ACT 5140 smart book chapt 23

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Nova Southeastern University *

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5140

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Accounting

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Jun 14, 2024

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ACT 5140 smart book chapt 23 Being profit rich, yet cash poor is often attributed to: A company's cycle time is 90 days. Inventories remain on-hand twice as long before being sold as accounts receivable remain outstanding before being collected. 1. The average time inventory remains on-hand before being sold is _days. 2. The average time accounts receivable remain outstanding before being collected is _days. 60 days x=accounts receivable days 2x = inventory days x + 2x = 90 days 3x = 90 days x = 30 days 2x = 60 days True or false: Unlike large organizations, very small businesses rarely benefit from preparing formal written plans for their future operations.

Which of the following are the benefits of the budgeting process? Which of the following statements is/are true regarding the behavioral approach of establishing budgetary amounts? Surprisingly, being profit rich, yet cash poor often stems from rapid_

An advantage of the _ budget approach is that it stabilizes the planning horizon at a full-year ahead. Under the _ year or calendar year approaches, the planning period shortens as the year progresses. An operating cycle reflects the amount of time that cash is tied up in _ and accounts _ before converting back to cash. Which of the following are considered elements of a production budget? Which of the following statements is/are true about budgets?

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Elements of a master budget that are shared with external parties, such as investors and creditors, are commonly referred to as _ budgets. Budgets provide a yardstick by which management's _can be measured and evaluated. Which element of a master budget is always prepared first? Answer and Explanation: The sales budget should always be prepared first. The sales budget is an important component of the budgeting process

and it indicates the forecast of units that will be sold in the period as well as the revenue to be earned from these sales. The total quality management approach to budgeting is to set budgetary amounts at levels that represent absolute _ Baxter Corporation made the following budget cost estimates for the upcoming month: Direct Labor = $30 per unit; Direct Materials = $50 per unit; Variable Manufacturing Overhead = $20 per unit; Variable Selling and Administrative Costs = $15 per unit; Fixed Manufacturing Overhead = $300,000 per month; Fixed Selling and Administrative Costs = $450,000. 1. The variable costs necessary to prepare a production budget total $ _per unit. 2. The fixed costs necessary to prepare a production budget total $ _per month. Most organizations use a(n) _budget approach, whereby a new quarter or month is added to the end of the budget as the current quarter or month draws to a close. Conway Corporation's budgeted sales for the upcoming quarter are 75,000 units. The company desires 15,000 units of inventory at the end of the upcoming quarter, and its beginning inventory is 10,000 units. Each unit that the company produces requires 0.5 direct labor hours at an average rate of

$30 per hour. The company's direct labor budget for the upcoming quarter is $_ Which of the following budgets are typically considered operating budgets? Hinkley Manufacturing budgets that it will sell 40,000 gliders in the upcoming quarter. The company desires an ending inventory of 5,000 units, and its budgeted production is 42,000 units. The company's beginning inventory is _ units. Elements of a master budget that are organized by responsibility center are generally referred to as _ budgets.

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Dyer Corporation's budgeted production for the upcoming quarter is 15,000 units. Each unit requires 5 pounds of material costing $20 per pound. The company's beginning materials inventory is 15,000 pounds, and it desires 10,000 pounds of material at the end of the upcoming quarter. The company's budgeted cost of material purchases is $_ $1,400,000 (15,000 units x 5 pounds) + 10,000 pounds - 15,000 pounds = 70,000 pounds 70,000 pounds x 20 = 1,400,000 True or false: The preparation of a cash flow forecast is generally the first step taken in the master budgeting process. Smith Corporation's budgeted production for the upcoming quarter is 60,000 units. Each unit produced is expected to require 1.25 direct labor hours, and its variable overhead application rate is $10 per direct labor hour. At this budgeted level of output, the company's average fixed manufacturing overhead cost is $5 per unit. The company's total budgeted overhead for the upcoming quarter is $_

Shaub Corporation made the following budget cost estimates for the upcoming month: Direct Labor = $10 per unit; Direct Materials = $20 per unit; Variable Manufacturing Overhead = $5 per unit; Variable Selling and Administrative Costs = $12 per unit; Fixed Manufacturing Overhead = $100,000 per month; Fixed Selling and Administrative Costs = $250,000. 1. The variable costs necessary to prepare a production budget total $_ per unit. 2. The fixed costs necessary to prepare a production budget total $_ per month. Swift Corporation's budgeted sales for the upcoming quarter are 100,000 units. The company desires 5,000 units of inventory at the end of the upcoming quarter, and its beginning inventory is 10,000 units. Each unit that the company produces requires 0.25 direct labor hours at an average rate of $24 per hour. The company's direct labor budget for the upcoming quarter is $_ Wendy Corporation's production budget for the upcoming quarter reveals total manufacturing costs of $850,000 (an average manufacturing cost of $5 per unit). The company's beginning finished goods inventory is $30,000, and

its budgeted ending finished goods inventory is 8,000 units. 1. The company's budgeted ending finished goods inventory for the upcoming quarter is $_. 2. The company's budgeted cost of goods sold for the upcoming quarter is $_. To explain the answer to Wendy Corporation's budget question, we need to break down the calculations: 1. Budgeted Ending Finished Goods Inventory Value : o The budgeted ending finished goods inventory is 8,000 units. o The average manufacturing cost per unit is $5. o Therefore, the value of the ending inventory is (8,000 \text{ units} \times $5/\ text{unit} = $40,000). 2. Budgeted Cost of Goods Sold (COGS) : o Total manufacturing costs for the quarter are $850,000. o Beginning finished goods inventory value is $30,000. o Ending finished goods inventory value is $40,000. o COGS is calculated as: [ \text{Beginning Inventory} + \text{Total Manufacturing Costs} - \text{Ending Inventory} ] [ = $30,000 + $850,000 - $40,000 = $840,000 ] Filmont Manufacturing desires an inventory of 15,000 tires at the end of the upcoming quarter. Its beginning inventory is 6,000 units, and its budgeted production is 59,000 units. The company's budgeted sales for the upcoming quarter are _units.

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Which of the following costs are considered fixed selling and administrative expenses? Hunt Corporation's budgeted production for the upcoming quarter is 25,000 units. Each unit requires 4 pounds of material costing $6 per pound. The company's beginning materials inventory is 3,000 pounds, and it desires 8,000 pounds of material at the end of the upcoming quarter. The company's budgeted cost of material purchases is $_ Brainard Corporation's budgeted sales for the upcoming quarter are $400,000. Its supporting budgets and schedules show a beginning finished goods inventory of $15,000, budgeted cost of goods manufactured of $185,000, and a projected ending finished goods inventory of $25,000. Its

selling and administrative budget project expenses of $148,000, its budgeted interest expense is $7,000, and its tax rate averages 40%. 1. The company's budgeted gross profit for the upcoming quarter is $_. 2. The company's budgeted income before taxes for the upcoming quarter is $_. 3. The company's budgeted income taxes for the upcoming quarter are $_. 4. The company's budgeted net income for the upcoming quarter is $_. Batalden Corporation's budgeted production for the upcoming quarter is 75,000 units. Each unit produced is expected to require 0.1 machine-hours, and its variable overhead application rate is $6 per machine-hour. At this budgeted level of output, the company's average fixed manufacturing overhead cost is $2 per unit. The company's total budgeted overhead for the upcoming quarter is $_ Nevis Corporation's current payables total $60,000. Its manufacturing cost projections for material, labor, and overhead for the upcoming quarter total $300,000, and its selling and administrative costs are budgeted at $190,000. Of its total cost and expense projections, $15,000 pertain to depreciation, and $5,000 pertain to prepayments converting into expenses. After careful analysis, the company estimates that payables outstanding at the end of the upcoming quarter will total $70,000. The company's budgeted cash payments on current payables in the upcoming quarter total $_.

Which of the following manufacturing cost estimates are necessary to prepare a production budget? Amounts included in the Prepayments for Insurance and Depreciation do not call for future disbursements of cash. The statement is true because both prepayments for insurance and depreciation are accounting entries that do not involve actual cash outflows at the time they are recorded after the initial transaction. 1. Prepayments for Insurance : When insurance premiums are prepaid, the payment is made upfront, covering a future period. This cash outflow occurs only once at the time of the initial payment. Subsequent monthly entries to account for the insurance expense

