Test Bank ch8

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8-1
Copyright 2015 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education.
Professional exam adapted
LO10:Budgeted balance sheet
LO9: Budgeted income statement
LO8: Cash budget
LO7: Selling & administrative budget
LO5: Direct labor budget
LO4: Direct materials budget
LO3: Production budget
LO6: Manufacturing overhead budget
Difficulty
E
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LO2: Sales budget
LO1: Budget process

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Conceptual M/C
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Conceptual M/C
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Single Part M/C
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Single Part M/C
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CMA
CIMA
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CMA
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CMA
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8-2
CH08-Ref1
CH08-Ref2
CH08-Ref3
CH08-Ref4
CH08-Ref5
CH08-Ref6
CH08-Ref7
CH08-Ref8
CH08-Ref9
CH08-Ref10
CH08-Ref11
CH08-Ref12
CH08-Ref13
CH08-Ref14
CH08-Ref15
CH08-Ref16
CH08-Ref17
CH08-Ref18
CH08-Ref19
CH08-Ref20
CH08-Ref21
CH08-Ref22
CH08-Ref23
CH08-Ref24
CH08-Ref25
CH08-Ref26
CH08-Ref27
CH08-Ref28
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Problem
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8-3
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8-4
Chapter 08
Master Budgeting
True / False Questions
1. The cash budget is usually prepared after the budgeted income statement.
True
False
2. The manufacturing overhead budget is typically prepared before the production

budget.
True
False
3. Self-imposed budgets prepared by lower-level managers should be scrutinized by

higher levels of management.
True
False
4. The basic idea underlying responsibility accounting is that each manager should be
held responsible for the overall profit of the company to ensure that all managers are
acting together.
True
False
5. Budgets are used to plan and to control operations.

True
False
6. The sales budget is usually prepared before the production budget.

True
False
7. A continuous or perpetual budget is a budget that almost never needs to be revised.

True
False
8. The cash budget is typically prepared before the direct materials budget.
True
False
8-5
Copyright 2015 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of
McGraw-Hill Education.
9. In business, a budget is a method for putting a limit on spending.

True
False
10. Planning involves gathering feedback to ensure that the plan is being properly
executed or modified as circumstances change.
True
False
11. A benefit of self-imposed budgeting is that it may allow lower-level managers to

create budgetary slack.
True
False
12. The first budget a company prepares in a master budget is the production budget.
True
False
13. One disadvantage of a self-imposed budget is that budget estimates prepared by

front-line managers are often less accurate and reliable than estimates prepared by
top managers.
True
False
14. The direct materials budget is typically prepared before the production budget.
True
False
15. A self-imposed budget is a budget that is prepared with the full cooperation and
participation of managers at all levels.
True
False
16. The sales budget often includes a schedule of expected cash collections.
True
False
17. The number of units to be produced in a period can be determined by adding the
expected sales to the beginning inventory and then deducting the desired ending
inventory.
True
False
18. In a merchandising company, the required merchandise purchases for a period are
determined by subtracting the desired ending inventory from the sum of the units to
be sold during the period and the units in beginning inventory.
True
False
8-6
19. When preparing a direct materials budget, the units of raw material needed to meet
production should be added to desired ending inventory and the beginning inventory
for raw materials should be subtracted to determine the amount of raw materials to
be purchased.
True
False
20. In companies that do not have "no lay-off" policies, the total direct labor cost for a
budget period is computed by multiplying the total direct labor hours needed to make
the budgeted output of completed units by the direct labor wage rate.
True
False
21. The direct labor budget shows the direct labor-hours required to produce the desired
ending inventory.
True
False
22. The manufacturing overhead budget lists all costs of production other than selling
and administrative expenses.
True
False
23. Only variable manufacturing overhead costs are included in the manufacturing
overhead budget.
True
False
24. The budgeted selling and administrative expense is calculated by multiplying the
budgeted unit sales by the selling and administrative expense per unit.
True
False
25. Both variable and fixed manufacturing overhead costs are included in the selling and
administrative expense budget.
True
False
26. On a cash budget, the total amount of budgeted cash payments for manufacturing
overhead should not include any amounts for depreciation on factory equipment.
True
False
Multiple Choice Questions
8-7
27. Which of the following budgets are prepared before the production budget?
A.
B.
C.
D.
Option A
Option B
Option C
Option D
28. Which of the following represents the normal sequence in which the below budgets
are prepared?
A.
B.
C.
D.
Sales Budget, Budgeted Balance Sheet, Budgeted Income Statement

Budgeted Balance Sheet, Sales Budget, Budgeted Income Statement
Sales Budget, Budgeted Income Statement, Budgeted Balance Sheet
Budgeted Income Statement, Sales Budget, Budgeted Balance Sheet
29. Which of the following is NOT an objective of the budgeting process?
A. To communicate management's plans throughout the entire organization.

B. To provide a means of allocating resources to those parts of the organization where
they can be used most effectively.
C. To ensure that the company continues to grow.
D. To uncover potential bottlenecks before they occur.
8-8
30. Which of the following benefits could an organization reasonably expect from an
effective budget program?
A.
B.
C.
D.
Option A
Option B
Option C
Option D
31. The budget method that maintains a constant twelve-month planning horizon by
adding a new month on the end as the current month is completed is called:
A.
B.
C.
D.
an operating budget.
a capital budget.
a continuous budget.
a master budget.
32. All the following are considered to be benefits of participative budgeting, except for:
A. Individuals at all organizational levels are recognized as being part of a team; this
results in greater support for the organization.
B. The budget estimates are prepared by those in directly involved in activities.
C. When managers set their own targets for the budget, top management need not
be concerned with the overall profitability of operations.
D. Managers are held responsible for reaching their goals and cannot easily shift
responsibility by blaming unrealistic goals set by others.
33. When preparing a production budget, the required production equals:
A.
B.
C.
D.
budgeted sales + beginning inventory + desired ending inventory.

budgeted sales - beginning inventory + desired ending inventory.
budgeted sales - beginning inventory - desired ending inventory.
budgeted sales + beginning inventory - desired ending inventory.
8-9
34. The direct labor budget is based on:
A.
B.
C.
D.
the desired ending inventory of finished goods.

the beginning inventory of finished goods.
the required production for the period.
the required materials purchases for the period.
35. Which of the following might be included as a disbursement on a cash budget?
A.
B.
C.
D.
Option A
Option B
Option C
Option D
36. The WRT Corporation makes collections on sales according to the following schedule:
25% in month of sale
65% in month following sale
5% in second month following sale
5% uncollectible
The following sales have been budgeted:
Budgeted cash collections in June would be:
A.
B.
C.
D.
$27,500
$98,500
$71,000
$115,500
8-10
37. Trumbull Corporation budgeted sales on account of $120,000 for July, $211,000 for
August, and $198,000 for September. Experience indicates that none of the sales on
account will be collected in the month of the sale, 60% will be collected the month
after the sale, 36% in the second month, and 4% will be uncollectible. The cash
receipts from accounts receivable that should be budgeted for September would be:
A.
B.
C.
D.
$169,800
$147,960
$197,880
$194,760
38. Sioux Corporation is estimating the following sales for the first four months of next
year:
Sales are normally collected 60% in the month of sale, 35% in the month following
the sale, and the remaining 5% being uncollectible. Based on this information, how
much cash should Sioux expect to collect during the month of April?
A.
B.
C.
D.
$286,500
$320,000
$192,000
$94,500
39. Seventy percent of Parlee Corporation's sales are collected in the month of sale, 25%
in the month following sale, and 5% in the second month following sale. The following
are budgeted sales data for the company:
Total budgeted cash collections in April would be:
A.
B.
C.
D.
$35,000
$125,000
$210,000
$370,000
8-11
40. Budgeted sales in Acer Corporation over the next four months are given below:
Twenty-five percent of the company's sales are for cash and 75% are on account.
Collections for sales on account follow a stable pattern as follows: 50% of a month's
credit sales are collected in the month of sale, 30% are collected in the month
following sale, and 15% are collected in the second month following sale. The
remainder are uncollectible. Given these data, cash collections for December should
be:
A.
B.
C.
D.
$103,875
$98,125
$136,375
$119,500
41. All of Porter Corporation's sales are on account. Sixty percent of the credit sales are
collected in the month of sale, 25% in the month following sale, and 10% in the
second month following sale. The remainder are uncollectible. The following are
budgeted sales data for the company:
Cash receipts in April are expected to be:
A.
B.
C.
D.
$420,000
$545,000
$605,000
$185,000
8-12
42. Paradise Corporation budgets on an annual basis for its fiscal year. The following
beginning and ending inventory levels (in units) are planned for next year.
*Three pounds of raw material are needed to produce each unit of finished product.
If Paradise Corporation plans to sell 480,000 units during next year, the number of
units it would have to manufacture during the year would be:
A.
B.
C.
D.
440,000 units
480,000 units
510,000 units
450,000 units
43. Frodic Corporation has budgeted sales and production over the next quarter as
follows:
The company has 4,000 units of product on hand at July 1. 10% of the next month's
sales in units should be on hand at the end of each month. October sales are
expected to be 71,500 units. Budgeted sales for September would be (in units):
A.
B.
C.
D.
65,000
61,000
55,000
57,000
8-13
44. JT Department Store expects to generate the following sales for the next three
months:
JT's cost of gods sold is 60% of sales dollars. At the end of each month, JT wants a
merchandise inventory balance equal to 20% of the following month's expected cost
of goods sold. What dollar amount of merchandise inventory should JT plan to
purchase in August?
A.
B.
C.
D.
$257,400
$314,600
$352,800
$327,800
45. Fab Manufacturing Corporation manufactures and sells stainless steel coffee mugs.
Expected mug sales at Fab (in units) for the next three months are as follows:
Fab likes to maintain a finished goods inventory equal to 30% of the next month's
estimated sales. How many mugs should Fab plan on producing during the month of
November?
A.
B.
C.
D.
23,200 mugs
26,800 mugs
25,900 mugs
34,300 mugs
8-14
46. The following information was taken from the production budget of Paeke Corporation
for next quarter:
How many units is the company expecting to sell in the month of February?
A.
B.
C.
D.
132,000
138,000
135,000
140,000
47. On November 1, Barnes Corporation has 8,000 units of Product A on hand. During the
month, the company plans to sell 30,000 units of Product A, and plans to have 6,500
units on hand at end of the month. How many units of Product A must be produced
during the month?
A.
B.
C.
D.
28,500
31,500
30,000
36,500
48. Mutskic Corporation produces and sells Product BetaC. To guard against stockouts,
the company requires that 30% of the next month's sales be on hand at the end of
each month. Budgeted sales of Product BetaC over the next four months are:
Budgeted production for August would be:
A.
B.
C.
D.
83,000 units
107,000 units
77,000 units
80,000 units
8-15
49. Parsons Corporation plans to sell 18,000 units during August. If the company has
5,500 units on hand at the start of the month, and plans to have 6,000 units on hand
at the end of the month, how many units must be produced during the month?
A.
B.
C.
D.
24,000
18,500
19,500
17,500
50. Starg Corporation, a retailer, plans to sell 25,000 units of Product X during the month
of August. If the company has 9,000 units on hand at the start of the month, and
plans to have 7,000 units on hand at the end of the month, how many units of
Product X must be purchased from the supplier during the month?
A.
B.
C.
D.
32,000
23,000
27,000
25,000
51. The following information relates to Marter Manufacturing Corporation for next
quarter:
How many units should the company plan on producing for the month of February?
A.
B.
C.
D.
360,000 units
362,000 units
358,000 units
398,000 units
8-16
52. Shocker Corporation's sales budget shows quarterly sales for the next year as
follows:
Unit sales
Corporation policy is to have a finished goods inventory at the end of each quarter
equal to 20% of the next quarter's sales. Budgeted production for the second quarter
of the next year would be:
A.
B.
C.
D.
7,200 units
8,000 units
8,800 units
8,400 units
53. The following are budgeted data:
Two pounds of material are required for each finished unit. The inventory of materials
at the end of each month should equal 20% of the following month's production
needs. Purchases of raw materials for May should be:
A.
B.
C.
D.
39,200 pounds
52,000 pounds
36,800 pounds
38,000 pounds
8-17
54. G Products, Inc. manufactures garlic gravy. G's production budget indicated the
following units (jars) of gravy to be produced for the upcoming months indicated:
Five grams of garlic are needed for every jar of gravy. G also likes to have enough
garlic on hand at the end of the month to cover 10% of the next month's production
requirements for garlic. How many grams of garlic should G plan on purchasing
during the month of May?
A.
B.
C.
D.
397,500 grams
399,500 grams
407,500 grams
437,500 grams
55. Marst Corporation's budgeted production in units and budgeted raw materials
purchases over the next three months are given below:
Two pounds of raw materials are required to produce one unit of product. The
company wants raw materials on hand at the end of each month equal to 30% of the
following month's production needs. The company is expected to have 30,000
pounds of raw materials on hand on January 1. Budgeted production for February
should be:
A.
B.
C.
D.
60,000 units
54,000 units
84,000 units
108,000 units
8-18
56. The following are budgeted data:
One pound of material is required for each finished unit. The inventory of materials at
the end of each month should equal 20% of the following month's production needs.
Purchases of raw materials for February would be budgeted to be:
A.
B.
C.
D.
19,000 pounds
19,200 pounds
23,000 pounds
18,800 pounds
57. Rhett Corporation manufactures and sells dress shirts. Each shirt (unit) requires 3
yards of cloth. Selected data from Rhett's master budget for next quarter are shown
below:
How many yards of cloth should Rhett plan on purchasing in May?
A.
B.
C.
D.
84,700 yards
96,700 yards
98,100 yards
98,800 yards
8-19
58. Prester Corporation has budgeted production for next year as follows:
Two pounds of material A are required for each unit produced. The company has a
policy of maintaining a stock of material A on hand at the end of each quarter equal
to 25% of the next quarter's production needs for material A. A total of 30,000
pounds of material A are on hand to start the year. Budgeted purchases of material A
for the second quarter would be:
A.
B.
C.
D.
145,000 pounds
140,000 pounds
180,000 pounds
135,000 pounds
59. Milano Corporation is working on its direct labor budget for the next two months.
Each unit of output requires 0.50 direct labor-hours. The direct labor rate is $9.80 per
direct labor-hour. The production budget calls for producing 6,400 units in October
and 6,300 units in November. If the direct labor work force is fully adjusted to the
total direct labor-hours needed each month, what would be the total combined direct
labor cost for the two months?
A.
B.
C.
D.
$30,870
$31,360
$62,230
$31,115
60. Morie Corporation is working on its direct labor budget for the next two months. Each
unit of output requires 0.75 direct labor-hours. The direct labor rate is $8.10 per
direct labor-hour. The production budget calls for producing 2,000 units in March and
2,300 units in April. The company guarantees its direct labor workers a 40-hour paid
work week. With the number of workers currently employed, that means that the
company is committed to paying its direct labor work force for at least 1,760 hours in
total each month even if there is not enough work to keep them busy. What would be
the total combined direct labor cost for the two months?
A.
B.
C.
D.
$28,512.00
$26,406.00
$28,228.50
$26,122.50
8-20
61. For July, White Corporation has budgeted production of 6,000 units. Each unit
requires 0.10 direct labor-hours at a cost of $8.50 per direct labor-hour. How much
will White Corporation budget for labor in July?
A.
B.
C.
D.
$51,000
$5,160
$600
$5,100
62. Triste Corporation manufactures and sells women's skirts. Each skirt (unit) requires
2.6 yards of cloth. Selected data from Triste's master budget for next quarter are
shown below:
Each unit requires 1.6 hours of direct labor, and the average hourly cost of Triste's
direct labor is $15. What is the cost of Triste Corporation's direct labor in September?
A.
B.
C.
D.
$336,000
$240,000
$150,000
$210,000
63. The manufacturing overhead budget at Amrein Corporation is based on budgeted

