Lesson 5: Production and Cash Budget

Question 1

a schedule which provides information regarding the number o units that should be produced over a given accounting period based on expected sales targeted level of ending inventories.

Answer 1

production budget

Question 2

steps to calculate a production budget

Answer 2

set the time frame and product; perform beginning inventory; operate the sales forecasting; determine planned inventory; calculate the required production

Question 3

the target level of ending inventories of the fourth quarter is the same as

Answer 3

the target level ending inventories for the ENTIRE year

and the beginning inventory for the FOLLOWING year

Question 4

the beginning inventory of the first quarter is the same as

Answer 4

the beginning inventory for the ENTIRE year

and the ending inventory of the PREVIOUS YEAR

Question 5

formula for required production in units

Answer 5

expected sales + target ending inventories - beginning inventories

Question 6

what is in the heading of the product budget

Answer 6

(COMPANY NAME)
Production Budget (In Units)
For the Year Ending, December 31, 20XX

Question 7

what are the rows in the production budget

Answer 7

projected sales; target level of ending inventories; total; less: beginning inventories; required production

Question 8

the
cost of production can be estimated especially if the company
has

Answer 8

developed a standard production cost per unit

Question 9

an estimation of the cash flows of a business over a specific period of time.

Answer 9

cash budget

Question 10

the cash budget can be

Answer 10

weekly, monthly, quarterly, and annually

Question 11

to prepare a cash budget…

Answer 11

assumptions have to be made

Question 12

the assumptions for the cash budget are based on

Answer 12

historical performance of the company plans of the management

Question 13

A cash budget shows the

Answer 13

expected cash receipts and disbursements for an accounting period

Question 14

cash budgets can be prepared on a

Answer 14

monthly or quarterly basis for a year

Question 15

This includes collections
from receivables, proceeds
from loans, or issuance of new
shares of stocks and
advances from stockholders.

Answer 15

cash receipts

Question 17

This section includes payments
to suppliers and other service
providers, payments for loans,
and cash dividends.

Answer 17

cash disbursements

Question 18

This is computed by deducting cash disbursements
from the collections for the period. -This provides
information regarding the amount of excess cash or
cash deficit for the period.

Answer 18

net cash flow for the period

Question 19

how to calculate the net cash flow for the period

Answer 19

deducting cash disbursements from the collections for the period

Question 20

the amount off cash
that management wants to maintain at all
times given its present level of operations,
stability of cash flows, and the
macroeconomic and political conditions.

Answer 20

target cash balance

Question 21

what are the types of reasons for holding cash

Answer 21

primary and secondary

Question 22

primary reasons for holding cash is for

Answer 22

transaction and compensating balance purposes

Question 23

secondary reasons for holding cash is for

Answer 23

precautionary and speculative purposes

Question 24

This is the most important part of the cash
budget where the possible funding
requirements are shown on a cumulative
basis

Answer 24

cumulative excess cash OR funding requirements

Question 25

This part of the cash budget is very important in planning because

Answer 25

if the management can estimate the amount of cash they will need in the future, they can identify the possible sources of cash

Question 26

Planning the possible sources of cash in advance will save the company

Answer 26

financing costs and unnecessary stress for managers

Question 27

If the company has excess cash, then management can

Answer 27

decide where to invest the excess funds to generate more investment income

Question 28

what is in the heading of the cash budget

Answer 28

(COMPANY NAME) Cash Budget For the Year Ending December 31, 20XX

Question 29

rows in the cash budget

Answer 29

collections; quarter of sale; a quarter after sale payments; purchases; cash operating expenses; income taxes; loan payment; interest expense; total payments; net cash flow for the period; cash balance, beginning; cash balance without financing; target cash balance; cumulative excess cash (funding requirements)

Question 30

what is not included in the cash budget

Answer 30

depreciation expense

Question 31

why is the depreciation expense not entered in the cash budget

Answer 31

it is a non-cash experience and does not entail any cash outflow

Question 32

the income tax for the quarter should be listed in

Answer 32

the following quarter | since they are paid after the quarter is done ## Footnote e.g. the income taxes for quarter 1 should be reported in quarter 2