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Date:

Name:

1 . All the following are consideredto be benefitsof participativebudgeting,exceptfor:

A) Individuals at all organrzationallevels arerecognizedas being part of a team; this
results in greatersupport for the organization.
B) The budget estimatesare preparedby thosein directly involved in activities.
When managersset their own targets for the budget, top managementneed not be
concernedwith the overall profitability of operations.
D) Managersare held responsiblefor reachingtheir goalsand cannoteasily shift
responsibilityby blaming unrealisticgoalssetby others.

2. The direct labor budget is basedon:

A) the desiredending inventory of finished goods.
B) the beginninginventory of finished goods.
@\ tn" req".riredproduction for the period.
b/ ttre required materials purchasesfor the period.

ao

3. Thirty percentof SharpCompany'ssalesare for cash and70Yoare on account.Sixty

percentof the accountsalesare collectedin the month of sale,25o/orn the month
following sale,and l2o/oin the secondmonth following sale.The remainderis
uncollectible.The following are budgetedsalesdata for the company:
April
Jarutary February March
Total sales
$50,000 $60,000 $40,000 $30,000
V1',odo 2{ado '7t,aa0
A (C(
J|,ooo
Total cashreceiptsin April are expectedto be:'

A) $24,640
B) $ 3 5 ,2 0 0
c) $ 3 1 ,5 6 0

$33,640

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4. Razz Companyis estimatingthe following sales:

Ju|y..........
August
September
October.....
November
December

$45,000
.. $50,000
$65,000
$80,000
$75,000
S60.000

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914od,

7 { Sp.:

Salesat Razz arenormally collectedas follows: l0o/oin the month of sale;600/ornthe

month following the sale;and the remaining 30Yoin the secondmonth following the
sale.In Razz'sbudgetedbalancesheetat December31, at what amountwill accounts
receivablebe shown?

H $49,soo

{B/ S76,s00

f) sr2o.soo
D) $135,500

5. Villi ManufacturingCorporation'smost recentsalesbudget indicatesthe following

expectedsales(in units):
Attgust September
July
230,000
275,00A
310,000
Expectedunit sales..
Sloo0
Villi wants to maintain a finished goodsinventory of 20o/oof the next month'sexpected
sales.How many units shouldVilli plan on producingfor the month of August?

AJ 268,000units

fd

- 9{ aoo

282,ooo
units

\6t 291.ooo
units
D) 337.000units

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6. Rhett Company manufacturesand sells dressshirts. Each shirt (unit) requires 3 yards of
cloth. Selecteddata from Rhett's masterbudget for next quarter are shown below:

Budgetedsales(in units)
Budgetedproduction(in units)
Desiredending inventory of cloth (in yards)

April
May
June
26,000 28,000 32,000
28,000 32,000 36,000
2,100 2,800 3,000

How many yards of cloth should Rhett plan on purchasingin May?

l-l
@4
C)
D)

84,700yards
96,700yards
98,100yards
98,800yards

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7 . For May, Young Companyhasbudgetedits cashreceiptsat $125,000and its cash

disbursementsat $138,000.The company'scashbalanceon May 1 is $17,000.If the
desired May 31 cashbalanceis $20,000,then how much cashmust the companyborrow
duri ng themonth(beforeconsidering
anyinterestpayments)?
l 7 , o oo
A) $4,000
t ? 5 oo--g
B) $8,000
000
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C) $ 1 2 ,0 0 0

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@ $1 6 .0 0 0

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8. Which of the following budgets are preparedbefore the production budget?

A)
B)

Direct Materials
Budget
Yes
Yes

SalesBttdget
Yes
No

No

Yes

No

No

D)
A)
B)
C)
D)

2,*, rlao

Item A
Item B
Item C
Item D

Use the following to answerquestion9:

LFM Corporationmakesand sells a product called ProductWZ.Eachunit of ProductWZ
requires3.5 hours of direct labor at the rate of $16.00per direct labor-hour.Managementwould
like you to prepare a Direct Labor Budget for June.

