Chapter 10

CHAPTER 10
BUDGETARY PLANNING
SUMMARY OF QUESTIONS BY OBJECTIVES AND BLOOMS TAXONOMY
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Multiple Choice Questions

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Short Answer Essay

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Multi-Part Question
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Budgetary Planning
10-3
SUMMARY OF STUDY OBJECTIVES BY QUESTION TYPE

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10-4
Test Bank for Managerial Accounting, Third Canadian Edition
CHAPTER STUDY OBJECTIVES

1. Explain how management uses budgeting as a planning tool. Management uses a
budget to state in financial terms the companys plans and objectives for a specified future
time period. It is a way to communicate agreed-upon objectives throughout the
organization, evaluate financial performance, promote efficiency, and discourage waste
and inefficiency.
2. Prepare the various operating budgets and identify the sources for preparing the
budgeted income statement. Individual budgets are prepared using forecasts, generally
by quarter, for the following operating activities and expenses, in this sequence: sales,
production, direct materials, direct labour, manufacturing, and selling and administrative
expenses. Together, the operating budgets are used to prepare the budgeted income
statement.
3.
Prepare the cash budget and the budgeted balance sheet. The cash budget, which
shows expected cash flows, contains three sections (cash receipts, cash disbursements,
and financing) and the beginning and ending cash balances. The budgeted balance sheet,
which is a projection of the companys financial position at the end of the budget period,
lists assets and liabilities and shareholders equity. It is developed from the budgeted
balance sheet for the preceding year and the budgets for the current year.
4.
Explain the applicability of budgeting in non-manufacturing companies.

Merchandisers may use budgeting for development of a master budget. In service
enterprises, budgeting is a critical factor in coordinating staff needs with anticipated
services. In not-for-profit organizations, the starting point in budgeting is usually
expenditures, not receipts.
Budgetary Planning
10-5
TRUE-FALSE STATEMENTS
1.
Budgets represent managements plans in financial terms.
2.
Budgets promote efficiency and serve as a deterrent to waste.
3.
A budget can be a means of communicating a company's objectives to external parties.
4.
A budget facilitates coordination of activities within the business but is a poor tool for
evaluating performance.
5.
A budget is more beneficial if accepted by lower level management.
6.
The budget itself and the administration of the budget are the responsibility of
management.
7.
The most common budget period is one year.
8.
The flow of input data for budgeting should be from the lowest levels of responsibility to
the highest level.
9.
Budgets, by their very nature, create a negative effect on human behaviour within
companies because they imply that management is trying to control.
10.
A budget committee coordinates the budget activities of a company.
11.
The shorter the budget period, the more reliable the estimates of future outcomes.
12.
Upper level managers are responsible for preparing the entire budget.
13.
The last step in the budgeting process is developing a sales forecast.
14.
Budgeting and long-range planning differ in the emphasis and the time period involved.
15.
Long-range plans are used primarily as an evaluation of specific results to be achieved.
10-6
16.
Long-range plans reflect management's long-term plans encompassing five years or

more.
17.
The master budget consists of a plan of action for a specified time period.
18.
Operating budgets must be completed before the financial budgets can be prepared.
19.
The production budget must be completed before the materials purchases budget
because the number of units to be produced must be known to determine how much
material to buy.
20.
The number of direct labour hours needed for production is obtained from the direct labour
budget.
21.
Companies can use either a predetermined overhead rate or a manufacturing overhead

budget.
22.
The manufacturing overhead budget generally has separate sections for variable and
fixed costs.
23.
A sales budget should be prepared before the production budget.
24.
The direct materials budget contains only quantity data so the purchasing department
knows how much materials should be purchased.
25.
The budgeted income statement indicates the expected amount of cash expected to be
acquired from operations.
26.
Companies that do not prepare cash budgets have significant cash deficiencies.
27.
In preparing the budgeted balance sheet, management should not be concerned if it does
not balance since it does not reflect actual results.
28.
The first budget prepared should be the sales budget.
29.
A merchandiser has a merchandise purchases budget, and a manufacturer has a

materials purchases budget.
Budgetary Planning
30.
A service company has no purchases budget.
10-7
10-8
ANSWERS TO TRUE-FALSE STATEMENTS

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Budgetary Planning
10-9
MULTIPLE CHOICE QUESTIONS

31.
At January 1, 2012, Barry, Inc. has beginning inventory of 5,000 widgets. Barry estimates
it will sell 40,000 units during the first quarter of 2012 with a 5% increase in sales each
quarter. Barrys policy is to maintain an ending inventory equal to 10% of the next
quarters sales. Each widget costs $2 and is sold for $3. How much is budgeted sales
revenue for the third quarter of 2012?
a. $44,100
b. $120,000
c. $132,300
d. $119,070
32.
Wacos Widgets plans to sell 22,000 widgets during May, 19,000 units in June, and 20,000
during July. Wacos policy is to keep10% of the next months sales as ending inventory.
How many units should Waco produce during June?
a. 18,900
b. 21,000
c. 19,100
d. 19,000
33.
Gottberg Mugs is planning to sell 2,000 mugs and produce 2,200 mugs during April. Each
mug requires 2 kilograms of resin and one-half hour of direct labour. Resin costs $1 per
kilogram and employees of the company are paid $12.50 per hour. Manufacturing
overhead is applied at a rate of 120% of direct labour costs. Gottberg has 2,000 kilograms
of resin in beginning inventory and wants to have 2,400 kilograms in ending inventory.
How much is the total amount of budgeted direct labour for April?
a. $12,500
b. $13,750
c. $25,000
d. $27,500
34.
During December, the capital budget indicates a $280,000 purchase of equipment. The
ending November cash balance is budgeted to be $40,000. Cash receipts are $840,000,
and cash disbursements are $610,000 during December. The company wants to maintain
a minimum cash balance of $20,000. What is the minimum cash loan that must be
planned to be borrowed from the Bank during December?
a. $30,000
b. $10,000
c. $50,000
d. $0
35.
Lewis Hats is planning to sell 650 straw hats. Each hat requires kilogram of straw and
hour of direct labour. Straw costs $0.20 per kilogram and employees of the company are
paid $22 per hour. Lewis has 80 kilograms of straw and 40 hats in beginning inventory and
wants to have 50 kilograms of straw and 60 hats in ending inventory. How many units
should Lewis Hats produce in April?
a. 650
10-10
b.
c.
d.
670
610
710
36.
Looker Hats is planning to sell 1,000 felt hats, and 800 will be produced during June. Each
hat requires .75 metres of felt and 1/2 hour of direct labour. Felt costs $5.00 per metre and
employees of the company are paid $15 per hour. How much is the total amount of
budgeted direct labour for June?
a. $9,750
b. $45,000
c. $6,000
d. $7,500
37.
Weaver, Inc. has budgeted direct materials purchases of $150,000 in March and $240,000
in April. Past experience indicates that the company pays for 70% of its purchases in the
month of purchase and the remaining 30% in the next month. Other costs are all paid
during the month incurred. During April, the following items were budgeted:
Wages expense
Purchase of office equipment
Selling and administrative expenses
Depreciation expense
Accounts Receivable write-offs
$75,000
36,000
24,000
18,000
10,000
How much is budgeted cash disbursements for April?

a. $324,000
b. $213,000
c. $348,000
d. $366,000
Use the following information for questions 38, 39, and 40.
Livanos, Inc. reports all its sales on credit, and pays operating costs in the month incurred. Amounts
for 2012 are:
Budgeted sales
Budgeted purchases
March
$300,000
$144,000
April
$290,000
$120,000
May
$320,000
$128,000
June
$280,000
$132,000
July
$210,000
$90,000
Customer amounts on account are collected 70% in the month of sale and 30% in the
following month.
Cost of goods sold is 60% of sales.
Livanos purchases and pays for merchandise 40% in the month of acquisition and 60% in
the following month.
Operating expenses are: Salaries, $50,000; Depreciation, $12,000; Rent, $15,000; and
Utilities, $14,000;
Accounts payable is used only for inventory acquisitions.
Budgetary Planning
10-11
38.
How much cash will Livanos receive during May from customers?
a. $308,000
b. $311,000
c. $224,000
d. $299,000
39.
How much is Livanos May 30, 2012 budgeted Accounts Receivable?

a. $320,000
b. $96,000
c. $224,000
d. $311,000
40.
How much is Livanos budgeted balance for Accounts Payable at May 30, 2012?
a. $124,800
b. $72,000
c. $51,200
d. $76,800
41.
Orr Corporations manufacturing costs for August when production was 750 units appears
below:
Direct material
$7 per unit
Direct labour
$6,000
Variable overhead
3,000
Factory Depreciation
2,000
Factory supervisory salaries
7,000
Other fixed factory costs
1,500
How much is the budgeted manufacturing cost for a month when 500 units are produced?
a. $13,000
b. $16,500
c. $20,000
d. $9,000
42.
Lewis Production is planning to sell 220 boxes of bricks and produce 200 boxes of bricks
during May. Each box of bricks requires 20 kilograms of brick mix and a half hour of direct
labour. Brick mix costs $5 per 100 kilograms and employees of the company are paid
$12.00 per hour. Manufacturing overhead is applied at a rate of 120% of direct labour
costs. Lewis Production has 600 kilograms of brick mix in beginning inventory and wants
to have 800 kilograms of brick mix in ending inventory. What is the total amount to be
budgeted for manufacturing overhead for the month?
a. $1,440
b. $2,640
c. $2,400
d. $1,200
10-12
43.
Hargrow, Inc. makes and sells a single product, buckets. It takes 30 ounces of plastic to
make one bucket. Budgeted production of buckets for the next three months is as follows:
August 90,000 units, September 75,000 units, October 65,000 buckets. The company
wants to maintain monthly ending inventories of plastic equal to 10% of the following
month's production needs. On August 31st, 195,000 ounces of plastic were on hand. The
cost of plastic is $0.03 per ounce. How much is the ending inventory of plastic to be
reported on the companys balance sheet at September 30?
a. $195,000
b. $5,850
c. $6,750
d. $7,500
44. Razmataz Company makes and sells umbrellas. 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:
Item
Sales commissions
Shipping
Advertising
Depreciation on office equipment
Other operating expenses
Variable Cost Per Unit Sold

$0.60
$1.20
$0.30
$0.35
Monthly Fixed Cost

$3,000
$4,000
$34,000
Expenses are paid in the month incurred. If the company has budgeted to sell 2,000
umbrellas in October, how much is the total budgeted variable selling expenses for
October?
a. $41,000
b. $4,600
c. $4,900
d. $1,800
45.
Leak Company sells only on credit. It reported the following information for 2012:
Budgeted sales
September
$900,000
October
$800,000
November
$850,000
December
$960,000
following month. How much is the November 30, 2009 budgeted Accounts Receivable?
a. $467,500
b. $382,500
c. $827,500
d. $528,000
Use the following information for questions 46 and 47.
At January 1, 2012, Jake, Inc. has beginning inventory of 4,000 surfboards. Jake estimates it will
sell 15,000 units during the first quarter of 2012 with a 10% increase in sales each quarter. Jakes
policy is to maintain an ending inventory equal to 25% of the next quarters sales. Each surfboard
costs $200 and is sold for $250.
Budgetary Planning
10-13
46.
How many units should Jake produce during the first quarter of 2012?
a. 15,125
b. 15,000
c. 12,500
d. 11,000
47.
How much is budgeted sales revenue for the third quarter of 2012?
a. $18,150
b. $4,537,500
c. $907,500
d. $3,750,000
48.
Items from Sap Companys budget for March in which 2,100 units were produced and sold
appear below:
Direct materials
Indirect materials - variable
Supervisor salaries
Depreciation on factory equipment
Direct labour
Property taxes on factory
Total
$12,000
2,000
10,000
8,000
7,000
3,000
$42,000
At 2,200 units, how much are budgeted variable manufacturing costs?

a. $22,000
b. $43,000
c. $21,000
d. $19,905
49.
Nunnallikash Manufacturing Company has furnished the following information which

occurred during May:
Accounts Payable balance at April 30
Purchases on account during May
Cash payments for materials purchased in April
Cash payments for materials purchased in May
$ 29,000
150,000
82,000
76,000
The accounts payable account is used only for direct materials. How much will
Nunnallikash report as accounts payable on the balance sheet at the end of May?
a. $21,000
b. $103,000
c. $8,000
d. $15,000
50.
Harrah Company provided the following information for the month of October:
10-14
Beginning cash balance

Cash receipts
Cash disbursements
$ 35,000
460,000
485,000
Harrahs policy is to keep a minimum end of the month cash balance of $30,000. How
much will Harrahs need to borrow during August?
a. $20,000
b. $25,000
c. $10,000
d. $0
51.
Each production worker can produce 5 wooden chairs per hour. During the month of June,
Chairs, Inc. has forecasted sales of 100,000 chairs. The beginning inventory was 1,000
chairs, and desired ending inventory is 2,500 chairs. How many hours of direct labour
must be budgeted to meet production needs?
a. 20,300
b. 20,000
c. 21,200
d. 19,700
52.
Jelly Box, Inc. budgeted the following manufacturing costs for 25,000 calculators:
Fixed manufacturing costs
Variable manufacturing costs
$12,000 per month

