16. Which of the following
budgets are prepared before the production budget?
A) A Above
B) B Above
C) C Above
D) D Above
Level: Medium LO: 1 Ans:
C
17. Which of the following
represents the normal sequence in which the below budgets are prepared?
A) Sales, Balance Sheet,
Income Statement
B) Balance Sheet, Sales,
Income Statement
C) Sales, Income Statement,
Balance Sheet
D) Income Statement, Sales,
Balance Sheet
Level: Medium LO: 1 Ans:
C
18. The budget method that
maintains a constant twelve month planning horizon by adding a new month on the
end as the current month is completed is called:
A) an operating budget.
B) a capital budget.
C) a continuous budget.
D) a master budget.
Level: Easy LO: 1 Ans:
C
19. In preparing a master
budget, top management is generally best able to:
A) prepare detailed
departmental-level budget figures.
B) provide a perspective on
the company as a whole.
C) point out the particular
persons who are to blame for inability to meet budget goals.
D) responses a, b, and c are
all correct.
Level: Easy LO: 1 Ans:
B
20. Which of the following
benefits could an organization reasonably expect from an effective budget
program?
A) A Above
B) B Above
C) C Above
D) D Above
Level: Easy LO: 1 Ans:
A
21. Which of the following is
an advantage of implementing a self-imposed budgeting system?
A) Budgeting is quick and easy
because only a few individuals are involved in the budgeting process.
B) Upper level management does
not have to review budget estimates.
C) Motivation to meet budget
estimates is usually enhanced.
D) All of the above.
Level: Easy LO: 1 Ans:
C
22. All the following are
considered to be benefits of participative budgeting, except for:
A) Individuals at all
organizational levels are recognized as being part of a team; this results in
greater support for the organization.
B) The budget estimates are
prepared by those in directly involved in activities.
C) When managers set their own
targets for the budget, top management need not be concerned with the overall
profitability of operations.
D) Managers are held
responsible for reaching their goals and cannot easily shift responsibility by
blaming unrealistic goals set by others.
Source: CMA, adapted
Level: Easy LO: 1 Ans:
C
23. Which of the following is
NOT an objective of the budgeting process?
A) To communicate management’s
plans throughout the entire organization.
B) To provide a means of
allocating resources to those parts of the organization where they can be used
most effectively.
C) To ensure that the company
continues to grow.
D) To uncover potential
bottlenecks before they occur.
Level: Easy LO: 1 Ans:
C
24. When preparing a
production budget, the required production equals:
A) budgeted sales + beginning
inventory + desired ending inventory.
B) budgeted sales - beginning
inventory + desired ending inventory.
C) budgeted sales - beginning
inventory - desired ending inventory.
D) budgeted sales + beginning
inventory - desired ending inventory.
Source: CIMA, adapted
Level: Easy LO: 3 Ans:
B
25. The direct labor budget is
based on:
A) the desired ending
inventory of finished goods.
B) the beginning inventory of
finished goods.
C) the required production for
the period.
D) the required materials
purchases for the period.
Level: Easy LO: 5 Ans:
C
26. Which of the following
might be included as a disbursement on a cash budget?
A) A Above
B) B Above
C) C Above
D) D Above
Level: Medium LO: 8 Ans:
C
27. Thirty percent of Sharp
Company’s sales are for cash and 70% are on account. Sixty percent of the
account sales are collected in the month of sale, 25% in the month following
sale, and 12% in the second month following sale. The remainder is uncollectible.
The following are budgeted sales data for the company:
Total cash receipts in April
are expected to be:
A) $24,640
B) $35,200
C) $31,560
D) $33,640
Level: Medium LO: 2 Ans:
D
28. Razz Company is estimating
the following sales:
Sales at Razz are normally
collected as follows: 10% in the month of sale; 60% in the month following the
sale; and the remaining 30% in the second month following the sale. In Razz’s
budgeted balance sheet at December 31, at what amount will accounts receivable
be shown?
