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MULTIPLE CHOICE QUESTIONS 63.

If there were 70,000 pounds of raw materials on hand on January 1, 140,000 pounds are desired for inventory at January 31, and 420,000 pounds are required for January production, how many pounds of raw materials should be purchased in January? a. 350,000 pounds b. 560,000 pounds c. 280,000 pounds d. 490,000 pounds

72.

The following information is taken from the production budget for the first quarter: Beginning inventory in units Sales budgeted for the quarter Capacity in units of production facility

900 342,000 354,000

How many finished goods units should be produced during the quarter if the company desires 2,400 units available to start the next quarter? a. 343,500 b. 340,500 c. 355,500 d. 344,400 76.

The production budget shows expected unit sales of 32,000. Beginning finished goods units are 5,600. Required production units are 33,600. What are the desired ending finished goods units? a. 4,000 b. 5,600 c. 6,400 d. 7,200

77.

The production budget shows expected unit sales are 50,000. The required production units are 52,000. What are the beginning and desired ending finished goods units, respectively? a. b. c. d.

Beginning Units 5,000 3,000 2,000 5,000

Ending Units 3,000 5,000 5,000 2,000

78.

The production budget shows that expected unit sales are 40,000. The total required units are 45,000. What are the required production units? a. 5,000 b. 7,500 c. 10,000 d. Cannot be determined from the data provided.

79.

The direct materials budget shows: Units to be produced Total pounds needed for production Total materials required

3,000 12,000 13,200

What are the direct materials per unit? a. .44 pounds b. 4.0 pounds c. 4.4 pounds d. Cannot be determined from the data provided.

Budgetary Planning

23 - 2 80.

The direct materials budget shows: Desired ending direct materials Total materials required Direct materials purchases

36,000 pounds 54,000 pounds 47,400 pounds

The total direct materials needed for production is a. 18,000 pounds. b. 6,600 pounds. c. 11,400 pounds. d. 101,400 pounds. 81.

If the required direct materials purchases are 18,000 pounds, the direct materials required for production is three times the direct materials purchases, and the beginning direct materials are three and a half times the direct materials purchases, what are the desired ending direct materials in pounds? a. 45,000 b. 9,000 c. 27,000 d. 18,000

82.

Razmataz Company makes and sells umbrellas. The company is in the process of preparing its Selling and Administrative Expense Budget for the last half of the year. The following budget data are available: Variable Cost Per Unit Sold Monthly Fixed Cost Sales commissions $0.60 $ 3,000 Shipping 1.20 Advertising 0.30 Executive salaries 20,000 Depreciation on office equipment 4,000 Other 0.35 14,000 Expenses are paid in the month incurred. If the company has budgeted to sell 4,000 umbrellas in October, how much is the total budgeted variable selling and administrative expenses for October? a. $8,400 b. $9,200 c. $50,800 d. $9,800

88.

A company budgeted unit sales of 102,000 units for January, 2008 and 120,000 units for February, 2008. The company has a policy of having an inventory of units on hand at the end of each month equal to 30% of next month's budgeted unit sales. If there were 30,600 units of inventory on hand on December 31, 2007, how many units should be produced in January, 2008 in order for the company to meet its goals? a. 107,400 units b. 102,000 units c. 96,600 units d. 138,000 units

89.

At January 1, 2008, Ceatric, Inc. has beginning inventory of 2,000 surfboards. Ceatric estimates it will sell 5,000 units during the first quarter of 2008 with a 12% increase in sales each quarter. Ceatric’s policy is to maintain an ending inventory equal to 25% of the next quarter’s sales. Each surfboard costs $100 and is sold for $150. How much is budgeted sales revenue for the third quarter of 2008? a. $225,000 b. $975,000 c. $940,800

Budgetary Planning

23 - 3 d. $6,272 90.

Sargent.Com plans to sell 2,000 purple lawn chairs during May, 1,900 in June, and 2,000 during July. The company keeps 15% of the next month’s sales as ending inventory. How many units should Sargent.Com produce during June? a. 1,915 b. 2,200 c. 1,885 d. Not enough information to determine.

91.

