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Exam 14: Planning for Profit and Cost Control

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Question 81

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The cash budget is not the same as the pro forma cash flow statement.

A) True
B) False

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Question 82

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The selling and administrative expense budget is prepared prior to the cash budget.

A) True
B) False

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Question 83

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Bright Minds Toy Company prepared the following sales budget for the second quarter. Projected sales for each of the first three months of operations are as follows: $\begin{array}{lccc}\text { Sales Budget } & \text { April } & \text { May } & \text { June } \\\text { Cash sales } & 30,000 & 43,000 & 55,000 \\\text { Sales on account } & \underline{ 370,000 }& \underline{432,000 }& \underline{ 405,000}\\& \underline{400,000}& \underline{475,000}& \underline{460,000}\end{array}$ - Bright Minds expects to collect 70% of the sales on account in the month of sale, 20% in the month following the sale, and the remainder in the second month following the sale. What is the amount of budgeted cash collections for June?

Dobson Company expects to begin operating on January 1. The company's master budget contained the following operating expense budget: \begin{array}{lrrr}&\text { January}&\text { February}&\text { March }\\\text { Salary expenses } & \$ 40,000 & \$ 36,000 & \$ 36,000 \\\text { Sales commissions, } 5\%% \text { of sales } & 24,000 & 30,000 & 28,000 \\\text { Utilities } & 2,800 & 2,800 & 2,800 \\\text { Depreciation on store equipment } &1,800 & 1,800 & 1,800\\\text { Rent } & 7,200& 7,200& 7,200 \\\text { Miscellaneous } & \underline{ 1,800}& \underline{1,800}& \underline{1,800 }\\\text { operating expenses } & \underline{ \$ 77,600}& \underline{\$79,600}& \underline{\$77,600}\end{array} Sales commissions are paid in cash in the month following the month in which the expense is recognized. All other expense items requiring cash payment are paid in the month in which they are recognized. The amount of cash to be paid for operating expenses during the month of January is:

Oakton Furniture provided the following information relevant to its sales for December Year 1 and the first quarter of Year 2: $\begin{array}{ccccc}&\text { Dec. Year } 1 &\text { Jan. Year } 2 &\text { Feb. Year } 2 &\text { Mar. Year }\\&\text { (Actual) }&\text {(Budgeted) }&\text {(Budgeted) }&\text {(Budgeted) }\\\text { Credit sales } & \$ 120,000 & \$ 280,000 & \$ 310,000 & \$ 220,000 \\\text { Cash sales } & \$ 20,000 & \$ 50,000 & \$ 60,000 & \$ 24,000 \end{array}$ Based on the company's collection history, 42% of credit sales are collected in month of sale, and the remainder is collected in the following month. Cash collections in January from December credit sales would be:

Pro forma financial statements are prepared at the end of the year and are used to evaluate the performance of managers.

The following budget information is available for the Arch Company for January Year 2: $\begin{array}{llr} \text { Sales } &\$860,000\\ \text { Cost of goods sold } &540,000\\ \text { Utilities expense } &2,800\\ \text {Administrative salaries } &100,000\\ \text { Sales commissions } & \text { 5 \% of Sales}\\ \text { Advertising } &20,000\\ \text { Depreciation on store equipment } &50,000\\ \text {Rent on administration building } &60,000\\ \text { Miscellaneous administrative expenses} &10, 000\\\end{array}$ 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.

Which of the following items would be least useful in preparing a schedule of cash receipts?

Select the incorrect statement regarding the human factor in the budgeting process.

Select the term from the list of terms that best matches the description provided.

Indicate whether each of the following statements is true or false.

Strategic planning deals with the establishment of long-term company objectives.

Which of the following is not an advantage of budgeting?

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

Depreciation expense will appear on the schedule of cash payments for selling and administrative expenses.

Virginia Jackson is opening Jackson Realty on January 2. For several weeks she has been busy putting together an operating budget for the first quarter of operation for her new business. Virginia has estimated her selling and administrative (S&A) costs as follows: $\begin{array}{lrrr}& \text { January } & \text { February } & \text { March } \\ \text { Depreciation } & \$ 1,000 & \$ 1,000 & \$ 1,000 \\\text { Marketing expenses } & 2,000 & 1,400 & 1,000 \\\text { Miscellaneous costs } & 500 & 400 & 400 \\\text { Rent expense } & 5,000 & 5,000 & 5,000\\\text { Salary expense } & 4,000 & 8,000 & 8,000 \\\text { Sales commissions } & 1,000 & 1,200 & 1,400 \\\text { Utilities expense } & 1,000 & 800 & 1,000 \\\text { Total S\&A cost before interest } & \$ 14,500 & \$ 17,800 & \$ 17,800 \end{array}$ All selling and administrative costs are paid when incurred except utilities, marketing expenses, and sales commissions. These items are paid in the month following the month incurred.Required:Prepare a schedule of cash payments for selling and administrative expenses for January through March.What liabilities, in what amounts, would be reported on the pro forma balance sheet as of March 31?