CHAPTER 10
Budgetary Planning and Control
Summary of Questions by Objectives and Bloom’s Taxonomy
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BT Item LO
True-False Statements
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Multiple Choice Questions
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AP 112.
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AP 113.
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AP 114.
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Matching
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Exercises
172.
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180.
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10-2
Test Bank to accompany Jiambalvo Managerial Accounting, 7th Edition
183.
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2
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AP
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Challenge Exercises
AP 187.
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AP 188.
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AP
Short-Answer Essays
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EV
TRUE-FALSE STATEMENTS
1.
A budget is a formal document that quantifies a company’s plans for achieving its goals.
Ans: True, LO: 1, Bloom: K, Difficulty: Easy, Min: 1, AACSB: Reflective Thinking, AICPA FN: Measurement
Analysis and Interpretation, AICPA PC: Decision Making, IMA: Decision Analysis
2.
Budgets are useful in the control process because they provide a basis for evaluating
performance.
Ans: True, LO: 1, Bloom: C, Difficulty: Easy, Min: 1, AACSB: Reflective Thinking, AICPA FN: Measurement
Analysis and Interpretation, AICPA PC: Decision Making, IMA: Decision Analysis
3.
A bottom-up approach to budgeting involves substantial input from lower-level
managers.
Ans: True, LO: 1, Bloom: K, Difficulty: Easy, Min: 1, AACSB: Reflective Thinking, AICPA FN: Measurement
Analysis and Interpretation, AICPA PC: Decision Making, IMA: Decision Analysis
4.
Most managers believe that budgeting is more successful when a bottom-up approach
rather than a top-down approach is used.
Ans: True, LO: 1, Bloom: C, Difficulty: Easy, Min: 1, AACSB: Reflective Thinking, AICPA FN: Measurement
Analysis and Interpretation, AICPA PC: Decision Making, IMA: Decision Analysis
5.
Generally, budgets that span longer time periods provide less detail than those spanning
shorter time periods.
Ans: True, LO: 1, Bloom: K, Difficulty: Easy, Min: 1, AACSB: Reflective Thinking, AICPA FN: Measurement
Analysis and Interpretation, AICPA PC: Decision Making, IMA: Decision Analysis
6.
A zero-based budgeting is easier to prepare because it is based on prior period’s activity
levels.
Ans: False, LO: 1, Bloom: K, Difficulty: Easy, Min: 1, AACSB: Reflective Thinking, AICPA FN: Measurement
Analysis and Interpretation, AICPA PC: Decision Making, IMA: Decision Analysis
7.
Only manufacturing firms need to prepare a production budget.
Ans: True, LO: 2, Bloom: K, Difficulty: Easy, Min: 1, AACSB: Reflective Thinking, AICPA FN: Measurement
Analysis and Interpretation, AICPA PC: Decision Making, IMA: Decision Analysis
Chapter 10 Budgetary Planning and Control
8.
10-3
Changes in economic conditions can be one of the causes for significant deviations from
the planned performance.
Ans: True, LO: 1, Bloom: C, Difficulty: Easy, Min: 1, AACSB: Reflective Thinking, AICPA FN: Measurement
Analysis and Interpretation, AICPA PC: Decision Making, IMA: Decision Analysis
9.
The first step in the budget process is preparing the sales forecast.
Ans: True, LO: 2, Bloom: K, Difficulty: Easy, Min: 1, AACSB: Reflective Thinking, AICPA FN: Measurement
Analysis and Interpretation, AICPA PC: Decision Making, IMA: Decision Analysis
10.
If the number of units produced equals the number of units sold, the number of units in
ending inventory will equal the number of units in beginning inventory on the production
budget.
Ans: True, LO: 2, Bloom: C, Difficulty: Medium, Min: 1, AACSB: Analytic, AICPA FN: Measurement Analysis and
Interpretation, AICPA PC: Decision Making, IMA: Decision Analysis
11.
The sales budget is constructed after the production budget is finalized based on a
company’s capacity.
Ans: False, LO: 2, Bloom: K, Difficulty: Medium, Min: 1, AACSB: Analytic, AICPA FN: Measurement Analysis and
Interpretation, AICPA PC: Decision Making, IMA: Decision Analysis
12.
All of the dollar amounts in the cash receipts budget represent revenues earned in the
current period.
Ans: False, LO: 2, Bloom: K, Difficulty: Medium, Min: 1, AACSB: Reflective Thinking, AICPA FN: Measurement
Analysis and Interpretation, AICPA PC: Decision Making, IMA: Decision Analysis
13.
The costs of acquisitions in the material purchases budget appear on the budgeted
income statement as part of cost of goods sold.
Ans: True, LO: 2, Bloom: C, Difficulty: Medium, Min: 1, AACSB: Analytic, AICPA FN: Measurement Analysis and
Interpretation, AICPA PC: Decision Making, IMA: Decision Analysis
14.
The amount and timing of cash flows is the focus of the cash receipts and
disbursements budget.
Ans: True, LO: 2, Bloom: C, Difficulty: Easy, Min: 1, AACSB: Reflective Thinking, AICPA FN: Measurement
Analysis and Interpretation, AICPA PC: Decision Making, IMA: Decision Analysis
15.
A company will often have cash flow problems ahead of a period of increasing sales.
Ans: True, LO: 2, Bloom: C, Difficulty: Easy, Min: 1, AACSB: Analytic, AICPA FN: Measurement Analysis and
Interpretation, AICPA PC: Decision Making, IMA: Decision Analysis
16.
A company that utilizes just-in-time inventory eliminates the need for budgeting.
Ans: False, LO: 2, Bloom: K, Difficulty: Easy, Min: 1, AACSB: Analytic, AICPA FN: Measurement Analysis and
Interpretation, AICPA PC: Decision Making, IMA: Decision Analysis
10-4
Test Bank to accompany Jiambalvo Managerial Accounting, 7th Edition
17.
The budgeted balance sheet is also called a pro-forma balance sheet.
Ans: True, LO: 2, Bloom: K, Difficulty: Easy, Min: 1, AACSB: Reflective Thinking, AICPA FN: Measurement
Analysis and Interpretation, AICPA PC: Decision Making, IMA: Decision Analysis
18.
One way a company can perform “what if” budget analysis is by preparing a flexible
budget.
Ans: True, LO: 3, Bloom: C, Difficulty: Easy, Min: 1, AACSB: Reflective Thinking, AICPA FN: Measurement
Analysis and Interpretation, AICPA PC: Decision Making, IMA: Decision Analysis
19.
The selling and administrative expense budget is based on the numbers in the
production budget.
Ans: False, LO: 2, Bloom: K, Difficulty: Easy, Min: 1, AACSB: Reflective Thinking, AICPA FN: Measurement
Analysis and Interpretation, AICPA PC: Decision Making, IMA: Decision Analysis
20.
Differences between budgeted and actual amounts are referred to as flexible budgets.
Ans: False, LO: 3, Bloom: K, Difficulty: Easy, Min: 1, AACSB: Reflective Thinking, AICPA FN: Measurement
Analysis and Interpretation, AICPA PC: Decision Making, IMA: Decision Analysis
21.
A static budget is prepared for a single anticipated level of production.
Ans: True, LO: 3, Bloom: K, Difficulty: Easy, Min: 1, AACSB: Analytic, AICPA FN: Measurement Analysis and
Interpretation, AICPA PC: Decision Making, IMA: Decision Analysis
22.
If the actual activity level differs from the budgeted activity level on the flexible budget, it
is unfair to evaluate cost performance against that budget.
Ans: True, LO: 3, Bloom: K, Difficulty: Medium, Min: 1, AACSB: Reflective Thinking, AICPA FN: Measurement
Analysis and Interpretation, AICPA PC: Decision Making, IMA: Decision Analysis
23.
A master budget is a set of budget relationships that can be adjusted to various activity
levels.
Ans: False, LO: 2, 3, Bloom: K, Difficulty: Easy, Min: 1, AACSB: Reflective Thinking, AICPA FN: Measurement
Analysis and Interpretation, AICPA PC: Decision Making, IMA: Decision Analysis
24.
In a management by exception approach, only large, unfavorable variances are
investigated.
Ans: False, LO: 3, Bloom: K, Difficulty: Easy, Min: 1, AACSB: Ethics, AICPA FN: Measurement Analysis and
Interpretation, AICPA PC: Decision Making, IMA: Decision Analysis
25.
Managers may be tempted to pad the budget to meet performance targets.
Ans: True, LO: 3, Bloom: C, Difficulty: Easy, Min: 1, AACSB: Ethics, AICPA FN: Measurement Analysis and
Interpretation, AICPA PC: Decision Making, IMA: Decision Analysis
26.
Generally, it is best to evaluate managers against a static budget since the volume used
on a static budget is used to generate expected results for the period.
Ans: False, LO: 3, Bloom: C, Difficulty: Medium, Min: 1, AACSB: Ethics, AICPA FN: Measurement Analysis and
Interpretation, AICPA PC: Decision Making, IMA: Decision Analysis
Chapter 10 Budgetary Planning and Control
27.
10-5
Waiting until January 1 to ship an order and recognizing its revenue that was ready on
December 29 is an example of income shifting.
Ans: True, LO: 3, Bloom: K, Difficulty: Medium, Min: 1, AACSB: Ethics, AICPA FN: Measurement Analysis and
Interpretation, AICPA PC: Decision Making, IMA: Decision Analysis
28.
When a static budget is used for planning and control, managers may be tempted to
build slack into their budgets.
Ans: True, LO: 3, Bloom: K, Difficulty: Easy, Min: 1, AACSB: Ethics, AICPA FN: Measurement Analysis and
Interpretation, AICPA PC: Decision Making, IMA: Decision Analysis
29.
There is an inherent conflict when budgets are used for both planning and control.
Ans: True, LO: 3, Bloom: K, Difficulty: Easy, Min: 1, AACSB: Reflective Thinking, AICPA FN: Measurement
Analysis and Interpretation, AICPA PC: Decision Making, IMA: Decision Analysis
30.
Budgeting often involves both monetary and nonmonetary measures of performance.
Ans: True, LO: 1, Bloom: K, Difficulty: Easy, Min: 1, AACSB: Reflective Thinking, AICPA FN: Measurement
Analysis and Interpretation, AICPA PC: Decision Making, IMA: Decision Analysis
Answers to True-False
1 T
7
2 T
8
3 T
9
4 T
10
5 T
11
6 F
12
T
T
T
T
F
F
13
14
15
16
17
18
F
T
T
F
T
T
19
20
21
22
23
24
F
F
T
T
F
F
25
26
27
28
29
30
T
F
T
T
T
T
10-6
Test Bank to accompany Jiambalvo Managerial Accounting, 7th Edition
MULTIPLE CHOICE
31.
Which of the following is correct concerning a budget?
A.
It is a formal document that quantifies a company’s plans for achieving its goals.
B.
It is prepared by the budget committee.
C.
It identifies the causes of significant deviations from expected performance.
D.
All of the answer choices are correct.
Ans: A, LO: 1, Bloom: K, Difficulty: Easy, Min: 1, AACSB: Reflective Thinking, AICPA FN: Measurement Analysis
and Interpretation, AICPA PC: Decision Making, IMA: Decision Analysis
32.
The formal documents that quantify a company’s plans for achieving its goals are called
A.
variance reports.
B.
budgets.
C.
cost sheets.
D.
production reports.
Ans: B, LO: 1, Bloom: K, Difficulty: Easy, Min: 1, AACSB: Reflective Thinking, AICPA FN: Measurement Analysis
and Interpretation, AICPA PC: Decision Making, IMA: Decision Analysis
33.
A budget is useful in the planning process because it
A.
determines who is to blame for poor operations.
B.
forces managers to think about goals and objectives and means of achieving
them.
C.
identifies budget padding.
D.
creates budget slack.
Ans: B, LO: 1, Bloom: C, Difficulty: Easy, Min: 1, AACSB: Reflective Thinking, AICPA FN: Measurement Analysis
and Interpretation, AICPA PC: Decision Making, IMA: Decision Analysis
34.
Which statement is not true concerning the development of a budget?
A.
It is a means of planning for management.
B.
It often involves communication with and input from department managers.
C.
It enhances communication and coordination among managers.
D.
It is created by the budget committee.
Ans: D, LO: 1, Bloom: K, Difficulty: Easy, Min: 1, AACSB: Reflective Thinking, AICPA FN: Measurement Analysis
and Interpretation, AICPA PC: Decision Making, IMA: Decision Analysis
35.
Which of the following is not a reason that actual results may deviate from planned
performance?
A.
A bottom-up approach to budgeting was used.
B.
Managers have done a particularly good or particularly poor job of managing
operations.
C.
Conditions have changed since the budget was developed.
D.
The budget was poorly conceived and constructed.
Ans: A, LO: 1, Bloom: C, Difficulty: Medium, Min: 1, AACSB: Reflective Thinking, AICPA FN: Measurement
Analysis and Interpretation, AICPA PC: Decision Making, IMA: Decision Analysis
Chapter 10 Budgetary Planning and Control
36.
10-7
The person evaluating a manager should consider
A.
any deviation from budgeted amounts as an item that should be investigated.
B.
all favorable variances as indications of good performance.
C.
that managers will focus their attention on those measures that they know will be
part of their evaluation.
D.
that all unfavorable variances indicate poor performance.
Ans: C, LO: 1, 3, Bloom: C, Difficulty: Easy, Min: 1, AACSB: Reflective Thinking, AICPA FN: Measurement Analysis
and Interpretation, AICPA PC: Decision Making, IMA: Decision Analysis
37.
Who is responsible for the approval of the master budget?
A.
The budget committee
B.
The company’s cost accountant
C.
The company’s auditors
D.
The company’s board of directors
Ans: A, LO: 1, Bloom: K, Difficulty: Easy, Min: 1, AACSB: Reflective Thinking, AICPA FN: Measurement Analysis
and Interpretation, AICPA PC: Decision Making, IMA: Decision Analysis
38.
The budget committee consists of
A.
senior managers, including the CEO and CFO.
B.
representatives from the stockholders and suppliers.
C.
a company’s stockholders.
D.
all employees interested in providing input to the budgeting process.
Ans: A, LO: 1, Bloom: K, Difficulty: Easy, Min: 1, AACSB: Reflective Thinking, AICPA FN: Measurement Analysis
and Interpretation, AICPA PC: Decision Making, IMA: Decision Analysis
39.
In a top-down approach to budgeting, what occurs?
A.
The upper-level managers impose a budget without soliciting input from
department managers.
B.
Lower-level managers are the primary source of information used in setting the
budget.
C.
The production budget is developed before the sales budget.
D.
Each budget amount projected by upper-level managers is approved or
disapproved by lower-level managers.
Ans: A, LO: 1, Bloom: K, Difficulty: Medium, Min: 1, AACSB: Reflective Thinking, AICPA FN: Measurement
Analysis and Interpretation, AICPA PC: Decision Making, IMA: Decision Analysis
40.
In a bottom-up approach to budgeting, the primary source of information used in setting
the budget is
A.
based on forecasted economic conditions.
B.
based on industry forecasts.
C.
provided by the controller.
D.
provided by lower-level managers.
Ans: D, LO: 1, Bloom: K, Difficulty: Easy, Min: 1, AACSB: Reflective Thinking, AICPA FN: Measurement Analysis
and Interpretation, AICPA PC: Decision Making, IMA: Decision Analysis
10-8
Test Bank to accompany Jiambalvo Managerial Accounting, 7th Edition
41.
Which of the following statements regarding approaches to budgeting is/are true?
I.
Most managers believe that successful budgeting requires a bottom-up
approach.
II. A top-down approach involves substantial input from lower-level managers.
A.
Only I
B.
Only II
C.
Both I and II
D.
Neither I nor II
Ans: A, LO: 1, Bloom: K, Difficulty: Medium, Min: 1, AACSB: Reflective Thinking, AICPA FN: Measurement
Analysis and Interpretation, AICPA PC: Decision Making, IMA: Decision Analysis
42.
Less detailed budgets are associated with
A.
production costs.
B.
governmental agencies.
C.
longer time periods.
D.
zero-based budgeting.
Ans: C, LO: 1, Bloom: K, Difficulty: Easy, Min: 1, AACSB: Reflective Thinking, AICPA FN: Measurement Analysis
and Interpretation, AICPA PC: Decision Making, IMA: Decision Analysis
43.
A method of budget preparation that requires all budgeted amounts to be justified, even
if the amounts were supported in prior periods, is called
A.
variance budgeting.
B.
flexible budgeting.
C.
justified budgeting.
D.
zero-based budgeting.
Ans: D, LO: 1, Bloom: K, Difficulty: Easy, Min: 1, AACSB: Reflective Thinking, AICPA FN: Measurement Analysis
and Interpretation, AICPA PC: Decision Making, IMA: Decision Analysis
44.
Which of the following is a characteristic of zero-based budgeting?
A.
It uses the same level of activity as the prior budget period.
B.
It is relatively inexpensive to implement.
C.
It is used mostly by manufacturing companies.
D.
It results in a fresh consideration of the validity of budget amounts.
Ans: D, LO: 1, Bloom: K, Difficulty: Easy, Min: 1, AACSB: Reflective Thinking, AICPA FN: Measurement Analysis
and Interpretation, AICPA PC: Decision Making, IMA: Decision Analysis
45.
Which of the following is the comprehensive planning document that incorporates a
number of individual budgets?
A.
Static budget
B.
Master budget
C.
Flexible budget
D.
Collective budget
Ans: B, LO: 2, Bloom: K, Difficulty: Easy, Min: 1, AACSB: Reflective Thinking, AICPA FN: Measurement Analysis
and Interpretation, AICPA PC: Decision Making, IMA: Decision Analysis
Chapter 10 Budgetary Planning and Control
46.
10-9
Which of the following is not typically a part of the master budget?
A.
Direct material purchases budget
B.
Performance report budget
C.
Projected cash receipts and disbursements
D.
Budgeted balance sheet
Ans: B, LO: 2, Bloom: K, Difficulty: Easy, Min: 1, AACSB: Reflective Thinking, AICPA FN: Measurement Analysis
and Interpretation, AICPA PC: Decision Making, IMA: Decision Analysis
47.
The master budget incorporates individual budgets including those for
A.
direct materials, direct labor, and selling and administrative expenses.
B.
multiple levels of sales volume.
C.
past and future accounting periods.
D.
each employee in the company.
Ans: A, LO: 2, Bloom: K, Difficulty: Easy, Min: 1, AACSB: Reflective Thinking, AICPA FN: Measurement Analysis
and Interpretation, AICPA PC: Decision Making, IMA: Decision Analysis
48.
Which of the following is the correct order for the preparation of the listed budgets?
A.
Budgeted income statement, sales budget, cash budget
B.
Cash budget, capital acquisitions budget, direct labor budget
C.
Sales budget, production budget, direct material purchases budget
D.
Direct labor budget, sales budget, budgeted income statement
Ans: C, LO: 2, Bloom: K, Difficulty: Easy, Min: 1, AACSB: Reflective Thinking, AICPA FN: Measurement Analysis
and Interpretation, AICPA PC: Decision Making, IMA: Decision Analysis
49.
Which of the following budgets is prepared last?
A.
Sales budget
B.
Capital acquisitions budget
C.
Budgeted income statement
D.
Budgeted balance sheet
Ans: D, LO: 2, Bloom: K, Difficulty: Easy, Min: 1, AACSB: Reflective Thinking, AICPA FN: Measurement Analysis
and Interpretation, AICPA PC: Decision Making, IMA: Decision Analysis
50.
Which of the following budgets is prepared first?
A.
Cash budget
B.
Sales budget
C.
Production budget
D.
Budgeted balance sheet
Ans: B, LO: 2, Bloom: K, Difficulty: Easy, Min: 1, AACSB: Reflective Thinking, AICPA FN: Measurement Analysis
and Interpretation, AICPA PC: Decision Making, IMA: Decision Analysis
10-10
Test Bank to accompany Jiambalvo Managerial Accounting, 7th Edition
51.
Which of the following contains at least one item that is not a common method
companies use to estimate sales?
A.
Economic models, and estimates from a company’s own sales force
B.
Trends in a company’s own sales data, and estimates from a company’s own
sales force
C.
Estimates from a company’s own sales force, and expected production levels
D.
