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Exam 7: Planning for Profit and Cost Control

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Question 61

True/False

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Under continuous budgeting,a new month is added to the end of the budget period each time the present month expires,so that a twelve-month budget is available at all times.

A) True
B) False

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Question 62

Multiple Choice

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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) None of the above
F) A) and B)

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Question 63

Multiple Choice

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Select the incorrect statement regarding the cash budget.

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

If a financial statement is labeled "pro forma," this means that the statement was prepared by a professional accountant (usually the firm's auditor)following a prescribed format.

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

Which of the following items is not needed to prepare a sales budget by product line?

O'Hare Company is in the process of preparing a purchases budget for the first quarter of Year 2.The company has budgeted sales as follows: $\begin{array}{lll} \text { Dec. Year 1 } & \$ & 44,000 \\\text { Jan. Year 2 } & \$ & 46,500 \\\text { Feb. Year 2 } & \$ & 51,000 \\\text { Mar. Year 2 } & \$ & 61,500\end{array}$ Cost of goods sold is expected to be 75% of sales.The company would like to have ending inventory each month equal to 25% of the following month's predicted cost of sales.The total cost of purchases in January Year 2 is:

The following budget information is available for Crescent Company for January Year 2: $\begin{array} { l c } \text { Sales } & \$ 800,000 \\\text { Cost of goods sold } & 540,000 \\\text { Utilities expense } & 2,500 \\\text { Administrative salaries } & 100,000 \\\text { Sales commisissions } & 5 \% \text { of sales } \\\text { Advertising } & 20,000 \\\text { Depreciation on store equipment } & 50,000 \\\text { Rent on administration building } & 60,000 \\\text { Miscellaneous administrative expenses } & 10,000 \\\text { Percentage of sales on credit } & 80 \%\end{array}$ All operating expenses are paid in cash in the month incurred.The amount of expected cash outflow for selling and administrative expenses would 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?

When a company's district managers submitted their preliminary budget proposals,top management discovered that the southern district manager had requested a new project management information system.Unfortunately,the system is incompatible with the system used at headquarters.Which of the following advantages of budgeting reduces the likelihood that the company will end up with two incompatible systems?

Sentra Sporting Company sells tennis rackets and other sporting equipment.The purchasing department manager prepared the inventory purchases budget.Sentra's policy is to maintain an ending inventory balance equal to 15% of the following month's cost of goods sold.January's budgeted cost of goods sold is $70,000. $\begin{array}{lrrr}&\text { October }&\text { November }&\text { December }\\\text { Budgeted Cost of Goods Sold } & 60,000 & 40,000 & 50,000 \\\text { Plus: Desired Ending Inventory } & 6,000 & ? & ? \\\text { Inventory Needed } & 66,000 & ? & ? \\\text { Less: Beginning Inventory } & 9,000 & ? & ? \\\text { Required purchases (on Account) } & 57,000 & ?&?\end{array}$ What would be the required purchases (on account) for December?

The budgeting process that involves adding a month to the end of the budget period at the end of each month,thus maintaining a twelve-month planning horizon,is referred to as:

Purchases on account are given below: $\begin{array} { l c c } \text { October } & \text { November } & \text { December } \\30,000 & 40,000 & 50,000\end{array}$ 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 November?

One advantage of participatory budgeting is that it allows subordinates to perform the budgeting function,thus freeing up upper management for more important tasks.

Which of the following accounts would appear on the inventory purchases budget and pro forma balance sheet?

Which of the following budgets needs to be prepared prior to preparing an inventory purchases budget?

Valley Farm Supply started the period with $80,000 cash.Cash receipts for January were expected to total $350,000.Cash disbursements for January were expected to be $290,000.What is the expected cash balance at the end of January?

Why is cash management important to a business?

The budgeting process formalizes and documents managerial plans to clearly communicate objectives to both superiors and subordinates.This budgeting requirement is an example of: