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Exam 7: Planning for Profit and Cost Control

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Question 21

Multiple Choice

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

A) Expected purchase price of each product.
B) Expected unit sales of each product.
C) Expected selling price of each product.
D) All of the answers are correct.

E) None of the above
F) C) and D)

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Question 22

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Which of the following cash budget equations is incorrect?

A) Cash payments + cash receipts = cash requirements
B) Beginning cash + cash receipts = total cash available
C) Cash payments + cash cushion = total cash needed
D) Period one ending cash balance = period two beginning cash balance

E) B) and C)
F) A) and D)

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Question 23

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Jason had been operating his machine for an entire month before he realized that it was generating more scrap than usual. Which advantage of budgeting would have helped him identify this problem sooner?

Scranton Company expects to begin operating on July 1, Year 1. The company's master budget contained the following operating expense budget: $\begin{array} { | l | r | r | r | } \hline &\text { July } & \text { August } & \text { September } \\\hline \text { Salary expense } & \$ 36,000 & \$ 36,000 & \$ 36,000 \\\hline \text { Sales commissions, } 5 \% \text { of sales } & 30,000 & 32,000 & 24,000 \\\hline \text { Utilities } & 2,800 & 2,800 & 2,800 \\\hline \text { Depreciation on store equipment } & 1,000 & 1,000 & 1,000 \\\hline \text { Rent } & 7,200 & 7,200 & 7,200 \\\hline \text { Miscellane ous } & 1,800 & 1,800 & 1,800 \\\hline \text { Total operating expenses } & \$ 78,800 & \$ \quad 80,800 & \$ 72,800 \\\hline\end{array}$ 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 commissions payable that would appear on the company's pro forma balance sheet as of September 30, Year 1 is:

The basic cash budget format is: Total cash available - Total cash disbursed = Surplus or shortage of cash +/ - Effects of financing = Ending cash.

Select the correct statement about budgeting and human behavior.

In a participative budgeting system, budget information flows in both directions, from bottom to top, and from top to bottom.

What is the total amount of S&A expenses for the fourth quarter that the company will report on its pro forma income statement?

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

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

The budgeting technique that provides for employee input into the planning process is known as:

Hilliard Company budgeted the following transactions for April Year 2: $\begin{array} {| l | r | } \hline \text { Sales (75\% collected in month of sale) } & \$ 200,000 \\\hline \text { Cash Operating Expenses } & 105,000 \\\hline \text { Cash Purchases of Investments } & 75,000 \\\hline \text { Cash Payment of Debt } & 15,000 \\\hline \text { Depreciation on Operating Assets } & 12,000 \\\hline\end{array}$ The beginning cash balance was $50,000. The company desires to have a $25,000 ending cash balance. The surplus (or shortage) of cash before considering any financing activities (that is, borrowings or repayments) during in April would be:

Which of the following accounts would appear on the inventory purchases budget and pro forma balance sheet?

Budgeted depreciation expense would not appear on a:

Select the correct statement regarding the selling and administrative (S&A) expense budget.

Four purposes or advantages for budgeting involve planning, coordination, performance measurement, and punitive action.

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

Bonnie's Bakery is a relatively small company that makes pies, cakes, and cookies sold in supermarkets. Sales employees' bonuses are determined based on meeting or exceeding the budget. For the coming year, sales employees have set a budget target of 3 percent for sales growth. The market has been growing at 6 percent, and the company has averaged 10 percent growth for the last two years. What is the problem here, and how can it be fixed?

The accountant for Haven Industries could not prepare the following budgets because an item of information is missing for each one. Identify the missing items needed prior to preparing each budget.

Bantam Industries has budgeted the following information for March: $\begin{array} { | l | r | } \hline \text { Cash receipts } & \$ 271,000 \\\hline \text { Beginning cash balance } & 5,000 \\\hline \text { Cash payments } & 280,000 \\\hline \text { Desired ending cash balance } & 25,000 \\\hline\end{array}$ If there is a cash shortage, the company borrows money from the bank. All cash is borrowed at the beginning of the month in $1,000 increments and interest is paid monthly at 1% on the first day of the following month. The company had no debt before March 1^st. How much cash will the company need to borrowed in March?