$16.00 per unit
Jelly Box produced 20,000 calculators during March. How much is budgeted total
manufacturing costs in March?
a. $320,000
b. $412,000
c. $400,000
d. $332,000
53.
Which one of the following is correct concerning a budget period?

a. A budget is prepared to summarize the organizations activity for the month,
quarter or year just completed.
b. A budget can be prepared for any period of time.
c. A budget must be prepared for a one year period.
d. A budget can be prepared for any period of time, but once that period has been
adopted it cannot be changed.
54.
The master budget contains which two classes of budgets?

a. The master budget and subsidiary budgets
b. The primary and secondary budgets
c. The historical and current budgets
d. The operating budgets and financial budgets
55.
The bottoms-up approach to budgeting is also referred to which of the following?
Budgetary Planning
a.
b.
c.
d.
10-15
Zero-based budgeting
Grassroots budgeting
Participative budgeting
Cooperative budgeting
56.
What is a disadvantage of the bottoms-up approach to budgeting?

a. Lower level management is not apt to know as much about their specific area as
upper management who has a better view of the overall picture.
b. When lower management is part of the budgeting process they are less likely to
buy into it.
c. It is time consuming and therefore more costly.
d. It is more apt to be widely seen as unrealistic than is the case with a top-down
approach.
57.
Which of the following is not a benefit of budgeting?

a. It promotes efficiency.
b. It deters waste.
c. It is a basis for performance evaluation.
d. It assures the company that management will perform at a particular operational
level.
58.
Which budget is normally prepared first?

a. The production budget
b. The sales budget
c. The budgeted income statement
d. The cash budget
59.
What is budgetary slack?

a. It is the tolerance that is built into budgets to recognize that actual results will not
match budgeted projections exactly.
b. It is the process where managers intentionally underestimate budgeted revenues
or overestimate budgeted expenses in order to make it easier to achieve
budgetary goals.
c. It is the amount that actual results vary from budgeted projections as reported at
the end of the budget period.
d. It is the process where upper management underestimates budgeted revenues or
overestimates budgeted expenses in order to motivate lower management.
60.
Which one of the following is necessary if a company expects its budget to be effective?
a. The company must be operating at less than capacity.
b. The budget period must cover more than one year.
c. The companys organizational structure must be sound.
d. The company must have sufficient cash for operations.
61.
Which of the following individuals should accept the companys budgets in order for the
budgets to be most effective?
10-16
a.
b.
c.
d.
Division managers and customers

Department heads and division managers
Supervisors and clerks
Department heads and creditors
62.
Which of the following approvals will make the most effective environment for budget
acceptance?
a. The budget is prepared by top management.
b. The budget preparation contains input from all levels of management.
c. The budget is prepared by the department heads.
d. Acceptance has nothing to do with who prepares budgets.
63.
Which of the following statements is correct?

a. Long-range planning is just another term for budgeting.
b. Budgeting and long-range planning differ with respect to emphasis, detail and
time period.
c. The only difference between budgeting and long-range planning is the time
frame.
d. Budgeting is the first step in long-range planning.
64.
Which one of the following would most likely cause an unrealistic budget to result?
a. All levels of management contributed to its development.
b. The budget has been developed in a participative approach.
c. The budget was developed after considerable planning.
d. The budget has been developed in a top down fashion.
65.
Under what situation might a budget be most effective?

a. As a tool to assess blame when costs are too high
b. When used to evaluate a manager's performance
c. Budgets are equally effective in all situations.
d. When it is created by top management
66.
In many companies, who is assigned the responsibility for coordinating the preparation of
the budget?
a. A budget committee
b. The sales managers since the sales budget is the backbone of the master budget
c. The company's board of directors since they approve major corporate changes
d. The company's independent certified general accountants
67.
Which one of the factors below is not a major influence on the length of budget periods?
a. The nature of the organization
b. The type of budget
c. Prevailing business conditions
d. The profitability of the company
Budgetary Planning
10-17
68.
Which one of the following is an advantage of using participative budgeting?

a. It is updated daily to reflect current activity.
b. It assures the company is operating at the activity level of the master budget.
c. It allows companies to compare the current with the previous year.
d. Lower level managers are more likely to perceive budgets as fair.
69.
What is a continuous budget?

a. It is a budget that is constantly being revised as new information is gained.
b. It is a budget that covers every aspect of the production process from the
purchase of raw materials to the collection of revenue from sales.
c. It is a budget where the time period just completed is dropped and an equal
future time period is added.
d. It is a term used to describe a budget that is prepared by a budget committee that
meets on a continuous basis.
70.
Crown, Inc. administered its budget. What did the company do?
a. It prepared the budget one year in advance.
b. Management used the budget as an aid in achieving projected goals.
c. The company allowed each level of management to participate in creating the
budget.
d. Management estimated its sales for the budget period.
71.
Which one of the following includes people who normally make up the budget committee?
a. Sales manager, company president, company treasurer
b. Company treasurer, creditors, controller
c. Sales manager, controller, investors
d. External auditors, controller, treasurer
72.
Which problem might be a result of an unrealistic budget?

a. Profitable operations
b. Reduced employee morale
c. Favourable operating activity
d. Minimal differences between actual and budgeted amounts
73.
How does long-range planning compare to a master budget?

a. It focuses on meeting profit objectives instead of strategies to achieve those
goals.
b. It is less detailed than an annual budget.
c. It is prepared by the president, unlike a master budget which is prepared by a
budget committee.
d. It generally encompasses a shorter period of time than a master budget.
74.
What three differences exist between long-range planning and budgeting?

a. Amount of detail, content, and emphasis
b. Time periods involved, amount of detail, and content
c. Content, emphasis, and amount of detail
10-18
d.
Emphasis, time periods involved, and amount of detail
75.
Which of the following is a proper match-up?

a. Long-range planning 1 year
b. Budgeting Review of progress
c. Budgeting Anticipated trends in economic environment
d. Long range planning Strategies
76.
DaDum Company desired 12,000 kilograms of raw material on hand on June 1 and
10,500 on June 30. The number of kilograms required for production for June totalled
240,000 kilograms. How many kilograms of raw material should DaDum purchase in
June?
a. 238,500 kilograms
b. 241,500 kilograms
c. 250,500 kilograms
d. 228,000 kilograms
77.
Which budget provides the information needed to prepare the direct labour budget?
a. Income budget
b. Production budget
c. Materials budget
d. Sales budget
78
In preparing one of its budgets, Hartz, Inc. used information from both the direct materials
and direct labour budgets. Which budget was Hartz preparing?
a. Sales budget
c. Manufacturing overhead budget
d. Cash budget
79.
How does a sales forecast differ from a sales budget?

a. A sales forecast includes the company, while a sales budget includes the
industry.
b. A sales forecast includes the company and the industry, while a sales budget
includes only the industry.
c. A sales forecast includes the company and the industry, while a sales budget
includes only the company.
d. They are both the same.
80.
Which one of the following is an operating budget?

a. Cash budget
b. Sales budget
c. Budgeted balance sheet
d. Capital expenditure budget
Budgetary Planning
10-19
81.
Which one of the following is a financial budget?

a. Capital expenditure budget
c. Manufacturing overhead budget
d. Sales budget
82.
Which one of the following helps improve the reliability of the sales forecast?
a. Reduction of differences between actual and estimated amounts
b. Creation of management awareness
c. Consideration of industry trends
d. Extension of the budget period
83.
Which one of the following sets includes only financial budgets?

a. Cash budget and the operating budget
b. Sales budget and the budgeted balance sheet
c. Budgeted balance sheet and the cash budget
d. Cash budget and the sales budget
84.
Which one of the following is the last step in preparing the operating budget?
a. Budgeted income statement
c. Cash budget
d. Budgeted balance sheet
85.
What might a very conservative sales budget cause?

a. A decrease in selling prices
b. A shortage of inventories
c. Increased sales during the year
d. Overproduction of goods
86.
Which of the following is correct?

a. Beginning raw material inventory + raw material required for production desired
ending raw material inventory = required raw material to be purchased.
b. Beginning raw material inventory + desired ending raw material inventory raw
material required for production = required raw material to be purchased.
c. Raw material required for production + beginning raw material inventory desired
ending raw material inventory = required raw material to be purchased.
d. Raw material required for production + desired ending raw material inventory
beginning raw material inventory = required raw material to be purchased.
87.
What information is found on the direct materials budget?

I.
How many units of direct materials should be purchased?
II.
How much is the cost of direct materials to be purchased?
a. I only
b. II only
c. Both I and II
10-20
d.
Neither I nor II
88.
Surprise Companys sales budget showed expected sales of 13,400 widgets. Beginning
finished goods contained 1,200 widgets. The company determined that 14,100 units
should be produced. How many widgets will the company have on hand at the end of the
year?
a. 500
b. 1,200
c. 1,900
d. 700
89.
The production budget shows expected unit sales are 1,800. The required production
units are 1,700. Which of the following represents possible inventory balances?
Beginning Units Ending Units
a.
200
100
b.
100
200
c.
200
200
d.
0
100
90.
The production budget shows that expected unit sales are 86,000 for May and 87,000 for
June. The company desires to have units on hand at the end of the month equal to 10% of
next months sales. How many units should the company produce during May?
a. 86,100
b. 94,600
c. 85,900
d. 94,700
91.
Nextel Company showed the following on its direct materials budget for June:
Units to be produced
Total kilograms needed for production
Total kilograms of materials to be purchased
25,000
10,000
9,000
The materials cost $2 per kilogram. How much is the cost of direct materials per unit?
a. $0.80
b. $0.72
c. $1.52
d. $5.00
92.
Drive, Inc. determined its estimated production for the month is 300,000 units. Each unit
requires 2 kilograms of material. The beginning direct materials are 1% of the current
months expected needs. Ending inventory desired is 7,500 kilograms. How much are
estimated direct materials purchases in kilograms?
a. 601,500 kilograms
b. 607,500 kilograms
c. 301,500 kilograms
d. 598,500 kilograms
Budgetary Planning
93.
10-21
The direct materials budget shows:

Desired ending direct materials
Materials purchased
Beginning inventory on hand
2,000 kilograms
51,400 kilograms
1,200 kilograms
How much are the total direct materials needed for production?
a. 50,600 kilograms
b. 52,600 kilograms
c. 52,200 kilograms
d. 51,400 kilograms
94.
Which one of the following expenses would most likely appear on a Selling and
Administrative Expense Budget?
a. Indirect materials
b. Machine depreciation
c. Sales commissions
d. Indirect labour
95.
Which of the following would most likely appear as a fixed expense on the Selling and
Administrative Expense Budget?
a. Delivery expense
b. Factory supervisor salary
c. Indirect labour
d. Depreciation
96.
Which one of the following best describes a master budget?

a. It is an interrelated long-term plan and operating budgets.
b. It includes financial budgets and a long-term plan.
c. It includes interrelated financial budgets and operating budgets.
d. It is all the accounting journals and ledgers used by a company.
97.
What is the starting point in preparing a master budget?

a. The production budget
b. The sales budget
c. The direct labour budget
d. The purchases budget
98.
Which of the following is needed to prepare a sales budget?

a. The sales forecast
b. Number of units of finished goods in inventory
c. The production capacity of the organization
d. Estimated cost of goods sold
10-22
99.
Spirit, Inc. budgeted sales are 433,000 units for January and 420,000 units for February.
The companys policy requires maintaining units on hand at the end of each month equal
to 8% of next month's budgeted unit sales. How many units should the company produce
in January?
a. 442,700 units
b. 423,300 units
c. 466,600 units
d. 431,960 units
100.
Jason Company determined that the budgeted cost of producing a product is $1.20 per
unit. On June 1, there were 11,000 units on hand. The sales department budgeted sales
of 320,000 units in June. The company desires to have 8,000 units on hand on June 30.
How much is the budgeted cost of goods manufactured for June?
a. $380,400
b. $317,000
c. $323,000
d. $387,600
101.
Of the following items, which one is found as the bottom amount on an individual budget?
a. Total variable costs
b. Required production units
c. Cost of production
d. Financing needed
102.
Which of the following statements about a budgeted income statement is true?

a. It is prepared before the operating budgets are prepared.
b. It reflects the cash to be received and paid as a result of operations.
c. It is prepared after the cash budget is prepared.
d. It is prepared using the individual operating budgets.
103.
Which one of the following is a source of information used to prepare the budgeted
income statement?
a. Cash budget
b. Budgeted balance sheet
c. Capital expenditures budget
d. Selling and administrative expense budget
104.
Which one of the following is the end-product of the operating budgets?

a. The budgeted balance sheet
b. The budgeted income statement
c. The capital expenditure budget
d. The cash budget
105.
Why is the sales budget the single most important source in preparing budgets?
a. All the other budgets depend on it.
b. It enables the company to determine the unit cost of products.
Budgetary Planning
c.
d.
10-23
It is the best determination of profitability of a company.

