Chapter 9 Profit Planning
True/False Questions
1. The usual starting point in budgeting is to make a forecast of net income.
Ans: False AACSB: Reflective Thinking AICPA BB: Critical Thinking
AICPA FN: Reporting LO: 1,9 Level: Easy
2. A budget committee helps provide consistency in the budgeting process because it
prepares all of the budgets for the various segments of the organization.
Ans: False AACSB: Reflective Thinking AICPA BB: Critical Thinking
AICPA FN: Reporting LO: 1 Level: Easy
3. A continuous or perpetual budget is one which covers a 12-month period but which is
constantly adding a new month on the end as the current month is completed.
Ans: True AACSB: Reflective Thinking AICPA BB: Critical Thinking
AICPA FN: Reporting LO: 1 Level: Easy
4. Control involves developing objectives and preparing the various budgets to achieve
those objectives.
Ans: False AACSB: Reflective Thinking AICPA BB: Critical Thinking
AICPA FN: Reporting LO: 1 Level: Easy
5. A self-imposed budget is one prepared by top management and passed downward
through an organization.
Ans: False AACSB: Reflective Thinking AICPA BB: Critical Thinking
AICPA FN: Reporting LO: 1 Level: Easy
6. When using the self-imposed budget approach, it is generally best for top management
to accept all budget estimates without question in order to minimize adverse
behavioral responses from employees.
Ans: False AACSB: Reflective Thinking
AICPA BB: Resource Management, Critical Thinking
LO: 1 Level: Easy
Garrison/Noreen/Brewer, Managerial Accounting, Twelfth Edition
AICPA FN: Reporting
9-5
Chapter 9 Profit Planning
7. Cash collections in a schedule of cash collections typically consist of collections on
sales made to customers in prior periods plus collections on sales made in the current
budget period.
Ans: True AACSB: Reflective Thinking AICPA BB: Critical Thinking
AICPA FN: Reporting LO: 2 Level: Easy
8. In a production budget, if the number of units in finished goods inventory at the end of
the period is less than the number of units in finished goods inventory at the beginning
of the period, then the expected number of units sold is greater than the number of
units to be produced during the period.
Ans: True AACSB: Reflective Thinking AICPA BB: Critical Thinking
AICPA FN: Reporting LO: 3 Level: Medium
9. In a merchandising company, the required merchandise purchases for a period are
determined by subtracting the units in beginning inventory from the sum of the units
to be sold during the period and the desired ending inventory.
Ans: True AACSB: Reflective Thinking AICPA BB: Critical Thinking
AICPA FN: Reporting LO: 3 Level: Easy
10. The direct materials to be purchased for a period can be obtained by subtracting the
desired ending inventory of direct materials from the total direct materials needed for
the period.
Ans: False AACSB: Reflective Thinking AICPA BB: Critical Thinking
AICPA FN: Reporting LO: 4 Level: Medium
11. The direct labor budget begins with sales in units from the sales budget.
Ans: False AACSB: Reflective Thinking AICPA BB: Critical Thinking
AICPA FN: Reporting LO: 5 Level: Easy
12. The selling and administrative expense budget lists all costs of production other than
direct materials and direct labor.
Ans: False AACSB: Reflective Thinking AICPA BB: Critical Thinking
AICPA FN: Reporting LO: 6,7 Level: Easy
9-6
Garrison/Noreen/Brewer, Managerial Accounting, Twelfth Edition
Chapter 9 Profit Planning
13. In the manufacturing overhead budget, the non-cash charges (such as depreciation) are
deducted from the total budgeted manufacturing overhead to determine the expected
cash disbursements for manufacturing overhead.
Ans: True AACSB: Reflective Thinking AICPA BB: Critical Thinking
AICPA FN: Reporting LO: 6 Level: Easy
14. The selling and administrative expense budget lists the budgeted expenses for areas
other than manufacturing.
Ans: True AACSB: Reflective Thinking AICPA BB: Critical Thinking
AICPA FN: Reporting LO: 7 Level: Easy
15. The disbursements section of a cash budget consists of all cash payments for the
period except cash payments for dividends.
Ans: False AACSB: Reflective Thinking AICPA BB: Critical Thinking
AICPA FN: Reporting LO: 8 Level: Medium
16. Which of the following budgets are prepared before the sales budget?
A)
B)
C)
D)
Budgeted Income Statement Direct Labor Budget
Yes
Yes
Yes
No
No
Yes
No
No
Ans: D AACSB: Reflective Thinking AICPA BB: Critical Thinking
AICPA FN: Reporting LO: 1 Level: Easy
17. The usual starting point for a master budget is:
A) the direct materials purchase budget.
B) the budgeted income statement.
C) the sales forecast or sales budget.
D) the production budget.
Ans: C AACSB: Reflective Thinking AICPA BB: Critical Thinking
AICPA FN: Reporting LO: 1 Level: Easy
Garrison/Noreen/Brewer, Managerial Accounting, Twelfth Edition
9-7
Chapter 9 Profit Planning
18. Which of the following budgets are prepared before the cash budget?
A)
B)
C)
D)
Selling and Administrative Expense Budget Production Budget
Yes
Yes
Yes
No
No
Yes
No
No
Ans: A AACSB: Reflective Thinking AICPA BB: Critical Thinking
AICPA FN: Reporting LO: 1 Level: Medium
19. Which of the following benefits could an organization reasonably expect from an
effective budget program?
A) Better control of the organization's costs.
B) Better coordination of an organization's activities.
C) Better communication of the organization's objectives.
D) All of the above.
Ans: D AACSB: Reflective Thinking
AICPA BB: Resource Management, Critical Thinking
LO: 1 Level: Easy
AICPA FN: Reporting
20. An organization's budget program should not be used:
A) to motivate employees.
B) to assign blame to managers that do not meet budgetary goals.
C) to help evaluate managers.
D) to allocate resources to the various parts of an organization.
Ans: B AACSB: Reflective Thinking
AICPA BB: Resource Management, Critical Thinking
LO: 1 Level: Easy
AICPA FN: Reporting
21. A basic idea underlying __________________ is that a manager should be held
responsible only for those items that the manager can actually control to a significant
extent.
A) participative budgeting
B) planning and control
C) responsibility accounting
D) the master budget
Ans: C AACSB: Reflective Thinking
AICPA BB: Resource Management, Critical Thinking
LO: 1 Level: Easy
9-8
AICPA FN: Reporting
Garrison/Noreen/Brewer, Managerial Accounting, Twelfth Edition
Chapter 9 Profit Planning
22. When preparing a merchandise purchases budget, the required purchases in units
equals:
A) budgeted unit sales + beginning merchandise inventory + desired merchandise
ending inventory.
B) budgeted unit sales - beginning merchandise inventory + desired merchandise
ending inventory.