A) $49,500
B) $76,500
C) $120,500
D) $135,500
Level: Medium LO: 2 Ans:
B
29. On January 1, Colver
Company has 6,500 units of Product A on hand. During the year, the company
plans to sell 15,000 units of Product A, and plans to have 5,000 units on hand
at year end. How many units of Product A must be produced during the year?
A) 13,500
B) 16,500
C) 15,000
D) 20,000
Level: Easy LO: 3 Ans:
A
30. Douglas Company plans to
sell 24,000 units of Product A during July and 30,000 units during August.
Sales of Product A during June were 25,000 units. Past experience has shown
that end-of-month inventory should equal 3,000 units plus 30% of the next month’s
sales. On June 30 this requirement was met. Based on these data, how many units
of Product A must be produced during the month of July?
A) 28,800
B) 22,200
C) 24,000
D) 25,800
Level: Medium LO: 3 Ans:
D
31. Villi Manufacturing
Corporation’s most recent sales budget indicates the following expected sales
(in units):
Villi wants to maintain a
finished goods inventory of 20% of the next month’s expected sales. How many
units should Villi plan on producing for the month of August?
A) 268,000 units
B) 282,000 units
C) 291,000 units
D) 337,000 units
Level: Medium LO: 3 Ans:
B
32. Sharp Company, a retailer,
plans to sell 15,000 units of Product X during the month of August. If the
company has 2,500 units on hand at the start of the month, and plans to have
2,000 units on hand at the end of the month, how many units of Product X must
be purchased from the supplier during the month?
A) 14,500
B) 15,500
C) 15,000
D) 17,000
Level: Easy LO: 3 Ans:
A
33. The following are budgeted
data:
One pound of material is
required for each finished unit. The inventory of materials at the end of each
month should equal 20% of the following month’s production needs. Purchases of
raw materials for February should be:
A) 19,600 pounds
B) 20,400 pounds
C) 18,400 pounds
D) 18,600 pounds
Level: Medium LO: 4 Ans:
C
34. Rhett Company manufactures
and sells dress shirts. Each shirt (unit) requires 3 yards of cloth. Selected
data from Rhett’s master budget for next quarter are shown below:
How many yards of cloth should
Rhett plan on purchasing in May?
A) 84,700 yards
B) 96,700 yards
C) 98,100 yards
D) 98,800 yards
Level: Medium LO: 4 Ans:
B
35. Sparks Company has a cash
balance of $7,500 on April 1. The company must maintain a minimum cash balance
of $6,000. During April, cash receipts of $48,000 are planned. Cash
disbursements during the month are expected to total $52,000. Ignoring interest
payments, during April the company will need to borrow:
A) $3,500
B) $2,500
C) $6,000
D) $4,000
Level: Easy LO: 8 Ans:
B
36. For May, Young Company has
budgeted its cash receipts at $125,000 and its cash disbursements at $138,000.
The company’s cash balance on May 1 is $17,000. If the desired May 31 cash
balance is $20,000, then how much cash must the company borrow during the month
(before considering any interest payments)?
A) $4,000
B) $8,000
C) $12,000
D) $16,000
Level: Easy LO: 8 Ans:
D
37. Milano Corporation is
working on its direct labor budget for the next two months. Each unit of output
requires 0.50 direct labor-hours. The direct labor rate is $9.80 per direct
labor-hour. The production budget calls for producing 6,400 units in October
and 6,300 units in November. If the direct labor work force is fully adjusted
to the total direct labor-hours needed each month, what would be the total combined
direct labor cost for the two months?
A) $30,870
B) $31,360
C) $62,230
D) $31,115
Level: Easy LO: 5 Ans:
C
38. Morie Corporation is
working on its direct labor budget for the next two months. Each unit of output
requires 0.75 direct labor-hours. The direct labor rate is $8.10 per direct
labor-hour. The production budget calls for producing 2,000 units in March and
2,300 units in April. The company guarantees its direct labor workers a 40-hour
paid work week. With the number of workers currently employed, that means that
the company is committed to paying its direct labor work force for at least
1,760 hours in total each month even if there is not enough work to keep them
busy. What would be the total combined direct labor cost for the two months?
