Management Accounting, Cdn.

6e (Horngren/Sundem/Stratton/Beaulieu)
Chapter 11 The Master Budget
1) A budget is a formal, quantitative expression of plans that provides a benchmark against which to
measure actual performance.
Answer: TRUE
Diff: 1
Type: TF
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Objective: 1
2) A capital budget is a periodic business plan that includes a coordinated set of detailed operating
schedules and financial statements.
Answer: FALSE
Diff: 1
Type: TF
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Objective: 4
3) An operating budget is the major part of a master budget, and focuses on the income statement and its
supporting schedules.
Answer: TRUE
Diff: 1
Type: TF
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Objective: 4
4) Budgeting forces managers to think ahead and to anticipate and prepare for changing conditions.
Answer: TRUE
Diff: 1
Type: TF
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Objective: 1
5) The first step in preparing the master budget is the preparation of the budgeted income statement.
Answer: FALSE
Diff: 1
Type: TF
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Objective: 1
6) The cash budget is the first budget prepared in the master budget.
Answer: FALSE
Diff: 1
Type: TF
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Objective: 4
7) Budgeted purchases are equal to the cost of goods sold plus any beginning inventory.
Answer: FALSE
Diff: 1
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Objective: 1
8) A cash budget is a statement of planned cash receipts and cash disbursements.
Answer: TRUE
Diff: 1
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Objective: 4

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9) Cash budgets help management to avoid having unnecessary idle cash on the one hand, and
unnecessary cash deficiencies on the other.
Answer: TRUE
Diff: 1
Type: TF
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Objective: 4
10) The accuracy of estimated purchases budgets, production schedules, and costs depends on the detail
and accuracy of the budgeted operating expenses.
Answer: FALSE
Diff: 1
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Objective: 1
11) A sales budget is a prediction of sales under a given set of conditions.
Answer: FALSE
Diff: 1
Type: TF
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Objective: 5
12) Participative budgeting is the active participation of all affected employees in the formulation of the
budgets.
Answer: TRUE
Diff: 1
Type: TF
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Objective: 1
13) Financial planning models are mathematical models of the master budget that can react to any set of
assumptions about sales, costs, or product mix.
Answer: TRUE
Diff: 1
Type: TF
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14) Financial planning models are only as good as the assumptions and the inputs used to build and
manipulate them.
Answer: TRUE
Diff: 1
Type: TF
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15) The systematic varying of budget data input in order to determine the effects of each change on the
budget is called operating analysis.
Answer: FALSE
Diff: 1
Type: TF
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Objective: 1
16) Decisions made during long-range planning include all of the following EXCEPT
A) addition or deletion of product line.
B) design and location of new plants.
C) acquisitions of buildings and equipment.
D) acquisition of office supplies.
Answer: D
Diff: 1
Type: MC
Page Ref: 448
Objective: 1
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17) Managers need budgets for all of the following reasons EXCEPT
A) to guide them in allocating resources.
B) to maintain control.
C) to enable them to measure and reward progress.
D) to determine which individual to hire.
Answer: D
Diff: 1
Type: MC
Page Ref: 448
Objective: 1
18) The master budget quantifies targets for all of the following EXCEPT
A) sales.
B) production.
C) markets.
D) cost-driver activity.
Answer: C
Diff: 1
Type: MC
Page Ref: 448
Objective: 1
19) The master budget includes forecasts for all of the following EXCEPT
A) sales.
B) number of employees.
C) balance sheets.
D) cash disbursements.
Answer: B
Diff: 1
Type: MC
Page Ref: 448
Objective: 1
20) Master budgets are sometimes called
A) pro forma statements.
B) capital budgets.
C) strategic plans.
D) accounting budgets.
Answer: A
Diff: 1
Type: MC
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Objective: 1
21) ________ are the most forward-looking budgets, which set the overall goals and objectives of the
organization.
A) Strategic plans
B) Capital budgets
C) Pro forma statements
D) Continuous budgets
Answer: A
Diff: 1
Type: MC
Page Ref: 448
Objective: 1

