Ch 7 Flashcards
The process of planning future business actions and expressing them as formal plans is called
.
budgeting
Characteristics of budgets include: (Check all that apply.)
expressed in dollars.
formal statement of a company’s plans.
typically cover a month, quarter or one year.
Identify the benefits of budgeting. Select all answers that apply.
Motivates employees.
Assists in the control function.
Focuses on future opportunities.
The …… function requires that management evaluate operations against some norm.
control
Budgeting guidelines that help insure budgeting is a positive motivating force include: (Check all that apply.)
attainable goals.
the opportunity to explain differences between actual and budgeted amounts.
participatory budgeting.
Budgeting is the process of planning future business activities and expressing them as:
strategic plans
A(n) …….. is a formal statement of a company’s plans in dollars.
budget
All of the following are potential negative outcomes of budgeting except:
overstatement of sales and understatement of expenses
Budgeting is used by management to ensure that activities of all departments work toward the company’s overall goals. This aspect of budgeting is called:
coordinate
Budgeted performance considers all of the following in relation to a benchmark: (Select all that apply).
Industry factors
Economic factors
Company factors
The primary purpose of using short-term budgets is to:
evaluate performance and take necessary corrective action
All of the following are guidelines that should be followed for budgets to be a positive motivating force except:
budgets should be prepared using a top-down approach
A …… budget is continually revised as time passes.
continuous
List the individual budgets of the master budget in the order in which they are prepared, with the first on top:
DM, DL, FOH Budgets
Cash budget
Production budget
Sales budget
Sales
Production
DM DL FOH
Cash
Potential negative outcomes of budgeting include: (Check all that apply.)
budgetary slack.
unnecessary spending.
unethical behavior.
All of the following are operating budgets except:
merchandising budget
Identify the benefits of budgeting. Select all answers that apply.
Assists in the control function.
Motivates employees.
Focuses on future opportunities.
Most companies prepare a(n) ______ budget that is separated into ______ budgets.
annual; quarterly or monthly
True or false: A production budget is unique in that it does not show costs; it is always expressed in units of product.
True
The budgeting process that involves adding a quarter (or month) to replace the quarter (or month) just elapsed is called:
continuous budgeting
A quantity of inventory that provides protection against lost sales caused by unfulfilled demands from customers or delays in shipments is called ….. stock.
safety
A manufacturing company would typically prepare all of the following budgets except:
Merchandise inventory budget
A manufacturer desires ending finished goods inventory of 5,000 units. Their budgeted unit sales are 20,000 units and beginning finished goods inventory is 3,000 units. The units to be produced is
22,000
(20,000+5,000)−3,000
A manufacturer’s operating budgets consists of the: (Check all that apply.)
selling expense budget
production budgets
sales budget
The first step in preparing the master budget is planning the ……
budget.
Sales
A manufacturer will prepare a ……..
budget which shows the number of units to be produced during a period.
production
A company expects to sell 500 units during the second quarter and 550 units in the third quarter. Currently, during the second quarter, they have 46 units in beginning inventory. If they desire ending inventory of 10% of the next quarter’s sales, ……
units will need to be produced in the second quarter.
509
(500+(550×10%))−46
A quantity of inventory that provides protection against lost sales caused by unfulfilled demands from customers is called
safety stock
The two steps to complete the production budget include: (Check all that apply.)
compute total required units
compute units to produce
A manufacturing company expects to sell 12,000 units in August and 15,000 units in September. The company desires to have an ending finished goods inventory of 80% of the next month’s sales. If beginning finished goods inventory on August 1 is 8,000 units, then the company should produce … units in August.
16000
(12,000+(15,000×80%))
−8,000
The formula to determine the materials to be purchased is
(units to produce times materials required for each unit) plus desired ending materials inventory minus beginning materials inventory
All of the following are operating budgets except:
merchandising budget
The formula to compute the budgeted direct labor cost is
units to produce times direct labor required per unit times direct labor cost per hour
A company expects to sell 400 units of Product X in January and expects sales to increase by 10% per month. If Product X sells for $10 each, thetotal salesfor thefirst quarterof the year will be $…..
13240
(400×10)+(440×10)+(484×10)
4,000+4,400+4,840
A manufacturing company has budgeted direct labor hours of 600 at a variable overhead rate per direct labor hour of $20. The budgeted fixed cost is $500 per month. The total budgeted overhead cost for the month will be $…_.
12500
(600×20)+500
A company’s sales budget indicates the following sales: January: 25,000; February: 30,000; March: 35,000. Beginning inventory is 12,000 units and the company desires ending inventory of 45% of the next month’s sales. Units to be produced in January will be …
26500
(25,000+(30,000×45%))
−12,000
After determining the budgeted ending inventory units, the next step in the production budget is to:
add budgeted sales
If direct materials per unit are $20, direct labor per unit is $10, variable overhead per unit is $2, and fixed overhead per unit is $1, total product cost per unit is $…
.
33
20+10+2+1
A manufacturing company has budgeted production of 5,000 units for May and 4,400 units in June. Each unit requires 3 pounds of materials at a cost of $10 per pound. On May 1, there are 2,750 pounds of materials on hand. The company desires an ending materials inventory of 60% of the next month’s materials requirements. The total cost of direct materials purchases for May will be $
.
201700
HOW
A manufacturing company has units to produce of 940 units for the month. Each unit requires 3.5 hours of labor to produce. The cost of direct labor is $15 per hour. The total cost of direct labor for the month will be $…..
49350
940×3.5×15
A budget which estimates the types of selling expenses expected during the budget period is called a
selling expense budget
A manufacturing company has budgeted direct labor hours of 940 at a budgeted direct labor hour rate of $15. The budgeted fixed cost is $950 per month. The total budgeted overhead cost for this month will be $
_.
15050
(940×15)+950
A merchandising company’s budget includes the following data for January: Sales: $400,000; COGS: $270,000; Administrative salaries: $1,250; Sales commissions: 5% of sales; Advertising: $10,000; Salary for sales manager: $30,000; Miscellaneous administrative expenses: $5,000. The total selling expenses on the January selling expense budget will be $…
.
$25800
((25,000×10%)+5,000
+600)+((30,000×10%)
+5,000+600)+((35,000
×10%)+5,000+600)
A company expects to sell 500 units during the second quarter and 550 units in the third quarter. Currently, during the second quarter, they have 46 units in beginning inventory. If they desire ending inventory of 10% of the next quarter’s sales, ….. units will need to be produced in the second quarter.
509
(500+(550×10%))−46
Direct materials are $15 per unit; direct labor is $7 per unit and variable overhead costs are $2 per unit. If total product costs are $27, what are fixed costs per unit?
$3
27−2−7−15
LA Company has a beginning cash balance of $6,000, cash receipts of $12,000, cash payments of $7,200 and an outstanding loan balance of $1,500. Their preliminary cash balance is $……
$10800
(6,000+12,000)−7,200
The formula to determine the materials to be purchased is
(units to produce times materials required for each unit) plus desired ending materials inventory minus beginning materials inventory
A budget that includes the office manager’s salary and other administrative expenses is called the:
general and administrative budget
Sales commissions are 10% of budgeted sales and the sales manager’s salary is $1,000 per month. If budgeted sales are $50,000 for January, the total selling expenses budget for January is $
.
$6000
(50,000×10%)+1,000
True or false: Depreciation on non-manufacturing assets and property taxes are considered general and administrative expenses and, therefore, are included on the general and administrative expense budget.
True
A merchandising company’s budget includes the following data for January: Sales: $400,000; COGS: $270,000; Administrative salaries: $1,250; Sales commissions: 5% of sales; Advertising: $10,000; Salary for sales manager: $30,000; Miscellaneous administrative expenses: $5,000. The total selling expenses on the January selling expense budget will be $
60000
(400,000×5%)+10,000
+30,000
The reporting of expected cash receipts and cash payments related to the sale and purchase of plant assets is reported on the …. .
expenditures budget.
capital
HN Company had a beginning cash balance of $50,000; cash payments of $15,000 and a loan balance with the bank of $7,000. If HN has an agreement with the bank that they will maintain a minimum cash balance of $30,000, their ending cash balance is $
- HOW
The general and administrative budget includes all of the following except:
sales commissions
ABC Company prepared a cash budget for the month. The company has outstanding loans and desires a minimum cash balance of $10,000. If the company has a preliminary cash balance of $25,000, the company should:
use $15,000 to repay loans
A merchandising company’s budget includes the following data for January: Sales: $400,000; COGS: $270,000; Administrative salaries: $1,250; Sales commissions: 5% of sales; Advertising: $10,000; Depreciation on store equipment: $25,000; Rent on administrative building: $30,000; Miscellaneous administrative expenses: $5,000. The total general and administrative expenses on the January general and administrative expense budget will be $
.
61,250
1,250+30,000+5,000
+25,000
A manufacturing company’s sales budget indicates the following sales: January: $25,000; February: $30,000; March: $35,000. The company expects 70% of the sales to be on credit and the remainder to be cash sales. Credit sales are collected in the month following the sale. The total cash collected during March will be $
31500
HOW
Which of the following items would be included on the capital expenditures budget? (Check all that apply.)
Plant asset purchases
Sale of plant assets
A company budgets the following direct materials purchases: April: $70,000; May $90,000; June: $60,000. All purchases are on account and the company pays 25% of purchases in the month of the purchase, 50% in the month after the purchase, and the remaining balance in the second month after the purchase. Cash payments for June for direct materials is $…
82,500
90,000−(90,000×25%)
+(60,000×25%)
LA Company has a beginning cash balance of $6,000, cash receipts of $12,000, cash payments of $7,200 and an outstanding loan balance of $1,500. Their preliminary cash balance is $
10,800
6,000+12,000−7,200
A company has the following loan activity—Additional loan from bank: $19,000; Ending cash balance: $5,600. The preliminary cash balance is:
($13,400).
Reason: $5,600 - $19,000 = ($13,400)
The …. budget shows the expected cash receipts and cash payments during the budget period.
cash
Match each item on the budgeted income statement to the previously prepared budget from which the figure is derived.
Sales
Sales commission expense
Depreciation expense on office equipment
Interest expense
Sales: sales budget
Sales commission expense: selling expense budget
Depreciation expense on office equipment: Gen and administrative expense budget
Interest expense: cash budget
True or false: Depreciation on non-manufacturing assets and property taxes are considered general and administrative expenses and, therefore, are included on the general and administrative expense budget.
True
A company has the following budget information: Sales: $118,800; COGS: $48,500; Depreciation expense: $1,500; Interest expense: $250; Other expenses: $41,880. If the company budgets 40% for income tax expense, the amount of budgeted income tax expense will be $
- HOW
A manufacturing company’s sales budget indicates the following sales: January: $30,000; February: $20,000; March: $15,000. The company expects 80% of the sales to be on credit. Credit sales are collected 30% in the month of the sale and 70% in the month following the sale. The total cash receipts collected during March will be $
17800 how
A company budgets the following direct materials purchases: April: $70,000; May $90,000; June: $60,000. All purchases are on account and the company pays 25% of purchases in the month of the purchase, 50% in the month after the purchase, and the remaining balance in the second month after the purchase. Cash payments for June for direct materials is $
77500 how
A company has the following budgeted information: Cash receipts: $542,000; Beginning cash balance: $10,000; Cash payments (including interest payments): $560,000; Outstanding loan balance: $100,000; Desired ending cash balance: $50,000. In order to maintain the desired cash balance, the company will need to:
borrow $58,000
Reason: Beginning balance $10,000 + cash receipts $542,000 – cash payments $560,000 = -8,000. Desired cash balance $50,000 + 8000 negative preliminary balance = $58,000 needed to borrow.
Budgeted financial statements include: (Check all that apply).
budgeted balance sheet
budgeted income statement
The budget which shows predicted amounts of the company’s assets, liabilities, and equity as of the end of the budget period is the:
budgeted balance sheet
A company has the following budget information: Sales: $118,800; COGS: $48,500; Depreciation expense: $1,500; Interest expense: $250; Other expenses: $41,880. If the company budgets 40% for income tax expense, the budgeted net income will be $
16002
A manufacturing company’s sales budget indicates the following sales: January: $25,000; February: $30,000; March: $35,000. The company expects 70% of the sales to be on credit and the remainder to be cash sales. Credit sales are collected in the month following the sale. The total cash collected during March will be $
A company budgets the following direct materials purchases: April: $70,000; May $90,000; June: $60,000. All purchases are on account and the company pays 25% of purchases in the month of the purchase and the remaining amount in the following month. Cash payments for June for direct materials is $
82500
67,500+(60,000×25%)
A company has the following loan activity—Additional loan from bank: $19,000; Ending cash balance: $5,600. The preliminary cash balance is:
($13,400).
Reason: $5,600 - $19,000 = ($13,400)
Which of the following describe management’s use of a master budget: (Check all that apply).
Helps analyze differences between actual and budgeted results
Helps in planning and control activities
Match each figure on the budgeted balance sheet to the previously prepared budget from which the figure is derived.
Accounts receivable
Accounts receivable drop zone empty.
Income tax payable
Income tax payable drop zone empty.
Bank loan payable
Which of the following are budgets used by a service company:
Capital expenditures
Direct labor
Sales
Cash
budgeted direct labor hours times direct labor cost per hourbudgeted direct labor hours times direct labor cost per hour
The formula to compute revenue per employee is:
All of the following are ways that managers use the master budget except:
To calculate the units to purchase in a merchandise purchases budget, the formula is:
HA Service Company has total revenue of $8,500,000 and total employees of 100,000. HA Service Company’s revenue per employee is $
_.
85
8,500,000÷100,000