direct labor-hours. The direct labor budget indicates that 4,900 direct labor-hours will
be required in August. The variable overhead rate is $9.40 per direct labor-hour. The
company's budgeted fixed manufacturing overhead is $96,040 per month, which
includes depreciation of $7,350. All other fixed manufacturing overhead costs
represent current cash flows. The August cash disbursements for manufacturing
overhead on the manufacturing overhead budget should be:
A.
B.
C.
D.
$88,690
$134,750
$46,060
$142,100
8-21
64. The manufacturing overhead budget at Pendley Corporation is based on budgeted

be required in August. The variable overhead rate is $5.50 per direct labor-hour. The
represent current cash flows. The company recomputes its predetermined overhead
rate every month. The predetermined overhead rate for August should be:
A.
B.
C.
D.
$5.50
$17.10
$20.50
$15.00
65. Axsom Inc. bases its manufacturing overhead budget on budgeted direct labor-hours.
The direct labor budget indicates that 1,300 direct labor-hours will be required in
March. The variable overhead rate is $8.90 per direct labor-hour. The company's
budgeted fixed manufacturing overhead is $20,020 per month, which includes
depreciation of $2,600. All other fixed manufacturing overhead costs represent
current cash flows. The company recomputes its predetermined overhead rate every
month. The predetermined overhead rate for March should be:
A.
B.
C.
D.
$22.30
$24.30
$15.40
$8.90
66. Morrish Inc. bases its manufacturing overhead budget on budgeted direct laborhours. The direct labor budget indicates that 7,100 direct labor-hours will be required
in January. The variable overhead rate is $1.80 per direct labor-hour. The company's
current cash flows. The January cash disbursements for manufacturing overhead on
the manufacturing overhead budget should be:
A.
B.
C.
D.
$115,730
$95,850
$12,780
$83,070
8-22
67. The selling and administrative expense budget of Ruffing Corporation is based on
budgeted unit sales, which are 4,800 units for February. The variable selling and
administrative expense is $8.10 per unit. The budgeted fixed selling and
administrative expense is $71,520 per month, which includes depreciation of $16,800
per month. The remainder of the fixed selling and administrative expense represents
current cash flows. The cash disbursements for selling and administrative expenses
on the February selling and administrative expense budget should be:
A.
B.
C.
D.
$38,880
$54,720
$110,400
$93,600
68. Vandel Inc. bases its selling and administrative expense budget on budgeted unit
sales. The sales budget shows 6,600 units are planned to be sold in April. The
variable selling and administrative expense is $9.70 per unit. The budgeted fixed
selling and administrative expense is $127,380 per month, which includes
depreciation of $8,580 per month. The remainder of the fixed selling and
administrative expense represents current cash flows. The cash disbursements for
selling and administrative expenses on the April selling and administrative expense
budget should be:
A.
B.
C.
D.
$191,400
$118,800
$64,020
$182,820
69. Laurey Inc. is working on its cash budget for May. The budgeted beginning cash
balance is $45,000. Budgeted cash receipts total $129,000 and budgeted cash
disbursements total $124,000. The desired ending cash balance is $60,000. To attain
its desired ending cash balance for May, the company needs to borrow:
A.
B.
C.
D.
$110,000
$0
$60,000
$10,000
8-23
70. Arakaki Inc. is working on its cash budget for January. The budgeted beginning cash
disbursements total $113,000. The desired ending cash balance is $60,000. The
excess (deficiency) of cash available over disbursements for January will be:
A.
B.
C.
D.
$42,000
$155,000
$40,000
$1,000
71. Sparks Corporation has a cash balance of $7,500 on April 1. The company must
maintain a minimum cash balance of $6,000. During April, expected cash receipts are
$48,000. Cash disbursements during the month are expected to total $52,000.
Ignoring interest payments, during April the company will need to borrow:
A.
B.
C.
D.
$3,500
$2,500
$6,000
$4,000
72. For May, Young Corporation has budgeted its cash receipts at $125,000 and its cash
disbursements at $138,000. The company's cash balance on May 1 is $17,000. If the
desired May 31 cash balance is $20,000, then how much cash must the company
borrow during the month (before considering any interest payments)?
A.
B.
C.
D.
$4,000
$8,000
$12,000
$16,000
8-24
73. Harrti Corporation has budgeted for the following sales:
Sales are collected as follows: 10% in the month of sale; 60% in the month following
the sale; and the remaining 30% in the second month following the sale. In Razz's
budgeted balance sheet at December 31, at what amount will accounts receivable be
shown?
A.
B.
C.
D.
$680,000
$612,000
$826,500
$214,500
The Khaki Corporation has the following budgeted sales data:
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.
74. The budgeted accounts receivable balance on February 28 would be:
A.
B.
C.
D.
$250,000
$210,000
$175,000
$215,000
75. The budgeted cash receipts for April would be:
A.
B.
C.
D.
$350,000
$320,000
$313,000
$383,000
8-25
Home Corporation will open a new store on January 1. Based on experience from its
other retail outlets, Home Corporation is making the following sales projections:
Home Corporation estimates that 70% of the credit sales will be collected in the
month following the month of sale, with the balance collected in the second month
following the month of sale.
76. Based on these data, the balance in accounts receivable on January 31 will be:
A.
B.
C.
D.
$40,000
$28,000
$12,000
$58,000
77. The March 31 balance in accounts receivable will be:
A.
B.
C.
D.
$100,000
$60,000
$95,000
$75,000
78. In a cash budget for April, the total cash receipts will be:
A.
B.
C.
D.
$74,000
$57,000
$114,000
$97,000
8-26
Richards Corporation has the following budgeted sales for the first half of next year:
The company is in the process of preparing a cash budget and must determine the
expected cash collections by month. To this end, the following information has been
assembled:
The accounts receivable balance on January 1 is $70,000. Of this amount, $60,000

represents uncollected December sales and $10,000 represents uncollected
November sales.
79. The total cash collected during January would be:
A.
B.
C.
D.
$270,000
$420,000
$345,000
$360,000
80. What is the budgeted accounts receivable balance on May 30?
A.
B.
C.
D.
$81,000
$68,000
$60,000
$141,000
8-27
Bracken Corporation is a small wholesaler of gourmet food products. Data regarding

the store's operations follow:
Sales are budgeted at $330,000 for November, $340,000 for December, and
$340,000 for January.
Collections are expected to be 80% in the month of sale, 17% in the month
following the sale, and 3% uncollectible.
The cost of goods sold is 75% of sales.
The company would like to maintain ending merchandise inventories equal to 70%
of the next month's cost of goods sold. Payment for merchandise is made in the
month following the purchase.
Other monthly expenses to be paid in cash are $21,800.
Monthly depreciation is $19,000.
Ignore taxes.
81. Expected cash collections in December are:
A.
B.
C.
D.
$340,000
$328,100
$272,000
$56,100
82. The cost of December merchandise purchases would be:
A.
B.
C.
D.
$225,000
$178,500
$247,500
$255,000
8-28
83. December cash disbursements for merchandise purchases would be:
A.
B.
C.
D.
$178,500
$225,000
$255,000
$252,750
84. The difference between cash receipts and cash disbursements for December would
be:
A.
B.
C.
D.
$34,000
$19,550
$87,550
$53,550
Dilbert Farm Supply is located in a small town in the rural west. Data regarding the
store's operations follow:
The company desires to have an ending merchandise inventory at the end of each
month equal to 60% of the next month's cost of goods sold. Payment for merchandise
is made in the month following the purchase.
Ignore taxes.
8-29
85. Expected cash collections in December are:
A.
B.
C.
D.
$230,000
$184,000
$233,400
$49,400
86. The cost of December merchandise purchases would be:
A.
B.
C.
D.
$141,700
$169,000
$81,900
$149,500
87. December cash disbursements for merchandise purchases would be:
A.
B.
C.
D.
$141,700
$149,500
$157,300
$81,900
88. The difference between cash receipts and cash disbursements for December would
be:
A.
B.
C.
D.
$55,800
$37,900
$93,700
$17,900
89. The net income for December would be:
A.
B.
C.
D.
$60,200
$37,900
$40,200
$55,800
90. The cash balance at the end of December would be:
A.
B.
C.
D.
$180,500
$153,500
$82,800
$27,000
8-30
91. The accounts receivable balance, net of uncollectible accounts, at the end of
December would be:
A.
B.
C.
D.
$46,000
$93,100
$43,700
$81,300
92. Accounts payable at the end of December would be:
A.
B.
C.
D.
$81,900
$141,700
$59,800
$149,500
93. Retained earnings at the end of December would be:
A.
B.
C.
D.
$380,400
$418,300
$471,300
$466,400
The following are budgeted data for the Bingham Corporation, a merchandising
company:
94. Assuming that the Bingham Corporation had inventory on hand of $70,000 (at cost)
on January 1, the purchases for January (at cost) would be:
A.
B.
C.
D.
$180,000
$250,000
$263,000
$110,000
8-31
95. The desired ending inventory (at cost) for February would be:
A.
B.
C.
D.
$180,000
$300,000
$240,000
$160,000
96. Assume that all purchases are paid for in the month following the month of purchase.
The cash disbursements for purchases that would appear in the April cash budget
would be:
A.
B.
C.
D.
$180,000
$157,500
$240,000
$217,500
Harris, Inc., has budgeted sales in units for the next five months as follows:
Past experience has shown that the ending inventory for each month should be equal
to 20% of the next month's sales in units. The inventory on May 31 contained 1,880
units. The company needs to prepare a production budget for the next five months.
97. The beginning inventory for September should be:
A.
B.
C.
D.
820 units
1,880 units
1,460 units
1,080 units
98. The total number of units produced in July should be:
A.
B.
C.
D.
9,260 units
7,700 units
7,800 units
7,900 units
8-32
May Corporation, a merchandising firm, has budgeted sales as follows for the third
quarter of the year:
Cost of goods sold is equal to 65% of sales. The company wants to maintain a
monthly ending inventory equal to 130% of the Cost of Goods Sold for the following
month. The inventory on June 30 is less than this ideal since it is only $65,000. The
company is now preparing a Merchandise Purchases Budget.
99. The desired beginning inventory for September is:
A.
B.
C.
D.
$117,000
$76,050
$91,000
$59,150
100 The budgeted purchases for July are:

.
A.
B.
C.
D.
$52,000
$63,050
$47,450
$91,050
Noel Enterprises has budgeted sales in units for the next five months as follows:
Past experience has shown that the ending inventory for each month must be equal
to 10% of the next month's sales in units. The inventory on May 31 contained 400
units. The company needs to prepare a production budget for the second quarter of
the year.
8-33
101 The beginning inventory in units for September is:

.
A.
B.
C.
D.
380 units
460 units
4,600 units
720 units
102 The total number of units to be produced in July is:

.
A.
B.
C.
D.
5,580 units
5,400 units
6,120 units
5,220 units
103 The desired ending inventory for August is:

.
A.
B.
C.
D.
720 units
460 units
540 units
380 units
Sarter Corporation is in the process of preparing its annual budget. The following
beginning and ending inventory levels are planned for the year.
Each unit of finished goods requires 3 grams of raw material. The company plans to
sell 880,000 units during the year.
104 The number of units the company would have to manufacture during the year would
.
be:
A.
B.
C.
D.
900,000 units
930,000 units
880,000 units
830,000 units
8-34
105 How much of the raw material should the company purchase during the year?
.
A.
B.
C.
D.
2,550,000 grams
2,490,000 grams
2,480,000 grams
2,500,000 grams
The TS Corporation has budgeted sales for the year as follows:
The ending inventory of finished goods for each quarter should equal 25% of the next
quarter's budgeted sales in units. The finished goods inventory at the start of the
year is 2,500 units. Four pounds of raw materials are required for each unit produced.
Raw materials on hand at the start of the year total 4,200 pounds. The raw materials
inventory at the end of each quarter should equal 10% of the next quarter's
production needs in material.
106 Scheduled production for the third quarter should be:
.
A.
B.
C.
D.
14,500 units
18,500 units
15,500 units
13,500 units
107 Scheduled purchases of raw materials for the second quarter should be:
.
A.
B.
C.
D.
50,000 pounds
55,800 pounds
50,800 pounds
55,000 pounds
8-35
Roberts Corporation manufactures home cleaning products. One of the products,

Quickclean, requires 2 pounds of Material A and 5 pounds of Material B per unit
manufactured. Material A is purchased from the supplier for $0.30 per pound and
Material B is purchased for $0.50 per pound. The finished goods inventory on hand at
the end of each month should equal 4,000 units plus 25% of the next month's sales.
The raw materials inventory on hand at the end of each month (for either Material A
or Material B) should equal 80% of the following month's production needs.
The production budget calls for 26,000 units of Quickclean to be manufactured in
June and 32,000 units of Quickclean to be manufactured in July. On May 31 there will
be 41,600 pounds of Material A and 104,000 pounds of Material B in inventory.
108 Assume that on January 1 the inventory of Quickclean was 8,000 units. Expected
.
sales in January are 14,000 units and expected sales in February are 18,000 units.
The number of units needed to be produced in January would be:
A.
B.
C.
D.
10,500
14,000
14,500
15,000
109 The number of pounds of Material A needed for production during June would be:
.
A.
B.
C.
D.
61,600
51,200
35,600
52,000
110 The number of pounds of Material B to be purchased during June would be:
.
A.
B.
C.
D.
128,000
130,000
154,000
160,000
LFM Corporation makes and sells a product called Product WZ. Each unit of Product
WZ requires 3.5 hours of direct labor at the rate of $16.00 per direct labor-hour.
Management would like you to prepare a Direct Labor Budget for June.
8-36
111 The budgeted direct labor cost per unit of Product WZ would be:
.
A.
B.
C.
D.
$4.57
$19.50
$16.00
$56.00
112 The company plans to sell 31,000 units of Product WZ in June. The finished goods
.
inventories on June 1 and June 30 are budgeted to be 100 and 600 units,
respectively. Budgeted direct labor costs for June would be:
A.
B.
C.
D.
$1,764,000
$504,000
$1,708,000
$1,736,000
Cashan Corporation makes and sells a product called a Miniwarp. One Miniwarp
requires 1.5 kilograms of the raw material Jurislon. Budgeted production of Miniwarps
for the next five months is as follows:
The company wants to maintain monthly ending inventories of Jurislon equal to 30%
of the following month's production needs. On July 31, this requirement was not met
since only 10,400 kilograms of Jurislon were on hand. The cost of Jurislon is $4.00 per
kilogram. The company wants to prepare a Direct Materials Purchase Budget for the
next five months.
113 The desired ending inventory of Jurislon for September is:
.
A.
B.
C.
D.
$29,640
$29,520
$44,460
$44,280
8-37
114 The total cost of Jurislon to be purchased in August is:

