AE 114 – FM MIDTERM EXAM

The master budget process usually begins with the __

{
~production budget.
~operating budget.
=sales budget.
~cash budget.
}
Which of the following equations can be used to budget purchases? (BI = beginning inventory, EI =
ending inventory desired, CGS = budgeted cost of goods sold)
{
~ Budgeted purchases = CGS + BI - EI
~ Budgeted purchases = CGS + BI
~ Budgeted purchases = CGS + EI + BI
= Budgeted purchases = CGS + EI – BI
}
The cash receipts budget
{
= requires a sales forecast.
~ requires a purchases or production budget.
~ is prepared after the cash disbursements budget.
~ has none of the above characteristics.
}
The budget or schedule that provides necessary input data for the direct labor budget is the:
{
~ raw materials purchase budget.
=production budget.
~ schedule of cash collections.
~ cash budget.
}
The materials purchase budget:
{
~ is the beginning point in the budget process.
=must provide for desired ending inventory as well as for production.
~ is accompanied by a schedule of cash collections.
~ is completed after the cash budget.
}
There are various budgets within the master budget. One of these budgets is the production budget.
Which of the following BEST describes the production budget?
{
~ It details the required direct labor hours.
~ It details the required raw materials purchases.
=It is calculated based on the sales budget and the desired ending inventory.
~ It summarizes the costs of producing units for the budget period.~
}
The usual starting point in budgeting is to make a forecast of cash receipts and cash disbursements. {F}

The direct materials to be purchased for a period can be obtained by subtracting the desired ending
inventory of direct materials from the total direct materials needed for the period. ~ {F}

A production budget is to a manufacturing firm as a merchandise purchases budget is to a merchandising

firm. {T}

One of the distinct advantages of a budget is that it can help to uncover potential bottlenecks before they
occur. {T}

Parlee Company's sales are 30% in cash and 70% on credit. Sixty percent of the credit sales are
collected in the month of sale, 25% in the month following sale, and 12% in the second month
following sale. The remainder are uncollectible. The following are budgeted sales data:
January February March April
Total sales P60,000 P70,000 P50,000 P30,000
Total cash receipts in April would be budgeted to be
{
~ P38,900.
~ P47,900.
~ P27,230.
=P36,230.
}
The PDQ Company makes collections on credit sales according to the following schedule:
25% in month of sale
70% in month following sale
4% in second month following sale
1% uncollectible
The following sales have been budgeted:
Month Sales
April ... P100,000
May ..... 120,000
June .... 110,000
Cash collections in June would be:
{
~ P113,400.
~ P110,000.
~ P111,000.
=P115,500.
}
Pardee Company plans to sell 12,000 units during the month of August. If the company has 2,500 units
on hand at the start of the month, and plans to have 2,000 units on hand at the end of the month, how
many units must be produced during the month?
{
=11,500.
~ 12,500.
~ 12,000.
~ 14,000.
}
Modesto Company produces and sells Product AlphaB.To guard against stockouts, the company
requires that 20% of the next month's sales be on hand at the end of each month. Budgeted sales of
Product AlphaB over the next four months are:
June July August September
Budgeted sales in units 30,000 40,000 60,000 50,000
Budgeted production for August would be:
{
~ 62,000 units.
~ 70,000 units.
= 58,000 units.
~ 50,000 units.
}
Friden Company has budgeted sales and production over the next quarter as follows:
April May June
Sales in units ......... 100,000 120,000 ?
Production in units .... 104,000 128,000 156,000
The company has 20,000 units of product on hand at April 1. A minimum of 20% of the next month's
sales needs in units must be on hand at the end of each month. July sales are expected to be 140,000
units. Budgeted sales for June would be (in units):
{
~ 188,000.
=160,000.
~ 128,000.
~ 184,000.
}
The Tobler Company has budgeted production for next year as follows:
Quarter ............... First Second Third Fourth
Production in units ... 10,000 12,000 16,000 14,000
Four pounds of raw materials are required for each unit produced. Raw materials on hand at the start of
the year totals 4,000 lbs. The raw materials inventory at the end of each quarter should equal 10% of the
next quarter's production needs. Budgeted purchases of raw materials in the third quarter would be:
{
=63,200 lbs.
~ 62,400 lbs.
~ 56,800 lbs.
~ 50,400 lbs.
}
The Willsey Merchandise Company has budgeted P40,000 in sales for the month of December. The
company's cost of goods sold is 30% of sales. If the company has budgeted to purchase P18,000 in
merchandise during December, then the budgeted change in inventory levels over the month of
December is:
{
=P6,000 increase.
~ P10,000 decrease.
~ P22,000 decrease.
~ P15,000 increase.
}
ABC Company has a cash balance of P9,000 on April 1. The company must maintain a minimum cash
balance of P6,000. During April expected cash receipts are P45,000. Expected cash disbursements
during the month total P52,000. During April the company will need to borrow:
{
~ P2,000.
=P4,000.
~ P6,000.
~ P8,000.
}
The LFM Company makes and sells a single product, Product T. Each unit of Product T requires 1.3
hours of labor at a labor rate of P9.10 per hour. LFM Company needs to prepare a Direct Labor Budget
for the second quarter of next year.
The budgeted direct labor cost per unit of Product T would be:
{
~ P9.10.
= P11.83.
~ P7.00.
~ P10.40.
}
The company has budgeted to produce 25,000 units of Product T in June. The finished goods
inventories on June 1 and June 30 were budgeted at 500 and 700 units, respectively. Budgeted direct
labor costs incurred in June would be:
{
~ P293,384.
~ P304,031.
=P295,750.
~ P227,500.
}
The Culver Company is preparing its Manufacturing Overhead Budget for the third quarter of the year.
Budgeted variable factory overhead is P3.00 per unit produced; budgeted fixed factory overhead is
P75,000 per month, with P16,000 of this amount being factory depreciation.
If the budgeted production for July is 6,000 units, then the total budgeted factory overhead for July is:
{
~ P77,000.
~ P82,000.
~ P85,000.
= P93,000.
}