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22) ________ are budgets that detail the planned expenditures for facilities, equipment, new products,
and other long-term investments.
A) Strategic plans
B) Capital budgets
C) Pro forma statements
D) Continuous budgets
Answer: B
Diff: 1
Type: MC
Page Ref: 448
Objective: 1
23) ________ are another term for forecasted financial statements.
A) Strategic plans
B) Capital budgets
C) Pro forma statements
D) Continuous budgets
Answer: C
Diff: 1
Type: MC
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Objective: 1
24) ________ are sometimes called rolling budgets.
A) Strategic plans
B) Capital budgets
C) Pro forma statements
D) Continuous budgets
Answer: D
Diff: 1
Type: MC
Page Ref: 448
Objective: 1
25) An example of an operating budget is a(n)
A) capital budget.
B) cash budget.
C) sales budget.
D) budgeted balance sheet.
Answer: C
Diff: 1
Type: MC
Page Ref: 456
Objective: 4
26) An example of a financial budget is a(n)
A) sales budget.
B) cash budget.
C) purchases budget.
D) budgeted income statement.
Answer: B
Diff: 1
Type: MC
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Objective: 4

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27) Which of the following is a major part of the master budget that focuses on the income statement and
its supporting schedules?
A) Operating budget
B) Financial budget
C) Cash budget
D) Capital budget
Answer: A
Diff: 1
Type: MC
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Objective: 1
28) Which of the following is NOT an operating budget?
A) Sales budget
B) Operating expenses budget
C) Budgeted income statement
D) Cash budget
Answer: D
Diff: 1
Type: MC
Page Ref: 456
Objective: 4
29) Which of the following is NOT an operating budget?
A) Purchases budget
B) Capital budget
C) Cost of goods sold budget
D) Budgeted income statement
Answer: B
Diff: 1
Type: MC
Page Ref: 456
Objective: 4
30) Which of the following is NOT a financial budget?
A) Purchases budget
B) Capital budget
C) Cash budget
D) Budgeted balance sheet
Answer: A
Diff: 1
Type: MC
Page Ref: 456
Objective: 4
31) Which of the following is NOT a financial budget?
A) Budgeted balance sheet
B) Capital budget
C) Cash budget
D) Budgeted income statement
Answer: D
Diff: 1
Type: MC
Page Ref: 450
Objective: 2

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32) ________ is a major part of a master budget that focuses on the income statement and its supporting
schedules.
A) Operating budget
B) Financial budget
C) Continuous budget
D) Strategic plan
Answer: A
Diff: 1
Type: MC
Page Ref: 448
Objective: 1
33) ________ includes the capital budget, cash budget, and budgeted balance sheet.
A) Operating budget
B) Financial budget
C) Continuous budget
D) Strategic plan
Answer: B
Diff: 1
Type: MC
Page Ref: 448
Objective: 1
34) Which of the following is NOT a major benefit of budgeting?
A) It compels managers to think ahead.
B) It provides definite expectations that are the best framework for judging subsequent performance.
C) It aids managers in coordinating their efforts, so that the objectives of the organization as a whole
match the objectives of its parts.
D) It allows managers to operate day to day, reacting to current events rather than planning for the future.
Answer: D
Diff: 1
Type: MC
Page Ref: 448
Objective: 1
35) The first step in preparing the operating budget is preparing the
A) sales budget.
B) operating expense budget.
C) purchases budget.
D) budgeted income statement.
Answer: A
Diff: 1
Type: MC
Page Ref: 456
Objective: 4
36) The second step in preparing the master budget is preparing the
A) sales budget.
B) budgeted income statement.
C) cash budget.
D) budgeted balance sheet.
Answer: B
Diff: 1
Type: MC
Page Ref: 448
Objective: 1
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37) The last step in preparing the financial budget is preparing the
A) budgeted income statement.
B) cash budget.
C) budgeted balance sheet.
D) sales budget.
Answer: C
Diff: 1
Type: MC
Page Ref: 456
Objective: 4
38) Expenses that are NOT influenced by sales or other cost-driver activity include all of the following
EXCEPT
A) delivery expenses.
B) rent expense.
C) insurance expense.
D) amortization expense.
Answer: A
Diff: 1
Type: MC
Page Ref: 448
Objective: 1
39) A statement of planned cash receipts and disbursements is called a(n)
A) operating budget.
B) cash budget.
C) loan budget.
D) planning budget.
Answer: B
Diff: 1
Type: MC
Page Ref: 456
Objective: 4
40) Important factors considered by sales forecasters include all of the following EXCEPT
A) past patterns of sales.
B) estimates made by the sales force.
C) changes in product mix.
D) the desired level of sales.
Answer: D
Diff: 1
Type: MC
Page Ref: 460
Objective: 5

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Miller Company has the following data:

Month
January
February
March
April

Budgeted Sales
$400,000
360,000
440,000
480,000

The gross profit rate is 40 percent, and the inventory at the end of December was $72,000. Desired
inventory levels are 30 percent of next month's sales.
41) The desired ending inventory for March is
A) $86,400.
B) $144,000.
C) $57,600.
D) undeterminable.
Answer: A
Diff: 2
Type: MC
Page Ref: 454
Objective: 3
42) The desired ending inventory for April is
A) $ 86,400.
B) $ 57,600.
C) $144,000.
D) undeterminable.
Answer: D
Diff: 1
Type: MC
Page Ref: 454
Objective: 3
43) The total purchases budgeted for February should be
A) $216,000.
B) $230,400.
C) $295,200.
D) $144,000.
Answer: D
Diff: 1
Type: MC
Page Ref: 454
Objective: 3
44) The total purchases budgeted for March should be
A) $350,400.
B) $264,000.
C) $271,200.
D) $176,000.
Answer: C
Diff: 2
Type: MC
Page Ref: 454
Objective: 3
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Crouse Corporation has the following information:

Month
May
June
July
August

Budgeted Sales
$230,000
250,000
260,000
240,000

The cost of goods sold percentage is 65 percent, and the desired inventory level is 25 percent of next
month's sales.
45) The desired ending inventory for June is
A) $40,625.
B) $39,000.
C) $21,000.
D) $42,250.
Answer: D
Diff: 2
Type: MC
Page Ref: 454
Objective: 3
46) The desired ending inventory for July is
A) $39,000.
B) $42,250.
C) $21,000.
D) $31,000.
Answer: A
Diff: 2
Type: MC
Page Ref: 454
Objective: 3
47) The total purchases budgeted for June should be
A) $204,750.
B) $164,125.
C) $162,500.
D) $ 87,500.
Answer: B
Diff: 2
Type: MC
Page Ref: 454
Objective: 3
48) The total purchases budgeted for July should be
A) $169,000.
B) $208,000.
C) $165,750.
D) none of the above.
Answer: C
Diff: 2
Type: MC
Page Ref: 454
Objective: 3
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Ogden Manufacturing Company has the following information:

Month
January
February
March
April

Budgeted Sales
$190,000
212,500
230,000
197,500

Budgeted Expenses per Month

Wages
Advertising
Amortization
Other

$37,500
30,000
7,500
4 percent of sales

Note: All cash expenses are paid as incurred.

49) The total expenses for the month of March will be
A) $75,000.
B) $76,700.
C) $78,000.
D) $84,200.
Answer: D
Diff: 2
Type: MC
Page Ref: 454
Objective: 3

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Adel, Inc. has the following information:

Month
January
February
March
April
May

Budgeted Sales
$130,000
170,000
144,000
138,000
154,000

Budgeted Expenses per Month

Wages
Advertising
Amortization
Rent
Other

$10,000
8,400
7,200
12,800
5 percent of sales

Note: All cash expenses are paid as incurred.

50) The total expenses for the month of April will be
A) $45,300.
B) $38,400.
C) $31,200.
D) $38,100.
Answer: A
Diff: 2
Type: MC
Page Ref: 454
Objective: 3

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Ogden Manufacturing Company has the following information:

Month
January
February
March
April

Budgeted Sales
$190,000
212,500
230,000
197,500

Budgeted Expenses per Month

Wages
Advertising
Amortization
Other

$37,500
30,000
7,500
4 percent of sales

Note: All cash expenses are paid as incurred.

