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Exam 7: Planning for Profit and Cost Control

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Question 61

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Spacely Sprockets' sales budget shows the following expected total sales: $\begin{array}{|l|l|}\hline \text { Month } & \text { Sales } \\\hline \text { Jamuary } & \$ 30,000 \\\hline \text { February } & \$ 40,000 \\\hline \text { March } & \$ 35,000 \\\hline \text { Apnil } & \$ 30,000 \\\hline\end{array}$ The company expects 80% of its sales to be on account (credit sales).Credit sales are collected as follows: 30% in the month of sale,68% in the month following the sale with the remainder being uncollectible and written off in the month following the sale. Required: a)Calculate budgeted accounts receivable at the end of each month from February through April. b)Calculate budgeted cash inflows from collection of receivables for each month from February through April.

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Question 62

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The marketing department is primarily responsible for establishing the sales forecast.

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Question 63

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The budgeting process formalizes and documents managerial plans to clearly communicating objectives to both superiors and subordinates.This budgeting requirement is an example of:

Select the correct statement.

Barnes Company expects to begin operating on January 1.The company's master budget contained the following operating expense budget: $\begin{array} { | l | r | r | r | } \hline & { \text { January } } & \text { February } & { \text { March } } \\\hline \text { Salary expense } & \$ 36,000 & \$ 36,000 & \$ 36,000 \\\hline \text { Sales commissions, } 5 \% \text { of sales } & 30,000 & 32,000 & 24,000 \\\hline \text { Utilities } & 2,800 & 2,800 & 2,800 \\\hline \text { Depreciation on store equipment } & 1,000 & 1,000 & 1,000 \\\hline \text { Rent } & 7,200 & 7,200 & 7,200 \\\hline \text { Miscellane ous } & 1,800 & 1,800 & 1,800 \\\hline \text { Total operating expenses } & \$ 78,800 & \$ \quad 80,800 & \$ 72,800 \\\hline\end{array}$ Sales commissions are paid in cash in the month following the month in which the expense is recognized.All other expense items requiring cash payment are paid in the month in which they are recognized.The amount of accumulated depreciation appearing on the company's March 31 pro forma balance sheet is:

Which of the following items would be least useful in preparing a schedule of cash receipts?

Select the correct statement about the master budget.

When a company's district managers submitted their preliminary budget proposals,top management discovered that the southern district manager had requested a new project management information system.Unfortunately,the system is incompatible with the system used at headquarters.Which of the following advantages of budgeting reduces the likelihood that the company will end up with two incompatible systems?

Which of the following budgets or schedules uses data contained in the selling and administrative expense budget?

Select the incorrect statement about budgeting committees.

Which of the following items is not needed to prepare an inventory purchases budget for a merchandising business?

If a budgeting system is designed correctly,top management will not have to get involved in the process.

Budgeted sales commissions would appear on the:

The inventory purchases budget is based on which budget?

Which of the following is a benefit of participative budgeting?

Tableware Unlimited Company plans to sell china and other dining-related items over the internet.The company plans to begin business on January 1,Year 1.The company's accountant has prepared the following sales budget for the first quarter of Year 1: $\begin{array}{c}\begin{array}{|l|}\hline\\\hline\\\text { Budgeted Sales }\\\hline\end{array}\begin{array}{c|}\hline\text {January}\\\hline\\\$ \quad 200,000 \\\hline\end{array}\begin{array}{c|}\hline\text {February}\\\hline\\ \$ \quad 250,000\\\hline\end{array}\begin{array}{c|}\hline\text {March}\\\hline\\ \$ \quad 300,000\\\hline\end{array}\begin{array}{c|}\hline\text {First Quarter}\\\hline\\ \$ \quad 750,000 \\\hline\end{array}\end{array}$ In anticipation of preparing a cash budget,the accountant needs to compute the expected monthly cash collections.Because the company is new and has no collection experience of its own,the accountant contacted an industry trade group and obtained the following industry collection data: Collections on account: 70% in the month of sale 20% in the month following sale 6% in the second month following sale Uncollectible accounts have averaged 4% of receivables.The company gives a 2% discount for payments made by customers during the month of sale. Required: Prepare a schedule of cash collections from sales by month and in total for the first quarter.

The Game Zone sells computer and other electronic games.The store has budgeted sales for January Year 2 as indicated in the following table.The company expects a 4 percent increase in sales for the month of February and a 3 percent increase for March. $\begin{array}{|l|r|c|c|}\hline \text {Sales }& \text { January } & \text { February } & \text { March } \\\hline \text {Cash sales }&\$\quad40,000 & ? & ? \\\hline \text {Sales on account }&\underline {\$\quad80,000} & ? & ? \\\hline \text {Total budgeted sales}& \$\quad120,000 & ? & ? \\\hline\end{array}$ Required: (a)Complete the sales budget by filling in the missing amounts. (b)What is the amount of sales revenue the company will report on its pro forma income statement for the first quarter?

Pro forma financial statements are prepared at the end of the year and are used to evaluate the performance of managers.

Which of the following items is not needed to prepare a sales budget by product line?

Which of the following would not be included in a selling and administrative expenses budget?