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Exam 22: The Master Budget and Responsibility Accounting

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Question 1

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Berkeley Products has a cash balance of $20,000 at April 1, 2011. They are now preparing the cash budget for the second quarter. Budgeted cash collections and payments are as follows: $\begin{array}{|l|r|r|r|} \hline&{\text { Apr }} &{\text { May }} &{\text { Jun }} \\\hline \text { Cash collections } & \$ 12,000 & \$ 9,000 & \$ 10,500 \\\hline \text { Cash payments: } & & & \\\hline \text { Purchases of inventory } & 4,600 & 4,200 & 4,000 \\\hline \text { Operating expenses } & 5,000 & 5,200 &4,800 \\\hline\end{array}$ There are no budgeted capital expenditures or financing transactions during the quarter. - Based on the above data, what is the projected cash balance at the end of April?

A) $22,000
B) $21,900
C) $23,700
D) $22,400

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

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Question 2

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The production budget must be prepared before any other component of the operating budget.

A) True
B) False

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Question 3

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Craig Manufacturing Company's budgeted income statement includes the following data: $\begin{array}{|l|r|r|r|r|}\hline \begin{array}{l}\text { Data extracted from budgeted income } \\\text { statement }&\end{array}&\text { Mar } & \text { Apr } & \text { May } & \text { Jun } \\\hline \text { Sales } & \$ 120,000 & \$ 90,000 & \$ 95,000 & \$ 100,000 \\\hline \text { Commission exp. - } 15 \% \text { of sales } & 18,000 & 13,500 & 14,250 & 15,000 \\\hline \text { Salary exp } & 30,000 & 30,000 & 30,000 & 30,000 \\\hline \text { Miscellaneous expense - 4\% of sales } & 4,800 & 3,600 & 3,800 & 4,000 \\\hline \text { Rent expense } & 3,600 & 3,600 & 3,600 & 3,600 \\\hline \text { Utility expense } & 1,900 & 1,900 & 1,900 & 1,900 \\\hline \text { Insurance expense } & 2,100 & 2,100 & 2,100 & 2,100 \\\hline \text { Depreciation expense } & 4,400 & 4,400 & 4,400 & 4,400 \\\hline\end{array}$ The budget assumes that 60% of commission expenses are paid in the month they were incurred and the remaining 40% are paid one month later. In addition, 50% of salary expenses are paid in the month incurred and the remaining 50% are paid one month later. Miscellaneous expenses, rent expense and utility expenses are assumed to be paid in the same month in which they are incurred. Insurance was prepaid for the year on January 1. - How much is the total of the budgeted cash payments for operating expenses for the month of June?

Michael McNaulty is responsible for running the accounting department of a large manufacturing company. The company has multiple divisions and multiple products. McNaulty's business unit would most accurately be described as a(n) :

Dahl Manufacturing is making its operating budget for the 4^th quarter of 2012. Sales are forecast at $60,000 in October, $65,000 in November, and $70,000 in December. Cost of goods sold it 40% of sales. Expenses are budgeted as follows: $\begin{array} { l l l } \text { Variable: } & \text { Miscellaneous: } & 5 \% \text { of sales } \\\text { Fixed: } & \text { Salary expense: } & \$ 12,600 \text { per month } \\& \text { Rent expense: } & \$ 5,200 \text { per month } \\& \text { Depreciation expense: } & \$ 4,000 \text { per month } \\& \text { Admin expense: } & \$ 5,000 \text { per month }\end{array}$ - How much are the total operating expenses in November?

Henderson Industrial Products uses a centralized service department for procurement of raw materials, servicing all three of its divisions-Construction, Manufacturing, and Military. The Construction Division has been allocated a total of $192,000 of costs from the procurement department. Of that amount, 75% is considered traceable to the three product types within the division-Civil Construction, Residential Construction, and Commercial Construction. The division will calculate an allocation rate to assign the traceable costs to each of the three product types based on number of purchase orders processed within each product type. Please refer to the following information: $\begin{array} { | l | r | r | r | r | } \hline \text { Construction Division } & & & \\\hline \text { Product lines } & & \text { Revenues } & \text { Variable Expenses } & \text { Purchase Orders } \\\hline \text { Civil } & & \$ 36,000 & \$ 24,000 & 450 \\\hline \text { Residential } & & \$ 98,000 & \$ 41,000 & 900 \\\hline \text { Commerdal } & & \$ 216,000 & \$ 60,000 & 1,850 \\\hline \text { Total } & & \$ 360,000 & \$ 125,000 & 3,200 \\\hline\end{array}$ -The allocation rate for the three product lines should be:

AAA Company is preparing its 3rd quarter budget and provides the following data: $\begin{array}{|l|r|r|r|} \hline& \text { Jul } & \text { Aug } & \text { Sep } \\\hline \text { Cash collections } & \$ 50,000 & \$ 40,000 & \$ 48,000 \\\hline \text { Cash payments: } & & & \\\hline \text { Purchases of inventory } & 31,000 & 22,000 & 18,000 \\\hline \text { Operating expenses } & 12,000 & 9,000 & 11,600 \\\hline \text { Capital expenditures } & 13,000 & 25,000 & 0\\\hline\end{array}$ Cash balance at June 30 is projected to be $4,000. The company is required to maintain a minimum cash balance of $5,000 and is authorized to borrow at the end of each month to make up any shortfalls. It may borrow in increments of $5,000 and pays interest monthly at an annual rate of 5%. All financing transactions are assumed to take place at the end of the month. Loan balance should be repaid in increments of $5,000 when there is surplus cash. - What is the projected cash shortfall at the end of August, before financing transactions have been taken into consideration?

When a company is preparing a budgeted statement of cash flows and they wish to calculate the payments for operating expenses, they should refer to which of the following?

AAA Company is preparing its 3rd quarter budget and provides the following data: $\begin{array}{|l|r|r|r|} \hline& \text { Jul } & \text { Aug } & \text { Sep } \\\hline \text { Cash collections } & \$ 50,000 & \$ 40,000 & \$ 48,000 \\\hline \text { Cash payments: } & & & \\\hline \text { Purchases of inventory } & 31,000 & 22,000 & 18,000 \\\hline \text { Operating expenses } & 12,000 & 9,000 & 11,600 \\\hline \text { Capital expenditures } & 13,000 & 25,000 & 0\\\hline\end{array}$ Cash balance at June 30 is projected to be $4,000. The company is required to maintain a minimum cash balance of $5,000 and is authorized to borrow at the end of each month to make up any shortfalls. It may borrow in increments of $5,000 and pays interest monthly at an annual rate of 5%. All financing transactions are assumed to take place at the end of the month. Loan balance should be repaid in increments of $5,000 when there is surplus cash. - How much cash shortfall will the company have at the end of July, before financing?

Charter Company is preparing their budget for the 1^st quarter of 2012. The following data is provided: $\begin{array}{|l|r|r|r|}\hline \text { Inventory, Purchases and COGS Budget } & \text { Jan } & \text { Feb } & \text { Mar } \\\hline \text { Cost of goods sold (a) } & \$ 30,000 & \$ 28,500 & \$ 22,500 \\\hline \text { Desired ending inventory(b) } & 10,700 & 9,500 & 9,800 \\\hline \text { Total inventory required } & 40,700 & 38,000 & 32,300 \\\hline \text { ess Beginning inventory } & (11,000 & (10,700) & (9,500 \\\hline \text { Purchases } & 29,700 & 27,300 & 22,800 \\\hline\end{array}$ (a) $\operatorname{COGS}=75 \%$ of sales (b) $\$ 5.000+20 \%$ of COGS for next month For the budgeted balance sheet at March 31, what amount should be shown for Inventory?

The capital expenditure budget stands alone and is not part of either the operating budget or the financial budget.

California Products Company has the following data as part of its budget for the 2^nd quarter: $\begin{array}{|l|r|r|r|}\hline & {\text { Apr }} &{\text { May }} &{\text { Jun }} \\\hline \text { Cash collections } & \$ 30,000 & \$ 32,000 & \$ 36,000 \\\hline \text { Cash payments: } & & & \\\hline \text { Purchases of inventory } & 4,500 & 4,600 & 3,800 \\\hline \text { Operating expenses } & 7,200 & 7,600 & 8,000\\\hline \text { Capital expenditures } & 0 & 24,500 &5,200 \\\hline\end{array}$ The cash balance at April 1 is forecast to be $8,200. -Assume that there will be no financing transactions or costs during the quarter. Based on the above information only, what will the cash balance be at April 30?