Secret Prizes, Inc. is planning to sell 200 buckets and produce 190 buckets during March. Each bucket requires 500 grams of plastic and one-half hour of direct labor. Plastic costs $10 per 500 grams and employees of the company are paid $15.00 per hour. Manufacturing overhead is applied at a rate of 110% of direct labor costs. Secret Prizes has 300 kilos of plastic in beginning inventory and wants to have 200 kilos in ending inventory. How much is the total amount of budgeted direct labor for March? a. $1,500 b. $3,000 c. $1,425 d. $2,850

Use the following information for questions 92–94. Sudler Production is planning to sell 600 boxes of ceramic tile, with production estimated at 580 boxes during May. Each box of tile requires 44 pounds of clay mix and a quarter hour of direct labor. Clay mix costs $0.50 per pound and employees of the company are paid $15.00 per hour. Manufacturing overhead is applied at a rate of 110% of direct labor costs. Sudler has 2,600 pounds of clay mix in beginning inventory and wants to have 3,000 pounds in ending inventory. 92. What is the total amount to be budgeted for manufacturing overhead for the month? a. $2,392.50 b. $2,475 c. $9,570 d. $9,900 93.

What is the total amount to be budgeted for direct labor for the month? a. $2,175 b. $8,700 c. $2,250 d. $34,800

94.

What is the total amount to be budgeted in pounds for direct materials to be purchased for the month? a. 25,520 b. 25,120 c. 25,920 d. 26,800

95.

Green Plants plans to sell 160 potted plants during April and 120 units in May. Green Plants keeps 15% of the next month’s sales as ending inventory. How many units should Green Plants produce during April? a. 154 b. 166 c. 160 d. 178

Budgetary Planning

23 - 4 96.

Swingers Company makes and sells widgets. The company is in the process of preparing its Selling and Administrative Expense Budget for the month. The following budget data are available: Item Variable Cost Per Unit Sold Sales commissions $1 Shipping $3 Advertising $4 Executive salaries Depreciation on office equipment Other $2

Monthly Fixed Cost $5,000 $60,000 $2,000 $3,000

Expenses are paid in the month incurred. If the company has budgeted to sell 40,000 widgets in October, how much is the total budgeted selling and administrative expenses for October? a. $470,000 b. $70,000 c. $465,000 d. $400,000 97.Tripod Exports, Inc. budgets on an annual basis for its fiscal year. The following beginning and ending inventory levels are planned for the fiscal year of July 1, 2008 to June 30, 2009: Raw Materials

June 30, 2009 3,000 kilos

June 30, 2008 2,000 kilos

Three kilos of raw materials are needed to produce each unit of finished product. If Tripod Exports plans to produce 280,000 units during the 2008-2009 fiscal year, how many kilos of materials will the company need to purchase for its production during the year? a. 841,000 b. 843,000 c. 840,000 d. 839,000 98.

The following information is taken from the production budget for the first quarter: Beginning inventory in units Sales budgeted for the quarter Production capacity in units

600 228,000 236,000

How many finished goods units should be produced during the quarter if the company desires 1,600 units available to start the next quarter? a. 229,000 b. 227,000 c. 237,000 d. 229,600 99.

A company determined that the budgeted cost of producing a product is $30 per unit. On June 1, there were 40,000 units on hand, the sales department budgeted sales of 150,000 units in June, and the company desires to have 60,000 units on hand on June 30. The budgeted cost of goods manufactured for June would be a. $3,900,000. b. $5,700,000. c. $4,500,000. d. $5,100,000.

Answers to Multiple Choice Questions Item

Budgetary Planning

23 - 5 Ans. Item Ans. Item Ans. Item Ans. Item Ans. Item Ans. Item Ans.

37. b 53. d 69. a 85. c 101. a 117. c 133. b 38. b 54. b 70. b 86. b 102. c 118. a 134. a 39. b 55. d 71. d 87. b 103.

Budgetary Planning

23 - 6 c

119. d 135. c 40. c 56. c 72. a 88. a 104. c 120. b 136. b 41. a 57. d 73. d 89. c 105. b 121. c 137. a 42. d 58. d 74. d 90. a 106. c 122. b 138. a 43. d 59. b 75. c

Budgetary Planning

23 - 7

91. c 107. c 123. c 139. d 44. b 60. c 76. d 92. a 108. c 124. c 140. c 45. c 61. d 77. b 93. a 109. c 125. b 141. c 46. c 62. a 78. d 94. c 110. a 126. a 142. c 47. d 63.