51) The total cash disbursements for expenses in February should be
A) $80,000.
B) $75,000.
C) $76,000.
D) none of the above.
Answer: C
Diff: 2
Type: MC
Page Ref: 454
Objective: 3
52) The total cash disbursements for expenses in January should be
A) $75,000.
B) $75,100.
C) $82,600.
D) $70,500.
Answer: B
Diff: 2
Type: MC
Page Ref: 454
Objective: 3

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Adel, Inc. has the following information:

Month
January
February
March
April
May

Budgeted Sales
$130,000
170,000
144,000
138,000
154,000

Budgeted Expenses per Month

Wages
Advertising
Amortization
Rent
Other

$10,000
8,400
7,200
12,800
5 percent of sales

Note: All cash expenses are paid as incurred.

53) The total cash disbursements for expenses in February should be
A) $46,900.
B) $38,400.
C) $31,200.
D) $39,700.
Answer: D
Diff: 2
Type: MC
Page Ref: 454
Objective: 3
54) The total cash disbursements for expenses in May should be
A) $38,400.
B) $38,900.
C) $31,200.
D) $46,100.
Answer: B
Diff: 2
Type: MC
Page Ref: 454
Objective: 3
55) Cash disbursements can be made for all of the following EXCEPT
A) merchandise.
B) payroll.
C) sales.
D) fixed assets.
Answer: C
Diff: 2
Type: MC
Page Ref: 454
Objective: 3

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The following sales budget has been prepared:

Month
May
June
July
August

Cash Sales
$20,000
40,000
60,000
80,000

Credit Sales
$ 40,000
60,000
80,000
100,000

Collections are 50 percent in the month of sale, 40 percent in the month following the sale, and 5 percent
two months following the sale. The remaining 5 percent is expected to be uncollectible.
56) The total cash collections in July will be
A) $140,000.
B) $126,000.
C) $80,000.
D) $66,000.
Answer: B
Diff: 2
Type: MC
Page Ref: 456
Objective: 4
57) The total cash collections in August will be
A) $180,000.
B) $100,000.
C) $165,000.
D) $ 85,000.
Answer: C
Diff: 2
Type: MC
Page Ref: 456
Objective: 4
58) The total cash received in June on June sales will be
A) $ 70,000.
B) $100,000.
C) $ 86,000.
D) $ 46,000.
Answer: A
Diff: 2
Type: MC
Page Ref: 456
Objective: 4
59) The total cash received in May on May sales will be
A) $60,000.
B) $90,000.
C) $40,000.
D) none of the above.
Answer: C
Diff: 2
Type: MC
Page Ref: 456
Objective: 4
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The following sales budget has been prepared:

Month
September
October
November
December

Cash Sales
$200,000
250,000
260,000
270,000

Credit Sales
$ 400,000
360,000
420,000
380,000

Collections are 50 percent in the month of sale, 40 percent in the month following the sale, and 10 percent
two months following the sale. No uncollectible accounts are anticipated.
60) The total cash collections in December will be
A) $650,000.
B) $394,000.
C) $270,000.
D) $664,000.
Answer: D
Diff: 2
Type: MC
Page Ref: 456
Objective: 4
61) The total cash collections in November will be
A) $394,000.
B) $654,000.
C) $680,000.
D) $260,000.
Answer: B
Diff: 2
Type: MC
Page Ref: 456
Objective: 4
62) The total cash received in October on October sales will be
A) $430,000.
B) $250,000.
C) $590,000.
D) none of the above.
Answer: A
Diff: 2
Type: MC
Page Ref: 456
Objective: 4
63) The total cash received in September on September sales will be
A) $200,000.
B) $600,000.
C) $544,000.
D) $400,000.
Answer: D
Diff: 2
Type: MC
Page Ref: 456
Objective: 4
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Crossley, Inc. has the following information:

Month
January
February
March
April
May

Budgeted Purchases
$134,000
145,000
152,600
147,400
138,400

Purchases are paid for in the following manner:

10 percent in the month of purchase
50 percent in the month after purchase
40 percent two months after purchase
64) The cash disbursements in March for January purchases will be
A) $53,600.
B) $67,000.
C) $15,260.
D) $61,040.
Answer: A
Diff: 2
Type: MC
Page Ref: 456
Objective: 4
65) The cash disbursements in May for April purchases will be
A) $58,960.
B) $73,700.
C) $55,360.
D) $69,200.
Answer: B
Diff: 2
Type: MC
Page Ref: 456
Objective: 4
66) The total cash disbursements in March for the purchase of merchandise should be
A) $152,600.
B) $145,000.
C) $141,360.
D) $147,700.
Answer: C
Diff: 2
Type: MC
Page Ref: 456
Objective: 4

