CHAPTER 8

Lewis, Inc. sells candles. The estimated numbers of candle sales for the last three months of 2009 are as
follows:

Finished goods inventory at September 30 was 5,000 units. Ending finished goods inventory is projected to be
20% of next month's sales. Lewis expects to sell each candle for $5. January 2010 sales are projected at
13,000. What is the number of expected units that should be produced in December 2009?

a. 16,600

b. 15,400

c. 16,000

d. 29,000

correct: b
feedback: Correct. 16,000 units sold + 2,600 projected ending inventory (20% 13,000) - 3,200 projected
beginning inventory. (The beginning inventory of December is the ending inventory of November; the ending
inventory is 20% of the following month's sales, so at the end of November 20% of December sales of 16,000.)

Puerto Mont Company has the following budgeted data for a merchandising firm:

Assuming there was inventory on hand of $70,000 (at cost) on January 1, the purchases for January (at cost)
2 would be:

a. $180,000.

b. $250,000.

c. $263,000.

d. $110,000.
correct: c
feedback: Incorrect. .60($300,000) + [.75(.60)($340,000)] - $70,000 = $263,000.

Caracas Company, a merchandising firm, is preparing its master budget and has gathered the following data
to help budget cash disbursements:

All of the accounts payable are for inventory purchases, and all inventory is purchased on account. What are
the estimated cash disbursements for inventories for the budget period?
3

a. $1,460,000

b. $1,600,000

c. $1,900,000

d. $1,760,000
correct: d
feedback: Incorrect. $1,680,000 - $70,000 + $150,000 = $1,760,000.

Chegedu Company will open a new store on January 1. Based on experience from its other retail outlets,
Chegedu is making the following sales projections:

Chegedu estimates that 70% of the credit sales will be collected in the month following the month of the sale,
with the balance collected in the second month following the sale. Based on these data, the budgeted cash
receipts for April will be:
4

a. $74,000.

b. $57,000.

c. $114,000.

d. $97,000.
correct: d
feedback: Incorrect. $40,000 + .70($60,000) + .30($50,000) = $97,000.
 Chegedu Company will open a new store on January 1. Based on experience from its other retail outlets,
Chegedu is making the following sales projections:

Chegedu estimates that 70% of the credit sales will be collected in the month following the month of the sale,
with the balance collected in the second month following the sale. Based on these data, the March 31
balance in accounts receivable will be:
5

a. $100,000.

b. $60,000.

c. $95,000.

d. $75,000.
correct: d
feedback: Incorrect. $60,000 + .30($50,000) = $75,000.

Puerto Mont Company has the following budgeted data for a merchandising firm:

Assume that all purchases are paid for in the month following the purchase. The cash disbursements for
6 purchases that would appear in the April cash budget would be:

a. $180,000.

b. $157,500.

c. $240,000.

d. $217,500.
correct: d
feedback: Incorrect. .60($400,000) + .75(.60)($350,000) - .75(.60)($400,000) = $217,500.
 The Quito Company budgeted its activity for September according to the following information:

Sales are budgeted at $392,000, and all sales are for cash.

All purchases of merchandise inventory are for cash. Merchandise inventory was $150,000 on
August 31, and the planned merchandise inventory on September 30 is $140,000. All merchandise
is sold at 40% above cost.

The selling and administrative expenses are budgeted at $92,000 for the month. All of these
expenditures are paid for in cash, except for depreciation of $12,000.

7 The budgeted net income for September is:

a. $20,000.

b. $143,200.

c. $112,000.

d. $64,800.
correct: a
feedback: Incorrect. $392,000 - ($392,000/1.4) - $92,000 = $20,000.

The Quito Company budgeted its activity for September according to the following information:

Sales are budgeted at $392,000, and all sales are for cash.

All purchases of merchandise inventory are for cash. Merchandise inventory was $150,000 on
August 31, and the planned merchandise inventory on September 30 is $140,000. All merchandise
is sold at 40% above cost.

The selling and administrative expenses are budgeted at $92,000 for the month. All of these
expenditures are paid for in cash, except for depreciation of $12,000.

8 The budgeted cash disbursements for September are:

a. $140,000.

b. $270,000.

c. $350,000.

d. $362,000.
correct: c
feedback: Incorrect. Purchases = $270,000 = ($392,000/1.4) + $140,000 - $150,000. $270,000 + ($92,000 -
$12,000) = $350,000.
 Campbell, Inc. has an operating environment with considerable uncertainty. The company prepares the
budget for several different volume levels. Campbell had the following budgeted data:

What is the difference in total budgeted costs between the volume range of 10,000 and 11,000 units?

a. $430,000

b. $12,000

c. $28,000

d. $380,000
correct: c
feedback: Correct. 1,000 $28 = 28,000.

Radici, Inc. has done a cost analysis for its production of refractors. The following activities and cost drivers
have been developed:

What is the total budgeted batch cost if there was production of 25,000 refractors that will require 9,500
10 machine hours, 15 batches and 900 purchase orders?

a. $37,500

b. $45,000

c. $47,657.50

d. $82,657.50
correct: d
feedback: Incorrect. ($10.50 15) + $45,000 + ($2,500 15) = $82,657.50.