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Accounting 225 Quiz Section #9

Chapter 8 Class Exercises Solution


1. Crydon Inc.
a) Please prepare a cash receipts budget for July through September.
Number of Units
Sales (@$50 ea)
Collected From:
Sales in June
Sales in July
Sales in August

July
6000
$300,000

August
7000
$350,000
Cash Receipts
Cash collected in
0.6 x June Sales
= 165,000
0.3 x July Sales
0.6 x July Sales
= 90,000
= 180,000
0.3 x Aug Sales
= 105,000

Sales in September
Total Receipts:

$255,000

$285,000

September
5000
$250,000

0.6 x Aug Sales


= 210,000
0.3 x Sept Sales
= 75,000
$285,000

b) What is the total sales revenue for June?


Sales for June
= Accounts Receivable (1 July)
0.6
= 165,000
0.6
= $275,000
c) What is the balance of accounts receivable (excluding uncollectible amounts) at September
30?
In order to get the collectible accounts receivable balance for September 30, recall:
Collectible Accounts Receivable
=
60% x Sales (previous month)
(1st day of current month)
Collectible Accounts Receivable
(September 30/October 1)

60%

=
=

60% x
$150,000

Sales (September)
250,000

d) Please prepare a production budget for July through September.


Recall the following relationship (i.e., it may remind you of COGS = BI +P - CI):
Unit
Sales

Beginning
=
Inventory
(Units)
or alternatively (by rearranging)
Units to be
Unit
Produced
=
Sales

Units to be
produced
Beginning
Inventory
(Units)

Ending
Inventory
(Units)

Ending
Inventory
(Units)
1

Accounting 225 Quiz Section #9


Chapter 8 Class Exercises Solution
A production budget can be completed incorporating this relationship
Unit sales
- Beginning Inventory
+ Ending Inventory
= Units to be produced

July
6,000 (given)
Given
=1,500
25% of 7,000
=1,750
6,250

August
7,000 (given)
Ending Inventory (July)
=1,750
25% of 5,000
=1,250
6,500

September
5,000 (given)
Ending Inventory (August)
=1,250
25% of 4,000
=1,000
4,750

2. The Covey Company is preparing its Manufacturing Overhead Budget for the fourth quarter of
the year. The budgeted variable factory overhead rate is $4.00 per direct labor hour; the budgeted
fixed factory overhead is $64,000 per month, of which $18,000 is factory depreciation.
a)If the budgeted direct labor time for October is 8,000 hours, then the total budgeted factory
overhead for October is:
(a) $64,000
Budgeted Factory O/H= 4(DLHs) + 64,000
(b) $76,000
= 32,000 + 64,000
(c) $78,000
(d) $96,000
b)If the budgeted cash disbursements for factory overhead for November are $90,000, then the
budgeted direct labor hours for November must be:
(a)
(b)
(c)
(d)

2,000 hours
6,500 hours
11,000 hours
22,500 hours

Budgeted Factory O/H= 4(DLHs) + 46,000


90,000
= 4(DLHs) + 46,000
(Note: depreciation is not a cash flow!)

c) If the budgeted direct labor time for December is 4,000 direct labor hours, then the total
budgeted factory overhead per direct labor hour is:
(a)
(b)
(c)
(d)

$15.50
$16.00
$20.00
$24.50

Budgeted O/H per DLH = Total O/H


Units sold
= 4(4,000) + 64,000
4,000

Accounting 225 Quiz Section #9


Chapter 8 Class Exercises Solution
3. The Khaki Company has the following budgeted sales data:
Februar
January
y
March
April
Credit Sales....................................................................................................
$400,000 $350,000 $300,000 $320,000
Cash Sales......................................................................................................
$70,000 $90,000 $80,000 $70,000
The regular pattern of collection of credit sales is 40% in the month of sale, 50% in the month
following sale, and the remainder in the second month following the month of sale. There are no
bad debts.
a) The budgeted cash receipts for April would be:
(a)
(b)
(c)
(d)

$313,000
$320,000
$350,000
$383,000

Cash Collected from Credit Sales:


February
$35,000 (350,000 x 10%)
March
$150,000 (300,000 x 50%)
April
$128,000 (320,000 x 40%)
Cash sales for April $70,000
Total
$383,000
b) The budgeted accounts receivable balance on February 28 would be:
(a)
(b)
(c)
(d)

$175,000
$210,000
$215,000
$250,000

January
February

Accounts Receivable
400,000 160,000 (40% x 400,000)
350,000 200,000 (50% x 400,000)
140,000 (40% x 350,000)

January
January
February

250,000

Accounting 225 Quiz Section #9


Chapter 8 Class Exercises Solution
4. The Orr Company makes and sells only one product called a Bobb. The company is in the
process of preparing its Selling and Administrative Expense Budget for the last half of the year.
The following budget data are available:
Variable Cost
Monthly
Per Bobb Sold
Fixed Cost
Sales Commissions........................................................................................
$0.90
-Shipping.........................................................................................................
$1.10
-Advertising.....................................................................................................
$0.40
$10,000
Executive Salaries..........................................................................................
-$40,000
Depreciation on Office Equipment................................................................
-$15,000
Other..............................................................................................................
$0.45
$25,000
All of these expenses (except depreciation) are paid in cash in the month they are incurred.
a)If the company has budgeted to sell 30,000 Bobbs in August, then the total budgeted selling
and administrative expenses per unit sold for August is:
(a)
(b)
(c)
(d)

$2.85
$3.00
$5.35
$5.85

S&A per unit =


=

Total S&A
Units sold
2.85(30,000) + 90,000
30,000

b)If the company has budgeted to sell 26,000 Bobbs in November, then the total budgeted
variable selling and administrative expenses for November will be:
Total variable S&A = 2.85 x 26,000
(a) $37,700
= 74,100
(b) $62,400
(c) $74,100
(d) $90,000
c)If the company has budgeted to sell 28,000 Bobbs in September, then the total budgeted fixed
selling and administrative expenses for September is:
Total Fixed S&A
(a) $65,000
= 10,000+40,000+25,000+15,000
(b) $75,000
= 90,000
(c) $79,800
(d) $90,000
d) If the budgeted cash disbursements for selling and administrative expenses for October total
$160,500, then how many Bobbs does the company plan to sell in October?
(a)
(b)
(c)
(d)

25,000 units
30,000 units
46,042 units
56,316 units

S&A
= 2.85(Units sold) + 75,000
160,500
= 2.85(Units sold) + 75,000
(Note: depreciation is not a cash flow!)

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