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67) The total cash disbursements in May for the purchase of merchandise should be
A) $138,400.
B) $148,580.
C) $ 69,200.
D) $128,160.
Answer: B
Diff: 2
Type: MC
Page Ref: 456
Objective: 4
Mickle Company has the following information:
Month
August
September
October
November
December

Budgeted Purchases
$175,000
190,000
217,500
182,500
230,000

Purchases are paid for in the following manner:

20 percent in the month of purchase
50 percent in the month after purchase
30 percent two months after purchase
68) The cash disbursements in September for August purchases will be
A) $35,000.
B) $52,500.
C) $95,000.
D) $87,500.
Answer: B
Diff: 2
Type: MC
Page Ref: 456
Objective: 4
69) The cash disbursements in December for October purchases will be
A) $108,750.
B) $ 43,500.
C) $ 65,250.
D) $ 46,000.
Answer: C
Diff: 2
Type: MC
Page Ref: 456
Objective: 4

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70) The total cash disbursements in November for the purchase of merchandise should be
A) $182,500.
B) $201,500.
C) $194,500.
D) $202,250.
Answer: D
Diff: 2
Type: MC
Page Ref: 456
Objective: 4
71) The total cash disbursements in December for the purchase of merchandise should be
A) $202,500.
B) $230,000.
C) $ 46,000.
D) $184,000.
Answer: A
Diff: 2
Type: MC
Page Ref: 456
Objective: 4
72) The collection of cash from customers would appear on which of the following?
A) Sales budget
B) Operating expense budget
C) Cash budget
D) None of the above
Answer: C
Diff: 2
Type: MC
Page Ref: 456
Objective: 4
73) An important factor considered by sales forecasters include(s)
A) past patterns of sales.
B) estimates made by the sales force.
C) general economic conditions.
D) all of the above.
Answer: D
Diff: 1
Type: MC
Page Ref: 461
Objective: 5
74) Which of the following factors would NOT be considered by sales forecasters?
A) Past patterns of sales
B) Estimates made by the sales force
C) General economic conditions
D) All of the above would be considered.
Answer: D
Diff: 1
Type: MC
Page Ref: 461
Objective: 5

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75) A prediction of sales under a given set of conditions is referred to as

A) a predicatory budget.
B) a sales budget.
C) a budget forecast.
D) a sales forecast.
Answer: D
Diff: 1
Type: MC
Page Ref: 461
Objective: 5
76) When budgets are formulated with the active participation of all affected employees, the process is
called
A) financial budgeting.
B) mathematical budgeting.
C) participative budgeting.
D) relative budgeting.
Answer: C
Diff: 1
Type: MC
Page Ref: 448
Objective: 1
77) Which of the following statements is NOT true?
A) Managers often compare actual results with budgets in evaluating subordinates.
B) Too often, top management and accountants are overly concerned with the mechanics of budgets.
C) A serious human relations problem arises when budgets stress one set of performance goals, but
employees and managers are rewarded for performance on other dimensions.
D) All of the above are true statements.
Answer: D
Diff: 1
Type: MC
Page Ref: 448
Objective: 1
78) Mathematical models of the master budget that can react to any set of assumptions about sales, costs,
and product mix are called
A) working models.
B) financial planning models.
C) accounting models.
D) master models.
Answer: B
Diff: 1
Type: MC
Page Ref: 461
79) An extremely powerful and flexible tool for budgeting is a(n)
A) spreadsheet.
B) budget model.
C) worksheet.
D) accounting model.
Answer: A
Diff: 1
Type: MC
Page Ref: 467
Objective: 7
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80) ________ for budgeting is the systematic varying of budget data input to determine the effects of each
change on the budget.
A) Sensitivity analysis
B) What-if analysis
C) Strategic planning
D) Both a and b
Answer: D
Diff: 1
Type: MC
Page Ref: 461
Projected sales for Kenworth Inc. for next year and beginning and ending inventory data are as follows:
Sales
Unit price
Beginning inventory
Targeted ending inventory