9. The budgeteddirect labor costper unit of ProductWZ would be:

A) $4.s7

B)$1e.s0

3 .,

Q $16.00

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Use the following to answerquestion10:
Davey Corporation is preparing its Manufacturing OverheadBudget for the fourth quarter of the
year. The budgetedvariable factory overheadrate is $3.00 per direct labor-hour; the budgeted
fixed factory overheadis $66,000per month, of which $10,000is factory depreciation.

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10. If the budgeteddirect labor time for Decemberis 4,000 hours,then the predetermined
factory overheadper direct labor-hourfor Decemberwould be:

A ) $ 3 .0 0

(6) $1e.50
U $5.50
D) $17.00

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Use the following to answerquestions11-12:

The Ellis Companyhasbudgetedits activity for Septemberaccordingto the following

information:
- Salesarebudgetedat $392,000and all salesare for cash.
- All purchasesof merchandiseinventory are for cash.Merchandiseinventory was $150,000on
August 31 and the plannedmerchandiseinventory on September30 is $140,000.All
merchandiseis sold at 40o/oabovecost.
- The selling and administrativeexpensesarebudgetedat $92,000for the month. All of these
expensesarepaid for in cashexceptfor depreciationof $12,000.

l l . J \ e b u d g e te d n e ti n co mefor September is:

(el szo,ooo

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D) $64,800

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A) $140,000
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B)
b)
$ZIU,UUU
$270,000

Q
l : :$362,000
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Use the following to answerquestion 13:

Carter Lumber sells lumber and generalbuilding supplies to building contractorsin a mediumsizedtown in Montana.Data regardingthe store'soperationsfollow:
o Salesarebudgetedat $380,000for November, $390,000for December,and $400,000for
January.
o Collectionsare expectedtobeT0o/oin the month of sale,27o/ointhe month following the sale,
and 3o/ouncoll ectible.
o The costofgoods sold is 65Yoofsales.
o The company purchases80% of its merchandisein the month prior to the month of sale and
20o/orn the month of sale.Paymentfor merchandiseis made in the month followins the
"?"t
purchase.
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o Othermonthly expensesto be paid in cash are$22,000.
L651000 tul.6oo
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o Monthly depreciationis $20,000.
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o Isnore taxes.
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Statementof Financial Position

October31

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Assets
Cash..........
Accountsreceivable
(net of allowancefbr uncollectibleaccounts)
Inventory
Property,plant and equipment
(net of $502,000accumulateddepreciation)...........
Total assets
Liabilities and Stockholders'Equity
Accountspayable
Commonstock........
Retainedearnings
Total liabilities and stockholders'equity

13,000
77,04A
1g'7,600

992.000
$1279'600
$ 240,000
780,000
2s9.600

$t-2?9500

13. Retainedearningsat the end of Decemberwould be:

A) $259,600
B) $342,400
c) s422,000
D) $445,100
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Page5

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Use the following to answerquestion 13:

Carter Lumber sells lumber and generalbuilding supplies to building contractorsin a mediumsizedtown in Montana.Data regardingthe store'soperationsfollow:
o Salesarebudgetedat $380,000for November,$390,000for December,and $400,000for
January.
o Collectionsare expectedtobe 7}Yo in the month of sale,27o/oin the month following the sale,
atd 3Youncollectible.
o The costof goodssold is 650%of sales.
o The companypurchases80% of its merchandisein the month prior to the month of saleand
20Yorn the month of sale.Paymentfor merchandiseis made in the month followine the
purchase.
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o Othermonthly expensesto be paid in cashare $22,000.
tu}.600
a6{$00
fVoV
o Monthly depreciationis $20,000.
j90,0,l.r
o Isnore taxes.
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Statementof Financial Position

October31

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Assets
Cash..........
Accountsreceivable
(net of allowancefbr uncollectibleaccounts)
Inventory
Property,plant and equipment
(net of $502,000accumulateddepreciation)
...........
Total assets
Liabilities and Stockholders'Equity
Accountspayable
C o m m o ns t o c k . . . . . . . .
Retainedearnings
Total liabilities and stockholders'equity

13. Retainedearningsat the end of Decemberwould be:

A) $259,600
B) $342,400
c) s422,000
(
D) $445,100
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13,000
71,004
197,600
992^000

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$ 240,000
780,000
259.640

$r,279j00

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14. The standardprice per unit of materialsis usedin the calculationof which of the
followins variances?

