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Exam 14: Planning for Profit and Cost Control

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Question 51

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Virginia Jackson is opening Jackson Realty on January 2. For several weeks she has been busy putting together an operating budget for the first quarter of operation for her new business. Virginia has estimated her selling and administrative (S&A) costs as follows: $\begin{array} { | l | r | r | r | } \hline & { \text { January } } & { \text { February } } &{ \text { March } } \\\hline \text { Depreciation } & \$ 1,000 & \$ 1,000 & \$ 1,000 \\\hline \text { Marketing expenses } & 2,000 & 1,400 & 1,000 \\\hline \text { Miscellaneous costs } & 500 & 400 & 400 \\\hline \text { Rent expense } & 5,000 & 5,000 & 5,000 \\\hline \text { Salary expense } & 4,000 & 8,000 & 8,000 \\\hline \text { Sales commissions } & 1,000 & 1,200 & 1,400 \\\hline \text { Utilities expense } & 1,000 & 800 & 1,000 \\\hline \text { Total S\&A costs before interest } & \$ 14,500 & \$ 17,800 & \$ 17,800 \\\hline\end{array}$ All selling and administrative costs are paid when incurred except utilities, marketing expenses, and sales commissions. These items are paid in the month following the month incurred. Required: 1) Prepare a schedule of cash payments for selling and administrative expenses for January through March. 2) What liabilities, in what amounts, would be reported on the pro forma balance sheet as of March 31?

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1) Schedule of cash payments f...

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Question 52

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Scranton Company expects to begin operating on July 1, 2014. The company's master budget contained the following operating expense budget: $\begin{array} { | l | r | r | r | } \hline & { \text { July } } & { \text { August } } & { \text { September } } \\\hline \text { Salary expense } & \$ 36,000 & \$ 36,000 & \$ 36,000 \\\hline \text { Sales commissions, } 5 \% \text { of sales } & 30,000 & 32,000 & 24,000 \\\hline \text { Utilities } & 2,800 & 2,800 & 2,800 \\\hline \text { Depreciation on store equipment } & 1,000 & 1,000 & 1,000 \\\hline \text { Rent } & 7,200 & 7,200 & 7,200 \\\hline \text { Miscellaneous } & 1,800 & 1,800 & 1,800 \\\hline \text { Total operating expenses } & \$ 78,800 & \$ 80,800 & \$ 772,800 \\\hline\end{array}$ Sales commissions are paid in cash in the month following the month in which the expense is recognized. All other expense items requiring cash payment are paid in the month in which they are recognized. The amount of commissions payable that would appear on the company's September 30, 2012 pro forma balance sheet is:

A) $32,000.
B) $30,000.
C) $36,000.
D) $24,000.

E) None of the above
F) C) and D)

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Question 53

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Which of the following would not be included in the cash budget?

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

Select the correct statement about budgeting and human behavior.

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

Which of the following would not be included in a selling and administrative expenses budget?

Four purposes or advantages for budgeting involve planning, coordination, performance measurement, and punative action.

How do short-term plans differ from long-term plans?

Vector Company seeks input from salespeople regarding the number of units they believe they can sell during the upcoming budget period. This is an example of participative budgeting.

Dobson Company expects to begin operating on January 1. The company's master budget contained the following operating expense budget: $\begin{array}{|l|r|r|r|}\hline&\text { January } & \text { February } & \text { March } \\\hline\text { Salary expense }&\$ 40,000 & \$ 36,000 & \$ 36,000 \\\hline \text { Sales commissions, } 5 \% \text { of sales } & 24,000 & 30,000 & 28,000 \\\hline \text { Utilities } & 2,800 & 2,800 & 2,800 \\\hline \text { Depreciation on store equipment } & 1,800 & 1,800 & 1,800 \\\hline \text { Rent } & 7,200 & 7,200 & 7,200 \\\hline \text { Miscellaneous } & 1,800 & 1,800 & 1,800\\\hline\text {Total operating expenses}&\$ 77,600 & \$ 79,600 & \$ 77,600\\\hline\end{array}$ Sales commissions are paid in cash in the month following the month in which the expense is recognized. All other expense items requiring cash payment are paid in the month in which they are recognized. The amount of cash to be paid for operating expenses during the month of January is:

Which section is not included on the cash budget?