A) $28,512.00
B) $26,406.00
C) $28,228.50
D) $26,122.50
Level: Easy LO: 5 Ans:
A
39. Morrish Inc. bases its
manufacturing overhead budget on budgeted direct labor-hours. The direct labor
budget indicates that 7,100 direct labor-hours will be required in January. The
variable overhead rate is $1.80 per direct labor-hour. The company’s budgeted
fixed manufacturing overhead is $102,950 per month, which includes depreciation
of $19,880. All other fixed manufacturing overhead costs represent current cash
flows. The January cash disbursements for manufacturing overhead on the
manufacturing overhead budget should be:
A) $115,730
B) $95,850
C) $12,780
D) $83,070
Level: Easy LO: 6 Ans:
B
40. Axsom Inc. bases its
manufacturing overhead budget on budgeted direct labor-hours. The direct labor
budget indicates that 1,300 direct labor-hours will be required in March. The
variable overhead rate is $8.90 per direct labor-hour. The company’s budgeted
fixed manufacturing overhead is $20,020 per month, which includes depreciation
of $2,600. All other fixed manufacturing overhead costs represent current cash
flows. The company recomputes its predetermined overhead rate every month. The
predetermined overhead rate for March should be:
A) $22.30
B) $24.30
C) $15.40
D) $8.90
Level: Easy LO: 6 Ans:
B
41. The manufacturing overhead
budget at Pendley Corporation is based on budgeted direct labor-hours. The
direct labor budget indicates that 8,900 direct labor-hours will be required in
August. The variable overhead rate is $5.50 per direct labor-hour. The
company’s budgeted fixed manufacturing overhead is $133,500 per month, which
includes depreciation of $30,260. All other fixed manufacturing overhead costs
represent current cash flows. The company recomputes its predetermined overhead
rate every month. The predetermined overhead rate for August should be:
A) $5.50
B) $17.10
C) $20.50
D) $15.00
Level: Easy LO: 6 Ans:
C
42. The manufacturing overhead
budget at Amrein Corporation is based on budgeted direct labor-hours. The
direct labor budget indicates that 4,900 direct labor-hours will be required in
August. The variable overhead rate is $9.40 per direct labor-hour. The
company’s budgeted fixed manufacturing overhead is $96,040 per month, which
includes depreciation of $7,350. All other fixed manufacturing overhead costs
represent current cash flows. The August cash disbursements for manufacturing
overhead on the manufacturing overhead budget should be:
A) $88,690
B) $134,750
C) $46,060
D) $142,100
Level: Easy LO: 6 Ans:
B
43. Vandel Inc. bases its
selling and administrative expense budget on budgeted unit sales. The sales
budget shows 6,600 units are planned to be sold in April. The variable selling
and administrative expense is $9.70 per unit. The budgeted fixed selling and
administrative expense is $127,380 per month, which includes depreciation of
$8,580 per month. The remainder of the fixed selling and administrative expense
represents current cash flows. The cash disbursements for selling and
administrative expenses on the April selling and administrative expense budget
should be:
A) $191,400
B) $118,800
C) $64,020
D) $182,820
Level: Easy LO: 7 Ans:
D
44. The selling and
administrative expense budget of Ruffing Corporation is based on budgeted unit
sales, which are 4,800 units for February. The variable selling and
administrative expense is $8.10 per unit. The budgeted fixed selling and
administrative expense is $71,520 per month, which includes depreciation of
$16,800 per month. The remainder of the fixed selling and administrative
expense represents current cash flows. The cash disbursements for selling and
administrative expenses on the February selling and administrative expense
budget should be:
A) $38,880
B) $54,720
C) $110,400
D) $93,600
Level: Easy LO: 7 Ans:
D
45. Arakaki Inc. is working on
its cash budget for January. The budgeted beginning cash balance is $41,000.
