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1. MC.9-01

A budget

a.is a long-term plan.

b.covers at least 2 years.

c.is only a control tool.

d.is a short-term financial plan.

e.is necessary only for large firms.

2. MC.9-03

Which of the following is not an advantage of budgeting?

a.It forces managers to plan.

b.It provides information for decision making.

c.It guarantees an improvement in organizational efficiency.

d.It provides a standard for performance evaluation.

e.It improves communication and coordination.

3. MC.9-05

A moving, 12-month budget that is updated monthly is

a.not used by manufacturing firms.

b.a waste of time and effort.

c.a master budget.

d.a continuous budget.

e.always used by firms that prepare a master budget.

4. MC.9-07

Before a direct materials purchases budget can be prepared, you should first

a.prepare a sales budget.

b.prepare a production budget.

c.decide on the desired ending inventory of materials.

d.obtain the expected price of each type of material.

e.All of these choices are correct.

5. MC.9-09

Which of the following is needed to prepare the production budget?

a.Direct materials needed for production

b.Direct labor needed for production

c.Expected unit sales

d.Units of materials in ending inventory

e.None of these choices are correct.

6. CEx.9-22.Algo

eBook

Video

Preparing a Production Budget

Patrick Inc. makes industrial solvents. In the first four months of the coming year, Patrick expects the following unit sales:

January	41,000
February	38,000
March	50,000
April	51,000

Patrick's policy is to have 22% of next month's sales in ending inventory. On January 1, it is expected that there will be 4,450 drums of solvent on hand.

Required:

Prepare a production budget for the first quarter of the year. Show the number of drums that should be produced each month as well as for the quarter in total. If required, round your answers to the nearest whole unit.

Patrick Inc.
Production Budget
For the Coming Quarter
	January	February	March	1st Quarter Total
Sales
Desired ending inventory
Total needs
Less: Beginning inventory
Units to be produced

7. CEx.9-24.Algo

eBook

Video

Preparing a Direct Labor Budget

Patrick Inc. makes industrial solvents. Planned production in units for the first three months of the coming year is:

January	40,000
February	50,000
March	60,000

Each drum of industrial solvent takes 0.3 direct labor hours. The average wage is $17.00 per hour.

Required:

Prepare a direct labor budget for the months of January, February, and March, as well as the total for the first quarter. Do not include a multiplication symbol as part of your answer.

Patrick Inc.
Direct Labor Budget
For the Coming First Quarter
Direct Labor Budget:	January	February	March	Total
Units to be produced
Direct labor hrs per unit
Total direct labor hrs
Wage rate	$	$	$	$
Direct labor cost	$	$	$	$

8. Ex.9-36

eBook

Production Budget and Direct Materials Purchases Budgets

Peanut-Fresh Inc. produces all-natural organic peanut butter. The peanut butter is sold in 12-ounce jars. The sales budget for the first four months of the year is as follows:

	Unit Sales		Dollar Sales ($)
January	48,000		100,800
February	46,000		96,600
March	55,000		121,000
April	58,000		125,200

Company policy requires that ending inventories for each month be 20% of next month's sales. At the beginning of January, the inventory of peanut butter is 14,500 jars.

Each jar of peanut butter needs two raw materials: 24 ounces of peanuts and one jar. Company policy requires that ending inventories of raw materials for each month be 10% of the next month's production needs. That policy was met on January 1.

Required:

1. Prepare a production budget for the first quarter of the year. Show the number of jars that should be produced each month as well as for the quarter in total.

Peanut-Fresh Inc.
Production Budget
For the First Quarter of the Year
	January	February	March	Total
Sales
Desired ending inventory
Total needs
Less: Beginning inventory
Units produced

2. Prepare a direct materials purchases budget for jars for the months of January and February. Do not include a multiplication symbol as part of your answer.

Peanut-Fresh Inc.
Direct Materials Purchases Budget for Jars
For January and February
	January	February	Total
Production
Jar
Jars for production
Desired ending inventory
Total needs
Less: Beginning inventory
Jars purchased

Prepare a direct materials purchases budget for peanuts for the months of January and February. Do not include a multiplication symbol as part of your answer.

Peanut-Fresh Inc.
Direct Materials Purchases Budget for Peanuts
For January and February
	January	February	Total
Production
Ounces
Ounces for production
Desired ending inventory
Total needs
Less: Beginning inventory
Ounces purchased

9. Ex.9-42

eBook

Schedule of Cash Collections on Accounts Receivable and Cash Budget

Bennett Inc. found that about 15% of its sales during the month were for cash. Bennett has the following accounts receivable payment experience:

Percent paid in the month of sale	25
Percent paid in the month after the sale	68
Percent paid in the second month after the sale	5

Bennett's anticipated sales for the next few months are as follows:

April	$250,000
May	290,000
June	280,000
July	295,000
August	300,000

Required:

1. Calculate credit sales for May. $

Calculate credit sales for June. $

Calculate credit sales for July. $

Calculate credit sales for August. $

2. Prepare a schedule of cash receipts for July and August. Round your answer to the nearest whole dollar, if necessary. If an amount box does not require an entry, leave it blank or enter "0". Be sure to enter percentages as whole numbers.

Bennett Inc. Schedule of Cash Receipts For July and August
				July		August
Cash sales				$		$
Payments on account:
From May credit sales:
$ %
From June credit sales:
$ %
$ %
From July credit sales:
$ %
$ %
From August credit sales:
$ %
Cash receipts				$		$

10. Ex.9-45

eBook

Cash Budget

The owner of a building supply company has requested a cash budget for June. After examining the records of the company, you find the following:

Cash balance on June 1 is $736.

Actual sales for April and May are as follows:

	April		May
Cash sales	$10,000		$18,000
Credit sales	28,900		35,000
Total sales	$38,900		$53,000

Credit sales are collected over a three-month period: 40% in the month of sale, 30% in the second month, and 20% in the third month. The sales collected in the third month are subject to a 2% late fee, which is paid by those customers in addition to what they owe. The remaining sales are uncollectible.

Inventory purchases average 64% of a month's total sales. Of those purchases, 20% are paid for in the month of purchase. The remaining 80% are paid for in the following month.

Salaries and wages total $11,750 per month, including a $4,500 salary paid to the owner.

Rent is $4,100 per month.

Taxes to be paid in June are $6,780.

The owner also tells you that he expects cash sales of $18,600 and credit sales of $54,000 for June. No minimum cash balance is required. The owner of the company doesnt have access to short-term loans.

Required:

1. Prepare a cash budget for June. Include supporting schedules for cash collections and cash payments. Round calculations and final answers to the nearest dollar. Be sure to enter percentages as whole numbers.

Cash Budget For June
Beginning cash balance			$
Collections:
Cash sales
Credit sales:
Current month
$ %
May credit sales
$ %
April credit sales
Total cash available				$
Less disbursements:
Inventory purchases:
Current month
$ %			$
Prior month
$ %
Salaries and wages
Rent
Taxes
Total cash needs
Excess of cash available over needs				$

2. Conceptual Connection: Did the business show a negative cash balance for June?