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Chapter 9

Profit Planning

True/False
1.
F
Medium

Theusualstartingpointinbudgetingistomakeaforecastof
cashreceiptsandcashdisbursements.

2.
F
Medium

Budgetsareusedforplanningratherthanforcontrolof
operations.

3.
T
Easy

Acontinuousorperpetualbudgetisonewhichcoversa12month
periodbutwhichisconstantlyaddinganewmonthontheendas
thecurrentmonthiscompleted.

4.
F
Easy

Controlinvolvesdevelopingobjectivesandpreparingthe
variousbudgetstoachievethoseobjectives.

5.
T
Easy

Oneofthedistinctadvantagesofabudgetisthatitcanhelp
touncoverpotentialbottlenecksbeforetheyoccur.

6.
T
Easy

Aselfimposedbudgetcanbeaveryeffectivecontroldevicein
anorganization.

7.
F
Medium

Salesforecastsaredrawnupafterthecashbudgethasbeen
completedsinceonlythenarethefundsavailableformarketing
known.

8.
T
Medium

Aproductionbudgetistoamanufacturingfirmasamerchandise
purchasesbudgetistoamerchandisingfirm.

9.
F
Medium

Thedirectmaterialstobepurchasedforaperiodcanbe
obtainedbysubtractingthedesiredendinginventoryofdirect
materialsfromthetotaldirectmaterialsneededforthe
period.

10.
F
Hard

Incompaniesthathave"nolayoff"policies,thetotaldirect
laborcostforabudgetperiodiscomputedbymultiplyingthe
totaldirectlaborhoursneededtomakethebudgetedoutputof
completedunitsbythedirectlaborwagerate.

ManagerialAccounting,9/e

65

11.
F
Medium

Inthemerchandisepurchasesbudget,therequiredpurchases(in
units)foraperiodcanbedeterminedbysubtractingthe
beginningmerchandiseinventory(inunits)fromthebudgeted
sales(inunits).

12.
F
Hard

Thebeginningcashbalanceisnotincludedonthecashbudget
sincethecashbudgetdealsexclusivelywithcashflowsrather
thanwithbalancesheetamounts.

13.
F
Easy

Whenusingtheselfimposedbudgetapproach,itisgenerally
bestfortopmanagementtoacceptallbudgetestimateswithout
questioninordertominimizeadversebehavioralresponsesfrom
employees.

14.
T
Medium

(Appendix)Theeconomicorderquantityisthatpointwherethe
totalcostsoforderinginventoryjustequalthetotalcostsof
carryinginventory.

15.
T
Medium

(Appendix)Astheleadtimeincreases,thesafetystockshould
alsoincrease.

Multiple Choice
16.
B
Easy
CMA
adapted

Thebudgetorschedulethatprovidesnecessaryinputdatafor
thedirectlaborbudgetisthe:
a.rawmaterialspurchasesbudget.
b.productionbudget.
c.scheduleofcashcollections.
d.cashbudget.

17.
B
Easy
CMA
adapted

Thecashbudgetmustbepreparedbeforeyoucancompletethe:
a.productionbudget.
b.budgetedbalancesheet.
c.rawmaterialspurchasesbudget.
d.scheduleofcashdisbursements.

18.
C
Easy

Whichofthefollowingisnotabenefitofbudgeting?
a.Ituncoverspotentialbottlenecksbeforetheyoccur.
b.Itcoordinatestheactivitiesoftheentireorganizationby
integratingtheplansandobjectivesofthevariousparts.
c.Itensuresthataccountingrecordscomplywithgenerally
acceptedaccountingprinciples.
d.Itprovidesbenchmarksforevaluatingsubsequent
performance.

66 ManagerialAccounting,9/e

19.
B
Easy

Thematerialspurchasebudget:
a.isthebeginningpointinthebudgetprocess.
b.mustprovidefordesiredendinginventoryaswellasfor
production.
c.isaccompaniedbyascheduleofcashcollections.
d.iscompletedafterthecashbudget.

20.
C
Easy
CMA
adapted

Themasterbudgetprocessusuallybeginswiththe:
a.productionbudget.
b.operatingbudget.
c.salesbudget.
d.cashbudget.

21.
C
Easy
CMA
adapted

Therearevariousbudgetswithinthemasterbudget.Oneof
thesebudgetsistheproductionbudget.Whichofthefollowing
BESTdescribestheproductionbudget?
a.Itdetailstherequireddirectlaborhours.
b.Itdetailstherequiredrawmaterialspurchases.
c.Itiscalculatedbasedonthesalesbudgetandthedesired
endinginventory.
d.Itsummarizesthecostsofproducingunitsforthebudget
period.

22.
C
Medium

(Appendix)Theeconomicorderquantity(EOQ)inaninventory
managementsystemis:
a.theorderquantitythatyieldsthelowestunitpurchase
cost.
b.theorderquantitythatyieldsthelowestinventoryhandling
cost.
c.theorderquantitythatyieldsthelowesttotalcostof
orderingandcarryinginventory.
d.theorderquantitywiththelargestpurchasediscount.

23.
D
Medium
CMA
adapted

(Appendix)TheStewartCompanyusestheEconomicOrderQuantity
(EOQ)modelinitsinventorymanagement.Adecreaseinwhichof
thefollowingvariableswouldincreasethecompany'sEOQ?
a.Annualsales.
b.Costperorder.
c.Safetystocklevel.
d.Inventorycarryingcosts.

24.
D
Medium

(Appendix)Thelevelofsafetystockdependsonallofthe
followingexcept:
a.thelevelofuncertaintyofthesalesforecast.
b.thelevelofcustomerdissatisfactionwhengoodsare
unavailable.
c.thelevelofuncertaintyintheleadtimeforshipmentsfrom
suppliers.
d.theorderingcostperorder.

ManagerialAccounting,9/e

67

25.
B
Easy
CMA
adapted

Amethodofbudgetinginwhichthecostofeachprogrammustbe
justifiedeveryyeariscalled:
a.operationalbudgeting.
b.zerobasedbudgeting.
c.continuousbudgeting.
d.responsibilityaccounting.

26.
A
Easy
CMA
adapted

FairmontInc.usesanaccountingsystemthatchargescoststo
themanagerwhohasbeendelegatedtheauthoritytomake
decisionsconcerningthecosts.Forexample,ifthesales
manageracceptsarushorderthatwillresultinhigherthan
normalmanufacturingcosts,theseadditionalcostsarecharged
tothesalesmanagerbecausetheauthoritytoacceptordecline
therushorderwasgiventothesalesmanager.Thistypeof
accountingsystemisknownas:
a.responsibilityaccounting.
b.contributionaccounting.
c.absorptionaccounting.
d.operationalbudgeting.

27.
D
Medium

ParleeCompany'ssalesare30%incashand70%oncredit.Sixty
percentofthecreditsalesarecollectedinthemonthofsale,
25%inthemonthfollowingsale,and12%inthesecondmonth
followingsale.Theremainderareuncollectible.Thefollowing
arebudgetedsalesdata:
JanuaryFebruaryMarchApril
Totalsales$60,000$70,000$50,000$30,000
TotalcashreceiptsinAprilwouldbebudgetedtobe:
a.$38,900.
b.$47,900.
c.$27,230.
d.$36,230.

