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Exam 14: Planning for Profit and Cost Control

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Question 61

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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?

A) Planning
B) Coordination
C) Performance measurement
D) Corrective measures

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

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Question 62

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The budget director of Mandy's Kitchen Shop has prepared the following sales budget. The company had $50,000 of accounts receivable at January 1. The company normally collects 100% of its accounts receivable in the month following the sale. $\begin{array}{lrrr}\text { Sales}&\text { January}&\text { February}&\text { March }\\\text { Cash sales } & \$ 15,000 & \$ 33,000 & \$ 36,000 \\\text { Sales on account } & 45,000 & 60,000 & 70,000 \\ \text { Total budgeted sales } & \$ 60,000 & \$ 93,000 & \$ 106,000\\\text { Schedule of cash receipts }\\\\\text {Current cash sales}&?&?&?\\\text {Plus collection of accounts}&?&?&?\\\text {receivable}\\\text {Total budgeted cash collections}&?&?&?\end{array}$ Required:Complete the schedule of cash receipts by filling in the missing amounts. What are the total budgeted cash receipts for the first quarter?Determine the amount of accounts receivable that Mandy's should report on the first quarter pro forma balance sheet.

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Question 63

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

Indicate whether each of the following statements about a cash budget is true or false.

Budgeted cash payments for inventory would appear on the:

The pro forma income statement gives managers an advance estimate of a company's profitability.

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

Bonnie's Bakery is a relatively small company that makes pies, cakes, and cookies sold in supermarkets. Sales employees' bonuses are determined based on meeting or exceeding the budget. For the coming year, sales employees have set a budget target of 3% for sales growth. The market has been growing at 6%, and the company has averaged 10% growth for the last two years. What is the problem here, and how can it be fixed?

Select the incorrect statement about budgeting committees.

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

The nature of planning changes with the length of the time period being considered. Generally, the shorter the time period, the more general the plans.

Rachel Robinson owns a small retail store in Cairo, Georgia. The following summary information regarding expectations for the month of January is provided: As of December 31, there is $1,000 in the bank and the balance in accounts receivable is $5,000. Budgeted cash and credit sales for January are $6,000 and $4,000, respectively. Ninety percent of credit sales are collected in the month of sale, and the remainder is collected in the following month. Rachel's suppliers do not extend credit. Cash payments for January are expected to be $24,000. Rachel has a line of credit that enables the store to borrow funds on demand. However, funds must be borrowed on the first day of the month and interest paid in cash on the last day of the month. Rachel's bank charges annual interest of 12% per year. Rachel desires a minimum $1,000 cash balance at the end of each month. Required:Compute the amount of funds that needs to be borrowed.Compute the amount of interest expense that will appear on the January 31 pro forma income statement.

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.

Select the correct equation format for the purchases budget.

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?

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

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

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

Which of the following statements is true?

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