It is the only budget that requires estimates.
106.
Which one of the following is the format of the cash budget?

a. Beginning cash balance plus total receipts equals ending cash balance.
b. Beginning cash balance plus total receipts less total disbursements equals
ending cash balance.
c. Total cash receipts minus total cash disbursements equals total available cash.
d. Total cash receipts minus total cash disbursements plus beginning cash balance
less ending cash balance equals total cash available.
107.
Which one of the following budgets would be used by all of the following entities:
manufacturing firms, merchandise firms, service firms and not-for-profit organizations?
a. Production budget
b. Merchandise purchase budget
c. Cash budget
d. Direct material budget
108.
In what order are the following budgets prepared?

IS. Budgeted income statement
P.
Production budget
SA. Selling and administrative budget
MP. Materials purchases budget
a. SA, P, MP, IS
b. P, MP, IS, SA
c. P, MP, SA, IS
d. MP, P, SA, IS
109.
Sundy Company provided the following information for the month of August:
Cash receipts
Cash disbursements
$ 7,000
549,000
523,000
Sundy borrowed $15,000 and repaid $16,000 during the month. How much will Sundys
report on its budgeted balance sheet at August 31 for cash?
a. $32,000
b. $33,000
c. $26,000
d. $25,000
110.
What information is reflected on the cash budget?

a. All revenues and all expenses for a period
b. The expected cash receipts and cash disbursements from all sources
c. All the amounts that appear on a budgeted income statement
d. All the revenues and cash inflows and all expenses and cash outflows for a
period
10-24
111.
Which one of the following sections appears on a cash budget?

a. Expenses
b. Financing
c. Revenues
d. Sales
112.
The following credit sales are budgeted by Polex Electronics:

January
February
March
April
May
$124,000
120,000
135,000
140,000
142,000
The company's past experience indicates that 50% of the accounts receivable are
collected in the month of sale, 30% in the month following the sale, and 18% in the second
month following the sale. Two percent are uncollectible. How much does the company
anticipate as cash receipts for March?
a. $132,300
b. $125,820
c. $135,060
d. $122,300
113.
A company's past experience indicates that 70% of its credit sales are collected in the
month of sale and 28% in the next month. The remainder is never collected. The
companys budgeted credit sales totalled:
January
February
March
$100,000
90,000
110,000
How much are expected cash receipts for February?

a. $102,200
b. $88,200
c. $93,800
d. $91,000
114.
Which one of the following items would never appear on a cash budget?
a. Delivery expense
b. Depreciation expense
c. Cost of material purchases
d. Cash received from customers
115.
What is the purpose of the financing section of a cash budget?

a. To indicate amounts that should be borrowed when the ending cash balance is
less than the prior year
Budgetary Planning
b.
c.
d.
10-25
To indicate amounts that should be borrowed when the ending cash balance is
less than the amount management desires
To indicate amounts that should be borrowed when expenses exceed revenues
To comply with GAAP budgeting requirements
116.
Which statement about the cash budget is correct?

a. It can show managers when additional financing will be necessary.
b. It can show managers when the company will experience a net loss.
c. It can indicate when sales are insufficient.
d. It is also called the statement of cash flows.
117.
Scobee Companys cash budget showed total available cash less cash disbursements.
What does this amount equal?
a. Ending cash balance
b. Total cash receipts
c. The excess (deficiency) of available cash over cash disbursements
d. The amount of financing required
118.
Which one of the following sets of budgets are financial budgets?

a. Budgeted balance sheet and production budget
b. Budgeted income statement and sales budget
c. Capital expenditure budget and cash budget
d. Cash budget and sales budget
119.
Which statement below describes the budgeted balance sheet?

a. It is a projection of financial position of the company at the end of the budget
period.
b. It is developed from the budgeted balance sheet for the preceding year.
c. It is the last operational budget prepared.
d. It shows the costs incurred by the company for the current year.
120.
Which of the following are the sections of the cash budget?

a. Cash receipts, cash disbursements, financing
b. Cash receipts, cash disbursements, expenses
c. Capital expenditures, cash receipts, cash disbursements
d. Cash revenues, cash expenses, cash receipts, cash disbursements
121.
Which one of the following is calculated on a direct labour budget?

a. Number of employees needed
b. Cost per finished goods unit for labour
c. Cost per employee for each unit produced
d. Total required direct labour hours
122.
Which one of the following is a critical factor in budgeting for a service company?
a. Coordinating professional staff needs with anticipated services
10-26
b.
c.
d.
Determining how to allocate the disproportionate costs

Budgeting expenditures before anticipated receipts
Determining client needs
123.
Which one of the following budgets would be prepared for a retail company but not for a
manufacturer?
a. Labour budget
b. Cash budget
c. Merchandise purchases budget
d. Production budget
124.
Which one of the following is used by a merchandiser?

a. Production budgets
b. Manufacturing budgets
c. Material purchases budgets
d. Merchandise purchases budget
125.
Which one of the following is the correct formula for determining budgeted merchandise
purchases?
a. Budgeted sales + desired ending inventory beginning inventory
b. Budgeted production sales + beginning inventory desired ending inventory
c. Budgeted sales cost of goods sold + desired ending inventory beginning
inventory
d. Budgeted sales cost of goods sold + beginning inventory desired ending
inventory
126.
Which one of the following lists the entities which use budgets?
a. Merchandisers and service companies
b. Manufacturing, merchandisers, and service companies
c. Service, retail, and wholesale companies
d. Manufacturers only
127.
Which one of the following is a problem resulting from a service company being
overstaffed?
a. Labour costs will be disproportionately low.
b. Profits will be higher because of the additional salaries.
c. Staff turnover may increase.
d. Revenue may be lost.
128.
Which one of the following statements is true concerning the master budget for a not-forprofit company?
a. It will include only a budgeted balance sheet.
b. It will include a sales budget for sales revenue.
c. The starting point is expenditures rather than receipts.
d. It is based on revenues and expenses and omits cash flows.
Budgetary Planning
10-27
129.
Which statement is true concerning budgeting in not-for-profit organizations?

a. It is not necessary since the goal is not profit-oriented.
b. It usually starts with budgeting receipts, following by expenditures.
c. It is based on cash flows rather than revenues and expenses.
d. The budget must be approved by the shareholders.
130.
What is the starting point for the development of the master budget by merchandisers?
a. Cash budget
b. Sales budget
c. Selling and administrative expenses budget
d. Expenditures budget
131.
Company A is manufacturer and Company B is a merchandiser. What is the difference in

the budgets the two entities will prepare?
a. Company A will prepare a production budget, and Company B will prepare a
merchandise purchases budget.
b. Company A will prepare a sales forecast, and Company B will prepare a sales
budget.
c. Company B will prepare a production budget, and Company A will prepare a
merchandise purchases budget.
d. Both companies prepare the same types of budgets.
132.
On what basis do not-for-profit entities budget?

a. The cash flow basis
b. An accrual basis
c. The non-profit basis
d. A revenue and expense basis
133.
Farley Company reported the following information for 2012:
January
September
October
November December
Budgeted sales
$240,000
$310,000
$290,000
$360,000
$200,000
Budgeted purchases
$90,000
$120,000
$128,000
$144,000
$88,000
All sales are on credit.
following month.
Farley purchases and pays for merchandise 60% in the month of acquisition and 40%
in the following month.
How much cash will Farley receive during November?
a. $145,000
b. $325,000
c. $300,000
d. $290,000
10-28
134.

January
September
October
November December
Budgeted sales
$240,000
$310,000
$290,000
$360,000
$200,000
Budgeted purchases
$90,000
$120,000
$128,000
$144,000
$88,000
Farley purchases and pays for merchandise 60% in the month of acquisition and 40%
How much is the budgeted balance for Accounts Payable at October 31, 2012?
a. $48,000
b. $72,000
c. $102,000
d. $51,200
135.
Which one of the following is a budget that would never be prepared by a merchandising
company?
a. Production budget
b. Cost of goods sold budget
c. Purchases budget
d. Budgeted income statement
136
January
September
October
November December
Budgeted sales
$240,000
$310,000
$290,000
$360,000
$200,000
following month.
How much is the November 30, 2012 budgeted Accounts Receivable?
a. $300,000
b. $180,000
c. $155,000
d. $145,000
137.

January
September
October
November December
Budgeted purchases
$90,000
$120,000
$128,000
$144,000
$88,000
Operating expenses are: Salaries, $50,000; Depreciation, $20,000; Rent, $10,000;
Utilities, $14,000.
Operating expenses are paid during the month incurred.
Budgetary Planning
10-29
How much is the budgeted amount of cash to be paid for operating expenses in
November?
a. $202,000
b. $74,000
c. $94,000
d. $222,000
138.
At January 1, 2012, Ceatric, Inc. has beginning inventory of 10,000 boogie boards. Ceatric
estimates it will sell 7,000 units during the first quarter of 2012 with a 7% increase in sales
each quarter. Ceatrics policy is to maintain an ending inventory equal to 14% of the next
quarters sales. Each surfboard costs $95 and is sold for $130. How much is budgeted
sales revenue for the third quarter of 2012?
a. $80,143
b. $910,000
c. $1,041,859
d. $280,500.50
139.
Sargent.Com plans to sell 2,000 purple lawn chairs during May, 1,900 in June, and 2,000
during July. The company keeps 15% of the next months sales as ending inventory. How
many units should Sargent.Com produce during June?
a. 1,915
b. 2,200
c. 1,885
d. Not enough information to determine.
140.
What sources of information does a manufacturing company use to determine cost of

goods sold?
a. Only the sales budget
b. Only the cost of purchases budget
c. The materials budget, the labour budgets and the overhead budgets
d. The sales and the cost of purchases budget
141.
Secret Prizes, Inc. is planning to sell 200 buckets and produce 190 buckets during March.
Each bucket requires 500 grams of plastic and one-half hour of direct labour. Plastic costs
$10 per 500 grams and employees of the company are paid $15.00 per hour.
Manufacturing overhead is applied at a rate of 110% of direct labour costs. Secret Prizes
has 300 kilos of plastic in beginning inventory and wants to have 200 kilos in ending
inventory. How much is the total amount of budgeted direct labour for March?
a. $1,500
b. $3,000
c. $1,425
d. $2,850
142.
Which is true of budgets?

a. They are voted on and approved by shareholders.
b. They are used in the planning, but not the control process.
10-30
c.
d.
There is a standard form and structure for budgets.

They are used in performance evaluation.
143.
What is the last step in developing the master budget?

a. Preparing the budgeted balance sheet
b. Preparing the cost of goods manufactured budget
c. Preparing the budgeted income statement
d. Preparing the cash budget
144.
During September, the capital expenditure budget indicates a $140,000 purchase of

equipment. The ending September cash balance from operations is budgeted to be
$20,000. The company wants to maintain a minimum cash balance of $10,000. What is
the minimum cash loan that must be planned to be borrowed from the bank during
September?
a. $110,000
b. $120,000
c. $130,000
d. $150,000
145.
Why are budgets useful in the planning process?

a. They provide management with information about the companys past
performance.
b. They help communicate goals and provide a basis for evaluation.
c. They guarantee the company will be profitable if it meets its objectives.
d. They enable the budget committee to earn their paycheque.
146.
Sudler Production is planning to sell 700 boxes of ceramic tile, with production estimated
at 800 boxes during May. Each box of tile requires 23 kilograms of clay mix and a half
hour of direct labour. Clay mix costs $0.75 per kilogram and employees of the company
are paid $20.00 per hour. Manufacturing overhead is applied at a rate of 125% of direct
labour costs. Sudler has 3,000 kilograms of clay mix in beginning inventory and wants to
have 4,000 kilograms in ending inventory. What is the total amount to be budgeted for
manufacturing overhead for the month?
a. $10,000
b. $21,800
c. $27,250
d. $1,250
147.
at 580 boxes during May. Each box of tile requires 44 kilograms of clay mix and a quarter
have 3,000 kilograms in ending inventory. What is the total amount to be budgeted for
direct labour for the month?
a. $2,175
b. $8,700
Budgetary Planning
c.
d.
10-31
$2,250
$34,800
148.
at 580 boxes during May. Each box of tile requires 44 kilograms of clay mix and a quarter
have 3,000 kilograms in ending inventory. What is the total amount to be budgeted in
kilograms for direct materials to be purchased for the month?
a. 25,520
b. 25,120
c. 25,920
d. 26,800
149.
Green Plants plans to sell 160 potted plants during April and 120 units in May. Green
Plants keeps 15% of the next months sales as ending inventory. How many units should
Green Plants produce during April?
a. 154
b. 166
c. 160
d. 178
150.
Swingers Company makes and sells widgets. The company is in the process of preparing
its Selling and Administrative Expense Budget for the month. The following budget data
are available:
Item
Sales commissions
Shipping
Advertising
Executive salaries
Depreciation on office equipment
Other
Variable Cost Per Unit Sold

