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Exam 22: Master Budgets

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Question 1

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For manufacturing companies,the primary source of cash is from its customers.

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Question 2

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A manufacturing company has prepared the operating budget and the cash budget and is now preparing the budgeted balance sheet.The balance of Accounts Receivable can be obtained from the ________.

A) inventory, purchases and cost of goods sold budget
B) schedule of cash receipts from customers
C) capital expenditures budget
D) selling and administrative expenses budget

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Question 3

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The sales budget is considered the cornerstone of the master budget because ________.

Delbert,Inc.has prepared its third quarter budget and provided the following data: $\begin{array} { | l | r | r | r | } \hline &{ \text { Jul } } & { \text { Aug } } & { \text { Sep } } \\\hline \text { Cash collections } & \$ 50,000 & \$ 39,600 & \$ 46,100 \\\hline \text { Cash payments: } & & & \\\hline \text { Purchases of direct materials } & 30,000 & 21,700 & 17,600 \\\hline \text { Operating expenses } & 12,300 & 8000 & 11,600 \\\hline \text { Capital expenditures } & 13,700 & 24,300 & 0 \\\hline\end{array}$ The cash balance on June 30 is projected to be $4100.The company has to maintain a minimum cash balance of $5,000 and is authorized to borrow at the end of each month to make up any shortfalls.It may borrow in increments of $5,000 and has to pay interest every month at an annual rate of 5%.All financing transactions are assumed to take place at the end of the month.The loan balance should be repaid in increments of $5,000 whenever there is surplus cash.How much will the company have to borrow at the end of July?

Sensitivity analysis is a what-if technique.

The budgeted multi-step income statements of both manufacturing and merchandising companies include the calculation of gross profit.

Which of the following is TRUE of the sales budget?

Which of the following is an example of the coordination and communication function of the budgeting process?

The budgeting process ________.

Duffy Corp.has provided a part of its budget for the second quarter: $\begin{array} { | l | r | r | r | } \hline & { \text { Apr } } &{ \text { May } } &{ \text { Jun } } \\\hline \text { Cash collections } & \$ 40,000 & \$ 40,000 & \$ 52,000 \\\hline \text { Cash payments: } & & & \\\hline \text { Purchases of direct materials } & 4500 & 5000 & 7000 \\\hline \text { Operating expenses } & 7200 & 7000 & 4500 \\\hline \text { Capital expenditures } & 5000 & 0 & 10,000 \\\hline\end{array}$ The cash balance on April 1 is $14,000.Assume that there will be no financing transactions or costs during the quarter.Calculate the projected cash balance at the end of April.

The production budget determines the number of units to be produced during the period.

The capital expenditures budget is completed before the preparation of the cash budget.

If the amount of indirect materials needed for production is deemed to be insignificant,it should not be included in the direct materials budget.

For a merchandising company,the final step in the process of creating the master budget is the preparation of the ________.

The cost accountant works directly with the corporate president to develop the selling and administrative expense budget.

The following details have been extracted from the budget of a merchandising company. $\begin{array} { | l | l | } \hline \text { Rent Expense } & \$ 8400 \text { per month } \\\hline \text { Depreciation Expense } & \$ 3500 \text { per month } \\\hline \text { Insurance Expense } & \$ 2000 \text { per month } \\\hline \text { Miscellaneous Expense } & 2 \% \text { of sales, paid as incurred } \\\hline \text { Commissions Expense } & 3 \% \text { of sales } \\\hline \text { Salaries Expense } & \$ 6000 \text { per month } \\\hline\end{array}$ $\begin{array} { | c | r | r | c | } \hline \text { Dec } & \text { Jan } & { \text { Feb } } & \text { March } \\\hline \text { Sales } \$ 55,000 & \$ 60,000 & \$ 75,000 & \$ 90,000 \\\hline\end{array}$ Commissions and salaries expenses are paid 50% in the month to which they are incurred and the balance in the next month. Rent and miscellaneous expenses are paid as and when they occur.Insurance is prepaid at the beginning of the quarter.Calculate cash payments for the selling and administrative expenses for the first quarter of the next year.

Cost behavior is considered in developing the selling and administrative expense budget as costs are designated as variable or fixed.

The amount of accumulated depreciation for the budgeted balance sheet of a merchandising company can be obtained from the ________.

Galina,Inc.has prepared the following direct materials purchases budget: $\begin{array} { | l | r | } \hline \text { Month } & { \begin{array} { l } \text { Budgeted DM } \\\text { Purchases }\end{array} } \\\hline \text { June } & \$ 69,000 \\\hline \text { July } & 78,500 \\\hline \text { August } & 78,100 \\\hline \text { September } & 76,000 \\\hline \text { October } & 78,200 \\\hline\end{array}$ All purchases are paid for as follows: 40% in the month of purchase,50% in the following month,and 10% two months after purchase.Calculate the budgeted balance of accounts payable at the end of October.

Thornton,Inc.has budgeted sales for the months of September and October at $303,000 and $289,000,respectively.Monthly sales are 80% credit and 20% cash.Of the credit sales,50% are collected in the month of sale,and 50% are collected in the following month.Calculate cash collections for the month of October.