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Exam 7: Planning for Profit and Cost Control

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Question 1

True/False

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Although only 20 units are on hand at the beginning of the year,World Company plans to sell 100 units during Year 2.Assuming the company desires an ending inventory of 10 units,it should plan to purchase 110 units.

A) True
B) False

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Question 2

Multiple Choice

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Which of the following items would be least useful in preparing a schedule of cash receipts?

A) Expected revenue from cash sales.
B) Number of units expected to be purchased.
C) Service charges for credit card sales.
D) Past accounts receivable collection experience.

E) A) and D)
F) All of the above

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Question 3

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What is the role of top management in a participative budgeting system?

The responsibility for the coordination of a company's budgeting activities normally rests with the Chief Financial Officer (CFO).

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

The budgeting technique that provides for employee input into the planning process is known as:

Markham Company has completed its sales budget for the first quarter of Year 2.Projected credit sales for the first four months of the year are shown below: $\begin{array}{lll}\text { January } & \$ 30,000 \\\text { February } & \$ 36,000 \\\text { March } & \$ 45,000 \\\text { April } & \$ 48,000\end{array}$ The company's past records show collection of credit sales as follows: 40% in the month of sale and the balance in the following month.The total cash collection from receivables in March is expected to be:

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

Select the term from the list provided that best matches the description provided.

Bright Minds Toy Company prepared the following sales budget for the second quarter.Projected sales for each of the first three months of operations are as follows: $\begin{array}{lccc}\text {Sales Budget}& \text { April } & \text { May } & \text { June}\\\text {Cash Sales}&30,000 & 43,000&55,000 \\\text { Sales on Account}&370,0 & 432,000&405,000 \\&400,000&475,000&460,000\end{array}$ Bright Minds expects to collect 70% of the sales on account in the month of sale,20% in the month following the sale,and the remainder in the second month following the sale. What is the ending accounts receivable balance that would be reported on the pro forma balance sheet prepared as of June 30?

Budgeted sales commissions would appear on the:

Spacely Sprockets' sales budget shows the following expected total sales: $\begin{array} { l l } \text { Month } & \text { Sales } \\\text { January } & \$ 30,000 \\\text { February } & \$ 40,000 \\\text { March } & \$ 35,000 \\\text { April } & \$ 30,000\end{array}$ 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 and 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.

Depreciation expense will appear on the schedule of cash payments for selling and administrative expenses.

Pro forma financial statements are financial statements that are prepared based on budgeted future amounts.

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

Budgeting that involves decisions such as whether to buy or lease equipment or build a new factory is referred to as:

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

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:

Select the correct equation format for the purchases budget.

Which of the following would be prepared first when a merchandising company uses a master budget?