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Exam 20: Master Budgets and Performance Planning

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Question 41

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Continuous budgeting is the practice of preparing a new budget for a selected number of future periods and revising those budgets as each period is completed.

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Question 42

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David, Inc. is preparing its master budget for the second quarter. The following sales and production data have been forecasted: Finished goods inventory on March 31: 120 units Raw materials inventory on March 31: 450 pounds Desired ending inventory each month: Finished goods: 30% of next month's sales Raw materials: 25% of next month's production needs Number of pounds of raw material required per finished unit: 4 lb. Number of direct labor hours to produce each unit: 3 hours Labor rate per hour: $10 (a) How many units should be produced during April and May? (b) How many pounds of raw materials should be purchased in April? (c) What is the budgeted labor cost for April?

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Question 43

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Operating budgets include all the following budgets except the:

Which budget must be completed after a cash budget is prepared?

Assume the Crocs shoe company is preparing its master budget for the first quarter of its calendar year. The following forecasted data relate to the first quarter: $\begin{array}{ll}\text { Unit sales: } & \\\text { January } & 40,000 \\\text { February } & 60,000 \\\text { March } & 50,000 \\\text { Unit sales price } & \$ 25 \\\text { Cost of goods sold per unit } & \$ 14\\\text { Expenses: }\\\text { Commissions } & 10 \% \text { of sales } \\\text { Rent } & \$ 20,000 \text { month } \\\text { Advertising } & 15 \% \text { of sales } \\\text { Office salaries } & \$ 75,000 / \text { month } \\\text { Depreciation } & \$ 50,000 \text { month } \\\text { Interest } & 15 \% \text { annully on a } \$ 250,000 \text { note }\\&\text { payable }\\\text { Tax rate }&40\%\end{array}$ Prepare a budgeted income statement for this first quarter.

In preparing a budget for the last three months of the current year, Urban Company is planning the units of merchandise it must order each month. The company's policy is to have 15% of the next month's sales in its inventory at the end of each month. Projected sales for October, November, and December are 27,000 units, 29,500 units, and 32,500 units, respectively. How many units must be ordered in November?

Airtex Company budgeted the following credit sales during the current year: September, $90,000; October, $123,000; November, $105,000; December, $111,000. Experience has shown that cash from credit sales is received as follows: 10% in the month of sale, 50% in the first month after sale, 35% in the second month after sale, and 5% is uncollectible. How much cash should Eastern Company expect to collect in November from all current and past credit sales?

A managerial accounting report that presents predicted amounts of the company's assets, liabilities, and equity as of the end of the budget period is called a(n) :

In preparing financial budgets:

The manufacturing budget shows only the direct materials needed for production.

The selling expenses budget is normally prepared before the sales budget because selling expenses affect the amount of sales.

A budget system based on expected activities and their levels that enables management to plan for resources required to perform the activities is:

A plan that shows the predicted costs for direct materials, direct labor, and overhead to be incurred in manufacturing the units in the production budget is called the:

What is a cash budget? How can management use a cash budget?

A formal statement of future plans, usually expressed in monetary terms, is a:

A company reports the following information from its sales account and sales budget: $\begin{array}{lr}\text { Sales }&\text { May } & \$52,000 \\&\text { June } & 47,000\\\\\text { Expected }&\text { July } & \$ 45,000 \\\text { Sales: } \\&\text { August } & 55,000 \\&\text { September } & 60,000\end{array}$ Cash sales are normally 30% of total sales and all credit sales are expected to be collected in the month following the date of sale. The total amount of cash expected to be received from customers in September is:

A master budget refers to a company's sales budget that includes all of its segments or departments.

Pantheon Company has prepared the following forecasts of monthly sales: $\begin{array}{lr}&\text { July }&\text { August }&\text { September }&\text {October }\\ \text { Sales in units }&4,500&5,300&4,000&3,700\end{array}$ Pantheon has decided that the number of units in its inventory at the end of each month should equal 25% of the next month's sales. The budgeted cost per unit is $30. (1) How many units should be in July's beginning inventory? (2) What amount should be budgeted for the cost of merchandise purchases in July? (3) How many units should be purchased in September?

Barrett's Fashions forecasts sales of $125,000 for the quarter ended December 31. Its gross profit rate is 20% of sales, and its September 30 inventory is $32,500. If the December 31 inventory is targeted at $41,500, budgeted purchases for the fourth quarter should be:

Lara Company has budgeted the following credit sales during the current year: September, $25,000; October, $36,000; November, $30,000; December, $32,000. Experience has shown that payment for the credit sales is received as follows: 20% in the month of sale, 60% in the first month after sale, and 20% in the second month after sale. What will be the balance in Accounts Receivable at the end of November?