A)
B)
C)
D)

Materictls
price
variance
No
No
Yes
Yes

M0terial,s
quantity
variance
No
Yes
No
Yes

h0.rrtN raool ,#;

A) Item A
B) Item B
C) Item C
@) Item D
v

15. A quantity of a particularraw materialwas purchasedfor $43,250.The standardcost of

the material was $2.00per kilogram and therewas an unfavorablematerialsprice
y4rianceof $3,250.How many kilogramswere purchased?

@) 2o,ooo
B) 2t,625

c) 23,250
D) 24,875

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'.. 16.
\Which of the following statementsconcerningideal standardsis incorrect?
t'.*
* .. /A) Ideal standardsgenerally do not provide the best motivation for workers.
B) Ideal standardsdo not make allowancesfor waste,spoilage,and machine
breakdowns.
/\
\9)) tOeatstandardsare better suited for cashbudgeting than practical standards.
D) Ideal standardsmay be better than practical standardswhen managersseek
continual improvement.

Page6

17. The standardcost card of a particularproduct specifiesthat it requires4.5 direct laborhours at $12.80per direct labor-hour.During March, 2,300 units of the product were
producedand direct labor wagesof $ 128,300were incurred.A total of 11,700direct
labor-hourswere worked. The direct labor variancesfor the month were:
Labor Rate Variance LaborEfficiencyVariance
U
$ 4 , 1 8 0F
$14,804
-{
-W$ 1 7 , 2 8U0
$4.180F
U
s 2 1 , 4 6 0F
$14,804
$ 2 1 , 4 6 0F
$ 1 7 , 2 8U0
A)
B)
C)
D)

Item A
Item B
Item C
Item D

Usethefbllowingto answerquestion18:

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Holiday ChemicalCompanyusesa standardcost systemto collect costsrelatedto the production

of its "bowling ball" fruitcakes.The direct labor standardfor eachfruitcake is 1.25hours at a
standardcost of $11.00per hour. During the month of November,Holiday's fruitcakeproduction
used9,820 direct labor hours at a total direct labor cost of $106,547.This resultedin production
of 8,500fruitcakesfor November.

18. What is Holidav's labor efficiencv

..._-' variancefor November?

favorable
ft) $z,zs5

b
Sl0"328favorable
C) $13,047unfavorable

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D) Sl4,s2}unfavorabl
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Use the following to answerquestions19-20:

Pardoe,Inc., manufacturesa singleproduct in which variablemanufacturingoverheadis
assignedon the basisof direct labor hours.The companyusesa standardcost systemand has
establishedthe followins standardsfor one unit of oroduct:
Standard
Quantity
Directmaterials
1.5pounds
Directlabor.........
0.6hours
Variablernanuf'acturingoverhead.. 0.6 hours

StandardPrice Standard
or Rate
Cost
per
pound
$3.00
$4.50
$6.00per hour
$3.60
$1.25per hour
$0.75

During March, the following activity was recordedby the company:

- The companyproduced3,000units during the month.
- A total of 8,000poundsof materialwere purchasedat a cost of $23,000.
- There was no beginning inventory of materials on hand to start the month; at the end of the
month, 2,000poundsof materialremainedin the warehouse.
- During March, 1600direct labor hours were worked at a rate of $6.50 per hour.
- Variable manufacturinsoverheadcostsdurine March totaled S1.800.