$1
$3
$4
$2
Monthly Fixed Cost

$5,000
$60,000
$2,000
$3,000
Expenses are paid in the month incurred. If the company has budgeted to sell 40,000
widgets in October, how much is the total budgeted selling and administrative expenses
for October?
a. $470,000
b. $70,000
c. $465,000
d. $400,000
151.
Lowe Ridge has budgeted its activity for December according to the following information:
1. Sales at $500,000, all for cash.
2. Budgeted depreciation for December is $12,500.
3. The cash balance at December 1 was $57,000.
10-32
4. Selling and administrative expenses are budgeted at $35,000 for December and are
paid for in cash.
5. The planned merchandise inventory on December 31 and December 1 is $25,000.
6. The invoice cost for merchandise purchases represents 60% of the sales price. All
purchases are paid in cash.
How much are the budgeted cash disbursements for December?
a. $347,500
b. $335,000
c. $322,500
d. $509,500
152.
Which one of the following is one of the main purposes of preparing a cash receipts and
disbursements budget?
a. To find investment opportunities for anticipated surpluses
b. To reconcile cash on hand
c. To determine production needed
d. To determine how many units need to be sold
153.
Which one of the following represents the correct order in which the budget documents
listed for a manufacturing company would be prepared?
a. Production budget, marketing budget, direct materials budget, indirect labour
budget
b. Sales budget, cash budget, direct materials budget, direct labour budget
c. Selling and administrative expense budget, budgeted income statement, cash
budget, budgeted balance sheet
d. Sales budget, cash budget, marketing budget, direct materials budget
154.
Which of the following is correct regarding the manufacturing overhead budget?

a. The manufacturing overhead budget should include all costs of marketing and
advertising.
b. The budget should show only indirect materials and indirect labour.
c. Manufacturing overhead costs should be broken down by cost behaviour.
d. Total budgeted manufacturing overhead should be calculated using a
predetermined overhead rate.
155.
Streak Merchandising Company expects to purchase $60,000 of materials in July and

$70,000 of materials in August. Three-quarters of all purchases are paid for in the month
of purchase, and the other one-fourth are paid for in the month following the month of
purchase. In addition, a 2% discount is received for payments made in the month of
purchase. How much will August's cash disbursements for materials purchases be?
a. $44,100
b. $54,100
c. $66,450
d. $60,000
Budgetary Planning
156.
10-33
Tripod Exports, Inc. budgets on an annual basis for its fiscal year. The following beginning
and ending inventory levels are planned for the fiscal year of July 1, 2012 to June 30,
2013:
Raw Materials
June 30, 2013

3,000 kilos
June 30, 2012

2,000 kilos
Three kilos of raw materials are needed to produce each unit of finished product. If Tripod
Exports plans to produce 280,000 units during the 2012-2013 fiscal year, how many kilos
of materials will the company need to purchase for its production during the year?
a. 841,000
b. 843,000
c. 840,000
d. 839,000
157.
The following information is taken from the production budget for the first quarter:
Beginning inventory in units
Sales budgeted for the quarter
Capacity in units of production facility
300
114,000
118,000
How many finished goods units should be produced during the quarter if the company
desires 800 units available to start the next quarter?
a. 114,500
b. 113,500
c. 118,500
d. 114,800
158.
Skate Rink Company revised its sales budget to show a 15% increase in sales. As a result
of this change, which other budgets would change?
a. All of its other budgets
b. Only its selling and administrative expenses budget
c. Its marketing budget only
d. Only its production budget
159.
Why might the number of units in the sales budget and the production budget differ?
a. The finished goods inventory levels changed.
b. The direct material inventory levels changed.
c. Excess overhead costs were incurred.
d. Customers returned merchandise.
160.
Budgetary slack means

a. management delays the completion of its annual budget to await important
information.
b. the budgetary process is not given a high priority in the company.
c. the budget contains within it intentional under or over estimated items.
d. the budget must be approved by too many senior levels of management before it
is finalized.
10-34
161.
One difference between a companys long-range planning efforts and its annual budget
preparation is
a. long-range planning documents usually contain more detail than annual budgets.
b. annual budgets usually contain more detail than the long-range planning process.
c. long-range planning documents focus on the companys internal environment
more than annual budgets.
d. annual budgets focus on the external environment more than the long-range
planning process.
162.
Which of the following is not a characteristic of bottom-up budgeting?

a. It encourages organization-wide input into the process.
b. It takes advantage of employees intimate knowledge of operations when
formulating plans.
c. It is not as time consuming as top-down budgeting.
d. It increases employees commitment to achieving budget goals.
163.
The sales budget for the Johnson Company indicates the following units to be sold:
January
20,000
February
30,000
March
24,000
April
28,000
The company requires that ending inventory be equivalent to 30% of the following months
sales. There were no units on hand at the end of December. What is the budgeted
balance in the companys ending inventory account at March 31st expected to be
a. 7,200.
b. 8,400.
c. 6,000.
d. 0.
164.
Using the information in Question 163 above, what is the production that needs to be put
in place to the end of March?
a. 24,000 units
b. 102,000 units
c. 25,200 units
d. 32,400 units
165.
Jaunty Company is preparing its budgeted income statement for the upcoming year. The
proper time to prepare this budget is
a. at the start of the budgetary process so that everyone knows the expected
income for the year.
b. once the sales budget has been done and approved.
c. prior to the completion of the capital budget for the year.
d. generally towards the end of the budgetary process when most other budgets
have been approved.
Budgetary Planning
10-35
166.
Jaunty Company is preparing its budgeted balance sheet for the upcoming year. The
proper time to prepare this budget is
a. at the start of the budgetary process so that comparisons with last years balance
sheet can be made
b. once the capital budget has been done and approved
c. prior to the completion of the cash budget for the year
d. generally towards the end of the budgetary process when most other budgets
have been approved
167.
When looking at the main difference between the budget preparation process of a
manufacturing company and that of a service company
a. manufacturing budgets focus more on the long-range planning components of the
process than do service companies.
b. service company budgets focus more on the sales budget than do manufacturing
companies.
c. the budget process is more important to a manufacturing company because of
the higher level of capital investment involved.
d. the budget process contains the same level of complexity in both types of
companies.
168.
One statement about budgeting that is generally true is

a. manufacturing companies spend more time on budgets than do service
companies.
b. service company budgets tend to change only if there is a major increase or
decrease in sales levels from year to year.
c. the budget process is an element of a companys activities and should be used
throughout the year to evaluate performance.
d. the budget process is useful to assure shareholders that their interests will be
looked after.
169.
Bixley Company budgets variable manufacturing overhead at 50% of its direct labour
costs. The company estimates that 20,000 direct labour hours will be used at an average
rate of $11.50 per hour. Bixleys fixed manufacturing overhead costs are budgeted at
$90,000 for the year. The companys budgeted manufacturing overhead for the year is
a. $320,000.
b. $230,000.
c. $205,000.
d. $115,000.
10-36
ANSWERS TO MULTIPLE CHOICE QUESTIONS

Item
31.
32.
33.
34.
35.
36.
37.
38.
39.
40.
41.
42.
43.
44.
45.
46.
47.
48.
49.
50.
Ans.
c
c
b
a
b
c
c
b
b
d
c
a
b
d
a
a
b
a
a
a
Item
51.
52.
53.
54.
55.
56.
57.
58.
59.
60.
61.
62.
63.
64.
65.
66.
67.
68.
69.
70.
Ans.
a
d
b
d
c
c
d
b
b
c
b
b
b
d
b
a
d
d
c
b
Item
71.
72.
73.
74.
75.
76.
77.
78.
79.
80.
81.
82.
83.
84.
85.
86.
87.
88.
89.
90.
Ans.
a
b
b
d
d
a
b
d
c
b
a
c
c
d
b
d
c
c
a
a
Item
91.
92.
93.
94.
95.
96.
97.
98.
99.
100.
101.
102.
103.
104.
105.
106.
107.
108.
109.
110.
Ans.
a
a
a
c
d
c
b
a
d
a
b
d
d
b
a
b
c
c
a
b
Item
111.
112.
113.
114.
115.
116.
117.
118.
119.
120.
121.
122.
123.
124.
125.
126.
127.
128.
129.
130.
Ans.
b
b
d
b
b
a
c
c
a
a
d
a
c
d
a
b
c
c
c
b
Item
131.
132.
133.
134.
135.
136.
137.
138.
139.
140.
141.
142.
143.
144.
145.
146.
147.
148.
149.
150.
Ans.
a
a
c
a
a
d
b
c
a
c
c
d
a
c
b
a
a
c
a
a
Item
151.
152.
153.
154.
155.
156.
157.
158.
159.
160.
161.
162.
163.
164.
165.
166.
167.
168.
169.
Ans.
b
a
c
c
c
a
a
a
a
c
b
c
b
c
d
d
d
c
c
Budgetary Planning
10-37
BRIEF EXERCISES
Brief Exercise 170
Salem Company reported the following information for 2012:
Budgeted sales
Budgeted purchases
September
$75,000
$50,000
October
$80,000
$65,000
November
$90,000
$125,000
December
$150,000
$100,000
January
$70,000
$40,000

following month.
How much cash will Salem receive during November?

Solution Brief Exercise 170
From November sales: $90,000 x 75% = $67,500
From October sales: $80,000 x 25% = $20,000
Total = $67,500 + $20,000 = $87,500
Brief Exercise 171
Budgeted sales
Budgeted purchases
September
$75,000
$50,000
October
$80,000
$65,000
November
$90,000
$125,000
December
$150,000
$100,000
January
$70,000
$40,000

following month.
How much is the November 30, 2012 budgeted Accounts Receivable?

From November sales: $90.000 x 25% = $22,500
Brief Exercise 172
Budgeted sales
Budgeted purchases
September
$75,000
$50,000
October
$80,000
$65,000
November
$90,000
$125,000
December
$150,000
$100,000
January
$70,000
$40,000

Salem purchases and pays for merchandise 80% in the month of acquisition and 20%
10-38
How much is the budgeted balance for Accounts Payable at November 30, 2012?
From November purchases: $125,000 x 20% = $25,000
Brief Exercise 173
Budgeted sales
Budgeted purchases
September
$75,000
$50,000
October
$80,000
$65,000
November
$90,000
$125,000
December
$150,000
$100,000
January
$70,000
$40,000
Operating expenses are: Salaries, $55,000; Depreciation, $7,000; Rent, $15,000; Utilities,
$12,000; Supplies are 2% of current months sales and are used during the month acquired.
Operating expenses are paid during the month incurred.
How much is the budgeted amount of cash to be paid for operating expenses in November?
Operating expenses = salaries + rent + utilities + supplies
$55,000 + $15,000 + $12,000 + (2%)($90,000) = $83,800
Brief Exercise 174

Key Co. manufactures beanies. The budgeted units to be produced and sold are below:
August
September
Expected Production
6,500
7,000
Expected Sales
6,200
7,100
It takes 5 metres of yarn to produce a beanie. The company's policy to maintain yarn at the end
of each month equal to 25% of the next month's production needs and to maintain a finished
goods inventory at the end of each month equal to 30% of next month's anticipated production
needs. The cost of yarn is $0.75 a metre. At August 1, 4,250 metres of yarn were on hand.
Prepare a materials purchases budget for August.
Metres needed per unit
Metres needed for production
Add: Desired materials ending inventory (metres) (25%*7,000*5)
Less: Beginning inventory on hand (metres) (25%*6,500*5)
Metres needed to purchase
6,500
5
32,500
8,750
(8,125)
33,125
Budgetary Planning
Cost per metre
10-39
$0.75
Budgeted cost of purchases
$24,843.75
Brief Exercise 175

M&H Ltd. budgeted the following information for 2012:
Budgeted purchases
May
$50,000
June
$60,000
July
$45,000
August
$55,000
Cost of goods sold is 50% of sales. Accounts payable is used only for inventory acquisitions.
M&H purchases and pays for merchandise 50% in the month of acquisition and 50% in the
following month.
Selling and administrative expenses are budgeted at $30,000 for May and are expected to
increase 2% per month. They are paid during the month of acquisition. In addition, budgeted
Depreciation is $5,000 per month.
M&H pays $700 per month for its 5% note payable and interest.
New equipment costing $12,000 will be purchased in June and an additional equipment
purchase for $3,000 will be made in July. Depreciation on the new equipment will start in the
month of purchase.
Income taxes are $5,000 for July and are paid in the month incurred.
How much are the budgeted cash disbursements for July?
Cash disbursements:
Cash paid for July purchases (50%*$45,000)
Cash paid for June purchases (50%*$60,000)
Cash paid for July selling and admin ($30,000*1.02*1.02)
Cash paid for note payment and interest
Cash paid for equipment purchased in July
Cash paid for income taxes
Total cash disbursements
$22,500
30,000
31,212
700
3,000
5,000
$92,412
Brief Exercise 176

M&H Ltd.s sales are all on account to customers. The companys collection pattern is: 40%
collected in the month of sale; 50% collected in the month following sale; and the remaining 10%
is uncollectible. The accounts receivable balance on March 31 was $70,000, all of which was
collectible. The cash balance at the beginning of April was $124,000. Forecasted sales
information follows:
10-40
Forecasted sales for January

Forecasted sales for February
Forecasted sales for March
Forecasted sales for April
Forecasted sales for May
$100,000
90,000
95,000
110,000
130,000
Determine the amount of cash to be collected during the month of March.