C) budgeted unit sales - beginning merchandise inventory - desired merchandise
ending inventory.
D) budgeted unit sales + beginning merchandise inventory - desired merchandise
ending inventory.
Ans: B AACSB: Reflective Thinking AICPA BB: Critical Thinking
AICPA FN: Reporting LO: 3 Level: Easy
23. When preparing a direct materials budget, the required purchases of raw materials in
units equals:
A) raw materials needed to meet the production schedule + desired ending
inventory of raw materials - beginning inventory of raw materials.
B) raw materials needed to meet the production schedule - desired ending inventory
of raw materials - beginning inventory of raw materials.
C) raw materials needed to meet the production schedule - desired ending inventory
of raw materials + beginning inventory of raw materials.
D) raw materials needed to meet the production schedule + desired ending
inventory of raw materials + beginning inventory of raw materials.
Ans: A AACSB: Reflective Thinking AICPA BB: Critical Thinking
AICPA FN: Reporting LO: 4 Level: Easy
24. Which of the following statements is NOT correct concerning the Manufacturing
Overhead Budget?
A) The Manufacturing Overhead Budget provides a schedule of all costs of
production other than direct materials and labor costs.
B) The Manufacturing Overhead Budget shows only the variable portion of
manufacturing overhead.
C) The Manufacturing Overhead Budget shows the expected cash disbursements
for manufacturing overhead.
D) The Manufacturing Overhead Budget is prepared after the Sales Budget.
Ans: B AACSB: Reflective Thinking AICPA BB: Critical Thinking
AICPA FN: Reporting LO: 6 Level: Easy
Garrison/Noreen/Brewer, Managerial Accounting, Twelfth Edition
9-9
Chapter 9 Profit Planning
25. Which of the following statements is NOT correct concerning the Cash Budget?
A) It is not necessary to prepare any other budgets before preparing the Cash
Budget.
B) The Cash Budget should be prepared before the Budgeted Income Statement.
C) The Cash Budget should be prepared before the Budgeted Balance Sheet.
D) The Cash Budget builds on earlier budgets and schedules as well as additional
data.
Ans: A AACSB: Reflective Thinking AICPA BB: Critical Thinking
AICPA FN: Reporting LO: 8 Level: Easy
26. Pitkins Company collects 20% of a month's sales in the month of sale, 70% in the
month following sale, and 6% in the second month following sale. The remainder is
uncollectible. Budgeted sales for the next four months are:
January February
March
April
Budgeted sales ....... $200,000 $300,000 $350,000 $250,000
Cash collections in April are budgeted to be:
A) $321,000
B) $313,000
C) $320,000
D) $292,000
Ans: B AACSB: Analytic AICPA BB: Critical Thinking
AICPA FN: Reporting LO: 2 Level: Easy
Solution:
April sales ($250,000 × 20%)..............
March sales ($350,000 × 70%)...........
February sales ($300,000 × 6%).........
Total....................................................
9-10
$ 50,000
245,000
18,000
$313,000
Garrison/Noreen/Brewer, Managerial Accounting, Twelfth Edition
Chapter 9 Profit Planning
27. Sioux Company is estimating the following sales for the first six months of next year:
January.......
February.....
March.........
April...........
May ............
$250,000
$220,000
$240,000
$300,000
$360,000
Sales at Sioux are normally collected as 60% in the month of sale, 35% in the month
following the sale, and the remaining 5% being uncollectible. Based on this
information, how much cash should Sioux expect to collect during the month of April?
A) $250,800
B) $264,000
C) $290,700
D) $306,000
Ans: B AACSB: Analytic AICPA BB: Critical Thinking
AICPA FN: Reporting LO: 2 Level: Medium
Solution:
April sales ($300,000 × 60%).............
March sales ($240,000 × 35%)...........
Total....................................................
$180,000
84,000
$264,000
Garrison/Noreen/Brewer, Managerial Accounting, Twelfth Edition
9-11
Chapter 9 Profit Planning
28. All of Gaylord Company's sales are on account. Thirty-five percent of the credit sales
are collected in the month of sale, 45% in the month following sale, and the rest are
collected in the second month following sale. Bad debts are negligible and should be
ignored. The following are budgeted sales data for the company:
Total sales ..............
January February March
April
$50,000 $60,000 $40,000 $30,000
What is the amount of cash that should be collected in March?
A) $39,000
B) $37,000
C) $27,500
D) $51,000
Ans: D AACSB: Analytic AICPA BB: Critical Thinking
AICPA FN: Reporting LO: 2 Level: Easy
Solution:
March sales ($40,000 × 35%)..............
February sales ($60,000 × 45%).........
January sales ($50,000 × 20%*).........
Total....................................................
*100% − 35% − 45% = 20%
$14,000
27,000
10,000
$51,000
29. On January 1, Barnes Company has 8,000 units of Product A on hand. During the
year, the company plans to sell 30,000 units of Product A, and plans to have 6,500
units on hand at year end. How many units of Product A must be produced during the
year?
A) 28,500
B) 31,500
C) 30,000
D) 36,500
Ans: A AACSB: Analytic AICPA BB: Critical Thinking
AICPA FN: Reporting LO: 3 Level: Easy
Solution:
Units produced = Ending inventory + Units sold − Beginning inventory
= 6,500 + 30,000 − 8,000
= 28,500
9-12
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Chapter 9 Profit Planning
30. Betz Company's sales budget shows the following projections for next year:
First Quarter ......................
Second Quarter ..................
Third Quarter .....................
Fourth Quarter ...................
Sales in units
60,000
80,000
45,000
55,000
Inventory at the beginning of the year was 18,000 units. The finished goods inventory
at the end of each quarter is to equal 30% of the next quarter's budgeted unit sales.
How many units should be produced during the first quarter?
A) 24,000
B) 48,000
C) 66,000
D) 72,000
Ans: C AACSB: Analytic AICPA BB: Critical Thinking
AICPA FN: Reporting LO: 3 Level: Medium Source: CPA, adapted
Solution:
Units produced = Ending inventory + Units sold + Beginning inventory
= (30% × 80,000) + 60,000 − 18,000
= 24,000 + 60,000 − 18,000 = 66,000
Garrison/Noreen/Brewer, Managerial Accounting, Twelfth Edition
9-13
Chapter 9 Profit Planning
31. The following information relates to Minorca Manufacturing Corporation for next
quarter:
January February
March
Expected sales (in units) ............................ 440,000 390,000 400,000
Desired ending finished goods inventory
(in units) ................................................. 28,000
30,000 35,000
How many units should Minorca plan on producing for the month of February?