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19. Thematerialspricevariancefor Marchis:
0
A ) $ 1 ,0 0 F

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c) $7s0F
D) $750U

20. The materialsquantity variancefor March is:

A) $4,500F
B ) $ 1 0 , 5 0 0F

c) $i0.500
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Use the following to answerquestions2l-22:

The Maxwell Company has a standardcosting systemin which variable manufacturing overhead
is assignedto production on the basis of machine hours. The following data are available for

July:

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- Actual variable manufacturing overheadcost incurred: 522,620 ' I

- Actual machinehours worked: 1.600
- Variable overheadspendingvariance: 93,420 unfavorable
- Total variable overheadvariance: $4,620 unfavorable
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21. The variable overheadefficiency variancefor July is:

A) $8.040unfavorable
B) S8.040favorable

St,2oounfavorable
O
'D)
$1,200favorable

22. ,.\
J.hestandardnumber of machinehours allowed for July production is:

hours
Ul) 1,500
B) 1,600hours
C) 7,700hours
D) 2,270hours

23. If variableoverheadis appliedbasedon direct labor hours,poor training of workers

could have an unfavorableeffect on which of the followins variances?
Labor Efficiency
Item A Yes
Item B Yes
Item C No

No
A*D
W ItemA

Variable OverheadEfficiency
Yes
No
Yes
No

F) Itern B
C) Item C
D) Item D

Use the following to answerquestion24:

PorissCorporationmakesand sells a singleproduct called a Yute. The companyis in the process
of preparingits Selling and Administrative ExpenseBudget for the last quarterof the year.The
followingbudgetdataareavailable:
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Vo
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,l
Variable Cost
Monthly
\ tO
n
Per YuteSold
Fixed Cost
rl
'
Salescomrnissions
$2.10
d- \ i^
Shipping
)
$3.90
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Adverlising
$7.40
$34,000
{tu
Executivesalaries.....
S198.000
Depreciationon office equipment
$10,000
Other.........
$0.60
$38,000
All of theseexpenses(exceptdepreciation)are paid in cashin the month they are incurred.

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Page9

24. I f t he companyhasbudgetedto sell 16,000Yutesin December,then the budgetedtotal

for Decemberwould be:
selling andadministrativeexpenses
A) $280,000
B) $494,000
C) $224,000
ss04.000

25. Most companiescomputethe materialsprice variancewhen materialsare placedinto

production.
A) True

Qi rutr"

26. On a cashbudget, the total amount of budgetedcashpayments for manufacturing

-overheadshould not include any amountsfor depreciationon factory equipment.

A, rrue

B) False

21. Uncollectible amountson credit salesto customerswill be listed as cashoutflows on the

scheduleof expectedcashcollections.
A) True
Fl False
\-/
28. The basic idea behind responsibilityaccountingis that top managementis responsible
for preparing detailed budgetsby which the performanceof middle and lower
management
will be evaluated.
A) True

False

29. Oneof the advantagesof a self-imposedbudgetis that the persondirectly involved in an

,4e{ivity is more likely to be in a position to make good budget estimates.

\h./ rrue
V) False

Page l0

30.rX(hich of the following is not correctregardingthe manufacturingoverheadbudget?

[A] Total budgetedcash disbursementsfor manufacturing overheadis equal to the total
\y budgetedvariable and fixed manufacturing overhead.
B) Mariufacturingoverheadcostsshouldbe broken down by cost behavior.
C) The manufacturingoverheadbudget shouldprovide a scheduleof all costsof
production other than direct materials and direct labor.
D) All the aboveare correct.

Pagell

Answer Key
1 .C
2,C
3.D
4,8
5.8
6.B
7. D
8.C
9.D
1 0 .B
1 1 .A

t 2 .c
1 3 .C
1 4 ,D
1 5 .A
1 6 .C
1 7 .D
1 8 .A
1 9 .A
20. D
2 1 .c
22. A
23.A
24. D
25.B
26. A
27. B
28. B
29. A
30. A

Page 12