40,000 units
$20
20,000 units
10,000 units

Each unit requires 5 pounds of material which costs $3.00 per pound. The beginning inventory of raw
materials is 5,000 pounds. The company wants to have 3,000 pounds of material in inventory at the end of
the year. Each unit produced requires 2 hours of direct labour time, which is billed at $8 per hour.
81) Budgeted sales would be
A) $580,000.
B) $600,000.
C) $800,000.
D) $840,000.
Answer: C
Diff: 2
Type: MC
Page Ref: 460
Objective: 5
82) According to the production budget, how many units should be produced?
A) 30,000
B) 42,000
C) 46,000
D) 50,000
Answer: A
Diff: 2
Type: MC
Page Ref: 460
Objective: 5
83) Pounds of material to be purchased would be
A) 142,000.
B) 148,000.
C) 150,000.
D) 152,000.
Answer: B
Diff: 2
Type: MC
Page Ref: 460
Objective: 5
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84) The budgeted total purchase cost of direct materials would be

A) $456,000.
B) $450,000.
C) $444,000.
D) $426,000.
Answer: C
Diff: 2
Type: MC
Page Ref: 454
Objective: 3
85) The budgeted number of total direct labour hours needed would be
A) 30,000.
B) 40,000.
C) 46,000.
D) 60,000.
Answer: D
Diff: 2
Type: MC
Page Ref: 454
Objective: 3
86) The budgeted total direct labour cost would be
A) $320,000.
B) $442,000.
C) $480,000.
D) $496,000.
Answer: A
Diff: 2
Type: MC
Page Ref: 454
Objective: 3
87) A plan of action expressed in financial terms.
Answer: Budget
Diff: 1
Type: SA Page Ref: 448
Objective: 1
88) The portion of the master budget where a future month is added as the current month expires.
Answer: Continuous budget
Diff: 1
Type: SA Page Ref: 448
Objective: 1
89) The collection of all area and activity budgets, representing a firm's comprehensive plan of action.
Answer: Master budget
Diff: 1
Type: SA Page Ref: 448
Objective: 1
90) Budgets associated with the income-producing activities of an organization.
Answer: Operating budget
Diff: 1
Type: SA Page Ref: 448
Objective: 1
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91) The process of setting standards, receiving feedback on actual performance, and taking corrective
action whenever actual performance deviates significantly from planned performance.
Answer: The process of control
Diff: 1
Type: SA Page Ref: 448
Objective: 1
92) A system that allows managers who will be held accountable for budgetary performance to
participate in the budget's development.
Answer: Participative budget
Diff: 1
Type: SA Page Ref: 448
Objective: 1
93) A budget that describes expected sales in units and dollars for the coming period.
Answer: Sales budget
Diff: 1
Type: SA Page Ref: 448
Objective: 1
94) A plan that sets the overall goals and objectives of the organization.
Answer: Strategic plan
Diff: 1
Type: SA Page Ref: 448
Objective: 1
95) Producing forecasted financial statements for five- or ten-year periods.
Answer: Long-range planning
Diff: 1
Type: SA Page Ref: 448
Objective: 1
96) A budget that details the planned expenditures for facilities, equipment, new products and other
long-term investments.
Answer: Capital budget
Diff: 1
Type: SA Page Ref: 448
Objective: 1
97) A budget that summarizes the planned activities of all subunits of an organization.
Answer: Master budget
Diff: 1
Type: SA Page Ref: 448
Objective: 1
98) A common form of master budget that adds a month in the future as the month just ended is
dropped.
Answer: Continuous budget
Diff: 1
Type: SA Page Ref: 448
Objective: 1
99) A major part of a master budget that focuses on the income statement and its supporting schedules.
Answer: Operating budget
Diff: 1
Type: SA Page Ref: 448
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Objective: 1
100) The part of the master budget that focuses on the effects the operating budget and other plans will
have on cash.
Answer: Financial budget
Diff: 1
Type: SA Page Ref: 456
Objective: 4
101) A statement of planned cash receipts and disbursements.
Answer: Cash budget
Diff: 1
Type: SA Page Ref: 448
Objective: 1
102) The result of decisions to create conditions that will generate a desired level of sales.
Answer: Sales budget
Diff: 1
Type: SA Page Ref: 448
Objective: 1
103) Mathematical models of the master budget that can react to any set of assumptions about sales, costs,
or product mix.
Answer: Financial planning models
Diff: 1
Type: SA Page Ref: 461
104) Kline Corporation has prepared the following sales budget:
Month
May
June
July
August
September

