Chap 8

1. Consider the following statements: I. Budgets are used to plan and control operations. II. An advantage of self-imposed budgeting is that it may allow lower-level managers to create budgetary slack. a. I is true; Il is true b. I is true; Il is false c. I is false; Il is true d. I is false; Il is false 2. Consider the following statements: 1. The number of units to be produced in a period can be determined by adding the expected sales to the desired ending inventory and then deducting the beginning inventory. II. When preparing a direct materials budget, the units of raw materials needed to meet production should be added to the desired ending inventory and the beginning inventory for raw materials should be subtracted to determine the amount of raw materials to be purchased. a. I is true; Il is true b. I is true; Il is false c. I is false; Il is true d. I is false; Il is false 3. Which of the following budgets are prepared before the production budget? a. b. Purchases budget Yes Yes No No Sales budget Yes No Yes No c. d. 4. When preparing a production budget, the required production equals: a. Budgeted Sales + Beginning Inventory b. Budgeted Sales - Beginning Inventory c. Budgeted Sales - Beginning Inventory d. Budgeted Sales + Beginning Inventory + Desired Ending Inventory + Desired Ending Inventory Desired Ending Inventory - Desired Ending Inventory 5. Sixty percent of Parlee Corporation's sales are collected in the month of sale, 30% in the month following sale, and 10% in the second month following sale. The following are budgeted sales data for the company: January February March April Total sales $600,000 $700,000 $500,000 $600,000 Total budgeted cash collections in April would be: a. $360,000 c. $520,000 b. $440,000 d. $580,000 e. None of the above. The answer is 6. The following are budgeted data: Sales (units] Production (units] April 15,000 18,000 May 20,000 19,000 June 18,000 16,000 Two pounds of material are required for each finished unit. The inventory of materials at the end of each month should equal 10% of the following month's production needs. Purchases of raw materials for May should be: a. 34,800 pounds b. 36,200 pounds C. 36,800 pounds d. 37,400 pounds e. None of the above. The answer is 7. The Khaki Corporation has the following budgeted sales data: January February March April Cash Sales $ 70,000 $ 90,000 $80,000 $ 70,000 Credit Sales $400,000 $450,000 $300,000 $320,000 e. None of the above. The answer is The regular pattern of collection of credit sales is 30% in the month of sale, 60% in the month following sale, and the remainder in the second month following the month of sale. There are no bad debts. The budgeted accounts receivable balance on February 28 would be: a. $350,000 c. $360,000 b. $355,000 d. $365,000 e. None of the above. The answer is Questions #8, 9 and 10 Refer to the following data (Hint: Much more information than is needed] Bracken Corporation is a small wholesaler of gourmet food products. Bracken Corporation Balance Sheet As of October 31 Assets Cash Accounts Receivable, net of allowance for uncollectible accounts. Merchandise Inventory Property, plant and equipment, net of $604,000 accumulated depreciation $ 28,000 76,000 173,250 1,170,000 Total assets $ 1,447,250 ======== Liabilities and Stockholders' Equity Accounts Payable Common Stock Retained Earnings $ 255,000 840,000 352,250 $ 1,447,250 ========= Data regarding the store's operations follows: * * Sales are budgeted at $330,000 for November, $340,000 for December, and $400,000 for January. * Collections are expected to be 80% in the month of sale, 17% in the month following sale, and 3% uncollectible. The Cost of Goods Sold is 60% of sales. * The company would like to maintain ending inventory equal to 70% of the next month's Cost of Goods Sold. Payment for merchandise is made in the month following purchase. * Other monthly expenses to be paid in cash are $21,800. * Monthly Depreciation is $19,000. * Ignore Taxes. 8. Expected cash collections in December are: a. $340,000 c. $272,000 b. $328,100 d. $ 56,100 e. None of the above. The answer is 9. The cost of December merchandise purchases would be: a. $196,400 c. $229,200 b. $204,000 d. $236,800 e. None of the above. The answer is 10. December cash disbursements for merchandise purchases would be: a. $202,200 c. $209,200 b. $206,200 d. $212,200 e. None of the above. The answer is