.
A.
B.
C.
D.
$149,860
$252,400
$191,460
$147,000
Cowles Corporation, Inc. makes and sells a single product, Product R. Three yards of
Material K are needed to make one unit of Product R. Budgeted production of Product
R for the next five months is as follows:
The company wants to maintain monthly ending inventories of Material K equal to

30% of the following month's production needs. On July 31, this requirement was not
met because only 3,500 yards of Material K were on hand. The cost of Material K is
$0.80 per yard. The company wants to prepare a Direct Materials Purchase Budget
for the rest of the year.
115 The total cost of Material K to be purchased in August is:
.
A.
B.
C.
D.
$47,650
$38,120
$30,350
$24,280
116 The desired ending inventory of Material K for September is:

.
A.
B.
C.
D.
12,750 yards
12,500 yards
13,050 yards
12,150 yards
8-38
117 The total needs (i.e., production requirements plus desired ending inventory) of
.
Material K for November are:
A.
B.
C.
D.
40,800 yards
44,940 yards
37,380 yards
52,410 yards
Adi Manufacturing Corporation is estimating the following raw material purchases for
the final four months of the year:
At Adi, 30% of raw materials purchases are normally paid for in the month of
purchase. The remaining 70% is paid for in the month following the purchase.
118 How much cash should Adi expect to pay out for raw material purchases during
.
November?
A.
B.
C.
D.
$896,000
$392,000
$644,000
$252,000
119 In Adi's budgeted balance sheet at December 31, at what amount will accounts
.
payable for raw materials be shown?
A.
B.
C.
D.
$760,000
$532,000
$228,000
$588,000
The Gerald Corporation makes and sells a single product called a Clop. Each Clop
requires 1.1 direct labor-hours at $8.20 per direct labor-hour. The direct labor
workforce is fully adjusted each month to the required workload. The company is
preparing a Direct Labor Budget for the first quarter of the year.
8-39
120 The budgeted direct labor cost per Clop is closest to:
.
A.
B.
C.
D.
$7.45
$8.20
$9.02
$9.76
121 If the company has budgeted to produce 20,000 Clops in January, then the budgeted
.
direct labor cost for January is:
A.
B.
C.
D.
$164,000
$180,400
$172,200
$195,600
122 If the budgeted direct labor cost for February is $162,360, then the budgeted
.
production of Clops for February is:
A.
B.
C.
D.
23,200 units
21,000 units
19,800 units
18,000 units
The LFG Corporation makes and sells a single product, Product T. Each unit of Product
T requires 1.4 direct labor-hours at a rate of $9.80 per direct labor-hour. The direct
labor workforce is fully adjusted each month to the required workload. LFG
Corporation needs to prepare a Direct Labor Budget for the second quarter of next
year.
123 The budgeted direct labor cost per unit of Product T is closest to:
.
A.
B.
C.
D.
$9.80
$11.83
$7.00
$13.72
8-40
124 The company has budgeted to produce 24,000 units of Product T in June. The
.
finished goods inventories on June 1 and June 30 were budgeted at 600 and 800
units, respectively. Budgeted direct labor costs for June would be:
A.
B.
C.
D.
$332,024
$329,280
$235,200
$326,536
The Covey Corporation is preparing its Manufacturing Overhead Budget for the fourth
quarter of the year. The budgeted variable manufacturing overhead rate is $4.00 per
direct labor-hour; the budgeted fixed manufacturing overhead is $64,000 per month,
of which $18,000 is factory depreciation.
125 If the budgeted direct labor time for October is 8,000 hours, then the total budgeted
.
manufacturing overhead for October is:
A.
B.
C.
D.
$96,000
$78,000
$64,000
$76,000
126 If the budgeted cash disbursements for manufacturing overhead for November are
.
$90,000, then the budgeted direct labor-hours for November must be:
A.
B.
C.
D.
11,000 direct labor-hours

127 If the budgeted direct labor time for December is 4,000 hours, then the average
.
budgeted manufacturing overhead per direct labor-hour is:
A.
B.
C.
D.
$16.00 per direct labor-hour

Cartier Inc. bases its manufacturing overhead budget on budgeted direct labor-hours.
The variable overhead rate is $5.80 per direct labor-hour. The company's budgeted
fixed manufacturing overhead is $39,930 per month, which includes depreciation of
$12,870. All other fixed manufacturing overhead costs represent current cash flows.
The direct labor budget indicates that 3,300 direct labor-hours will be required in
April.
8-41
128 The April cash disbursements for manufacturing overhead on the manufacturing
.
overhead budget should be:
A.
B.
C.
D.
$59,070
$46,200
$27,060
$19,140
129 The company recomputes its predetermined overhead rate every month. The
.
predetermined overhead rate for April should be:
A.
B.
C.
D.

Davey Corporation is preparing its Manufacturing Overhead Budget for the fourth
quarter of the year. The budgeted variable manufacturing overhead rate is $3.00 per
direct labor-hour; the budgeted fixed manufacturing overhead is $66,000 per month,
of which $10,000 is factory depreciation.
130 If the budgeted direct labor time for October is 6,000 hours, then the total budgeted
.
manufacturing overhead for October is:
A.
B.
C.
D.
$28,000
$56,000
$74,000
$84,000
131 If the budgeted direct labor time for November is 9,000 hours, then the total
.
budgeted cash disbursements for manufacturing overhead for November must be:
A.
B.
C.
D.
$56,000
$83,000
$37,000
$93,000
8-42
132 If the budgeted direct labor time for December is 4,000 hours, then the
.
predetermined manufacturing overhead per direct labor-hour for December would
be:
A.
B.
C.
D.
$3.00
$19.50
$5.50
$17.00
The manufacturing overhead budget at Cardera Corporation is based on budgeted

be required in January. The variable overhead rate is $1.00 per direct labor-hour. The
represent current cash flows.
133 The company recomputes its predetermined overhead rate every month. The
.
predetermined overhead rate for January should be:
A.
B.
C.
D.

134 The January cash disbursements for manufacturing overhead on the manufacturing
.
A.
B.
C.
D.
$30,360
$2,300
$23,460
$25,760
8-43
Poriss Corporation makes and sells a single product called a Yute. The company is in
the process of preparing its Selling and Administrative Expense Budget for the last
quarter of the year. The following budget data are available:
All of these expenses (except depreciation) are paid in cash in the month they are
incurred.
135 If the company has budgeted to sell 19,000 Yutes in November, then the total
.
budgeted selling and administrative expenses for November would be:
A.
B.
C.
D.
$546,000
$280,000
$266,000
$536,000
136 If the company has budgeted to sell 16,000 Yutes in December, then the budgeted
.
total cash disbursements for selling and administrative expenses for December
would be:
A.
B.
C.
D.
$280,000
$494,000
$224,000
$504,000
137 If the total budgeted selling and administrative expense for October is $459,200,
.
then how many Yutes does the company plan to sell in October?
A.
B.
C.
D.
13,300 units
12,500 units
13,000 units
12,800 units
8-44
The Prattle Corporation makes and sells only one product called a Deb. The company
is in the process of preparing its Selling and Administrative Expense Budget for next
year. The following budget data are available:
incurred.
138 If the company has budgeted to sell 17,000 Debs in January, then the total budgeted
.
variable selling and administrative expenses for January will be:
A.
B.
C.
D.
$34,000
$39,100
$18,700
$25,500
139 If the company has budgeted to sell 16,000 Debs in February, then the total
.
budgeted fixed selling and administrative expenses for February is:
A.
B.
C.
D.
$75,000
$70,000
$110,000
$100,000
140 If the company has budgeted to sell 20,000 Debs in March, then the average
.
budgeted selling and administrative expenses per unit sold for March is closest to:
A.
B.
C.
D.
$7.80 per unit

$9.00 per unit
$8.50 per unit
$6.80 per unit
8-45
141 If the budgeted cash disbursements for selling and administrative expenses for April
.
total $144,390, then how many Debs does the company plan to sell in April?
A.
B.
C.
D.
17,500 units
18,250 units
20,000 units
19,300 units
Rogers Corporation is preparing its cash budget for July. The budgeted beginning cash
disbursements total $139,000. The desired ending cash balance is $30,000.
142 The excess (deficiency) of cash available over disbursements for July is:
.
A.
B.
C.
D.
$23,000
$2,000
$166,000
$27,000
143 To attain its desired ending cash balance for July, the company should borrow:
.
A.
B.
C.
D.
$30,000
$0
$3,000
$57,000
Muecke Inc. is working on its cash budget for April. The budgeted beginning cash
144 The excess (deficiency) of cash available over disbursements for April will be:
.
A.
B.
C.
D.
$32,000
$190,000
$48,000
($8,000)
145 To attain its desired ending cash balance for April, the company needs to borrow:
.
A.
B.
C.
D.
$18,000
$0
$50,000
$82,000
8-46
The Adams Corporation, a merchandising firm, has budgeted its activity for
November according to the following information:
Sales at $450,000, all for cash.
Merchandise inventory on October 31 was $200,000.
The cash balance November 1 was $18,000.
Selling and administrative expenses are budgeted at $60,000 for November and
are paid for in cash.
Budgeted depreciation for November is $25,000.
The planned merchandise inventory on November 30 is $230,000.
The cost of goods sold is 70% of the selling price.
All purchases are paid for in cash.
There is no interest expense or income tax expense.
146 The budgeted cash receipts for November are:
.
A.
B.
C.
D.
$315,000
$450,000
$135,000
$475,000
147 The budgeted cash disbursements for November are:

.
A.
B.
C.
D.
$345,000
$375,000
$530,000
$405,000
148 The budgeted net income for November is:

.
A.
B.
C.
D.
$50,000
$68,000
$75,000
$135,000
8-47
Carter Lumber sells lumber and general building supplies to building contractors in a
medium-sized town in Montana. Data regarding the store's operations follow:
The company desires to have an ending merchandise inventory equal to 80% of the
following month's cost of goods sold. Payment for merchandise is made in the month
following the purchase.
Ignore taxes.
149 The net income for December would be:

.
A.
B.
C.
D.
$114,500
$94,500
$101,400
$82,800
150 The cash balance at the end of December would be:

.
A.
B.
C.
D.
$182,400
$114,400
$13,000
$195,400
8-48
151 The accounts receivable balance, net of uncollectible accounts, at the end of
.
December would be:
A.
B.
C.
D.
$105,300
$88,700
$117,000
$207,900
152 Accounts payable at the end of December would be:

.
A.
B.
C.
D.
$253,500
$50,700
$208,000
$258,700
153 Retained earnings at the end of December would be:

.
A.
B.
C.
D.
$259,600
$342,400
$422,000
$445,100
Essay Questions
8-49
154 Caprice Corporation is a wholesaler of industrial goods. Data regarding the store's
.
operations follow:
The company desires an ending merchandise inventory equal to 60% of the cost of
goods sold in the following month. Payment for merchandise is made in the month
following the purchase.
The November beginning balance in the accounts receivable account is $78,000.
The November beginning balance in the accounts payable account is $254,000.
Required:
a. Prepare a Schedule of Expected Cash Collections for November and December.
b. Prepare a Merchandise Purchases Budget for November and December.
8-50
155 Clay Corporation has projected sales and production in units for the second quarter
.
of the coming year as follows:
Cash-related production costs are budgeted at $5 per unit produced. Of these

production costs, 40% are paid in the month in which they are incurred and the
balance in the following month. Selling and administrative expenses will amount to
$100,000 per month. The accounts payable balance on March 31 totals $190,000,
which will be paid in April.
All units are sold on account for $14 each. Cash collections from sales are budgeted
at 60% in the month of sale, 30% in the month following the month of sale, and the
remaining 10% in the second month following the month of sale. Accounts receivable
on April 1 totaled $500,000 ($90,000 from February's sales and $410,000 from
March's sales).
Required:
a. Prepare a schedule for each month showing budgeted cash disbursements for Clay
Corporation.
b. Prepare a schedule for each month showing budgeted cash receipts for Clay
Corporation.
8-51
156 Mate Boomerang Corporation manufactures and sells plastic boomerangs. Expected
.
boomerang sales (in units) for the upcoming months are as follows:
Mate likes to maintain a finished goods inventory equal to 10% of the next month's
estimated sales. Seven ounces of plastic resin are needed to produce every
boomerang. Mate likes to have enough plastic resin on hand at the end of the month
to cover 25% of the next month's production requirements.
Required:
How many ounces of plastic resin should Mate plan on purchasing during the month
of October?
8-52
157 Weldon Industrial Gas Corporation supplies acetylene and other compressed gases to
.
industry. Data regarding the store's operations follow:
The company desires an ending merchandise inventory equal to 60% of the cost of
goods sold in the following month.
Payment for merchandise is made in the month following the purchase.
Ignore taxes.
Required:
c. Prepare Cash Budgets for November and December.
d. Prepare Budgeted Income Statements for November and December.
e. Prepare a Budgeted Balance Sheet for the end of December.
8-53
158 The following information is budgeted for McCracken Plumbing Supply Corporation
.
for next quarter:
All sales at McCracken are on credit. Forty percent are collected in the month of sale,
58% in the month following the sale, and the remaining 2% are uncollectible.
Merchandise purchases are paid in full the month following the month of purchase.
The selling and administrative expenses above include $8,000 of depreciation on
display fixtures and warehouse equipment. All other selling and administrative
expenses are paid as incurred. McCracken wants to maintain a cash balance of
$15,000. Any amount below this can be borrowed from a local bank as needed in
increments of $1,000. All borrowings are made at month end.
Required:
Prepare McCracken's cash budget for May. McCracken expects to have $24,000 of
cash on hand at the beginning of May.
8-54
159 The Fraley Corporation, a merchandising firm, has planned the following sales for the
.
next four months:
Sales are made 40% for cash and 60% on account. From experience, the company
has learned that a month's sales on account are collected according to the following
pattern:
The company requires a minimum cash balance of $4,000 to start a month.

Required:
a. Compute the budgeted cash receipts for June.
b. Assume the following budgeted data for June:
Using this data, along with your answer to part (a) above, prepare a cash budget for
June. Clearly show any borrowing needed during the month. The company can
borrow in any dollar amount, but will not pay any interest until the following month.
8-55
160 Bredder Supply Corporation manufactures and sells cotton gauze. Expected sales of
.
gauze (in boxes) for upcoming months are as follows:
Management likes to maintain a finished goods inventory equal to 20% of the next
month's estimated sales.
Required:
Prepare the company's production budget for the third quarter of this year (the
months of July, August and September). Include a column for each month and a total
column for the entire quarter.
8-56
161 A sales budget is given below for one of the products manufactured by the OMI Co.:
.
The inventory of finished goods at the end of each month must equal 20% of the
next month's sales. However, on December 31 the finished goods inventory totaled
only 4,000 units.
Each unit of product requires three pounds of specialized material. Since the
production of this specialized material by OMI's suppliers is sometimes irregular, the
company has a policy of maintaining an ending inventory at the end of each month
equal to 30% of the next month's production needs. This requirement had been met
on January 1 of the current year.
Required:
a. Prepare a budget showing the required production each month for January,
February, March, and April.
b. Prepare a budget showing the quantity of switches to be purchased each month
for January, February, and March.
8-57
162 Chow Corporation manufactures children's chairs made of PVS plastic tubing and
.
heavy canvas material. Each chair requires eight feet of the PVC tubing and three
yards of material. Budgeted sales are 20,000 chairs for June, 25,000 chairs for July
and 30,000 chairs for August. Ending finished goods inventory is budgeted at 10% of
the current month's sales. Ending materials inventories are budgeted at 10% of the
current month's production.
Required:
a. Prepare a production budget for each of the months of June, July and August.
Assume the beginning inventory of chairs in June will be 2,500 units.
b. Prepare schedules showing purchase requirements for PVC tubing and for material
for each of the months of June, July and August. Assume 16,000 feet of PVC tubing
and 6,000 yards of material are on hand at the beginning of June.
8-58
163 Two yards of a fabric are required for each blouse produced by Northern Shirt
.
Corporation. The cost of the fabric is $4 per yard. Budgeted production of blouses is
given below for the fourth quarter and the first month of the following quarter.
To prevent against stock outs of the fabric, the company maintains an ending
inventory each month equal to 10% of the next month's production needs. The
beginning inventory of the fabric in October will be 3,600 yards.
Required:
Prepare a direct materials budget for the fabric, by month and in total for the fourth
quarter. Be sure to include both the quantity to be purchased and its cost for each
month.
8-59
164 The production department of Tadris Corporation has submitted the following
.
forecast of units to be produced by quarter for the upcoming fiscal year.
Each unit requires 0.25 direct labor-hours at $18.00 per hour.