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do not involve further cash disbursements; they merely allocate the cost over the coverage period from the prepayment account to the insurance expense account. 2. Depreciation : Depreciation is an accounting method used to allocate the cost of a tangible asset over its useful life. It represents the wear and tear on an asset, such as machinery or buildings. Importantly, depreciation is a non-cash expense; it does not involve cash outflow but rather reduces the book value of the asset on the balance sheet over time. Each period's depreciation expense is recorded by debiting the depreciation expense account and crediting the accumulated depreciation account, with no cash changing hands. Thus, neither prepayments for insurance after the initial payment nor depreciation entries require future disbursements of cash. Hart Corporation's production budget for the upcoming quarter reveals total manufacturing costs of $900,000 (an average manufacturing cost of $10 per unit). The company's beginning finished goods inventory is $300,000, and its budgeted ending finished goods inventory is 18,000 units. 1. The company's budgeted ending finished goods inventory for the upcoming quarter is $_. 2. The company's budgeted cost of goods sold for the upcoming quarter is $_. True or false: A selling and administrative expense budget reports only fixed selling and administrative costs. The statement is false because a selling and administrative expense budget includes both fixed and variable costs. Fixed costs remain constant regardless of the level of sales or production (e.g., salaries of administrative personnel, rent for office space). Variable costs, on the other hand, fluctuate with the level of sales or production activity (e.g., sales

commissions, shipping costs). Therefore, the budget for selling and administrative expenses encompasses all these costs, not just the fixed ones. A company has $30,000 of debt outstanding. In the upcoming quarter, it budgets a total debt service cost associated with this obligation of $2,100. The annual interest percentage rate on this debt is 8%. Of the company's total debt service budget, the amount allocated to debt principal payments is $_. Ferguson Corporation's budgeted sales for the upcoming quarter are $900,000. Its supporting budgets and schedules show a beginning finished goods inventory of $60,000, budgeted cost of goods manufactured of $480,000, and a projected ending finished goods inventory of $40,000. Its selling and administrative budget project expenses of $250,000, its budgeted interest expense is $10,000, and its tax rate averages 40%. 1. The company's budgeted gross profit for the upcoming quarter is $_. 2. The company's budgeted income before taxes for the upcoming quarter is $_. 3. The company's budgeted income taxes for the upcoming quarter are $_. 4. The company's budgeted net income for the upcoming quarter is $_. Which of the following statements about budgeted income taxes is/are true?

Grenfell Corporation's current payables total $80,000. Its manufacturing cost projections for material, labor, and overhead for the upcoming quarter total $250,000, and its selling and administrative costs are budgeted at $100,000. Of its total cost and expense projections, $20,000 pertain to depreciation, and $10,000 pertain to prepayments converting into expenses. After careful analysis, the company estimates that payables outstanding at the end of the upcoming quarter will total $50,000. The company's budgeted cash payments on current payables in the upcoming quarter total $_ A company's accounts receivable balance at the beginning of the current year is $100,000. The company's sales budgets for the upcoming first and second quarters report credit sales of $500,000 and $700,000, respectively. Budgeted collections on account in the first and second quarters are estimated at $450,000 and $650,000, respectively. The company's budgeted accounts receivable balance at the end of the second quarter is $_.

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Which of the following costs and expenses are not financed with payables in the current period? Imagine that you are ready to prepare a budgeted balance sheet. Match the balance sheet accounts in the left-hand column with the source of the account information required from the master budget.

To prepare a budgeted balance sheet, you need to match the balance sheet accounts with the appropriate source of information from the master budget. Here’s a typical matching: 1. Cash o Source: Cash Budget o Explanation: The cash budget details the expected inflows and outflows of

cash, allowing you to predict the cash balance at the end of the period. 2. Accounts Receivable o Source: Sales Budget o Explanation: The sales budget helps estimate the revenue expected to be earned, part of which may be in the form of credit sales, impacting accounts receivable. 3. Inventory o Source: Production Budget o Explanation: The production budget determines the number of units that need to be produced, which in turn affects the inventory levels. 4. Property, Plant, and Equipment (PP&E) o Source: Capital Expenditure Budget o Explanation: This budget outlines the planned spending on fixed assets like machinery, buildings, etc. 5. Accounts Payable o Source: Purchases Budget o Explanation: The purchases budget details the purchases of goods and services on credit, affecting accounts payable. 6. Accrued Liabilities o Source: Various budgets (e.g., Direct Labor Budget, Overhead Budget) o Explanation: These budgets provide information on expenses incurred but not yet paid, impacting accrued liabilities. 7. Long-term Debt o Source: Cash Budget or Financing Budget o Explanation: These budgets include details on borrowing and repayment plans, affecting the levels of long-term debt.

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8. Equity o Source: Retained Earnings from the Budgeted Income Statement, plus any budgeted equity transactions (e.g., issuance of stock, dividends) o Explanation: The budgeted income statement provides the expected net income, part of which may be retained in the business, affecting equity. Cooley Corporation's production budget for the upcoming quarter reveals total manufacturing costs of $500,000 (an average manufacturing cost of $50 per unit). The company's beginning finished goods inventory is $60,000, and its budgeted ending finished goods inventory is 1,000 units. 1. The company's budgeted ending finished goods inventory for the upcoming quarter is $_. 2. The company's budgeted cost of goods sold for the upcoming quarter is $_ The master budgeting process helped NTI to coordinate the activities of its production department to better meet the needs of its _department. It also helped the company's _ department better coordinate material acquisitions activities with the demands of the production department. A company has $400,000 of debt outstanding. In the upcoming quarter, it budgets a total debt service cost associated with this obligation of $25,000. Of this amount, $15,000 applies to principal payments. The annual percentage rate associated with interest on this obligation is _%.

A _ _compares budgeted amounts with actual performance and quantifies on a line-by-line basis the amounts by which actual amounts were over or under budgeted amounts. A performance report is a financial tool used by businesses and organizations to compare budgeted amounts with actual performance. This report is essential for management to assess how well the company is adhering to its financial plans and to identify areas where performance is deviating from the budget. In a performance report, each line item from the budget has a corresponding actual amount that was spent or earned. The report quantifies the difference between these budgeted and actual figures, showing whether the actuals are over or under the budgeted amounts. This allows managers to pinpoint specific areas of over-spending or under-spending, facilitating better financial control and informed decision-making for future budgeting. A company's beginning income tax liability is $40,000. For the upcoming quarter, income before taxes is budgeted at $300,000, and tax payments are budgeted at $150,000. If the company's average tax rate is 40%, its budgeted ending tax liability is $_. Hawkins Corporation uses a flexible budgeting process. Its budgeted variable manufacturing costs for direct labor, direct materials, and variable overhead total $50 per unit, and its fixed manufacturing overhead costs are budgeted

at $10,000 per month. At its normal level of budgeted production of 500 units per month, its budgeted manufacturing costs total $35,000 [(500 units × $50 per unit) + $10,000]. In the most recent month, the company produced 400 units at a total manufacturing cost of $29,000. 1. The company's budgeted total monthly cost to produce 400 units is $_. 2. In the current month, the company was under budget by $_. A company's accounts receivable balance at the beginning of the current year is $400,000. The company's sales budgets for the upcoming first and second quarters report credit sales of $800,000 and $900,000, respectively. Budgeted collections on account in the first and second quarters are estimated at $850,000 and $950,000, respectively. The company's budgeted accounts receivable balance at the end of the second quarter is $_. In addition to including budgeted quarterly income as an increase to total stockholders' equity in the budgeted balance sheet, budgeted _declared during the quarter would be included as a decrease to total equity in the budgeted balance sheet. In accounting, dividends declared by a company are distributions of

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earnings to shareholders, which effectively reduce the company's retained earnings. Retained earnings are a component of stockholders' equity, representing the cumulative net income minus dividends paid to shareholders over time. When dividends are declared during a quarter, they must be accounted for as a reduction in total stockholders' equity in the budgeted balance sheet. This is because the declaration of dividends commits the company to pay out a portion of its earnings, thus reducing the amount of earnings retained within the company. Therefore, while budgeted quarterly income increases total stockholders' equity (as it adds to retained earnings), the budgeted dividends declared represent a promise to distribute some of that income to shareholders, thereby reducing the total stockholders' equity. The master budgeting process helped NTI to better understand why it was profit rich, yet cash poor. In particular, the process gave the company advanced warning that excessive cash was being tied up in _ and _. A flexible budget is useful when _levels of activity differ substantially from budgeted levels. Hamline Corporation uses a flexible budgeting process. Its budgeted variable manufacturing costs for direct labor, direct materials, and variable overhead total $60 per unit, and its fixed manufacturing overhead costs are budgeted at $50,000 per month. At its normal level of budgeted production of 2,000 units per month, its budgeted manufacturing costs total $170,000 [(2,000 units × $60 per unit) + $50,000]. In the most recent month, the company produced 1,800 units at a total manufacturing cost of $165,000. 1. The company's budgeted total monthly cost to produce 1,800 units is $_. 2. In the current month, the company was over budget by $_.

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$158,000 50,000 + (60 x 1800) = 158.000 $7,000 165,000 - 158.000 = 7,000 over budget A _ _ is one that can be adjusted easily to show budgeted revenue, costs, and cash flow at different levels of activity.

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ACT 5140 smart book chapt 23

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