Cash collected from February sales: $90,000 x 50% =
Cash collected from March sales: $95,000 x 40% =
Cash to be collected during March
$45,000
38,000
$83,000
Brief Exercise 177

The budget components for McLeod Company for the quarter ended June 30 appear below.
McLeod sells garbage cans for $12 each. Budgeted sales of garbage cans for the next four
months are:
April
May
June
July
20,000 units
50,000 units
30,000 units
25,000 units
McLeod desires to have garbage cans on hand at the end of each month equal to 20 percent of
the following months budgeted sales in units. On March 31, McLeod had 4,000 completed units
on hand. The number of garbage cans to be produced in April and May are 26,000 and 46,000,
respectively. Seven kilograms of plastic are required for each garbage can. At the end of each
month, McLeod desires to have 10 percent of the following months production material needs on
hand. At March 31, McLeod had 18,200 kilograms of plastic on hand. The material used in
production costs $0.60 per kilogram. Each garbage can produced requires 0.10 hours of direct
labour. How many garbage cans should McLeod produce during the month of June?

Units needed for June sales
30,000
+ Desired ending inventory (20%*25,000)
Total units needed
Less beginning inventory on hand (20%*30,000)
Units to be produced during June
5,000
35,000
(6,000)
29,000
Brief Exercise 178

McLeod sells garbage cans for $12 each. Budgeted sales and production of garbage cans for the
next four months are:
Sales
Production
Budgetary Planning
April
May
June
July
20,000 units
50,000 units
30,000 units
25,000 units
10-41
26,000 units
46,000 units
29,000 units
20,000 units
labour. Determine how much the materials purchases budget will be for the month ending April
30.
Production of garbage cans expected during April (given)
Kilograms of plastic per garbage can
26,000
7
Total kilograms of plastic needed for sales production
182,000
Add ending plastic inventory desired (10%*46,000*7)
32,200
Total kilograms of plastic needed
214,200
Less beginning inventory of plastic on hand (given)
(18,200)
Kilograms of plastic to be purchased
196,000
Cost per kilogram of plastic
Cost of direct materials purchases
$0.60
$117,600
Brief Exercise 179

McLeod sells garbage cans for $12 each. Budgeted production for the next four months is:
April
26,000 units
10-42
May
June
July
46,000 units
29,000 units
20,000 units
labour. How much is the cost of the plastic inventory at the end of May?
Cost of ending inventory = [10% x 29,000] x 7 x $0.60 per kilogram = $12,180
Brief Exercise 180

Cheney Company has budgeted direct materials purchases of $400,000 in March and $600,000
in April. Past experience indicates that the company pays for 65% of its purchases in the month of
purchase and the remaining 35% in the next month. Other costs are all paid during the month
incurred. During April, the following items were budgeted:
Wages Expense
Selling and Administrative Expenses
Depreciation Expense
$120,000
200,000
126,000
18,000
How much is budgeted cash disbursements for April?

Payment of March purchases ($400,000*35%)
Payment of April purchases ($600,000*65%)
Wages expense
Total budgeted cash disbursements
$140,000
390,000
120,000
200,000
126,000
$976,000
Brief Exercise 181

Seas, Inc. makes and sells buckets. Each bucket uses 3/4 kilogram of plastic. Budgeted
production of buckets in units for the next five months is as follows:
Budgetary Planning
Budgeted production
March
22,000
April
21,000
May
20,000
June
24,000
10-43
July
18,000
The company wants to maintain monthly ending inventories of plastic equal to 25% of the
following month's budgeted production needs. The cost of plastic is $2.12 per kilogram. Prepare a
direct materials purchases budget for the month of May.
Buckets to be produced during May
Kilograms of plastic needed for each bucket
Total kilograms of plastic needed for production
Add ending inventory, kilograms of plastic desired (25%*24,000*3/4)
Less beginning inventory, kilograms of plastic (25%*20,000*3/4)
Kilograms of plastic needed to purchase
Cost per kilogram
Estimated cost of purchases for May
20,000
3/4
15,000
4,500
(3,750)
15,750
$2.12
$33,390
Brief Exercise 182

Robinson Inc. provided the following information:
Projected merchandise purchases
March
$82,000
April
$92,000
May
$78,000
June
$66,000
July
$73,000
Robinson pays 40% of merchandise purchases in the month purchased and 60% in the
following month.
General operating expenses are budgeted to be $31,000 per month of which depreciation
is $3,000 of this amount. Robinson pays operating expenses in the month incurred.
Robinson make loan payments of $4,000 per month of which $450 is interest and the
remainder is principal.
Calculate budgeted cash disbursements for May

Budgeted cash disbursements for purchases:
Cash paid for May purchases ($78,000 x 40%)
Cash paid for April purchases ($92,000 x 60%)
Budgeted cash paid for purchases
Budgeted cash payments for operating expenses ($31,000 - $3,000)
Budgeted cash payments for loan ($4,000 - $450)
Budgeted cash payments for interest
Total budgeted cash disbursements for May
$31,200
55,200
86,400
28,000
3,550
450
$118,400
Brief Exercise 183

Trescot, Inc. provided the following information:
Projected sales
June
$120,000
July
$110,000
August
$130,000
September
$100,000
10-44
Projected merchandise purchases
$76,000
$65,000
$70,000
$58,000
Trescot pays 30% of merchandise purchases in the month purchased and 70% in the
following month.
General operating expenses are budgeted to be $20,000 per month of which depreciation
is $2,000 of this amount. Trescot pays operating expenses in the month incurred.
Trescot makes loan payments of $3,000 per month of which $400 is interest and the
remainder is principal.
Calculate Trescots budgeted cash disbursements for August.

Cash paid for merchandise purchases:
August purchases: $70,000 x 30% =
July purchases: $65,000 x 70% =
Cash paid for operating expenses ($20,000 $2,000)
Cash paid for loan ($3,000 $400)
Cash paid for interest
Budgeted cash disbursements for August
$21,000
45,500
18,000
2,600
400
$87,500
Brief Exercise 184

Tomim Co.s projected sales are as follows:
August
September
October
November
$160,000
$180,000
$220,000
$200,000
Tomim estimates that it will collect 30% in the month of sale, 50% in the month after the sale, and
18% in the second month following the sale. Two percent of all sales are estimated to be bad
debts. How much are Tomim Co.s budgeted cash receipts for October?
Collections from October sales: $220,000 30% =
Collections from Sept. sales: $180,000 50% =
Collections from August sales: $160,000 18% =
Total budgeted cash receipts for October
$ 66,000
90,000
28,800
$184,800
Brief Exercise 185

Sheller, Inc. makes and sells a single product, widgets. Three kilograms of wackel are needed to
make one widget. Budgeted production of widgets for the next few months follows:
September
October
14,500 units
15,500 units
The company wants to maintain monthly ending inventories of wackel equal to 20% of the
following month's production needs. On August 31, 8,700 kilograms of wackel were on hand. The
cost of wackel is $1.25 per kilogram. How much is the cost of wackel to be purchased in
September?
Budgetary Planning

Expected sales in units during September
Kilograms of wackel needed per widget
Kilograms of wackel need for September sales units
Add ending inventory desired (20% 15,500 units 3 kilograms)
Less beginning inventory on hand
Kilograms of wackel needed to purchase
Cost per kilogram
Estimated cost of purchases for September
10-45
14,500
x3
43,500
9,300
(8,700)
44,100
$1.25
$55,125
Brief Exercise 186

The beginning cash balance is $10,000. Sales are forecasted at $400,000 of which 80% will be
on credit. 70% percent of credit sales are expected to be collected in the year of sale. Cash
expenditures for the year are forecasted at $250,000. Accounts Receivable from previous
accounting periods totalling $6,000 will be collected in the current year. The company is required
to make a $10,000 loan payment and an annual interest payment on the last day of every year.
The loan balance as of the beginning of the year is $60,000, and the annual interest rate is 10%.
How much will be reported as cash on the budgeted balance sheet?
Cash collections:
Accounts receivable collected
Cash sales: 20% $400,000
Credit sales: (80% $400,000) 70%
Cash expenditures
Loan payment
6,000
80,000
224,000
(250,000)
(10,000)
Interest payment (10% $60,000)
(6,000)
Net increase in cash
44,000
Add beginning cash balance
10,000
10-46
$ 54,000
Ending cash balance
Brief Exercise 187

Springer, Inc. produces rulers from plastic resin. On March 1, there are 5,000 completed rulers
and 5,200 kilograms of resin on hand. Flyer has estimated production and sales of rulers in units
for the next 4 months as:
March
26,00
0
25,00
0
Estimated production
Estimated sales
April
May
June
22,000
30,000
32,000
21,000
33,000
24,000
Each ruler requires 0.25 kilograms of resin. The cost of resin is $4.40 per kilogram. Flyer wants to
have 20% of the next months material requirements on hand at the end of each month. Prepare
a direct materials purchases budget for May.
Springer, Inc.
Direct Materials Purchases Budget
Month of May
Estimated production for May in units
Kilograms needed per unit
Add ending inventory desired (20% 32,000 .25 kgs)
Less beginning inventory (20% 30,000 .25 kgs)
Kilograms need for production in May
Cost per kilogram
Total cost of purchases of materials
30,000
.25
7,500
+1,600
(1,500)
7,600
$4.40
$33,440
Brief Exercise 188

The Doorjam Company makes the latest in technologically advanced door jams. Its product is in
such demand that it need to protect itself against stock outs of its product. To do so, it calculates
that 20% of the next months sales be on hand at the end of each month Budgeted unit sales for
the next four months are:
Monthly budgeted sales
April
40,000
May
June
50,000
July
60,000
Instructions
Calculate the budgeted production for June.
Needs:
Sales for June
Ending inventory 70,000 x 20% =
Less opening inventory 60,000 x 20% =
Production required in June
60,000
14,000
(12,000)
62,000
70,000
Budgetary Planning
Brief Exercise 189

The Springfield Company makes collections on its sales in the following manner:
In the month of sale
In the first month following sale
In the second month following sale
40% of sales
50% of sales
7% of sales
For the upcoming year, sales are budgeted to be as follows:

January
February
March
$150,000
170,000
190,000
Instructions
Calculate the budgeted cash collections for Springfield for the month of March.
($190,000 x 40%) + ($170,000 x 50%) + ($150,000 x 7%) = $171,500
10-47
10-48
EXERCISES
Exercise 190
Soster makes and sells candles. Each candle uses 0.6 kilogram of wax. Budgeted production of
candles in units for the next five months is as follows:
Budgeted production
March
20,000
April
17,000
May
18,000
June
15,000
July
16,000
The company wants to maintain monthly ending inventories of wax equal to 25% of the following
month's budgeted production needs. There were 1,300 kilograms of wax on hand on March 31
and 900 kilograms at March 1. The cost of wax is $0.75 per kilogram. Soster pays 45% of
merchandise purchases in the month purchased and 55% in the following month.
Instructions
a. Prepare a direct materials purchases budget for the April.
b. Determine how much cash will be paid for purchases during April.
Solution Exercise 190 (12-14 mins.)
a.
Soster Inc.
Direct Materials Purchases Budget
Month of April
Candles to be produced during April
Kilograms of wax per candle
Kilograms of wax needed for production
Add desired kilograms of wax in ending inventory (April 30) (18,000 0.6 25%)
Total kilograms of wax needed
Less kilograms of wax on hand in beginning inventory (April 1)
Kilograms of wax to be purchased
Cost per kilogram of wax
Cost of material purchases during April
b. March:
$9,300* x 55%
April:
$8,700 x 45%
Cash paid for purchases during April
*Candles to be produced during March
Kilograms of wax per candle
Kilograms of wax needed for production
Add: ending inventory (March 31)
Total kilograms of wax needed
Less: beginning inventory (March 1)
Total kilograms of wax to be purchased
Cost per kilogram of wax
Cost of material purchases during March
17,000
0.6
10,200
2,700
12,900
(1,300)
11,600
$0.75
$8,700
$5,115
3,915
$9,030
20,000
0.60
12,000
1,300
13,300
(900)
12,400
$0.75
$9,300
Exercise 191
Evans Recycle plans to produce 1,500 recycle bins during April. Each bin requires 1.7 kilograms
of plastic and 0.1 hours of direct labour. Plastic costs $2.15 per kilogram. Evans pays its
Budgetary Planning
10-49
employees $12.50 per hour. Manufacturing overhead is applied at a rate of 150% of direct labour
costs. Finished plastic lids are purchased separately from another supplier. Evans has 400
kilograms of plastic in beginning inventory and wants to have 550 kilograms in ending inventory.
Instructions
a. How many kilograms of plastic direct materials should Evans plan to buy during April?
b. How much should Evans budget for direct labour for April?
c. How much manufacturing overhead will be charged to each recycle bin in April?
d. What is the cost per unit of the bins produced in April?
a Units to be produced
.
Kilograms per bin
Add desired ending inventory
Subtract beginning inventory on hand
Purchases of plastic needed in
kilograms
b
.
1,500
1.7
2,550
550
(400)
2,700
1,500
Labour required per unit

Hours required
Cost per hour
Total labour budgeted
0.1
150
$12.50
$1,875
c.
Direct labour costs (from part B)

Application rate
Total overhead to allocate
Overhead per unit
$1,875
150%
2,812.50
1,500
$ 1.875
d
.
Direct materials per unit (1.7 kgs. X $2.15 per kilogram)

Direct labour ($1,875/1,500 units)
Factory overhead ($2,812.50/1,500 units)
Total cost per unit
$ 3.655
1.250
1.875
$6.78
Exercise 192
Markus Corporation's sales of gizmos are 10% for cash and 90% on credit. Past collection history
indicates that credit sales are collected as follows:
25% in the month of sale
70% in the month following sale
5% in the second month following sale
In January, sales were $39,000 and February sales were $43,000. Projected sales for March are
4,000 gizmos at $9 each. Projected sales for April are 4,700 gizmos at $11 each. The cash
balance at March 1 was $7,350.
10-50
Markus expects to purchase $22,000 of materials in February and $19,000 of materials in March.
Three-quarters of all purchases are paid for in the month of purchase, and the other one-fourth
are paid for in the month following the month of purchase. In addition, a 3% discount is allowed
for payments made in the month of purchase. All other fixed expenses are $6,570 per month and
are paid in the month of purchase.
Instructions
a. Prepare a cash budget for March.
b. Why is the cash budget important?
a.
Markus Corporation
Cash Budget
Month of March
Cash collections:
From March credit sales [(4,000 $9) 90% 25%]
From cash sales [(4,000 $9) 10%]
Cash collections from February sales ($43,000 90% 70%)
Cash collections from January sales ($39,000 90% 5%)
Total budgeted cash receipts during March
Cash payments:
From Februarys purchases ($22,000 25%)
From Marchs purchases ($19,000 75%) .97
Other fixed expenses
Total budgeted cash payments during March
Net cash receipts over payments
Ending cash balance
$ 8,100
3,600
27,090
1,755
$40,545.00
$ 5,500.00
13,822.50
6,570.00
25,892.50
14,652.50
7,350.00
$22,002.50
b. Cash budgets are critical for owners of businesses like Markuss because managers need to
actively manage cash flows. Often a companys operating cash flow may need to be
supplemented with debt, such as a line of credit, for some months where the payments may
exceed receipts.
Exercise 193
Fling Company has budgeted the following unit sales for 4 months in 2012:
April
May
June
July
15,000
17,000
22,000
25,000
Of the units budgeted, 35% are sold in the Western Region at an average price of $80 per unit,
and the remainder are sold by the Eastern Region at an average price of $85 per unit.
Instructions
a. Prepare a sales budget with columns for each region and for the company in total for the
month of June.
Budgetary Planning
b.
10-51
Sales representatives are compensated as follows:
Monthly base salary:

0 to 6,000 units:
6,001 to 15,000 units:
15,001 to 25,000 units:
Over 25,001 units:
$750
3% of selling price
6% of selling price
12% of selling price
15% of selling price
All sales compensation is paid in cash in the month earned.

Based on this information, calculate the amount Fling expects to pay in sales compensation for
the month of April.
Solution Exercise 193 (10-11 min.)
a.
Expected sales in units

Selling price per unit
Estimated sales for quarter
Fling Company
Sales Budget
For the Month Ending June 30, 2012
Western Region
Eastern Region
22,000 x .35
22,000 x .65
$80
$85
$616,000
$1,215,500
Total
22,000
$1,831,500
b.
Sales split 35%-65%
respectively
Base compensation
0 to 6,000 units @ 3% of
sales price
6,001 to 15,000 units
Western Region
15,000 x
35%=5,250 units
$750
5,250 units x 3% x
$80 = $12,600
0
Regional Total
13,350
Eastern Region
15,000 x 65% =
9,750 units
$750
6,000 units x 3% x
$85 = $15,300
3,750 units x 6% x
$85= $19,125
$35,175
Exercise 194
Smackaroos Enterprises manufactures two models of brooms, Model X2 and Model T3. The
budgeted units to be produced are as follows:
July
August
September
October
Model X2
8,750
5,125
7,350
9,125
Model T3
9,250
7,125
9,000
14,375
Total
18,000
12,250
16,350
23,500
It takes 1.7 kilograms of direct materials to produce Model X2 and twice as many kilograms of
direct materials to produce Model T3. It is the company's policy to maintain an inventory of direct
materials on hand at the end of each month equal to 25% of the next month's production needs.
The cost per kilogram of materials is $4.50 for T3 while the cost per kilogram of materials for X2
is the cost of the materials for T3.
Instructions
10-52
Prepare direct materials budgets for each product for the month of September.
Solution Exercise 194 (1012 min.)
Smackaroos Enterprises
Direct Materials Budget
For the Month Ending September 30, 2012
Model X2
7,350
Direct materials per unit
1.7 kg.
12,495
Add: Desired ending direct materials (kilograms)*
3,878.12
5
Total materials required
16,373.125
Less: Beginning direct materials (kilograms)**
(3,123.75)
Direct materials purchases
13,249.375
Cost per kilogram
$4.50
Total cost of direct materials purchases
$59,622.19
Model T3
9,000
3.4 kg.
30,600
12,218.
75
42,818.75
(7,650)
35,168.75
$2.2
5
$79,129.69
*25% x 9,125 units x 1.7 kilograms = 3,878.125 kilograms

25% x 14,375 units x 3.4 kilograms = 12,218.75 kilograms
**25% x 7,350 units x 1.7 kilograms = 3,123.75 kilograms
25% x 9,000 units x 3.4 kilograms = 7,650 kilograms
Exercise 195
Clingy Company budgeted the following unit sales:
January
February
March
April
May
14,000
12,000
11,000
16,000
13,000
Each unit requires 2 metres of fabric which is estimated to cost $3.50 per metre. It is the
company's policy to maintain a finished goods inventory at the end of each month equal to 20%
of next month's anticipated sales. Clingy Company also have a policy of maintaining a raw
materials inventory at the end of each month equal to 10% of the metres needed for the following
month's production. There were 1,200 metres of fabric on hand at March 1.
Instructions
Prepare a production budget and a direct materials budget for March.
Clingy Company
Production Budget
For the Month Ending March 31
Expected unit sales
Desired ending finished goods units (20% x 16,000)
11,000
3,200
Budgetary Planning
Total required units

Less: Beginning finished goods units (20% x 11,000)
Required production units
10-53
14,200
2,200
12,000
Clingy Company
For the Month Ending March 31
Total metres needed for production
Desired ending direct materials in metres*
Less: Beginning direct materials in metres
Cost per kilogram
12,000
2
24,000
1,540
25,540
1,200
24,340
$3.50
$85,190
* 10% x [16,000 + (20% x 13,000) (20% x 16,000)]

Exercise 196
Coliseum Company has budgeted the following unit sales:
Quarter
Qtr. 1, 2010
Qtr. 2, 2010
Qtr. 3, 2010
Qtr. 4, 2010
Units
60,000
50,000
40,000
80,000
The finished goods inventory on hand on December 31, 2012 was 6,000 units. 90% of the next
quarters sales will come from production during that quarter, and the remainder of next quarters
sales will come from this quarters ending inventory.
Instructions
Prepare a production budget for the second quarter of 2013.
Coliseum Company
Production Budget
For the Quarter Ended June 30, 2013
Expected unit sales
Desired ending finished goods units (10%* x 40,000)
Total required units
Less: Beginning finished goods units (10%** x 50,000)
Required production units
50,000
4,000
54,000
5,000
49,000
* 90% of the third quarters sales is 90% x 40,000 = 36,000 units. Therefore 10% of the 3rd
quarters sales come from the 2nd quarters ending inventory, which needs to be 10% x 40,000
units, or 4,000 units in ending inventory.
10-54
** 90% of the second quarters sales is 90% x 50,000 = 45,000 units. Therefore 10% of the 2nd
quarters sales come from the 1st quarters ending inventory, which needs to be 10% x 50,000
units or 5,000 units in ending inventory for the first quarter. This then carries forward as beginning
inventory for the second quarter.
Exercise 197
The following facts are provided by Breanna Enterprises for March:
The total kilograms needed for production are 2.5 times the units to be produced.
The desired ending direct materials inventory is 10% of the total kilograms needed for
production in the following month.
Cost per kilogram is $12.
Total units to be produced is 280,000 in February, 325,000 in March and 300,000 in April.
Instructions
Determine the direct materials purchases for March.
Add: Desired ending direct materials (10% x 300,000 x 2.5)
Less: Beginning direct materials (10% x 325,000 x 2.5)
Cost per kilogram
325,000
2.5
812,500
75,000
887,500
81,250
806,250
$12
$9,675,000
Exercise 198
Harocase Company currently pays it employees $14 per hour. The company is preparing its
direct labour budget for 2012 from the following production budget based on a calendar year:
Quarter
1
2
3
4
Units
60,000
70,000
50,000
80,000
Each unit requires 75 minutes of direct labour. The union contract provides for a 8% increase in
wage rate on July 1.
Instructions
Prepare a direct labour budget for the third quarter of 2012.
Harocase Company
Direct Labour Budget
For the Quarter Ending September 30, 2012
50,000
Budgetary Planning
Direct labour hours per unit (75/60)

Total required direct labour hours
Direct labour cost per hour ($14 1.08)
Total direct labour cost
10-55
1.25
62,500
$15.12
$945,000
Exercise 199
Nolo Enterprises is preparing its master budget for 2012. Relevant data pertaining to its sales
budget are as follows:
Sales for the year are expected to total 800,000 units.

Quarterly sales are 20%, 28%, 31%, and 21%, respectively per quarter.
The sales price is expected to be $2.00 per unit for the first quarter and then be increased
by 10% each subsequent quarter.
Instructions
Prepare a sales budget for the third quarter of 2012 for Nolo Company.
Nolo Enterprises
Sales Budget
For the Quarter Ending September 30, 2012
Unit sales (31% x 800,000)
Unit selling price (1.1 x 1.1 x $2)
Total sales
248,000
$2.42
$600,160
Exercise 200
Trickle Bakery combines its operating expenses for budget purposes in a selling and
administrative expense budget. For the first quarter of 2012, the following data are developed:
1.
2.
3.
4.
Sales:
Unit selling price:
Variable costs per dollar of sales:
Sales commissions
Delivery expense
Advertising
Fixed costs per quarter:
Sales salaries
Office salaries
Depreciation
Insurance
Utilities
34,000 units
$8
7%
1%
5%
$15,000
14,000
3,000
1,000
3,000
Instructions
Prepare a selling and administrative expense budget for the first quarter of 2012.
10-56
Trickle Bakery
Selling and Administrative Expense Budget
For the Quarter Ended March 31, 2012
Variable expenses
Sales commissions (34,000 $8 7%)
Delivery expense (34,000 $8 1%)
Advertising (34,000 $8 5%)
Total variable
Fixed expenses
Sales salaries
Office salaries
Depreciation
Insurance
Utilities
Total fixed
Total selling and administrative expenses
$19,040
2,720
13,600
35,360
$15,000
14,000
3,000
1,000
3,000
36,000
$71,360
Exercise 201
Clark and Associates provides accounting services. It is preparing its quarterly budgeted income
statement for 2013. Ms. Clark anticipates that billable hours in the first quarter of 2013 will
increase by 5% over the same quarter of the preceding year, and by 6% in the second quarter.
There were 700 billable hours in the first quarter of 2012, and 600 in the second quarter. Ms.
Clark billed clients $200 per hour in 2012, and due to strong competition is unable to raise that
rate for the foreseeable future.
Salary expenses for both accountants and support staff are $20,000 plus 70% of revenue per
quarter. Income tax is 30%. Other quarterly expenses are estimated to be as follows:
Rent expense
Depreciation
Utilities expense
Miscellaneous expenses
$4,500
700
2,100
5% of revenue
Instructions
Prepare a budgeted quarterly income statement for the first quarter of 2013. (Show
computations.)
Clark and Associates
Budgeted Income Statement
For the Quarter Ending March 31, 2013
Revenue (700 hours X 1.05 X $200/hour)........................................................ $147,000
Operating expenses
Salary expense ($20,000 + [$147,000 X 0.70]).........$122,900
Rent expense..................................................................4,500
Depreciation.......................................................................700
Utilities expense..............................................................2,100
Miscellaneous expenses ($147,000 X 0.05)....................7,350
Total Expenses..................................................................................................137,550
Income before income tax...........................................................................................9,450
Budgetary Planning
10-57
Income tax expense............................................................................................... 2,835

Net Income............................................................................................................... $6,615
Exercise 202
In September,2012, the budget committee of Fidelity Company assembled the following data:
1.
2.
3.
4.
Expected Sales
October
$400,000
November
420,000
December
450,000
Cost of goods sold is expected to be 45% of sales.
Purchases for October are $180,900.
Desired ending merchandise inventory is 10% of the next month's cost of goods sold.
Instructions
Prepare the budgeted income statement for October through gross profit on sales, including a
cost of goods sold schedule.
Fidelity Company
For the Month Ending October 31, 2012
Sales
Cost of goods sold
Inventory, October 1 (10% x $400,000 x 45%)
Purchases
Cost of goods available for sale
Less: Inventory, October 31 (10% x $420,000 x 45%)
Cost of goods sold
Gross profit
$400,000
$ 18,000
180,900
198,900
18,900
180,000*
$220,000
*.45 x $400,000 = $180,000