Required:
Prepare a direct labor budget for the upcoming fiscal year, assuming that the direct
labor work force is adjusted each quarter to match the number of hours required to
produce the budgeted production.
165 Rehmer Corporation is working on its direct labor budget for the next two months.
.
Each unit of output requires 0.61 direct labor-hours. The direct labor rate is $8.90 per
direct labor-hour. The production budget calls for producing 2,600 units in June and
2,100 units in July.
Required:
Construct the direct labor budget for the next two months, assuming that the direct
labor work force is fully adjusted to the total direct labor-hours needed each month.
8-60
166 Kouba Corporation is working on its direct labor budget for the next two months.
.
Each unit of output requires 0.23 direct labor-hours. The direct labor rate is $11.20
per direct labor-hour. The production budget calls for producing 4,000 units in April
and 3,400 units in May. The company guarantees its direct labor workers a 40-hour
paid work week. With the number of workers currently employed, that means that
the company is committed to paying its direct labor work force for at least 920 hours
in total each month even if there is not enough work to keep them busy.
Required:
Construct the direct labor budget for the next two months.
8-61
167 The direct labor budget of Faier Corporation for the upcoming year contains the
.
following details concerning budgeted direct labor-hours.
The company's variable manufacturing overhead rate is $3.50 per direct labor-hour,
and the company's fixed manufacturing overhead is $65,000 per quarter. The only
noncash item included in the fixed manufacturing overhead is depreciation which is
$22,000 per quarter.
Required:
Prepare Faier Corporation's manufacturing overhead budget for the upcoming fiscal
year. Show both manufacturing overhead expense and cash disbursements for
manufacturing overhead.
8-62
168 Edgington Inc. bases its manufacturing overhead budget on budgeted direct labor.
hours. The variable overhead rate is $4.90 per direct labor-hour. The company's
current cash flows. The November direct labor budget indicates that 3,700 direct
labor-hours will be required in that month.
Required:
a. Determine the cash disbursements for manufacturing overhead for November.
b. Determine the predetermined overhead rate for November.
169 The manufacturing overhead budget of Paparella Corporation is based on budgeted

.
direct labor-hours. The November direct labor budget indicates that 6,000 direct
labor-hours will be required in that month. The variable overhead rate is $2.00 per
direct labor-hour. The company's budgeted fixed manufacturing overhead is $79,200
per month, which includes depreciation of $21,000. All other fixed manufacturing
overhead costs represent current cash flows.
Required:
Show your work!
b. Determine the predetermined overhead rate for November. Show your work!
8-63
170 The selling and administrative expense budget of Gullette Corporation is based on
.
the number of units sold, which are budgeted to be 2,700 units in April. The variable
selling and administrative expense is $1.90 per unit. The budgeted fixed selling and
administrative expense is $35,640 per month, which includes depreciation of $7,290.
The remainder of the fixed selling and administrative expense represents current
cash flows.
Required:
Prepare the selling and administrative expense budget for April.
171 Skeete Inc. bases its selling and administrative expense budget on the number of
.
units sold. The variable selling and administrative expense is $1.70 per unit. The
budgeted fixed selling and administrative expense is $57,720 per month, which
includes depreciation of $9,360. The remainder of the fixed selling and
administrative expense represents current cash flows. The sales budget shows 3,900
units are planned to be sold in November.
Required:
Prepare the selling and administrative expense budget for November.
8-64
172 Parliman Corporation is preparing its cash budget for August. The budgeted
.
beginning cash balance is $12,000. Budgeted cash receipts total $159,000 and
budgeted cash disbursements total $162,000. The desired ending cash balance is
$20,000. The company can borrow up to $160,000 at any time from a local bank,
with interest not due until the following month.
Required:
Prepare the company's cash budget for August in good form.
173 Freet Inc. is preparing its cash budget for November. The budgeted beginning cash
.
company can borrow up to $170,000 at any time from a local bank, with interest not
due until the following month.
Required:
Prepare the company's cash budget for November in good form. Make sure to
indicate what borrowing, if any, would be needed to attain the desired ending cash
balance.
8-65
Chapter 08 Master Budgeting Answer Key
True / False Questions
1.
The cash budget is usually prepared after the budgeted income statement.
FALSE
AACSB: Reflective Thinking

AICPA BB: Critical Thinking
AICPA FN: Measurement
Blooms: Remember
Difficulty: 1 Easy
Learning Objective: 08-01 Understand why organizations budget and the processes they use to create budgets.
2.
The manufacturing overhead budget is typically prepared before the production

budget.
FALSE

Blooms: Remember
Difficulty: 1 Easy
3.
Self-imposed budgets prepared by lower-level managers should be scrutinized by

higher levels of management.
TRUE

Blooms: Remember
Difficulty: 1 Easy
4.
The basic idea underlying responsibility accounting is that each manager should
be held responsible for the overall profit of the company to ensure that all
managers are acting together.
FALSE
8-66
Blooms: Remember
Difficulty: 1 Easy
5.
Budgets are used to plan and to control operations.

TRUE

Blooms: Understand
Difficulty: 1 Easy
6.
The sales budget is usually prepared before the production budget.

TRUE

Blooms: Remember
Difficulty: 1 Easy
7.
A continuous or perpetual budget is a budget that almost never needs to be

revised.
FALSE

Blooms: Remember
Difficulty: 1 Easy
8.
The cash budget is typically prepared before the direct materials budget.
FALSE

Blooms: Understand
Difficulty: 1 Easy
9.
In business, a budget is a method for putting a limit on spending.

FALSE
8-67
Blooms: Remember
Difficulty: 1 Easy
10.
Planning involves gathering feedback to ensure that the plan is being properly
executed or modified as circumstances change.
FALSE

Blooms: Remember
Difficulty: 1 Easy
11.
A benefit of self-imposed budgeting is that it may allow lower-level managers to

create budgetary slack.
FALSE

Blooms: Remember
Difficulty: 1 Easy
12.
The first budget a company prepares in a master budget is the production budget.
FALSE

Blooms: Remember
Difficulty: 1 Easy
13.
One disadvantage of a self-imposed budget is that budget estimates prepared by

front-line managers are often less accurate and reliable than estimates prepared
by top managers.
FALSE

Blooms: Remember
Difficulty: 1 Easy
8-68
14.
The direct materials budget is typically prepared before the production budget.
FALSE

Blooms: Understand
Difficulty: 1 Easy
15.
A self-imposed budget is a budget that is prepared with the full cooperation and
participation of managers at all levels.
TRUE

Blooms: Remember
Difficulty: 1 Easy
16.
The sales budget often includes a schedule of expected cash collections.

TRUE
Blooms: Remember
Difficulty: 1 Easy
Learning Objective: 08-02 Prepare a sales budget; including a schedule of expected cash collections.
17.
The number of units to be produced in a period can be determined by adding the

expected sales to the beginning inventory and then deducting the desired ending
inventory.
FALSE
Blooms: Understand
Difficulty: 2 Medium
Learning Objective: 08-03 Prepare a production budget.
18.
In a merchandising company, the required merchandise purchases for a period are

determined by subtracting the desired ending inventory from the sum of the units
to be sold during the period and the units in beginning inventory.
FALSE
8-69

Blooms: Remember
19.
When preparing a direct materials budget, the units of raw material needed to
meet production should be added to desired ending inventory and the beginning
inventory for raw materials should be subtracted to determine the amount of raw
materials to be purchased.
TRUE
Blooms: Remember
Difficulty: 1 Easy
Learning Objective: 08-04 Prepare a direct materials budget; including a schedule of expected cash
disbursements for purchases of materials.
20.
In companies that do not have "no lay-off" policies, the total direct labor cost for a
budget period is computed by multiplying the total direct labor hours needed to
make the budgeted output of completed units by the direct labor wage rate.
TRUE
Blooms: Understand
Learning Objective: 08-05 Prepare a direct labor budget.
21.
The direct labor budget shows the direct labor-hours required to produce the
desired ending inventory.
FALSE
Blooms: Remember
Difficulty: 1 Easy
22.
The manufacturing overhead budget lists all costs of production other than selling
and administrative expenses.
FALSE
Blooms: Remember
Difficulty: 1 Easy
8-70
Learning Objective: 08-06 Prepare a manufacturing overhead budget.
23.
Only variable manufacturing overhead costs are included in the manufacturing

overhead budget.
FALSE
Blooms: Remember
Difficulty: 1 Easy
24.
The budgeted selling and administrative expense is calculated by multiplying the

budgeted unit sales by the selling and administrative expense per unit.
FALSE
Blooms: Understand
Learning Objective: 08-07 Prepare a selling and administrative expense budget.
25.
Both variable and fixed manufacturing overhead costs are included in the selling
and administrative expense budget.
FALSE
Blooms: Remember
Difficulty: 1 Easy
26.
On a cash budget, the total amount of budgeted cash payments for manufacturing
overhead should not include any amounts for depreciation on factory equipment.
TRUE
Blooms: Understand
Learning Objective: 08-08 Prepare a cash budget.
Multiple Choice Questions
8-71
27.
Which of the following budgets are prepared before the production budget?
A.
B.
C.
D.
Option A
Option B
Option C
Option D

Blooms: Understand
28.
Which of the following represents the normal sequence in which the below budgets
are prepared?
A.
B.
C.
D.
Sales Budget, Budgeted Balance Sheet, Budgeted Income Statement

Budgeted Balance Sheet, Sales Budget, Budgeted Income Statement
Sales Budget, Budgeted Income Statement, Budgeted Balance Sheet
Budgeted Income Statement, Sales Budget, Budgeted Balance Sheet

Blooms: Remember
Difficulty: 1 Easy
29.
Which of the following is NOT an objective of the budgeting process?
A. To communicate management's plans throughout the entire organization.

B. To provide a means of allocating resources to those parts of the organization
where they can be used most effectively.
C.
To ensure that the company continues to grow.
D.
To uncover potential bottlenecks before they occur.
Blooms: Remember
Difficulty: 1 Easy
8-72
30.
Which of the following benefits could an organization reasonably expect from an

effective budget program?
A.
B.
C.
D.
Option A
Option B
Option C
Option D

Blooms: Remember
Difficulty: 1 Easy
31.
The budget method that maintains a constant twelve-month planning horizon by

adding a new month on the end as the current month is completed is called:
A.
B.
C.
D.
an operating budget.
a capital budget.
a continuous budget.
a master budget.

Blooms: Remember
Difficulty: 1 Easy
8-73
32.
All the following are considered to be benefits of participative budgeting, except

for:
A. Individuals at all organizational levels are recognized as being part of a team;

this results in greater support for the organization.
B. The budget estimates are prepared by those in directly involved in activities.
C. When managers set their own targets for the budget, top management need
not be concerned with the overall profitability of operations.
D. Managers are held responsible for reaching their goals and cannot easily shift
responsibility by blaming unrealistic goals set by others.
Blooms: Remember
Difficulty: 1 Easy
Source: CMA, adapted
33.
When preparing a production budget, the required production equals:
A. budgeted sales + beginning inventory + desired ending inventory.

B. budgeted sales - beginning inventory + desired ending inventory.
C. budgeted sales - beginning inventory - desired ending inventory.
D. budgeted sales + beginning inventory - desired ending inventory.
Blooms: Remember
Source: CIMA, adapted
34.
The direct labor budget is based on:
A.
B.
C.
D.
the desired ending inventory of finished goods.

the beginning inventory of finished goods.
the required production for the period.
the required materials purchases for the period.
Blooms: Remember
Difficulty: 1 Easy
8-74
35.
Which of the following might be included as a disbursement on a cash budget?
A.
B.
C.
D.
Option A
Option B
Option C
Option D
Blooms: Understand
Difficulty: 1 Easy
8-75
36.
The WRT Corporation makes collections on sales according to the following

schedule:
25% in month of sale
65% in month following sale
5% in second month following sale
5% uncollectible
The following sales have been budgeted:
Budgeted cash collections in June would be:
A.
B.
C.
D.
$27,500
$98,500
$71,000
$115,500
Cash collections for June:
AACSB: Analytic
Blooms: Apply
8-76
37.
Trumbull Corporation budgeted sales on account of $120,000 for July, $211,000 for
August, and $198,000 for September. Experience indicates that none of the sales
on account will be collected in the month of the sale, 60% will be collected the
month after the sale, 36% in the second month, and 4% will be uncollectible. The
cash receipts from accounts receivable that should be budgeted for September
would be:
A.
B.
C.
D.
$169,800
$147,960
$197,880
$194,760
AACSB: Analytic
Blooms: Apply
38.
Sioux Corporation is estimating the following sales for the first four months of next
year:
Sales are normally collected 60% in the month of sale, 35% in the month following
the sale, and the remaining 5% being uncollectible. Based on this information, how
much cash should Sioux expect to collect during the month of April?
A.
B.
C.
D.
$286,500
$320,000
$192,000
$94,500
AACSB: Analytic
8-77