Economic models, and trends in a company’s own sales data
Ans: C, LO: 2, Bloom: K, Difficulty: Medium, Min: 1, AACSB: Reflective Thinking, AICPA FN: Measurement
Analysis and Interpretation, AICPA PC: Decision Making, IMA: Decision Analysis
52.
Which of the following is not a method that can reasonably be used to forecast sales?
A.
Trends in the company’s sales data
B.
Production capacity
C.
Estimates from the company’s salespersons
D.
Mathematical models adjusted by an experienced manager using professional
judgment
Ans: B, LO: 2, Bloom: K, Difficulty: Medium, Min: 1, AACSB: Reflective Thinking, AICPA FN: Measurement
Analysis and Interpretation, AICPA PC: Decision Making, IMA: Decision Analysis
53.
Which of the following assumptions is made while preparing a sales budget?
A.
The number of units to be sold and selling price per unit
B.
The cash to be received from units sold
C.
The contribution margin per unit and the number of units to be sold
D.
The number of units the manufacturing facility is able to produce
Ans: A, LO: 2, Bloom: K, Difficulty: Easy, Min: 1, AACSB: Analytic, AICPA FN: Measurement Analysis and
Interpretation, AICPA PC: Decision Making, IMA: Decision Analysis
54.
Why is setting the sales budget very important?
A.
The rest of the master budget is driven by the sales budget.
B.
It is based on the production targets set by the production department.
C.
It establishes the actual profits that will be earned by a company.
D.
None of the answer choices are correct.
Ans: A, LO: 2, Bloom: K, Difficulty: Easy, Min: 1, AACSB: Reflective Thinking, AICPA FN: Measurement Analysis
and Interpretation, AICPA PC: Decision Making, IMA: Decision Analysis
55.
Which of the following is not used in deciding how many units to produce in a period?
A.
The desired number of units in ending finished goods inventory
B.
The expected sales in units
C.
The number of units in beginning finished goods inventory
D.
The number of units of raw material needed for production
Ans: D, LO: 2, Bloom: K, Difficulty: Medium, Min: 1, AACSB: Reflective Thinking, AICPA FN: Measurement
Analysis and Interpretation, AICPA PC: Decision Making, IMA: Decision Analysis
Chapter 10 Budgetary Planning and Control
56.
10-11
Concerning the relationship between beginning finished goods inventory, ending finished
goods inventory, production, and sales, which of the following is true?
A.
Production = Beginning Inventory + Sales – Ending Inventory
B.
Production = Sales + Ending Inventory – Beginning Inventory
C.
Production = Beginning Inventory + Ending Inventory – Sales
D.
Production = Beginning Inventory – Ending Inventory + Sales
Ans: B, LO: 2, Bloom: K, Difficulty: Medium, Min: 1, AACSB: Reflective Thinking, AICPA FN: Measurement
Analysis and Interpretation, AICPA PC: Decision Making, IMA: Decision Analysis
57.
Ace Ladders has fewer units in beginning finished goods inventory than in ending
finished goods inventory. The number of units sold is
A.
less than the number of units produced.
B.
greater than the number of units produced.
C.
less than the number of units in beginning finished goods inventory.
D.
greater than the number of units in ending finished goods inventory.
Ans: A, LO: 2, Bloom: C, Difficulty: Medium, Min: 1, AACSB: Analytic, AICPA FN: Measurement Analysis and
Interpretation, AICPA PC: Decision Making, IMA: Decision Analysis
58.
While preparing the production budget, the desired ending finished goods inventory for
the first period is
A.
the same as the beginning inventory for the second period.
B.
often expressed as a percentage of the first period’s sales.
C.
generally more than the beginning finished goods inventory for the first period.
D.
always zero.
Ans: A, LO: 2, Bloom: C, Difficulty: Medium, Min: 1, AACSB: Reflective Thinking, AICPA FN: Measurement
Analysis and Interpretation, AICPA PC: Decision Making, IMA: Decision Analysis
59.
Which of the following items affect the amount of direct material that must be purchased
during a period?
I.
The amount of raw material in beginning inventory
II.
The amount of raw material in ending inventory
A.
Only I
B.
Only II
C.
Both I and II
D.
Neither I nor II
Ans: C, LO: 2, Bloom: K, Difficulty: Medium, Min: 1, AACSB: Reflective Thinking, AICPA FN: Measurement
Analysis and Interpretation, AICPA PC: Decision Making, IMA: Decision Analysis
10-12
Test Bank to accompany Jiambalvo Managerial Accounting, 7th Edition
60.
A significant difference between the direct material purchases budget and the direct
labor budget is that the direct material purchases budget
A.
is based on units sold, while the direct labor budget is based on units produced.
B.
considers beginning and ending inventory amounts, which are not part of the
direct labor budget.
C.
is constructed for each quarter, while the direct labor budget is constructed for
each pay period.
D.
is constructed from the top down, while the direct labor budget uses a bottom-up
approach.
Ans: B, LO: 2, Bloom: C, Difficulty: Medium, Min: 1, AACSB: Reflective Thinking, AICPA FN: Measurement
Analysis and Interpretation, AICPA PC: Decision Making, IMA: Decision Analysis
61.
Which of the following is likely to increase the amount budgeted for depreciation in the
manufacturing overhead budget?
A.
Sale of production equipment at a loss
B.
Increased variable costs related to estimated increases in sales
C.
Planned acquisitions of new equipment
D.
A decrease in the number of units to be produced
Ans: C, LO: 2, Bloom: C, Difficulty: Medium, Min: 1, AACSB: Analytic, AICPA FN: Measurement Analysis and
Interpretation, AICPA PC: Decision Making, IMA: Decision Analysis
62.
Which of the following is a reason the amount of cash paid out for manufacturing
overhead each period does not equal the total overhead incurred?
A.
Depreciation is an overhead expense that does not require the use of cash.
B.
Overhead expenses are only estimates, and they do not require cash.
C.
Cash is only paid out for variable manufacturing overhead expenses.
D.
The amount of cash paid out is adjusted for the number of units sold.
Ans: A, LO: 2, Bloom: C, Difficulty: Hard, Min: 1, AACSB: Analytic, AICPA FN: Measurement Analysis and
Interpretation, AICPA PC: Decision Making, IMA: Decision Analysis
63.
A significant difference between the direct material purchases budget and the production
budget is that the production budget considers
A.
units to be produced, while the direct material purchases budget is based on
units to be sold.
B.
beginning and ending finished goods inventory amounts, which are not part of a
direct material purchases budget.
C.
finished goods inventory levels, while the material purchases budget considers
raw material inventory levels.
D.
the capacity of the factory, while the direct material purchases budget does not.
Ans: C, LO: 2, Bloom: C, Difficulty: Medium, Min: 1, AACSB: Analytic, AICPA FN: Measurement Analysis and
Interpretation, AICPA PC: Decision Making, IMA: Decision Analysis
Chapter 10 Budgetary Planning and Control
64.
10-13
Which of the following is not required to calculate cost of goods sold in the budgeted
income statement?
A.
Number of units to be sold
B.
Direct material costs to be used and direct labor costs to be incurred
C.
Manufacturing overhead costs incurred
D.
Direct material purchases expected during the period
Ans: D, LO: 2, Bloom: K, Difficulty: Medium, Min: 1, AACSB: Analytic, AICPA FN: Measurement Analysis and
Interpretation, AICPA PC: Decision Making, IMA: Decision Analysis
65.
If budgeted net income is projected to be less than the company’s goal, the company
should try to
A.
increase revenues and decrease expenses.
B.
incur more fixed costs and less variable costs.
C.
increase the collection of cash receipts.
D.
finance operations with a loan.
Ans: A, LO: 2, Bloom: AN, Difficulty: Medium, Min: 1, AACSB: Analytic, AICPA FN: Measurement Analysis and
Interpretation, AICPA PC: Decision Making, IMA: Decision Analysis
66.
Which of the following statements is true concerning the capital acquisitions budget?
A.
It consists of a plan to acquire long-lived assets.
B.
It is constructed directly from the values in the sales budget.
C.
It is the same as the capital budgeting process.
D.
It is dependent upon plant capacity.
Ans: A, LO: 2, Bloom: K, Difficulty: Medium, Min: 1, AACSB: Reflective Thinking, AICPA FN: Measurement
Analysis and Interpretation, AICPA PC: Decision Making, IMA: Decision Analysis
67.
Which of the following does not appear on the cash budget?
A.
Beginning cash balance
B.
Purchase of long-lived assets
C.
Cost of goods sold
D.
Collection of credit sales
Ans: C, LO: 2, Bloom: K, Difficulty: Easy, Min: 1, AACSB: Reflective Thinking, AICPA FN: Measurement Analysis
and Interpretation, AICPA PC: Decision Making, IMA: Decision Analysis
68.
Which of the following transactions will affect the cash budget for a particular month in
which each transaction occurs?
A.
Sale of a product when payment will be received in 60 days
B.
Payment for direct labor
C.
Amortization of prepaid insurance
D.
Depreciation of a piece of equipment that was purchased last year
Ans: B, LO: 2, Bloom: C, Difficulty: Medium, Min: 1, AACSB: Analytic, AICPA FN: Measurement Analysis and
Interpretation, AICPA PC: Decision Making, IMA: Decision Analysis
10-14
Test Bank to accompany Jiambalvo Managerial Accounting, 7th Edition
69.
A cash budget fails to alert the management for
A.
low projected cash balance.
B.
low profit levels.
C.
availability of excess cash for investment purposes.
D.
availability of sufficient cash for loan repayments.
Ans: B, LO: 2, Bloom: C, Difficulty: Easy, Min: 1, AACSB: Reflective Thinking, AICPA FN: Measurement Analysis
and Interpretation, AICPA PC: Decision Making, IMA: Decision Analysis
70.
Which of the following is least likely to produce a need for temporary financing to bridge
a cash shortfall?
A.
Building up inventory in anticipation of increased sales in the months ahead
B.
Allowing customers to purchase on credit
C.
Paying insurance policies in advance of the period insured
D.
Purchasing materials on a just-in-time inventory basis
Ans: D, LO: 2, Bloom: C, Difficulty: Medium, Min: 1, AACSB: Analytic, AICPA FN: Measurement Analysis and
Interpretation, AICPA PC: Decision Making, IMA: Decision Analysis
71.
Winslow Inc. determined it had sold products during the month but not collected all of the
amounts owed. Where will this amount owed be reflected in the master budget for the
month?
A.
On the budgeted balance sheet in the assets section
B.
On the budgeted income statement
C.
As part of the cash receipts section of the cash budget
D.
As a reduction of inventory to be produced in the production budget
Ans: A, LO: 2, Bloom: C, Difficulty: Medium, Min: 1, AACSB: Analytic, AICPA FN: Measurement Analysis and
Interpretation, AICPA PC: Decision Making, IMA: Decision Analysis
72.
When using a computer program to do budgeting, which one of the following is not true?
A.
A company can easily run “what if” analysis if the spreadsheet is well designed.
B.
Cash flow problems generally erupt since cash is difficult to track and predict.
C.
Worksheets should be formula driven so that a change in sales will update all
schedules.
D.
A change in the sales budget should carry throughout all the individual budgets.
Ans: B, LO: 2, Bloom: C, Difficulty: Hard, Min: 1, AACSB: Reflective Thinking, AICPA FN: Measurement Analysis
and Interpretation, AICPA PC: Decision Making, IMA: Decision Analysis
Chapter 10 Budgetary Planning and Control
73.
10-15
SalaRita’s sales are 32% cash and 68% credit. Of the credit sales, 40% of credit sales
are collected in the month of sale, 45% in the month following the sale, and 15% is
collected two months after. Budgeted sales data is as follows:
June
July
August
$200,000
120,000
150,000
How much is total Accounts Receivable at the end of August?
A.
$61,200
B.
$73,440
C.
$99,600
D.
$108,000
Ans: B, LO: 2, Bloom: AP, Difficulty: Medium, Min: 1, AACSB: Analytic, AICPA FN: Measurement Analysis and
Interpretation, AICPA PC: Decision Making, IMA: Decision Analysis
Solution: ($120,000 x 68% x 15%) + ($150,000 x 68% x (45% + 15%)) = $73,440
74.
Budgeted sales (in units) for the Rockwall Energy Drink Company are as follows:
September
October
November
December
45,000 units
60,000 units
40,000 units
75,000 units
The company wishes to have 10% of the next month’s sales on hand at the end of each
month. How much is budgeted production for November?
A.
43,500 units
B.
40,000 units
C.
47,500 units
D.
36,000 units
Ans: A, LO: 2, Bloom: AP, Difficulty: Medium, Min: 1, AACSB: Analytic, AICPA FN: Measurement Analysis and
Interpretation, AICPA PC: Decision Making, IMA: Decision Analysis
Solution: 40,000 – (40,000 x 10%) + (75,000 x 10%) = 43,500
75.
SalaRita’s sales are 32% cash and 68% credit. Of the credit sales, 40% of credit sales
are collected in the month of sale, 45% in the month following the sale, and 15% is
collected two months after. Budgeted sales data is as follows:
June
July
August
$200,000
120,000
150,000
How much is total cash collected during August?
A.
$145,920
B.
$105,120
C.
$88,800
D.
$144,000
Ans: A, LO: 2, Bloom: AP, Difficulty: Medium, Min: 1, AACSB: Analytic, AICPA FN: Measurement Analysis and
Interpretation, AICPA PC: Decision Making, IMA: Decision Analysis
Solution: ($200,000 x 68% x 15%) + ($120,000 x 68% x 45%) + ($150,000 x 32%) + ($150,000 x 68% x 40%) =
$145,920
10-16
Test Bank to accompany Jiambalvo Managerial Accounting, 7th Edition
76.
Wisdom Toys has budgeted sales and production over the next quarter as follows:
September
October
November
Unit Sales
43,000
50,000
64,000
Production
44,400
52,800
61,200
The company requires that 20% of the next month’s sales in units are on hand at the
end of each month. December sales are expected to be 50,000 units. How many video
games are in inventory at October 31?
A.
12,800 units
B.
34,400 units
C.
4,000 units
D.
10,000 units
Ans: A, LO: 2, Bloom: AP, Difficulty: Medium, Min: 1, AACSB: Analytic, AICPA FN: Measurement Analysis and
Interpretation, AICPA PC: Decision Making, IMA: Decision Analysis
Solution: (50,000 x 20%) + 52,800 – 50,000 = 12,800
77.
Washam Company must maintain a minimum cash balance of $25,000. At the beginning
of June the company’s cash balance was $17,000. Budgeted cash receipts for June are
$150,000 and budgeted cash disbursements are $201,000. Budgeted net income for
July totals $11,000. How much will Washam Company need to borrow by the end of
June?
A.
$43,000
B.
$34,000
C.
$9,000
D.
$59,000
Ans: D, LO: 2, Bloom: AP, Difficulty: Medium, Min: 1, AACSB: Analytic, AICPA FN: Measurement Analysis and
Interpretation, AICPA PC: Decision Making, IMA: Decision Analysis
Solution: $17,000 + $150,000 - $201,000 = ($34,000); $25,000 + $34,000 = $59,000
78.
Alpha Caps Company has budgeted production of 14,000 units and sales of 16,500 units
in January. Each unit requires 12 minutes of labor. The standard labor rate is $13.00 per
hour. How much are total budgeted direct labor costs for January?
A.
$36,400
B.
$21,840
C.
$42,900
D.
$2,184,000
Ans: A, LO: 2, Bloom: AP, Difficulty: Medium, Min: 1, AACSB: Analytic, AICPA FN: Measurement Analysis and
Interpretation, AICPA PC: Decision Making, IMA: Decision Analysis
Solution: (14,000 x 12 ÷ 60) x $13 = $36,400
Chapter 10 Budgetary Planning and Control
79.
10-17
Each unit produced by Terra Electronics requires 4 pounds of raw materials. The raw
materials inventory must be equal to 10% of the next month’s production. Each pound of
raw materials costs $2.00. Budgeted production information follows.
April
May
June
28,000 units
30,000 units
25,000 units
How much are budgeted purchases of raw materials for May?
A.
$118,000
B.
$236,000
C.
$221,000
D.
None of the answer choices are correct.
Ans: B, LO: 2, Bloom: AP, Difficulty: Medium, Min: 1, AACSB: Analytic, AICPA FN: Measurement Analysis and
Interpretation, AICPA PC: Decision Making, IMA: Decision Analysis
Solution: ((30,000 x 4) + (25,000 x 4 x 10%) – (30,000 x 4 x 10%)) x $2 = $236,000
80.
Shorstein Manufacturing Company purchases raw materials on account each month.
Purchases are paid for according to the following schedule:
30% is paid in the month of the purchase
60% is paid in the month following the purchase
10% is paid in the second month following the purchase
Budgeted purchases are as follows:
March
April
May
$75,000
$90,000
$85,000
How much will be reported for Accounts Payable for material purchases as of the end of
May?
A.
$59,500
B.
$68,500
C.
$87,000
D.
$95,500
Ans: B, LO: 2, Bloom: AP, Difficulty: Medium, Min: 1, AACSB: Analytic, AICPA FN: Measurement Analysis and
Interpretation, AICPA PC: Decision Making, IMA: Decision Analysis
Solution: ($90,000 x 10%) + ($85,000 x (60% + 10%)) = $68,500
10-18
Test Bank to accompany Jiambalvo Managerial Accounting, 7th Edition
81.
Sultan Sundries must maintain a minimum cash balance of $34,000. At the beginning of
February the company’s cash balance was $60,000. The budget for February is as
follows:
Total cash receipts
$250,000
Total cash disbursements
$245,000
Net income
$50,000
Purchase machinery by signing a note $35,000
During February, how much will Sultan need to borrow?
A.
$50,000
B.
$0
C.
$25,000
D.
$4,000
Ans: B, LO: 2, Bloom: AP, Difficulty: Medium, Min: 1, AACSB: Analytic, AICPA FN: Measurement Analysis and
Interpretation, AICPA PC: Decision Making, IMA: Decision Analysis
Solution: $60,000 + $250,000 - $245,000 = $65,000
82.
DynaCare Products’ sales are all on account. History indicates that sales will be
collected as follows:
Month of sale
Month following the sale
Second month following the sale
Never collected
25%
65%
8%
2%
Budgeted sales data follows:
March
April
May
June
July
$300,000
$250,000
$260,000
$230,000
$200,000
How much are total budgeted cash collections during May?
A.
$230,500
B.
$258,300
C.
$65,000
D.
$251,500
Ans: D, LO: 2, Bloom: AP, Difficulty: Medium, Min: 1, AACSB: Analytic, AICPA FN: Measurement Analysis and
Interpretation, AICPA PC: Decision Making, IMA: Decision Analysis
Solution: ($300,000 x 8%) + ($250,000 x 65) + ($260,000 x 25%) = $251,500
Chapter 10 Budgetary Planning and Control
83.
10-19
Paradise Gifts has budgeted sales for the quarter as follows:
January
February
March
11,000 units
13,000 units
17,000 units
The ending inventory of finished goods each month should equal 25% of the next
month’s budgeted sales in units. How much is scheduled production for February?
A.
17,250 units
B.
14,000 units
C.
9,750 units
D.
12,000 units
Ans: B, LO: 2, Bloom: AP, Difficulty: Medium, Min: 1, AACSB: Analytic, AICPA FN: Measurement Analysis and
Interpretation, AICPA PC: Decision Making, IMA: Decision Analysis
Solution: 13,000 + (17,000 x 25%) – (13,000 x 25%) = 14,000
84.
Hanover Inc. sells buckets for $15 each. Budgeted unit sales for 4 months of 2020 are:
March
April
May
June
26,000 buckets
28,000 buckets
22,000 buckets
25,000 buckets
Hanover desires to have buckets on hand at the end of each month equal to 16 percent
of the following month’s budgeted unit sales. Each bucket requires 3.9 pounds of plastic.
At the end of each month, Hanover desires to have 12 percent of production material
needs for the next month on hand. The plastic costs $0.40 per pound. How many
buckets should Hanover produce during May?
A.
27,040 buckets
B.
31,520 buckets
C.
27,280 buckets
D.
None of the answer choices are correct.
Ans: D, LO: 2, Bloom: AP, Difficulty: Medium, Min: 1, AACSB: Analytic, AICPA FN: Measurement Analysis and
Interpretation, AICPA PC: Decision Making, IMA: Decision Analysis
Solution: 22,000 + (25,000 x 16%) – (22,000 x 16%) = 22,480
85.
Samson Company has budgeted production for the next two months as follows:
July
August
16,000 units
22,000 units
Each unit requires 5 pounds of material. Raw materials at the end of each month should
equal 10% of the next month’s production requirements. How many pounds will be
budgeted for purchases of raw materials for July?
A.
83,000 pounds
B.
66,200 pounds
C.
80,600 pounds
D.
79,400 pounds
Ans: A, LO: 2, Bloom: AP, Difficulty: Medium, Min: 1, AACSB: Analytic, AICPA FN: Measurement Analysis and
Interpretation, AICPA PC: Decision Making, IMA: Decision Analysis
Solution: (16,000 x 5) + (22,000 x 5 x 10%) – (16,000 x 5 x 10%) = 83,000
10-20
Test Bank to accompany Jiambalvo Managerial Accounting, 7th Edition
86.
Green Company’s sales are 20% cash and 80% credit. Of the credit sales, 60% are
collected in the month of sale and 30% in the month following the sale. The balance is
collected during the following month. Budgeted sales data is as follows:
June
July
August
September
$300,000
$250,000
$280,000
$310,000
How much is total Accounts Receivable at the end of August?
A.
$224,400
B.
$89,600
C.
$137,000
D.
$109,600
Ans: D, LO: 2, Bloom: AP, Difficulty: Medium, Min: 1, AACSB: Analytic, AICPA FN: Measurement Analysis and
Interpretation, AICPA PC: Decision Making, IMA: Decision Analysis
Solution: ($250,000 x 80% x 10%) + ($280,000 x 80% x (30% + 10%)) = $109,600
87.
Kitchen Stuff produces spatulas made out of acrylic. The company has estimated sales
for June at 12,000, July at 12,800, August at 15,000, and September at 16,000 spatulas.
The company plans to have 15% of the next month’s anticipated unit spatula sales and
22% of the next month’s acrylic needed for production on hand at the end of each
month. Each spatula uses 7 ounces of acrylic, which is purchased at a cost of $0.22 per
ounce. How much is budgeted production for July?
A.
12,470 units
B.
13,130 units
C.
15,050 units
D.
None of the answer choices are correct.
Ans: B, LO: 2, Bloom: AP, Difficulty: Hard, Min: 1, AACSB: Analytic, AICPA FN: Measurement Analysis and
Interpretation, AICPA PC: Decision Making, IMA: Decision Analysis
Solution: 12,800 + (15,000 x 15%) – (12,800 x 15%) = 13,130
Chapter 10 Budgetary Planning and Control
88.
10-21
Teva Sandals’ sales for the next three months are as follows:
February
March
April
$130,000
$170,000
$200,000
Collection history for the company indicates that 60% of sales are collected in the month
of the sale, 36% is collected in the following month, and 4% of sales are uncollectible.
How much are budgeted cash receipts for April?
A.
$181,200
B.
$186,400
C.
$120,000
D.
$222,000
Ans: A, LO: 2, Bloom: AP, Difficulty: Medium, Min: 1, AACSB: Analytic, AICPA FN: Measurement Analysis and
Interpretation, AICPA PC: Decision Making, IMA: Decision Analysis
Solution: ($170,000 x 36%) + ($200,000 x 60%) = $181,200
10-22
Test Bank to accompany Jiambalvo Managerial Accounting, 7th Edition
89.
When budgets are used for evaluation, what is the difference between budgeted and
actual amounts called?
A.
Exceptions
B.
Budget variances
C.
Performance results
D.
Flexible budgets
Ans: B, LO: 3, Bloom: K, Difficulty: Easy, Min: 1, AACSB: Reflective Thinking, AICPA FN: Measurement Analysis
and Interpretation, AICPA PC: Decision Making, IMA: Decision Analysis
90.
The main difference between a static budget and a flexible budget is that the static
budget is
A.
constructed using a top-down approach, while the flexible budget uses a bottomup approach.
B.
based on units produced, while a flexible budget is based on units sold.
C.
for a single level of activity, while a flexible budget can be adjusted for different
activity levels.
D.
used only for selling and administrative costs, while the flexible budget is used for
manufacturing costs.
Ans: C, LO: 3, Bloom: C, Difficulty: Medium, Min: 1, AACSB: Reflective Thinking, AICPA FN: Measurement
Analysis and Interpretation, AICPA PC: Decision Making, IMA: Decision Analysis
91.
Wilson, Inc. created a spreadsheet that utilized a set of budget relationships that could
be adjusted for various activity levels. What did Wilson create?
A.
A capital budget
B.
A static budget
C.
A standard budget
D.
A flexible budget
Ans: D, LO: 3, Bloom: C, Difficulty: Easy, Min: 1, AACSB: Reflective Thinking, AICPA FN: Measurement Analysis
and Interpretation, AICPA PC: Decision Making, IMA: Decision Analysis
92.
Which of the following assumptions is made while preparing a flexible manufacturing
overhead budget, when production levels change?
A.
Total fixed costs remain the same.
B.
The variable cost per unit changes.
C.
Fixed costs per unit remain the same.
D.
Total overhead costs remain the same when sales remain the same.
Ans: A, LO: 3, Bloom: K, Difficulty: Medium, Min: 1, AACSB: Reflective Thinking, AICPA FN: Measurement
Analysis and Interpretation, AICPA PC: Decision Making, IMA: Decision Analysis
Chapter 10 Budgetary Planning and Control
93.
10-23
Exclusive Decor’s budgeted income statement for 2020 follows:
Sales (10,000 units)
Less:
Direct materials
Direct labor
Variable factory overhead
Fixed factory overhead
Fixed selling & admin expenses
Income before taxes
$128,000
$27,600
6,000
16,800
15,000
30,000
95,400
$ 32,600
How much income before taxes will appear on a flexible budget for 11,000 units?
A.
$35,860
B.
$40,140
C.
$85,140
D.
$40,360
Ans: D, LO: 3, Bloom: AN, Difficulty: Medium, Min: 1, AACSB: Analytic, AICPA FN: Measurement Analysis and
Interpretation, AICPA PC: Decision Making, IMA: Decision Analysis
Solution: ((($128,000 – $27,600 – $6,000 – $16,800) ÷ 10,000) x 11,000) – $15,000 – $30,000 = $40,360
94.
Yemesi, Inc.’s budgeted income statement for 2020 follows:
Sales (80,000 units)
Less:
Direct materials
$128,000
Direct labor
36,000
Variable overhead
32,000
Fixed overhead
10,000
Fixed selling & admin expenses 12,000
Income before taxes
$360,000
218,000
$142,000
How much income before taxes would appear on a flexible budget for 84,000 units?
A.
$150,200
B.
$149,100
C.
$140,900
D.
$132,200
Ans: A, LO: 3, Bloom: AN, Difficulty: Medium, Min: 1, AACSB: Analytic, AICPA FN: Measurement Analysis and
Interpretation, AICPA PC: Decision Making, IMA: Decision Analysis
Solution: ((($360,000 – $128,000 – $36,000 – $32,000) ÷ 80,000) x 84,000) – $10,000 – $12,000 = $150,200
10-24
Test Bank to accompany Jiambalvo Managerial Accounting, 7th Edition
95.
Carrier Company’s budgeted income statement for 2020 follows:
Sales (4,000 units)
Less:
Variable costs
Fixed costs
Income before taxes
$84,000
$44,000
26,000
70,000
$14,000
How much would be reported as income before taxes on a flexible budget for 5,000
units?
A.
$24,000
B.
$50,000
C.
$38,750
D.
$52,000
Ans: A, LO: 3, Bloom: AN, Difficulty: Medium, Min: 1, AACSB: Analytic, AICPA FN: Measurement Analysis and
Interpretation, AICPA PC: Decision Making, IMA: Decision Analysis
Solution: ((($84,000 – $44,000) ÷ 4,000) x 5,000) – $26,000 = $24,000
96.
KirbyCor’s budgeted income statement for 2020 follows:
Sales (80,000 units)
Less:
Direct materials
Direct labor
Variable overhead
Fixed costs
Income before taxes
$400,000
$120,000
80,000
40,000
80,000
320,000
$ 80,000
How much would be reported for total variable costs on a flexible budget at 75,000
units?
A.
$75,000
B.
$300,000
C.
$225,000
D.
None of the answer choices are correct.
Ans: C, LO: 3, Bloom: AN, Difficulty: Medium, Min: 1, AACSB: Analytic, AICPA FN: Measurement Analysis and
Interpretation, AICPA PC: Decision Making, IMA: Decision Analysis
Solution: ($120,000 + $80,000 + $40,000) ÷ 80,000) x 75,000) = $225,000
97.
Managers can create budget slack by
A.
understating their actual level of sales.
B.
reducing their sales forecasts.
C.
understating expected expenses.
D.
shifting income into another accounting period.
Ans: B, LO: 3, Bloom: C, Difficulty: Easy, Min: 1, AACSB: Ethics, AICPA FN: Measurement Analysis and
Interpretation, AICPA PC: Decision Making, IMA: Decision Analysis
Chapter 10 Budgetary Planning and Control
98.
10-25
Which of the following are problem behaviors that may occur when budgets are used for
both planning and control?
I. Padding of budgets
II. Shifting of income between periods
III. Understatement of budgeted expenses
A.
I, II, and III
B.
I and II
C.
II and III
D.
I and III
Ans: B, LO: 3, Bloom: K, Difficulty: Medium, Min: 1, AACSB: Ethics, AICPA FN: Measurement Analysis and
Interpretation, AICPA PC: Decision Making, IMA: Decision Analysis
99.
Which of the following is not a method that managers may use to achieve a budget
income target in a given period?
A.
Shift discretionary expenses to the next period
B.
Encourage customers to take shipments at the end of the period even though
they do not want the products until the next period
C.
Fraudulently recognize the next period’s sales in the current period
D.
Understate budgeted expenses
Ans: D, LO: 3, Bloom: C, Difficulty: Medium, Min: 1, AACSB: Ethics, AICPA FN: Measurement Analysis and
Interpretation, AICPA PC: Decision Making, IMA: Decision Analysis
100.
Management by exception refers to the practice of only investigating variances
A.
in product costs.
B.
in which the actual cost exceeds the budget.
C.
that are material in dollar amounts relative to budgeted amounts.
D.
in areas of the company that have been performing poorly.
Ans: C, LO: 3, Bloom: K, Difficulty: Easy, Min: 1, AACSB: Reflective Thinking, AICPA FN: Measurement Analysis
and Interpretation, AICPA PC: Decision Making, IMA: Decision Analysis
101.
Under what circumstances may a manager be motivated to defer a shipment until the
next period?
A.
When budgeted costs have been overstated for the current year
B.
When revenue for the current year is less than expected
C.
When this year’s budgeted income is less than expected
D.
When the budgeted income for the current year has already been attained
Ans: D, LO: 3, Bloom: C, Difficulty: Hard, Min: 1, AACSB: Ethics, AICPA FN: Measurement Analysis and
Interpretation, AICPA PC: Decision Making, IMA: Decision Analysis
10-26
Test Bank to accompany Jiambalvo Managerial Accounting, 7th Edition
102.
Workman Company had sales of 15,000 units of its only product in the first quarter of
2020. In the first quarter of 2021, Workman anticipates selling 20% more units than it
sold in the first quarter of 2020, with a selling price of $68 per unit. What is the amount of
sales revenue that will appear in the budgeted income statement for the first quarter of
2021?
A.
$1,224,000
B.
$1,020,000
C.
$1,468,800
D.
$816,000
Ans: A, LO: 2, Bloom: AP, Difficulty: Medium, Min: 1, AACSB: Analytic, AICPA FN: Measurement Analysis and
Interpretation, AICPA PC: Decision Making, IMA: Decision Analysis
Solution: 15,000 x 120% x $68 = $1,224,000
103.
Hanson Meters had sales of 4,000, 4,500, 6,000, and 5,000 water meters during each of
the four quarters of 2020. Hanson expects sales in each quarter of 2020 to be 10% more
than the respective quarter of 2020. Each meter sells for $150. What amount will appear
as budgeted total sales revenue for 2021?
A.
$3,217,500
B.
$21,450
C.
$2,925,000
D.
None of the answer choices are correct.
Ans: A, LO: 2, Bloom: AP, Difficulty: Medium, Min: 1, AACSB: Analytic, AICPA FN: Measurement Analysis and
Interpretation, AICPA PC: Decision Making, IMA: Decision Analysis
Solution: (4,000 + 4,500 + 6,000 + 5,000) x 110% x $150 = $3,217,500
104.
Bombay Cabinet Store’s policy is to keep 25% of the next month’s sales in ending
inventory. If sales are expected to be 5,000 units in March, 5,800 units in April, and
6,000 units in May, how many units should be produced in April?
A.
7,300 units
B.
5,750 units
C.
6,050 units
D.
5,850 units
Ans: D, LO: 2, Bloom: AP, Difficulty: Medium, Min: 1, AACSB: Analytic, AICPA FN: Measurement Analysis and
Interpretation, AICPA PC: Decision Making, IMA: Decision Analysis
Solution: 5,800 – (5,800 x 25%) + (6,000 x 25%) = 5,850
105.
Cross Country Apparel plans to sell 22,000 ladders in May and 34,000 ladders in June.
Cross Country keeps 10% of the next month’s sales as ending inventory. If April’s ending
inventory reflects this policy, how many ladders should be produced in May?
A.
23,200 ladders
B.
20,800 ladders
C.
25,400 ladders
D.
19,800 ladders
Ans: A, LO: 2, Bloom: AP, Difficulty: Medium, Min: 1, AACSB: Analytic, AICPA FN: Measurement Analysis and
Interpretation, AICPA PC: Decision Making, IMA: Decision Analysis
Solution: 22,000 – (22,000 x 10%) + (34,000 x 10%) = 23,200
Chapter 10 Budgetary Planning and Control
106.
10-27
Marks Company produces staplers. Its sales are projected to be 26,000 in June, 28,000
in July, and 30,000 in August. The company plans to have 15% of the next month’s sales
in inventory at the end of each month. How many staplers must Marks produce in July?
A.
28,300 units
B.
28,600 units
C.
28,000 units
D.
32,500 units
Ans: A, LO: 2, Bloom: AP, Difficulty: Medium, Min: 1, AACSB: Analytic, AICPA FN: Measurement Analysis and
Interpretation, AICPA PC: Decision Making, IMA: Decision Analysis
Solution: 28,000 – (28,000 x 15%) + (30,000 x 15%) = 28,300
107.
RasDyne Chemicals has 40,000 pounds of krypton in inventory at the beginning of
August. The company plans to produce 6,000 rack joints made out of krypton in August.
If each rack joint requires 30 pounds of krypton and RasDyne wants 50,000 pounds of
krypton in inventory at the end of August, how many pounds of krypton should the
company plan to purchase during August?
A.
170,000 pounds
B.
180,000 pounds
C.
190,000 pounds
D.
210,000 pounds
Ans: C, LO: 2, Bloom: AP, Difficulty: Hard, Min: 1, AACSB: Analytic, AICPA FN: Measurement Analysis and
Interpretation, AICPA PC: Decision Making, IMA: Decision Analysis
Solution: (6,000 x 30) + 50,000 – 40,000 = 190,000
108.
Budget Electronics is planning to sell 2,200 and produce 2,000 wicker baskets during
June. Each unit requires 120 linear feet of wicker and 0.70 hours of direct labor. Wicker
costs $0.35 per linear foot and employees of the company are paid $13.00 per hour.
Manufacturing overhead is applied at a rate of 140% of direct labor costs. The company
wants to have 10% of the wicker needed for the next month’s production available at the
end of each month. The expected production in July is 1,800 baskets. How many linear
feet of wicker should the company plan to buy during June?
A.
807,840 feet
B.
237,600 feet
C.
239,980 feet
D.
242,400 feet
Ans: B, LO: 2, Bloom: AP, Difficulty: Hard, Min: 1, AACSB: Analytic, AICPA FN: Measurement Analysis and
Interpretation, AICPA PC: Decision Making, IMA: Decision Analysis
Solution: (2,000 x 120) + (1,800 x 120 x 10%) – (2,000 x 120 x 10%) = 237,600
10-28
Test Bank to accompany Jiambalvo Managerial Accounting, 7th Edition
109.
Budget Electronics is planning to sell 2,200 and produce 2,000 wicker baskets during
June. Each unit requires 120 linear feet of wicker and 0.70 hours of direct labor. Wicker
costs $0.35 per linear foot and employees of the company are paid $13.00 per hour.
Manufacturing overhead is applied at a rate of 140% of direct labor costs. The company
wants to have 10% of the wicker needed for the next month’s production available at the
end of each month. The expected production in July is 1,800 baskets. What is the total
amount that will be budgeted for direct labor for June?
A.
$18,200
B.
$26,000
C.
$20,020
D.
$28,600
Ans: A, LO: 2, Bloom: AP, Difficulty: Hard, Min: 1, AACSB: Analytic, AICPA FN: Measurement Analysis and
Interpretation, AICPA PC: Decision Making, IMA: Decision Analysis
Solution: 0.70 x $13 x 2,000 = $18,200
110.
Budget Electronics is planning to sell 2,200 and produce 2,000 wicker baskets during
June. Each unit requires 120 linear feet of wicker and 0.70 hours of direct labor. Wicker
costs $0.35 per linear foot and employees of the company are paid $13.00 per hour.
Manufacturing overhead is applied at a rate of 140% of direct labor costs. The company
wants to have 10% of the wicker needed for the next month’s production available at the
end of each month. The expected production in July is 1,800 baskets. How much
manufacturing overhead will be charged to each basket sold during June?
A.
$12.74
B.
$9.10
C.
$18.20
D.
$11.58
Ans: A, LO: 2, Bloom: AP, Difficulty: Hard, Min: 1, AACSB: Analytic, AICPA FN: Measurement Analysis and
Interpretation, AICPA PC: Decision Making, IMA: Decision Analysis
Solution: ((0.70 x $13 x 2,000) x 140%) ÷ 2,000 = $12.74
111.
Budget Electronics is planning to sell 2,200 and produce 2,000 wicker baskets during
June. Each unit requires 120 linear feet of wicker and 0.70 hours of direct labor. Wicker
costs $0.35 per linear foot and employees of the company are paid $13.00 per hour.
Manufacturing overhead is applied at a rate of 140% of direct labor costs. The company
wants to have 10% of the wicker needed for the next month’s production available at the
end of each month. The expected production in July is 1,800 baskets. What is the unit
cost of each basket produced in June?
A.
$51.66
B.
$47.34
C.
$52.08
D.
None of the answer choices are correct.
Ans: D, LO: 2, Bloom: AP, Difficulty: Hard, Min: 1, AACSB: Analytic, AICPA FN: Measurement Analysis and
Interpretation, AICPA PC: Decision Making, IMA: Decision Analysis
Solution: (120 x $0.35) + (0.70 x $13) + (0.70 x $13 x 140%) = $63.84
Chapter 10 Budgetary Planning and Control
112.
10-29
Walker Entertainment is a distributor of video games and expects its video game sales to
be as follows for the first 4 months of 2020:
January
February
March
April
$100,000
$150,000
$180,000
$200,000
Walker’s cost of goods sold is 70% of sales. Ending inventory is expected to equal 40%
of the next month's cost of goods sold. How much are budgeted inventory purchases for
February?
A.
$105,000
B.
$113,400
C.
$117,000
D.
$50,400
Ans: B, LO: 2, Bloom: AP, Difficulty: Medium, Min: 1, AACSB: Analytic, AICPA FN: Measurement Analysis and
Interpretation, AICPA PC: Decision Making, IMA: Decision Analysis
Solution: ($150,000 x 70%) + ($180,000 x 70% x 40%) - ($150,000 x 70% x 40%) = $113,400
113.
Walker Entertainment is a distributor of video games and expects its video game sales to
be as follows for the first 4 months of 2020:
January
February
March
April
$100,000
$150,000
$180,000
$200,000
Walker’s cost of goods sold is 70% of sales. Ending inventory is expected to equal 40%
of the next month's cost of goods sold. How much are budgeted inventory purchases for
March?
A.
$84,000
B.
$131,600
C.
$126,000
D.
$112,000
Ans: B, LO: 2, Bloom: AP, Difficulty: Medium, Min: 1, AACSB: Analytic, AICPA FN: Measurement Analysis and
Interpretation, AICPA PC: Decision Making, IMA: Decision Analysis
Solution: ($180,000 x 70%) + ($200,000 x 70% x 40%) – ($180,000 x 70% x 40%) = $131,600
10-30
Test Bank to accompany Jiambalvo Managerial Accounting, 7th Edition
114.
Baby Boo Boutique had sales of $78,000 in December, 2020. Sales for the first three
months of 2021 are:
January
February
March
$84,000
80,000
68,000
In the past, Baby Boo has found that 25% of the sales revenue is collected in the month
of the sale and 75% is collected in the following month. If this pattern continues, what will
be the amount of Baby Boo’s cash receipts in February?
A.
$20,000
B.
$83,000
C.
$71,000
D.
$81,000
Ans: B, LO: 2, Bloom: AP, Difficulty: Medium, Min: 1, AACSB: Analytic, AICPA FN: Measurement Analysis and
Interpretation, AICPA PC: Decision Making, IMA: Decision Analysis
Solution: ($84,000 x 75%) + ($80,000 x 25%) = $83,000
115.
Forever 39 has found that 30% of its sales are collected in the month of the sale and the
remainder of the sales is collected in the next month. If sales are expected to be
$100,000 in April, $120,000 in May, and $80,000 in June, what is the estimated amount
of cash receipts for May?
A.
$114,000
B.
$106,000
C.
$92,000
D.
$108,000
Ans: B, LO: 2, Bloom: AP, Difficulty: Medium, Min: 1, AACSB: Analytic, AICPA FN: Measurement Analysis and
Interpretation, AICPA PC: Decision Making, IMA: Decision Analysis
Solution: ($100,000 x 70%) + ($120,000 x 30%) = $106,000
116.
In recent years, Sands Retro Clothing has collected 45% of its sales in the month of the
sale, 53% in the month that follows the sale. The other 2% is not collected. During the
first five months of 2020, Sands is anticipating sales of $330,000, $415,000, $540,000,
$260,000, and $370,000, respectively. What is the amount of cash receipts budgeted for
March?
A.
$472,950
B.
$380,800
C.
$473,750
D.
$462,950
Ans: D, LO: 2, Bloom: AP, Difficulty: Medium, Min: 1, AACSB: Analytic, AICPA FN: Measurement Analysis and
Interpretation, AICPA PC: Decision Making, IMA: Decision Analysis
Solution: ($415,000 x 53%) + ($540,000 x 45%) = $462,950
Chapter 10 Budgetary Planning and Control
117.
10-31
Haverti Auto Mart has budgeted the following amounts for auto part sales in 2020:
April
May
June
July
$ 98,000
67,000
108,000
82,000
An analysis of past patterns of receipts shows that 60% of the sales dollars are received
in the month of the sale and 40% are received in the following month. Assuming this
pattern continues, how much cash does Haverti expect to receive during May?
A.
$85,600
B.
$97,600
C.
$91,600
D.
$79,400
Ans: D, LO: 2, Bloom: AP, Difficulty: Medium, Min: 1, AACSB: Analytic, AICPA FN: Measurement Analysis and
Interpretation, AICPA PC: Decision Making, IMA: Decision Analysis
Solution: ($98,000 x 40%) + ($67,000 x 60%) = $79,400
118.
Cringle Company expects sales as follows:
January
February
March
April
$150,000
180,000
210,000
170,000
Sales are made 30% for cash, and 70% on credit. Credit sales are collected 40% in the
month of sale and 60% in the next month. How much are cash collections expected to
be in March?
A.
$138,600
B.
$255,000
C.
$197,400
D.
None of the answer choices are correct.
Ans: C, LO: 2, Bloom: AP, Difficulty: Medium, Min: 1, AACSB: Analytic, AICPA FN: Measurement Analysis and
Interpretation, AICPA PC: Decision Making, IMA: Decision Analysis
Solution: ($180,000 x 70% x 60%) + ($210,000 x 70% x 40%) + ($210,000 x 30%) = $197,400
10-32
Test Bank to accompany Jiambalvo Managerial Accounting, 7th Edition
119.
Jazzy Janitors has found that only 10% of its invoiced amounts are paid in the same
month that the work is completed. 60% are paid in the month after the work is completed
and 30% are paid in the second month after the work is completed. During December,
2020, Jazzy Janitors’ invoiced $200,000 to clients. Projected revenues for the first six
months of 2021 are given below:
Month
January
February
March
April
May
June
Revenue
$180,000
215,000
220,000
218,000
240,000
255,000
What are the expected cash receipts for March 2021?
A.
$224,800
B.
$151,000
C.
$265,000
D.
$205,000
Ans: D, LO: 2, Bloom: AP, Difficulty: Medium, Min: 1, AACSB: Analytic, AICPA FN: Measurement Analysis and
Interpretation, AICPA PC: Decision Making, IMA: Decision Analysis
Solution: ($180,000 x 30%) + ($215,000 x 60%) + ($220,000 x 10%) = $205,000
120.
Jazzy Janitors has found that only 10% of its invoiced amounts are paid in the same
month that the work is completed. Sixty percent are paid in the month after the work is
completed and 30% are paid in the second month after the work is completed. During
December 2020, Jazzy Janitors’ invoiced $200,000 to clients. Projected revenues for the
first six months of 2021 are given below:
Month
January
February
March
April
May
June
Revenue
$180,000
215,000
220,000
218,000
240,000
255,000
What are the expected cash receipts for April 2021?
A.
$218,300
B.
$242,300
C.
$153,800
D.
$21,800
Ans: A, LO: 2, Bloom: AP, Difficulty: Medium, Min: 1, AACSB: Analytic, AICPA FN: Measurement Analysis and
Interpretation, AICPA PC: Decision Making, IMA: Decision Analysis
Solution: ($215,000 x 30%) + ($220,000 x 60%) + ($218,000 x 10%) = $218,300
Chapter 10 Budgetary Planning and Control
121.
10-33
Jazzy Janitors has found that only 10% of its invoiced amounts are paid in the same
month that the work is completed. Sixty percent are paid in the month after the work is
completed and 30% are paid in the second month after the work is completed. During
December 2020, Jazzy Janitors’ invoiced $200,000 to clients. Projected revenues for the
first six months of 2021 are given below:
Month
January
February
March
April
May
June
Revenue
$180,000
215,000
220,000
218,000
240,000
255,000
What is the expected Accounts Receivable balance at March 31, 2021?
A.
$198,000
B.
$280,500
C.
$262,500
D.
$205,000
Ans: C, LO: 2, Bloom: AP, Difficulty: Medium, Min: 1, AACSB: Analytic, AICPA FN: Measurement Analysis and
Interpretation, AICPA PC: Decision Making, IMA: Decision Analysis
Solution: ($215,000 x 30%) + ($220,000 x (60% + 30%)) = $262,500
122.
Bandaloon Foods expects to make the following inventory purchases during the last
three months of the year:
Month
October
November
December
Purchases
$80,000
100,000
160,000
During September, Bandaloon purchased $72,000 of inventory. The restaurant typically
pays for 25% of the inventory purchases within the month of the purchase and 75% in
the following month. How much are estimated cash disbursements in November for
inventory purchases?
A.
$95,000
B.
$100,000
C.
$85,000
D.
$115,000
Ans: C, LO: 2, Bloom: AP, Difficulty: Medium, Min: 1, AACSB: Analytic, AICPA FN: Measurement Analysis and
Interpretation, AICPA PC: Decision Making, IMA: Decision Analysis
Solution: ($80,000 x 75%) + ($100,000 x 25%) = $85,000
10-34
Test Bank to accompany Jiambalvo Managerial Accounting, 7th Edition
123.
DuraBlend First Aid started operations on January 1, 2020. On that date, the only assets
were cash of $13,000, and inventory of $600 consisting of direct materials. The company
sells first aid kits for $18 each. Additional information concerning the company’s
operations follows:
 Variable costs of production are $5 for each kit consisting of direct materials of
$2.00, direct labor totaling $1.80, and $1.20 per unit in variable overhead.
 Other expenses include $1 per first aid kit in variable selling expenses, $22,000
per month in fixed production costs, and $14,000 per month in fixed selling and
administration costs.
 Sales are collected 40% in the month of sales and 60% in the month after the
sale.
 All expenses are paid in the month they are incurred except materials that are
paid in the month following purchase.
 The company plans its ending inventory of first aid kits to be 20% of the units to
be sold during the next month. Direct material inventory is budgeted to be equal
to 10% of the next month’s production requirements.
 Sales in units are forecasted as follows:
January
February
March
April
6,000
8,000
7,000
9,000
What is the budgeted net income using the contribution format for February?
A.
$66,000
B.
$60,000
C.
$68,000
D.
None of the answer choices are correct.
Ans: B, LO: 2, Bloom: AP, Difficulty: Hard, Min: 1, AACSB: Analytic, AICPA FN: Measurement Analysis and
Interpretation, AICPA PC: Decision Making, IMA: Decision Analysis
Solution: (8,000 x $18) – (8,000 x $5) – (8,000 x $1) – $22,000- $14,000 = $60,000
Chapter 10 Budgetary Planning and Control
124.
10-35
DuraBlend First Aid started operations on January 1, 2020. On that date, the only assets
were cash of $13,000, and inventory of $600 consisting of direct materials. The company
sells first aid kits for $18 each. Additional information concerning the company’s
operations follows:
 Variable costs of production are $5 for each kit consisting of direct materials of
$2.00, direct labor totaling $1.80, and $1.20 per unit in variable overhead.
 Other expenses include $1 per first aid kit in variable selling expenses, $22,000
per month in fixed production costs, and $14,000 per month in fixed selling and
administration costs.
 Sales are collected 40% in the month of sales and 60% in the month after the
sale.
 All expenses are paid in the month they are incurred except materials that are
paid in the month following purchase.
 The company plans its ending inventory of first aid kits to be 20% of the units to
be sold during the next month. Direct material inventory is budgeted to be equal
to 10% of the next month’s production requirements.
 Sales in units are forecasted as follows:
January
February
March
April
6,000
8,000
7,000
9,000
How much are budgeted cash collections for February?
A.
$57,600
B.
$6,800
C.
$122,400
D.
$133,200
Ans: C, LO: 2, Bloom: AP, Difficulty: Hard, Min: 1, AACSB: Analytic, AICPA FN: Measurement Analysis and
Interpretation, AICPA PC: Decision Making, IMA: Decision Analysis
Solution: (6,000 x $18 x 60%) + (8,000 x $18 x 40%) = $122,400
10-36
Test Bank to accompany Jiambalvo Managerial Accounting, 7th Edition
125.
DuraBlend First Aid started operations on January 1, 2020. On that date, the only assets
were cash of $13,000, and inventory of $600 consisting of direct materials. The company
sells first aid kits for $18 each. Additional information concerning the company’s
operations follows:
 Variable costs of production are $5 for each kit consisting of direct materials of
$2.00, direct labor totaling $1.80, and $1.20 per unit in variable overhead.
 Other expenses include $1 per first aid kit in variable selling expenses, $22,000
per month in fixed production costs, and $14,000 per month in fixed selling and
administration costs.
 Sales are collected 40% in the month of sales and 60% in the month after the
sale.
 All expenses are paid in the month they are incurred except materials that are
paid in the month following purchase.
 The company plans its ending inventory of first aid kits to be 20% of the units to
be sold during the next month. Direct material inventory is budgeted to be equal
to 10% of the next month’s production requirements.
 Sales in units are forecasted as follows:
January
February
March
April
6,000
8,000
7,000
9,000
How many first aid kits will the company produce in February?
A.
7,800 units
B.
7,400 units
C.
9,400 units
D.
8,200 units
Ans: A, LO: 2, Bloom: AP, Difficulty: Hard, Min: 1, AACSB: Analytic, AICPA FN: Measurement Analysis and
Interpretation, AICPA PC: Decision Making, IMA: Decision Analysis
Solution: 8,000 + (7,000 x 20%) – (8,000 x 20%) = 7,800
Chapter 10 Budgetary Planning and Control
126.
10-37
DuraBlend First Aid started operations on January 1, 2020. On that date, the only assets
were cash of $13,000, and inventory of $600 consisting of direct materials. The company
sells first aid kits for $18 each. Additional information concerning the company’s
operations follows:
 Variable costs of production are $5 for each kit consisting of direct materials of
$2.00, direct labor totaling $1.80, and $1.20 per unit in variable overhead.
 Other expenses include $1 per first aid kit in variable selling expenses, $22,000
per month in fixed production costs, and $14,000 per month in fixed selling and
administration costs.
 Sales are collected 40% in the month of sales and 60% in the month after the
sale.
 All expenses are paid in the month they are incurred except materials that are
paid in the month following purchase.
 The company plans its ending inventory of first aid kits to be 20% of the units to
be sold during the next month. Direct material inventory is budgeted to be equal
to 10% of the next month’s production requirements.
 Sales in units are forecasted as follows:
January
February
March
April
6,000
8,000
7,000
9,000
How much will be reported for Accounts Receivable on the company’s balance sheet at
the end of February?
A.
$122,400
B.
$86,400
C.
$43,200
D.
$57,600
Ans: B, LO: 2, Bloom: AP, Difficulty: Hard, Min: 1, AACSB: Analytic, AICPA FN: Measurement Analysis and
Interpretation, AICPA PC: Decision Making, IMA: Decision Analysis
Solution: 8,000 x $18 x 60% = $86,400
127.
Bake Time makes and sells baking pans. Each pan uses 0.70 pounds of aluminum.
Budgeted production and sales of pans in units for the next five months is as follows:
Budgeted production
Budgeted sales
June
22,180
22,400
July
21,940
21,300
August
24,940
24,500
September
26,240
26,700
October
23,720
24,400
The company wants to maintain monthly ending inventories of aluminum equal to 15% of
the following month's budgeted production needs, and monthly inventories of pans equal
to 20% of the number needed for next month’s sales. The cost of aluminum is $0.85 per
pound. How much is the cost of budgeted material purchases for August?
A.
$14,693
B.
$17,595
C.
$14,955
D.
None of the answer choices are correct.
Ans: C, LO: 2, Bloom: AP, Difficulty: Medium, Min: 1, AACSB: Analytic, AICPA FN: Measurement Analysis and
Interpretation, AICPA PC: Decision Making, IMA: Decision Analysis
Solution: ((24,940 x 0.70) + (26,240 x 0.70 x 15%) – (24,940 x 0.70 x 15%)) x $0.85 = $14,955
10-38
Test Bank to accompany Jiambalvo Managerial Accounting, 7th Edition
128.
Bake Time makes and sells baking pans. Each pan uses 0.70 pounds of aluminum.
Budgeted production and sales of pans in units for the next five months is as follows:
Budgeted production
Budgeted sales
June
22,180
22,400
July
21,940
21,300
August
24,940
24,500
September
26,240
26,700
October
23,720
24,400
The company wants to maintain monthly ending inventories of aluminum equal to 15% of
the following month's budgeted production needs, and monthly inventories of pans equal
to 20% of the number needed for next month’s sales. The cost of aluminum is $0.85 per
pound. How much is budgeted raw materials to be reported on the company’s balance
sheet at August 31?
A.
$2,342
B.
$3,936
C.
$2,755
D.
$3,346
Ans: A, LO: 2, Bloom: AP, Difficulty: Medium, Min: 1, AACSB: Analytic, AICPA FN: Measurement Analysis and
Interpretation, AICPA PC: Decision Making, IMA: Decision Analysis
Solution: (26,240 x 0.70 x 15%) x $0.85 = $2,342
129.
Harkin Products expects to make purchases of $65,000 in January; $80,000 in February;
$50,000 in March; and $90,000 in April. Purchases are paid 30% in the month of
purchase and 70% in the month after purchase. How much is budgeted accounts
payable at March 31?
A.
$35,000
B.
$71,000
C.
$59,000
D.
None of the answer choices are correct.
Ans: A, LO: 2, Bloom: AP, Difficulty: Medium, Min: 1, AACSB: Analytic, AICPA FN: Measurement Analysis and
Interpretation, AICPA PC: Decision Making, IMA: Decision Analysis
Solution: $50,000 x 70% = $35,000
130.
Sharone Janitorial Supplies expects to make purchases of $100,000 in January;
$240,000 in February; $350,000 in March; and $230,000 in April. Purchases are paid
30% in the month of purchase and 70% in the month after purchase. How much is
budgeted accounts payable at the end of February?
A.
$70,000
B.
$168,000
C.
$142,000
D.
$72,000
Ans: B, LO: 2, Bloom: AP, Difficulty: Medium, Min: 1, AACSB: Analytic, AICPA FN: Measurement Analysis and
Interpretation, AICPA PC: Decision Making, IMA: Decision Analysis
Solution: $240,000 x 70% = $168,000
Chapter 10 Budgetary Planning and Control
131.
10-39
Milkway Dairy Blend buys and resells 5 gallons containers of Greek yogurt for $38 per
container. Milkway pays $20 per container to buy the yogurt. Additionally, Milkway has
the following information:
 Operating fixed costs are $95,000 per month and office furniture depreciation is
$7,000 per month
 Inventory at the end of each month is maintained at 30% of the next month's
projected cost of sales
 All sales are on credit. Collections are made 40% in the month of sale and 60%
in the month after sale
 All selling and administrative expenses are paid in the month after they are
incurred
 Inventory purchases are paid 30% in the month of purchase and 70% in the
month after purchase
 Budgeted monthly unit sales for the first five months of 2020 are as follows:
January
February
March
April
May
11,000 containers
13,000 containers
15,000 containers
14,000 containers
18,000 containers
How much Accounts Receivable will be reported on Milkway’s balance sheet at March
31?
A.
$342,000
B.
$539,600
C.
$296,400
D.
$524,400
Ans: A, LO: 2, Bloom: AP, Difficulty: Hard, Min: 1, AACSB: Analytic, AICPA FN: Measurement Analysis and
Interpretation, AICPA PC: Decision Making, IMA: Decision Analysis
Solution: 15,000 x $38 x 60% = $342,000
10-40
Test Bank to accompany Jiambalvo Managerial Accounting, 7th Edition
132.
Milkway Dairy Blend buys and resells 5 gallons containers of Greek yogurt for $38 per
container. Milkway pays $20 per container to buy the yogurt. Additionally, Milkway has
the following information:
 Operating fixed costs are $95,000 per month and office furniture depreciation is
$7,000 per month
 Inventory at the end of each month is maintained at 30% of the next month's
projected sales
 All sales are on credit. Collections are made 40% in the month of sale and 60% in
the month after sale
 All selling and administrative expenses are paid in the month after they are incurred
 Inventory purchases are paid 30% in the month of purchase and 70% in the month
after purchase
 Budgeted monthly unit sales for the first five months of 2020 are as follows:
January
February
March
April
May
11,000 containers
13,000 containers
15,000 containers
14,000 containers
18,000 containers
In the month of March, how many containers of yogurt will be purchased?
A.
14,700 units
B.
19,200 units
C.
15,000 units
D.
15,300 units
Ans: A, LO: 2, Bloom: AP, Difficulty: Hard, Min: 1, AACSB: Analytic, AICPA FN: Measurement Analysis and
Interpretation, AICPA PC: Decision Making, IMA: Decision Analysis
Solution: 15,000 + (14,000 x 30%) – (15,000 x 30%) = 14,700
Chapter 10 Budgetary Planning and Control
133.
10-41
Milkway Dairy Blend buys and resells 5 gallons containers of Greek yogurt for $38 per
container. Milkway pays $20 per container to buy the yogurt. Additionally, Milkway has
the following information:
 Operating fixed costs are $95,000 per month and office furniture depreciation is
$7,000 per month
 Inventory at the end of each month is maintained at 30% of the next month's
projected sales
 All sales are on credit. Collections are made 40% in the month of sale and 60% in
the month after sale
 All selling and administrative expenses are paid in the month after they are incurred
 Inventory purchases are paid 30% in the month of purchase and 70% in the month
after purchase
 Budgeted monthly unit sales for the first five months of 2020 are as follows:
January
February
March
April
May
11,000 containers
13,000 containers
15,000 containers
14,000 containers
18,000 containers
What much will the company budget for March purchases?
A.
$306,000
B.
$384,000
C.
$300,000
D.