Exercise 203
Carlson Company has budgeted sales revenue as follows for the next 6 months:
January
February
March
April
May
June
$ 90,000
100,000
80,000
70,000
110,000
60,000
Past experience has indicated that 80% of sales each month are on credit and that collection of
credit sales occurs as follows: 60% in the month of sale, 35% in the month following the sale, and
3% in the second month following the sale. The other 2% is uncollectible.
10-58
Instructions
a. Prepare a schedule which shows expected cash receipts from sales for the month of May.
b. Do the remaining 2% of accounts that are uncollectible represent a cash disbursement for
the month? Explain.
a.
Carlson Company
Expected Cash Receipts from Sales
For the Month Ended May 31
March sales
Credit sales: ($80,000 .80 .03)
April sales
Credit sales: ($70,000 .80 .35)
May sales
Credit sales: ($110,000 .80 .60)
Cash sales: ($110,000 .20)
Total cash receipts
$ 1,920
19,600
52,800
22,000
$96,320
b. No, the remaining 2% do not represent a cash disbursement for the month. In fact, those
accounts are never collected, so there is no cash paid out by the company for their noncollection.
Exercise 204
Sushi House has budgeted sales revenues as follows:
Credit sales
Cash sales
Total sales
June
$85,000
14,000
$99,000
July
$ 80,000
25,000
$105,000
August
$ 72,000
32,000
$104,000
Past experience indicates that 70% of the credit sales will be collected in the month of sale and
the remaining 30% will be collected in the following month. Purchases of inventory are all on
credit and 60% is paid in the month of purchase and 40% in the month following purchase.
Budgeted inventory purchases are:
June
July
August
$45,000
43,000
40,000
Other cash disbursements budgeted: selling and administrative expenses of $14,000 each
month, dividends of $30,000 will be paid in July, and purchase of a computer in August for $3,000
cash. The company wishes to maintain a minimum cash balance of $20,000 at the end of each
month. The company borrows money from the bank at 9% interest if necessary to maintain the
minimum cash balance and must be paid each month whether there is a loan repayment or not.
Borrowed money is repaid in months when there is an excess cash balance. The beginning cash
balance on July 1 was $25,000. All amounts borrowed during a month are borrowed on the first
day. The loan balance as of July 1 is $26,000.
Budgetary Planning
10-59
Instructions
Prepare a cash budget for the month of July. Prepare separate schedules for expected collections
from customers and expected payments for purchases of inventory.
Sushi House, Inc.
Cash Budget
For the Month Ending July 31
Add: Receipts
Collections from customers:
July sales [$25,000 + ($80,000 x 70%)]
$81,000
June sales [$85,000 x 30%]
25,500
Total receipts
Total available cash
Less: Disbursements
Purchases during July (60% x $43,000)
$25,800
Purchases during June (40% x $45,000)
18,000
14,000
Dividends
30,000
Total disbursements
Excess of available cash over disbursements
Financing
Repayments interest (.09/12 x $26,000)
Repayments principal ($23,700 excess - $195 interest)
Ending cash balance
$25,000
106,500
131,500
87,800
43,700
(195)
(23,505)
$20,000
Exercise 205
Royal Bank of America has asked Maquire and Ferlow Ltd. for a budgeted balance sheet for the
year ended December 31, 2013. The following information is available:
1.
2.
3.
4.
5.
6.
The cash budget shows an expected cash balance of $26,000 at December 31, 2013.
The 2012 sales budget shows total annual sales of $500,000. All sales are made on account
and accounts receivable at December 31, 2013 are expected to be 8% of annual sales.
The merchandise purchases budget shows budgeted cost of goods sold for 2013 of
$210,000 and ending merchandise inventory of $21,000. 20% of the ending inventory is
expected to have not yet been paid at December 31, 2013.
The December 31, 2012 balance sheet includes the following balances: Equipment
$127,000, Accumulated Depreciation $52,000, Common Stock $68,000, and Retained
Earnings $21,000.
The budgeted income statement for 2013 includes the following: depreciation on equipment
$6,000, federal income taxes $21,000, and net income $41,800. The income taxes will not
be paid until 2013.
In 2013, management does not expect to purchase additional equipment or to declare any
dividends. It does expect to pay all operating expenses, other than depreciation, in cash.
Instructions
10-60
Prepare an unclassified budgeted balance sheet at December 31, 2013.

Maquire and Ferlow Ltd.
Budgeted Balance Sheet
December 31, 2013
Assets
Cash .....................................................................................................
Accounts receivable (8% x $500,000)...................................................
Merchandise inventory .........................................................................
Equipment ............................................................................................ $127,000
Less: Accumulated depreciation ($52,000 + $6,000).............................
58,000
Total assets ...................................................................................
Liabilities and Stockholders' Equity
Accounts payable (20% x $21,000).......................................................
Income taxes payable ..........................................................................
Common stock .....................................................................................
Retained earnings ($21,000 + $41,800)................................................
Total liabilities and stockholders' equity .........................................
$ 26,000
40,000
21,000
69,000
$156,000
$ 4,200
21,000
68,000
62,800
$156,000
Exercise 206
The sales manager of EKP Inc. has estimated sales for January, February, March, and April will
be $70,000, $75,000, $83,000 and $90,000 respectively. Further, the manager expects that 10%
of the sales will be for cash, and the collection of the credit sales will be made as follows:
Month of sale
Month following the sale
Second month following the sale
60%
20%
15%
The remaining credit sales are uncollectable.

Instructions
a. Determine the cash collections for March.
b. If EKP Inc.s cash balance is $9,685 on January 1, cash expenditures are projected to equal
$83,450 in the first quarter of the day, and management wants a minimum cash balance of
$7,000, how much, if any, does EKP Inc. need to borrow in the first quarter?
a. Collections from Customers
January sales ($70,000 X .90 X .15)
February sales ($75,000 X .90 X .20)
March cash sales ($83,000 X .10)
March credit sales ($83,000 X .90 X .60)
Total collections
$ 9,450
13,500
8,300
44,820
$76,070
b. Beginning cash balance

Add cash receipts
Cash available
Less cash disbursements
Excess (deficiency) of available cash over disbursements
$ 9,685
76,070
85,755
83,450
2,305
Budgetary Planning
Financing
Borrowing
Ending cash balance
10-61
4,695
$7,000
Exercise 207
Mrs. Claus Things specializes in sales of Christmas decorations. Therefore, the companys sales
are seasonal. Budgeted figures for 2012 are presented below.
Budgeted Sales
1
$80,000
Quarter
2
3
$60,000
$120,000
4
$460,000
From past experience, Mrs. Claus Things has determined that 60% of its credit sales are
collected in the quarter of sale and 40% are collected in the quarter following the sale. Fourth
quarter sales for 2011 totalled $420,000.
Instructions
Determine Mrs. Claus Things cash collections for the third quarter of 2012.
Second quarter ($60,000 .40)
Third quarter ($120,000 .60)
Total cash collections
$24,000
72,000
$96,000
Exercise 208
OJ Small Company needs a cash budget for the month of April, 2012. The companys controller
has provided you with the following information and assumptions:
1.
The April 1, 2012 cash balance is expected to be $11,000.
2.
All sales are on account. Credit sales are collected over a three-month period50 percent in
the month of sale, 35 percent in the month following sale, and 15 percent in the second
month following sale. Actual sales for February and March were $100,000 and $90,000,
respectively. Aprils sales are budgeted at $110,000.
Marketable securities are expected to be sold for $25,000 during the month of April.
The controller estimates that direct materials totalling $44,000 will be purchased during April.
Sixty percent of a months raw materials purchases are paid in the month of purchase with
the remaining 40 percent paid in the following month. Accounts payable for March purchases
total $9,000, which will be paid in April.
During April, direct labour costs are estimated to be $19,000.
Manufacturing overhead is estimated to be 40 percent of direct labour costs, Further, the
controller estimates that approximately 10 percent of the manufacturing overhead is
depreciation on the factory building and equipment.
Selling and administrative expenses are budgeted at $22,000 for April. Of this amount,
$7,000 is for depreciation.
During April, OJ Small Company plans to buy a new delivery van costing $25,000. The
company will pay cash for the van.
OJ Small Company owes $35,000 in income tax, which must be paid in April.
3.
4.
5.
6.
7.
8.
9.
10-62
10. OJ Small Company must maintain a minimum cash balance of $10,000. To bolster the cash
position as needed, an open line of credit is available from the bank.
Instructions
Prepare the following:
a.
A schedule of cash collections for April
b.
A schedule of cash payments for raw materials for April
c.
A cash budget for the month of April. Indicate in the financing section any borrowing that will
be necessary during the month.

a. Cash Receipts
.50 $110,000 =
$55,000
.35 $90,000 =
31,500
.15 $100,000 =
15,000
Total
$101,500
c.
b. Cash Payments for Merchandise

.60 $44,000 =
$26,400
Accounts payable
9,000
Total
$35,400
OJ Small Company
Cash Budget
For the month ending April 30, 2012

Add: Receipts
Collections from customers
Sales of securities
Total receipts
Total available cash
Less: Disbursements
Direct materials
Direct labour
Manufacturing overhead ($19,000 .40) .90
Selling and administrative expenses ($22,000 $7,000)
Purchase of van
Income tax expense
Total disbursements
Excess (deficiency) of available cash over disbursements
Financing
Borrowings
Ending cash balance
$ 11,000
$101,500
25,000
126,500
137,500
35,400
19,000
6,840
15,000
25,000
35,000
136,240
1,260
8,740
$ 10,000
Exercise 209
In September 2012, the management of Whitehorse Company assembles the following data in
preparation of budgeted merchandise purchases for the months of October, November, and
December.
1.
Expected Sales
October
November
December
$700,000
800,000
600,000
Budgetary Planning
2.
3.
4.
10-63
Cost of goods sold is expected to be 60% of sales.

Desired ending merchandise inventory is 12% of the next month's cost of goods sold.
The beginning inventory at October 1 will be the desired amount.
Instructions
Calculate the budgeted merchandise purchases for November.
Whitehorse Company
Merchandise Purchases Budget
For the Month of November, 2012
Budgeted cost of goods sold (60% x $800,000)
$480,000
Desired ending merchandise inventory (12% x 60% x $600,000)
43,200
Total
523,200
Less: Beginning merchandise inventory (12% x 60% x $800,000)
57,600
Required merchandise purchase
$465,600
Exercise 210
Brainstorm with a friend on the meanings of budgeting and control. How are budgets used in
planning? How are budgets used to control organizational behaviours and outcomes? What are
some of the reasons for budgeting?
Solution 210
Answers will vary by student.
Budgets are plans expressed numerically. Budgets are used to translate the plans, goals and
strategies of a company into operational terms.
Control, by contrast, is the process of setting standards, receiving feedback on actual
performance and taking corrective action whenever actual performance deviates from planned
outcomes. Budgets are the standards, and they are compared with actual costs and revenues to
provide feedback to managers who can then take measure to remedy the situation.
Budgeting forces management to plan ahead. It also provides information on resource usage
information for decision making (and future planning), sets benchmarks for control and
evaluation, and improves the function of communication and coordination.
Exercise 211
If you could imagine the ideal budgetary process, what features would it have?
Solution 211
You are indeed imagining!
Budget preparers do try to create budgets that evaluate performance that are based on costs that
are actually controllable by managers. Measures other than budgets should be used to measure
managerial performance, including reduced attrition rate of employees, employee satisfaction
(from surveys) customer satisfaction (from surveys) diminished throughput time, reduced
employee absenteeism and the like. Budgeting should be participative, so that more than just one
level of employee has a say; this increases communication throughout all the levels of a
10-64
company, and shares responsibility for meeting budgets amongst the masses. Budgets should
provide routine, timely feedback and incentives for achieving organization-wide goals.
Exercise 212
Sales for January, February and March are expected to be $200,000, $180,000 and $220,000
respectively for Cito Gaston Inc. All sales are on account, with terms 2/15, net 30, and are
collected as follows: 50% in the month of the sale, and the remaining 50% in the month following
the sale. One-half of all sales discounts are taken on the average. Materials are purchased one
month before being needed in production. All purchases and expenses are paid for as incurred.
Activities for the quarter are expected to be:
January
$40,000
$70,000
$18,000
$36,000
$14,000
Nil
$8,000
Materials used
Salaries
Maintenance
Depreciation
Water and heat
Dividends paid to shareholders
Debt repayment on bonds
February
$36,000
$68,000
$18,000
$36,000
$14,000
$10,000
$8,000
March
$44,000
$72,000
$18,000
$36,000
$14,000
Nil
$8,000
Instructions
Prepare a cash budget, showing inflows and outflows, for February.
Solution 212
Cash receipts:
Sales
January ($200,000 x 0.50 x.99*)
February ($180,000 x 0.50 x .99*)
Total cash receipts
$ 99,000
$ 89,100
(*Average discount is 1%,or 2% x )

