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Exam 7: Planning for Profit and Cost Control

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Question 41

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

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Question 42

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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.

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Participative budgeting encourages part...

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Question 43

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Budgeted depreciation expense would not appear on a:

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

The capital budget does not affect any of a company's operating budgets.

One company's practice is to provide bonuses to salespeople who exceed their sales targets.Which of the following advantages of budgeting enables the company to establish its recognition program?

The Game Zone sells computer and other electronic games.The store has budgeted sales for January Year 2 as indicated in the following table.The company expects a 4% increase in sales for the month of February and a 3% increase for March. $\begin{array} { l c c c } \text { Sales } & \text { January } & \text { February } & \text { March } \\\text { Cash sales } & \$ 40,000 & ? & ? \\\text { Sales on account } & \$ 80,000 & ? & ? \\\text { Total budgeted sales }& \$ 120,000 & ? & ?\end{array}$ Required: (a)Complete the sales budget by filling in the missing amounts. (b)What is the amount of sales revenue the company will report on its pro forma income statement for the first quarter?

Janice was questioned recently about her department's spending in excess of the budget.This is an example of using the budget for performance measurement.

The master budget normally covers:

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: $\begin{array}{lccc}\text {Sales Budget}& \text { April } & \text { May } & \text { June}\\\text {Cash Sales}&30,000 & 43,000&55,000 \\\text { Sales on Account}&370,0 & 432,000&405,000 \\&400,000&475,000&460,000\end{array}$ 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 sales revenue that the company will report on the second quarter pro forma income statement?

Purchases on account are given below: $\begin{array} { | c | c | c | } \hline \text { October } & \text { November } & \text { December } \\\hline 30,000 & 40,000 & 50,000 \\\hline\end{array}$ 55% of the month's purchases will be paid in the month of the purchase; the remaining 45% will be paid in the following month. How much will the cash payments for purchases be in December?

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

Which of the following is a true statement?

Cheyenne Company has budgeted the following information for June: $\begin{array} { l r } \text { Cash receipts } & \$ 271,000 \\\text { Begnning cash balance } & 5,000 \\\text { Cash payments } & 280,000 \\\text { Desired ending cash balance } & 25,000\end{array}$ If there is a cash shortage,the company borrows money from the bank.All cash is borrowed at the beginning of the month in $1,000 increments,and interest is paid monthly at 1% on the first day of the following month.The company had no debt before June 1.The amount of interest paid on July 1 would be:

The master budget generally starts with a sales forecast.

Interest expense is not included in the selling and administrative budget because a company cannot estimate interest expense until it prepares the cash budget and makes borrowing projections.

The marketing department is primarily responsible for establishing the sales forecast.

The accounts payable balance at the beginning of the year was $85,000.The company purchased $380,000 worth of goods on account,and the ending balance of the payables account was $70,000. What were the total payments on account?

If a budgeting system is designed correctly,top management will not have to get involved in the process.

How do budget expectations influence a company's employees?