$294,000
Ans: D, LO: 2, Bloom: AP, Difficulty: Hard, Min: 1, AACSB: Analytic, AICPA FN: Measurement Analysis and
Interpretation, AICPA PC: Decision Making, IMA: Decision Analysis
(15,000 + (14,000 x 30%) – (15,000 x 30%)) x $20 = $294,000
10-42
Test Bank to accompany Jiambalvo Managerial Accounting, 7th Edition
134.
Milkway Dairy Blend buys and resells 5 gallons containers of Greek yogurt for $38 per
container. Milkway pays $20 per container to buy the yogurt. Additionally, Milkway has
the following information:
 Operating fixed costs are $95,000 per month and office furniture depreciation is
$7,000 per month
 Inventory at the end of each month is maintained at 30% of the next month's
projected sales
 All sales are on credit. Collections are made 40% in the month of sale and 60% in
the month after sale
 All selling and administrative expenses are paid in the month after they are incurred
 Inventory purchases are paid 30% in the month of purchase and 70% in the month
after purchase
 Budgeted monthly unit sales for the first five months of 2020 are as follows:
January
February
March
April
May
11,000 containers
13,000 containers
15,000 containers
14,000 containers
18,000 containers
How much is budgeted net income for March using variable costing?
A.
$175,000
B.
$168,000
C.
$150,400
D.
None of the answer choices are correct.
Ans: B, LO: 2, Bloom: AP, Difficulty: Hard, Min: 1, AACSB: Analytic, AICPA FN: Measurement Analysis and
Interpretation, AICPA PC: Decision Making, IMA: Decision Analysis
Solution: (15,000 x $38) – (15,000 x $20) – $95,000 – $7,000 = $168,000
Chapter 10 Budgetary Planning and Control
135.
10-43
Tiny Toons distributes cartoon DVDs that sell for $12 each. Tiny Toons pays $7 per DVD
to buy the product. Selling costs of $1 per unit are incurred to deliver the DVDs to the
customer. This is paid in cash when the product is sold. Tiny Toons has $50,000 per
month in fixed selling and administrative expenses (including $3,000 in depreciation),
which are paid half in the month incurred and half in the next month. It is Tiny’s policy to
maintain an inventory at the end of each month equal to 30% of the next month’s
projected unit sales.
Tiny Toons makes 30% of sales in cash, and the remainder are on credit. Credit
sales are collected in the month after sale. Budgeted monthly sales for the first five
months of 2020 are:
January
February
March
April
May
20,000 units
22,000 units
26,000 units
28,000 units
40,000 units
How much are budgeted inventory purchases during February?
A.
$154,000
B.
$23,200
C.
$162,400
D.
$54,600
Ans: C, LO: 2, Bloom: AP, Difficulty: Hard, Min: 1, AACSB: Analytic, AICPA FN: Measurement Analysis and
Interpretation, AICPA PC: Decision Making, IMA: Decision Analysis
Solution: (22,000 + (26,000 x 30%) - (22,000 x 30%)) x $7 = $162,400
136.
Tiny Toons distributes cartoon DVDs that sell for $12 each. Tiny Toons pays $7 per DVD
to buy the product. Selling costs of $1 per unit are incurred to deliver the DVDs to the
customer. This is paid in cash when the product is sold. Tiny Toons has $50,000 per
month in fixed selling and administrative expenses (including $3,000 in depreciation),
which are paid half in the month incurred and half in the next month. It is Tiny’s policy to
maintain an inventory at the end of each month equal to 30% of the next month’s
projected unit sales.
Tiny Toons makes 30% of sales in cash, and the remainder are on credit. Credit
sales are collected in the month after sale. Budgeted monthly sales for the first five
months of 2020 are:
January
February
March
April
May
20,000 units
22,000 units
26,000 units
28,000 units
40,000 units
How much is budgeted income for March using variable costing?
A.
$312,000
B.
$54,000
C.
$57,000
D.
$104,000
Ans: B, LO: 2, Bloom: AP, Difficulty: Hard, Min: 1, AACSB: Analytic, AICPA FN: Measurement Analysis and
Interpretation, AICPA PC: Decision Making, IMA: Decision Analysis
Solution: (26,000 x $12) – ($26,000 x $7) – (26,000 x $1) – $50,000 = $54,000
10-44
Test Bank to accompany Jiambalvo Managerial Accounting, 7th Edition
137.
Tiny Toons distributes cartoon DVDs that sell for $12 each. Tiny Toons pays $7 per DVD
to buy the product. Selling costs of $1 per unit are incurred to deliver the DVDs to the
customer. This is paid in cash when the product is sold. Tiny Toons has $50,000 per
month in fixed selling and administrative expenses (including $3,000 in depreciation),
which are paid half in the month incurred and half in the next month. It is Tiny’s policy to
maintain an inventory at the end of each month equal to 30% of the next month’s
projected unit sales.
Tiny Toons makes 30% of sales in cash, and the remainder are on credit. Credit
sales are collected in the month after sale. Budgeted monthly sales for the first five
months of 2020 are:
January
February
March
April
May
20,000 units
22,000 units
26,000 units
28,000 units
40,000 units
How much are budgeted cash receipts for February?
A.
$22,000
B.
$79,200
C.
$264,000
D.
$247,200
Ans: D, LO: 2, Bloom: AP, Difficulty: Hard, Min: 1, AACSB: Analytic, AICPA FN: Measurement Analysis and
Interpretation, AICPA PC: Decision Making, IMA: Decision Analysis
Solution: (20,000 x $12 x 70%) + (22,000 x $12 x 30%) = $247,200
138.
Tiny Toons distributes cartoon DVDs that sell for $12 each. Tiny Toons pays $7 per DVD
to buy the product. Selling costs of $1 per unit are incurred to deliver the DVDs to the
customer. This is paid in cash when the product is sold. Tiny Toons has $50,000 per
month in fixed selling and administrative expenses (including $3,000 in depreciation),
which are paid half in the month incurred and half in the next month. It is Tiny’s policy to
maintain an inventory at the end of each month equal to 30% of the next month’s
projected unit sales.
Tiny Toons makes 30% of sales in cash, and the remainder are on credit. Credit
sales are collected in the month after sale. Budgeted monthly sales for the first five
months of 2020 are:
January
February
March
April
May
20,000 units
22,000 units
26,000 units
28,000 units
40,000 units
How much will Tiny Toons report as budgeted Accounts Receivable at March 31 on its
balance sheet?
A.
$218,400
B.
$93,600
C.
$278,400
D.
$312,000
Ans: A, LO: 2, Bloom: AP, Difficulty: Hard, Min: 1, AACSB: Analytic, AICPA FN: Measurement Analysis and
Interpretation, AICPA PC: Decision Making, IMA: Decision Analysis
Solution: 26,000 x $12 x 70% = $218,400
Chapter 10 Budgetary Planning and Control
139.
10-45
History Entertainment distributes a DVD that sells for $12 per unit. History pays $7 per
unit to buy the product. Selling cost of $1 per unit is incurred to deliver the product to the
customer. This is paid in cash when the product is sold. History has $50,000 per month
in fixed selling and administrative expenses (including $3,000 in depreciation), which are
paid half in the month incurred and half in the next month. It is History’s policy to
maintain an inventory at the end of each month equal to 30% of the next month’s
projected cost of sales. History makes 30% of sales in cash, and the rest are on credit.
Credit sales are collected in the month after sale. Budgeted monthly sales for the first
five months of 2020 are as follows:
January
February
March
April
May
20,000 units
22,000 units
26,000 units
28,000 units
40,000 units
How much is the budgeted cash payment for selling and administrative expenses in
April?
A.
$78,000
B.
$81,000
C.
$75,000
D.
$50,000
Ans: C, LO: 2, Bloom: AP, Difficulty: Hard, Min: 1, AACSB: Analytic, AICPA FN: Measurement Analysis and
Interpretation, AICPA PC: Decision Making, IMA: Decision Analysis
Solution: (28,000 x $1) + ($50,000 - $3,000) = $75,000
10-46
Test Bank to accompany Jiambalvo Managerial Accounting, 7th Edition
140.
Maxim Fasteners distributes giant binder clips that sell for $3 each. Maxim pays $1.20 to
buy each clip. The company has $4,000 per month in fixed costs. Policies and other
information follow:
 Inventory is maintained at the end of each month equal to 10% of the next
month's projected sales in units.
 Purchases are paid 40% in the month acquired and the balance in the month
after.
 All sales are on credit, and 30% are collect in the month of sale and 70% in the
month after sale.
 Budgeted monthly sales in units for the first five months of 2020 are as follows:

o January
6,000 units
o February
5,000 units
o March
7,000 units
o April
9,000 units
o May
8,000 units
Variable selling and administrative costs are $0.50 per clip.
How much is the budgeted purchase cost of inventory during March?
A.
$7,200
B.
$8,640
C.
$8,400
D.
$9,480
Ans: B, LO: 2, Bloom: AP, Difficulty: Hard, Min: 1, AACSB: Analytic, AICPA FN: Measurement Analysis and
Interpretation, AICPA PC: Decision Making, IMA: Decision Analysis
Solution: (7,000 + (9,000 x 10%) – (7,000 x 10%)) x $1.20 = $8,640
Chapter 10 Budgetary Planning and Control
141.
10-47
Maxim Fasteners distributes giant binder clips that sell for $3 each. Maxim pays $1.20
each to buy the clips. The company has $4,000 per month in fixed costs. Policies and
other information follow:
 Inventory is maintained at the end of each month equal to 10% of the next
month's projected sales in units.
 Purchases are paid 40% in the month acquired and the balance in the month
after.
 All sales are on credit, and 30% are collect in the month of sale and 70% in the
month after sale.
 Budgeted monthly sales in units for the first five months of 2020 are as follows:

o January
6,000 units
o February
5,000 units
o March
7,000 units
o April
9,000 units
o May
8,000 units
Variable selling and administrative costs are $0.50 per clip and are paid in the
month of incurred.
How much is budgeted net income for March using variable costing?
A.
$9,100
B.
$5,100
C.
$12,600
D.
$13,500
Ans: B, LO: 2, Bloom: AP, Difficulty: Hard, Min: 1, AACSB: Analytic, AICPA FN: Measurement Analysis and
Interpretation, AICPA PC: Decision Making, IMA: Decision Analysis
Solution: (7,000 x $3) – (7,000 x $1.20) – (7,000 x $0.50) – $4,000 = $5,100
10-48
Test Bank to accompany Jiambalvo Managerial Accounting, 7th Edition
142.
Maxim Fasteners distributes giant binder clips that sell for $3 each. Maxim pays $1.20
each to buy the clips. The company has $4,000 per month in fixed costs. Policies and
other information follow:
 Inventory is maintained at the end of each month equal to 10% of the next
month's projected sales in units.
 Purchases are paid 40% in the month acquired and the balance in the month
after.
 All sales are on credit, and 30% are collect in the month of sale and 70% in the
month after sale.
 Budgeted monthly sales in units for the first five months of 2020 are as follows:

o January
6,000 units
o February
5,000 units
o March
7,000 units
o April
9,000 units
o May
8,000 units
Variable selling and administrative costs are $0.50 per clip and are paid in the
month of incurred.
How much are budgeted cash collections during April?
A.
$8,100
B.
$22,800
C.
$25,200
D.
$27,000
Ans: B, LO: 2, Bloom: AP, Difficulty: Hard, Min: 1, AACSB: Analytic, AICPA FN: Measurement Analysis and
Interpretation, AICPA PC: Decision Making, IMA: Decision Analysis
Solution: (7,000 x $3 x 70%) + (9,000 x $3 x 30%) = $22,800
Chapter 10 Budgetary Planning and Control
143.
10-49
Maxim Fasteners distributes giant binder clips that sell for $3 each. Maxim pays $1.20
each to buy the clips. The company has $4,000 per month in fixed costs. Policies and
other information follow:
 Inventory is maintained at the end of each month equal to 10% of the next
month's projected sales in units.
 Purchases are paid 40% in the month acquired and the balance in the month
after.
 All sales are on credit, and 30% are collect in the month of sale and 70% in the
month after sale.
 Budgeted monthly sales in units for the first five months of 2020 are as follows:

o January
6,000 units
o February
5,000 units
o March
7,000 units
o April
9,000 units
o May
8,000 units
Variable selling and administrative costs are $0.50 per clip and are paid in the
month of incurred.
What amount will be reported for budgeted Accounts Receivable at the end of April?
A.
$8,100
B.
$25,200
C.
$6,300
D.
$18,900
Ans: D, LO: 2, Bloom: AP, Difficulty: Hard, Min: 1, AACSB: Analytic, AICPA FN: Measurement Analysis and
Interpretation, AICPA PC: Decision Making, IMA: Decision Analysis
Solution: 9,000 x $3 x 70% = $18,900
10-50
Test Bank to accompany Jiambalvo Managerial Accounting, 7th Edition
144.
Maxim Fasteners distributes giant binder clips that sell for $3 each. Maxim pays $1.20
each to buy the clips. The company has $4,000 per month in fixed costs. Policies and
other information follow:
 Inventory is maintained at the end of each month equal to 10% of the next
month's projected sales in units.
 Purchases are paid 40% in the month acquired and the balance in the month
after.
 All sales are on credit, and 30% are collect in the month of sale and 70% in the
month after sale.
 Budgeted monthly sales in units for the first five months of 2020 are as follows:

o January
6,000 units
o February
5,000 units
o March
7,000 units
o April
9,000 units
o May
8,000 units
Variable selling and administrative costs are $0.50 per clip and are paid in the
month of incurred.
How much will budgeted contribution margin be for April?
A.
$11,700
B.
$21,000
C.
$12,600
D.
$9,100
Ans: A, LO: 2, Bloom: AP, Difficulty: Hard, Min: 1, AACSB: Analytic, AICPA FN: Measurement Analysis and
Interpretation, AICPA PC: Decision Making, IMA: Decision Analysis
Solution: 9,000 x ($3 - $1.20 - $0.50) = $11,700
145.
Tee Time manufactures wireless USB ports and sells them for $9 each. The company
recently began marketing and selling the USB ports on the Web, and based on
economic predictions, the company expects sales to increase dramatically. Unit sales in
December, 2020 totaled 18,000 units. Sales for 2021 are expected to increase by 10%
each month for the near future. How much is the sales budget for February?
A.
$178,200
B.
$21,780
C.
$196,020
D.
$194,400
Ans: C, LO: 2, Bloom: AP, Difficulty: Medium, Min: 1, AACSB: Analytic, AICPA FN: Measurement Analysis and
Interpretation, AICPA PC: Decision Making, IMA: Decision Analysis
Solution: 18,000 x 110% x 110% x $9 = $196,020
Chapter 10 Budgetary Planning and Control
146.
10-51
Hallmart expects to make inventory purchases in the next three months as follows:
April
May
June
$56,000
80,000
90,000
Prior experience has shown that 35% of a month’s purchases are paid in the month of
purchase and 65% in the month following purchase. March purchases were $65,000.
How much are cash disbursements for purchases during May?
A.
$28,000
B.
$86,500
C.
$71,600
D.
$64,400
Ans: D, LO: 2, Bloom: AP, Difficulty: Medium, Min: 1, AACSB: Analytic, AICPA FN: Measurement Analysis and
Interpretation, AICPA PC: Decision Making, IMA: Decision Analysis
Solution: ($56,000 x 65%) + ($80,000 x 35%) = $64,400
147.
Market Leasing budgeted credit sales in the first quarter of 2021 to be as follows:
January
February
March
$210,000
190,000
170,000
The budgeted beginning cash balance at February 1 is expected to be $14,000 and
budgeted monthly cash disbursements are expected to be $198,000. Credit sales in
December, 2020 are expected to be $204,000. The company expects to collect 20% of a
month’s sales in the month of sale and 80% in the following month. How much is the
budgeted cash balance at the end of February?
A.
$22,000
B.
$206,000
C.
$8,000
D.
$10,000
Ans: A, LO: 2, Bloom: AP, Difficulty: Medium, Min: 1, AACSB: Analytic, AICPA FN: Measurement Analysis and
Interpretation, AICPA PC: Decision Making, IMA: Decision Analysis
Solution: $14,000 + ($210,000 x 80%) + ($190,000 x 20%) - $198,000 = $22,000
148.
Hanson Retailers planned to make 280,000 cans of pasta sauce and spend $140,000 on
tomatoes during November. However, demand was weak due to increased competition,
and only 260,000 cans of pasta sauce were produced. The actual cost incurred for
tomatoes was $132,000. Tomato prices were as expected during the period. Which of
the following statements would be a fair statement regarding Hanson’s performance on
tomato usage?
A.
Hanson was under budget by $2,000 and did well controlling costs.
B.
Hanson was over budget by $2,000.
C.
Hanson’s flexible budget for tomatoes for performance evaluation was $132,000.
D.
Hanson saved $8,000 in material costs for the period.
Ans: B, LO: 3, Bloom: C, Difficulty: Hard, Min: 1, AACSB: Analytic, AICPA FN: Measurement Analysis and
Interpretation, AICPA PC: Decision Making, IMA: Decision Analysis
Solution: (($140,000 ÷ 280,000) x 260,000) - $132,000 = ($2,000)
10-52
Test Bank to accompany Jiambalvo Managerial Accounting, 7th Edition
149.
The results of operations for the Budget Pesticides, for the fourth quarter of 2020 were
as follows:
Sales of bug spray
Variable cost of goods sold
Contribution margin
Fixed production costs
Fixed selling and administrative expenses
Income before taxes
Income taxes
Net income
$600,000
280,000
320,000
$70,000
30,000
100,000
220,000
88,000
$132,000
Budget Pesticide uses the variable costing method. The company’s balance sheet
reported the following amounts as of the end of the fourth quarter of 2020:
Cash
Accounts receivable
Fixtures and equipment
Accumulated depreciation
$ 30,000
300,000
130,000
80,000
Accounts payable
Common stock
Retained earnings
$ 44,800
140,200
195,000
Additional information:
1.
Sales and variable costs of sales are expected to increase by 5% in the next
quarter.
2.
All sales are on credit with 50% collected in the quarter of sale and 50% collected
in the following quarter.
3.
Variable cost of sales consists of 40% materials, 40% direct labor, and 20%
variable overhead.
4.
All materials are purchased on credit and 60% are paid for in the quarter of
purchase and the remaining amount is paid for in the quarter after purchase.
There is no beginning or ending inventory.
5.
Direct labor and variable overhead are paid in the quarter the expenses are
incurred.
6.
Fixed production costs include $3,000 of depreciation. Fixed production costs are
paid in the quarter they are incurred.
7.
Fixed selling and administrative costs, other than $4,000 of depreciation
expense, are expected to increase by 2% per quarter. Fixed selling and
administrative costs are paid in the quarter they are incurred.
8.
The tax rate is expected to be 40%. All taxes are paid in the quarter they are
incurred.
How much is the budgeted contribution margin for the first quarter of 2021?
A.
$266,000
B.
$336,000
C.
$406,000
D.
$250,000
Ans: B, LO: 2, 3, Bloom: AP, Difficulty: Hard, Min: 1, AACSB: Analytic, AICPA FN: Measurement Analysis and
Interpretation, AICPA PC: Decision Making, IMA: Decision Analysis
Solution: $320,000 x 105% = $336,000
Chapter 10 Budgetary Planning and Control
150.
10-53
The results of operations for the Budget Pesticides, for the fourth quarter of 2020 were
as follows:
Sales of bug spray
Variable cost of goods sold
Contribution margin
Fixed production costs
Fixed selling and administrative expenses
Income before taxes
Income taxes
Net income
$600,000
280,000
320,000
$70,000
30,000
100,000
220,000
88,000
$132,000
Budget Pesticide uses the variable costing method. The company’s balance sheet
reported the following amounts as of the end of the fourth quarter of 2020:
Cash
Accounts receivable
Fixtures and equipment
Accumulated depreciation
$ 30,000
300,000
130,000
80,000
Accounts payable
Common stock
Retained earnings
$ 44,800
140,200
195,000
Additional information:
1.
Sales and variable costs of sales are expected to increase by 5% in the next
quarter.
2.
All sales are on credit with 50% collected in the quarter of sale and 50% collected
in the following quarter.
3.
Variable cost of sales consists of 40% materials, 40% direct labor, and 20%
variable overhead.
4.
All materials are purchased on credit and 60% are paid for in the quarter of
purchase and the remaining amount is paid for in the quarter after purchase.
There is no beginning or ending inventory.
5.
Direct labor and variable overhead are paid in the quarter the expenses are
incurred.
6.
Fixed production costs include $3,000 of depreciation. Fixed production costs are
paid in the quarter they are incurred.
7.
Fixed selling and administrative costs, other than $4,000 of depreciation
expense, are expected to increase by 2% per quarter. Fixed selling and
administrative costs are paid in the quarter they are incurred.
8.
The tax rate is expected to be 40%. All taxes are paid in the quarter they are
incurred.
How much are the total budgeted cash receipts for the first quarter of 2021?
A.
$315,000
B.
$600,000
C.
$615,000
D.
$645,750
Ans: C, LO: 2, 3, Bloom: AP, Difficulty: Hard, Min: 1, AACSB: Analytic, AICPA FN: Measurement Analysis and
Interpretation, AICPA PC: Decision Making, IMA: Decision Analysis
Solution: ($600,000 x 50%) + ($600,000 x 105% x 50%) = $615,000
10-54
Test Bank to accompany Jiambalvo Managerial Accounting, 7th Edition
151.
The results of operations for the Budget Pesticides, for the fourth quarter of 2020 were
as follows:
Sales of bug spray
Variable cost of goods sold
Contribution margin
Fixed production costs
Fixed selling and administrative expenses
Income before taxes
Income taxes
Net income
$600,000
280,000
320,000
$70,000
30,000
100,000
220,000
88,000
$132,000
Budget Pesticide uses the variable costing method. The company’s balance sheet
reported the following amounts as of the end of the fourth quarter of 2020:
Cash
Accounts receivable
Fixtures and equipment
Accumulated depreciation
$ 30,000
300,000
130,000
80,000
Accounts payable
Common stock
Retained earnings
$ 44,800
140,200
195,000
Additional information:
1.
Sales and variable costs of sales are expected to increase by 5% in the next
quarter.
2.
All sales are on credit with 50% collected in the quarter of sale and 50% collected
in the following quarter.
3.
Variable cost of sales consists of 40% materials, 40% direct labor, and 20%
variable overhead.
4.
All materials are purchased on credit and 60% are paid for in the quarter of
purchase and the remaining amount is paid for in the quarter after purchase.
There is no beginning or ending inventory.
5.
Direct labor and variable overhead are paid in the quarter the expenses are
incurred.
6.
Fixed production costs include $3,000 of depreciation. Fixed production costs are
paid in the quarter they are incurred.
7.
Fixed selling and administrative costs, other than $4,000 of depreciation
expense, are expected to increase by 2% per quarter. Fixed selling and
administrative costs are paid in the quarter they are incurred.
8.
The tax rate is expected to be 40%. All taxes are paid in the quarter they are
incurred.
How much are the budgeted cash disbursements for materials in the first quarter of
2021?
A.
$176,400
B.
$288,400
C.
$70,560
D.
$115,360
Ans: D, LO: 2, 3, Bloom: AP, Difficulty: Hard, Min: 1, AACSB: Analytic, AICPA FN: Measurement Analysis and
Interpretation, AICPA PC: Decision Making, IMA: Decision Analysis
Solution: ($280,000 x 40% x 40%) + ($280,000 x 105% x 40% x 60%) = $115,360
Chapter 10 Budgetary Planning and Control
152.
10-55
The results of operations for the Budget Pesticides, for the fourth quarter of 2020 were
as follows:
Sales of bug spray
Variable cost of goods sold
Contribution margin
Fixed production costs
Fixed selling and administrative expenses
Income before taxes
Income taxes
Net income
$600,000
280,000
320,000
$70,000
30,000
100,000
220,000
88,000
$132,000
Budget Pesticide uses the variable costing method. The company’s balance sheet
reported the following amounts as of the end of the fourth quarter of 2020:
Cash
Accounts receivable
Fixtures and equipment
Accumulated depreciation
$ 30,000
300,000
130,000
80,000
Accounts payable
Common stock
Retained earnings
$ 44,800
140,200
195,000
Additional information:
1.
Sales and variable costs of sales are expected to increase by 5% in the next
quarter.
2.
All sales are on credit with 50% collected in the quarter of sale and 50% collected
in the following quarter.
3.
Variable cost of sales consists of 40% materials, 40% direct labor, and 20%
variable overhead.
4.
All materials are purchased on credit and 60% are paid for in the quarter of
purchase and the remaining amount is paid for in the quarter after purchase.
There is no beginning or ending inventory.
5.
Direct labor and variable overhead are paid in the quarter the expenses are
incurred.
6.
Fixed production costs include $3,000 of depreciation. Fixed production costs are
paid in the quarter they are incurred.
7.
Fixed selling and administrative costs, other than $4,000 of depreciation
expense, are expected to increase by 2% per quarter. Fixed selling and
administrative costs are paid in the quarter they are incurred.
8.
The tax rate is expected to be 40%. All taxes are paid in the quarter they are
incurred.
If total cash disbursements are budgeted at $479,472, how much is the budgeted cash
at the end of the first quarter of 2021?
A.
$615,000
B.
$135,600
C.
$150,600
D.
$165,528
Ans: D, LO: 2, 3, Bloom: AP, Difficulty: Hard, Min: 1, AACSB: Analytic, AICPA FN: Measurement Analysis and
Interpretation, AICPA PC: Decision Making, IMA: Decision Analysis
Solution: $30,000 + (($600,000 x 50%) + ($600,000 x 105% x 50%)) - $479,472 = $165,528
10-56
Test Bank to accompany Jiambalvo Managerial Accounting, 7th Edition
153.
The results of operations for the Budget Pesticides, for the fourth quarter of 2020 were
as follows:
Sales of bug spray
Variable cost of goods sold
Contribution margin
Fixed production costs
Fixed selling and administrative expenses
Income before taxes
Income taxes
Net income
$600,000
280,000
320,000
$70,000
30,000
100,000
220,000
88,000
$132,000
Budget Pesticide uses the variable costing method. The company’s balance sheet
reported the following amounts as of the end of the fourth quarter of 2020:
Cash
Accounts receivable
Fixtures and equipment
Accumulated depreciation
$ 30,000
300,000
130,000
80,000
Accounts payable
Common stock
Retained earnings
$ 44,800
140,200
195,000
Additional information:
1.
Sales and variable costs of sales are expected to increase by 5% in the next
quarter.
2.
All sales are on credit with 50% collected in the quarter of sale and 50% collected
in the following quarter.
3.
Variable cost of sales consists of 40% materials, 40% direct labor, and 20%
variable overhead.
4.
All materials are purchased on credit and 60% are paid for in the quarter of
purchase and the remaining amount is paid for in the quarter after purchase.
There is no beginning or ending inventory.
5.
Direct labor and variable overhead are paid in the quarter the expenses are
incurred.
6.
Fixed production costs include $3,000 of depreciation. Fixed production costs are
paid in the quarter they are incurred.
7.
Fixed selling and administrative costs, other than $4,000 of depreciation
expense, are expected to increase by 2% per quarter. Fixed selling and
administrative costs are paid in the quarter they are incurred.
8.
The tax rate is expected to be 40%. All taxes are paid in the quarter they are
incurred.
How much is the budgeted Accounts Receivable at the end of the first quarter of 2021?
A.
$600,000
B.
$615,000
C.
$315,000
D.
$300,000
Ans: C, LO: 2, 3, Bloom: AP, Difficulty: Hard, Min: 1, AACSB: Analytic, AICPA FN: Measurement Analysis and
Interpretation, AICPA PC: Decision Making, IMA: Decision Analysis
Solution: $600,000 x 105% x 50% = $315,000
Chapter 10 Budgetary Planning and Control
154.
10-57
The results of operations for the Budget Pesticides, for the fourth quarter of 2020 were
as follows:
Sales of bug spray
Variable cost of goods sold
Contribution margin
Fixed production costs
Fixed selling and administrative expenses
Income before taxes
Income taxes
Net income
$600,000
280,000
320,000
$70,000
30,000
100,000
220,000
88,000
$132,000
Budget Pesticide uses the variable costing method. The company’s balance sheet
reported the following amounts as of the end of the fourth quarter of 2020:
Cash
Accounts receivable
Fixtures and equipment
Accumulated depreciation
$ 30,000
300,000
130,000
80,000
Accounts payable
Common stock
Retained earnings
$ 44,800
140,200
195,000
Additional information:
1.
Sales and variable costs of sales are expected to increase by 5% in the next
quarter.
2.
All sales are on credit with 50% collected in the quarter of sale and 50% collected
in the following quarter.
3.
Variable cost of sales consists of 40% materials, 40% direct labor, and 20%
variable overhead.
4.
All materials are purchased on credit and 60% are paid for in the quarter of
purchase and the remaining amount is paid for in the quarter after purchase.
There is no beginning or ending inventory.
5.
Direct labor and variable overhead are paid in the quarter the expenses are
incurred.
6.
Fixed production costs include $3,000 of depreciation. Fixed production costs are
paid in the quarter they are incurred.
7.
Fixed selling and administrative costs, other than $4,000 of depreciation
expense, are expected to increase by 2% per quarter. Fixed selling and
administrative costs are paid in the quarter they are incurred.
8.
The tax rate is expected to be 40%. All taxes are paid in the quarter they are
incurred.
How much is the budgeted Accounts Payable for materials at the end of the first quarter
of 2021?
A.
$47,040
B.
$117,600
C.
$70,500
D.
$291,760
Ans: A, LO: 2, 3, Bloom: AP, Difficulty: Hard, Min: 1, AACSB: Analytic, AICPA FN: Measurement Analysis and
Interpretation, AICPA PC: Decision Making, IMA: Decision Analysis
Solution: $280,000 x 105% x 40% x 40% = $47,040
10-58
Test Bank to accompany Jiambalvo Managerial Accounting, 7th Edition
155.
The results of operations for the Budget Pesticides, for the fourth quarter of 2020 were
as follows:
Sales of bug spray
Variable cost of goods sold
Contribution margin
Fixed production costs
Fixed selling and administrative expenses
Income before taxes
Income taxes
Net income
$600,000
280,000
320,000
$70,000
30,000
100,000
220,000
88,000
$132,000
Budget Pesticide uses the variable costing method. The company’s balance sheet
reported the following amounts as of the end of the fourth quarter of 2020:
Cash
Accounts receivable
Fixtures and equipment
Accumulated depreciation
$ 30,000
300,000
130,000
80,000
Accounts payable
Common stock
Retained earnings
$ 44,800
140,200
195,000
Additional information:
1.
Sales and variable costs of sales are expected to increase by 5% in the next
quarter.
2.
All sales are on credit with 50% collected in the quarter of sale and 50% collected
in the following quarter.
3.
Variable cost of sales consists of 40% materials, 40% direct labor, and 20%
variable overhead.
4.
All materials are purchased on credit and 60% are paid for in the quarter of
purchase and the remaining amount is paid for in the quarter after purchase.
There is no beginning or ending inventory.
5.
Direct labor and variable overhead are paid in the quarter the expenses are
incurred.
6.
Fixed production costs include $3,000 of depreciation. Fixed production costs are
paid in the quarter they are incurred.
7.
Fixed selling and administrative costs, other than $4,000 of depreciation
expense, are expected to increase by 2% per quarter. Fixed selling and
administrative costs are paid in the quarter they are incurred.
8.
The tax rate is expected to be 40%. All taxes are paid in the quarter they are
incurred.
No new plant assets were acquired. How much is the budgeted book value of the plant
assets at the end of the first quarter of 2021?
A.
$46,000
B.
$47,000
C.
$43,000
D.
$53,000
Ans: C, LO: 2, 3, Bloom: AN, Difficulty: Hard, Min: 1, AACSB: Analytic, AICPA FN: Measurement Analysis and
Interpretation, AICPA PC: Decision Making, IMA: Decision Analysis
Solution: $130,000 - ($80,000 + $3,000 + $4,000) = $43,000
Chapter 10 Budgetary Planning and Control
156.
10-59
The results of operations for the Budget Pesticides, for the fourth quarter of 2020 were
as follows:
Sales of bug spray
Variable cost of goods sold
Contribution margin
Fixed production costs
Fixed selling and administrative expenses
Income before taxes
Income taxes
Net income
$600,000
280,000
320,000
$70,000
30,000
100,000
220,000
88,000
$132,000
Budget Pesticide uses the variable costing method. The company’s balance sheet
reported the following amounts as of the end of the fourth quarter of 2020:
Cash
Accounts receivable
Fixtures and equipment
Accumulated depreciation
$ 30,000
300,000
130,000
80,000
Accounts payable
Common stock
Retained earnings
$ 44,800
140,200
195,000
Additional information:
1.
Sales and variable costs of sales are expected to increase by 5% in the next
quarter.
2.
All sales are on credit with 50% collected in the quarter of sale and 50% collected
in the following quarter.
3.
Variable cost of sales consists of 40% materials, 40% direct labor, and 20%
variable overhead.
4.
All materials are purchased on credit and 60% are paid for in the quarter of
purchase and the remaining amount is paid for in the quarter after purchase.
There is no beginning or ending inventory.
5.
Direct labor and variable overhead are paid in the quarter the expenses are
incurred.
6.
Fixed production costs include $3,000 of depreciation. Fixed production costs are
paid in the quarter they are incurred.
7.
Fixed selling and administrative costs, other than $4,000 of depreciation
expense, are expected to increase by 2% per quarter. Fixed selling and
administrative costs are paid in the quarter they are incurred.
8.
The tax rate is expected to be 40%. All taxes are paid in the quarter they are
incurred.
How much is budgeted total assets at March 31, 2021?
A.
$523,528
B.
$658,000
C.
$350,000
D.
None of these answer choices are correct.
Ans: A, LO: 2, 3, Bloom: C, Difficulty: Hard, Min: 1, AACSB: Analytic, AICPA FN: Measurement Analysis and
Interpretation, AICPA PC: Decision Making, IMA: Decision Analysis
Solution: ($30,000 + (($600,000 x 50%) + ($600,000 x 105% x 50%)) - $479,472) + ($600,000 x 105% x 50%) +
($130,000 - ($80,000 + $3,000 + $4,000)) = $523,528
10-60
Test Bank to accompany Jiambalvo Managerial Accounting, 7th Edition
157.
E-Book Trading Company budgets $100,000 in fixed overhead and $11.00 per book in
variable overhead each month. For May, E-Book expected to license and sell 14,000 ebooks but because of unexpected demand actually sold 16,000 units. The actual
overhead cost was $256,000. What will a flexible budget performance report for May
likely indicate?
A.
E-Book Trading had a $2,000 unfavorable variance for overhead for the month
B.
E-Book Trading had a $20,000 favorable variance for overhead for the month
C.
E-Book Trading had a $20,000 unfavorable variance for overhead for the month
D.
E-Book Trading had a $2,000 favorable variance for overhead for the month
Ans: B, LO: 2, 3, Bloom: AN, Difficulty: Hard, Min: 1, AACSB: Analytic, AICPA FN: Measurement Analysis and
Interpretation, AICPA PC: Decision Making, IMA: Decision Analysis
Solution: ((16,000 x $11) + $100,000) - $256,000 = $20,000
158.
Prodigy Products’ expected manufacturing costs for trash cans for the month when
3,000 cans are produced are summarized below:
Direct material
Direct labor
Variable overhead
Factory depreciation
Supervisory salaries
Other fixed factory costs
$2.40 per unit
$1.60 per unit
$ 6,000
10,500
4,800
1,500
What is the flexible budget amount for a month when 3,200 units are produced?
A.
$36,000
B.
$37,120
C.
$34,800
D.
$35,600
Ans: A, LO: 3, Bloom: C, Difficulty: Medium, Min: 1, AACSB: Analytic, AICPA FN: Measurement Analysis and
Interpretation, AICPA PC: Decision Making, IMA: Decision Analysis
Solution: (($2.40 x 3,200) + ($1.60 x 3,200) + ( $6,000 ÷ 3,000) x 3,200) + $10,500 + $4,800 + $1,500 = $36,000
159.
Prodigy Products’ expected manufacturing costs for trash cans for the month when
3,000 cans are produced are summarized below:
Direct material
Direct labor
Variable overhead
Factory depreciation
Supervisory salaries
Other fixed factory costs
$2.40 per unit
$1.60 per unit
$ 6,000
10,500
4,800
1,500
What is the flexible budget amount for a month when 4,000 units are produced?
A.
$34,800
B.
$38,800
C.
$46,400
D.
$40,800
Ans: D, LO: 3, Bloom: AN, Difficulty: Medium, Min: 1, AACSB: Analytic, AICPA FN: Measurement Analysis and
Interpretation, AICPA PC: Decision Making, IMA: Decision Analysis
Solution: (($2.40 x 4,000) + ($1.60 x 4,000) + ($6,000 ÷ 3,000) x 4,000) + $10,500 + $4,800 + $1,500 = $40,800
Chapter 10 Budgetary Planning and Control
160.
10-61
Prodigy Products’ expected manufacturing costs for trash cans for the month when
3,000 cans are produced are summarized below:
Direct material
Direct labor
Variable overhead
Factory depreciation
Supervisory salaries
Other fixed factory costs
$2.40 per unit
$1.60 per unit
$ 6,000
10,500
4,800
1,500
Which of the following is the flexible budget equation for Prodigy Products?
A.
$4.00 × number of units produced
B.
$16,800 + ($6.00 × number of units produced)
C.
$11.60 × number of units produced
D.
$22,800 + ($4.00 × number of units produced)
Ans: B, LO: 3, Bloom: AN, Difficulty: Medium, Min: 1, AACSB: Analytic, AICPA FN: Measurement Analysis and
Interpretation, AICPA PC: Decision Making, IMA: Decision Analysis
Solution: $10,500 + $4,800 + $1,500 = $16,800; $2.40 + $1.60 + ($6,000 ÷ 3,000) = $6.00
161.
Belk Shoes planned to make 8,000 pairs of shoes using $40,000 on leather during
February. Due to higher than anticipated demand for shoes, Belk produced 9,000 pairs
of shoes and spent $44,500 on leather. Leather prices during the period were as
expected in the budget. Which of the following statements is a fair statement regarding
Belk’s performance on leather use?
A.
Belk’s flexible budget for comparative purposes for February is $45,000.
B.
Belk used more leather per shoe than was allowed in the budget.
C.
Belk paid more for each yard of leather than allowed in the budget.
D.
Belk spent $500 more for leather than allowed under the flexible budget.
Ans: A, LO: 3, Bloom: C, Difficulty: Hard, Min: 1, AACSB: Analytic, AICPA FN: Measurement Analysis and
Interpretation, AICPA PC: Decision Making, IMA: Decision Analysis
162.
Xanine Company budgets $200,000 in fixed overhead and $6.00 per unit in variable
overhead. For June, Xanine expected to produce 11,000 units but because of
unexpected demand actually produced 13,000 units. The actual overhead cost was
$280,000. A flexible budget performance report for May would indicate that
A.
Xanine generated a $2,000 favorable overhead variance for the month.
B.
Xanine was $12,000 under budget for overhead for the month.
C.
Xanine was $2,000 over budget for overhead for the month.
D.
Xanine generated a $12,000 unfavorable overhead variance for the month.
Ans: C, LO: 3, Bloom: C, Difficulty: Hard, Min: 1, AACSB: Analytic, AICPA FN: Measurement Analysis and
Interpretation, AICPA PC: Decision Making, IMA: Decision Analysis
Solution: ((13,000 x $6) + 200,000) - $280,000 = ($2,000)
10-62
Test Bank to accompany Jiambalvo Managerial Accounting, 7th Edition
Answers to Multiple Choice
31 A
53 A
32 B
54 A
33 B
55 D
34 D
56 B
35 A
57 A
36 C
58 A
37 A
59 C
38 A
60 B
39 A
61 C
40 D
62 A
41 A
63 C
42 C
64 D
43 D
65 A
44 D
66 A
45 B
67 C
46 B
68 B
47 A
69 B
48 C
70 D
49 D
71 A
50 B
72 B
51 C
73 B
52 B
74 A
75
76
77
78
79
80
81
82
83
84
85
86
87
88
89
90
91
92
93
94
95
96
A
A
D
A
B
B
B
D
B
D
A
D
B
A
B
C
D
A
D
A
A
C
97
98
99
100
101
102
103
104
105
106
107
108
109
110
111
112
113
114
115
116
117
118
B
B
D
C
D
A
A
D
A
A
C
B
A
A
D
B
B
B
B
D
D
C
119
120
121
122
123
124
125
126
127
128
129
130
131
132
133
134
135
136
137
138
139
140
D
A
C
C
B
C
A
B
C
A
A
B
A
A
D
B
C
B
D
A
C
B
141
142
143
144
145
146
147
148
149
150
151
152
153
154
155
156
157
158
159
160
161
162
B
B
D
A
C
D
A
B
B
C
D
D
C
A
C
A
B
A
D
B
A
C
Chapter 10 Budgetary Planning and Control
10-63
MATCHING
163.