28.
Difficult

BudgetedsalesinAllenCompanyoverthenextfourmonthsare
givenbelow:
SeptemberOctoberNovemberDecember
Budgetedsales$100,000$160,000$180,000$120,000
Twentyfivepercentofthecompany'ssalesareforcashand75%
areonaccount.Collectionsforsalesonaccountfollowa
stablepatternasfollows:50%ofamonth'ssalesarecollected
inthemonthofsale,30%arecollectedinthemonthfollowing
sale,and15%arecollectedinthesecondmonthfollowingsale.
Theremainderareuncollectible.Giventhesedata,cash
collectionsforDecembershouldbe:
a.$153,000.
b.$138,000.
c.$120,000.
d.$103,500.

68 ManagerialAccounting,9/e

29.
D
Medium

ThePDQCompanymakescollectionsoncreditsalesaccordingto
thefollowingschedule:
25%inmonthofsale
70%inmonthfollowingsale
4%insecondmonthfollowingsale
1%uncollectible
Thefollowingsaleshavebeenbudgeted:
MonthSales
April...$100,000
May.....120,000
June....110,000
CashcollectionsinJunewouldbe:
a.$113,400.
b.$110,000.
c.$111,000.
d.$115,500.

30.
D
Medium

OrionCorporationispreparingacashbudgetforthesixmonths
beginningJanuary1.Shownbelowarethecompany'sexpected
collectionpatternandthebudgetedsalesfortheperiod.
Expectedcollectionpattern:
65%collectedinthemonthofsale
20%collectedinthemonthaftersale
10%collectedinthesecondmonthaftersale
4%collectedinthethirdmonthaftersale
1%uncollectible
Budgetedsales:
January.......$160,000
February......185,000
March.........190,000
April.........170,000
May...........200,000
June..........180,000
TheestimatedtotalcashcollectionsduringAprilfromsales
andaccountsreceivableswouldbe:
a.$155,900.
b.$167,000.
c.$171,666.
d.$173,400.

ManagerialAccounting,9/e

69

31.
A
Easy

PardeeCompanyplanstosell12,000unitsduringthemonthof
August.Ifthecompanyhas2,500unitsonhandatthestartof
themonth,andplanstohave2,000unitsonhandattheendof
themonth,howmanyunitsmustbeproducedduringthemonth?
a.11,500.
b.12,500.
c.12,000.
d.14,000.

32.
C
Medium

ModestoCompanyproducesandsellsProductAlphaB.Toguard
againststockouts,thecompanyrequiresthat20%ofthenext
month'ssalesbeonhandattheendofeachmonth.Budgeted
salesofProductAlphaBoverthenextfourmonthsare:
JuneJulyAugustSeptember
Budgetedsalesinunits30,00040,00060,00050,000
BudgetedproductionforAugustwouldbe:
a.62,000units.
b.70,000units.
c.58,000units.
d.50,000units.

33.
B
Hard

FridenCompanyhasbudgetedsalesandproductionoverthenext
quarterasfollows:
AprilMayJune
Salesinunits.........100,000120,000?
Productioninunits....104,000128,000156,000
Thecompanyhas20,000unitsofproductonhandatApril1.A
minimumof20%ofthenextmonth'ssalesneedsinunitsmustbe
onhandattheendofeachmonth.Julysalesareexpectedtobe
140,000units.BudgetedsalesforJunewouldbe(inunits):
a.188,000.
b.160,000.
c.128,000.
d.184,000.

34.
B
Medium

WalshCompanyexpectssalesofProductWtobe60,000unitsin
April,75,000unitsinMayand70,000unitsinJune.The
companydesiresthattheinventoryonhandattheendofeach
monthbeequalto40%ofthenextmonth'sexpectedunitsales.
DuetoexcessiveproductionduringMarch,onMarch31there
were25,000unitsofProductWintheendinginventory.Given
thisinformation,WalshCompany'sproductionofProductWfor
themonthofAprilshouldbe:
a.60,000units.
b.65,000units.
c.75,000units.
d.66,000units.

70 ManagerialAccounting,9/e

35.
C
Medium
CMA
adapted

SuperiorIndustries'salesbudgetshowsquarterlysalesforthe
nextyearasfollows:
QuarterSales(units)
First.....10,000
Second....8,000
Third.....12,000
Fourth....14,000
Companypolicyistohaveafinishedgoodsinventoryattheend
ofeachquarterequalto20%ofthenextquarter'ssales.
Budgetedproductionforthesecondquartershouldbe:
a.7,200units.
b.8,000units.
c.8,800units.
d.8,400units.

36.
A
Medium

TheToblerCompanyhasbudgetedproductionfornextyearas
follows:
Quarter...............FirstSecondThirdFourth
Productioninunits...10,00012,00016,00014,000
Fourpoundsofrawmaterialsarerequiredforeachunit
produced.Rawmaterialsonhandatthestartoftheyeartotals
4,000lbs.Therawmaterialsinventoryattheendofeach
quartershouldequal10%ofthenextquarter'sproduction
needs.Budgetedpurchasesofrawmaterialsinthethirdquarter
wouldbe:
a.63,200lbs.
b.62,400lbs.
c.56,800lbs.
d.50,400lbs.

37.
D
Hard

MarpleCompany'sbudgetedproductioninunitsandbudgetedraw
materialspurchasesoverthenextthreemonthsaregivenbelow:
JanuaryFebruaryMarch
Budgetedproduction(inunits)..60,000?100,000
Budgetedrawmaterials
purchases(inpounds)........129,000165,000188,000
Twopoundsofrawmaterialsarerequiredtoproduceoneunitof
product.Thecompanywantsrawmaterialsonhandattheendof
eachmonthequalto30%ofthefollowingmonth'sproduction
needs.Thecompanyisexpectedtohave36,000poundsofraw
materialsonhandonJanuary1.Budgetedproductionfor
Februaryshouldbe:
a.105,000units.
b.82,500units.
c.150,000units.
d.75,000units.

ManagerialAccounting,9/e

71

38.
A
Medium

TheWaverlyCompanyhasbudgetedsalesfornextyearas
follows:
Quarter..........FirstSecondThirdFourth
Salesinunits...12,00014,00018,00016,000
Theendinginventoryoffinishedgoodsforeachquartershould
equal25%ofthenextquarter'sbudgetedsalesinunits.The
finishedgoodsinventoryatthestartoftheyearis3,000
units.Scheduledproductionforthethirdquartershouldbe:
a.17,500.
b.18,500.
c.22,000.
d.13,500.

39.
A
Hard

TheWillseyMerchandiseCompanyhasbudgeted$40,000insales
forthemonthofDecember.Thecompany'scostofgoodssoldis
30%ofsales.Ifthecompanyhasbudgetedtopurchase$18,000
inmerchandiseduringDecember,thenthebudgetedchangein
inventorylevelsoverthemonthofDecemberis:
a.$6,000increase.
b.$10,000decrease.
c.$22,000decrease.
d.$15,000increase.

40.
B
Easy

ABCCompanyhasacashbalanceof$9,000onApril1.The
companymustmaintainaminimumcashbalanceof$6,000.During
Aprilexpectedcashreceiptsare$45,000.Expectedcash
disbursementsduringthemonthtotal$52,000.DuringAprilthe
companywillneedtoborrow:
a.$2,000.
b.$4,000.
c.$6,000.
d.$8,000.

