Budgeted production = (expected sales) + (expected ending inventory) (expected beginning inventory)

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Byron McLaughlin
6 years ago
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3 The correct answer is: 86,000 units. Budgeted production is calculated as follows: Budgeted production = (expected sales) + (expected ending inventory) (expected beginning inventory) The expected ending inventory for each quarter equals 50% of the next quarter s expected sales. Since the finished goods inventory at the end of the first quarter is 8,000 less than it should be, the budgeted production for the second quarter is calculated as follows: Budgeted production, second quarter = 72,000 units + 0.5(84,000 units) [0.5(72,000 units) 8,000 units] Budgeted production, second quarter = 72,000 units + 42,000 units [36,000 units - 8,000 units] Budgeted production, second quarter = 114,000 units 28,000 units = 86,000 units

5 The correct answer is: $80,500 For the current year, sales are $100,000, and the projected growth rate in sales is 15%, thus $100,000 x 1.13 = $115,000. Since Cost of Goods Sold (COGS) is 70% of sales, the projected COGS would be $80,500 ($115,000 x 70%).

7 The correct answer is: 5,010 units The number of units to be produced equals sales (5,000 units) plus desired ending inventory (10% of 5,100 = 510) less beginning inventory (10% of 5,000 = 500) = 5,010 units.

9 The correct answer is: 54,000 units. The production in odd numbered months is 1.5 times the projected sales for the following month. Therefore, the production budget for January is 1.5 times the projected sales for February or 1.5(36,000 units) = 54,000 units.

11 The correct answer is: Sales forecast Without an accurate sales forecast, all other budget elements will be inaccurate because production levels, purchases, etc., are set to match expected sales.

13 The correct answer is: zero-based budgeting. Zero-based budgeting (ZBB) requires that the cost of each item or program in the budget be rejustified with each new budget. ZBB ranks items and programs by how vital they are to the company. The base for each budget line item or program is zero.

15 The correct answer is: $70,000.Monroe can expect to borrow $10,000 in January and $60,000 in February for a total of $70,000. The expected cash balance at the end of January is calculated as follows: Expected cash balance, end of January = (beginning balance) + (cash receipts from December sales) (cash disbursements) (monthly cash expenses) Cash disbursements = 60% of February purchases Monthly cash expenses for January = $25, $5,000 depreciation expense Expected cash balance, end of January = $30,000 + $200,000 (0.6)($350,000) - $20,000 Expected cash balance, end of January = $210,000 $210,000 = $0 Therefore, $10,000 needs to be borrowed in January to provide a $10,000 beginning balance for February. The expected cash balance at the end of February is calculated as follows: Expected cash balance, end of February = (beginning balance) + (cash receipts from January sales) (cash disbursements) (monthly cash expenses) Cash disbursements = 60% of March purchases Monthly cash expenses for February = $25,000 $5,000 depreciation expense Expected cash balance, end of February = $10,000 + $200,000 (0.6)($400,000) ($20,000) Expected cash balance, end of February = $190,000 $240,000 = -$50,000 Therefore, Monroe would need to borrow $60,000 in February to provide a $10,000 beginning balance for March.

17 The correct answer is: Cash budget An operating budget is broken down into the different operational budgets of the organization, including a sales budget, production budget, direct materials budget, direct labor budget, overhead budget, cost of goods sold budget, and selling and administrative expense budget. A cash budget is one of the subsets of the financial budget.

21 The correct answer is: 80.0%. Using a cumulative average time learning curve, as the cumulative output doubles, the cumulative average direct labor hours per unit becomes the learning curve percentage times the previous cumulative average direct labor hours per unit. So, if the first lot used 5,000 direct labor hours and the second lot required 3,000 direct labor hours, then the total for the 2 lots would be 8,000 direct labor hours and the cumulative average hours for the two lots would be 4,000 direct labor hours (8,000 direct labor hours / 2). Therefore, the learning curve percentage would be calculated by taking the cumulative average hours for the two lots (4,000 direct labor hours) and dividing it by the number of direct labor hours used for the first lot (5,000), or 4,000 / 5,000 = 0.8, or 80%.

25 The correct answer is: $2.09. The variable overhead rate per unit is calculated by taking the expected variable overhead and dividing it by the expected production in units. The expected variable overhead consists of indirect materials, indirect labor, and utilities, and is calculated as follows: Variable overhead = ($1,000 + $10,000 + $12,000) Variable overhead = $23,000 Since expected production is 11,000 units, the variable overhead rate = $23,000 / 11,000 units = $2.09 per unit.