Match each of the following terms with the phrase that most closely describes it. Each
answer may be used only once.
_____ 1.
Budgeted income statement
_____ 2.
Budgets
_____ 3.
Budget variances
_____ 4.
Capital acquisitions budget
_____ 5.
Flexible budget
_____ 6.
Budget slack
_____ 7.
Master budget
_____ 8.
Sales budget
_____ 9.
Static budget
_____ 10.
Income shifting
_____ 11.
Management by exception
_____ 12.
Zero-based budgeting
A.
B.
C.
D.
E.
F.
G.
H.
I.
J.
K.
L.
Differences between actual and budgeted amounts
A comprehensive planning document that incorporates a number of individual budgets
Approach in which managers only investigate exceptional variances
Set of budget relationships that can be adjusted to various activity levels
Setting budget targets that are easy to achieve
Moving income from one period to another to achieve budget targets
Method of budget preparation that requires each amount to be justified, even if it was
supported in previous periods
Budget showing plans to purchase property, plant, and equipment
Formal documents that quantify a company’s plans for achieving its goals
A budget that is only valid for a single level of activity
Summarizes sales, cost of goods sold, and other expenses to project net income
First budget that is prepared since other budgets depend upon it
Answers to Matching
1 K
2 I
3 A
4 H
5
6
7
8
D
E
B
L
9
10
11
12
J
F
C
G
Ans: N/A, LO: 1, 2, 3, Bloom: K, Difficulty: Easy, Min: 1, AACSB: Reflective Thinking, AICPA FN: Measurement
Analysis and Interpretation, AICPA PC: Decision Making, IMA: Decision Analysis
10-64
Test Bank to accompany Jiambalvo Managerial Accounting, 7th Edition
EXERCISES
164.
Galvin Production is beginning the budgeting process for 2020. The sales forecast for
the first three months of 2020 in units follows:
January
10,000
February
14,000
March
12,000
The company desires to have 10% of the next month’s anticipated unit sales in inventory
at the end of a month. December’s ending inventory reflects this policy. April’s sales are
budgeted at 15,000 units. Prepare a production budget in good form for February. Omit
the heading.
Answer
Sales
Plus desired ending inventory (10% × 12,000)
14,000
1,200
Total units needed
Less beginning inventory (10% × 14,000)
Units to be produced
15,200
(1,400)
13,800
Ans: N/A, LO: 2, Bloom: AP, Difficulty: Medium, Min: 1, AACSB: Analytic, AICPA FN: Measurement Analysis and
Interpretation, AICPA PC: Decision Making, IMA: Decision Analysis
165.
Swisher Toys is preparing its budget for 2020. Production for the first quarter is expected
to be 600,000 toy dump trucks. Production for the subsequent quarters will be 625,000
trucks, 700,000 trucks, and 850,000 trucks.
Each truck requires 3.0 pounds of resin, which is used to produce the trucks.
Each pound of resin costs $0.50. Swisher will have 325,000 pounds of resin on hand at
the end of 2020 and wants to have 500,000 pounds of resin in inventory at the end of
2021. Ending inventory for resin for the first, second, and third quarters will be 340,000
pounds, 360,000 pounds, and 450,000 pounds. Prepare the direct materials budget by
quarter and in total for 2021.
Answer
First
Quarter
Production
600,000
Pounds required per unit
3
Pounds used in production 1,800,000
Plus desired ending inventory 340,000
Total amount needed
2,140,000
Less beginning inventory
325,000
Amount to be purchased
1,815,000
Cost per pound
$
0.50
Budgeted purchases
$ 907,500
Second
Quarter
625,000
3
1,875,000
360,000
2,235,000
340,000
1,895,000
$
0.50
$ 947,500
Third
Quarter
700,000
3
2,100,000
450,000
2,550,000
360,000
2,190,000
$
0.50
$1,095,000
Fourth
Quarter
850,000
3
2,550,000
500,000
3,050,000
450,000
2,600,000
$
0.50
$1,300,000
Total
Year
2,775,000
3
8,325,000
500,000
8,825,000
325,000
8,500,000
$
0.50
$4,250,000
Ans: N/A, LO: 2, Bloom: AP, Difficulty: Medium, Min: 1, AACSB: Analytic, AICPA FN: Measurement Analysis and
Interpretation, AICPA PC: Decision Making, IMA: Decision Analysis
Chapter 10 Budgetary Planning and Control
166.
10-65
Captain Fizzy plans to produce 800,000 fizzy drinks during 2020, with 120,000 of them
during the first quarter, 250,000 during the second quarter, 220,000 during the third
quarter, and 210,000 during the fourth quarter. Employees are paid $13.50 per hour and
can produce 200 fizzy drinks each hour. Determine Captain Fizzy’s direct labor budget
for the third quarter of 2020.
Answer
Direct labor budget = (220,000 ÷ 200) × $13.50 = $14,850
Ans: N/A, LO: 2, Bloom: AP, Difficulty: Medium, Min: 1, AACSB: Analytic, AICPA FN: Measurement Analysis and
Interpretation, AICPA PC: Decision Making, IMA: Decision Analysis
167.
Martinez Corporation's sales of gizmos are 25% for cash and 75% on credit. Past
collection history indicates that credit sales are collected as follows:
Month of Sale
Month After Sale
Second Month After Sale
Uncollectible
30%
50%
15%
5%
In January, sales were $80,000 and February sales were $70,000. Projected sales for
March are 3,000 gizmos at $13 each. Projected sales for April are 4,000 gizmos at $14
each. Calculate the budgeted cash collections for April.
Answer
Sales during March: 3,000 × $13 = $39,000
Sales during April: 4,000 × $14 = $56,000
Collections from April Sales:
Cash sales (25% × $56,000)
Credit sales (75% × $56,000 × 30%)
Collections from March Sales:
Credit sales (75% × $39,000 × 50%)
Collections from February
Sales:
Credit sales (75% × $70,000 × 15%)
Cash collections during April
$14,000
12,600
14,625
7,875
$49,100
Ans: N/A, LO: 2, Bloom: AP, Difficulty: Medium, Min: 1, AACSB: Analytic, AICPA FN: Measurement Analysis and
Interpretation, AICPA PC: Decision Making, IMA: Decision Analysis
10-66
Test Bank to accompany Jiambalvo Managerial Accounting, 7th Edition
168.
All of Gaylord Boutique’s sales are on account. In the past, 15% of the amounts charged
have been paid in the same month as the sale, 60% were paid in the following month,
and the rest were paid in the second month following the sale. Sales for selected months
are given below:
November 2020
$580,000
December 2020
600,000
January 2021
550,000
February 2021
650,000
March 2021
750,000
April 2021
725,000
May 2021
700,000
Prepare the cash receipts budget for the first three months of 2021.
Answer
November sales
December sales
January sales
February sales
March sales
Total receipts
January
$145,000
360,000
82,500
$587,500
February
$150,000
330,000
97,500
$577,500
March
$137,500
390,000
112,500
$640,000
Ans: N/A, LO: 2, Bloom: AP, Difficulty: Medium, Min: 1, AACSB: Analytic, AICPA FN: Measurement Analysis and
Interpretation, AICPA PC: Decision Making, IMA: Decision Analysis
169.
Billy Bob Tacos pays for 40% of its inventory purchases in the month of the purchase
and the remainder in the following month. The company’s inventory purchases totaled
$850,000 in October, $980,000 in November, and $720,000 in December. The company
also paid for new equipment with a total cost of $520,000 in November and made an
income tax payment of $130,000 in December. Salaries and wages were paid as follows:
$310,000 in October, $300,000 in November and $295,000 in December. Determine the
company’s cash disbursements for November and December.
Answer
October purchases
November purchases
December purchases
Equipment
Income tax payment
Salaries and wages
Total cash disbursements
November
$ 510,000
392,000
December
$ 588,000
288,000
520,000
300,000
$1,722,000
130,000
295,000
$1,301,000
Ans: N/A, LO: 2, Bloom: AP, Difficulty: Medium, Min: 1, AACSB: Analytic, AICPA FN: Measurement Analysis and
Interpretation, AICPA PC: Decision Making, IMA: Decision Analysis
Chapter 10 Budgetary Planning and Control
170.
10-67
At January 1, 2020, Wallace, Inc. has beginning inventory of 4,000 widgets. Wallace
estimates it will sell 35,000 units during the first quarter of 2020 with a 10% increase in
unit sales each quarter. Wallace’s policy is to maintain an ending inventory equal to 25%
of the next quarter’s sales. Each widget costs $1 to purchase and is sold for $1.50. How
much is budgeted sales revenue for the third quarter of 2020?
Answer
1st quarter units = 35,000
2nd quarter units = 35,000 × 110% = 38,500
3rd quarter units = 35,000 × 110% × 110% = 42,350
Sales revenue for 3rd quarter = 42,350 × $1.50 = $63,525
Ans: N/A, LO: 2, Bloom: AP, Difficulty: Medium, Min: 1, AACSB: Analytic, AICPA FN: Measurement Analysis and
Interpretation, AICPA PC: Decision Making, IMA: Decision Analysis
171.
Clips, Inc. budgets on an annual basis for its fiscal year. The company produces widgets
using the raw material, oximate. The following beginning and ending inventory levels are
planned for the fiscal year ending June 30, 2020:
Oximate
Widgets
July 1, 2020
40,000 pounds
80,000 units
June 30, 2021
36,000 pounds
50,000 units
Three pounds of oximate are needed to produce each widget. If Clips plans to sell
480,000 widgets during the year ending June 30, 2021, how many widgets will it need to
produce during the year?
Answer
Expected sales
Add desired ending inventory
Less beginning inventory on hand
Units to be produced
480,000
50,000
(80,000)
450,000
Ans: N/A, LO: 2, Bloom: AP, Difficulty: Medium, Min: 1, AACSB: Analytic, AICPA FN: Measurement Analysis and
Interpretation, AICPA PC: Decision Making, IMA: Decision Analysis
10-68
Test Bank to accompany Jiambalvo Managerial Accounting, 7th Edition
172.
East Lansing Mall expects to make purchases in the first quarter of 2021 as follows:
January
February
March
$ 80,000
122,000
74,000
Purchases in December of 2020 are expected to be $93,000. The company expects that
35% of a month’s purchases will be paid in the month of purchase and the balance will
be paid in the following month. Calculate budgeted cash disbursements related to
purchases for February of 2021.
Answer
Payment of February purchases ($122,000 × 35%) in Feb 42,700
In Mar 78,300
Budgeted cash disbursements for Feb purchases
$122,000
Ans: N/A, LO: 2, Bloom: AP, Difficulty: Medium, Min: 1, AACSB: Analytic, AICPA FN: Measurement Analysis and
Interpretation, AICPA PC: Decision Making, IMA: Decision Analysis
173.
ProSlade expects credit sales in the next quarter as follows:
April
May
June
$ 90,000
110,000
113,000
Prior experience has shown that 30% of a month’s sales are collected in the month of
sale, 40% in the month following sale, and 28% in the second month following sale.
February and March sales were $90,000 and $100,000, respectively. Uncollectible
accounts are written off under the allowance method at 80 days after the end of the
month in which the sale was made.
a.
b.
Answer
a.
b.
Calculate budgeted cash receipts for May.
How much is Accounts Receivable on ProSlade’s May 31 balance sheet?
Cash receipts for May purchases ($110,000 × 30%)
Cash receipt for April purchases ($90,000 × 40%)
Cash receipts for March purchases ($100,000 × 28%)
Budgeted cash receipts for May
$33,000
36,000
28,000
$97,000
($110,000 × 70%) + ($90,000 × 30%) + ($100,000 × 2%) = $106,000
Ans: N/A, LO: 2, Bloom: AP, Difficulty: Medium, Min: 1, AACSB: Analytic, AICPA FN: Measurement Analysis and
Interpretation, AICPA PC: Decision Making, IMA: Decision Analysis
Chapter 10 Budgetary Planning and Control
174.
10-69
In the fourth quarter of 2020, Winston Wheels had the following net income:
Sales
Less cost of sales
Gross margin
Selling and administration costs
Income before taxes
Income taxes
Net income
$400,000
150,000
250,000
110,000
140,000
42,000
$ 98,000
Purchases in the fourth quarter of 2020 amounted to $170,000. Estimated data for 2021
follow:
First
Quarter
Sales
$300,000
Cost of sales
170,000
Purchases
200,000
Selling and admin. 110,000






Second
Quarter
$350,000
200,000
230,000
110,000
Third
Quarter
$400,000
230,000
250,000
110,000
Fourth
Quarter
$450,000
150,000
280,000
110,000
Taxes are 30% of pretax income and are paid in the month of accrual.
All sales are on credit and 30% are collected in the quarter of sale and 70% are
collected in the next quarter.
40% of purchases are paid in the quarter of purchase and 60% in the next
quarter.
Selling and administrative expenses are paid in the quarter incurred.
There is $11,000 of depreciation included in selling and administrative expense.
A capital expenditure for $40,000 is planned for the fourth quarter of 2021.
Calculate total cash receipts for the second quarter of 2021.
Answer
Collection of sales:
Collection of second quarter sales (30% × $350,000)
Collection of first quarter sales (70% × $300,000)
Total cash receipts
$ 105,000
210,000
$315,000
Ans: N/A, LO: 2, Bloom: AP, Difficulty: Hard, Min: 1, AACSB: Analytic, AICPA FN: Measurement Analysis and
Interpretation, AICPA PC: Decision Making, IMA: Decision Analysis
10-70
Test Bank to accompany Jiambalvo Managerial Accounting, 7th Edition
175.
In the fourth quarter of 2020, Winston Wheels had the following net income:
Sales
Less cost of sales
Gross margin
Selling and administration costs
Income before taxes
Income taxes
Net income
$400,000
150,000
250,000
110,000
140,000
42,000
$ 98,000
Purchases in the fourth quarter of 2020 amounted to $170,000. Estimated data for 2021
follow:
First
Quarter
Sales
$300,000
Cost of sales
170,000
Purchases
200,000
Selling and admin. 110,000






Second
Quarter
$350,000
200,000
230,000
110,000
Third
Quarter
$400,000
230,000
250,000
110,000
Fourth
Quarter
$450,000
150,000
280,000
110,000
Taxes are 30% of pretax income and are paid in the month of accrual.
All sales are on credit and 30% are collected in the quarter of sale and 70% are
collected in the next quarter.
40% of purchases are paid in the quarter of purchase and 60% in the next quarter.
Selling and administrative expenses are paid in the quarter incurred.
There is $11,000 of depreciation included in selling and administrative expense.
A capital expenditure for $40,000 is planned for the fourth quarter of 2021.
Prepare a cash disbursements budget for the second quarter of 2021.
Answer
Winston Wheels
Cash Disbursements Budget, Second Quarter 2021
Payment for purchases:
Payment of second quarter purchases (40% × $230,000) $ 92,000
Payment of first quarter purchases (60% × $200,000) 120,000
Payment for selling and administrative expenses
99,000
Payment of taxes ($350,000 – $200,000 – $110,000) × 30%
12,000
Total cash disbursements
$323,000
Ans: N/A, LO: 2, Bloom: AP, Difficulty: Hard, Min: 1, AACSB: Analytic, AICPA FN: Measurement Analysis and
Interpretation, AICPA PC: Decision Making, IMA: Decision Analysis
Chapter 10 Budgetary Planning and Control
176.
10-71
Green & Clean produces and sells organic concentrated detergent. Information about
the budget for 2020 is as follows:
1.
The company expects to sell 50,000 bottles of detergent in the first quarter,
70,000 in the second quarter, 95,000 in the third quarter, and 46,000 in the fourth
quarter.
2.
A bottle of detergent requires 5 ounces of Chemical A and 12 ounces of Chemical
B.
3.
The desired ending inventory of finished goods is equal to 15% of next quarter’s
sales, whereas the desired ending inventory for material is 10% of next quarter’s
production requirements.
4.
There are 7,500 bottles of detergent, 25,000 ounces of Chemical A, and 60,000
ounces of Chemical B on hand at the beginning of the first quarter.
5.
At the end of the fourth quarter, the company must have 10,000 bottles of
detergent, 24,000 ounces of Chemical A, and 90,000 ounces of Chemical B to
meet its needs in the first quarter of 2021.
6.
The cost of Chemical A is $0.12 per ounce, the cost of Chemical B is $0.08 per
ounce, and the selling price of the detergent is $11.50 per bottle.
7.
The cost of direct labor is $0.80 per bottle, and the cost of variable overhead is
$1.20 per bottle. Fixed manufacturing overhead is $50,000 per quarter.
8.
Variable selling and administrative expense is 5% of sales, and fixed selling and
administrative expenses are $60,000 per quarter.
Prepare a production budget for each quarter of 2020.
Answer
Unit sales
Desired ending inventory
Total needed
Beginning inventory
Units to be produced
First
Quarter
50,000
10,500
60,500
7,500
53,000
Second
Quarter
70,000
14,250
84,250
10,500
73,750
Third
Quarter
95,000
6,900
101,900
14,250
87,650
Fourth
Quarter
46,000
10,000
56,000
6,900
49,100
Ans: N/A, LO: 2, Bloom: AP, Difficulty: Hard, Min: 1, AACSB: Analytic, AICPA FN: Measurement Analysis and
Interpretation, AICPA PC: Decision Making, IMA: Decision Analysis
10-72
Test Bank to accompany Jiambalvo Managerial Accounting, 7th Edition
177.
Pappas Products manufactures a single product. Expected manufacturing costs are as
follows:
Variable unit costs
Direct materials
$2.10 per unit
Direct labor
$1.50 per unit
Manufacturing overhead
$0.50 per unit
Fixed costs per month
Depreciation
$4,000 per month
Supervisory salaries
$3,500 per month
Other fixed costs
$2,400 per month
How much are budgeted manufacturing costs for a production levels of 8,000 units?
Answer
[($2.10 + $1.50 + $0.50) × 8,000] + ($4,000 + $3,500 + $2,400) = $42,700
Ans: N/A, LO: 3, Bloom: AP, Difficulty: Medium, Min: 1, AACSB: Analytic, AICPA FN: Measurement Analysis and
Interpretation, AICPA PC: Decision Making, IMA: Decision Analysis
Chapter 10 Budgetary Planning and Control
178.
10-73
Green & Clean produces and sells organic concentrated detergent. Information about
the budget for 2020 is as follows:
1. The company expects to sell 50,000 bottles of detergent in the first quarter, 70,000 in
the second quarter, 95,000 in the third quarter, and 46,000 in the fourth quarter.
2. A bottle of detergent requires 5 ounces of Chemical A and 12 ounces of Chemical B.
3. The desired ending inventory of finished goods is equal to 15% of next quarter’s
sales, whereas the desired ending inventory for material is 10% of next quarter’s
production requirements.
4. There are 7,500 bottles of detergent, 25,000 ounces of Chemical A, and 60,000
ounces of Chemical B on hand at the beginning of the first quarter.
5. At the end of the fourth quarter, the company must have 10,000 bottles of detergent,
24,000 ounces of Chemical A, and 90,000 ounces of Chemical B to meet its needs in
the first quarter of 2021.
6. The cost of Chemical A is $0.12 per ounce, the cost of Chemical B is $0.08 per
ounce, and the selling price of the detergent is $11.50 per bottle.
7. The cost of direct labor is $0.80 per bottle, and the cost of variable overhead is $1.20
per bottle. Fixed manufacturing overhead is $50,000 per quarter.
8. Variable selling and administrative expense is 5% of sales, and fixed selling and
administrative expenses are $60,000 per quarter.
Prepare a material purchases budget for Chemical A for the third quarter of 2020.
Assume the production for the fourth quarter is 49,100 units.