72 ManagerialAccounting,9/e

41.
D
Easy

AvrilCompanymakescollectionsonsalesaccordingtothe
followingschedule:
30%inthemonthofsale
60%inthemonthfollowingsale
8%inthesecondmonthfollowingsale
Thefollowingsalesareexpected:
ExpectedSales
January.......$100,000
February......120,000
March.........110,000
CashcollectionsinMarchshouldbebudgetedtobe:
a.$110,000.
b.$110,800.
c.$105,000.
d.$113,000.

42.
B
Hard

TheStacyCompanymakesandsellsasingleproduct,ProductR.
BudgetedsalesforAprilare$300,000.GrossMarginisbudgeted
at30%ofsalesdollars.IfthenetincomeforAprilis
budgetedat$40,000,thebudgetedsellingandadministrative
expensesare:
a.$133,333.
b.$50,000.
c.$102,000.
d.$78,000.

43.
A
Hard
CMA
adapted

(Appendix)CanescoEnterprisesuses84,000unitsofPart256in
itsproductionovera300dayworkyear.Theusualleadtime
fordeliveryofthepartfromthesupplierissixdays;
occasionally,theleadtimehasbeenashighaseightdays.The
companywantstoimplementasafetystockpolicy(itpresently
carriesnosafetystocks).Thesafetystocksize,thelikely
effectonstockoutcostsofimplementingthesafetystock,and
thelikelyeffectoncarryingcostsofimplementingthesafety
stock,respectively,wouldbe:
a.560units,decrease,increase.
b.560units,increase,decrease.
c.1,680units,decrease,increase.
d.1,680units,increase,nochange.

ManagerialAccounting,9/e

73

44.
B
Medium

(Appendix)KarpovEnterprises,awholesalerofelectronic
instruments,usestheeconomicorderquantitymodelinits
inventorymanagement.Dataconcerningoneproductappearbelow:
Totalunitspurchasedannually..............810
Coststoplaceoneorder....................$10
Sellingpriceperunit......................$40
Annualcosttocarryoneunitinstock......$2
Theeconomicorderquantity(EOQ)forthisproductwouldbe:
a.18units.
b.90units.
c.81units.
d.180units.

45.
D
Medium
CPA
adapted

(Appendix)TheAronCompanyrequires40,000unitsofProductQ
fortheyear.Theunitswillbeusedevenlythroughoutthe
year.Itcosts$60toplaceanorder.Itcosts$10tocarrya
unitininventoryfortheyear.Whatistheeconomicorder
quantity(EOQ)roundedtothenearestwholeunit?
a.400.
b.490.
c.600.
d.693.

46.
A
Medium
CPA
adapted

(Appendix)Thefollowingdatarelatetoapartusedbythe
HenryCompany:
Unitsrequiredperyear..........30,000
Costofplacinganorder.........$400
Unitcarryingcostperyear......$600
Assumingthattheunitswillbeusedevenlythroughoutthe
year,whatistheeconomicorderquantity(EOQ)?
a.200.
b.300.
c.400.
d.500.

47.
D
Hard
CPA
adapted

(Appendix)PolitanCompanymanufactures4,000bookcasesayear.
Setupcostsare$20foraproductionrun.Usingtheeconomic
orderquantity(EOQ)approach,theoptimalproductionlotsize
wouldbe200unitswhenthecostofcarryingonebookcasein
inventoryforoneyearis:
a.$0.50.
b.$1.00.
c.$2.00.
d.$4.00.

74 ManagerialAccounting,9/e

48.
A
Hard
CMA
adapted

(Appendix)MossConvertersInc.uses100,000kilogramsofraw
materialannuallyinitsproductionprocesses.Therawmaterial
costs$12perkilogram.Thecosttoprocessapurchaseorderis
$45,whichincludesvariablecostsof$35andallocatedfixed
costsof$10.Outofpocketstoragecostsare$4.20per
kilogramperyear.Moss'seconomicorderquantity(EOQ)is:
a.1,291units.
b.1,464units.
c.1,708units.
d.1,936units.

49.
C
Medium

(Appendix)JasperInc.producesautomobileheadlightassemblies
forsportsutilityvehicles.Dataconcerningaparticularmetal
fastenerthatisusedinaoneofthecompany'sproductsappear
below.
Economicorderquantity.....600units
Averageweeklyusage........150units
Maximumweeklyusage........175units
Leadtime...................2weeks
Thesafetystockwouldbe:
a.350units.
b.175units.
c.50units.
d.75units.

Reference:91
KABInc.,asmallretailstore,hadthefollowingresultsforMay.The
budgetsforJuneandJulyarealsogiven.
MayJuneJuly
(actual)(budget)(budget)
Sales........................$42,000$40,000$45,000
Costofsales................21,00020,00022,500
Grossmargin.................21,00020,00022,500
Operatingexpenses...........20,00020,00020,000
Operatingincome.............$1,000$0$2,500
Salesarecollected80%inthemonthofthesaleandthebalanceinthe
monthfollowingthesale.(Therearenobaddebts.)Thegoodsthatare
soldarepurchasedinthemonthpriortosale.Suppliersofthegoodsare
paidinthemonthfollowingthesale.The"operatingexpenses"arepaidin
themonthofthesale.
50.
C
Easy
CMA
adapted
ReferTo:
91

TheamountofcashcollectedduringthemonthofJuneshould
be:
a.$32,000.
b.$40,000.
c.$40,400.
d.$41,000.

ManagerialAccounting,9/e

75

51.
B
Easy
CMA
adapted
ReferTo:
91

ThecashdisbursementsduringthemonthofJuneforgoods
purchasedforresaleandforoperatingexpensesshouldbe:
a.$40,000.
b.$41,000.
c.$42,500.
d.$43,500.

Reference:92
Justin'sPlantStore,aretailer,startedoperationsonJanuary1.Onthat
date,theonlyassetswere$16,000incashand$3,500inmerchandise
inventory.Forpurposesofbudgetpreparation,assumethatthecompany's
costofgoodssoldis60%ofsales.Expectedsalesforthefirstfourmonths
appearbelow.
Expected
Sales
January.......$10,000
February......24,000
March.........16,000
April.........25,000
Thecompanydesiresthatthemerchandiseinventoryonhandattheendof
eachmonthbeequalto50%ofthenextmonth'smerchandisesales(statedat
cost).Allpurchasesofmerchandiseinventorymustbepaidinthemonthof
purchase.Sixtypercentofallsalesshouldbeforcash;thebalancewillbe
oncredit.Seventyfivepercentofthecreditsalesshouldbecollectedin
themonthfollowingthemonthofsale,withthebalancecollectedinthe
followingmonth.Variableoperatingexpensesshouldbe10%ofsalesand
fixedexpenses(alldepreciation)shouldbe$3,000permonth.Cashpayments
forthevariableoperatingexpensesaremadeduringthemonththeexpenses
areincurred.
52.
D
Medium
ReferTo:
92

InabudgetedincomestatementforthemonthofFebruary,net
incomewouldbe:
a.$9,000.
b.$1,800.
c.$0.
d.$4,200.