33 The correct answer is: $27/unit The standard cost is determined using the "should cost" amounts: (8 pounds x $1.50) + (0.5 x $10) + (0.5 x $20) = $27/unit.

35 The correct answer is: Combination approach In an authoritative budget (top-down budget), top management sets everything from strategic goals down to the individual items of the budget for each department and expects lower managers and employees to adhere to the budget and meet the goals. In a participative budget (bottom-up or self-imposed budget), managers at all levels and certain key employees cooperate to set budgets for their areas, and top management usually retains final approval. The ideal process combines the features of each and falls somewhere between these methods.

37 The correct answer is: estimating declining costs based on increased learning. Learning curve analysis is a systematic method for estimating declining costs based on increased learning by the business, group, or individual. As experience is gained, the worker or business becomes more efficient at production, which decreases costs.

39 That s incorrect. Since department managers have the most detailed knowledge about organizational operations, they should use this information as the building blocks of the operating budget. In the development of the operating budget, it is important that the department managers have a primary impact on the operating budgets as they have the most knowledge necessary to make an informed decision of the resources necessary to operate the department effectively.

41 That s incorrect. The correct chronological order in budget preparation always starts with the sales budget, production budget, purchases budget (including direct materials), cost of goods sold budget, and administrative budget.

43 The correct answer is: Employees may be confused due to less-clear operating guidelines. Regular revisions usually provide more clear operating guidelines. The other options are all risks of regular revisions.

47 The correct answer is: $600,000. Cost of goods sold is calculated as follows: Cost of goods sold = (cost of goods manufactured) + (beginning finished goods inventory) (ending finished goods inventory) Cost of goods sold = $700,000 + $100,000 $200,000 Cost of goods sold = $600,000

49 That s correct! Freight charges paid for the delivery of raw materials to the company. The overhead budget includes those items that can not be directly traced back to the product itself, therefore, items such as overtime paid to the workers who perform production scheduling, cost of glue used to secure the attachment of the legs to the tables, and fringe benefits paid to the production supervisor are all inclusive overhead costs.

51 The correct answer is: 151 televisions. The formula for exponential smoothing is: F(t+1) = α [A(t)] + (1 α)[f (t)] Where: F = the forecast A = the actual t = the current time period α = the smoothing constant February forecast = F(t) = 148 February actual = A(t) = 158 March forecast = F(t+1) = (0.3)(158) + (1-0.3)(148) F(t+1) = (148) F(t+1) = = 151

53 The correct answer is: The budget would be set too low and the sales force would be less motivated to surpass those goals Employing prior year results as the following year s budget provides no expectation for improvement. Another reason for not using historical results as a budget is that past performance is not always indicative of future results. A budget process attempts to predict and account for future changes, both positive and negative. Relying only on raw historical data leads to a sense that the past year must always be the benchmark.

55 Incorrect answer. The correct answer is: limit unauthorized expenditures. Feedback: Advantages of management control systems include the forcing of management to plan, providing performance critera, and the promotion of communications and coordination within the organization.

61 The correct answer is: Show prospective investors how they will earn an appropriate rate of return. Prospective investors use financial statements, both historical and pro forma, to estimate the statement issuer s future economic performance (cash flows and income) and to estimate the expected return on an investment in the issuer s securities. The prospective investor compares the expected return to his/her required rate of return to see if it is appropriate.

63 The correct answer is: loan proceeds. Loan proceeds are a cash receipt. All of the other choices are cash disbursements.

65 The correct answer is: Continuous budgeting A continuous budget adds a new period on the end of the budget at the end of each period such as a month so that the budgets remain up to date with the operating environment. A monthly continuous budget also breaks down a large budgeting process into 12 easily manageable steps.

67 The correct answer is: rolling budget. A rolling budget (or continuous budget) is a plan that always covers a specified future period by adding a period in the future and dropping the period just ended. It forces management to continuously focus on the future specified time period. The time period is always the same length, but the actual time period covered by the budget moves forward with the passage of time.

69 That s correct! Learning curve analysis. With learning curve analysis, the more that a process is performed, the less time it takes to complete that process.

71 The correct answer is: In-depth interviews of each area the manager controls In order to justify what items to continue funding, managers must conduct in-depth reviews of each area under their control.

77 The correct answer is: Activity-based budgeting Machine hours is a volume-based cost driver, and number of setups is an activity-based cost driver. The only possible budgeting system allowing such inputs is an activity-based budget.

81 The correct answer is: Top management support. Top managers determine and significantly influence how budgets are perceived in their companies. Top management initiates the planning and budgeting process and approves policies and procedures regulating it, which makes its support a crucial success factor for the budgeting process.