Sarafiny Corporation is in the process of preparing its annual budget. The following beginning and ending inventory levels are planned for the year.

Sarafiny Corporation is in the process of preparing its annual budget. The following beginning and ending inventory levels are planned for the year.

		Beginning Inventory	Ending Inventory
	Finished goods (units).......	20,000	30,000
	Raw material (grams)........	50,000	40,000

Each unit of finished goods requires 7 grams of raw material.

      70. If the company plans to sell 270,000 units during the year, the number of units it would have to manufacture during the year would be:

            A)      300,000 units

            B)      270,000 units

            C)      260,000 units

            D)      280,000 units

           

            Ans:  D     AACSB:  Analytic     AICPA BB:  Critical Thinking     AICPA FN:  Reporting     LO:  3     Level:  Easy

            Solution:

            Units produced = Ending inventory + Units sold − Beginning inventory

            = 30,000 + 270,000 − 20,000 = 280,000

      71. How much of the raw material should the company purchase during the year?

            A)      1,960,000 grams

            B)      1,950,000 grams

            C)      1,970,000 grams

            D)      2,000,000 grams

           

            Ans:  B     AACSB:  Analytic     AICPA BB:  Critical Thinking     AICPA FN:  Reporting     LO:  4     Level:  Medium

            Solution:

           

Materials purchased = Ending inventory + Materials to be used − Beginning inventory = 40,000 + (280,000 × 7) − 50,000

= 40,000 + 1,960,000 − 50,000 = 1,950,000

Use the following to answer questions 72-73:

LBC Corporation makes and sells a product called Product WZ. Each unit of Product WZ requires 3.5 hours of direct labor at the rate of $14.50 per direct labor-hour. Management would like you to prepare a Direct Labor Budget for June.

      72. The budgeted direct labor cost per unit of Product WZ would be:

            A)      $50.75

            B)      $14.50

            C)      $4.14

            D)      $18.00

           

            Ans:  A     AACSB:  Analytic     AICPA BB:  Critical Thinking     AICPA FN:  Reporting     LO:  3     Level:  Easy

            Solution:

           

            Budgeted direct labor cost per unit = Direct labor-hours per unit × Direct labor rate

= 3.5 × $14.50 = $50.75

      73. The company plans to sell 39,000 units of Product WZ in June. The finished goods inventories on June 1 and June 30 are budgeted to be 200 and 100 units, respectively. Budgeted direct labor costs for June would be:

            A)      $1,984,325

            B)      $1,974,175

            C)      $1,979,250

            D)      $564,050

           

            Ans:  B     AACSB:  Analytic     AICPA BB:  Critical Thinking     AICPA FN:  Reporting     LO:  5     Level:  Medium

            Solution:

           

            Units produced = Ending inventory + Units sold − Beginning inventory

= 100 + 39,000 − 200 = 38,900

Budgeted direct labor cost per unit = Direct labor-hours per unit × Direct labor rate

= 3.5 × $14.50 = $50.75

Budgeted direct labor cost = Units produced × Budgeted direct labor cost per unit

= 38,900 × $50.75 = $1,974,175

Use the following to answer questions 74-75:

Barley Enterprises has budgeted unit sales for the next four months as follows:

	October..................	4,800 units
	November..............	5,800 units
	December..............	6,400 units
	January..................	5,200 units

The ending inventory for each month should be equal to 15% of the next month's sales in units. The inventory on September 30 was below this level and contained only 600 units.

      74. The total units to be produced in October are:

            A)      4,530

            B)      5,070

            C)      5,670

            D)      5,890

           

            Ans:  B     AACSB:  Analytic     AICPA BB:  Critical Thinking     AICPA FN:  Reporting     LO:  3     Level:  Medium

            Solution:

           

            Units produced = Ending inventory + Units sold − Beginning inventory

= (15% × 5,800) + 4,800 − 600 = 870 + 4,800 − 600 = 5,070

      75. The desired ending inventory for December is:

            A)      960

            B)      870

            C)      780

            D)      690

           

            Ans:  C     AACSB:  Analytic     AICPA BB:  Critical Thinking     AICPA FN:  Reporting     LO:  3     Level:  Easy

            Solution:

            Desired ending inventory for December = 15% of January’s sales in units

= 15% × 5,200 = 780

Use the following to answer questions 76-77:

Harden, Inc., has budgeted sales in units for the next five months as follows:

	June.......................	7,000 units
	July........................	5,300 units
	August...................	7,100 units
	September..............	6,800 units
	October..................	4,900 units

Past experience has shown that the ending inventory for each month should be equal to 15% of the next month's sales in units. The inventory on May 31 contained 1,050 units. The company needs to prepare a production budget for the next five months.

      76. The beginning inventory for September should be:

            A)      1,020 units

            B)      1,050 units

            C)      1,065 units

            D)      735 units

           

            Ans:  A     AACSB:  Analytic     AICPA BB:  Critical Thinking     AICPA FN:  Reporting     LO:  3     Level:  Easy

            Solution:

           

            The beginning inventory for September is equal to the ending inventory for August.