Blooms: Apply
39.
Seventy percent of Parlee Corporation's sales are collected in the month of sale,
25% in the month following sale, and 5% in the second month following sale. The
following are budgeted sales data for the company:
Total budgeted cash collections in April would be:
A.
B.
C.
D.
$35,000
$125,000
$210,000
$370,000
AACSB: Analytic
Blooms: Apply
Difficulty: 1 Easy
8-78
40.
Budgeted sales in Acer Corporation over the next four months are given below:
Twenty-five percent of the company's sales are for cash and 75% are on account.
Collections for sales on account follow a stable pattern as follows: 50% of a
month's credit sales are collected in the month of sale, 30% are collected in the
month following sale, and 15% are collected in the second month following sale.
The remainder are uncollectible. Given these data, cash collections for December
should be:
A.
B.
C.
D.
$103,875
$98,125
$136,375
$119,500
Cash collections for December:
AACSB: Analytic
Blooms: Apply
8-79
41.
All of Porter Corporation's sales are on account. Sixty percent of the credit sales
are collected in the month of sale, 25% in the month following sale, and 10% in the
second month following sale. The remainder are uncollectible. The following are
budgeted sales data for the company:
Cash receipts in April are expected to be:
A.
B.
C.
D.
$420,000
$545,000
$605,000
$185,000
Cash collections for April:
AACSB: Analytic
Blooms: Apply
Difficulty: 1 Easy
8-80
42.
Paradise Corporation budgets on an annual basis for its fiscal year. The following
beginning and ending inventory levels (in units) are planned for next year.
*Three pounds of raw material are needed to produce each unit of finished
product.
If Paradise Corporation plans to sell 480,000 units during next year, the number of
units it would have to manufacture during the year would be:
A.
B.
C.
D.
440,000
480,000
510,000
450,000
units
units
units
units
Finished goods:
Beginning inventory + Units produced = Ending inventory + Units sold
80,000 + Units produced = 50,000 + 480,000
Units produced = 50,000 + 480,000 - 80,000 = 450,000
AACSB: Analytic
Blooms: Apply
8-81
43.
Frodic Corporation has budgeted sales and production over the next quarter as
follows:
The company has 4,000 units of product on hand at July 1. 10% of the next
month's sales in units should be on hand at the end of each month. October sales
are expected to be 71,500 units. Budgeted sales for September would be (in
units):
A.
B.
C.
D.
65,000
61,000
55,000
57,000
52,000 + 0.10X - 5,200 = 52,300

0.10X = 5,500
X = 55,000
or
7,150 + X - 0.10X = 56,650
0.90X = 49,500
X = 55,000
AACSB: Analytic
Blooms: Apply
Difficulty: 3 Hard
8-82
44.
JT Department Store expects to generate the following sales for the next three
months:
JT's cost of gods sold is 60% of sales dollars. At the end of each month, JT wants a
merchandise inventory balance equal to 20% of the following month's expected
cost of goods sold. What dollar amount of merchandise inventory should JT plan to
purchase in August?
A.
B.
C.
D.
$257,400
$314,600
$352,800
$327,800
Merchandise Purchases Budget
AACSB: Analytic
Blooms: Apply
8-83
45.
Fab Manufacturing Corporation manufactures and sells stainless steel coffee mugs.
Expected mug sales at Fab (in units) for the next three months are as follows:
Fab likes to maintain a finished goods inventory equal to 30% of the next month's
estimated sales. How many mugs should Fab plan on producing during the month
of November?
A.
B.
C.
D.
23,200
26,800
25,900
34,300
mugs
mugs
mugs
mugs
AACSB: Analytic
Blooms: Apply
Difficulty: 1 Easy
8-84
46.
The following information was taken from the production budget of Paeke
Corporation for next quarter:
How many units is the company expecting to sell in the month of February?
A.
B.
C.
D.
132,000
138,000
135,000
140,000
35,000 + X - 32,000 = 138,000

X = 138,000 - 35,000 + 32,000 = 135,000
AACSB: Analytic
Blooms: Apply
Difficulty: 3 Hard
8-85
47.
On November 1, Barnes Corporation has 8,000 units of Product A on hand. During

the month, the company plans to sell 30,000 units of Product A, and plans to have
6,500 units on hand at end of the month. How many units of Product A must be
produced during the month?
A.
B.
C.
D.
28,500
31,500
30,000
36,500
AACSB: Analytic
Blooms: Apply
Difficulty: 1 Easy
8-86
48.
Mutskic Corporation produces and sells Product BetaC. To guard against stockouts,
the company requires that 30% of the next month's sales be on hand at the end of
each month. Budgeted sales of Product BetaC over the next four months are:
Budgeted production for August would be:
A.
B.
C.
D.
83,000 units
107,000 units
77,000 units
80,000 units
AACSB: Analytic
Blooms: Apply
Difficulty: 1 Easy
8-87
49.
Parsons Corporation plans to sell 18,000 units during August. If the company has
5,500 units on hand at the start of the month, and plans to have 6,000 units on
hand at the end of the month, how many units must be produced during the
month?
A.
B.
C.
D.
24,000
18,500
19,500
17,500
AACSB: Analytic
Blooms: Apply
Difficulty: 1 Easy
50.
Starg Corporation, a retailer, plans to sell 25,000 units of Product X during the
month of August. If the company has 9,000 units on hand at the start of the
month, and plans to have 7,000 units on hand at the end of the month, how many
units of Product X must be purchased from the supplier during the month?
A.
B.
C.
D.
32,000
23,000
27,000
25,000
AACSB: Analytic
Blooms: Apply
Difficulty: 1 Easy
8-88
51.
The following information relates to Marter Manufacturing Corporation for next

quarter:
How many units should the company plan on producing for the month of
February?
A.
B.
C.
D.
360,000
362,000
358,000
398,000
units
units
units
units
AACSB: Analytic
Blooms: Apply
Difficulty: 1 Easy
8-89
52.
Shocker Corporation's sales budget shows quarterly sales for the next year as
follows:
Unit sales
Corporation policy is to have a finished goods inventory at the end of each quarter
equal to 20% of the next quarter's sales. Budgeted production for the second
quarter of the next year would be:
A.
B.
C.
D.
7,200
8,000
8,800
8,400
units
units
units
units
AACSB: Analytic
Blooms: Apply
8-90
53.
The following are budgeted data:
Two pounds of material are required for each finished unit. The inventory of
materials at the end of each month should equal 20% of the following month's
production needs. Purchases of raw materials for May should be:
A.
B.
C.
D.
39,200
52,000
36,800
38,000
pounds
pounds
pounds
pounds
AACSB: Analytic
Blooms: Apply
8-91
54.
G Products, Inc. manufactures garlic gravy. G's production budget indicated the
following units (jars) of gravy to be produced for the upcoming months indicated:
Five grams of garlic are needed for every jar of gravy. G also likes to have enough
garlic on hand at the end of the month to cover 10% of the next month's
production requirements for garlic. How many grams of garlic should G plan on
purchasing during the month of May?
A.
B.
C.
D.
397,500
399,500
407,500
437,500
grams
grams
grams
grams
AACSB: Analytic
Blooms: Apply
8-92
55.
Marst Corporation's budgeted production in units and budgeted raw materials

purchases over the next three months are given below:
Two pounds of raw materials are required to produce one unit of product. The
company wants raw materials on hand at the end of each month equal to 30% of
the following month's production needs. The company is expected to have 30,000
pounds of raw materials on hand on January 1. Budgeted production for February
should be:
A.
B.
C.
D.
60,000 units
54,000 units
84,000 units
108,000 units
Direct Materials Budget
132,000 = 48,000 + 2X - 0.6X

1.4X = 84,000
X = 60,000
AACSB: Analytic
Blooms: Apply
Difficulty: 3 Hard
8-93
56.
The following are budgeted data:
One pound of material is required for each finished unit. The inventory of materials
at the end of each month should equal 20% of the following month's production
needs. Purchases of raw materials for February would be budgeted to be:
A.
B.
C.
D.
19,000
19,200
23,000
18,800
pounds
pounds
pounds
pounds
AACSB: Analytic
Blooms: Apply
8-94
57.
Rhett Corporation manufactures and sells dress shirts. Each shirt (unit) requires 3
yards of cloth. Selected data from Rhett's master budget for next quarter are
shown below:
How many yards of cloth should Rhett plan on purchasing in May?
A.
B.
C.
D.
84,700
96,700
98,100
98,800
yards
yards
yards
yards
AACSB: Analytic
Blooms: Apply
8-95
58.
Prester Corporation has budgeted production for next year as follows:
Two pounds of material A are required for each unit produced. The company has a
policy of maintaining a stock of material A on hand at the end of each quarter
equal to 25% of the next quarter's production needs for material A. A total of
30,000 pounds of material A are on hand to start the year. Budgeted purchases of
material A for the second quarter would be:
A.
B.
C.
D.
145,000
140,000
180,000
135,000
pounds
pounds
pounds
pounds
AACSB: Analytic
Blooms: Apply
Difficulty: 1 Easy
8-96
59.
Milano Corporation is working on its direct labor budget for the next two months.
per direct labor-hour. The production budget calls for producing 6,400 units in
October and 6,300 units in November. If the direct labor work force is fully
adjusted to the total direct labor-hours needed each month, what would be the
total combined direct labor cost for the two months?
A.
B.
C.
D.
$30,870
$31,360
$62,230
$31,115
Direct Labor Budget
AACSB: Analytic
Blooms: Apply
Difficulty: 1 Easy
8-97
60.
Morie Corporation is working on its direct labor budget for the next two months.
per direct labor-hour. The production budget calls for producing 2,000 units in
March and 2,300 units in April. The company guarantees its direct labor workers a
40-hour paid work week. With the number of workers currently employed, that
means that the company is committed to paying its direct labor work force for at
least 1,760 hours in total each month even if there is not enough work to keep
them busy. What would be the total combined direct labor cost for the two
months?
A.
B.
C.
D.
$28,512.00
$26,406.00
$28,228.50
$26,122.50
Direct Labor Budget
AACSB: Analytic
Blooms: Apply
8-98
61.
For July, White Corporation has budgeted production of 6,000 units. Each unit
requires 0.10 direct labor-hours at a cost of $8.50 per direct labor-hour. How much
will White Corporation budget for labor in July?
A.
B.
C.
D.
$51,000
$5,160
$600
$5,100
Direct Labor Budget
AACSB: Analytic
Blooms: Apply
Difficulty: 1 Easy
8-99
62.
Triste Corporation manufactures and sells women's skirts. Each skirt (unit) requires
2.6 yards of cloth. Selected data from Triste's master budget for next quarter are
shown below:
Each unit requires 1.6 hours of direct labor, and the average hourly cost of Triste's
direct labor is $15. What is the cost of Triste Corporation's direct labor in
September?
A.
B.
C.
D.
$336,000
$240,000
$150,000
$210,000
Direct Labor Budget
AACSB: Analytic
Blooms: Apply
8-100
63.
The manufacturing overhead budget at Amrein Corporation is based on budgeted

direct labor-hours. The direct labor budget indicates that 4,900 direct labor-hours
will be required in August. The variable overhead rate is $9.40 per direct laborhour. The company's budgeted fixed manufacturing overhead is $96,040 per
month, which includes depreciation of $7,350. All other fixed manufacturing
overhead costs represent current cash flows. The August cash disbursements for
manufacturing overhead on the manufacturing overhead budget should be:
A.
B.
C.
D.
$88,690
$134,750
$46,060
$142,100
Manufacturing Overhead Budget
AACSB: Analytic
Blooms: Apply
Difficulty: 1 Easy
8-101
64.
The manufacturing overhead budget at Pendley Corporation is based on budgeted

will be required in August. The variable overhead rate is $5.50 per direct laborhour. The company's budgeted fixed manufacturing overhead is $133,500 per
overhead costs represent current cash flows. The company recomputes its
predetermined overhead rate every month. The predetermined overhead rate for
August should be:
A.
B.
C.
D.
$5.50
$17.10
$20.50
$15.00
Manufacturing Overhead Rate
AACSB: Analytic
Blooms: Apply
Difficulty: 1 Easy
8-102
65.
Axsom Inc. bases its manufacturing overhead budget on budgeted direct laborhours. The direct labor budget indicates that 1,300 direct labor-hours will be
required in March. The variable overhead rate is $8.90 per direct labor-hour. The
represent current cash flows. The company recomputes its predetermined
overhead rate every month. The predetermined overhead rate for March should
be:
A.
B.
C.
D.
$22.30
$24.30
$15.40
$8.90
Manufacturing Overhead Rate
AACSB: Analytic
Blooms: Apply
Difficulty: 1 Easy
8-103
66.
Morrish Inc. bases its manufacturing overhead budget on budgeted direct laborhours. The direct labor budget indicates that 7,100 direct labor-hours will be
required in January. The variable overhead rate is $1.80 per direct labor-hour. The
represent current cash flows. The January cash disbursements for manufacturing
overhead on the manufacturing overhead budget should be:
A.
B.
C.
D.
$115,730
$95,850
$12,780
$83,070
Manufacturing Overhead Budget
AACSB: Analytic
Blooms: Apply
Difficulty: 1 Easy
8-104
67.
The selling and administrative expense budget of Ruffing Corporation is based on

budgeted unit sales, which are 4,800 units for February. The variable selling and
administrative expense is $8.10 per unit. The budgeted fixed selling and
administrative expense is $71,520 per month, which includes depreciation of
$16,800 per month. The remainder of the fixed selling and administrative expense
represents current cash flows. The cash disbursements for selling and
administrative expenses on the February selling and administrative expense
budget should be:
A.
B.
C.
D.
$38,880
$54,720
$110,400
$93,600
Selling and Administrative Expense Budget
AACSB: Analytic
Blooms: Apply
Difficulty: 1 Easy
8-105
68.
Vandel Inc. bases its selling and administrative expense budget on budgeted unit
sales. The sales budget shows 6,600 units are planned to be sold in April. The
depreciation of $8,580 per month. The remainder of the fixed selling and
administrative expense represents current cash flows. The cash disbursements for
selling and administrative expenses on the April selling and administrative
expense budget should be:
A.
B.
C.
D.
$191,400
$118,800
$64,020
$182,820
Selling and Administrative Expense Budget
AACSB: Analytic
Blooms: Apply
Difficulty: 1 Easy
8-106
69.
Laurey Inc. is working on its cash budget for May. The budgeted beginning cash
disbursements total $124,000. The desired ending cash balance is $60,000. To
attain its desired ending cash balance for May, the company needs to borrow:
A.
B.
C.
D.
$110,000
$0
$60,000
$10,000
AACSB: Analytic
Blooms: Apply
Difficulty: 1 Easy
70.
Arakaki Inc. is working on its cash budget for January. The budgeted beginning
cash balance is $41,000. Budgeted cash receipts total $114,000 and budgeted
cash disbursements total $113,000. The desired ending cash balance is $60,000.
The excess (deficiency) of cash available over disbursements for January will be:
A.
B.
C.
D.
$42,000
$155,000
$40,000
$1,000
AACSB: Analytic
Blooms: Apply
Difficulty: 1 Easy
8-107
71.
Sparks Corporation has a cash balance of $7,500 on April 1. The company must
maintain a minimum cash balance of $6,000. During April, expected cash receipts
are $48,000. Cash disbursements during the month are expected to total $52,000.
Ignoring interest payments, during April the company will need to borrow:
A.
B.
C.
D.
$3,500
$2,500
$6,000
$4,000
The company will need to borrow $2,500 to maintain its minimum cash balance of
$6,000.
AACSB: Analytic
Blooms: Apply
Difficulty: 1 Easy
72.
For May, Young Corporation has budgeted its cash receipts at $125,000 and its
cash disbursements at $138,000. The company's cash balance on May 1 is
$17,000. If the desired May 31 cash balance is $20,000, then how much cash must
the company borrow during the month (before considering any interest
payments)?
A.
B.
C.
D.
$4,000
$8,000
$12,000
$16,000
The company will need to borrow $16,000 to have an ending cash balance of
$20,000.
AACSB: Analytic
8-108
Blooms: Apply
Difficulty: 1 Easy
73.
Harrti Corporation has budgeted for the following sales:
Sales are collected as follows: 10% in the month of sale; 60% in the month
following the sale; and the remaining 30% in the second month following the sale.
In Razz's budgeted balance sheet at December 31, at what amount will accounts
receivable be shown?
A.
B.
C.
D.
$680,000
$612,000
$826,500
$214,500
AACSB: Analytic
Blooms: Apply
Learning Objective: 08-10 Prepare a budgeted balance sheet.
The Khaki Corporation has the following budgeted sales data:
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.
8-109
74.
The budgeted accounts receivable balance on February 28 would be:
A.
B.
C.
D.
$250,000
$210,000
$175,000
$215,000
AACSB: Analytic
Blooms: Apply
75.
The budgeted cash receipts for April would be:
A.
B.
C.
D.
$350,000
$320,000
$313,000
$383,000
AACSB: Analytic
Blooms: Apply
8-110
Home Corporation will open a new store on January 1. Based on experience from
its other retail outlets, Home Corporation is making the following sales projections:
Home Corporation estimates that 70% of the credit sales will be collected in the
month following the month of sale, with the balance collected in the second month
following the month of sale.
76.
Based on these data, the balance in accounts receivable on January 31 will be:
A.
B.
C.
D.
$40,000
$28,000
$12,000
$58,000
100% $40,000 = $40,000
AACSB: Analytic
Blooms: Apply
Difficulty: 1 Easy
77.
The March 31 balance in accounts receivable will be:
A.
B.
C.
D.
$100,000
$60,000
$95,000
$75,000
AACSB: Analytic
Blooms: Apply
8-111
78.
In a cash budget for April, the total cash receipts will be:
A.
B.
C.
D.
$74,000
$57,000
$114,000
$97,000
AACSB: Analytic
Blooms: Apply
Richards Corporation has the following budgeted sales for the first half of next
year:
The company is in the process of preparing a cash budget and must determine the
expected cash collections by month. To this end, the following information has
been assembled:
The accounts receivable balance on January 1 is $70,000. Of this amount, $60,000

represents uncollected December sales and $10,000 represents uncollected
November sales.
8-112
79.
The total cash collected during January would be:
A.
B.
C.
D.
$270,000
$420,000
$345,000
$360,000
Cash collections for January:
*Accounts receivables representing December credit sales