A) 360,000 units
B) 388,000 units
C) 392,000 units
D) 420,000 units
Ans: C AACSB: Analytic AICPA BB: Critical Thinking
AICPA FN: Reporting LO: 3 Level: Medium
Solution:
Ending inventory + Units sold − Beginning inventory
= 30,000 + 390,000 - 28,000 = 392,000
9-14
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Chapter 9 Profit Planning
32. MJ Department Store expects to generate the following sales figures for the next three
months:
July
August September
Expected sales ....... $480,000 $560,000 $600,000
MJ's gross profit rate is 45% of sales dollars. At the end of each month, MJ wants a
merchandise inventory balance equal to 30% of the following month's expected sales,
stated at cost. What dollar amount of merchandise inventory should MJ plan to
purchase in August?
A) $257,400
B) $314,600
C) $320,000
D) $327,800
Ans: B AACSB: Analytic AICPA BB: Critical Thinking
AICPA FN: Reporting LO: 3 Level: Hard
Solution:
Inventory cost is 55% of sales dollars (1 – 45% gross profit rate)
Inventory purchased = Ending inventory + Sales − Beginning inventory
= [($600,000 × 30%) × 55%] + ($560,000 × 55%) − [($560,000 × 30%) × 55%]
= ($180,000 × 55%) + $308,000 − ($168,000 × 55%)
= $99,000 + $308,000 − $92,400 = $314,600
33. On October 1, The Gala Manufacturing Company has 300 units of Product XYZ on
hand. The company plans to sell 1,200 units of Product XYZ during October, and
plans to have 500 units on hand October 31. How many units of Product XYZ must be
produced during October?
A) 1,400
B) 1,500
C) 1,000
D) 2,000
Ans: A AACSB: Analytic AICPA BB: Critical Thinking
AICPA FN: Reporting LO: 3 Level: Easy
Solution:
Units produced = Ending inventory + Units sold − Beginning inventory
= 500 + 1,200 − 300 = 1,400
Garrison/Noreen/Brewer, Managerial Accounting, Twelfth Edition
9-15
Chapter 9 Profit Planning
34. The following are budgeted data:
Sales in units ......................
Production in units.............
Month 1 Month 2 Month 3
15,000
20,000
18,000
16,000
22,000
15,000
One pound of material is required for each finished unit. The inventory of materials at
the end of each month should equal 20% of the following month's production needs.
At the beginning of Month 1, 3,200 lbs. of materials were on hand. Purchases of raw
materials for Month 2 would be budgeted to be:
A) 17,600 pounds
B) 23,400 pounds
C) 20,600 pounds
D) 25,000 pounds
Ans: C AACSB: Analytic AICPA BB: Critical Thinking
AICPA FN: Reporting LO: 4 Level: Medium
Solution:
Materials purchased = Ending inventory + Materials used − Beginning inventory
= (20% × 15,000) + 22,000 − (20% × 22,000)
= 3,000 + 22,000 − 4,400 = 20,600
35. Alexis Fabrication, Inc. manufactures and sells box trailers for semi trucks. Each
trailer requires two (2) axles. For next quarter, Alexis has scheduled 720 trailers for
production and 750 for sale. Alexis is also moving to just-in-time purchasing next
quarter and plans on reducing its inventory of trailer axles by 100. How many axles
should Alexis budget for purchase for next quarter?
A) 1,240 axles
B) 1,300 axles
C) 1,340 axles
D) 1,400 axles
Ans: C AACSB: Analytic AICPA BB: Critical Thinking
AICPA FN: Reporting LO: 4 Level: Medium
Solution:
Materials to be purchased = Ending inventory + Materials to be used − Beginning
inventory
= Materials to be used + (Ending inventory − Beginning inventory)
= (720 × 2) − 100 = 1,440 − 100 = 1,340
9-16
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Chapter 9 Profit Planning
36. Garry Manufacturing Corporation's most recent production budget indicates the
following required production:
October
Required production (units)........... 210,000
November
175,000
December
110,000
Each unit of finished product requires 5 pounds of raw materials. The company
maintains raw materials inventory equal to 25% of the next month's expected
production needs. How many pounds of raw material should Garry plan on purchasing
for the month of November?
A) 1,006,250
B) 793,750
C) 1,012,500
D) 893,500
Ans: B AACSB: Analytic AICPA BB: Critical Thinking
AICPA FN: Reporting LO: 4 Level: Easy
Solution:
Materials to be purchased = Ending inventory + Materials to be used − Beginning
inventory
= (25% × 110,000 × 5) + (175,000 × 5) − (25% × 175,000 × 5)
= 137,500 + 875,000 − 218,750 = 793,750
37. Depasquale Corporation is working on its direct labor budget for the next two months.
Each unit of output requires 0.41 direct labor-hours. The direct labor rate is $8.10 per
direct labor-hour. The production budget calls for producing 5,000 units in May and
5,400 units in June. If the direct labor work force is fully adjusted to the total direct
labor-hours needed each month, what would be the total combined direct labor cost for
the two months?
A) $16,605.00
B) $17,933.40
C) $17,269.20
D) $34,538.40
Ans: D AACSB: Analytic AICPA BB: Critical Thinking
AICPA FN: Reporting LO: 5 Level: Easy
Solution:
Total direct labor-hours = 0.41 × (5,000 + 5,400) = 4,264
Direct labor cost = 4,264 × $8.10 = $34,538.40
Garrison/Noreen/Brewer, Managerial Accounting, Twelfth Edition
9-17
Chapter 9 Profit Planning
38. Pooler Corporation is working on its direct labor budget for the next two months. Each
unit of output requires 0.15 direct labor-hours. The direct labor rate is $7.00 per direct
labor-hour. The production budget calls for producing 6,500 units in April and 6,200
units in May. The company guarantees its direct labor workers a 40-hour paid work
week. With the number of workers currently employed, that means that the company
is committed to paying its direct labor work force for at least 1,000 hours in total each
month even if there is not enough work to keep them busy. What would be the total
combined direct labor cost for the two months?
A) $13,825.00
B) $13,335.00
C) $14,000.00
D) $13,510.00
Ans: C AACSB: Analytic AICPA BB: Critical Thinking
AICPA FN: Reporting LO: 5 Level: Easy
Solution:
Direct labor-hours needed for production in April = 0.15 × 6,500 = 975
Direct labor-hours needed for production in May = 0.15 × 6,200 = 930
Even though both months’ production needs would require less than 1,000 hours, the
company has committed to paying a minimum of 1,000 hours per month.
Total direct labor-hours = 1,000 + 1,000 = 2,000
Direct labor cost = 2,000 × $7 = $14,000
9-18
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Chapter 9 Profit Planning
39. Traverse Company manufactures and sells women's skirts. Each skirt (unit) requires
2.5 yards of cloth. Selected data from Traverse's master budget for next quarter are
shown below:
July August September
Budgeted sales (in units) ............... 6,000
8,000
9,000
Budgeted production (in units) ...... 8,000 10,500
12,000
Each unit requires 1.5 hours of direct labor, and the average hourly cost of Traverse's
direct labor is $10. What is the cost of Traverse Company's direct labor in September?
