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Exam 22: Master Budgets and Planning

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Question 1

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Ratchet Manufacturing anticipates total sales for August, September, and October of $200,000, $210,000, and $220,500 respectively. Cash sales are normally 25% of total sales and the remaining sales are on credit. All credit sales are collected in the first month after the sale. - Compute the amount of accounts receivable to be reported on the company's budgeted balance sheet for August.

A) $52,500.
B) $50,000.
C) $200,000.
D) $157,500.
E) $150,000.

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

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Question 2

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Cahuilla Corporation predicts the following sales in units for the coming four months: Sales in Units $\begin{array} { c c c c } \text { April } & \text { May } & \text { June } & \text { July } \\240 & 280 & 300 & 240\end{array}$ Each month's ending Finished Goods Inventory should be 40% of the next month's sales. March 31 finished goods inventory is 96 units. A finished unit requires five pounds of direct material B at a cost of $2.00 per pound. The March 31 Raw Materials Inventory has 200 pounds of B. Each month's ending Raw Materials Inventory should be 30% of the following month's production needs. - The budgeted cost of direct material B during May should be:

A) $552.
B) $2,844.
C) $2,016.
D) $3,708.
E) $576.

F) A) and E)
G) C) and D)

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Question 3

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The usual budget period for most companies is:

Addams, Inc., is preparing its master budget for the second quarter. The following sales and production data have been forecasted: $\begin{array} { l | l | l | l | l | l } & \text { April } & \text { May } & \text { June } & \underline { \text { July } } & \text { August } \\\hline \text { Unit sales } \ldots \ldots & 400 & 500 & 520 & 480 & 540\end{array}$ Finished goods inventory on March 31: 120 units Raw materials inventory on March 31: 450 pounds Desired ending inventory each month: Finished goods: 30% of next month's sales Raw materials: 25% of next month's production needs Number of pounds of raw material required per finished unit: 4 lbs. How many pounds of raw materials should be purchased in April?

Zhang Industries budgets production of 300 units in June and 310 units in July. Each finished unit requires 4 pounds of raw material K, which costs $5 per pound. Each month's ending inventory of raw materials should be 30% of the following month's budgeted production. The June 1 raw materials inventory has 360 pounds of raw material K. Compute budgeted cost of purchases for raw material K for June.

A managerial accounting report that presents predicted amounts of the company's assets, liabilities, and equity as of the end of the budget period is called a(n) :

A budget system based on expected activities and their levels that enables management to plan for resources required to perform the activities is:

Flagstaff Company has budgeted production units of 7,900 for July and 8,100 for August. The direct materials requirement per unit is 2 ounces (oz.) . The company has determined that it wants to have safety stock of direct materials on hand at the end of each month to complete 20% of the units budgeted in the following month. There was 3,160 ounces of direct material in inventory at the start of July. -The total cost of direct materials purchases for the July direct materials budget, assuming the materials cost $1.15 per ounce, is:

Charm Enterprises' production budget shows the following units to be produced for the coming three months: $\begin{array} { | l | r | r | r | } \hline & \text { April } & \text { May } & \text { June } \\\hline \text { Units to be produced } & 2,560 & 2,880 & 2,760 \\\hline\end{array}$ A finished unit requires four ounces of a key direct material. The March 31 Raw Materials Inventory has 4,032 ounces (oz.) of the material. Each month's ending Raw Materials Inventory should be 35% of the following month's production needs. The materials to be purchased during May should be:

Memphis Company anticipates total sales for April, May, and June of $800,000, $900,000, and $950,000 respectively. Cash sales are normally 25% of total sales. Of the credit sales, 30% are collected in the same month as the sale, 65% are collected during the first month after the sale, and the remaining 5% are not collected. - Compute the amount of cash received from total sales during the month of June.

Memphis Company anticipates total sales for April, May, and June of $800,000, $900,000, and $950,000 respectively. Cash sales are normally 25% of total sales. Of the credit sales, 30% are collected in the same month as the sale, 65% are collected during the first month after the sale, and the remaining 5% are not collected. - Compute the amount of cash received from credit sales during the month of June.

A plan that lists the types and amounts of selling expenses expected during the budget period is called a(n) :

Use the following information to prepare a budgeted balance sheet for Grover Company for the month of June. a. The budgeted net income for the month of June is $236,000. b. The beginning cash balance is $62,000; total budgeted cash receipts are $1,660,000; total budgeted cash disbursements are $1,580,000. c. Budgeted sales for June are $1,700,000. Collections are 40% in the month of sale and 60% in the month following. d. The projected inventory balance is 10% of the following month's sales. Sales for July are projected to be $1,750,000. e. Budgeted purchases for June are $900,000 to be paid 80% in the month of purchase and 20% in the month following. f. The equipment account balance is $1,400,000 on May 31. No equipment purchases or disposals were made during June. On May 31, the accumulated depreciation is $276,000. Depreciation expense for June is estimated to be $24,000. g. There is an outstanding loan balance of $800,000. h. Accrued income taxes payable for June 30 are $71,000; and salaries payable are $50,000. i. The only other balance sheet accounts are: Common Stock, with a balance of $800,000 on May 31, and Retained Earnings with a balance of $300,000 on May 31. No additional common stock was issued and no dividends were paid during June.

Bioclean Co., a merchandiser, sells a biodegradable cleaning product and has predicted the following sales for the first four months of the current year: Sales in Units $\begin{array} { c c c c } \text { Jan. } & \text { Feb. } & \text { March } & \text { April } \\1,800 & 2,000 & 2,100 & 1,600\end{array}$ 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?

Justin Company's budget includes the following credit sales for the current year: September, $25,000; October, $36,000; November, $30,000; December, $32,000. Experience has shown that payment for the credit sales is received as follows: 15% in the month of sale, 60% in the first month after sale, 20% in the second month after sale, and 5% is uncollectible. How much cash can Justin Company expect to collect in November as a result of current and past credit sales?

The capital expenditures budget summarizes the effects of investing activities on cash.

In preparing a budget for the last three months of the current year, Country Cozy Company is planning the units of merchandise it must order each month. The company's policy is to have 15% of the next month's sales in its inventory at the end of each month. Projected sales for October, November, and December are 27,000 units, 29,500 units, and 31,000 units, respectively. How many units must be ordered in November?

Cahuilla Corporation predicts the following sales in units for the coming four months: Sales in Units $\begin{array} { c c c c } \text { April } & \text { May } & \text { June } & \text { July } \\240 & 280 & 300 & 240\end{array}$ Each month's ending Finished Goods Inventory should be 40% of the next month's sales. March 31 finished goods inventory is 96 units. A finished unit requires five pounds of direct material B at a cost of $2.00 per pound. The March 31 Raw Materials Inventory has 200 pounds of B. Each month's ending Raw Materials Inventory should be 30% of the following month's production needs. - The budgeted purchases of pounds of direct material B during May should be:

Activity-based budgeting is a budget system based on expected activities and their levels for the budget period, which helps management plan for the resources required.

Ratchet Manufacturing's August sales budget calls for sales of 8,000 units. Each month's sales are expected to exceed the prior month's results by 5%. The product selling price is $25 per unit. The expected total sales dollars for September's sales budget are: