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Exam 7: Planning for Profit and Cost Control

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Question 81

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Select the correct statement.

A) The four advantages of budgeting include planning, coordination, performance measurement, and reporting.
B) In a participative budgeting system, budget information flows in one direction only, from bottom to top.
C) The three major categories of the master budget are operating budgets, capital budgets, and pro forma financial statements.
D) The accounting department normally coordinates the development of the sales forecast.

E) A) and B)
F) A) and C)

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Question 82

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Which of the following budgets or schedules uses data contained in the selling and administrative expense budget?

A) Cash receipts schedule
B) Cash payments schedule
C) Inventory purchases budget
D) Sales budget

E) B) and C)
F) A) and C)

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Question 83

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The pro forma income statement gives managers an advance estimate of a company's profitability.

Planning concerned with long-range decisions such as defining the scope of the business is referred to as:

The following budget information is available for the Arch Company for January Year 2: $\begin{array} { l c } \text { Sales } & \$ 860,000 \\\text { Cost of goods sold } & 540,000 \\\text { Utilities expense } & 2,800 \\\text { Administrative salaries } & 100,000 \\\text { Sales commissions } & 5 \% \text { of sales } \\\text { Advertising } & 20,000 \\\text { Depreciation on store equipment } & 50,000 \\\text { Rent on administration building } & 60,000 \\\text { Miscellaneous administrative expenses } & 10,000\end{array}$ All operating expenses are paid in cash in the month incurred.Compute the total budgeted selling and administrative expenses (excluding interest) amount for January Year 2.

Sentra Sporting Company sells tennis rackets and other sporting equipment.The purchasing department manager prepared the inventory purchases budget.Sentra's policy is to maintain an ending inventory balance equal to 15% of the following month's cost of goods sold.January's budgeted cost of goods sold is $70,000. $\begin{array}{lrrr}&\text { October }&\text { November }&\text { December }\\\text { Budgeted Cost of Goods Sold } & 60,000 & 40,000 & 50,000 \\\text { Plus: Desired Ending Inventory } & 6,000 & ? & ? \\\text { Inventory Needed } & 66,000 & ? & ? \\\text { Less: Beginning Inventory } & 9,000 & ? & ? \\\text { Required purchases (on Account) } & 57,000 & ?&?\end{array}$ What is the amount of ending inventory that the company will report on its pro forma balance sheet?

Which of the following accounts would appear on the sales budget and the pro forma income statement?

$\begin{array}{lrrr}&\text { October}&\text { November }&\text { December }\\\text { Budgeted S\&A Expenses }\\\text { Salary Expense } & 10,000 & 10,500 & 11,000 \\\text { Sales Commissions } 5 \% \text { of Sales } & 5,000 & 5,500 & 5,300 \\\text { Insurance Expense } & 2,000 & 2,000 & 2,000 \\\text { Rent } & 2,400 & 2,400 & 2,400 \\\text { Depreciation on equipment } & 1,500 & 1,500 & 1,500 \\\text { Utilities } & \underline{1,100}& \underline{1,300} & \underline{ 1,500}\\\text { Total Operating Expenses } & \underline{22,000} & \underline{ 23,200} & \underline{23,700}\\\text {Schedule of Cash Payments for S\&A }\\\text {Expenses}\\\text { Salary Expense } & ? & 10,500&? \\100 \% \text { of Prior Month Sales Commissions } & 5,100 & ?&? \\\text { Insurance Expense } & 2,000 & 2,000 &2,000\\\text { Rent } & ? & ?&? \\100 \% \text { of Prior Months Utilities Expense } & \underline{1,200} & \underline{\quad ? }& \underline{\quad?}\\\text { Total Payments for S\&A Expenses } & ? & ?&?\end{array}$ What is the total amount of S&A expenses for the fourth quarter that the company will report on its pro forma income statement?

Compton Company expects the following total sales: $\begin{array} { | c | c | } \hline \text { Month } & \text { Sales } \\\hline \text { March } & \$ 30,000 \\\hline \text { April } & \$ 20,000 \\\hline \text { May } & \$ 30,000 \\\hline \text { June } & \$ 25,000 \\\hline\end{array}$ The company expects 60% of its sales to be credit sales and 40% for cash.Credit sales are collected as follows: 30% in the month of sale,70% in the month following the sale.The budgeted accounts receivable balance on May 31 is:

Chu Company provided the following information related to its inventory sales and purchases for December Year 1 and the first quarter of Year 2: $\begin{array} { c c c c c } & \begin{array} { c } \text { Dec. Year 1 } \\\text { (Actual) }\end{array} & \begin{array} { c } \text { Jan. Year 2 } \\\text { (Budgeted) }\end{array} & \begin{array} { c } \text { Feb. Year 2 } \\\text { (Budgeted) }\end{array} & \begin{array} { c } \text { Mar. Year 2 } \\\text { (Budgeted) }\end{array} \\\text { Cost of goods sold } & \$ 80,000 & \$ 140,000 & \$ 180,000 & \$ 120,000\end{array}$ Desired ending inventory levels are 25% of the following month's projected cost of goods sold.Budgeted purchases of inventory in February Year 2 would be:

Which of the following would not be included in the cash budget?

The cash budget includes three sections: (1)operating activities,(2)investing activities,and (3)financing activities.