of Year 2

Credit sales Cash Sales

Dec. Year 1

Jan. Year 2

Feb. Year 2

Mar. Year 2

(Actual) $ 120,000 $ 20,000

(Budgeted) $ 280,000 $ 50,000

(Budgeted) $ 310,000 $ 60,000

(Budgeted) $ 220,000 $ 24,000

Based on the company's collection history, 42% of credit sales are collected in month of sale and the remainder is collected in the following month. Cash collections in January from December credit sales would be: A) $69,600. B) $81,200. C) $72,000. D) $84,000.

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31) Oakton Furniture provided the following information relevant to its sales for December Year 1 and the first quarter of Year 2:

Credit sales Cash Sales

Dec. Year 1

Jan. Year 2

Feb. Year 2

Mar. Year 2

(Actual) $ 120,000 $ 20,000

(Budgeted) $ 280,000 $ 50,000

(Budgeted) $ 310,000 $ 60,000

(Budgeted) $ 220,000 $ 24,000

Based on the company's collection history, 42% of credit sales are collected in month of sale and the remainder is collected in the following month. Total budgeted cash receipts in February are expected to be: A) $60,000. B) $162,400. C) $352,600. D) $228,000. 32) Hernandez Company expects credit sales for January to be $100,000. Cash sales are expected to be $60,000. The company expects credit and cash sales to increase 10% for the month of February. Credit sales are collected in the month following the month in which sales are made. Based on this information the amount of cash collections in February would be: A) $166,000. B) $160,000. C) $170,000. D) $176,000. 33) Which of the following items is not needed to prepare an inventory purchases budget for a merchandising business? A) Expected unit selling price B) Beginning inventory C) Expected unit sales D) Desired ending inventory 34) Chu Company provided the following information related to its inventory sales and purchases for December Year 1 and the first quarter of Year 2:

Cost of goods sold

Dec. Year 1

Jan. Year 2

Feb. Year 2

Mar. Year 2

(Actual) $ 80,000

(Budgeted) $ 140,000

(Budgeted) $ 180,000

(Budgeted) $ 120,000

Desired ending inventory levels are 25% of the following month's projected cost of goods sold. Budgeted purchases of inventory in February Year 2 would be: A) $135,000. B) $165,000. 7 Copyright ©2018 McGraw-Hill

C) $180,000. D) $225,000. 35) Payne Company provided the following information relevant to its inventory sales and purchases for December Year 1 and the first quarter of Year 2:

Cost of goods sold

Dec. Year 1

Jan. Year 2

Feb. Year 2

Mar. Year 2

(Actual) $ 80,000

(Budgeted) $ 140,000

(Budgeted) $ 180,000

(Budgeted) $ 120,000

Desired ending inventory levels are 25% of the following month's projected cost of goods sold. The company purchases all inventory on account. January Year 2 budgeted purchases are $150,000. The normal schedule for inventory payments is 60% payment in month of purchase and 40% payment in month following purchase. Budgeted cash payments for inventory in February Year 2 would be: A) $132,600. B) $152,600. C) $99,000. D) $159,000. 36) Skymont Company wants an ending inventory each month equal to 30% of that month's cost of goods sold. Cost of goods sold for February is projected at $45,000. Ending inventory at the end of January was $12,000. Based on this information, purchases for February would be: A) $31,500. B) $46,500. C) $43,500. D) $33,000. 37) O'Hare Company is in the process of preparing a purchases budget for the first quarter of Year 2. The company has budgeted sales as follows: Dec. Year 1 Jan. Year 2 Feb. Year 2 Mar. Year 2

$ $ $ $

44,000 46,500 51,000 61,500

Cost of goods sold is expected to be 75% of sales. The company would like to have ending inventory each month equal to 25% of the following month's predicted cost of sales. The total cost of purchases in January Year 2 is: A) $35,719. B) $46,500. C) $44,438. D) $59,250. 8 Copyright ©2018 McGraw-Hill

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38) Sales for January are budgeted at 50,000 units, and the company expects sales to increase 4% each month. How many units will need to be purchased in February if the company's policy is to keep ending inventory each month at 10,000 units? A) 52,000 units B) 54,000 units C) 62,000 units D) None of the choices is correct. 39) Select the correct equation format for the purchases budget. A) Beginning inventory + expected sales = required purchases. B) Cost of budgeted sales + beginning inventory – desired ending inventory = required purchases. C) Beginning inventory + expected sales – desired ending inventory = required purchases. D) Cost of budgeted sales + desired ending inventory – beginning inventory = required purchases. 40) The following budget information is available for the Arch Company for January Year 2:

Sales Cost of goods sold Utilities expense Administrative salaries Sales commissions Advertising Depreciation on store equipment Rent on administration building Miscellaneous administrative expenses

$ 860,000 540,000 2,800 100,000 5% of Sales 20,000 50,000 60,000 10,000

All operating expenses are paid in cash in the month incurred. Compute total budgeted selling and administrative expenses (excluding interest) amount for January Year 2. A) $262,500 B) $283,000 C) $240,000 D) $285,800 41) Which of the following would appear on a selling and administrative expense budget, but would not appear on a schedule of cash payments for selling and administrative expenses? A) Cost of goods sold B) Depreciation expense C) Salary expense D) Sales expense

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42) Which of the following items typically found on the selling and administrative expense budget will also impact the cash budget? A) Depreciation expense B) Administrative salaries C) Advertising expense D) Both administrative salaries and advertising expense are correct. 43) Select the correct statement regarding the selling and administrative (S&A) expense budget. A) The S&A budget is prepared after the sales budget. B) The S&A budget is prepared before the cash budget. C) The S&A budget is prepared before the pro forma income statement. D) All of the answers are correct. 44) Which of the following budgets or schedules uses data contained in the selling and administrative expense budget? A) Cash receipts schedule B) Cash payments schedule C) Inventory purchases budget D) Sales budget 45) The following budget information is available for Crescent Company for January Year 2:

Sales Cost of goods sold Utilities expense Administrative salaries Sales commissions Advertising Depreciation on store equipment Rent on administration building Miscellaneous administrative expenses Percentage of sales on credit

$ 800,000 540,000 2,500 100,000 5% of Sales 20,000 50,000 60,000 10,000 80%

All operating expenses are paid in cash in the month incurred. The amount of expected cash outflow for selling and administrative expenses would be: A) $262,500. B) $247,500. C) $232,500. D) $312,500. 46) Budgeted depreciation expense would not appear on a: A) Selling and administrative expense budget. B) Budgeted income statement. C) Cash budget. D) All of the answers are correct. 11 Copyright ©2018 McGraw-Hill

47) Which of the following cash budget equations is incorrect? A) Cash payments + cash receipts = cash requirements B) Beginning cash + cash receipts = total cash available C) Cash payments + cash cushion = total cash needed D) Period one ending cash balance = period two beginning cash balance 48) Hilliard Company budgeted the following transactions for April Year 2:

Sales (75% collected in month of sale) Cash operating expenses Cash purchase of investment Cash payment of debt Depreciation on operating assets

$ 200,000 105,000 75,000 15,000 12,000

The beginning cash balance was $50,000. The company desires to have a $25,000 ending cash balance. The surplus (or shortage) of cash before considering any financing activities (that is, borrowings or repayments) during in April would be: A) $40,000 surplus. B) $40,000 shortage. C) $20,000 surplus. D) There is no cash surplus or shortage. 49) Bantam Industries has budgeted the following information for March: Cash receipts Beginning cash balance Cash payments Desired ending cash balance

$ 271,000 5,000 280,000 25,000

If there is a cash shortage, the company borrows money from the bank. All cash is borrowed at the beginning of the month in $1,000 increments and interest is paid monthly at 1% on the first day of the following month. The company had no debt before March 1st. How much cash will the company need to borrowed in March? A) $25,000 B) $29,000 C) The company should not need to borrow any cash in March D) $4,000

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50) Cheyenne Company has budgeted the following information for June: Cash receipts Beginning cash balance Cash payments Desired ending cash balance

$ 271,000 5,000 280,000 25,000

If there is a cash shortage, the company borrows money from the bank. All cash is borrowed at the beginning of the month in $1,000 increments and interest is paid monthly at 1% on the first day of the following month. The company had no debt before June 1st. The amount of interest paid on July 1 would be: A) $250. B) $400. C) $221. D) $290. 51) Which of the following items will not appear on a cash budget? A) Expected cash collections B) Expected cash payments C) Expected credit sales D) Financing activities 52) Dobson Company expects to begin operating on January 1. The company's master budget contained the following operating expense budget:

Salary expenses Sales commissions, 5% of sales Utilities Depreciation on store equipment Rent Miscellaneous Total operating expenses

January

February

March

$ 40,000 24,000 2,800 1,800 7,200 1,800 $ 77,600

$ 36,000 30,000 2,800 1,800 7,200 1,800 $ 79,600

$ 36,000 28,000 2,800 1,800 7,200 1,800 $ 77,60...