53.
A
Medium
ReferTo:
92

Inabudgetedbalancesheet,theMerchandiseInventoryon
February28wouldbe:
a.$4,800.
b.$7,500.
c.$9,600.
d.$3,200.

76 ManagerialAccounting,9/e

54.
C
Medium
ReferTo:
92

TheAccountsReceivablebalancethatwouldappearintheMarch
31budgetedbalancesheetwouldbe:
a.$15,000.
b.$16,000.
c.$8,800.
d.$12,400.

55.
A
Medium
ReferTo:
92

InabudgetofcashreceiptsforMarch,thetotalcashreceipts
wouldbe:
a.$17,800.
b.$8,200.
c.$20,200.
d.$16,000.

56.
B
Hard
ReferTo:
92

InabudgetofcashdisbursementsforMarch,thetotalcash
disbursementswouldbe:
a.$11,200.
b.$13,900.
c.$22,300.
d.$16,900.

Reference:93
InformationontheactualsalesandinventorypurchasesoftheLawCompany
forthefirstquarterfollow:
Inventory
SalesPurchases
January......$120,000$60,000
February.....$100,000$78,000
March........$130,000$90,000
CollectionsfromLawCompany'scustomersarenormally60%inthemonthof
sale,30%inthemonthfollowingsale,and8%inthesecondmonthfollowing
sale.Thebalanceisuncollectible.LawCompanytakesfulladvantageofthe
3%discountallowedonpurchasespaidforbytheendofthefollowingmonth.
ThecompanyexpectssalesinAprilof$150,000andinventorypurchasesof
$100,000.OperatingexpensesforthemonthofAprilareexpectedtobe
$38,000,ofwhich$15,000issalariesand$8,000isdepreciation.The
remainingoperatingexpensesarevariablewithrespecttotheamountof
salesindollars.Thoseoperatingexpensesrequiringacashoutlayarepaid
forduringthemonthincurred.LawCompany'scashbalanceonMarch1was
$43,000,andonApril1was$35,000.
57.
B
Medium
ReferTo:
93

TheexpectedcashcollectionsfromcustomersduringAprilwould
be:
a.$150,000.
b.$137,000.
c.$139,000.
d.$117,600.

ManagerialAccounting,9/e

77

58.
D
Easy
ReferTo:
93

TheexpectedcashdisbursementsduringAprilforinventory
purchaseswouldbe:
a.$100,000.
b.$97,000.
c.$90,000.
d.$87,300.

59.
B
Easy
ReferTo:
93

TheexpectedcashdisbursementsduringAprilforoperating
expenseswouldbe:
a.$38,000.
b.$30,000.
c.$23,000.
d.$15,000.

60.
A
Hard
ReferTo:
93

TheexpectedcashbalanceonApril30wouldbe:
a.$54,700.
b.$62,700.
c.$19,700.
d.$28,700.

Reference:94
TheLaPannCompanyhasobtainedthefollowingsalesforecastdata:
JulyAugustSeptemberOctober
Cashsales.....$80,000$70,000$50,000$60,000
Creditsales...$240,000$220,000$180,000$200,000
Theregularpatternofcollectionofcreditsalesis20%inthemonthof
sale,70%inthemonthfollowingthemonthofsale,andtheremainderinthe
secondmonthfollowingthemonthofsale.Therearenobaddebts.
61.
C
Medium
ReferTo:
94

ThebudgetedaccountsreceivablebalanceonSeptember30is:
a.$126,000.
b.$148,000.
c.$166,000.
d.$190,000.

62.
B
Medium
ReferTo:
94

ThebudgetedcashreceiptsforOctoberare:
a.$188,000.
b.$248,000.
c.$226,000.
d.$278,000.

78 ManagerialAccounting,9/e

Reference:95
TheLaGrangeCompanyhadthefollowingbudgetedsalesforthefirsthalfof
thecurrentyear:
CashSalesCreditSales
January............$70,000$340,000
February...........50,000190,000
March..............40,000135,000
April..............35,000120,000
May................45,000160,000
June...............40,000140,000
Thecompanyisintheprocessofpreparingacashbudgetandmustdetermine
theexpectedcashcollectionsbymonth.Tothisend,thefollowing
informationhasbeenassembled:
Collectionsonsales:60%inmonthofsale
30%inmonthfollowingsale
10%insecondmonthfollowingsale
TheaccountsreceivablebalanceonJanuary1ofthecurrentyearwas
$70,000,ofwhich$50,000representsuncollectedDecembersalesand$20,000
representsuncollectedNovembersales.
63.
D
Hard
ReferTo:
95

ThetotalcashcollectedbyLaGrangeCompanyduringJanuary
wouldbe:
a.$410,000.
b.$254,000.
c.$344,000.
d.$331,500.

64.
C
Hard
ReferTo:
95

WhatisthebudgetedaccountsreceivablebalanceonJune1of
thecurrentyear?
a.$56,000.
b.$64,000.
c.$76,000.
d.$132,000.

ManagerialAccounting,9/e

79

Reference:96
PardiseCompanyplansthefollowingbeginningandendinginventorylevels
(inunits)forJuly:
July1July30
Rawmaterial40,00050,000
Workinprocess10,00010,000
Finishedgoods80,00050,000
Twounitsofrawmaterialareneededtoproduceeachunitoffinished
product.
65.
D
Easy
CMA
adapted
ReferTo:
96

IfPardiseCompanyplanstosell480,000unitsduringJuly,the
numberofunitsitwouldhavetomanufactureduringJulywould
be:
a.440,000units.
b.480,000units.
c.510,000units.
d.450,000units.

66.
C
Easy
CMA
adapted
ReferTo:
96

If500,000finishedunitsweretobemanufacturedduringJuly,
theunitsofrawmaterialneededtobepurchasedwouldbe:
a.1,000,000units.
b.1,020,000units.
c.1,010,000units.
d.990,000units.

Reference:97
BarleyEnterpriseshasbudgetedunitsalesforthenextfourmonthsas
follows:
October4,800units
November5,800units
December6,400units
January5,200units
Theendinginventoryforeachmonthshouldbeequalto15%ofthenext
month'ssalesinunits.TheinventoryonSeptember30wasbelowthislevel
andcontainedonly600units.
67.
B
Medium
ReferTo:
97

ThetotalunitstobeproducedinOctoberis:
a.4,530.
b.5,070.
c.5,670.
d.5,890.

80 ManagerialAccounting,9/e

68.
C
Easy
ReferTo:
97

ThedesiredendinginventoryforDecemberis:
a.960.
b.870.
c.780.
d.690.

Reference:98
RobertsEnterpriseshasbudgetedsalesinunitsforthenextfivemonthsas
follows:
June............4,500units
July............7,100units
August..........5,300units
September.......6,700units
October.........3,700units
Pastexperiencehasshownthattheendinginventoryforeachmonthmustbe
equalto10%ofthenextmonth'ssalesinunits.TheinventoryonMay31
contained410units.Thecompanyneedstoprepareaproductionbudgetfor
thesecondquarteroftheyear.
69.
D
Medium
ReferTo:
98

TheopeninginventoryinunitsforSeptemberis:
a.370units.
b.6,700units.
c.530units.
d.670units.

70.
C
Medium
ReferTo:
98

ThetotalnumberofunitstobeproducedinJulyis:
a.7,630units.
b.7,100units.
c.6,920units.
d.7,280units.