Desired ending inventory for August = 15% × September’s sales in units

= 15% × 6,800 = 1,020

      77. The total number of units produced in July should be:

            A)      5,300 units

            B)      6,365 units

            C)      5,570 units

            D)      5,030 units

           

            Ans:  C     AACSB:  Analytic     AICPA BB:  Critical Thinking     AICPA FN:  Reporting     LO:  3     Level:  Easy

            Solution:

           

            Units produced = Ending inventory + Units sold − Beginning inventory

= (7,100 × 15%) + 5,300 − (5,300 × 15%)

= 1,065 + 5,300 − 795 = 5,570

Use the following to answer questions 78-79:

Caspion Corporation makes and sells a product called a Miniwarp. One Miniwarp requires 2.5 kilograms of the raw material Jurislon. Budgeted production of Miniwarps for the next five months is as follows:

	August...................	22,600 units
	September..............	21,300 units
	October..................	22,700 units
	November..............	23,900 units
	December..............	23,600 units

The company wants to maintain monthly ending inventories of Jurislon equal to 20% of the following month's production needs. On July 31, this requirement was not met since only 10,800 kilograms of Jurislon were on hand. The cost of Jurislon is $18.00 per kilogram. The company wants to prepare a Direct Materials Purchase Budget for the next five months.

      78. The desired ending inventory of Jurislon for the month of September is:

            A)      $81,720

            B)      $76,680

            C)      $191,700

            D)      $204,300

           

            Ans:  D     AACSB:  Analytic     AICPA BB:  Critical Thinking     AICPA FN:  Reporting     LO:  4     Level:  Medium

            Solution:

           

Desired ending inventory = 20% × Direct materials needed for October × Cost per kilogram of Jurislon = 20% × (22,700 × 2.5) × $18 = 11,350 × $18 = $204,300

      79. The total cost of Jurislon to be purchased in August is:

            A)      $1,839,600

            B)      $1,014,300

            C)      $1,208,700

            D)      $1,017,000

           

            Ans:  B     AACSB:  Analytic     AICPA BB:  Critical Thinking     AICPA FN:  Reporting     LO:  4     Level:  Medium

            Solution:

           

            Materials purchased = Ending inventory + Materials used − Beginning inventory

= (20% × 21,300 × 2.5) + (22,600 × 2.5) − 10,800

= 10,650 + 56,500 − 10,800 = 56,350

Total cost of purchase = 56,350 × $18 = $1,014,300

Use the following to answer questions 80-83:

The International Company makes and sells only one product, Product SW. The company is in the process of preparing its Selling and Administrative Expense Budget for the last half of the year. The following budget data are available:

		Variable Cost Per Unit Sold	Monthly Fixed Cost
	Sales commissions..............................	$0.70
	Shipping..............................................	$1.10
	Advertising..........................................	$0.20	$14,000
	Executive salaries................................		$34,000
	Depreciation on office equipment.......		$11,000
	Other....................................................	$0.25	$19,000

All expenses other than depreciation are paid in cash in the month they are incurred.

      80. If the company has budgeted to sell 25,000 units of Product SW in July, then the total budgeted selling and administrative expenses for July will be:

            A)      $56,250

            B)      $78,000

            C)      $134,250

            D)      $123,250

           

            Ans:  C     AACSB:  Analytic     AICPA BB:  Critical Thinking     AICPA FN:  Reporting     LO:  6     Level:  Medium

            Solution:

           

            Variable cost per unit = ($0.70 + $1.10 + $0.20 + $0.25) = $2.25

Fixed cost = $14,000 + $34,000 + $11,000 + $19,000 = $78,000

Total budgeted selling and administrative expenses = Variable cost + Fixed cost

= ($2.25 × 25,000) + $78,000 = $56,250 + $78,000 = $134,250

      81. If the company has budgeted to sell 20,000 units of Product SW in October then the total budgeted variable selling and administrative expenses for October will be:

            A)      $45,000

            B)      $40,000

            C)      $56,250

            D)      $78,000

           

            Ans:  A     AACSB:  Analytic     AICPA BB:  Critical Thinking     AICPA FN:  Reporting     LO:  6     Level:  Medium

            Solution:

           

            Variable cost per unit = ($0.70 + $1.10 + $0.20 + $0.25) = $2.25

Total budgeted variable selling and administrative expenses = Variable cost per unit × Units sold = $2.25 × 20,000 = $45,000

      82. If the budgeted cash disbursements for selling and administrative expenses for November total $123,250, then how many units of Product SW does the company plan to sell in November (rounded to the nearest whole unit)?

            A)      33,444 units

            B)      25,000 units

            C)      22,952 units

            D)      20,111 units

           

            Ans:  B     AACSB:  Analytic     AICPA BB:  Critical Thinking     AICPA FN:  Reporting     LO:  8     Level:  Hard

            Solution:

           

            Variable cost per unit = ($0.70 + $1.10 + $0.20 + $0.25) = $2.25

Cash disbursements = Variable cost + (Fixed cost − Depreciation)

$123,250 = ($2.25 × Units sold) + ($78,000 − $11,000)

$123,250 = ($2.25 × Units sold) - $67,000

Units sold = ($123,250 − $67,000) ÷ $2.25

Units sold = $56,250 ÷ $2.25

Units sold = 25,000 units

      83. If the company has budgeted to sell 24,000 units of Product SW in September, then the total budgeted fixed selling and administrative expenses for September would be:

            A)      $54,000

            B)      $48,000

            C)      $67,000

            D)      $78,000

           

            Ans:  D     AACSB:  Analytic     AICPA BB:  Critical Thinking     AICPA FN:  Reporting     LO:  7     Level:  Medium

            Solution:

		Monthly Fixed Cost
	Advertising..........................................	$14,000
	Executive salaries................................	34,000
	Depreciation on office equipment.......	11,000
	Other....................................................	19,000
	Total....................................................	$78,000