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Exam 14: Planning for Profit and Cost Control

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Question 21

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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:

A) $31,500.
B) $46,500.
C) $43,500.
D) $33,000.

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

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Question 22

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A management accountant was working on a cash budget for Oklahoma Company when he accidentally spilled his coffee. Some of the liquid splattered on his working papers, rendering a few of the amounts illegible. The budget with missing amounts indicated is provided below: The company desires to maintain an ending cash balance of at least $7,500 each month. In any month in which there is cash shortage, the company's bank will extend it a loan equal to the shortage amount. The loan is assumed to have been made on the last day of the month. Any time the company has a cash surplus it must repay as much of any outstanding loans as possible. The bank charges monthly interest of 1% on any outstanding loan balance. Required:Compute the missing amounts for items (a) through (p).

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Question 23

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A company's numerous specific budgets (sales, inventory purchases, etc.) together are referred to as the:

Which of the following items is not needed to prepare an inventory purchases budget for a merchandising business?

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.

The type of planning that involves long-term decisions, such as defining the scope of the business and deciding what products to make, is known as:

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. $\begin{array}{lccc}&\text { October}&\text { November }&\text { December }\\\text { Budgeted cost of goods sold } & 60,000 & 40,000 &50,000\\\text { Plus: Desired ending inventory } & 6,000 & ?&? \\\text { Inventory needed } &66,000& ? &? \\\text { Less: Beginning inventory } & 9,000 & ?&? \\\text { Required purchases (on account) } & 57,000 & ? & ? \end{array}$ -What is the amount of ending inventory that the company will report on its pro forma balance sheet?

Which section is not included on the cash budget?

Which of the following budgets or schedules uses data contained in the selling and administrative expense budget?

Which of the following statements is incorrect?

Scranton Company expects to begin operating on July 1, Year 1. The company's master budget contained the following operating expense budget: $\begin{array}{lrrr}&\text { January}&\text { February}&\text { March }\\\text { Salary expenses } & \$ 36,000 & \$ 36,000 & \$ 36,000 \\\text { Sales commissions, } 5\% \text { of sales } & 30,000 & 32,000 & 24,000 \\\text { Utilities } & 2,800 & 2,800 & 2,800 \\\text { Depreciation on store equipment } &1,000 & 1,000 & 1,000\\\text { Rent } & 7,200& 7,200& 7,200 \\\text { Miscellaneous } & \underline{ 1,800}& \underline{1,800}& \underline{1,800 }\\\text { operating expenses } & \underline{ \$ 78,800}& \underline{\$80,800}& \underline{\$72,800}\end{array}$ 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 commissions payable that would appear on the company's pro forma balance sheet as of September 30, Year 1 is:

With regards to financial statements, "pro forma" means:

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

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. $\begin{array}{lccc}\text { Sales}&\text { January}&\text { February}&\text { March }\\\text { Cash sales } & \$ 40,000 & ?&? \\\text { Sales on account } & \underline{\$ 80,000} & ?&? \\\text { Total budgeted sales } &\underline{ \$ 120,000} & ?&?\end{array}$ Required:Complete the sales budget by filling in the missing amounts.What is the amount of sales revenue the company will report on its pro forma income statement for the first quarter?

Which of the following items will not appear on a cash budget?

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

Compton Company expects the following total sales: $\begin{array} { l l } \text { Manth } & \text { sales } \\\text { March } & \$ 25,000 \\\text { April } & \$ 15,000 \\\text { May } & \$ 25,000 \\\text { Jure } & \$ 20,000\end{array}$ The company expects 70% of its sales to be credit sales and 30% for cash. Credit sales are collected as follows: 25% in the month of sale, 75% in the month following the sale. The budgeted accounts receivable balance on May 31 is:

Oakton Furniture provided the following information relevant to its sales for December Year 1 and the first quarter of Year 2: $\begin{array}{ccccc}&\text { Dec. Year } 1 &\text { Jan. Year } 2 &\text { Feb. Year } 2 &\text { Mar. Year }\\&\text { (Actual) }&\text {(Budgeted) }&\text {(Budgeted) }&\text {(Budgeted) }\\\text { Credit sales } & \$ 51,000 & \$ 131,000 & \$ 146,000 & \$ 101,000 \\\text { Cash sales } & \$ 18,000 & \$ 16,000 & \$ 21,000 & \$ 3,000\end{array}$ Based on the company's collection history, 43% 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:

What information does the sales budget provide for pro forma financial statements?

In a participative budgeting system, budget information flows in both directions, from bottom to top and from top to bottom.