71.
B
Easy
ReferTo:
98

ThedesiredendinginventoryforAugustis:
a.530units.
b.670units.
c.710units.
d.370units.

Reference:99
NoelEnterpriseshasbudgetedsalesinunitsforthenextfivemonthsas
follows:
January.....6,800units
February....5,400units
March.......7,200units
April.......4,600units
May.........3,800units
Pastexperiencehasshownthattheendinginventoryforeachmonthmustbe
equalto10%ofthenextmonth'ssalesinunits.TheinventoryonDecember
31contained400units.Thecompanyneedstoprepareaproductionbudgetfor
thesecondquarteroftheyear.
ManagerialAccounting,9/e

81

72.
B
Medium
ReferTo:
99

TheopeninginventoryinunitsforAprilis:
a.380units.
b.460units.
c.4,600units.
d.720units.

73.
A
Medium
ReferTo:
99

ThetotalnumberofunitstobeproducedinFebruaryis:
a.5,580units.
b.5,400units.
c.6,120units.
d.5,220units.

74.
B
Medium
ReferTo:
99

ThedesiredendinginventoryforMarchis:
a.720units.
b.460units.
c.540units.
d.380units.

Reference:910
WellfleetCompanymanufactureschildrens'recreationalequipment.The
PurchasingDepartmentisfinalizingplansfornextyearandhasgatheredthe
followinginformationregardingtwoofthecomponentsusedinbothtricycles
andbicycles:
PartA19PartB12TricyclesBicycles
Beginninginventory...3,5001,2008002,150
Endinginventory......2,0001,8001,000900
Unitcost.............$1.20$4.50$54.50$89.60
Projectedunitsales..96,000130,000
Componentusage:
Tricycles.......2perunit1perunit
Bicycles........2perunit4perunit
75.
B
Hard
CMA
adapted
ReferTo:
910

ThebudgeteddollarvalueofWellfleetCompany'spurchasesof
PartA19fornextyearis:
a.$383,580.
b.$538,080.
c.$540,600.
d.$480,000.

76.
D
Hard
CMA
adapted
ReferTo:
910

(Appendix)Iftheeconomicorderquantity(EOQ)forPartB12is
70,000units,thenumberoftimesthatWellfleetCompanyshould
purchasethispartnextyearis:
a.fourtimes.
b.seventimes.
c.eighttimes.
d.ninetimes.

82 ManagerialAccounting,9/e

Reference:911
TheLFMCompanymakesandsellsasingleproduct,ProductT.Eachunitof
ProductTrequires1.3hoursoflaboratalaborrateof$9.10perhour.LFM
CompanyneedstoprepareaDirectLaborBudgetforthesecondquarterof
nextyear.
77.
B
Easy
ReferTo:
911

ThebudgeteddirectlaborcostperunitofProductTwouldbe:
a.$9.10.
b.$11.83.
c.$7.00.
d.$10.40.

78.
C
Medium
ReferTo:
911

Thecompanyhasbudgetedtoproduce25,000unitsofProductT
inJune.ThefinishedgoodsinventoriesonJune1andJune30
werebudgetedat500and700units,respectively.Budgeted
directlaborcostsincurredinJunewouldbe:
a.$293,384.
b.$304,031.
c.$295,750.
d.$227,500.

Reference:912
TheInternationalCompanymakesandsellsonlyoneproduct,ProductSW.The
companyisintheprocessofpreparingitsSellingandAdministrative
ExpenseBudgetforthelasthalfoftheyear.Thefollowingbudgetdataare
available:
VariableCost
PerUnitSoldMonthlyFixedCost
Salescommissions...................$0.70
Shipping............................$1.10
Advertising.........................$0.20$14,000
Executivesalaries..................$34,000
Depreciationonofficeequipment....$11,000
Other...............................$0.25$19,000
Allexpensesotherthandepreciationarepaidincashinthemonththeyare
incurred.
79.
C
Medium
ReferTo:
912

Ifthecompanyhasbudgetedtosell25,000unitsofProductSW
inJuly,thenthetotalbudgetedsellingandadministrative
expensesforJulywillbe:
a.$56,250.
b.$78,000.
c.$134,250.
d.$123,250.

ManagerialAccounting,9/e

83

80.
A
Medium
ReferTo:
912

Ifthecompanyhasbudgetedtosell20,000unitsofProductSW
inOctoberthenthetotalbudgetedvariablesellingand
administrativeexpensesforOctoberwillbe:
a.$45,000.
b.$40,000.
c.$56,250.
d.$78,000.

81.
B
Hard
ReferTo:
912

Ifthebudgetedcashdisbursementsforsellingand
administrativeexpensesforNovembertotal$123,250,thenhow
manyunitsofProductSWdoesthecompanyplantosellin
November(roundedtothenearestwholeunit)?
a.33,444units.
b.25,000units.
c.22,952units.
d.20,111units.

82.
D
Medium
ReferTo:
912

Ifthecompanyhasbudgetedtosell24,000unitsofProductSW
inSeptember,thenthetotalbudgetedfixedsellingand
administrativeexpensesforSeptemberwouldbe:
a.$54,000.
b.$48,000.
c.$67,000.
d.$78,000.

Reference:913
TheCulverCompanyispreparingitsManufacturingOverheadBudgetforthe
thirdquarteroftheyear.Budgetedvariablefactoryoverheadis$3.00per
unitproduced;budgetedfixedfactoryoverheadis$75,000permonth,with
$16,000ofthisamountbeingfactorydepreciation.
83.
D
Easy
ReferTo:
913

IfthebudgetedproductionforJulyis6,000units,thenthe
totalbudgetedfactoryoverheadforJulyis:
a.$77,000.
b.$82,000.
c.$85,000.
d.$93,000.

84.
B
Easy
ReferTo:
913

IfthebudgetedproductionforAugustis5,000units,thenthe
totalbudgetedfactoryoverheadperunitis:
a.$15.
b.$18.
c.$20.
d.$22.

84 ManagerialAccounting,9/e

85.
D
Medium
ReferTo:
913

Ifthebudgetedcashdisbursementsforfactoryoverheadfor
Septemberare$80,000,thenthebudgetedproductionfor
Septembermustbe:
a.7,400units.
b.6,200units.
c.6,500units.
d.7,000units.

Reference:914
TheBandeirasCompany,amerchandisingfirm,hasbudgeteditsactivityfor
Decemberaccordingtothefollowinginformation:
I.Salesat$550,000,allforcash.
II.MerchandiseinventoryonNovember30was$300,000.
III.BudgeteddepreciationforDecemberis$35,000.
IV.ThecashbalanceatDecember1was$25,000.
V.Sellingandadministrativeexpensesarebudgetedat$60,000for
Decemberandarepaidincash.
VI.TheplannedmerchandiseinventoryonDecember31is$270,000.
VII.Theinvoicecostformerchandisepurchasesrepresents75%ofthesales
price.Allpurchasesarepaidforincash.
86.
D
Easy
ReferTo:
914

ThebudgetedcashreceiptsforDecemberare:
a.$412,500.
b.$137,500.
c.$585,000.
d.$550,000.