Select the term from the list provided that best matches the description provided. $\begin{array} { | l | l | l | } \hline \text { Your Answer } & \text { Definition or Description } & \text { Term } \\\hline & \begin{array} { l } \text { A. Composed of numerous separate but } \\\text { interdependent departmental budgets covering sales, } \\\text { production, and administrative expenses }\end{array} & \text { 1. Budgeting } \\\hline & \begin{array} { l } \text { B. Budgeting technique that allows subordinates and } \\\text { upper-level managers to work together in setting } \\\text { budgetary targets }\end{array} & \text { 2. Capital budget } \\\hline & \begin{array} { l } \text { C. Financial planning activities that cover the } \\\text { intermediate range of time (such as whether to buy or } \\\text { lease equipment) }\end{array} & \begin{array} { l } \text { 3. Pro forma financial } \\\text { statements }\end{array} \\\hline & \begin{array} { l } \text { D. Activities associated with long-range decisions } \\\text { such as defining the scope of the business and } \\\text { deciding which products to develop }\end{array} & \text { 4. Budget committee } \\\hline & \text { E. Budgeted financial statements } & \text { 5. Master budget } \\\hline & \begin{array} { l } \text { F. The group of individuals responsible for the } \\\text { coordination of budgeting activities }\end{array} & \text { Operating budget } \\\hline & \begin{array} { l } \text { G. Examples of these budgets include sales budget, } \\\text { inventory purchases budget, and cash budget }\end{array} & \text { 7. Strategic planning } \\\hline & \begin{array} { l } \text { H. Budgeting technique that keeps managers } \\\text { constantly involved in the budget process }\end{array} & \text { 8. Participative budgeting } \\\hline & \begin{array} { l } \text { I. Form of planning that formalizes goals and } \\\text { objectives of a company in financial terms }\end{array} & \text { 9. Perpetual budgeting } \\\hline\end{array}$

Chu Company provided the following information related to its inventory sales and purchases for December 2013 and the first quarter of 2014: $\begin{array} { | l | c | c | c | c | c | } \hline & \text { Dec. } 2013 & \text { Jan. } 2014 & \text { Feb. 2014 } & \text { Mar. } 2014 \\\hline & \text { (Actual) } & \text { (Budgeted) } & \text { (Budgeted) } & \text { (Budgeted) } \\\hline \text { Cost of goods sold } & \$ 80,000 & \$ 140,000 & \$ 180,000 & \$ 120,000 \\\hline\end{array}$ Desired ending inventory levels are 25% of the following month's projected cost of goods sold. Budgeted purchases of inventory in February 2014 would be:

Bantam Industries has budgeted the following information for March: $\begin{array} { | l | r | } \hline \text { Cash receipts } & \$ \quad 271,000 \\\hline \text { Beginning cash balance } & 5,000 \\\hline \text { Cash payments } & 280,000 \\\hline \text { Desired ending cash balance } & 25,000 \\\hline\end{array}$ If there is a cash shortage, the company borrows money from the bank. All cash is borrowed at the beginning of the month in $1,000 increments and interest is paid monthly at 1% on the first day of the following month. The company had no debt before March 1^st. The shortage or surplus of cash before considering cash borrowed in March would be:

Which of the following items is not needed to prepare a sales budget by product line?

The master budget generally starts with a sales forecast.

Hernandez Company expects credit sales for January to be $100,000. Cash sales are expected to be $60,000. The company expects credit and cash sales to increase 10% for the month of February. Credit sales are collected in the month following the month in which sales are made. Based on this information the amount of cash collections in February would be:

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