Chapter 23

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University of Memphis *

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7080

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Accounting

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Apr 3, 2024

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Uploaded by JusticeGorilla11999

Chapter 23 Assignments: 1. Surprisingly, being profit rich, yet cash poor often stems from rapid___. Growth 2. An operating cycle reflects the amount of time that cash is tied up in___ and accounts___ before converting back to cash. Inventory; receivable 3. Which of the following statements is/are true about budgets? Budgets play an important role in controlling costs; Budgets are formal written plans for achieving financial goals; Budgeting is an essential step in financial planning 4. Which of the following are the benefits of the budgeting process? objective measures of performance evaluation; enhanced management awareness of the external economic environment; unambiguous assignments of decision-making responsibilities; effective coordination among departments and other operating units 5. Which of the following statements is/are true regarding the selection and implementation of a budgeting approach? Managers should understand both the intent and the purpose of the budgeting process; Managers should participate actively in the budgeting process; The budgeting approach should reflect the goals and philosophies of top management 6. A company that is profit rich, yet cash poor can experience: negative operating cash flow; profitability measures that exceed industry averages; liquidity measures that fall short of industry averages 7. 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. Rolling; fiscal 8. 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. 60days; 30days 9. Elements of a master budget that are organized by responsibility center are generally referred to as___ budgets. Responsibility 10. True or false: Unlike large organizations, very small businesses rarely benefit from preparing formal written plans for their future operations. FALSE

11. Which element of a master budget is always prepared first? sales budget 12. The budgeting process is often referred to as financial ___ because of its forward-looking focus. Forecasting 13. 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. $100; $300,000 14. Which of the following statements is/are true regarding the behavioral approach of establishing budgetary amounts? Budgetary amounts should be set at reasonably achievable levels; Managers will be motivated to perform if they view the budget as a fair basis for evaluating a responsibility center's performance 15. Different types of budgets cover different time periods. For instance,___ ___ budgets may cover a decade or more, whereas ___ budgets generally cover a fiscal year or less. Capital expenditures; operating 16. Guthrie Corporation's budgeted sales for the upcoming quarter are 90,000 units. The company desires 18,000 units of inventory at the end of the upcoming quarter, and its beginning inventory is 8,000 units. Each unit that the company produces requires 0.1 direct labor hours at an average rate of $15 per hour. The company's direct labor budget for the upcoming quarter is $___. $150,000 17. Elements of a master budget that are internal working budgets used primarily by managers, such as sales budgets and production budgets, are commonly referred to as ___ budgets. Operating 18. 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. $3,000 19. Which of the budgeted financial statements is generally prepared last? budgeted balance sheet 20. 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 21. Which of the following manufacturing cost estimates are necessary to prepare a production budget? direct labor costs; fixed

manufacturing overhead; variable manufacturing overhead; direct material costs 22. Lamberton Corporation's budgeted production for the upcoming quarter is 20,000 units. Each unit produced is expected to require 5 machine-hours, and its variable overhead application rate is $10 per machine-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 $___. $ 1,100,000 23. Which of the following statements is/are true regarding the selection and implementation of a budgeting approach? The budgeting approach should reflect the goals and philosophies of top management; Managers should understand both the intent and the purpose of the budgeting process; Managers should participate actively in the budgeting process 24. Which of the following costs are considered fixed selling and administrative expenses? Sales salaries; insurance costs on delivery vehicles 25. 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 $___. $1,200,000 26. 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 $___. $225,000; $70,000; $28,000; $42,000 27. Anthony Manufacturing budgets that it will sell 22,000 bikes in the upcoming quarter. The company desires an ending inventory of 8,000 units and a beginning inventory of 2,000 units. The company's budgeted production is___ units. 28,000 28. 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

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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 $___. $460,000 29. Becker Corporation's budgeted production for the upcoming quarter is 60,000 units. Each unit requires 3 gallons of material costing $2 per gallon. The company's beginning materials inventory is 4,000 gallons, and it desires 9,000 gallons of material at the end of the upcoming quarter. The company's budgeted cost of material purchases is $___. $370,000 30. True or False: Amounts included in the Prepayments for Insurance and Depreciation do not call for future disbursements of cash. TRUE 31. 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 $___. $195,000 32. Which of the following costs are considered variable selling expenses? shipping and delivery costs; sales commissions 33. 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 $___. $1,500 34. 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 $___. $400,000; $140,000; $56,000; $84,000 35. Which of the following statements about budgeted income taxes is/are true? If a beginning tax liability exceeds the ending liability, tax payments during the period exceeded tax expenses; If an ending tax liability exceeds the beginning liability, tax expenses during the period exceeded tax payments 36. Mennaga Corporation's current payables total $100,000. Its manufacturing cost projections for material, labor, and overhead for the upcoming quarter total $500,000, and its selling and administrative costs are budgeted at $200,000. Of its total cost and expense

projections, $150,000 pertain to depreciation, and $20,000 pertain to prepayments converting into expenses. After careful analysis, the company estimates that payables outstanding at the end of the upcoming quarter will total $130,000. The company's budgeted cash payments on current payables in the upcoming quarter total $___. $500,000 37. 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 $___. $200,000 38. Which of the following costs and expenses are not financed with payables in the current period? depreciation expense; the expiration of prepayments 39. 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. Dividends 40. Lamberton Corporation's budgeted production for the upcoming quarter is 20,000 units. Each unit produced is expected to require 5 machine-hours, and its variable overhead application rate is $10 per machine-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 $___. $1,100,000 41. Which of the following statements is/are true regarding prepayments for items such as rent and insurance? Prepayments represent operating cash outflows that have no immediate effect on operating income 42. 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 $___. $10,000 43. 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 ___. Inventories ; receivables 44. 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 $___. $300,000

45. A ___ ___ is one that can be adjusted easily to show budgeted revenue, costs, and cash flow at different levels of activity. Flexible budget 46. 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 $___. $195,000 47. Welsh Corporation uses a flexible budgeting process. Its budgeted variable manufacturing costs for direct labor, direct materials, and variable overhead total $37 per unit, and its fixed manufacturing overhead costs are budgeted at $5,000 per month. At its normal level of budgeted production of 300 units per month, its budgeted manufacturing costs total $16,100 [(300 units × $37 per unit) + $5,000]. In the most recent month, the company produced 400 units at a total manufacturing cost of $19,850. 1. The company's budgeted total monthly cost to produce 400 units is $___ 2. In the current month, the company was over budget by $___. $19,800; $50 48. 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 ___%. 10% 49. NTI will likely use the master budgeting process for evaluating management performance by comparing budgeted amounts to___ performance. Actual 50. 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. performance report 51. 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. Dividends 52. 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 $___. $30,000; $1,000 Homeworks:

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1. Renaldo’s Boutiques, Incorporated, has 14 stores located in a midwestern part of the United States. Renaldo, the president of the company, has set budgets for each store that do not allow for lost, stolen, or misplaced merchandise (inventory shrinkage). Research shows the disappearance of store merchandise is attributed to a combination of internal and external causes. Customer theft—35 percent Employee theft—40 percent Administrative errors—18 percent Vendor dishonesty—7 percent Which philosophy do you believe Renaldo is following? Behavioral approach 2.