A) $135,000
B) $180,000
C) $157,500
D) $120,000
Ans: B AACSB: Analytic AICPA BB: Critical Thinking
AICPA FN: Reporting LO: 5 Level: Easy
Solution:
12,000 × 1.5 × $10 = $180,000
40. Haylock Inc. bases its manufacturing overhead budget on budgeted direct labor-hours.
The direct labor budget indicates that 5,600 direct labor-hours will be required in
August. The variable overhead rate is $5.40 per direct labor-hour. The company's
budgeted fixed manufacturing overhead is $69,440 per month, which includes
depreciation of $15,680. All other fixed manufacturing overhead costs represent
current cash flows. The August cash disbursements for manufacturing overhead on the
manufacturing overhead budget should be:
A) $99,680
B) $84,000
C) $53,760
D) $30,240
Ans: B AACSB: Analytic AICPA BB: Critical Thinking
AICPA FN: Reporting LO: 6 Level: Easy
Solution:
Variable manufacturing overhead + Fixed manufacturing overhead
= (5,600 × $5.40) + ($69,440 − $15,680)
= $30,240 + $53,760 = $84,000
Garrison/Noreen/Brewer, Managerial Accounting, Twelfth Edition
9-19
Chapter 9 Profit Planning
41. Arciba Inc. bases its manufacturing overhead budget on budgeted direct labor-hours.
The direct labor budget indicates that 7,400 direct labor-hours will be required in
January. The variable overhead rate is $9.50 per direct labor-hour. The company's
budgeted fixed manufacturing overhead is $130,980 per month, which includes
depreciation of $10,360. All other fixed manufacturing overhead costs represent
current cash flows. The company recomputes its predetermined overhead rate every
month. The predetermined overhead rate for January should be:
A) $27.20
B) $25.80
C) $17.70
D) $9.50
Ans: A AACSB: Analytic AICPA BB: Critical Thinking
AICPA FN: Reporting LO: 6 Level: Easy
Solution:
$9.50 + ($130,980 ÷ 7,400) = $9.50 + $17.70 = $27.20
42. The manufacturing overhead budget at Foshay Corporation is based on budgeted
direct labor-hours. The direct labor budget indicates that 5,800 direct labor-hours will
be required in May. The variable overhead rate is $9.10 per direct labor-hour. The
company's budgeted fixed manufacturing overhead is $104,400 per month, which
includes depreciation of $8,120. All other fixed manufacturing overhead costs
represent current cash flows. The company recomputes its predetermined overhead
rate every month. The predetermined overhead rate for May should be:
A) $9.10
B) $27.10
C) $18.00
D) $25.70
Ans: B AACSB: Analytic AICPA BB: Critical Thinking
AICPA FN: Reporting LO: 6 Level: Easy
Solution:
$9.10 + ($104,400 ÷ 5,800) = $9.10 + $18 = $27.10
9-20
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Chapter 9 Profit Planning
43. The manufacturing overhead budget at Franklyn Corporation is based on budgeted
direct labor-hours. The direct labor budget indicates that 4,400 direct labor-hours will
be required in January. The variable overhead rate is $1.30 per direct labor-hour. The
company's budgeted fixed manufacturing overhead is $60,280 per month, which
includes depreciation of $17,160. All other fixed manufacturing overhead costs
represent current cash flows. The January cash disbursements for manufacturing
overhead on the manufacturing overhead budget should be:
A) $5,720
B) $43,120
C) $48,840
D) $66,000
Ans: C AACSB: Analytic AICPA BB: Critical Thinking
AICPA FN: Reporting LO: 6 Level: Easy
Solution:
(4,400 × $1.30) + ($60,280 − $17,160) = $5,720 + $43,120 = $48,840
44. Schuepfer Inc. bases its selling and administrative expense budget on budgeted unit
sales. The sales budget shows 1,300 units are planned to be sold in March. The
variable selling and administrative expense is $4.20 per unit. The budgeted fixed
selling and administrative expense is $19,240 per month, which includes depreciation
of $3,380 per month. The remainder of the fixed selling and administrative expense
represents current cash flows. The cash disbursements for selling and administrative
expenses on the March selling and administrative expense budget should be:
A) $15,860
B) $5,460
C) $24,700
D) $21,320
Ans: D AACSB: Analytic AICPA BB: Critical Thinking
AICPA FN: Reporting LO: 7 Level: Easy
Solution:
(1,300 × $4.20) + ($19,240 − $3,380) = $5,460 + $15,860 = $21,320
Garrison/Noreen/Brewer, Managerial Accounting, Twelfth Edition
9-21
Chapter 9 Profit Planning
45. The selling and administrative expense budget of Choo Corporation is based on
budgeted unit sales, which are 4,600 units for August. The variable selling and
administrative expense is $7.30 per unit. The budgeted fixed selling and administrative
expense is $51,980 per month, which includes depreciation of $6,440 per month. The
remainder of the fixed selling and administrative expense represents current cash
flows. The cash disbursements for selling and administrative expenses on the August
selling and administrative expense budget should be:
A) $85,560
B) $45,540
C) $79,120
D) $33,580
Ans: C AACSB: Analytic AICPA BB: Critical Thinking
AICPA FN: Reporting LO: 7 Level: Easy
Solution:
(4,600 × $7.30) + ($51,980 − $6,440) = $33,580 + $45,540 = $79,120
46. Sedita Inc. is working on its cash budget for July. The budgeted beginning cash
balance is $46,000. Budgeted cash receipts total $175,000 and budgeted cash
disbursements total $174,000. The desired ending cash balance is $50,000. The excess
(deficiency) of cash available over disbursements for July will be:
A) $47,000
B) $221,000
C) $45,000
D) $1,000
Ans: A AACSB: Analytic AICPA BB: Critical Thinking
AICPA FN: Reporting LO: 8 Level: Easy
Solution:
Excess cash available = Beginning cash balance + Cash receipts − Cash disbursements
= $46,000 + $175,000 − $174,000 = $47,000
9-22
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Chapter 9 Profit Planning
47. Bustillo Inc. is working on its cash budget for March. The budgeted beginning cash
balance is $35,000. Budgeted cash receipts total $142,000 and budgeted cash
disbursements total $151,000. The desired ending cash balance is $30,000. To attain
its desired ending cash balance for March, the company needs to borrow:
A) $0
B) $4,000
C) $56,000
D) $30,000
Ans: B AACSB: Analytic AICPA BB: Critical Thinking
AICPA FN: Reporting LO: 8 Level: Easy
Solution:
Actual ending cash balance = Beginning cash balance + Cash receipts − Cash
disbursements = $35,000 + $142,000 − $151,000 = $26,000
Amount borrowed = Desired ending cash balance − Actual ending cash balance
= $30,000 − $26,000 = $4,000
48. Francis Manufacturing Company is currently preparing its cash budget for next month
and has gathered the following information:
Expected cash receipts...............................
