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Exam 20: Master Budgets and Performance Planning

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Question 51

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A budget is a formal statement of future plans, usually expressed in monetary terms.

A) True
B) False

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Question 52

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A capital expenditures budget is prepared before the operating budgets.

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B) False

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Question 53

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Which of the following factors is least likely to be considered in preparing a sales budget?

A Company forecasts sales of $91,500 for the quarter ended December 31. Its gross profit rate is 18% of sales, and its September 30 inventory is $25,000. If the December 31 inventory is targeted at $7,500, budgeted purchases for the fourth quarter should be:

Describe at least five benefits of budgeting.

The Palos Company expects sales for June, July, and August of $48,000, $54,000, and $44,000, respectively. Experience suggests that 40% of sales are for cash and 60% are on credit. The company collects 50% of its credit sales in the month following sale, 45% in the second month following sale, and 5% are not collected. What are the company's expected cash receipts for August from its current and past sales?

Consulting the persons affected by a budget when it is prepared can provide an effective means of motivation and cooperation.

Tannwin Co. sells a new product called Accountomatic and has predicted the following sales for the first four months of the current year: $\begin{array} { c c c c c } & \text { Jan. } & \text { Feb. } & \text { March } & \text { April } \\\text { Sales in units } & 1,700 & 1,900 & 2,100 & 1,600\end{array}$ Ending inventory for each month should be 20% of the next month's sales, and the December 31 inventory is consistent with that policy. How many units should be purchased in the first quarter of the year?

A manufacturing budget should include a list of equipment to be scrapped and additional equipment to be purchased if the proposed production budget is carried out.

Use the following data to determine the company's cash disbursements for the month of August and September:

The task of preparing a budget should be the sole task of the most important department in an organization.

A plan that lists the types and amounts of selling expenses expected during the budget period is called a(n) :

The usual budget period is:

The ___________________________ is prepared by manufacturing firms, and takes the place of the purchases budget prepared by merchandising firms.

The practice of preparing budgets for each of several future periods and revising those budgets as each period is completed, adding a new budget each period so that the budgets always cover the same number of future periods, is called:

Effective budgeting requires all of the following except:

A company's history indicates that 20% of its sales are for cash and the rest are on credit. Collections on credit sales are 20% in the month of the sale, 50% in the next month, and 30% the following month. Projected sales for January, February, and March are $75,000, $92,000 and $60,000, respectively. The March expected cash receipts from all current and prior credit sales are $80,500.

The sales budget is derived from the production budget.

A plan that lists dollar amounts to be received from disposing of plant assets and dollar amounts to be spent on purchasing additional plant assets is called a:

Cambridge, Inc. is preparing its master budget for the quarter ended June 30. It sells a single product for $40 each. Sales are 60% cash and 40% on credit. All credit sales are collected in the month following the sale. At March 31, the balance in accounts receivable is $12,000, which represents the uncollected balance on March sales. Budgeted sales for the next four months follow: The product cost is $20 per unit, and desired ending inventory is 60% of the following month's sales in units. Inventory at March 31 is 480 units. Purchases are paid 50% in the month of purchase and 50% in the following month. At March 31, the balance in accounts payable is $11,000, which represents the unpaid purchases from March. Operating expenses are paid in the month incurred and consist of: Commissions (10% of sales) Shipping (3% of sales) Office salaries ($3,000 per month) Rent ($5,000 per month) Depreciation is $2,000 per month. Income taxes are 40%, and will be paid on July 1. There are no taxes payable at March 31. A minimum cash balance of $12,000 is required, and the beginning cash balance is $12,000. Loans are obtained at the end of any month when a cash shortage occurs. Interest is 1% per month based on the beginning of the month loan balance and is paid at each month end. If an excess balance of cash exists, loans are repaid at the end of the month. At March 31, the loan balance is $2,000. Prepare the following master budget schedules (round all dollar amounts to the nearest whole dollar) for each of the months of April, May, and June that includes the: (a) Sales budget (b) Schedule of cash receipts (c) Merchandise purchases budget (d) Schedule of cash disbursements for purchases of merchandise (e) Schedule of cash disbursements for selling and administrative expenses (f) Cash budget, including information on the loan balance (g) Budgeted income statement $\begin{array}{lr}&\text { April }&\text { May }&\text { June }&\text { July }\\ \text { Sales in units }&800&1,000&600&1,200\end{array}$