87.
B
Hard
ReferTo:
914

ThebudgetedcashdisbursementsforDecemberare:
a.$382,500.
b.$442,500.
c.$472,500.
d.$477,500.

88.
C
Hard
ReferTo:
914

ThebudgetednetincomeforDecemberis:
a.$107,500.
b.$137,500.
c.$42,500.
d.$77,500.

ManagerialAccounting,9/e

85

Reference:915
AcashbudgetbyquartersfortheCarneyCompanyisgivenbelow(notethat
somedataaremissing).Missingdataamountshavebeenkeyedwitheither
questionmarksorlowercaseletters(a,b,c,etc.);theselowercase
letterswillbereferredtointhequestionsthatfollow.(Itmaybe
necessarytocalculateavalueforitemswhereaquestionmarkappears.)
Thecompanyrequiresaminimumcashbalanceofatleast$10,000tostarta
quarter.Alldataareinthousands.
CarneyCorporation
CashBudget

Quarters

o
1234
Cashbalance,beginning....................$16$e$13$10
Addcollectionsfromcustomers.............a706780
Totalcashavailable....................??8090
Lessdisbursements:
Purchaseofinventory...................31c4035
Operatingexpenses......................3522?15
Equipmentpurchases.....................1014190
Dividends...............................0605
Totaldisbursements.................66?f55
Excess(deficiency)ofcashavailable
overdisbursements......................717(2)35
Financing:
Borrowings..............................b12
Repayments(includinginterest).........d(21)
Totalfinancing......................??12(21)
Cashbalance,ending.......................10?$10$14
89.
C
Medium
ReferTo:
915

Thecollectionsfromcustomersduringthefirstquarter(item
a)are:
a.$50.
b.$60.
c.$57.
d.$73.

90.
D
Easy
ReferTo:
915

Theborrowingrequiredduringthefirstquartertomeetthe
minimumcashbalance(itemb)is:
a.$0.
b.$7.
c.$10.
d.$3.

91.
D
Hard
ReferTo:
915

Thecashdisbursedforpurchasesduringthesecondquarter
(itemc)is:
a.$13.
b.$55.
c.$9.
d.$21.

86 ManagerialAccounting,9/e

92.
A
Medium
ReferTo:
915

Therepayment(includinginterest)offinancingduringthe
secondquarter(itemd)is:
a.$4.
b.$0.
c.$17.
d.$7.

93.
A
Easy
ReferTo:
915

Thecashbalanceatthebeginningofthesecondquarter(item
e)is:
a.$10.
b.$14.
c.$0.
d.$7.

94.
C
Easy
ReferTo:
915

Thetotaldisbursementsduringthethirdquarter(itemf)is:
a.$84.
b.$78.
c.$82.
d.$59.

Reference:916
(Appendix)RyersonComputerFurnitureInc.(RCF)manufacturesalineof
officechairs.Theannualdemandforthechairsis5,000units.Theannual
costtocarryonechairininventoryis$10andthecosttosetupa
productionrunis$1,000.Therearenochairsonhandininventory,andRCF
managementhasscheduledfourproductionrunsofchairsforthecomingyear,
thefirstofwhichistoberunimmediately.Atotalof1,250chairswillbe
producedineachoftheproductionruns.RCFhas250businessdaysperyear
andsalesoccuruniformlythroughouttheyear.
95.
C
Medium
CMA
adapted
ReferTo:
916

IfRCFdoesnotmaintainasafetystock,theestimatedtotal
inventorycarryingcostsforthechairsforthecomingyear
basedontheircurrentproductionscheduleis:
a.$4,000.
b.$5,000.
c.$6,250.
d.$12,500.

96.
D
Medium
CMA
adapted
ReferTo:
916

Thenumberofproductionrunsperyearthatwouldminimizethe
sumoftheinventorycarryingcostsandsetupcostsforthe
comingyearis:
a.1productionrun.
b.2productionruns.
c.4productionruns.
d.5productionruns.

ManagerialAccounting,9/e

87

97.
C
Medium
CMA
adapted
ReferTo:
916

Asafetystockofafivedaysupplyofcomputerchairswould
increaseRCF'splannedaverageinventoryby:
a.20units.
b.5units.
c.100units.
d.50units.

Reference:917
(Appendix)CantorCreations,whichhas250businessdaysperyear,
manufacturesdesksfordesktopworkstations.Theannualdemandforthedesks
isestimatedtobe5,000units.Theannualcostofcarryingoneunitin
inventoryis$10,andthecosttosetupaproductionrunis$1,000.Cantor
hasscheduledfourequalproductionrunsforthecomingyear,thefirstto
beginimmediately.Currently,therearenodesksonhand.Assumethatsales
occuruniformlythroughouttheyearandthatproductionisinstantaneous.
98.
B
Hard
CMA
adapted
ReferTo:
917

IfCantorCreationsdoesnotmaintainasafetystock,the
estimatedtotalcarryingcostsforthedesksforthecoming
yearis:
a.$5,000.
b.$6,250.
c.$4,000.
d.$10,250.

99.
A
Hard
CMA
adapted
ReferTo:
917

IfCantorCreationsweretoscheduleonlytwoequalproduction
runsofthedesksforthecomingyear,thesumofcarrying
costsandsetupcostswouldincrease(decrease)by:
a.$4,250.
b.$(2,000).
c.$6,250.
d.$(250).

100.
B
Hard
CMA
adapted
ReferTo:
917

Asafetystockofafivedaysupplyofdeskswouldincreasethe
numberofunitsinCantorCreations'plannedaverageinventory
by:
a.50units.
b.100units.
c.250units.
d.500units.

Reference:918
(Appendix)TheHuronCorporationpurchases60,000headbandsperyear.The
averagepurchaseleadtimeis20workingdays.Maximumleadtimeis27
workingdays.Thecorporationworks240daysperyear.
101.
C
Medium
CMA
adapted

HorunCorporationshouldcarryasafetystockof:
a.5,000units.
b.6,750units.
c.1,750units.
d.5,250units.

88 ManagerialAccounting,9/e

ReferTo:
918

102.
B
Medium
CMA
adapted
ReferTo:
918

HuronCorporationshouldreorderheadbandswhenthequantityin
inventoryreaches:
a.5,000units.
b.6,750units.
c.1,750units.
d.5,250units.

Essay
103.
Medium

ClayCompanyhasprojectedsalesandproductioninunitsfor
thesecondquarterofthecomingyearasfollows:
AprilMayJune
Sales.........50,00040,00060,000
Production....60,00050,00050,000
Cashrelatedproductioncostsarebudgetedat$5perunit
produced.Oftheseproductioncosts,40%arepaidinthemonth
inwhichtheyareincurredandthebalanceinthefollowing
month.Sellingandadministrativeexpenseswillamountto
$100,000permonth.TheaccountspayablebalanceonMarch31
totals$190,000,whichwillbepaidinApril.
Allunitsaresoldonaccountfor$14each.Cash
collectionsfromsalesarebudgetedat60%inthemonthof
sale,30%inthemonthfollowingthemonthofsale,andthe
remaining10%inthesecondmonthfollowingthemonthofsale.
AccountsreceivableonApril1totaled$500,000($90,000from
February'ssalesandtheremainderfromMarch).
Required:
a.Prepareascheduleforeachmonthshowingbudgetedcash
disbursementsfortheClayCompany.
b.Prepareascheduleforeachmonthshowingbudgetedcash
receiptsforClayCompany.