Expected disbursements:
Direct materials ......................................
Direct labor .............................................
Manufacturing overhead ........................
Selling and administrative expenses ......
$39,400
$12,000
$9,000
$11,500
$22,000
The beginning cash balance will be $6,000 and the company requires a minimum cash
balance at the end of the month of $5,000. How much will Francis Manufacturing
need to borrow to meet its cash needs for the month?
A) $9,100
B) $14,100
C) $20,100
D) None of the above.
Ans: B AACSB: Analytic AICPA BB: Critical Thinking
AICPA FN: Reporting LO: 8 Level: Easy
Garrison/Noreen/Brewer, Managerial Accounting, Twelfth Edition
9-23
Chapter 9 Profit Planning
Solution:
Actual ending cash balance = Beginning cash balance + Cash receipts − Cash
disbursements = $6,000 + $39,400 − ($12,000 + $9,000 + $11,500 + $22,000)
= $45,400 − $54,500 = ($9,100)
Amount borrowed = Desired ending cash balance − Actual ending cash balance
= $5,000 − ($9,100) = $14,100
Use the following to answer questions 49-50:
KAB Inc., a small retail store, had the following results for May. The budgets for June and
July are also given.
Sales ............................................................
Less cost of goods sold ...............................
Gross margin ...............................................
Less selling and administrative expenses ....
Net operating income ..................................
May
June
July
(actual) (budget) (budget)
$42,000 $40,000 $45,000
21,000
20,000
22,500
21,000
20,000
22,500
20,000
20,000
20,000
$ 1,000 $
0 $ 2,500
Sales are collected 80% in the month of the sale and the balance in the month following the
sale. (There are no bad debts.) The goods that are sold are purchased in the month prior to
sale. Suppliers of the goods are paid in the month following the sale. The "selling and
administrative expenses" are paid in the month of the sale.
49. The amount of cash collected during the month of June should be:
A) $32,000
B) $40,000
C) $40,400
D) $41,000
Ans: C AACSB: Analytic AICPA BB: Critical Thinking
AICPA FN: Reporting LO: 2 Level: Easy Source: CMA, adapted
Solution:
June sales ($40,000 × 80%) ................
May sales ($42,000 × 20%) ................
Total....................................................
9-24
$32,000
8,400
$40,400
Garrison/Noreen/Brewer, Managerial Accounting, Twelfth Edition
Chapter 9 Profit Planning
50. The cash disbursements during the month of June for goods purchased for resale and
for selling and administrative expenses should be:
A) $40,000
B) $41,000
C) $42,500
D) $43,500
Ans: B AACSB: Analytic AICPA BB: Critical Thinking
AICPA FN: Reporting LO: 3,4 Level: Easy Source: CMA, adapted
Solution:
May purchases of goods ..................................
June selling and administrative expenses ........
Total.................................................................
Garrison/Noreen/Brewer, Managerial Accounting, Twelfth Edition
$21,000
20,000
$41,000
9-25
Chapter 9 Profit Planning
Use the following to answer questions 51-59:
Dilly Farm Supply is located in a small town in the rural west. Data regarding the store's
operations follow:







Sales are budgeted at $290,000 for November, $310,000 for December, and $210,000 for
January.
Collections are expected to be 65% in the month of sale, 33% in the month following the
sale, and 2% uncollectible.
The cost of goods sold is 80% of sales.
The company purchases 70% of its merchandise in the month prior to the month of sale
and 30% in the month of sale. Payment for merchandise is made in the month following
the purchase.
Other monthly expenses to be paid in cash are $21,100.
Monthly depreciation is $21,000.
Ignore taxes.
Statement of Financial Position
October 31
Assets:
Cash ...............................................................................................
Accounts receivable
(net of allowance for uncollectible accounts) ............................
Inventory .......................................................................................
Property, plant and equipment
(net of $624,000 accumulated depreciation) .............................
Total assets ....................................................................................
1,026,000
$1,290,400
Liabilities and Stockholders’ Equity:
Accounts payable ..........................................................................
Common stock ..............................................................................
Retained earnings ..........................................................................
Total liabilities and stockholders’ equity ......................................
$ 239,000
740,000
311,400
$1,290,400
9-26
$
25,000
77,000
162,400
Garrison/Noreen/Brewer, Managerial Accounting, Twelfth Edition
Chapter 9 Profit Planning
51. Expected cash collections in December are:
A) $310,000
B) $95,700
C) $297,200
D) $201,500
Ans: C AACSB: Analytic AICPA BB: Critical Thinking
AICPA FN: Reporting LO: 2 Level: Hard
Solution:
December sales ($310,000 × 65%).....
November sales ($290,000 × 33%) ....
Total....................................................
$201,500
95,700
$297,200
52. The cost of December merchandise purchases would be:
A) $248,000
B) $232,000
C) $117,600
D) $192,000
Ans: D AACSB: Analytic AICPA BB: Critical Thinking
AICPA FN: Reporting LO: 3 Level: Hard
Solution:
Cost of
Sales
Goods Sold
November ...........................................
$290,000
$232,000
December............................................
$310,000
$248,000
January................................................
$210,000
$168,000
Merchandise purchases = Ending inventory + Cost of goods sold − Beginning
inventory = ($168,000 × 70%) + $248,000 − ($248,000 × 70%)
= $117,600 + $248,000 − $173,600 = $192,000
Garrison/Noreen/Brewer, Managerial Accounting, Twelfth Edition
9-27
Chapter 9 Profit Planning
53. December cash disbursements for merchandise purchases would be:
A) $192,000
B) $243,200
C) $117,600
D) $248,000
Ans: B AACSB: Analytic AICPA BB: Critical Thinking
AICPA FN: Reporting LO: 3 Level: Hard
Solution:
Cost of
Sales Goods Sold
November ...........................................
$290,000
$232,000
December............................................
$310,000
$248,000
January................................................