Budgeted cash receipts total $114,000 and budgeted cash disbursements total
$113,000. The desired ending cash balance is $60,000. The company has an open
line of credit, with interest not due until the month following the month in
which funds are borrowed. Prior to January, this open line of credit will not
have been used. The excess (deficiency) of cash available over disbursements
for January will be:
A) $42,000
B) $155,000
C) $40,000
D) $1,000
Level: Easy LO: 8 Ans:
A
46. Laurey Inc. is working on
its cash budget for May. The budgeted beginning cash balance is $45,000.
Budgeted cash receipts total $129,000 and budgeted cash disbursements total
$124,000. The desired ending cash balance is $60,000. The company has an open
line of credit, with interest not due until the month following the month in
which funds are borrowed. Prior to May, this open line of credit will not have
been used. To attain its desired ending cash balance for May, the company needs
to borrow:
A) $110,000
B) $0
C) $60,000
D) $10,000
Level: Easy LO: 8 Ans:
D
Use the following information
to answer 47-49
Home Company will open a new
store on January 1. Based on experience from its other retail outlets, Home
Company is making the following sales projections:
Home Company estimates that
70% of the credit sales will be collected in the month following the month of
sale, with the balance collected in the second month following the month of
sale.
47. Based on these data, the
balance in accounts receivable on January 31 will be:
A) $40,000
B) $28,000
C) $12,000
D) $58,000
Level: Easy LO: 2 Ans:
A
48. The March 31 balance in
accounts receivable will be:
A) $100,000
B) $60,000
C) $95,000
D) $75,000
Level: Medium LO: 2 Ans:
D
49. In a cash budget for the
month of April, the total cash receipts will be:
A) $74,000
B) $57,000
C) $114,000
D) $97,000
Level: Medium LO: 2 Ans:
D
Use the following information
to answer 50-52
Roberts Company manufactures
home cleaning products. One of the products, Quickclean, requires 2 pounds of
Material A and 5 pounds of Material B per unit manufactured. Material A can be
purchased from the supplier for $0.30 per pound and Material B can be purchased
for $0.50 per pound. The finished goods inventory on hand at the end of each
month must be equal to 4,000 units plus 25% of the next month’s sales. The raw
materials inventory on hand at the end of each month (for either Material A or
Material B) must be equal to 80% of the following month’s production needs.
50. Assume that on January 1
the inventory of Quickclean was 8,000 units. Expected sales in January are
14,000 units and expected sales in February are 18,000 units. The number of
units needed to be manufactured in January would be:
A) 10,500
B) 14,000
C) 14,500
D) 15,000
Level: Medium LO: 3 Ans:
C
51. Assume that the production
budget calls for 26,000 units of Quickclean to be manufactured in June and
32,000 units of Quickclean to be manufactured in July. On May 31 there will be
41,600 pounds of Material A in inventory. The number of pounds of Material A
needed for production during June would be:
A) 61,600
B) 51,200
C) 35,600
D) 52,000
Level: Medium LO: 4 Ans:
D
52. Assume that the production
budget calls for 26,000 units of Quickclean to be manufactured in June and
32,000 units to be manufactured in July. On May 31 there will be 104,000 pounds
of Material B in inventory. The number of pounds of Material B to be purchased
during June would be:
A) 128,000
B) 130,000
C) 154,000
D) 160,000
Level: Medium LO: 4 Ans:
C
Use the following information
to answer 53-54
The TS Company has budgeted
sales for the year as follows:
The ending inventory of
finished goods for each quarter should equal 25% of the next quarter’s budgeted
sales in units. The finished goods inventory at the start of the year is 2,500
units. Four pounds of raw materials are required for each unit produced. Raw
materials on hand at the start of the year total 4,200 pounds. The raw
materials inventory at the end of each quarter should equal 10% of the next
quarter’s production needs in material.