= $60,000 = (30% + 10%) December credit sales
December credit sales = $60,000 (30% + 10%) = $150,000
AACSB: Analytic
Blooms: Apply
Difficulty: 3 Hard
80.
What is the budgeted accounts receivable balance on May 30?
A.
B.
C.
D.
$81,000
$68,000
$60,000
$141,000
May 30 accounts receivable balance:
AACSB: Analytic
Blooms: Apply
Difficulty: 3 Hard
8-113
Bracken Corporation is a small wholesaler of gourmet food products. Data

regarding the store's operations follow:
The company would like to maintain ending merchandise inventories equal to
70% of the next month's cost of goods sold. Payment for merchandise is made in
the month following the purchase.
Ignore taxes.
81.
Expected cash collections in December are:
A.
B.
C.
D.
$340,000
$328,100
$272,000
$56,100
AACSB: Analytic
Blooms: Apply
Difficulty: 3 Hard
8-114
82.
The cost of December merchandise purchases would be:
A.
B.
C.
D.
$225,000
$178,500
$247,500
$255,000
December merchandise purchases:
AACSB: Analytic
Blooms: Apply
Difficulty: 3 Hard
8-115
83.
December cash disbursements for merchandise purchases would be:
A.
B.
C.
D.
$178,500
$225,000
$255,000
$252,750
In December, the company will pay for November's purchases of $252,750.
AACSB: Analytic
Blooms: Apply
Difficulty: 3 Hard
8-116
84.
The difference between cash receipts and cash disbursements for December would
be:
A.
B.
C.
D.
$34,000
$19,550
$87,550
$53,550
Cash receipts in December:
Cash disbursements for purchases of merchandise inventory in December:
In December, the company will pay for November's purchases of $252,750.
AACSB: Analytic
Blooms: Apply
Difficulty: 3 Hard
8-117
Dilbert Farm Supply is located in a small town in the rural west. Data regarding the
store's operations follow:
The company desires to have an ending merchandise inventory at the end of
each month equal to 60% of the next month's cost of goods sold. Payment for
merchandise is made in the month following the purchase.
Ignore taxes.
85.
Expected cash collections in December are:
A.
B.
C.
D.
$230,000
$184,000
$233,400
$49,400
AACSB: Analytic
Blooms: Apply
Difficulty: 3 Hard
8-118
86.
The cost of December merchandise purchases would be:
A.
B.
C.
D.
$141,700
$169,000
$81,900
$149,500
December merchandise purchases:
AACSB: Analytic
Blooms: Apply
Difficulty: 3 Hard
87.
December cash disbursements for merchandise purchases would be:
A.
B.
C.
D.
$141,700
$149,500
$157,300
$81,900
The company pays for its purchases in the month following purchase, so the cash
disbursements in December would equal the November purchases of $157,300.
AACSB: Analytic
8-119
Blooms: Apply
Difficulty: 3 Hard
88.
The difference between cash receipts and cash disbursements for December would
be:
A.
B.
C.
D.
$55,800
$37,900
$93,700
$17,900
Cash disbursements for merchandise in December:
The company pays for its purchases in the month following purchase, so the cash
disbursements in December would equal the November purchases of $157,300.
Total cash disbursements in December:
AACSB: Analytic
Blooms: Apply
8-120
Difficulty: 3 Hard
89.
The net income for December would be:
A.
B.
C.
D.
$60,200
$37,900
$40,200
$55,800
Budgeted Income Statement
AACSB: Analytic
Blooms: Apply
Difficulty: 3 Hard
Learning Objective: 08-09 Prepare a budgeted income statement.
8-121
90.
The cash balance at the end of December would be:
A.
B.
C.
D.
$180,500
$153,500
$82,800
$27,000
Cash Budget
AACSB: Analytic
Blooms: Apply
Difficulty: 3 Hard
91.
The accounts receivable balance, net of uncollectible accounts, at the end of

December would be:
A.
B.
C.
D.
$46,000
$93,100
$43,700
$81,300
December accounts receivable balance:
AACSB: Analytic
8-122
Blooms: Apply
Difficulty: 3 Hard
92.
Accounts payable at the end of December would be:
A.
B.
C.
D.
$81,900
$141,700
$59,800
$149,500
December accounts payable balance:
AACSB: Analytic
Blooms: Apply
Difficulty: 3 Hard
8-123
93.
Retained earnings at the end of December would be:
A.
B.
C.
D.
$380,400
$418,300
$471,300
$466,400
Budgeted Income Statement
AACSB: Analytic
Blooms: Apply
Difficulty: 3 Hard
The following are budgeted data for the Bingham Corporation, a merchandising
company:
8-124
94.
Assuming that the Bingham Corporation had inventory on hand of $70,000 (at
cost) on January 1, the purchases for January (at cost) would be:
A.
B.
C.
D.
$180,000
$250,000
$263,000
$110,000
AACSB: Analytic
Blooms: Apply
95.
The desired ending inventory (at cost) for February would be:
A.
B.
C.
D.
$180,000
$300,000
$240,000
$160,000
February desired ending inventory = 75% 60% $400,000 = $180,000
AACSB: Analytic
Blooms: Apply
Difficulty: 1 Easy
8-125
96.
Assume that all purchases are paid for in the month following the month of
purchase. The cash disbursements for purchases that would appear in the April
cash budget would be:
A.
B.
C.
D.
$180,000
$157,500
$240,000
$217,500
AACSB: Analytic
Blooms: Apply
Harris, Inc., has budgeted sales in units for the next five months as follows:
Past experience has shown that the ending inventory for each month should be
equal to 20% of the next month's sales in units. The inventory on May 31
contained 1,880 units. The company needs to prepare a production budget for the
next five months.
8-126
97.
The beginning inventory for September should be:
A.
B.
C.
D.
820 units
1,880 units
1,460 units
1,080 units
Beginning inventory for September = Ending inventory for August = 20% of

September's sales
= 20% 5,400 units = 1,080 units
AACSB: Analytic
Blooms: Apply
Difficulty: 1 Easy
98.
The total number of units produced in July should be:
A.
B.
C.
D.
9,260
7,700
7,800
7,900
units
units
units
units
Production Budget
AACSB: Analytic
Blooms: Apply
Difficulty: 1 Easy
8-127
May Corporation, a merchandising firm, has budgeted sales as follows for the third
quarter of the year:
Cost of goods sold is equal to 65% of sales. The company wants to maintain a
monthly ending inventory equal to 130% of the Cost of Goods Sold for the
following month. The inventory on June 30 is less than this ideal since it is only
$65,000. The company is now preparing a Merchandise Purchases Budget.
99.
The desired beginning inventory for September is:
A.
B.
C.
D.
$117,000
$76,050
$91,000
$59,150
Desired beginning inventory for September = 130% 65% $70,000 = $59,150
AACSB: Analytic
Blooms: Apply
Difficulty: 1 Easy
8-128
100. The budgeted purchases for July are:
A.
B.
C.
D.
$52,000
$63,050
$47,450
$91,050
AACSB: Analytic
Blooms: Apply
Noel Enterprises has budgeted sales in units for the next five months as follows:
Past experience has shown that the ending inventory for each month must be
equal to 10% of the next month's sales in units. The inventory on May 31
contained 400 units. The company needs to prepare a production budget for the
second quarter of the year.
8-129
101. The beginning inventory in units for September is:
A.
B.
C.
D.
380 units
460 units
4,600 units
720 units
Beginning inventory for September = Ending inventory for August = 10% of

September sales
= 10% 4,600 units = 460 units
AACSB: Analytic
Blooms: Apply
102. The total number of units to be produced in July is:
A.
B.
C.
D.
5,580
5,400
6,120
5,220
units
units
units
units
Production Budget
AACSB: Analytic
Blooms: Apply
8-130
103. The desired ending inventory for August is:
A.
B.
C.
D.
720
460
540
380
units
units
units
units
Ending inventory for August = 10% of September sales = 10% 4,600 units =
460 units
AACSB: Analytic
Blooms: Apply
Difficulty: 1 Easy
Sarter Corporation is in the process of preparing its annual budget. The following
beginning and ending inventory levels are planned for the year.
Each unit of finished goods requires 3 grams of raw material. The company plans
to sell 880,000 units during the year.
104. The number of units the company would have to manufacture during the year
would be:
A.
B.
C.
D.
900,000
930,000
880,000
830,000
units
units
units
units
Production Budget
AACSB: Analytic
8-131

Blooms: Apply
Difficulty: 1 Easy
105. How much of the raw material should the company purchase during the year?
A.
B.
C.
D.
2,550,000
2,490,000
2,480,000
2,500,000
grams
grams
grams
grams
Production Budget
Materials Budget
AACSB: Analytic
Blooms: Apply
8-132
The TS Corporation has budgeted sales for the year as follows:
The ending inventory of finished goods for each quarter should equal 25% of the
next quarter's budgeted sales in units. The finished goods inventory at the start of
the year is 2,500 units. Four pounds of raw materials are required for each unit
produced. Raw materials on hand at the start of the year total 4,200 pounds. The
raw materials inventory at the end of each quarter should equal 10% of the next
quarter's production needs in material.
106. Scheduled production for the third quarter should be:
A.
B.
C.
D.
14,500
18,500
15,500
13,500
units
units
units
units
AACSB: Analytic
Blooms: Apply
8-133
107. Scheduled purchases of raw materials for the second quarter should be:
A.
B.
C.
D.
50,000
55,800
50,800
55,000
pounds
pounds
pounds
pounds
AACSB: Analytic
Blooms: Apply
Difficulty: 3 Hard
8-134
Roberts Corporation manufactures home cleaning products. One of the products,

Quickclean, requires 2 pounds of Material A and 5 pounds of Material B per unit
manufactured. Material A is purchased from the supplier for $0.30 per pound and
Material B is purchased for $0.50 per pound. The finished goods inventory on hand
at the end of each month should equal 4,000 units plus 25% of the next month's
sales. The raw materials inventory on hand at the end of each month (for either
Material A or Material B) should equal 80% of the following month's production
needs.
The production budget calls for 26,000 units of Quickclean to be manufactured in
June and 32,000 units of Quickclean to be manufactured in July. On May 31 there
will be 41,600 pounds of Material A and 104,000 pounds of Material B in inventory.
108. Assume that on January 1 the inventory of Quickclean was 8,000 units. Expected
sales in January are 14,000 units and expected sales in February are 18,000 units.
The number of units needed to be produced in January would be:
A.
B.
C.
D.
10,500
14,000
14,500
15,000
Production Budget
AACSB: Analytic
Blooms: Apply
8-135
109. The number of pounds of Material A needed for production during June would be:
A.
B.
C.
D.
61,600
51,200
35,600
52,000
Direct Materials Budget: Material A
AACSB: Analytic
Blooms: Apply
110. The number of pounds of Material B to be purchased during June would be:
A.
B.
C.
D.
128,000
130,000
154,000
160,000
Direct Materials Budget: Material A
AACSB: Analytic
Blooms: Apply
8-136
LFM Corporation makes and sells a product called Product WZ. Each unit of Product
WZ requires 3.5 hours of direct labor at the rate of $16.00 per direct labor-hour.
Management would like you to prepare a Direct Labor Budget for June.
111. The budgeted direct labor cost per unit of Product WZ would be:
A.
B.
C.
D.
$4.57
$19.50
$16.00
$56.00
Budgeted direct labor cost = 3.5 direct labor-hours per unit $16.00 per direct
labor-hour = $56.00 per unit
AACSB: Analytic
Blooms: Apply
Difficulty: 1 Easy
112. The company plans to sell 31,000 units of Product WZ in June. The finished goods
inventories on June 1 and June 30 are budgeted to be 100 and 600 units,
respectively. Budgeted direct labor costs for June would be:
A.
B.
C.
D.
$1,764,000
$504,000
$1,708,000
$1,736,000
Direct Labor Budget
AACSB: Analytic
8-137

Blooms: Apply
Cashan Corporation makes and sells a product called a Miniwarp. One Miniwarp
requires 1.5 kilograms of the raw material Jurislon. Budgeted production of
Miniwarps for the next five months is as follows:
The company wants to maintain monthly ending inventories of Jurislon equal to

30% of the following month's production needs. On July 31, this requirement was
not met since only 10,400 kilograms of Jurislon were on hand. The cost of Jurislon
is $4.00 per kilogram. The company wants to prepare a Direct Materials Purchase
Budget for the next five months.
113. The desired ending inventory of Jurislon for September is:
A.
B.
C.
D.
$29,640
$29,520
$44,460
$44,280
Ending inventory of Jurislon for September = 30% of October's production needs =

30% 24,600 units 1.5 kilograms per unit = 11,070 kilograms
Cost of ending inventory of Jurilson = 11,070 kilograms $4.00 per kilogram =
$44,280
AACSB: Analytic
Blooms: Apply
8-138
114. The total cost of Jurislon to be purchased in August is:
A.
B.
C.
D.
$149,860
$252,400
$191,460
$147,000
AACSB: Analytic
Blooms: Apply
Cowles Corporation, Inc. makes and sells a single product, Product R. Three yards
of Material K are needed to make one unit of Product R. Budgeted production of
Product R for the next five months is as follows:
The company wants to maintain monthly ending inventories of Material K equal to

