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Exam 7: Planning for Profit and Cost Control

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Question 41

True/False

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

A) True
B) False

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Question 42

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Which of the following items typically found on the selling and administrative expense budget will also impact the cash budget?

A) Depreciation expense
B) Administrative salaries
C) Advertising expense
D) Both administrative salaries and advertising expense are correct.

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

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Question 43

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Under continuous budgeting a new month is added to the end of the budget period each time the present month expires so that a twelve-month budget is available at all times.

Sales for January are budgeted at 50,000 units, and the company expects sales to increase 4% each month. How many units will need to be purchased in February if the company's policy is to keep ending inventory each month at 10,000 units?

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

A company's numerous specific budgets (sales, inventory purchases, etc.) together are referred to as the:

Interest expense is not included in the selling and administrative budget because a company cannot estimate interest expense until it prepares the cash budget and makes borrowing projections.

Which of the following budgets needs to be prepared prior to preparing an inventory purchases budget?

The budgeting process that involves adding a month to the end of the budget period at the end of each month, thus maintaining a twelve-month planning horizon, is referred to as:

The type of planning that involves long term decisions, such as defining the scope of the business and deciding what products to make is known as:

O'Hare Company is in the process of preparing a purchases budget for the first quarter of Year 2. The company has budgeted sales as follows: $\begin{array} { | l | l r | } \hline \text { Dec. Year 1 } & \$ & 44,000 \\\hline \text { Jan. Year 2 } & \$ & 46,500 \\\hline \text { Feb. Year 2 } & \$ & 51,000 \\\hline \text { Mar. Year } 2 & \$ & 61,500 \\\hline\end{array}$ Cost of goods sold is expected to be 75% of sales. The company would like to have ending inventory each month equal to 25% of the following month's predicted cost of sales. The total cost of purchases in January Year 2 is:

The cash budget includes three sections: (1) operating activities, (2) investing activities, and (3) financing activities.

The inventory purchases budget is based on which budget?

What is the relationship or connection between a company's pro forma financial statements and the end-of-period financial statements reported to stockholders and other external users?

What is the ending accounts receivable balance that would be reported on the pro forma balance sheet prepared as of June 30?

Valley Farm Supply started the period with $80,000 cash. Cash receipts for January expected to total $350,000. Cash disbursements for January were expected to be $290,000. What is the expected cash balance at the end of January?

Select the correct statement.

The following budget information is available for the Arch Company for January Year 2: $\begin{array} { | l | r | } \hline \text { Sales } & \$ 860,000 \\\hline \text { Cost of goods sold } & 540,000 \\\hline \text { Utilities expense } & 2,800 \\\hline \text { Administrative salaries } & 100,000 \\\hline \text { Sales commissions } & 5 \% \text { of sales } \\\hline \text { Advertising } & 20,000 \\\hline \text { Depreciation on store e quipment } & 50,000 \\\hline \text { Rent on administration building } & 60,000 \\\hline \text { Miscellane ous administrative expenses } & 10,000 \\\hline\end{array}$ All operating expenses are paid in cash in the month incurred. Compute total budgeted selling and administrative expenses (excluding interest) amount for January Year 2.

Which of the following would represent the order in which most master budgets are prepared?

What is the amount of sales commissions payable that the company will report on its pro forma balance sheet at the end of the fourth quarter?