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Exam 14: Planning for Profit and Cost Control

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Question 51

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Indicate whether each of the following statements is true or false.

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Question 52

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Oakton Furniture provided the following information relevant to its sales for December Year 1 and the first quarter of Year 2: $\begin{array}{ccccc}&\text { Dec. Year } 1 &\text { Jan. Year } 2 &\text { Feb. Year } 2 &\text { Mar. Year }\\&\text { (Actual) }&\text {(Budgeted) }&\text {(Budgeted) }&\text {(Budgeted) }\\\text { Credit sales } & \$ 120,000 & \$ 280,000 & \$ 310,000 & \$ 220,000 \\\text { Cash sales } & \$ 20,000 & \$ 50,000 & \$ 60,000 & \$ 24,000 \end{array}$ Based on the company's collection history, 42% of credit sales are collected in month of sale and the remainder is collected in the following month. Total budgeted cash receipts in February are expected to be:

A) $60,000.
B) $162,400.
C) $352,600.
D) $228,000.

E) None of the above
F) All of the above

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Question 53

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Janice was questioned recently about her department's spending in excess of the budget. This is an example of using the budget for performance measurement.

The master budget normally covers:

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

Sentra Sporting Company sells tennis rackets and other sporting equipment. The purchasing department manager prepared the inventory purchases budget. Sentra's policy is to maintain an ending inventory balance equal to 15% of the following month's cost of goods sold. January's budgeted cost of goods sold is $70,000. $\begin{array}{lccc}&\text { October}&\text { November }&\text { December }\\\text { Budgeted cost of goods sold } & 60,000 & 40,000 &50,000\\\text { Plus: Desired ending inventory } & 6,000 & ?&? \\\text { Inventory needed } &66,000& ? &? \\\text { Less: Beginning inventory } & 9,000 & ?&? \\\text { Required purchases (on account) } & 57,000 & ? & ? \end{array}$ - What would be the required purchases (on account) for December?

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

Which of the following is not considered a pro forma financial statement?

Interest expense is not included in the selling and administrative budget because a company cannot estimate interest expense until it prepares the cash budget and makes borrowing projections.

Which of the following would appear on a selling and administrative expense budget, but would not appear on a schedule of cash payments for selling and administrative expenses?

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

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

Purchases on account are given below: $\begin{array} { | c | c | c | } \hline \text { October } & \text { November } & \text { December } \\\hline 30,000 & 40,000 & 50,000 \\\hline\end{array}$ 55% of the month's purchases will be paid in the month of the purchase; the remaining 45% will be paid in the following month. - How much will the cash payments for purchases be in December?

The three major components of the master budget are the financial budgets, the capital budgets, and the pro forma financial statements.

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

Hernandez Company expects credit sales for January to be $100,000. Cash sales are expected to be $60,000. The company expects credit and cash sales to increase 10% for the month of February. Credit sales are collected in the month following the month in which sales are made. Based on this information, the amount of cash collections in February would be:

Chu Company provided the following information related to its inventory sales and purchases for December Year 1 and the first quarter of Year 2: $\begin{array}{llcc}&\text { Dec. Year } 1 &\text { Jan. Year } 2 &\text { Feb. Year } 2 &\text { Mar. Year }\\&\text { (Actual) }&\text {(Budgeted) }&\text {(Budgeted) }&\text {(Budgeted) }\\\text { Cost of goods}& \$41,000 &\$71,000 &\$91,000 &\$ 61,000 \\\text { sold }\end{array}$ Desired ending inventory levels are 26% of the following month's projected cost of goods sold. Budgeted purchases of inventory in February Year 2 would be:

What budget is generally not included in a master budget?

Select the term from the list provided that best matches each of the following definitions or descriptions

Select the correct statement about the master budget.