ManagerialAccounting,9/e

89

Answer:
AprilMayJune
Productionunits...................60,00050,00050,000
Cashrequiredperunit.............$5$5$5
Productioncosts...................$300,000$250,000$250,000
Cashdisbursements:
AprilMayJune
Productionthismonth(40%)........$120,000$100,000$100,000
Productionpriormonth(60%).......190,000180,000150,000
Sellingandadministrative.........100,000100,000100,000
Totaldisbursements................$410,000$380,000$350,000
Paymentsrelatingtothepriormonth(March)inAprilrepresent
thebalanceofaccountspayableatMarch31.
AprilMayJune
Salesunits........................50,00040,00060,000
Salesprice........................X$14x$14x$14
Totalsales........................$700,000$560,000$840,000
AprilMayJune
Cashreceipts:
Februarysales...................$90,000
Marchsales......................307,500$102,500
Aprilsales......................420,000210,000$70,000
Maysales........................336,000168,000
Junesales.......................________________504,000
Totalreceipts.....................$817,500$648,500$742,000

90 ManagerialAccounting,9/e

104.
Medium

TilsonCompanyhasprojectedsalesandproductioninunitsfor
thesecondquarterofthecomingyearasfollows:
AprilMayJune
Sales............55,00045,00065,000
Production.......65,00055,00055,000
Cashrelatedproductioncostsarebudgetedat$7perunit
produced.Oftheseproductioncosts,40%arepaidinthemonth
inwhichtheyareincurredandthebalanceinthefollowing
month.Sellingandadministrativeexpenseswillamountto
$110,000permonth.TheaccountspayablebalanceonMarch31
totals$193,000,whichwillbepaidinApril.
Allunitsaresoldonaccountfor$16each.Cash
collectionsfromsalesarebudgetedat60%inthemonthof
sale,30%inthemonthfollowingthemonthofsale,andthe
remaining10%inthesecondmonthfollowingthemonthofsale.
AccountsreceivableonApril1totaled$520,000($100,000from
February'ssalesandtheremainderfromMarch).
Required:
a.Prepareascheduleforeachmonthshowingbudgetedcash
disbursementsfortheTilsonCompany.
b.Prepareascheduleforeachmonthshowingbudgetedcash
receiptsforTilsonCompany.
Answer:
AprilMayJune
Productionunits...................65,00055,00055,000
Cashrequiredperunit.............$7$7$7
Productioncosts...................$455,000$385,000$385,000
Cashdisbursements:
AprilMayJune
Productionthismonth(40%)........$182,000$154,000$154,000
Productionpriormonth(60%).......193,000273,000231,000
Sellingandadministrative.........110,000110,000110,000
Totaldisbursements................$485,000$537,000$495,000

ManagerialAccounting,9/e

91

Paymentsrelatingtothepriormonth(March)inAprilrepresent
thebalanceofaccountspayableatMarch31.
AprilMayJune
Salesunits.......................55,00045,00065,000
Salesprice.......................X$16x$16__x$16
Totalsales.......................$880,000$720,000$1,040,000
AprilMayJune
Cashreceipts:
Februarysales..................$100,000
Marchsales.....................315,000$105,000
Aprilsales.....................528,000264,000$88,000
Maysales.......................432,000216,000
Junesales......................624,000
Totalreceipts....................$943,000$801,000$928,000
105.
Medium

AtMarch31StreulingEnterprises,amerchandisingfirm,hadan
inventoryof38,000units,andithadaccountsreceivable
totaling$85,000.Sales,inunits,havebeenbudgetedas
followsforthenextfourmonths:
April...............60,000
May.................75,000
June................90,000
July................81,000
Streuling'sboardofdirectorshasestablishedapolicyto
commenceinAprilthattheinventoryattheendofeachmonth
shouldcontain40%oftheunitsrequiredforthefollowing
month'sbudgetedsales.
Thesellingpriceis$2perunit.Onethirdofsalesarepaid
forbycustomersinthemonthofthesale,thebalanceis
collectedinthefollowingmonth.
Required:
a.Prepareamerchandisepurchasesbudgetshowinghowmany
unitsshouldbepurchasedforeachofthemonthsApril,May,
andJune.
b.Prepareascheduleofexpectedcashcollectionsforeachof
themonthsApril,May,andJune.

92 ManagerialAccounting,9/e

Answer:
a.AprilMayJuneJuly
Budgetedsales,inunits.....60,00075,00090,00081,000
Desiredendinginventory(40%)30,00036,00032,400
Totalneeds..................90,000111,000122,400
Lessbeginninginventory.....38,00030,00036,000
Requiredpurchases...........52,00081,00086,400
b.AprilMayJune
Budgetedsales,
at$2perunit..........$120,000$150,000$180,000
March31AccountsReceivable$85,000
Aprilsales...............40,000$80,000
Maysales.................50,000$100,000
Junesales................60,000
Totalcashcollections.....$125,000$130,000$160,000
106.
Hard

TabCompInc.isaretaildistributorforMZB33computerhardware
andrelatedsoftware.TabComppreparesannualsalesforecastsof
whichthefirstsixmonthsofthecomingyeararepresented
below.
HardwareHardwareTotal
UnitsDollarsSoftwareSales
January.......130$390,000$160,000$550,000
February......120360,000140,000500,000
March.........110330,000150,000480,000
April.........90270,000130,000400,000
May...........100300,000125,000425,000
June..........125375,000225,000600,000
Cashsalesaccountfor25%ofTabComp'stotalsales,30%of
thetotalsalesarepaidbybankcreditcard,andtheremaining
45%areonopenaccount(TabComp'sownchargeaccounts).The
cashandbankcreditcardsalepaymentsarereceivedinthe
monthofthesale.Bankcreditcardsalesaresubjecttoafour
percentdiscountwhichisdeductedimmediately.Thecash
receiptsforsalesonopenaccountare70%inthemonth
followingthesale,28%inthesecondmonthfollowingthesale,
andtheremainingareuncollectible.
TabComp'smonthendinventoryrequirementsforcomputer
hardwareunitsare30%ofthenextmonth'ssales.Theunits
mustbeorderedtwomonthsinadvanceduetolongleadtimes
quotedbythemanufacturer.

ManagerialAccounting,9/e

93

Required:
a.CalculatethecashthatTabCompcanexpecttocollectduring
April.Showallofyourcalculations.
b.Determinethenumberofcomputerhardwareunitsthatshould
beorderedinJanuary.showallofyourcalculations.
Answer:
a.ThecashthatTabCompcanexpecttocollectduringAprilis
calculatedbelow.
Aprilcashreceipts:
Aprilcashsales($400,000x0.25).............$100,000
Aprilcreditcardsales($400,000x0.30x0.96)115,200
Collectionsonopenaccount:
March($480,000x0.45x0.70).................151,200
February($500,000x0.45x0.28)..............63,000
January(uncollectible)........................0
Totalcollections............................$429,400
b.ThenumberofunitsthatTabCompshouldorderinJanuaryis
calculatedasfollows.
Marchsales.....................................110units
Adddesiredendinginventory(90unitsx0.30)..27units
Totalneeds.....................................137units
Lessbeginninginventory(110unitsx0.30).....33units
Requiredpurchases..............................104units
107.
Medium

TheDoleyCompanyhasplannedthefollowingsalesforthenext
threemonths:
JanFebMar
Budgetedsales......$40,000$50,000$70,000
Salesaremade20%forcashand80%onaccount.From
experience,thecompanyhaslearnedthatamonth'ssaleson
accountarecollectedaccordingtothefollowingpattern:
Monthofsale................60%
Firstmonthfollowingsale...30%
Secondmonthfollowingsale..8%
Uncollectible................2%
Thecompanyrequiresaminimumcashbalanceof$5,000tostart
amonth.ThebeginningcashbalanceinMarchisbudgetedtobe
$6,000.