Cash Sales
$ 80,000
100,000
90,000
120,000
110,000

Credit Sales
$340,000
400,000
370,000
460,000
380,000

Collections are 40 percent in the month of sale, 45 percent in the month following the sale, and 10 percent
two months following the sale. The remaining 5 percent is expected to be uncollectible.
Required: Prepare a schedule of cash collections for July through September.
Answer:
July
August
September
Total
Cash sales
$ 90,000 $120,000
$110,000
$ 320,000
Collections of
credit sales from:
Current month
148,000
184,000
152,000
484,000
Previous month
180,000
166,500
207,000
553,500
Two months ago
34,000
40,000
37,000
111,000
Total collections
$452,000
$510,500
$506,000
$1,468,500
Diff: 3
Type: ES
Objective: 3

Page Ref: 454

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105) Moses, Inc. prepared the following sales budget:

Month
August
September
October
November
December

Cash Sales
$70,000
64,000
54,000
50,000
66,000

Credit Sales
$140,000
146,000
132,000
122,000
150,000

Collections are 40 percent in the month of sale, 50 percent in the month following the sale, and 10 percent
two months following the sale. No uncollectible accounts are anticipated.
Required: Prepare a schedule of cash collections for October through December.
Answer:
October
November December
Total
Cash sales
$ 54,000
$ 50,000
$ 66,000
$170,000
Collections of
credit sales from:
Current month
52,800
48,800
60,000
161,600
Previous month
73,000
66,000
61,000
200,000
Two months ago
14,000
14,600
13,200
41,800
Total collections
$193,800
$179,400
$200,200
$573,400
Diff: 3
Type: ES
Objective: 3

Page Ref: 454

106) The Markey Company prepared the following sales budget:

Month
March
April
May
June
July

Budgeted Sales
$250,000
265,000
255,000
272,500
262,500

In addition, the gross profit rate is 40 percent and the desired inventory level is 30 percent of next month's
sales.
Required: Prepare a purchases budget for April through June.
Answer:
April
May
June
Desired ending
inventory
$ 45,900
$ 49,050
$ 47,250
Plus COGS
159,000
153,000
163,500
Total needed
$204,900
$202,050
$210,750
Less beginning
inventory
47,700
45,900
49,050
Total purchases
$157,200
$156,150
$161,700
Diff: 3

Type: ES

Total
$ 47,250
475,500
$522,750
47,700
$475,050

Page Ref: 454

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Objective: 3
107) Bergstrom Corporation prepared the following sales budget:
Month
June
July
August
September
October

Budgeted Sales
$136,000
144,000
148,000
152,000
156,000

The cost of goods sold percentage is 65 percent and the desired inventory level is 25 percent of next
month's sales.
Required: Prepare a purchases budget for July through September.
Answer:
July
August
September
Total
Desired ending
inventory
$ 24,050
$ 24,700
$ 25,350
$ 25,350
Plus COGS
93,600
96,200
98,800
288,600
Total needed
$117,650
$120,900
$124,150
$313,950
Less beginning
inventory
23,400
24,050
24,700
23,400
Total purchases
$ 94,250
$ 96,850
$ 99,450
$290,550
Diff: 3
Type: ES
Page Ref: 454
Objective: 3

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108) Carey Company prepared the following purchases budget:

Month
January
February
March
April
May

Budgeted Purchases
$115,000
95,000
100,000
110,000
105,000

Purchases are paid for in the following manner:

10 percent in the month of purchase
50 percent in the month after purchase
40 percent two months after purchase
Required: Prepare a schedule of cash disbursements for purchases for March through May.
Answer:
March
April
May
Total
For January
$ 46,000
$ 46,000
For February
47,500
$38,000
85,500
For March
10,000
50,000
$ 40,000
100,000
For April
11,000
55,000
66,000
For May
10,500
10,500
Total Disbursements
$103,500
$99,000
$105,500
$308,000
Diff: 3
Type: ES
Objective: 3

Page Ref: 454

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109) Taylor, Inc. provided the following information:

Month
June
July
August
September

Budgeted Sales
$194,000
186,000
172,000
178,000

Budgeted Expenses per Month:

Wages
$16,400
Advertising
13,600
Amortization
8,600
Rent
10,200
Freight-out
3 percent of sales
Other
5 percent of sales
Note: All cash expenses are paid when incurred.
Required: Prepare a combined schedule of total operating expenses and cash disbursements for expenses
for July through September.
Answer:
July
August
September
Total
Cash expenses:
Wages
$16,400
$16,400
$16,400
$ 49,200
Advertising
13,600
13,600
13,600
40,800
Rent
10,200
10,200
10,200
30,600
Freight-out
5,580
5,160
5,340
16,080
Other
9,300
8,600
8,900
26,800
Total disbursements
for expenses
$55,080
$53,960
$54,440
$163,480
Noncash expenses:
Amortization
Total expenses
Diff: 3
Type: ES
Objective: 3

8,600
$63,680

8,600
$62,560

8,600
$63,040

25,800
$189,280

Page Ref: 454

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110) Johnson Company has gathered the following information:

April 30, cash balance, $90,000
Dividends paid in May, $24,000
Cash expenditures in May for operating expenses, $73,600
Amortization expense in May, $9,000
Cash collections in May, $178,000
Merchandise purchases paid in cash in May, $112,400
Purchased equipment for cash in May, $35,000
Johnson desires to keep a minimum cash balance of $20,000.
Required: Prepare a cash budget for May, and indicate whether or not Johnson meets minimum cash
requirements.
Answer:
Cash Budget:
May
Beginning cash balance
Cash collections
Total cash available
Cash disbursements:
Merchandise purchases
Operating expenses
Equipment purchase
Payment of dividends
Ending cash balance

$ 90,000
178,000
$268,000

$112,400
73,600
35,000
24,000

245,000
$ 23,000

The ending cash of $23,000 exceeds the minimum cash requirement of $20,000.
Diff: 3
Type: ES
Page Ref: 456
Objective: 4

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111) Chinn Company has gathered the following information:

March 31, cash balance, $64,000
Amortization expense for April, $13,400
Dividends paid in April, $23,000
Cash collections in April, $142,000
Equipment purchased for cash in April, $27,200
Cash paid for operating expenses in April, $59,600
Merchandise paid for in April, $84,600
Chinn requires a minimum cash balance of $10,000.
Required: Prepare a cash budget for April, and comment on whether or not minimum cash balance
requirements are met.
Answer:
Cash Budget:
April
Beginning cash balance
Cash collections
Total cash available
Cash disbursements:
Merchandise purchases
Operating expenses
Equipment purchase
Dividends paid
Ending cash balance

$ 64,000
142,000
$206,000

$ 84,600
59,600
27,200
23,000

194,400
$ 11,600

Minimum cash balance requirements have been met, and there is an excess of cash in the amount of
$1,600.
Diff: 3
Type: ES
Page Ref: 456
Objective: 4

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112) Bit Electronics has supplied the following information for 20X4.
Cash balance, January 1
Total revenues
Total expenses

$ 16,000
212,500
217,500

All revenues are collected when earned and all expenses are paid as incurred. The total expenses include
$10,500 of amortization.
Required:
a. How much profit did Bit earn during 20X4?
b. What was the ending balance of cash?
c. Explain how cash increased even though Bit had a net loss.
Answer:
a. $212,500 - $217,500 = $(5,000)
b. $212,500 - ($217,500 - $10,500) = $5,500 + $16,000 = $21,500
c. The cash increased by $5,500 due to the excess of cash revenue over cash expenditures. Amortization
is not a cash expenditure; therefore, on a cash basis, Bit was profitable.
Diff: 3
Type: ES
Page Ref: 456
Objective: 4

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