53. Scheduled production for
the third quarter should be:
A) 14,500 units
B) 18,500 units
C) 15,500 units
D) 13,500 units
Level: Medium LO: 3 Ans:
A
54. Scheduled purchases of raw
materials for the second quarter should be:
A) 50,000 pounds
B) 55,800 pounds
C) 50,800 pounds
D) 55,000 pounds
Level: Hard LO: 4 Ans:
C
Use the following information
to answer 55-56
Sarter Corporation is in the
process of preparing its annual budget. The following beginning and ending
inventory levels are planned for the year.
Each unit of finished goods
requires 3 grams of raw material.
55. If the company plans to
sell 880,000 units during the year, the number of units it would have to
manufacture during the year would be:
A) 900,000 units
B) 930,000 units
C) 880,000 units
D) 830,000 units
Level: Easy LO: 3 Ans:
D
56. How much of the raw
material should the company purchase during the year?
A) 2,550,000 grams
B) 2,490,000 grams
C) 2,480,000 grams
D) 2,500,000 grams
Level: Medium LO: 4 Ans:
D
Use the following information
to answer 57-59
The following are budgeted
data for the Bingham Company, a merchandising company:
Cost of goods sold as a
percentage of sales is 60%. The desired ending inventory is 75% of next month’s
sales.
57. Assuming that the Bingham
Company had inventory on hand of $70,000 (at cost) on January 1, the purchases
for January (at cost) would be:
A) $180,000
B) $250,000
C) $263,000
D) $110,000
Level: Medium LO: 3 Ans:
C
58. The desired ending
inventory (at cost) for the month of February would be:
A) $180,000
B) $300,000
C) $240,000
D) $160,000
Level: Easy LO: 3 Ans:
A
59. Assume that all purchases
are paid for in the month following the month of purchase. The cash
disbursements for purchases that would appear in the April cash budget would
be:
A) $180,000
B) $157,500
C) $240,000
D) $217,500
Level: Medium LO: 3 Ans:
D
Use the following information
to answer 60-61
LFM 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 $16.00 per direct labor-hour. Management would
like you to prepare a Direct Labor Budget for June.
60. The budgeted direct labor
cost per unit of Product WZ would be:
A) $4.57
B) $19.50
C) $16.00
D) $56.00
Level: Easy LO: 5 Ans:
D
61. The company plans to sell
31,000 units of Product WZ in June. The finished goods inventories on June 1
and June 30 are budgeted to be 100 and 600 units, respectively. Budgeted direct
labor costs for June would be:
A) $1,764,000
B) $504,000
C) $1,708,000
D) $1,736,000
Level: Medium LO: 3,5 Ans: A
Use the following information
to answer 62-63
Marty’s Merchandise has
budgeted sales as follows for the second quarter of the year:
Cost of goods sold is equal to
70% of sales. The company wants to maintain a monthly ending inventory equal to
120% of the cost of goods sold for the following month. The inventory on March
31 was below this target and was only $22,000. The company is now preparing a
Merchandise Purchases Budget for April, May, and June.
62. The desired beginning
inventory for June is:
A) $42,000
B) $35,000
C) $50,000
D) $38,000
Level: Easy LO: 3 Ans:
A
63. The budgeted purchases for
May are:
A) $49,400
B) $50,400
C) $60,000
D) $33,600
Level: Medium LO: 3 Ans:
D
Use the following information
to answer 64-65
Harris, Inc., has budgeted
sales in units for the next five months as follows:
Past experience has shown that
the ending inventory for each month should be equal to 20% of the next month’s
sales in units. The inventory on May 31 contained 1,880 units. The company
needs to prepare a production budget for the next five months.
64. The beginning inventory
for September should be:
A) 820 units
B) 1,880 units
C) 1,460 units
D) 1,080 units
Level: Easy LO: 3 Ans:
D
65. The total number of units
produced in July should be:
A) 9,260 units
B) 7,700 units
C) 7,800 units
D) 7,900 units
Level: Easy LO: 3 Ans:
B
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