Budgetary Planning

23 - 8 d

79. b 95. a 111. b 127. a 143. a 48. d 64. b 80. a 96. a 112. c 128. c 144. c 49. b 65. d 81. c 97. a 113. c 129. c 145. a 50. a 66. c 82. d 98. a 114. c 130. d 146. a

Budgetary Planning

23 - 9

51. d 67. d 83. d 99. d 115. a 131. b 147. a 52. d 68. c 84. a 100. b 116. c 132. b 148. b

BRIEF EXERCISES BE 149 Key Co. manufactures beanies. The budgeted units to be produced and sold are below: August September

Expected Production 3,100 2,800

Expected Sales 2,900 3,900

It takes 24 yards of yarn to produce a beanie. The company's policy is to maintain yarn at the end of each month equal to 5% of next month's production needs and to maintain a finished goods inventory at the end of each month equal to 20% of next month's anticipated production needs. The cost of yarn is $0.20 a yard. At August 1, 3,720 yards of yarn were on hand. Instructions Compute the budgeted cost of purchases.

Solution 149

(5 min.)

Units to be produced Yards needed per unit Yards needed for production

3,100 24 74,400

23 - 10 Add: Desired materials ending inventory (yards) (5% × 2,800 × 24) Less: Beginning inventory on hand (yards) (5% × 3,100 × 24) Yards needed to purchase Cost per yard Budgeted cost of purchases

Budgetary Planning 3,360 (3,720) 74,040 $0.20 $14,808

Budgetary Planning

23 - 11 BE 150

The budget components for McLeod Company for the quarter ended June 30 appear below. McLeod sells trash cans for $12 each. Budgeted production for the next four months is: April May June

26,000 units 46,000 units 29,000 units

McLeod desires to have trash cans on hand at the end of each month equal to 20 percent of the following month’s budgeted sales in units. On March 31, McLeod had 4,000 completed units on hand. The number of trash cans to be produced in April and May are 26,000 and 46,000, respectively. Seven pounds of plastic are required for each trash can. At the end of each month, McLeod desires to have 10 percent of the following month’s production material needs on hand. At March 31, McLeod had 18,200 pounds of plastic on hand. The materials used in production costs $0.60 per pound. Each trash can produced requires 0.10 hours of direct labor. Instructions Compute the cost of the plastic inventory at the end of May.

Solution 150

(4 min.)

Cost of ending inventory = (10% × 29,000) × 7 × $0.60 per pound = $12,180

BE 151 Seas, Inc. makes and sells buckets. Each bucket uses 3/4 pound of plastic. Budgeted production of buckets in units for the next three months is as follows: Budgeted production

April 21,000

May 20,000

June 24,000

The company wants to maintain monthly ending inventories of plastic equal to 25% of the following month's budgeted production needs. The cost of plastic is $2.12 per pound. Instructions Prepare a direct materials purchases budget for the month of May.

Solution 151

(5 min.)

Buckets to be produced during May Pounds of plastic needed for each bucket Total pounds of plastic needed for production Add ending inventory, pounds of plastic desired (25% × 24,000 × 3/4) Less beginning inventory, pounds of plastic (25% × 20,000 × 3/4) Pounds of plastic needed to purchase Cost per pound Estimated cost of purchases for May

20,000 3/4 15,000 4,500 (3,750) 15,750 $2.12 $33,390

Budgetary Planning

23 - 12 BE 152

The budget components for McLeod Company for the quarter ended June 30 appear below. McLeod sells trash cans for $12 each. Budgeted sales and production for the next three months are: Sales Production April 20,000 units 26,000 units May 50,000 units 46,000 units June 30,000 units 29,000 units McLeod desires to have trash cans on hand at the end of each month equal to 20 percent of the following month’s budgeted sales in units. On March 31, McLeod had 4,000 completed units on hand. The number of trash cans to be produced in April and May are 26,000 and 46,000, respectively. Seven pounds of plastic are required for each trash can. At the end of each month, McLeod desires to have 10 percent of the following month’s production material needs on hand. At March 31, McLeod had 18,200 pounds of plastic on hand. The materials used in production cost $0.60 per pound. Each trash can produced requires 0.10 hours of direct labor. Instructions Determine how much the materials purchases budget will be for the month ending April 30.

Solution 152

(5 min.)

Production of trash cans expected during April (given) Pounds of plastic per trash can Total pounds of plastic needed for sales production Add ending plastic inventory desired (10% × 46,000 × 7) Total pounds of plastic needed Less beginning inventory of plastic on hand (given) Pounds of plastic to be purchased Cost per pound of plastic Cost of direct materials purchases

26,000 7 182,000 32,200 214,200 (18,200) 196,000 $0.60 $117,600

BE 153 Salem Company reported the following information for 2008: Budgeted sales Budgeted purchases  

October $300,000 $120,000

November $320,000 $128,000

December $360,000 $144,000

All sales are on credit. Customer amounts on account are collected 60% in the month of sale and 40% in the following month.

Instructions Compute the amount of cash Salem will receive during November.