Answer
Units to be produced
Ounces of chemical A per unit
Ounces of chemical A required for production
Plus desired ending inventory of chemical A
Total needed
Less beginning inventory of chemical A
Ounces to be purchased
Cost per ounce
Cost of purchases of chemical A
87,650*
5
438,250
24,550
462,800
43,825
418,975
$ 0.12
$ 50,277
*95,000 + (15% × 46,000) – (15% × 95,000) = 87,650
Ans: N/A, LO: 2, Bloom: AP, Difficulty: Hard, Min: 1, AACSB: Analytic, AICPA FN: Measurement Analysis and
Interpretation, AICPA PC: Decision Making, IMA: Decision Analysis
10-74
Test Bank to accompany Jiambalvo Managerial Accounting, 7th Edition
179.
Green & Clean produces and sells organic concentrated detergent. Information about
the budget for 2020 is as follows:
1. The company expects to sell 50,000 bottles of detergent in the first quarter, 70,000 in
the second quarter, 95,000 in the third quarter, and 46,000 in the fourth quarter.
2. A bottle of detergent requires 5 ounces of Chemical A and 12 ounces of Chemical B.
3. The desired ending inventory of finished goods is equal to 15% of next quarter’s
sales, whereas the desired ending inventory for material is 10% of next quarter’s
production requirements.
4. There are 7,500 bottles of detergent, 25,000 ounces of Chemical A, and 60,000
ounces of Chemical B on hand at the beginning of the first quarter.
5. At the end of the fourth quarter, the company must have 10,000 bottles of detergent,
24,000 ounces of Chemical A, and 90,000 ounces of Chemical B to meet its needs in
the first quarter of 2021.
6. The cost of Chemical A is $0.12 per ounce, the cost of Chemical B is $0.08 per
ounce, and the selling price of the detergent is $11.50 per bottle.
7. The cost of direct labor is $0.80 per bottle, and the cost of variable overhead is $1.20
per bottle. Fixed manufacturing overhead is $50,000 per quarter.
8. Variable selling and administrative expense is 5% of sales, and fixed selling and
administrative expenses are $60,000 per quarter.
Prepare a direct labor budget for the first and second quarters of 2020.
Answer
Units to be produced*
Labor cost per bottle
Budgeted direct labor cost
First Quarter
53,000
$ 0.80
$42,400
Second Quarter
73,750
$ 0.80
$59,000
First quarter = 50,000 + (0.15 × 70,000) – 7,500 = 53,000
Second quarter = 70,000 + (0.15 × 95,000) – (0.15 × 70,000) = 73,750
Ans: N/A, LO: 2, Bloom: AP, Difficulty: Hard, Min: 1, AACSB: Analytic, AICPA FN: Measurement Analysis and
Interpretation, AICPA PC: Decision Making, IMA: Decision Analysis
Chapter 10 Budgetary Planning and Control
180.
10-75
Green & Clean produces and sells organic concentrated detergent. Information about
the budget for 2020 is as follows:
1. The company expects to sell 50,000 bottles of detergent in the first quarter, 70,000 in
the second quarter, 95,000 in the third quarter, and 46,000 in the fourth quarter.
2. A bottle of detergent requires 5 ounces of Chemical A and 12 ounces of Chemical B.
3. The desired ending inventory of finished goods is equal to 15% of next quarter’s
sales, whereas the desired ending inventory for material is 10% of next quarter’s
production requirements.
4. There are 7,500 bottles of detergent, 25,000 ounces of Chemical A, and 60,000
ounces of Chemical B on hand at the beginning of the first quarter.
5. At the end of the fourth quarter, the company must have 10,000 bottles of detergent,
24,000 ounces of Chemical A, and 90,000 ounces of Chemical B to meet its needs in
the first quarter of 2021.
6. The cost of Chemical A is $0.12 per ounce, the cost of Chemical B is $0.08 per
ounce, and the selling price of the detergent is $11.50 per bottle.
7. The cost of direct labor is $0.80 per bottle, and the cost of variable overhead is $1.20
per bottle. Fixed manufacturing overhead is $50,000 per quarter.
8. Variable selling and administrative expense is 5% of sales, and fixed selling and
administrative expenses are $60,000 per quarter.
Prepare a budgeted income statement using the variable costing format for the third
quarter of 2020. (Ignore income taxes).
Answer
Sales ($11.50 × 95,000)
Less variable costs:*
Cost of goods sold ($3.56 × 95,000)
Selling and administrative costs
(5% × $1,092,500)
Contribution margin
Less fixed costs:
Production costs
Selling and administrative costs
Income before taxes
*Variable cost of sales per bottle:
Chemical A
Chemical B
Direct labor
Variable overhead
Total
$1,092,500
$338,200
54,625
50,000
60,000
392,825
699,675
110,000
$589,675
$0.60
0.96
0.80
1.20
$3.56
Ans: N/A, LO: 2, Bloom: AP, Difficulty: Easy, Min: 1, AACSB: Analytic, AICPA FN: Measurement Analysis and
Interpretation, AICPA PC: Decision Making, IMA: Decision Analysis
10-76
Test Bank to accompany Jiambalvo Managerial Accounting, 7th Edition
181.
Expected manufacturing costs for Beaver Street Manufacturing are as follows:
Variable Costs per Unit
Direct material
$7.00
Direct labor
3.50
Variable overhead
1.80
Fixed Costs per Month
Supervisory salaries
$17,000
Factory depreciation
4,500
Other factory costs
3,100
Determine the budgeted manufacturing costs for a production level of 14,000 units.
Answer
Variable costs per unit = $7.00 + $3.50 + $1.80 = $12.30 per unit
Fixed costs per month = $17,000 + $4,500 + $3,100 = $24,600
Manufacturing costs for 14,000 units = ($12.30 × 14,000) + $24,600 = $196,800
Ans: N/A, LO: 3, Bloom: AP, Difficulty: Medium, Min: 1, AACSB: Analytic, AICPA FN: Measurement Analysis and
Interpretation, AICPA PC: Decision Making, IMA: Decision Analysis
182.
Expected manufacturing costs for Beaver Street Manufacturing for June are as follows:
Variable Costs per Unit
Direct material
$7.00
Direct labor
3.50
Variable overhead
1.80
Fixed Costs per Month
Supervisory salaries
$17,000
Factory depreciation
4,500
Other factory costs
3,100
During June, the company produced 13,000 units and incurred the following costs:
Total Variable Costs
Direct material
$112,500
Direct labor
36,000
Variable overhead
23,000
Total Fixed Costs For The Month
Supervisory salaries
$16,100
Factory depreciation
4,700
Other factory costs
3,200
Prepare a performance report for Beaver Street Manufacturing for June.
Answer
Number of units
Variable costs:
Direct material
Direct labor
Variable overhead
Total variable costs
Fixed costs:
Supervisory salaries
Depreciation
Other fixed costs
Total fixed costs
Total overhead
Flexible Budget
13,000
Actual
13,000
Variance
$ 91,000
45,500
23,400
159,900
$112,500
36,000
23,000
171,500
($21,500) U
9,500 F
400 F
($11,600) U
17,000
4,500
3,100
24,600
$184,500
16,100
4,700
3,200
24,000
$195,500
900 F
(200) U
(100) U
600 F
($11,000) U
Ans: N/A, LO: 3, Bloom: AP, Difficulty: Medium, Min: 1, AACSB: Analytic, AICPA FN: Measurement Analysis and
Interpretation, AICPA PC: Decision Making, IMA: Decision Analysis
Chapter 10 Budgetary Planning and Control
10-77
CHALLENGE EXERCISES
183.
Werth’s Widgets pays for 30% of its inventory purchases in the month of the purchase
and the remainder in the following month. The company’s inventory purchases totaled
$65,000 in October, $87,000 in November, and $52,000 in December. During November,
Werth acquired new equipment costing $100,000 by signing a note for $80,000 and paid
the balance in cash. Werth made one payment for $5,000 toward the note during
December that included $600 of interest. Income taxes totaling $30,000 were paid in
December. General and admin expenses totaled $30,000 during October, $35,000
during November, and $40,000 during December, of which $5,000 per month is for
depreciation. Werth pays 80% of the general and administrative costs during the month
incurred and the balance the following month. Cash at the beginning of November was
$40,000. Prepare a cash disbursements budget for November for Werth’s Widgets. Omit
the budget heading.
Answer
Inventory purchases – November (30% × $87,000)
Inventory purchases – October (70% × $65,000)
Total inventory purchases
Cash down payment on equipment
Cash paid for general and admin – November [($35,000 –$5,000) × 80%]
Cash paid for general and admin – October [($30,000 – $5,000) × 20%]
Budgeted cash disbursements
$ 26,100
45,500
71,600
20,000
24,000
5,000
$120,600
Ans: N/A, LO: 2, Bloom: AP, Difficulty: Hard, Min: 1, AACSB: Analytic, AICPA FN: Measurement Analysis and
Interpretation, AICPA PC: Decision Making, IMA: Decision Analysis
10-78
Test Bank to accompany Jiambalvo Managerial Accounting, 7th Edition
184.
Gessel Co.’s projected sales are as follows:
August $160,000 September $180,000 October $220,000 November $200,000
Gessel estimates that it will collect 30% of sales in the month of sale, 50% in the month
after the sale, and 18% in the second month following the sale. Two percent of all sales
are estimated to be bad debts. Gessel purchases inventories on account totaling
$130,000 during August, $140,000 during September, and $100,000 during October.
Gessel pays 25% of purchases in the month purchased and 75% in the following month.
a.
b.
Answer
a.
b.
How much is Gessel Co.’s budgeted cash receipts for October?
How much is the net increase or decrease in cash for Gessel for October?
Collections from October sales: $220,000 × 30%
Collections from September sales: $180,000 × 50%
Collections from August sales: $160,000 × 18%
Total budgeted cash receipts for October
Collections during October (from part a)
$ 66,000
90,000
28,800
$184,800
$184,800
Disbursements from October purchases: $100,000 × 25%
(25,000)
Disbursements from September purchases: $140,000 × 75% (105,000)
Total disbursements during October
Net increase in cash during October
(130,000)
$ 54,800
Ans: N/A, LO: 2, Bloom: AP, Difficulty: Hard, Min: 1, AACSB: Analytic, AICPA FN: Measurement Analysis and
Interpretation, AICPA PC: Decision Making, IMA: Decision Analysis
Chapter 10 Budgetary Planning and Control
185.
10-79
Tree Haven makes and sells silk palm trees. Each tree uses 0.80 yards of silk fabric.
Budgeted production of trees in units for the next five months is as follows:
Budgeted production
Budgeted sales
April
24,160
24,500
May
23,490
22,800
June
26,570
26,250
July
26,880
27,850
August
22,900
23,000
The company wants to maintain monthly ending inventories of fabric equal to 15% of the
following month's budgeted production needs, and monthly inventories of trees equal to
20% of the number needed for next month’s sales. The cost of silk is $2.00 per yard.
Direct labor cost is $14.00 per hour and it takes 66 minutes to complete each tree.
Factory overhead is applied at the rate of $1.25 per direct labor dollar.
a. Prepare a direct materials purchases budget for June.
b.
Calculate the amount of Raw Materials and Finished Goods Inventory to be
reported on Tree Haven’s June 30 balance sheet.
Answer
a.
b.
Units to be produced
Yards of silk per tree
Yards of silk need for production
Ending raw materials inventory (15% × 26,880 × 0.80)
Beginning raw material inventory (15% × 26,570 × 0.80)
Yards of silk need to purchase
Cost of silk per yard
Budgeted cost of materials purchases
Ending raw materials inventory:
15% × 26,880 × 0.80 × $2 = $6,451.20
Cost per unit of the trees produced:
Direct materials per unit (0.80 × $2)
Direct labor (66/60) × $14
Factory overhead ($15.40 × $1.25)
Total cost per unit
26,570
0.80
21,256
3,226
(3,188)
21,294
$ 2.00
$42,588
$ 1.60
15.40
19.25
$36.25
Finished goods units at June 30 = 20% × 27,850 = 5,570
Ending finished goods inventory: $36.25 × 5,570 = $201,912.50
Ans: N/A, LO: 2, Bloom: AP, Difficulty: Hard, Min: 1, AACSB: Analytic, AICPA FN: Measurement Analysis and
Interpretation, AICPA PC: Decision Making, IMA: Decision Analysis
10-80
Test Bank to accompany Jiambalvo Managerial Accounting, 7th Edition
186.
Trescot, Inc. provided the following information:
Projected sales
Projected merchandise purchases





June
$120,000
$76,000
July
$110,000
$65,000
August
$130,000
$70,000
September
$100,000
$58,000
Trescot estimates that it will collect 40% of its sales in the month of sale, 35% in
the month after the sale, and 23% in the second month following the sale. Two
percent of all sales are estimated to be bad debts.
The cash balance on June 1 is $6,000.
Trescot pays 30% of merchandise purchases in the month purchased and 70% in
the following month.
General operating expenses are budgeted to be $20,000 per month of which
depreciation is $2,000 of this amount. Trescot pays operating expenses in the
month incurred.
Trescot make loan payments of $3,000 per month of which $400 is interest and
the remainder is principal.
Calculate Trescot’s budgeted cash disbursements for August.
Answer
Cash paid for merchandise purchases:
August purchases ($70,000 × 30%)
$21,000
July purchases ($65,000 × 70%)
45,500
Cash paid for operating expenses ($20,000 – $2,000) 18,000
Cash paid for loan ($3,000 – $400)
2,600
Cash paid for interest
400
Budgeted cash disbursements for August
$87,500
Ans: N/A, LO: 2, Bloom: AP, Difficulty: Hard, Min: 1, AACSB: Analytic, AICPA FN: Measurement Analysis and
Interpretation, AICPA PC: Decision Making, IMA: Decision Analysis
Chapter 10 Budgetary Planning and Control
187.
10-81
Livanos, Inc. reports all its sales on credit, and pays operating costs in the month
incurred. Amounts for 2020 are:
Budgeted sales
Budgeted purchases





a.
b.
c.
Answer
a.
b.
c.
March
$300,000
$144,000
April
$290,000
$120,000
May
$320,000
$128,000
June
$280,000
$132,000
July
$210,000
$90,000
Amounts due from customers are collected 70% in the month of sale and 30% in
the following month.
Cost of goods sold is 60% of sales.
Livanos purchases and pays for merchandise 40% in the month of acquisition
and 60% in the following month.
Operating expenses are: Salaries, $50,000; Depreciation, $12,000; Rent,
$15,000; and Utilities, $14,000.
Accounts payable is used only for inventory acquisitions.
How much cash will Livanos receive during May from customers?
How much is the May 31, 2020 budgeted Accounts Receivable?
How much is the budgeted balance for Accounts Payable at May 31, 2020?
(70% × $320,000) + ($290,000 × 30%) = $311,000
30%× $320,000 = $96,000
60% × $128,000 = $76,800
Ans: N/A, LO: 2, Bloom: AP, Difficulty: Hard, Min: 1, AACSB: Analytic, AICPA FN: Measurement Analysis and
Interpretation, AICPA PC: Decision Making, IMA: Decision Analysis
10-82
Test Bank to accompany Jiambalvo Managerial Accounting, 7th Edition
188.
Contron, Inc. projected the following for 2020:
Credit sales
Collections from customers
Cost of goods sold
Loan repayments:
$1,000 is interest, $15,000 is principal
Current period cash operating expenses
Depreciation expense
Loss on disposal of plant asset
Merchandise purchases (90% to be paid in cash)
Accrued wages closing balance
Beginning cash balance
$240,000
246,000
92,000
16,000
80,000
20,000
5,000
95,000
12,000
36,000
How much is cash to be reported on Con’s budgeted balance sheet at the end of 2020?
Answer
Beginning cash balance
Collections from customers
Loan repayments
Operating expenses
Merchandise purchases (90% x $95,000)
Cash at end of 2020
$ 36,000
246,000
(16,000)
(80,000)
(85,500)
$100,500
Ans: N/A, LO: 2, Bloom: AP, Difficulty: Hard, Min: 1, AACSB: Analytic, AICPA FN: Measurement Analysis and
Interpretation, AICPA PC: Decision Making, IMA: Decision Analysis
Chapter 10 Budgetary Planning and Control
10-83
SHORT-ANSWER ESSAYS
189.
What is the difference between the bottom-up and top-down approach to budgeting?
Answer
In a bottom-up approach to budgeting, lower-level managers are the primary source of
information in setting the budget. In the top-down approach, budgets are developed at
higher organizational levels without substantial input from lower-level managers.
Ans: N/A, LO: 1, Bloom: C, Difficulty: Easy, Min: 1, AACSB: Analytic, AICPA FN: Measurement Analysis and
Interpretation, AICPA PC: Decision Making, IMA: Decision Analysis
190.
Describe at least three sources of input for the sales budget.
Answer
Input for the sales budget may come from economists, trade journals and magazines, or
the company’s own sales personnel, as well as last year’s sales level.
Ans: N/A, LO: 2, Bloom: C, Difficulty: Easy, Min: 1, AACSB: Reflective Thinking, AICPA FN: Measurement Analysis
and Interpretation, AICPA PC: Decision Making, IMA: Decision Analysis
191.
What are the main purposes of preparing a cash receipts and disbursements budget?
Answer
By preparing a cash receipts and disbursements budget, a company can anticipate cash
shortages and arrange to borrow funds. A company may also find investment
opportunities for anticipated cash surpluses.
Ans: N/A, LO: 2, Bloom: K, Difficulty: Easy, Min: 1, AACSB: Reflective Thinking, AICPA FN: Measurement
Analysis and Interpretation, AICPA PC: Decision Making, IMA: Decision Analysis
192.
What is meant by “management by exception?”
Answer
Management by exception is an approach to investigating variances that suggests that
managers only investigate those variances that are a significant percentage of the
budgeted or actual amount or exceed a significant dollar amount.
Ans: N/A, LO: 3, Bloom: K, Difficulty: Easy, Min: 1, AACSB: Reflective Thinking, AICPA FN: Measurement
Analysis and Interpretation, AICPA PC: Decision Making, IMA: Decision Analysis
193.
List and briefly explain three reasons that a company may have significant deviations
from budgeted performance.
Answer
Deviations from budgeted performance may result from:
1.
a poorly conceived plan or budget.
2.
conditions that have changed since the plan was developed.
3.
managers who have done a particularly good or particularly poor job of managing
operations.
Ans: N/A, LO: 1, Bloom: C, Difficulty: Medium, Min: 1, AACSB: Analytic, AICPA FN: Measurement Analysis and
Interpretation, AICPA PC: Decision Making, IMA: Decision Analysis
10-84
Test Bank to accompany Jiambalvo Managerial Accounting, 7th Edition
194.
What is the difference between a static budget and a flexible budget?
Answer
A static budget is prepared for a single level of anticipated production. A flexible budget
is a set of budget relationships that can be adjusted for different levels of activity.
Ans: N/A, LO: 3, Bloom: C, Difficulty: Easy, Min: 1, AACSB: Reflective Thinking, AICPA FN: Measurement Analysis
and Interpretation, AICPA PC: Decision Making, IMA: Decision Analysis
195.
“Managers may perceive a conflict between the planning and control uses of budgets.”
Explain what this statement means and what a company can do to minimize this conflict.
Answer
If managers are asked to provide input into the budget, they may build slack into the
amounts that they budget so that it will be fairly easy for them to achieve the budgeted
amounts and they will be evaluated favorably. However, these budgeted amounts may
not be in the best interest of the firm. Firms can discourage this behavior by assuring
managers that they will be evaluated fairly and fostering open communication among all
levels of employees.
Ans: N/A, LO: 3, Bloom: C, Difficulty: Medium, Min: 1, AACSB: Ethics, AICPA FN: Measurement Analysis and
Interpretation, AICPA PC: Decision Making, IMA: Decision Analysis
196.
Explain what budget padding and income shifting are and why managers are tempted to
do them.
Answer
Budget padding is projecting low sales and high expenses so that targets are easy to
achieve. Income shifting is shifting revenues or expenses into periods where they are
needed to reach budget goals. Managers engage in these activities in order to hit budget
targets.
Ans: N/A, LO: 3, Bloom: EV, Difficulty: Medium, Min: 1, AACSB: Ethics, AICPA FN: Measurement Analysis and
Interpretation, AICPA PC: Decision Making, IMA: Decision Analysis