30% of the following month's production needs. On July 31, this requirement was
not met because only 3,500 yards of Material K were on hand. The cost of Material
K is $0.80 per yard. The company wants to prepare a Direct Materials Purchase
Budget for the rest of the year.
8-139
115. The total cost of Material K to be purchased in August is:
A.
B.
C.
D.
$47,650
$38,120
$30,350
$24,280
AACSB: Analytic
Blooms: Apply
116. The desired ending inventory of Material K for September is:
A.
B.
C.
D.
12,750
12,500
13,050
12,150
yards
yards
yards
yards
Desired ending inventory of Material A for March = 30% 14,500 units 3 yards
per unit = 13,050 yards
AACSB: Analytic
Blooms: Apply
Difficulty: 1 Easy
8-140
117. The total needs (i.e., production requirements plus desired ending inventory) of
Material K for November are:
A.
B.
C.
D.
40,800
44,940
37,380
52,410
yards
yards
yards
yards
AACSB: Analytic
Blooms: Apply
Adi Manufacturing Corporation is estimating the following raw material purchases

for the final four months of the year:
At Adi, 30% of raw materials purchases are normally paid for in the month of
purchase. The remaining 70% is paid for in the month following the purchase.
8-141
118. How much cash should Adi expect to pay out for raw material purchases during
November?
A.
B.
C.
D.
$896,000
$392,000
$644,000
$252,000
AACSB: Analytic
Blooms: Apply
Difficulty: 1 Easy
119. In Adi's budgeted balance sheet at December 31, at what amount will accounts
payable for raw materials be shown?
A.
B.
C.
D.
$760,000
$532,000
$228,000
$588,000
Accounts payable = $760,000 70% = $532,000
AACSB: Analytic
Blooms: Apply
Difficulty: 1 Easy
The Gerald Corporation makes and sells a single product called a Clop. Each Clop
requires 1.1 direct labor-hours at $8.20 per direct labor-hour. The direct labor
workforce is fully adjusted each month to the required workload. The company is
preparing a Direct Labor Budget for the first quarter of the year.
8-142
120. The budgeted direct labor cost per Clop is closest to:
A.
B.
C.
D.
$7.45
$8.20
$9.02
$9.76
Direct labor cost per unit = 1.1 direct labor-hours per unit $8.20 per direct laborhour = $9.02 per unit
AACSB: Analytic
Blooms: Apply
Difficulty: 1 Easy
121. If the company has budgeted to produce 20,000 Clops in January, then the
budgeted direct labor cost for January is:
A.
B.
C.
D.
$164,000
$180,400
$172,200
$195,600
Budgeted direct labor cost

= Budgeted production 1.1 direct labor-hours per unit $8.20 per direct laborhour
= 20,000 units 1.1 direct labor-hours per unit $8.20 per direct labor-hour
= 20,000 units $9.02 per unit = $180,400
AACSB: Analytic
Blooms: Apply
Difficulty: 1 Easy
8-143
122. If the budgeted direct labor cost for February is $162,360, then the budgeted
production of Clops for February is:
A.
B.
C.
D.
23,200
21,000
19,800
18,000
units
units
units
units
Budgeted direct labor cost = Budgeted production 1.1 direct labor-hours per unit
$162,360 = Budgeted production 1.1 direct labor-hours per unit $8.20 per
direct labor-hour
$162,360 = Budgeted production $9.02 per unit
Budgeted production = $162,360 $9.02 per unit = 18,000 units
AACSB: Analytic
Blooms: Apply
The LFG Corporation makes and sells a single product, Product T. Each unit of
Product T requires 1.4 direct labor-hours at a rate of $9.80 per direct labor-hour.
The direct labor workforce is fully adjusted each month to the required workload.
LFG Corporation needs to prepare a Direct Labor Budget for the second quarter of
next year.
123. The budgeted direct labor cost per unit of Product T is closest to:
A.
B.
C.
D.
$9.80
$11.83
$7.00
$13.72
Direct labor cost per unit = 1.4 direct labor-hours per unit $9.80 per direct laborhour = $13.72 per unit
AACSB: Analytic
Blooms: Apply
Difficulty: 1 Easy
8-144
124. The company has budgeted to produce 24,000 units of Product T in June. The
finished goods inventories on June 1 and June 30 were budgeted at 600 and 800
units, respectively. Budgeted direct labor costs for June would be:
A.
B.
C.
D.
$332,024
$329,280
$235,200
$326,536
Budgeted direct labor cost

= Budgeted production 1.4 direct labor-hours per unit $9.80 per direct laborhour
= 24,000 units 1.4 direct labor-hours per unit $9.80 per direct labor-hour
= 24,000 units $13.72 per unit = $329,280
AACSB: Analytic
Blooms: Apply
The Covey Corporation is preparing its Manufacturing Overhead Budget for the
fourth quarter of the year. The budgeted variable manufacturing overhead rate is
$4.00 per direct labor-hour; the budgeted fixed manufacturing overhead is
$64,000 per month, of which $18,000 is factory depreciation.
125. If the budgeted direct labor time for October is 8,000 hours, then the total
budgeted manufacturing overhead for October is:
A.
B.
C.
D.
$96,000
$78,000
$64,000
$76,000
Budgeted manufacturing overhead = $64,000 + ($4.00 per direct labor-hour

8,000 direct labor-hours)
= $64,000 + $32,000 = $96,000
AACSB: Analytic
Blooms: Apply
Difficulty: 1 Easy
8-145
126. If the budgeted cash disbursements for manufacturing overhead for November are
$90,000, then the budgeted direct labor-hours for November must be:
A.
B.
C.
D.

Budgeted cash disbursements = ($64,000 - $18,000) + ($4.00 per direct laborhour X)

$90,000 = ($64,000 - $18,000) + ($4.00 per direct labor-hour X)
$90,000 = $46,000 + ($4.00 per direct labor-hour X)
$4.00 per direct labor-hour X = $44,000
X = $44,000 $4.00 per direct labor-hour
X = 11,000 direct labor-hours
AACSB: Analytic
Blooms: Apply
Difficulty: 3 Hard
127. If the budgeted direct labor time for December is 4,000 hours, then the average
budgeted manufacturing overhead per direct labor-hour is:
A.
B.
C.
D.
$16.00
$15.50
$20.00
$24.50
per
per
per
per
direct
direct
direct
direct
labor-hour
labor-hour
labor-hour
labor-hour
Budgeted manufacturing overhead = $64,000 + ($4.00 per direct labor-hour

4,000 direct labor-hours)
= $64,000 + $16,000 = $80,000
Average budgeted manufacturing overhead per unit = $80,000 4,000 per direct
labor-hour
= $20 per direct labor-hour
AACSB: Analytic
Blooms: Apply
8-146
Cartier Inc. bases its manufacturing overhead budget on budgeted direct laborhours. The variable overhead rate is $5.80 per direct labor-hour. The company's
current cash flows. The direct labor budget indicates that 3,300 direct labor-hours
will be required in April.
128. The April cash disbursements for manufacturing overhead on the manufacturing
A.
B.
C.
D.
$59,070
$46,200
$27,060
$19,140
AACSB: Analytic
Blooms: Apply
Difficulty: 1 Easy
129. The company recomputes its predetermined overhead rate every month. The
predetermined overhead rate for April should be:
A.
B.
C.
D.

AACSB: Analytic
8-147

Blooms: Apply
Difficulty: 1 Easy
Davey Corporation is preparing its Manufacturing Overhead Budget for the fourth
quarter of the year. The budgeted variable manufacturing overhead rate is $3.00
per direct labor-hour; the budgeted fixed manufacturing overhead is $66,000 per
month, of which $10,000 is factory depreciation.
130. If the budgeted direct labor time for October is 6,000 hours, then the total
budgeted manufacturing overhead for October is:
A.
B.
C.
D.
$28,000
$56,000
$74,000
$84,000
AACSB: Analytic
Blooms: Apply
Difficulty: 1 Easy
8-148
131. If the budgeted direct labor time for November is 9,000 hours, then the total
budgeted cash disbursements for manufacturing overhead for November must be:
A.
B.
C.
D.
$56,000
$83,000
$37,000
$93,000
AACSB: Analytic
Blooms: Apply
132. If the budgeted direct labor time for December is 4,000 hours, then the
predetermined manufacturing overhead per direct labor-hour for December would
be:
A.
B.
C.
D.
$3.00
$19.50
$5.50
$17.00
AACSB: Analytic
Blooms: Apply
8-149
The manufacturing overhead budget at Cardera Corporation is based on budgeted

will be required in January. The variable overhead rate is $1.00 per direct laborhour. The company's budgeted fixed manufacturing overhead is $28,060 per
overhead costs represent current cash flows.
133. The company recomputes its predetermined overhead rate every month. The
predetermined overhead rate for January should be:
A.
B.
C.
D.

AACSB: Analytic
Blooms: Apply
Difficulty: 1 Easy
8-150
134. The January cash disbursements for manufacturing overhead on the

manufacturing overhead budget should be:
A.
B.
C.
D.
$30,360
$2,300
$23,460
$25,760
AACSB: Analytic
Blooms: Apply
Difficulty: 1 Easy
Poriss Corporation makes and sells a single product called a Yute. The company is
in the process of preparing its Selling and Administrative Expense Budget for the
last quarter of the year. The following budget data are available:
incurred.
8-151
135. If the company has budgeted to sell 19,000 Yutes in November, then the total
budgeted selling and administrative expenses for November would be:
A.
B.
C.
D.
$546,000
$280,000
$266,000
$536,000
Total selling and administrative expenses = Fixed selling and administrative

expenses + (Variable selling and administrative expenses per unit Units sold)
= $280,000 + ($14.00 per unit 19,000 units)
= $280,000 + $266,000
= $546,000
AACSB: Analytic
Blooms: Apply
8-152
136. If the company has budgeted to sell 16,000 Yutes in December, then the budgeted
total cash disbursements for selling and administrative expenses for December
would be:
A.
B.
C.
D.
$280,000
$494,000
$224,000
$504,000
Selling and administrative expenses budget:
AACSB: Analytic
Blooms: Apply
8-153
137. If the total budgeted selling and administrative expense for October is $459,200,
then how many Yutes does the company plan to sell in October?
A.
B.
C.
D.
13,300
12,500
13,000
12,800
units
units
units
units
Total selling and administrative expenses = Fixed selling and administrative

expenses + (Variable selling and administrative expenses per unit Units sold)
$459,200 = $280,000 + ($14.00 per unit Units sold)
$14.00 per unit Units sold = $459,200 - $280,000
$14.00 per unit Units sold = $179,200
Units sold = $179,200 $14.00 per unit = 12,800 units
AACSB: Analytic
Blooms: Apply
Difficulty: 3 Hard
The Prattle Corporation makes and sells only one product called a Deb. The
company is in the process of preparing its Selling and Administrative Expense
Budget for next year. The following budget data are available:
incurred.
8-154
138. If the company has budgeted to sell 17,000 Debs in January, then the total
budgeted variable selling and administrative expenses for January will be:
A.
B.
C.
D.
$34,000
$39,100
$18,700
$25,500
Budgeted variable selling and administrative expense = $2.30 per unit 17,000
units = $39,100
AACSB: Analytic
Blooms: Apply
Difficulty: 1 Easy
139. If the company has budgeted to sell 16,000 Debs in February, then the total
budgeted fixed selling and administrative expenses for February is:
A.
B.
C.
D.
$75,000
$70,000
$110,000
$100,000
AACSB: Analytic
Blooms: Apply
Difficulty: 1 Easy
8-155
140. If the company has budgeted to sell 20,000 Debs in March, then the average
budgeted selling and administrative expenses per unit sold for March is closest to:
A.
B.
C.
D.
$7.80
$9.00
$8.50
$6.80
per
per
per
per
unit
unit
unit
unit
Budgeted selling and administrative expenses = $110,000 + ($2.30 per unit

20,000 units)
= $110,000 + $46,000 = $156,000
Average selling and administrative expense per unit = $156,000 20,000 units =
$7.80 per unit
AACSB: Analytic
Blooms: Apply
8-156
141. If the budgeted cash disbursements for selling and administrative expenses for
April total $144,390, then how many Debs does the company plan to sell in April?
A.
B.
C.
D.
17,500
18,250
20,000
19,300
units
units
units
units
Budgeted cash disbursements for selling and administrative expenses = ($110,000

- $10,000) + ($2.30 per unit Number of units sold)
$144,390 = ($110,000 - $10,000) + ($2.30 per unit Number of units sold)
$144,390 = $100,000 + ($2.30 per unit Number of units sold)
$2.30 per unit Number of units sold = $144,390 - $100,000
$2.30 per unit Number of units sold = $44,390
Number of units sold = $44,390 $2.30 per unit = 19,300 units
AACSB: Analytic
Blooms: Apply
Difficulty: 3 Hard
Rogers Corporation is preparing its cash budget for July. The budgeted beginning
cash balance is $25,000. Budgeted cash receipts total $141,000 and budgeted
cash disbursements total $139,000. The desired ending cash balance is $30,000.
8-157
142. The excess (deficiency) of cash available over disbursements for July is:
A.
B.
C.
D.
$23,000
$2,000
$166,000
$27,000
AACSB: Analytic
Blooms: Apply
Difficulty: 1 Easy
143. To attain its desired ending cash balance for July, the company should borrow:
A.
B.
C.
D.
$30,000
$0
$3,000
$57,000
AACSB: Analytic
Blooms: Apply
Difficulty: 1 Easy
Muecke Inc. is working on its cash budget for April. The budgeted beginning cash
8-158
144. The excess (deficiency) of cash available over disbursements for April will be:
A.
B.
C.
D.
$32,000
$190,000
$48,000
($8,000)
AACSB: Analytic
Blooms: Apply
Difficulty: 1 Easy
145. To attain its desired ending cash balance for April, the company needs to borrow:
A.
B.
C.
D.
$18,000
$0
$50,000
$82,000
AACSB: Analytic
Blooms: Apply
Difficulty: 1 Easy
8-159
The Adams Corporation, a merchandising firm, has budgeted its activity for
November according to the following information:
Sales at $450,000, all for cash.
Merchandise inventory on October 31 was $200,000.
The cash balance November 1 was $18,000.
Selling and administrative expenses are budgeted at $60,000 for November and
are paid for in cash.
Budgeted depreciation for November is $25,000.
The planned merchandise inventory on November 30 is $230,000.
The cost of goods sold is 70% of the selling price.
All purchases are paid for in cash.
There is no interest expense or income tax expense.
146. The budgeted cash receipts for November are:
A.
B.
C.
D.
$315,000
$450,000
$135,000
$475,000
Sales were all for cash and were $450,000.
AACSB: Analytic
Blooms: Apply
Difficulty: 1 Easy
147. The budgeted cash disbursements for November are:
A.
B.
C.
D.
$345,000
$375,000
$530,000
$405,000
AACSB: Analytic
Blooms: Apply
8-160
148. The budgeted net income for November is:
A.
B.
C.
D.
$50,000
$68,000
$75,000
$135,000
AACSB: Analytic
Blooms: Apply
8-161
Carter Lumber sells lumber and general building supplies to building contractors in
a medium-sized town in Montana. Data regarding the store's operations follow:
The company desires to have an ending merchandise inventory equal to 80% of
the following month's cost of goods sold. Payment for merchandise is made in the
Ignore taxes.
149. The net income for December would be:
A.
B.
C.
D.
$114,500
$94,500
$101,400
$82,800
AACSB: Analytic
Blooms: Apply
8-162
Difficulty: 3 Hard
150. The cash balance at the end of December would be:
A.
B.
C.
D.
$182,400
$114,400
$13,000
$195,400
AACSB: Analytic
Blooms: Apply
Difficulty: 3 Hard
151. The accounts receivable balance, net of uncollectible accounts, at the end of
December would be:
A.
B.
C.
D.
$105,300
$88,700
$117,000
$207,900
December accounts receivable balance = 27% of December sales = 27%