$210,000
$168,000
December cash disbursements = 70% of December Cost of Goods Sold + 30% of
November Cost of Good Sold = (70% × $248,000) + (30% × $232,000)
= $173,600 + $69,600 = $243,200
54. The excess (deficiency) of cash available over disbursements for December would be:
A) $46,600
B) $19,200
C) $13,700
D) $32,900
Ans: D AACSB: Analytic AICPA BB: Critical Thinking
AICPA FN: Reporting LO: 8 Level: Hard
Solution:
Cash collections − Cash disbursements − Other monthly expenses
= $297,200 − $243,200 − $21,100 = $32,900
9-28
Garrison/Noreen/Brewer, Managerial Accounting, Twelfth Edition
Chapter 9 Profit Planning
55. The net income for December would be:
A) $13,700
B) $32,900
C) $40,900
D) $19,900
Ans: A AACSB: Analytic AICPA BB: Critical Thinking
AICPA FN: Reporting LO: 9 Level: Hard
Solution:
Sales....................................................
Less uncollectible ($310,000 × 2%) ...
Net sales .............................................
Cost of goods sold ($310,000 × 80%)
Other expenses ...................................
Depreciation expenses ........................
Net income .........................................
$310,000
6,200
303,800
248,000
21,100
21,000
$ 13,700
Garrison/Noreen/Brewer, Managerial Accounting, Twelfth Edition
9-29
Chapter 9 Profit Planning
56. The cash balance at the end of December would be:
A) $63,300
B) $25,000
C) $57,900
D) $38,300
Ans: A AACSB: Analytic AICPA BB: Critical Thinking
AICPA FN: Reporting LO: 8 Level: Hard
Solution:
October Accounts Receivable Balance ....
Collection of November Sales ...................
$290,000 × 65% .....................................
$290,000 × 33% .....................................
Collection of December Sales ...................
$310,000 × 65% .....................................
October Accounts Payable Balance ..........
Payment for November Purchases ............
($290,000 × 80%) × 30% .......................
($310,000 × 80%) × 70% .......................
Other cash monthly expenses ....................
Net cash inflow(outflow) per month .........
November
$ 77,000
December
188,500
$ 95,700
201,500
(239,000)
(21,100)
$ 5,400
Beginning cash balance, October 31 ..........................
Add November net cash inflow ..................................
Add December net cash inflow ..................................
Ending cash balance, December 31 ............................
(69,600)
(173,600)
(21,100)
$ 32,900
$25,000
5,400
32,900
$63,300
57. The accounts receivable balance, net of uncollectible accounts, at the end of December
would be:
A) $102,300
B) $198,000
C) $83,200
D) $108,500
Ans: A AACSB: Analytic AICPA BB: Critical Thinking
AICPA FN: Reporting LO: 10 Level: Hard
Solution:
From December sales ($310,000 × 33%): $102,300
9-30
Garrison/Noreen/Brewer, Managerial Accounting, Twelfth Edition
Chapter 9 Profit Planning
58. Accounts payable at the end of December would be:
A) $192,000
B) $248,000
C) $117,600
D) $74,400
Ans: A AACSB: Analytic AICPA BB: Critical Thinking
AICPA FN: Reporting LO: 10 Level: Hard
Solution:
Cost of
Sales
Goods Sold
November ...........................................
$290,000
$232,000
December............................................
$310,000
$248,000
January................................................
$210,000
$168,000
Merchandise purchases = Ending inventory + Cost of goods sold − Beginning
inventory = ($168,000 × 70%) + $248,000 − ($248,000 × 70%)
= $117,600 + $248,000 − $173,600 = $192,000
59. Retained earnings at the end of December would be:
A) $325,100
B) $311,400
C) $335,200
D) $347,200
Ans: C AACSB: Analytic AICPA BB: Critical Thinking
AICPA FN: Reporting LO: 10 Level: Hard
Solution:
Net income in November:
Sales....................................................
$290,000
Less uncollectible ($290,000 × 2%) ...
5,800
Net sales .............................................
284,200
Cost of goods sold ($290,000 × 80%)
232,000
Other expenses ...................................
21,100
Depreciation expenses ........................
21,000
Net income .........................................
$ 10,100
Retained earnings in December = Retained earnings in October + Net income in
November + Net income in December = $311,400 + $10,100 + $13,700 = $335,200
Garrison/Noreen/Brewer, Managerial Accounting, Twelfth Edition
9-31
Chapter 9 Profit Planning
Use the following to answer questions 60-63:
Bramble Corporation is a small wholesaler of gourmet food products. Data regarding the
store's operations follow:







Sales are budgeted at $340,000 for November, $320,000 for December, and $310,000 for
January.
Collections are expected to be 80% in the month of sale, 16% in the month following the
sale, and 4% uncollectible.
The cost of goods sold is 75% of sales.
The company purchases 60% of its merchandise in the month prior to the month of sale
and 40% in the month of sale. Payment for merchandise is made in the month following
the purchase.
Other monthly expenses to be paid in cash are $24,000.
Monthly depreciation is $15,000.
Ignore taxes.
Statement of Financial Position
October 31
Assets:
Cash ............................................................................................
Accounts receivable (net of allowance for uncollectible
accounts) .................................................................................
Inventory ....................................................................................
Property, plant and equipment (net of $572,000 accumulated
depreciation) ...........................................................................
Total assets .................................................................................
Liabilities and Stockholders’ Equity:
Accounts payable .......................................................................
Common stock ...........................................................................
Retained earnings .......................................................................
Total liabilities and stockholders’ equity ...................................
9-32
$
20,000
70,000
153,000
1,094,000
$1,337,000
$ 254,000
820,000
263,000
$1,337,000
Garrison/Noreen/Brewer, Managerial Accounting, Twelfth Edition
Chapter 9 Profit Planning
60. Expected cash collections in December are:
A) $54,400
B) $256,000
C) $320,000
D) $310,400
Ans: D AACSB: Analytic AICPA BB: Critical Thinking
AICPA FN: Reporting LO: 2 Level: Hard
Solution:
December sales ($320,000 × 80%).....
November sales ($340,000 × 16%) ....
Total....................................................
$256,000
54,400
$310,400
61. The cost of December merchandise purchases would be:
A) $255,000
B) $139,500
C) $235,500
D) $240,000
Ans: C AACSB: Analytic AICPA BB: Critical Thinking
AICPA FN: Reporting LO: 3 Level: Hard
Solution:
November ...........................................
December............................................
January................................................
Cost of
Sales Goods Sold
$340,000
$255,000
$320,000
$240,000
$310,000
$232,500
Merchandise purchases = Ending inventory + Cost of goods sold − Beginning
inventory = ($232,500 × 60%) + $240,000 − ($240,000 × 60%)
= $139,500 + $240,000 − $144,000 = $235,500
Garrison/Noreen/Brewer, Managerial Accounting, Twelfth Edition
9-33
Chapter 9 Profit Planning
62. December cash disbursements for merchandise purchases would be:
A) $139,500
B) $246,000
C) $240,000
D) $235,500
Ans: B AACSB: Analytic AICPA BB: Critical Thinking
AICPA FN: Reporting LO: 3 Level: Hard
Solution:
November purchases = Ending inventory + Cost of good sold − Beginning inventory =
($240,000 × 60%) + $255,000 − ($255,000 × 60%)
= $144,000 + $255,000 − $153,000 = $246,000
December cash disbursements = November purchases = $246,000
63. The excess (deficiency) of cash available over disbursements for December would be:
A) $40,400
B) $68,600
C) $28,200
D) $12,200
Ans: A AACSB: Analytic AICPA BB: Critical Thinking
AICPA FN: Reporting LO: 8 Level: Hard
Solution:
December sales ($320,000 × 80%).....