If the budgeted production for August is 5,000 units, then the total budgeted factory overhead per unit
is:
{
~ P15.
=P18.
~ P20.
~ P22.
Justin's Plant Store, a retailer, started operations on January 1. On that date, the only assets were
P16,000 in cash and P3,500 in merchandise inventory. For purposes of budget preparation, assume that
the company's cost of goods sold is 60% of sales. Expected sales for the first four months appear below.
Expected Sales
January ....... P10,000
February ...... 24,000
March ......... 16,000
April ......... 25,000
The company desires that the merchandise inventory on hand at the end of each month be equal to 50%
of the next month's merchandise sales (stated at cost). All purchases of merchandise inventory must be
paid in the month of purchase. Sixty percent of all sales should be for cash; the balance will be on
credit. Seventy-five percent of the credit sales should be collected in the month following the month of
sale, with the balance collected in the following month. Variable operating expenses should be 10% of
sales and fixed expenses (all depreciation) should be P3,000 per month. Cash payments for the variable
operating expenses are made during the month the expenses are incurred.

In a budgeted income statement for the month of February, net income would be:
{
~ P9,000.
~ P1,800.
~ P0.
=P4,200.
}

In a budgeted balance sheet, the Merchandise Inventory on February 28 would be:

{
=P4,800.
~ P7,500.
~ P9,600.
~ P3,200.
}

The Accounts Receivable balance that would appear in the March 31 budgeted balance sheet would be:
{
~ P15,000.
~ P16,000.
= P8,800.
~ P12,400.
}

In a budget of cash receipts for March, the total cash receipts would be:
{
= P17,800.
~ P8,200.
~ P20,200.
~ P16,000.
}

In a budget of cash disbursements for March, the total cash disbursements would be:
{
~ P11,200.
=P13,900.
~ P22,300.
~ P16,900.
}
The Bandeiras Company, a merchandising firm, has budgeted its activity for December according to the
following information:
I. Sales at P550,000, all for cash.
II. Merchandise inventory on November 30 was P300,000.
III. Budgeted depreciation for December is P35,000.
IV. The cash balance at December 1 was P25,000.
V. Selling and administrative expenses are budgeted at P60,000 for December and are paid in cash.
VI. The planned merchandise inventory on December 31 is P270,000.
VII. The invoice cost for merchandise purchases represents 75% of the sales price. All purchases are
paid for in cash.

The budgeted cash receipts for December are:

{
~ P412,500.
~ P137,500.
~ P585,000.
=P550,000.
}
The budgeted cash disbursements for December are:
{
~ P382,500.
=P442,500.
~ P472,500.
~ P477,500.
}
The budgeted net income for December is:
{
~ P107,500.
~ P137,500.
=P42,500.
~ P77,500.