$390,000 = $105,300
AACSB: Analytic
Blooms: Apply
8-163
Difficulty: 3 Hard
152. Accounts payable at the end of December would be:
A.
B.
C.
D.
$253,500
$50,700
$208,000
$258,700
Since purchases are paid in the month following purchase, the accounts payable at
the end of December should be $258,700.
AACSB: Analytic
Blooms: Apply
Difficulty: 3 Hard
8-164
153. Retained earnings at the end of December would be:
A.
B.
C.
D.
$259,600
$342,400
$422,000
$445,100
AACSB: Analytic
Blooms: Apply
Difficulty: 3 Hard
Essay Questions
8-165
154. Caprice Corporation is a wholesaler of industrial goods. Data regarding the store's
operations follow:
The company desires an ending merchandise inventory equal to 60% of the cost
of goods sold in the following month. Payment for merchandise is made in the
The November beginning balance in the accounts receivable account is $78,000.
The November beginning balance in the accounts payable account is $254,000.
Required:
AACSB: Analytic
Blooms: Apply
8-166
8-167
155. Clay Corporation has projected sales and production in units for the second quarter
of the coming year as follows:
Cash-related production costs are budgeted at $5 per unit produced. Of these

production costs, 40% are paid in the month in which they are incurred and the
balance in the following month. Selling and administrative expenses will amount to
$100,000 per month. The accounts payable balance on March 31 totals $190,000,
which will be paid in April.
All units are sold on account for $14 each. Cash collections from sales are
budgeted at 60% in the month of sale, 30% in the month following the month of
sale, and the remaining 10% in the second month following the month of sale.
Accounts receivable on April 1 totaled $500,000 ($90,000 from February's sales
and $410,000 from March's sales).
Required:
a. Prepare a schedule for each month showing budgeted cash disbursements for
Clay Corporation.
b. Prepare a schedule for each month showing budgeted cash receipts for Clay
Corporation.
a.
Cash disbursements:
*Payments relating to the prior month (March) in April represent the balance of
accounts payable at March 31.
8-168
b.
Cash receipts:
*$410,000 = 0.40 March sales

March sales = $410,000 0.40 = $1,025,000
March sales collected in April = 0.30 $1,025,000 = $307,500
March sales collected in May = 0.10 $1,025,000 = $102,500
**0.60 $700,000; 0.30 $700,000; 0.10 $700,000
***0.60 $560,000; 0.30 $560,000
****0.60 $840,000
AACSB: Analytic
Blooms: Apply
Difficulty: 3 Hard
8-169
156. Mate Boomerang Corporation manufactures and sells plastic boomerangs.

Expected boomerang sales (in units) for the upcoming months are as follows:
Mate likes to maintain a finished goods inventory equal to 10% of the next month's
estimated sales. Seven ounces of plastic resin are needed to produce every
boomerang. Mate likes to have enough plastic resin on hand at the end of the
month to cover 25% of the next month's production requirements.
Required:
How many ounces of plastic resin should Mate plan on purchasing during the
month of October?
Production Budget
AACSB: Analytic
Blooms: Apply
Difficulty: 3 Hard
8-170
8-171
8-172
157. Weldon Industrial Gas Corporation supplies acetylene and other compressed gases
to industry. Data regarding the store's operations follow:
The company desires an ending merchandise inventory equal to 60% of the cost
of goods sold in the following month.
Payment for merchandise is made in the month following the purchase.
Ignore taxes.
Required:
c. Prepare Cash Budgets for November and December.
d. Prepare Budgeted Income Statements for November and December.
e. Prepare a Budgeted Balance Sheet for the end of December.
8-173
AACSB: Analytic
Blooms: Apply
Difficulty: 3 Hard
8-174

158. The following information is budgeted for McCracken Plumbing Supply Corporation
for next quarter:
All sales at McCracken are on credit. Forty percent are collected in the month of
sale, 58% in the month following the sale, and the remaining 2% are uncollectible.
Merchandise purchases are paid in full the month following the month of purchase.
The selling and administrative expenses above include $8,000 of depreciation on
display fixtures and warehouse equipment. All other selling and administrative
expenses are paid as incurred. McCracken wants to maintain a cash balance of
$15,000. Any amount below this can be borrowed from a local bank as needed in
increments of $1,000. All borrowings are made at month end.
Required:
Prepare McCracken's cash budget for May. McCracken expects to have $24,000 of
cash on hand at the beginning of May.
AACSB: Analytic
Blooms: Apply
8-175

8-176
8-177
159. The Fraley Corporation, a merchandising firm, has planned the following sales for
the next four months:
Sales are made 40% for cash and 60% on account. From experience, the company
has learned that a month's sales on account are collected according to the
following pattern:
The company requires a minimum cash balance of $4,000 to start a month.

Required:
a. Compute the budgeted cash receipts for June.
b. Assume the following budgeted data for June:
Using this data, along with your answer to part (a) above, prepare a cash budget
for June. Clearly show any borrowing needed during the month. The company can
borrow in any dollar amount, but will not pay any interest until the following
month.
8-178
AACSB: Analytic
Blooms: Apply
8-179
160. Bredder Supply Corporation manufactures and sells cotton gauze. Expected sales
of gauze (in boxes) for upcoming months are as follows:
Management likes to maintain a finished goods inventory equal to 20% of the next
month's estimated sales.
Required:
Prepare the company's production budget for the third quarter of this year (the
months of July, August and September). Include a column for each month and a
total column for the entire quarter.
AACSB: Analytic
Blooms: Apply
Difficulty: 1 Easy
8-180
8-181
161. A sales budget is given below for one of the products manufactured by the OMI
Co.:
The inventory of finished goods at the end of each month must equal 20% of the
next month's sales. However, on December 31 the finished goods inventory
totaled only 4,000 units.
Each unit of product requires three pounds of specialized material. Since the
production of this specialized material by OMI's suppliers is sometimes irregular,
the company has a policy of maintaining an ending inventory at the end of each
month equal to 30% of the next month's production needs. This requirement had
been met on January 1 of the current year.
Required:
a. Prepare a budget showing the required production each month for January,
February, March, and April.
b. Prepare a budget showing the quantity of switches to be purchased each month
for January, February, and March.
a. The company's production budget is as follows:
b. The materials purchase budget (based on the above production budget) would
be as follows:
8-182
AACSB: Analytic
Blooms: Apply
8-183
162. Chow Corporation manufactures children's chairs made of PVS plastic tubing and
heavy canvas material. Each chair requires eight feet of the PVC tubing and three
yards of material. Budgeted sales are 20,000 chairs for June, 25,000 chairs for July
and 30,000 chairs for August. Ending finished goods inventory is budgeted at 10%
of the current month's sales. Ending materials inventories are budgeted at 10% of
the current month's production.
Required:
a. Prepare a production budget for each of the months of June, July and August.
Assume the beginning inventory of chairs in June will be 2,500 units.
b. Prepare schedules showing purchase requirements for PVC tubing and for
material for each of the months of June, July and August. Assume 16,000 feet of
PVC tubing and 6,000 yards of material are on hand at the beginning of June.
AACSB: Analytic
Blooms: Apply
8-184
163. Two yards of a fabric are required for each blouse produced by Northern Shirt
Corporation. The cost of the fabric is $4 per yard. Budgeted production of blouses
is given below for the fourth quarter and the first month of the following quarter.
To prevent against stock outs of the fabric, the company maintains an ending
inventory each month equal to 10% of the next month's production needs. The
beginning inventory of the fabric in October will be 3,600 yards.
Required:
Prepare a direct materials budget for the fabric, by month and in total for the
fourth quarter. Be sure to include both the quantity to be purchased and its cost
for each month.
AACSB: Analytic
Blooms: Apply
Difficulty: 1 Easy
8-185
164. The production department of Tadris Corporation has submitted the following
forecast of units to be produced by quarter for the upcoming fiscal year.
Each unit requires 0.25 direct labor-hours at $18.00 per hour.

Required:
Prepare a direct labor budget for the upcoming fiscal year, assuming that the
direct labor work force is adjusted each quarter to match the number of hours
required to produce the budgeted production.
AACSB: Analytic
Blooms: Apply
Difficulty: 1 Easy
8-186
165. Rehmer Corporation is working on its direct labor budget for the next two months.
per direct labor-hour. The production budget calls for producing 2,600 units in June
and 2,100 units in July.
Required:
Construct the direct labor budget for the next two months, assuming that the
direct labor work force is fully adjusted to the total direct labor-hours needed each
month.
AACSB: Analytic
Blooms: Apply
Difficulty: 1 Easy
8-187
166. Kouba Corporation is working on its direct labor budget for the next two months.
per direct labor-hour. The production budget calls for producing 4,000 units in April
and 3,400 units in May. The company guarantees its direct labor workers a 40-hour
paid work week. With the number of workers currently employed, that means that
the company is committed to paying its direct labor work force for at least 920
hours in total each month even if there is not enough work to keep them busy.
Required:
Construct the direct labor budget for the next two months.
AACSB: Analytic
Blooms: Apply
8-188
167. The direct labor budget of Faier Corporation for the upcoming year contains the
following details concerning budgeted direct labor-hours.
The company's variable manufacturing overhead rate is $3.50 per direct laborhour, and the company's fixed manufacturing overhead is $65,000 per quarter.
The only noncash item included in the fixed manufacturing overhead is
depreciation which is $22,000 per quarter.
Required:
Prepare Faier Corporation's manufacturing overhead budget for the upcoming
fiscal year. Show both manufacturing overhead expense and cash disbursements
for manufacturing overhead.
AACSB: Analytic
Blooms: Apply
Difficulty: 1 Easy
8-189
168. Edgington Inc. bases its manufacturing overhead budget on budgeted direct laborhours. The variable overhead rate is $4.90 per direct labor-hour. The company's
current cash flows. The November direct labor budget indicates that 3,700 direct
labor-hours will be required in that month.
Required:
b. Determine the predetermined overhead rate for November.
AACSB: Analytic
Blooms: Apply
Difficulty: 1 Easy
8-190
169. The manufacturing overhead budget of Paparella Corporation is based on

budgeted direct labor-hours. The November direct labor budget indicates that
6,000 direct labor-hours will be required in that month. The variable overhead rate
is $2.00 per direct labor-hour. The company's budgeted fixed manufacturing
overhead is $79,200 per month, which includes depreciation of $21,000. All other
fixed manufacturing overhead costs represent current cash flows.
Required:
Show your work!
b. Determine the predetermined overhead rate for November. Show your work!
AACSB: Analytic
Blooms: Apply
Difficulty: 1 Easy
8-191
170. The selling and administrative expense budget of Gullette Corporation is based on
the number of units sold, which are budgeted to be 2,700 units in April. The
depreciation of $7,290. The remainder of the fixed selling and administrative
expense represents current cash flows.
Required:
Prepare the selling and administrative expense budget for April.
AACSB: Analytic
Blooms: Apply
Difficulty: 1 Easy
8-192
171. Skeete Inc. bases its selling and administrative expense budget on the number of
units sold. The variable selling and administrative expense is $1.70 per unit. The
budgeted fixed selling and administrative expense is $57,720 per month, which
includes depreciation of $9,360. The remainder of the fixed selling and
administrative expense represents current cash flows. The sales budget shows
3,900 units are planned to be sold in November.
Required:
Prepare the selling and administrative expense budget for November.
AACSB: Analytic
Blooms: Apply
Difficulty: 1 Easy
8-193
172. Parliman Corporation is preparing its cash budget for August. The budgeted
beginning cash balance is $12,000. Budgeted cash receipts total $159,000 and
budgeted cash disbursements total $162,000. The desired ending cash balance is
$20,000. The company can borrow up to $160,000 at any time from a local bank,
with interest not due until the following month.
Required:
Prepare the company's cash budget for August in good form.
AACSB: Analytic
Blooms: Apply
Difficulty: 1 Easy
8-194
173. Freet Inc. is preparing its cash budget for November. The budgeted beginning cash
company can borrow up to $170,000 at any time from a local bank, with interest
not due until the following month.
Required:
Prepare the company's cash budget for November in good form. Make sure to
indicate what borrowing, if any, would be needed to attain the desired ending cash
balance.
AACSB: Analytic
Blooms: Apply
Difficulty: 1 Easy
8-195

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Test Bank ch8

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Professional exam adapted

LO10:Budgeted balance sheet

LO9: Budgeted income statement

LO8: Cash budget

LO7: Selling & administrative budget

LO5: Direct labor budget

LO4: Direct materials budget

LO3: Production budget

LO6: Manufacturing overhead budget

LO2: Sales budget

LO1: Budget process

Single Part M/C

True / False Questions

2. The manufacturing overhead budget is typically prepared before the production

3. Self-imposed budgets prepared by lower-level managers should be scrutinized by

5. Budgets are used to plan and to control operations.

6. The sales budget is usually prepared before the production budget.

7. A continuous or perpetual budget is a budget that almost never needs to be revised.

9. In business, a budget is a method for putting a limit on spending.

11. A benefit of self-imposed budgeting is that it may allow lower-level managers to

13. One disadvantage of a self-imposed budget is that budget estimates prepared by

Multiple Choice Questions

Sales Budget, Budgeted Balance Sheet, Budgeted Income Statement

29. Which of the following is NOT an objective of the budgeting process?

A. To communicate management's plans throughout the entire organization.

budgeted sales + beginning inventory + desired ending inventory.

34. The direct labor budget is based on:

the desired ending inventory of finished goods.

35. Which of the following might be included as a disbursement on a cash budget?

Budgeted cash collections in June would be:

Total budgeted cash collections in April would be:

Cash receipts in April are expected to be:

Budgeted production for August would be:

53. The following are budgeted data:

56. The following are budgeted data:

How many yards of cloth should Rhett plan on purchasing in May?

63. The manufacturing overhead budget at Amrein Corporation is based on budgeted

64. The manufacturing overhead budget at Pendley Corporation is based on budgeted

73. Harrti Corporation has budgeted for the following sales:

The Khaki Corporation has the following budgeted sales data:

75. The budgeted cash receipts for April would be:

77. The March 31 balance in accounts receivable will be:

The accounts receivable balance on January 1 is $70,000. Of this amount, $60,000

80. What is the budgeted accounts receivable balance on May 30?

Bracken Corporation is a small wholesaler of gourmet food products. Data regarding

81. Expected cash collections in December are:

82. The cost of December merchandise purchases would be:

83. December cash disbursements for merchandise purchases would be:

85. Expected cash collections in December are:

86. The cost of December merchandise purchases would be:

87. December cash disbursements for merchandise purchases would be:

89. The net income for December would be:

90. The cash balance at the end of December would be:

92. Accounts payable at the end of December would be:

93. Retained earnings at the end of December would be:

98. The total number of units produced in July should be:

100 The budgeted purchases for July are:

101 The beginning inventory in units for September is:

102 The total number of units to be produced in July is:

103 The desired ending inventory for August is:

The TS Corporation has budgeted sales for the year as follows:

Roberts Corporation manufactures home cleaning products. One of the products,