$188,100
Cash disbursements:
Materials
Salaries
Maintenance
Water and heat
Dividends paid
Debt repayment on bonds
Net cash inflow
$44,000
$68,000
$18,000
$14,000
$10,000
$8,000
$162,000
$ 26,100
Exercise 213
The Doorjam Company makes the latest in technologically advanced door jams. Its product is in
such demand that it need to protect itself against stock outs of its product. To do so, it calculates
that 20% of the next months sales be on hand at the end of each month Budgeted unit sales for
the next four months are:
Monthly budgeted sales
April
40,000
May
50,000
Instructions
Calculate the budgeted production for June
June
60,000
July
70,000
Budgetary Planning
Solution 213
Needs:
Sales for June

Ending inventory 70,000 x 20% =
Less opening inventory 60,000 x 20% =
Production required in June
60,000
14,000
(12,000)
62,000
Exercise 214
The Springfield Company makes collections on its sales in the following manner:
In the month of sale
In the first month following sale
In the second month following sale
40% of sales
50% of sales
7% of sales
For the upcoming year, sales are budgeted to be as follows:

January
February
March
$150,000
170,000
190,000
Instructions
Calculate the budgeted cash collections for Springfield for the month of March.
Solution 214
($190,000 x 40%) + ($170,000 x 50%) + ($150,000 x 7%) = $171,500
10-65
10-66
COMPLETION STATEMENTS
215.
A _________________ is a formal written summary or statement of management's plans

expressed in financial terms.
216.
A budget is a primary means of ________________ agreed upon objectives throughout

the business organization.
217.
Effective budgeting is dependent on an _________________________ in which authority

and responsibility are clearly defined.
218.
The budget should have the support of _________________ and should be an important
basis for _________________________ by comparing actual results to expected results.
219.
Many companies use ____________________________ budgets by dropping the month

just ending and adding a future month.
220.
A __________________, which is often headed by a budget director, is responsible for

coordinating the preparation of the budget in many companies.
221.
A major difference between the annual budget and long-range planning is the
____________________ over which the data pertain.
222.
The ____________________ is the starting point in preparing the master budget.
223.
The formula for developing a production budget is _________________ plus

______________________ minus _______________________.
224.
The ________________ is a set of interrelated budgets that constitutes a plan of action

for a specified period of time.
225.
Three major sections of a cash budget are (1) ___________________, (2)

____________________, and (3) ______________________.
226.
The two major differences between the master budgets of merchandisers and
manufacturers are that the merchandiser will have a ______________________ budget
and will not have __________________ budgets.
Budgetary Planning
10-67
ANSWERS TO COMPLETION STATEMENTS

215.
budget
222.
sales budget
216.
communicating
223.
217.
organizational structure
budgeted sales units,

desired ending finished goods units,
beginning finished goods units
218.
top management, evaluating

performance
224.
master budget
219.
continuous twelve-month
225.
cash receipts, cash disbursements,

financing
220.
budget committee
221.
time period
226.
merchandise purchases, manufacturing
10-68
MATCHING
Matching 227
Match the items below by entering the appropriate code letter in the space provided.
A.
B.
C.
D.
E.
Budget
Financial budgets
Budget committee
Master budget
Sales forecast
F.
G.
H.
I.
J.
Production budget
Cash budget
Long-range planning
Direct materials budget
Sales budget
____ 1. A selection of strategies to achieve long-term goals.

____ 2. An estimate of expected sales for the budget period.
____ 3. Budgets that indicate the cash resources needed for expected operations and planned
capital expenditures.
____ 4. The projection of potential sales for the industry and the company's expected share of
such sales.
____ 5. Management's plans expressed in financial terms for a specified future time period.
____ 6. A projection of anticipated cash flows.
____ 7. A group responsible for coordinating the preparation of the budget.
____ 8. A projection of production requirements to meet expected sales.
____ 9. A set of interrelated budgets that constitute a plan of action for a specified time period.
____ 10. An estimate of the quantity and cost of direct materials to be purchased.
Solution Matching 227
1. H
6.
2. J
7.
3. B
8.
4. E
9.
5. A
10.
Matching 228
A list of budgets and some assigned budget codes appear below:
Budget Code:
Budgetary Planning
DM
DL
P
S
C
BBS
BIS
SA
MOH
10-69

Direct Labour Budget
Production Budget
Sales Budget
Cash Budget
Budgeted Balance Sheet
Selling and Administrative Expense Budget
Manufacturing Overhead Budget
Instructions
For each item listed in 1 through 6 below, identify the budget in which it will appear. If an item will
appear on more than one budget, then indicate as many budgets as are relevant.
1.
2.
3.
4.
5.
6.
Interest expense
Ending raw materials inventory (in dollars)
Ending finished goods inventory (in dollars)
Ending cash balance
Total sales (in dollars)
Solution Matching 228

1. Interest expense
C, BIS
2.
Ending raw materials inventory (in dollars)
BBS, DM
3.
Ending finished goods inventory (in dollars)
BBS, BIS
4.
Ending cash balance
BBS, C
5.
SA, BIS
6.
Total sales (in dollars)
S, BIS
10-70
SHORT-ANSWER ESSAY QUESTIONS

Short Answer Essay 229
Budgeting can be an important management tool if implemented properly. Identify several positive
results when budgets are used properly. Since budgets affect people, identify several negative
aspects if budgets are not implemented properly.
Solution Short Answer Essay 229
When budgets are used properly, positive results can include: managers are required to plan
ahead, there are definite objectives for performance evaluation, there is an early warning system
for potential problems, there is coordination of activities within the business, there is greater
management awareness of the entity's overall operations, and there are positive behaviour
patterns by motivating personnel to meet planned objectives. However, if budgets are not
implemented properly, negative results can include discouragement of additional effort to meet
goals, poor morale of managers, and lack of commitment to budget goals.
Short Answer Essay 230
Budgeting and long-range planning are both important aids to management in achieving a
company's goals and objectives. Briefly distinguish between budgeting and long-range planning
and indicate how they help managers perform their functions.
Budgeting is preparing a detailed formal written summary of management's plans for a specified
future time period (usually one year), in financial terms. Long-range planning involves the
selection of strategies to achieve long-term (at least five years) goals and the development of
policies and plans to implement the strategies. Budgeting and long-range planning differ in time
periods involved, emphasis, and the amount of detail presented. Budgets help managers in
planning and controlling operations for the coming year, while long-range planning assists
managers in broad long-term goal-setting, policy development, and planning.
Short Answer Essay 231 (Ethics)
Ken Clarke is a new production manager. After a great deal of effort, including considerable
market research, he completes his budget and submits it to his boss, Diane Jackson. Without
even looking at it, she asks him what his "fudge factor" was, and which items contained the most
slack. Ken, very surprised, responds that he doesn't use any "fudge factor," and that all his
figures are honest. Ms. Jackson counters by asking him how he would respond if he had to cut
about 20% from his budget, as it is. She tells him that most budgets are trimmed in committee,
and he had better be ready. She returns the budget to him, and tells him to come back with
something reasonable.
Instructions
a. Is it ethical to build slack into a budget? Explain.
b. Was it ethical for Ms. Jackson to refuse to accept a budget without slack? Briefly explain.
a. Either answer may be correct. Slack may be seen as an estimate of how much the actual
results may vary from the predictions. As such, it is perfectly legitimate to add some slack, as
in this case. On the other hand, it is certainly possible that a great deal of padding may be
added to a budget, with the manager preparing the budget hoping that the amount to be
Budgetary Planning
b.
10-71
trimmed will not exceed the amount of the padding. The decision as to whether the addition
of slack is unethical depends upon whether budgeting guidelines are followed. Any secretive
method of adding padding to one's own budget would be unethical.
As Ken Clarke's superior, Ms. Jackson has the obligation to correct his mistakes. Apparently,
in this particular company, budgets are trimmed in committee, with the expectation that all
budgets contain some expenses that could be removed without harm to the company. Ken
must continue to be honest. One way to do that would be for Ken to submit his trimmed
budget, and then note the costs that are most likely to exceed the budget, and by how much.
This would give Ms. Jackson the ability to intelligently defend his budget while in committee.
Short Answer Essay 232 (Communication)

At Lakeside Manufacturing, budgets are the responsibility of everyone. Each department
collaborates in determining its expected needs, and sales personnel determine the likely sales
volume. Ed Tucker, one of the production managers, believes in building plenty of slack into
everything, including his estimates of ending inventory of work in process.
Instructions
You are the accounting manager. Write a memo to Mr. Tucker. Explain why the ending inventory
figure should be extremely accurate, with as little slack as possible.
TO:
Ed Tucker
FROM:
Mary Barnes
SUBJECT: Budgets
At our last budget meeting, you mentioned that you put plenty of slack into all your
budgets, so that you could better survive budget reductions. You remember that I
specifically asked about your ending inventory estimates, and you said that those
had plenty of slack as well.
Please reconsider adding slack to the ending inventory estimates. Those
estimates are used by all other departments in calculating their budgets. In other
words, they rely on your figures being accurate. If you estimate much too high for
inventory, the other departments will experience stockouts, as they will have
counted on your having more goods ready than you will be able to produce. If, as
is more likely, you understate the number of units you will have on hand, we will
experience increased storage costs and related spoilage. We will also have spent
money to produce more units than the next department can use.
I understand your desire to ensure that your budgets are reasonable. However, I
am sure also that you see that we depend upon your inventory numbers. Please
make sure that these numbers are as precise as possible.
(signed)
10-72
MULTI-PART QUESTION
Multi-Part Question 233
Overcast Umbrellas is budgeting its sales for its top-of-the-line umbrella, Number 142, as 50,000
units for the month of March. To make one of these umbrellas, two metres of Nylon fabric are
required. Actual beginning and ending inventories of the nylon fabric and Number 142 are as
follows:
Nylon fabric
Raw material
Work in progress inventory
Number 142
March 1
March 31
90,000 m
0m
130,000 m
0m
25,000 units
35,000 units
Instructions
Calculate the amount of material that Overcast should purchase in March.
Solution Multi-Part Question 233
Number 142 Sales
Ending inventory
Total needs
Less opening inventory
Direct Material A
Required for production 60,000 x 2 m
Ending inventory
Total needs
Less opening inventory
50,000
35,000
85,000
(25,000)
60,000
120,000
130,000
250,000
(90,000)
160,000

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CHAPTER 10

Multiple Choice Questions

Short Answer Essay

SUMMARY OF STUDY OBJECTIVES BY QUESTION TYPE

Test Bank for Managerial Accounting, Third Canadian Edition

CHAPTER STUDY OBJECTIVES

Explain the applicability of budgeting in non-manufacturing companies.

Budgets represent managements plans in financial terms.

Budgets promote efficiency and serve as a deterrent to waste.

A budget can be a means of communicating a company's objectives to external parties.

A budget is more beneficial if accepted by lower level management.

The most common budget period is one year.

A budget committee coordinates the budget activities of a company.

The last step in the budgeting process is developing a sales forecast.

Long-range plans are used primarily as an evaluation of specific results to be achieved.

Test Bank for Managerial Accounting, Third Canadian Edition

Long-range plans reflect management's long-term plans encompassing five years or

Companies can use either a predetermined overhead rate or a manufacturing overhead

A sales budget should be prepared before the production budget.

The first budget prepared should be the sales budget.

A merchandiser has a merchandise purchases budget, and a manufacturer has a

A service company has no purchases budget.

Test Bank for Managerial Accounting, Third Canadian Edition

ANSWERS TO TRUE-FALSE STATEMENTS

MULTIPLE CHOICE QUESTIONS

Test Bank for Managerial Accounting, Third Canadian Edition

How much is budgeted cash disbursements for April?

How much is Livanos May 30, 2012 budgeted Accounts Receivable?

Test Bank for Managerial Accounting, Third Canadian Edition

Variable Cost Per Unit Sold

Monthly Fixed Cost

At 2,200 units, how much are budgeted variable manufacturing costs?

Nunnallikash Manufacturing Company has furnished the following information which

Test Bank for Managerial Accounting, Third Canadian Edition

Beginning cash balance

$12,000 per month

Which one of the following is correct concerning a budget period?

The master budget contains which two classes of budgets?

The bottoms-up approach to budgeting is also referred to which of the following?

What is a disadvantage of the bottoms-up approach to budgeting?

Which of the following is not a benefit of budgeting?

Which budget is normally prepared first?

What is budgetary slack?

Test Bank for Managerial Accounting, Third Canadian Edition

Division managers and customers

Which of the following statements is correct?

Under what situation might a budget be most effective?

Which one of the following is an advantage of using participative budgeting?

What is a continuous budget?

Which problem might be a result of an unrealistic budget?

How does long-range planning compare to a master budget?

What three differences exist between long-range planning and budgeting?

Test Bank for Managerial Accounting, Third Canadian Edition

Emphasis, time periods involved, and amount of detail

Which of the following is a proper match-up?

How does a sales forecast differ from a sales budget?

Which one of the following is an operating budget?

Which one of the following is a financial budget?

Which one of the following sets includes only financial budgets?

What might a very conservative sales budget cause?

Which of the following is correct?

What information is found on the direct materials budget?