14.3 Operating Budget Calculations - Others

Question 1

Which one of the following statements regarding selling and administrative budgets is most accurate?

A. Selling and administrative budgets are usually optional.
B. Selling and administrative budgets are fixed in nature.
C. Selling and administrative budgets are difficult to allocate by month and are best presented as one number for the entire year
D. Selling and administrative budgets need to be detailed in order that the key assumptions can be better understood.

Answer 1

D. Selling and administrative budgets need to be detailed in order that the key assumptions can be better understood.

Question 2

Sales and administrative budgets are prepared after the

Answer 2

sales budget

Question 3

A company is developing its annual budget. The company’s products are made to order and shipped immediately. The controller has information on the following accounts:

Raw materials
Direct labor
Advertising
Research and development (R&D)
Trade discounts
Factory indirect labor
Factory overhead
Selling costs

Which of the above accounts should not be included in the cost of goods sold budget?

A. Advertising, R&D, and selling costs, only.
B. Advertising and selling costs, only.
C. Advertising, R&D, trade discounts, and selling costs, only.
D. R&D and trade discounts, only.

Answer 3

C. Advertising, R&D, trade discounts, and selling costs, only.

The cost of goods sold budget shows all of the manufacturing costs of producing the company’s product, including raw materials, direct labor, and factory overhead (including factory indirect labor). These are all costs incurred in the factory during the production process. Cost of goods sold does not include advertising, research and development costs, trade discounts, or other types of selling costs.

Question 4

A company that manufactures furniture is establishing its budget for the upcoming year. All of the following items would appear in the overhead budget except for the

A. Fringe benefits paid to the production supervisor
B. Cost of glue used to secure the attachment of the legs to the tables
C. Overtime paid to the workers who perform production scheduling
D. Freight charges paid for the delivery of raw materials to the company

Answer 4

D. Freight charges paid for the delivery of raw materials to the company

Included in the cost of direct materials

Question 5

A manufacturer of men’s t-shirts had the following information for last year.

Number of shirts sold and produced: 125,000
Sale price per shirt: $40
Direct manufacturing: $10/shirt
Setup cost: $100/setup hour
Setup hours: 10,000
Shipping costs: $200/shipment
Number of shipments: 4,000
Administrative cost: $8/shirt

The company’s operating profit last year was
A. $1,950,000
B. $3,750,000
C. $950,000
D. $2,750,000

Answer 5

C. $950,000

Total income is $5,000,000. Total expenses are $4,050,000 [($10 × 125,000) + ($100 × 10,000) + ($200 × 4,000) + ($8 × 125,000)].