Chapter 9

Question 1

Sales budget

Answer 1

[# of unit sales] x [unit sales price]

= Total Sales Revenue

Question 2

Production Budget

Answer 2

[Units needed for sales]
+ [desired end. Inv.]

= (total units needed)
- [units in beg. Inv.]

= (Units to produce)

Question 3

DM budget

Answer 3

[Quantity Of DM needed for production]

+ [desired DM end. inv.]

= Tot. Quantity of DM Needed

• [DM beg. inv.]

= Quantity of DM to purchase

Question 4

Direct Labor Budget

Answer 4

[Units to be produced]
x [DL hours per unit]

= Total DL hours required
x [DL cost per hour]

= total DL cost

Question 5

Budgeted Income Statement

Answer 5

• Just like a regular income statement, except it uses budgeted data

Sales revenue
-(cogs)
—————-
Gross profit
-(operating exp)
—————-
Operating Income
-(interest expense)
-(income tax expense)
—————-
Net Income

Question 6

Capital Expenditures Budget

Answer 6

Add all new capital investments

Question 7

Cash collections budget

Answer 7

Cash sales in current month
\+ % of cr. sales made 1 mo. ago
\+ % of cr. sales made 2 mo. ago
——————————————-
= tot. cash collections

Question 8

Cash Payments Budget

Answer 8

Focuses on timing

• when will the co. pay for its expenses?

• DM purchases
• DL costs
• MOH costs
• Operating Expenses
• Capital expenditures
• Income Taxes
• Dividends

Question 9

Combined Cash Budget

Answer 9

• merges budgeted cash collections and cash pmts
• budgeted cash collections are added to beg. cash balance to determine tot. cash available
• budgeted cash pmts are then subtracted to determine end. cash before financing
• Company can determine if it needs to borrow $ or if it has excess funds for investing or paying off debt.

Question 10

Sensitivity Analysis

Answer 10

”What-if” technique that asks “what” a result will be “if” an underlying assumption changes

Question 11

Flexible budgets

Answer 11

Budgets prepared for diff. volumes of activity

-often used to evaluate performance

Question 12

Service companies

Answer 12

No merchandise inventory.

• Operating budgets include:

• Sales budget
• Operating expenses budget
• Budgeted income statement

Question 13

Merchandising Companies

Answer 13

• Don’t need production, DM, DL or MOH budgets
• Instead, prepare a cogs, inventory, and purchases budget
• same general format as manufacturer’s product budget, except uses cost rather than units

Question 14

COGS, Inventory, and Purchases Budget

Answer 14

COGS
\+ desired end. inv. 
————————
Tot inv. Needed
-(beg. Inv.)
————————
Inventory to purchase