Budgetary Planning

23 - 13 Solution 153

(3 min.)

From November sales: $320,000 × 60% = $192,000 From October sales: $300,000 × 40% = $120,000 Total = $192,000 + $120,000 = $312,000

BE 154 Johnson Company budgeted the following information for 2008: Budgeted purchases    

May $104,000

June $110,000

July $102,000

Cost of goods sold is 40% of sales. Accounts payable is used only for inventory acquisitions. Johnson purchases and pays for merchandise 60% in the month of acquisition and 40% in the following month. Selling and administrative expenses are budgeted at $40,000 for May and are expected to increase 5% per month. They are paid during the month of acquisition. In addition, budgeted depreciation is $10,000 per month. Income taxes are $38,400 for July and are paid in the month incurred.

Instructions Compute the amount of budgeted cash disbursements for July.

Solution 154

(5 min.)

Cash disbursements: Cash paid for July purchases (60% × $102,000) Cash paid for June purchases (40% * $110,000) Cash paid for July selling and admin ($40,000 × 1.05 × 1.05) Cash paid for income taxes Total cash disbursements

$ 61,200 44,000 44,100 38,400 $187,700

BE 155 Cheney Company has budgeted direct materials purchases of $400,000 in March and $600,000 in April. Past experience indicates that the company pays for 65% of its purchases in the month of purchase and the remaining 35% in the next month. Other costs are all paid during the month incurred. During April, the following items were budgeted: Wages expense Purchase of office equipment Selling and administrative expenses Depreciation expense

$120,000 200,000 126,000 18,000

Instructions Compute the amount of budgeted cash disbursements for April.

Solution 155

(4 min.)

Payment of March purchases ($400,000 × 35%)

$140,000

Budgetary Planning

23 - 14 Payment of April purchases ($600,000 × 65%) Wages expense Purchase of office equipment Selling and administrative expenses Total budgeted cash disbursements

390,000 120,000 200,000 126,000 $976,000

BE 156 Robinson Inc. provided the following information: Projected merchandise purchases   

April $92,000

May $78,000

June $66,000

Robinson pays 40% of merchandise purchases in the month purchased and 60% in the following month. General operating expenses are budgeted to be $31,000 per month of which depreciation is $3,000 of this amount. Robinson pays operating expenses in the month incurred. Robinson makes loan payments of $4,000 per month of which $450 is interest and the remainder is principal.

Instructions Calculate budgeted cash disbursements for May.

Solution 156

(5 min.)

Budgeted cash disbursements for purchases: Cash paid for May purchases ($78,000 × 40%) Cash paid for April purchases ($92,000 × 60%) Budgeted cash paid for purchases Budgeted cash payments for operating expenses ($31,000 – $3,000) Budgeted cash payments for loan ($4,000 – $450) Budgeted cash payments for interest Total budgeted cash disbursements for May

$ 31,200 55,200 86,400 28,000 3,550 450 $118,400

BE 157 Sanders, Inc. provided the following information: Projected merchandise purchases  

March $76,000

April $65,000

May $70,000

Sanders pays 40% of merchandise purchases in the month purchased and 60% in the following month. General operating expenses are budgeted to be $20,000 per month of which depreciation is $2,000 of this amount. Sanders pays operating expenses in the month incurred.

Instructions Calculate Sanders’ budgeted cash disbursements for May. Solution 157 (4 min.) Cash paid for merchandise purchases: May purchases: $70,000 × 40% = April purchases: $65,000 × 60% = Cash paid for operating expenses ($20,000 − $2,000)

$28,000 39,000 18,000

Budgetary Planning

23 - 15 Budgeted cash disbursements for May

$85,000

BE 158 The beginning cash balance is $15,000. Sales are forecasted at $600,000 of which 80% will be on credit. 70% of credit sales are expected to be collected in the year of sale. Cash expenditures for the year are forecasted at $375,000. Accounts Receivable from previous accounting periods totaling $9,000 will be collected in the current year. The company is required to make a $15,000 loan payment and an annual interest payment on the last day of every year. The loan balance as of the beginning of the year is $90,000, and the annual interest rate is 10%. Instructions Compute the excess of cash receipts over cash disbursements.

Solution 158

(5 min.)

Cash collections: Accounts receivable collected Cash sales: 20% × $600,000 Credit sales: (80% × $600,000) × 70% Cash expenditures Loan payment Interest payment (10% × $90,000) Net increase in cash

$

9,000 120,000 336,000 (375,000) (15,000) (9,000) $ 66,000

Budgetary...