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Exam 7: Planning for Profit and Cost Control

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Question 31

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

A) operations budgeting.
B) master planning.
C) capital budgeting.
D) strategic planning.

E) A) and B)
F) A) and C)

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Question 32

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Which of the following is a true statement?

A) Pro forma financial statements are based on the company's budgets.
B) Companies prepare pro forma financial statements to show how their performance for the period will "look" if actual results match the budget.
C) Companies usually prepare a pro forma income statement, pro forma balance sheet, and pro forma statement of cash flows.
D) All of the answers are correct.

E) B) and C)
F) B) and D)

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Question 33

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Which of the following would not be included in the inventory purchases budget?

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.

Which of the following statements is true?

How might a company develop sales estimates to be used in preparing a sales budget?

Barnes Company expects to begin operating on January 1. The company's master budget contained the following operating expense budget: $\begin{array} { | l | r | r | r | } \hline & { \text { January } } & \text { February } &{ \text { March } } \\\hline \text { Salary expense } & \$ 36,000 & \$ 36,000 & \$ 36,000 \\\hline \text { Sales commissions, } 5 \% \text { of sales } & 30,000 & 32,000 & 24,000 \\\hline \text { Utilities } & 2,800 & 2,800 & 2,800 \\\hline \text { Depreciation on store equipment } & 1,000 & 1,000 & 1,000 \\\hline \text { Rent } & 7,200 & 7,200 & 7,200 \\\hline \text { Miscellane ous } & 1,800 & 1,800 & 1,800 \\\hline \text { Total operating expenses } & \$ 78,800 & \$ \quad 80,800 & \$ 72,800 \\\hline\end{array}$ 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 accumulated depreciation appearing on the company's March 31 pro forma balance sheet is:

Why is cash management important to a business?

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

Select the correct equation format for the purchases budget.

If a company purchases its inventory on account, it need not prepare a schedule of cash payments for inventory purchases.

What is the amount of sales revenue that the company will report on the second quarter pro forma income statement?

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

The three major components of the master budget are the financial budgets, the capital budgets, and the pro forma financial statements.

The cash budget is based on which budget?

Spacely Sprockets' sales budget shows the following expected total sales: $\begin{array} { | l |l | } \hline \text { Month } & \text { Sales } \\\hline \text { January } & \$ 30,000 \\\hline \text { February } & \$ 40,000 \\\hline \text { March } & \$ 35,000 \\\hline \text { April } & \$ 30,000 \\\hline\end{array}$ The company expects 80% of its sales to be on account (credit sales). Credit sales are collected as follows: 30% in the month of sale, 68% in the month following the sale with the remainder being uncollectible and written off in the month following the sale.Required: a) Calculate budgeted accounts receivable at the end of each month from February through April.b) Calculate budgeted cash inflows from collection of receivables for each month from February through April.

Which of the following would appear on a selling and administrative expense budget, but would not appear on a schedule of cash payments for selling and administrative expenses?

The master budget normally covers:

Dobson Company expects to begin operating on January 1. The company's master budget contained the following operating expense budget: $\begin{array} { | l | r | r | r | } \hline & { \text { January } } & \text { February } &{ \text { March } } \\\hline \text { Salary expense } & \$ 40,000 & \$ 36,000 & \$ 36,000 \\\hline \text { Sales commissions, } 5 \% \text { of sales } & 24,000 & 30,000 & 28,000 \\\hline \text { Utilities } & 2,800 & 2,800 & 2,800 \\\hline \text { Depreciation on store equipment } & 1,800 & 1,800 & 1,800 \\\hline \text { Rent } & 7,200 & 7,200 & 7,200 \\\hline \text { Miscellane ous } & 1,800 & 1,800 & 1,800 \\\hline \text { Total operating expenses } & \$ 77,600 & \$ \quad 79,600 & \$ 7,600 \\\hline\end{array}$ 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:

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 percent increase in sales for the month of February and a 3 percent increase for March. $\begin{array} { | l | l | c | c | } \hline \text { Sales } &{ \text { January } } & \text { February } & \text { March } \\\hline \text { Cash sales } & \$ 40,000 & ? & ? \\\hline \text { Sales on account } & \$ 80,000 & ? & ? \\\hline \text { Total budgeted sales } & \$ 120,000 & ? & ? \\\hline\end{array}$ 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?