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Exam 7: Planning for Profit and Cost Control

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Question 71

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Which of the following would represent the order in which most master budgets are prepared?

A) Sales,Income Statement,Cash,Purchases
B) Purchases,Cash,Sales,Income Statement
C) Purchases,Sales,Cash,Income Statement
D) Sales,Purchases,Cash,Income Statement

E) All of the above
F) A) and C)

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Question 72

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Which section is not included on the cash budget?

A) Investing
B) Cash payments
C) Cash receipts
D) Financing

E) A) and D)
F) All of the above

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Question 73

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Pro forma financial statements are financial statements that are prepared based on budgeted future amounts.

Stuart's Electronics is a relatively small company that provides computer-assisted technology to manufacturing companies.During the last few years,the company has begun to take budgeting seriously.Each year,the budget is developed during a two-day retreat of the company's top management.Lower-level employees say that the budget reflects unrealistic targets that they cannot meet even with their best efforts.What problems are there with Stevenson's budgeting process,and what can be done about them?

Vector Company seeks input from salespeople regarding the number of units they believe they can sell during the upcoming budget period.This is an example of participative budgeting.

Sound Effects Audio Systems sells and installs car stereo systems.Managers need to prepare an inventory purchases budget for the first quarter of Year 2.The company's sales budget for the first quarter is provided below: $\begin{array}{c}\begin{array}{|l|}\hline \\\hline \text {Budgeted}\\\text {Sales}\\\hline \end{array}\begin{array}{c|}\hline \text {January}\\\hline\\\$ \quad 200,000\\\hline\end{array}\begin{array}{c|}\hline \text {February}\\\hline\\\$ \quad 196,000\\\hline\end{array}\begin{array}{c|}\hline \text {March}\\\hline\\ \$ \quad180,000\\\hline\end{array}\end{array}$ Based on past experience the company expects the cost of goods sold to equal 80% of sales.Furthermore,the ending inventory balance each month should be $8,000 plus 20% of the current period's cost of goods sold.The inventory balance on December 31,Year 1 was $34,000.The company makes all purchases on account and pays 60% of accounts payable in the month of purchase and the remaining 40% in the next month.Accounts payable stood at $36,000 at December 31,Year 1. Required: 1)Prepare an inventory purchases budget for January,February,and March of Year 2. 2)Determine the amount of ending inventory and the accounts payable balance that will appear on the March 31,Year 2 pro forma balance sheet. 3)Prepare a schedule of cash payments for inventory for January,February,and March,Year 2.

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: $\begin{array} { | l | r | r | r | r | } \hline & \text { January } & \text { February } & { \text { March } } \\\hline \text { Depreciation } & \$ 1,000 & \$ 1,000 & \$ 1,000 \\\hline \text { Marketing expenses } & 2,000 & 1,400 & 1,000 \\\hline \text { Misc ellaneous costs } & 500 & 400 & 400 \\\hline \text { Rent expense } & 5,000 & 5,000 & 5,000 \\\hline \text { Salary expense } & 4,000 & 8,000 & 8,000 \\\hline \text { Sales commissions } & 1,000 & 1,200 & 1,400 \\\hline \text { Utilities expense } & 1,000 & 800 & 1,000 \\\hline \text { Total S\&A costs before interest } & \$ 14,500 & \$ 17,800 & \$ 17,800 \\\hline\end{array}$ CHANGE NEEDS TO BE MADE TO TABLE Center the month names in the heading row 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: 1)Prepare a schedule of cash payments for selling and administrative expenses for January through March. 2)What liabilities,in what amounts,would be reported on the pro forma balance sheet as of March 31?

The first budget prepared in a master budget is the cash receipts budget.

Skymont Company wants an ending inventory each month equal to 30% of that month's cost of goods sold.Cost of goods sold for February is projected at $45,000.Ending inventory at the end of January was $12,000.Based on this information,purchases for February would be:

The master budget generally starts with a sales forecast.

What is the amount of budgeted cash collections for June?

The accountant for Haven Industries could not prepare the following budgets because an item of information is missing for each one.Identify the missing items needed prior to preparing each budget.

Payne Company provided the following information relevant to its inventory sales and purchases for December Year 1 and the first quarter of Year 2: $\begin{array}{|l|l|r|r|r|}\hline& \text { Dec. Year } 1 &\text { Jan. Year } 2 &\text { Feb. Year } 2 & \text { Mar. Year } 2 \\\hline & \text { (Actual) } & \text { (Budgeted) }& \text { (Budgeted) }& \text { (Budgeted) } \\\hline \text {Cost of goods sold } &\$ 80,000 & \$ 140,000 & \$ 180,000 & \$ 120,000 \\\hline\end{array}$ Desired ending inventory levels are 25% of the following month's projected cost of goods sold.The company purchases all inventory on account.January Year 2 budgeted purchases are $150,000.The normal schedule for inventory payments is 60% payment in month of purchase and 40% payment in month following purchase. Budgeted cash payments for inventory in February Year 2 would be:

Proper handling of human relations is essential to the establishment of an effective budgeting system.There is a natural tendency for people to be uncomfortable with budgets.Describe how participative budgeting helps create a healthy atmosphere surrounding the budgeting process.

What budget is generally not included in a master budget?

The cash budget is based on which budget?

Oakton Furniture provided the following information relevant to its sales for December Year 1 and the first quarter of Year 2: $\begin{array}{|l|l|r|r|r|}\hline& \text { Dec. Year } 1 &\text { Jan. Year } 2 &\text { Feb. Year } 2 & \text { Mar. Year } 2 \\\hline & \text { (Actual) } & \text { (Budgeted) }& \text { (Budgeted) }& \text { (Budgeted) } \\\hline \text {Credit sales } &\$ 120,000 & \$ 280,000 & \$ 310,000 & \$ 220,000 \\\hline \text { Cash sales } &\$ 20,000 & \$ 50,000 & \$ 60,000 & \$ 24,000 \\\hline\end{array}$ 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.Total budgeted cash receipts in February are expected to be:

Select the correct equation format for the purchases budget.

Markham Company has completed its sales budget for the first quarter of Year 2.Projected credit sales for the first four months of the year are shown below: $\begin{array}{|l|l|}\hline \text { January } & \$ 30,000 \\\hline \text { February } & \$ 36,000 \\\hline \text { March } & \$ 45,000 \\\hline \text { April } & \$ 48,000 \\\hline\end{array}$ The company's past records show collection of credit sales as follows: 40% in the month of sale and the balance in the following month.The total cash collection from receivables in March is expected to be:

Managerial accounting is not bound by generally accepted accounting principles (GAAP)but clearly is influenced by GAAP.How do budgets and the budgeting process demonstrate connections to GAAP?