November sales ($340,000 × 16%) ....
Total cash collections in December....
$256,000
54,400
$310,400
November purchases = Ending inventory + Cost of good sold − Beginning inventory =
($240,000 × 60%) + $255,000 − ($255,000 × 60%)
= $144,000 + $255,000 − $153,000 = $246,000
December cash disbursements = November purchases = $246,000
Cash collections − Cash disbursements − Other monthly expenses
= $310,400 − $246,000 − $24,000 = $40,400
9-34
Garrison/Noreen/Brewer, Managerial Accounting, Twelfth Edition
Chapter 9 Profit Planning
Use the following to answer questions 64-67:
Information on the actual sales and inventory purchases of the Law Company for the first
quarter follow:
January ..................
February ................
March ....................
Sales
$120,000
$100,000
$130,000
Inventory Purchases
$60,000
$78,000
$90,000
Collections from Law Company's customers are normally 60% in the month of sale, 30% in
the month following sale, and 8% in the second month following sale. The balance is
uncollectible. Law Company takes full advantage of the 3% discount allowed on purchases
paid for by the end of the following month.
The company expects sales in April of $150,000 and inventory purchases of $100,000. Selling
and administrative expenses for the month of April are expected to be $38,000, of which
$15,000 is salaries and $8,000 is depreciation. The remaining selling and administrative
expenses are variable with respect to the amount of sales in dollars. Those selling and
administrative expenses requiring a cash outlay are paid for during the month incurred. Law
Company's cash balance on March 1 was $43,000, and on April 1 was $35,000.
64. The expected cash collections from customers during April would be:
A) $150,000
B) $137,000
C) $139,000
D) $117,600
Ans: B AACSB: Analytic AICPA BB: Critical Thinking
AICPA FN: Reporting LO: 2 Level: Medium
Solution:
April sales ($150,000 × 60%).............
March sales ($130,000 × 30%)...........
February sales ($100,000 × 8%).........
Expected cash collections ...................
$ 90,000
39,000
8,000
$137,000
Garrison/Noreen/Brewer, Managerial Accounting, Twelfth Edition
9-35
Chapter 9 Profit Planning
65. The expected cash disbursements during April for inventory purchases would be:
A) $100,000
B) $97,000
C) $90,000
D) $87,300
Ans: D AACSB: Analytic AICPA BB: Critical Thinking
AICPA FN: Reporting LO: 2 Level: Easy
Solution:
Expected cash disbursements for April for inventory purchases = March inventory
purchases × (100% − discount percentage for paying by end of month)
= $90,000 × (100% − 3%) = $90,000 × 97% = $87,300
66. The expected cash disbursements during April for selling and administrative expenses
would be:
A) $38,000
B) $30,000
C) $23,000
D) $15,000
Ans: B AACSB: Analytic AICPA BB: Critical Thinking
AICPA FN: Reporting LO: 7 Level: Easy
Solution:
Expected cash disbursements during April for selling and administrative expenses =
Total selling and administrative expenses − Depreciation
= $38,000 − $8,000 = $30,000
9-36
Garrison/Noreen/Brewer, Managerial Accounting, Twelfth Edition
Chapter 9 Profit Planning
67. The expected cash balance on April 30 would be:
A) $54,700
B) $62,700
C) $19,700
D) $28,700
Ans: A AACSB: Analytic AICPA BB: Critical Thinking
AICPA FN: Reporting LO: 8 Level: Hard
Solution:
April sales ($150,000 × 60%).............
March sales ($130,000 × 30%)...........
February sales ($100,000 × 8%).........
Expected cash collections ...................
$ 90,000
39,000
8,000
$137,000
Expected cash disbursements for April for inventory purchases = March inventory
purchases × (100% − discount percentage for paying by end of month)
= $90,000 × (100% − 3%) = $90,000 × 97% = $87,300
Expected cash disbursements = Total selling and administrative expenses −
Depreciation = $38,000 − $8,000 = $30,000
Expected cash balance = Beginning cash balance + Total cash receipts − Expected
cash disbursements for inventory purchases − Expected cash disbursements for selling
and administrative expenses
= $35,000 + $137,000 − $87,300 − $30,000
= $35,000 + $19,700 = $54,700
Use the following to answer questions 68-69:
The LaPann Company has obtained the following sales forecast data:
Cash sales ..............
Credit sales ............
July
August September October
$80,000 $70,000
$50,000 $60,000
$240,000 $220,000 $180,000 $200,000
The regular pattern of collection of credit sales is 20% in the month of sale, 70% in the month
following the month of sale, and the remainder in the second month following the month of
sale. There are no bad debts.
Garrison/Noreen/Brewer, Managerial Accounting, Twelfth Edition
9-37
Chapter 9 Profit Planning
68. The budgeted accounts receivable balance on September 30 is:
A) $126,000
B) $148,000
C) $166,000
D) $190,000
Ans: C AACSB: Analytic AICPA BB: Critical Thinking
AICPA FN: Reporting LO: 2 Level: Medium
Solution:
September sales ($180,000 × 80%*) ..
August sales ($220,000 × 10%**) .....
Total....................................................
*100% − 20%
**100% − 20% − 70%
$144,000
22,000
$166,000
69. The budgeted cash receipts for October are:
A) $188,000
B) $248,000
C) $226,000
D) $278,000
Ans: B AACSB: Analytic AICPA BB: Critical Thinking
AICPA FN: Reporting LO: 2 Level: Medium
Solution:
October cash sales ........................................... $ 60,000
October credit sales ($200,000 × 20%) ...........
40,000
September credit sales ($180,000 × 70%) ....... 126,000
August credit sales ($220,000 × 10%) ............
22,000
Total................................................................. $248,000
9-38
Garrison/Noreen/Brewer, Managerial Accounting, Twelfth Edition
Chapter 9 Profit Planning
Use the following to answer questions 70-71:
Sarafiny Corporation is in the process of preparing its annual budget. The following
beginning and ending inventory levels are planned for the year.
Finished goods (units) .......
Raw material (grams) ........
Beginning Inventory Ending Inventory
20,000
30,000
50,000
40,000
Each unit of finished goods requires 7 grams of raw material.