94 ManagerialAccounting,9/e

Required:
a.ComputethebudgetedcashreceiptsforMarch.
b.Thefollowingadditionalinformationhasbeenprovidefor
March:
Inventorypurchases(allpaidinMarch)$28,000
Operatingexpenses(allpaidinMarch)$40,000
DepreciationexpenseforMarch........$5,000
DividendspaidinMarch...............$4,000
PrepareacashbudgetingoodformforthemonthofMarch,
usingthisinformationandthebudgetedcashreceiptsyou
computedforpart(1)above.Thecompanycanborrowinany
dollaramountandwillnotpayinterestuntilApril.
Answer:
a.Cashsales,March:$70,000x20%...............$14,000
Collectionsonaccount:
Jan.sales:$40,000x80%x8%..............2,560
Feb.sales:$50,000x80%x30%.............12,000
Mar.sales:$70,000x80%x60%.............33,600
Totalcashreceipts.............................$62,160
b.Cashbalance,beginning.........................$6,000
Addcashreceiptsfromsales....................62,160
Totalcashavailable.........................$68,160
Lessdisbursements:
Inventorypurchases..........................28,000
Operatingexpenses...........................40,000
Dividends....................................4,000
Totaldisbursements.............................72,000
Cashexcess(deficiency)........................(3,840)
Financingborrowing...........................8,840
Cashbalance,ending............................$5,000
108.
Medium
CPA
adapted

MonteroCorporation,amerchandisingcompany,hasprovidedthe
followingbudgetdata:
PurchasesSales
January........$42,000$72,000
February........48,00066,000
March..........36,00060,000
April..........54,00078,000
May............60,00066,000
Collectionsfromcustomersarenormally70%inthemonthof
sale,20%inthemonthfollowingthesale,and9%inthesecond
monthfollowingthesale.Thebalanceisexpectedtobe
uncollectible.Monteropaysforpurchasesinthemonth
followingthepurchase.Cashdisbursementsforexpensesother
thanmerchandisepurchasesareexpectedtobe$14,400forMay.
Montero'scashbalanceatMay1was$22,000.

ManagerialAccounting,9/e

95

Required:
a.ComputetheexpectedcashcollectionsduringMay.
b.ComputetheexpectedcashbalanceatMay31.
Answer:
a.Expected
SalesCollections
March............$60,000x9%=$5,400
April............$78,000x20%=$15,600
May..............$66,000x70%=$46,200
Total..........$67,200
b.
Balance,May1.......................$22,000
Expectedcollections.................67,200
Expecteddisbursements
AprilpurchasestobepaidinMay..$54,000
Cashdisbursementsforexpenses....14,400
Totaldisbursements...............68,400

(1,200)
Expectedendingbalance..............$20,800
109.
Hard

Asalesbudgetisgivenbelowforoneoftheproducts
manufacturedbytheKeyCo.:
January.........21,000units
February........36,000units
March...........61,000units
April...........41,000units
May.............31,000units
June............25,000units
Theinventoryoffinishedgoodsattheendofeachmonth
shouldequal20%ofthenextmonth'ssales.However,on
December31thefinishedgoodsinventorytotaledonly4,000
units.
Eachunitofproductrequiresthreespecializedelectrical
switches.Sincetheproductionofthesespecializedswitchesby
Key'ssuppliersissometimesirregular,thecompanyhasa
policyofmaintaininganendinginventoryattheendofeach
monthequalto30%ofthenextmonth'sproductionneeds.This
requirementhadbeenmetonJanuary1ofthecurrentyear.
Required:
Prepareabudgetshowingthequantityofswitchestobe
purchasedeachmonthforJanuary,February,andMarchandin
totalforthequarter.

96 ManagerialAccounting,9/e

Answer:
JanuaryFebruaryMarchApril
Budgetedsales(units).......21,00036,00061,00041,000
Add:Desiredendinginventory7,20012,2008,2006,200
Totalneeds..................28,20048,20069,20047,200
Deduct:Beginninginventory.4,0007,20012,2008,200
Unitstobeproduced.........24,20041,00057,00039,000
JanuaryFebruaryMarchQuarter
Unitstobeproduced........24,20041,00057,000122,200
Switchesperunit...........x3x3x3x3
Productionneeds............72,600123,000171,000366,600
Add:Desired
endinginventory36,90051,30035,10035,100
Totalneeds.................109,500174,300206,100401,700
Deduct:Beginninginventory.21,78036,90051,30021,780
Requiredpurchases..........87,720137,400154,800379,920
Beginninginventory,January1:72,600x0.3=21,780.
Endinginventory,March30:(39,000x3)x0.3=35,100.
110.
Hard

Asalesbudgetisgivenbelowforoneoftheproducts
manufacturedbytheOMICo.:
January......25,000units
February.....40,000units
March........65,000units
April........45,000units
May..........35,000units
June.........30,000units
Theinventoryoffinishedgoodsattheendofeachmonth
mustequal20%ofthenextmonth'ssales.However,onDecember
31thefinishedgoodsinventorytotaledonly4,000units.
Eachunitofproductrequiresthreepoundsofspecialized
material.Sincetheproductionofthisspecializedmaterialby
OMI'ssuppliersissometimesirregular,thecompanyhasa
policyofmaintaininganendinginventoryattheendofeach
monthequalto30%ofthenextmonth'sproductionneeds.This
requirementhadbeenmetonJanuary1ofthecurrentyear.
Required:
Prepareabudgetshowingthequantityofmaterialtobe
purchasedeachmonthforJanuary,February,andMarchandin
totalforthequarter.

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97

Answer:
JanuaryFebruaryMarchApril
Budgetedsales(units)...25,00040,00065,00045,000
Add:Desired
endinginventory8,00013,0009,0007,000
Totalneeds..............33,00053,00074,00052,000
Deduct:
Beginninginventory4,0008,00013,0009,000
Unitstobeproduced......29,00045,00061,00043,000
JanuaryFebruaryMarchQuarter
Unitstobeproduced.....29,00045,00061,000135,000
Switchesperunit........x3x3x3x3
Productionneeds.........87,000135,000183,000405,000
Add:Desired
endinginventory.40,50054,90038,70038,700
Totalneeds..............127,500189,900221,700443,700
Deduct:
Beginninginventory...26,10040,50054,90026,100
Requiredpurchases.......101,400149,400166,800417,600
Beginninginventory,January1:87,000x0.3=26,100.
Endinginventory,March30:(43,000x3)x0.3=38,700.

98 ManagerialAccounting,9/e