A company has prepared the operational budget and the cash budget and is now preparing the budgeted balance sheet. To provide the balance for the Cash account, which document should be used?

The capital expenditure budget is part of the operating budget.

Lan Corporation had beginning inventory of $42,000 and expects cost of sales of $96,000 units during the month. Desired ending inventory is $31,000. How much inventory should Lan Corporation purchase?

Norton Company prepared the following sales budget: $\begin{array}{|l|r|}\hline \text { Month } & \text { Budgeted Sales } \\\hline \text { March } & \$ 200,000 \\\hline \text { April } & \$ 180,000 \\\hline \text { May } & \$ 220,000 \\\hline \text { June } & \$ 260,000 \\\hline\end{array}$ Cost of goods sold is budgeted at 60% of sales, and the inventory at the end of February was $36,000. Desired inventory levels at the end of each month are 30% of the next month's cost of goods sold. - What is the desired beginning inventory on June 1?

Argyle Company forecasts sales of $50,000 in January, $60,000 in February, $70,000 in March, and $75,000 in April. The inventory balance at January 1 is $12,000. Cost of goods sold is budgeted at 40% of sales revenue. Argyle wishes to have inventory levels at the end of each month equal to 60% of cost of goods sold for the following month, plus a "safety cushion" of $1,000. How much should be budgeted for inventory purchases in February?

Henderson Industrial Products uses a centralized service department for procurement of raw materials, servicing all three of its divisions-Construction, Manufacturing, and Military. The total monthly costs of the procurement department are $480,000. Of these costs, 80% are traceable to the divisions, and 20% are considered untraceable. Henderson has decided to assign the traceable costs to the divisions based on number of purchase orders processed. Below is a list of the purchase orders per division. $\begin{array} { | l | r | } \hline \text { Divisions } & \text { Purchase Orders } \\\hline \text { Construction } & 3,200 \\\hline \text { Manufacturing } & 2,400 \\\hline \text { Military } & 800 \\\hline \text { Total } & 6,400 \\\hline\end{array}$ - How much of the procurement department's cost should be assigned to the Construction Division?

Mudbug International has budgeted inventory purchases as follows: $\begin{array} { | l | r | r | r | } \hline & \text { Apr } & \text { May } & \text { Jun } \\\hline \text { Budgeted purchases } & \$ 80,000 & \$ 75,000 & \$ 70,000 \\\hline\end{array}$ The budget assumes that 50% of a given month's purchases are paid in the month of purchase, and the remaining 50% is paid out one month later. Accounts payable to inventory suppliers at March 31 was $38,000. Please use the format below and prepare the budgeted cash payments for inventory purchases. $\begin{array} { | l | l | l | l | } \hline \text { Budgeted Cash Payments for Inventory } & \text { Apr } & \text { May } & \text { Jun } \\ \text { Purchases } & & & \\\hline 50 \% \text { of previous month purchases } & & & \\\hline 50 \% \text { of current month purchases } & & & \\\hline \text { Total cash payments } & & & \\\hline\end{array}$

California Products Company has the following data as part of its budget for the 2^nd quarter: $\begin{array}{|l|r|r|r|}\hline & {\text { Apr }} &{\text { May }} &{\text { Jun }} \\\hline \text { Cash collections } & \$ 30,000 & \$ 32,000 & \$ 36,000 \\\hline \text { Cash payments: } & & & \\\hline \text { Purchases of inventory } & 4,500 & 4,600 & 3,800 \\\hline \text { Operating expenses } & 7,200 & 7,600 & 8,000\\\hline \text { Capital expenditures } & 0 & 24,500 &5,200 \\\hline\end{array}$ The cash balance at April 1 is forecast to be $8,200. -Assume that there will be no financing transactions or costs during the quarter. Based on the above information only, what will the cash balance be at June 30?