70. If the company plans to sell 270,000 units during the year, the number of units it
would have to manufacture during the year would be:
A) 300,000 units
B) 270,000 units
C) 260,000 units
D) 280,000 units
Ans: D AACSB: Analytic AICPA BB: Critical Thinking
AICPA FN: Reporting LO: 3 Level: Easy
Solution:
Units produced = Ending inventory + Units sold − Beginning inventory
= 30,000 + 270,000 − 20,000 = 280,000
71. How much of the raw material should the company purchase during the year?
A) 1,960,000 grams
B) 1,950,000 grams
C) 1,970,000 grams
D) 2,000,000 grams
Ans: B AACSB: Analytic AICPA BB: Critical Thinking
AICPA FN: Reporting LO: 4 Level: Medium
Solution:
Materials purchased = Ending inventory + Materials to be used − Beginning inventory
= 40,000 + (280,000 × 7) − 50,000
= 40,000 + 1,960,000 − 50,000 = 1,950,000
Garrison/Noreen/Brewer, Managerial Accounting, Twelfth Edition
9-39
Chapter 9 Profit Planning
Use the following to answer questions 72-73:
LBC Corporation makes and sells a product called Product WZ. Each unit of Product WZ
requires 3.5 hours of direct labor at the rate of $14.50 per direct labor-hour. Management
would like you to prepare a Direct Labor Budget for June.
72. The budgeted direct labor cost per unit of Product WZ would be:
A) $50.75
B) $14.50
C) $4.14
D) $18.00
Ans: A AACSB: Analytic AICPA BB: Critical Thinking
AICPA FN: Reporting LO: 3 Level: Easy
Solution:
Budgeted direct labor cost per unit = Direct labor-hours per unit × Direct labor rate
= 3.5 × $14.50 = $50.75
73. The company plans to sell 39,000 units of Product WZ in June. The finished goods
inventories on June 1 and June 30 are budgeted to be 200 and 100 units, respectively.
Budgeted direct labor costs for June would be:
A) $1,984,325
B) $1,974,175
C) $1,979,250
D) $564,050
Ans: B AACSB: Analytic AICPA BB: Critical Thinking
AICPA FN: Reporting LO: 5 Level: Medium
Solution:
Units produced = Ending inventory + Units sold − Beginning inventory
= 100 + 39,000 − 200 = 38,900
Budgeted direct labor cost per unit = Direct labor-hours per unit × Direct labor rate
= 3.5 × $14.50 = $50.75
Budgeted direct labor cost = Units produced × Budgeted direct labor cost per unit
= 38,900 × $50.75 = $1,974,175
9-40
Garrison/Noreen/Brewer, Managerial Accounting, Twelfth Edition
Chapter 9 Profit Planning
Use the following to answer questions 74-75:
Barley Enterprises has budgeted unit sales for the next four months as follows:
October ..................
November ..............
December ..............
January ..................
4,800 units
5,800 units
6,400 units
5,200 units
The ending inventory for each month should be equal to 15% of the next month's sales in
units. The inventory on September 30 was below this level and contained only 600 units.
74. The total units to be produced in October are:
A) 4,530
B) 5,070
C) 5,670
D) 5,890
Ans: B AACSB: Analytic AICPA BB: Critical Thinking
AICPA FN: Reporting LO: 3 Level: Medium
Solution:
Units produced = Ending inventory + Units sold − Beginning inventory
= (15% × 5,800) + 4,800 − 600 = 870 + 4,800 − 600 = 5,070
75. The desired ending inventory for December is:
A) 960
B) 870
C) 780
D) 690
Ans: C AACSB: Analytic AICPA BB: Critical Thinking
AICPA FN: Reporting LO: 3 Level: Easy
Solution:
Desired ending inventory for December = 15% of January’s sales in units
= 15% × 5,200 = 780
Garrison/Noreen/Brewer, Managerial Accounting, Twelfth Edition
9-41
Chapter 9 Profit Planning
Use the following to answer questions 76-77:
Harden, Inc., has budgeted sales in units for the next five months as follows:
June .......................
July ........................
August ...................
September ..............
October ..................
7,000 units
5,300 units
7,100 units
6,800 units
4,900 units
Past experience has shown that the ending inventory for each month should be equal to 15%
of the next month's sales in units. The inventory on May 31 contained 1,050 units. The
company needs to prepare a production budget for the next five months.
76. The beginning inventory for September should be:
A) 1,020 units
B) 1,050 units
C) 1,065 units
D) 735 units
Ans: A AACSB: Analytic AICPA BB: Critical Thinking
AICPA FN: Reporting LO: 3 Level: Easy
Solution:
The beginning inventory for September is equal to the ending inventory for August.
Desired ending inventory for August = 15% × September’s sales in units
= 15% × 6,800 = 1,020
9-42
Garrison/Noreen/Brewer, Managerial Accounting, Twelfth Edition
Chapter 9 Profit Planning
77. The total number of units produced in July should be:
A) 5,300 units
B) 6,365 units
C) 5,570 units
D) 5,030 units
Ans: C AACSB: Analytic AICPA BB: Critical Thinking
AICPA FN: Reporting LO: 3 Level: Easy
Solution:
Units produced = Ending inventory + Units sold − Beginning inventory
= (7,100 × 15%) + 5,300 − (5,300 × 15%)
= 1,065 + 5,300 − 795 = 5,570
Use the following to answer questions 78-79:
Caspion Corporation makes and sells a product called a Miniwarp. One Miniwarp requires 2.5
kilograms of the raw material Jurislon. Budgeted production of Miniwarps for the next five
months is as follows:
August ...................
September ..............
October ..................
November ..............
December ..............
22,600 units
21,300 units
22,700 units
23,900 units
23,600 units
The company wants to maintain monthly ending inventories of Jurislon equal to 20% of the
following month's production needs. On July 31, this requirement was not met since only
10,800 kilograms of Jurislon were on hand. The cost of Jurislon is $18.00 per kilogram. The
company wants to prepare a Direct Materials Purchase Budget for the next five months.
Garrison/Noreen/Brewer, Managerial Accounting, Twelfth Edition
9-43
Chapter 9 Profit Planning
78. The desired ending inventory of Jurislon for the month of September is:
A) $81,720
B) $76,680
C) $191,700
D) $204,300
Ans: D AACSB: Analytic AICPA BB: Critical Thinking
AICPA FN: Reporting LO: 4 Level: Medium
Solution:
Desired ending inventory = 20% × Direct materials needed for October × Cost per
kilogram of Jurislon = 20% × (22,700 × 2.5) × $18 = 11,350 × $18 = $204,300
79. The total cost of Jurislon to be purchased in August is:
A) $1,839,600
B) $1,014,300
C) $1,208,700
D) $1,017,000
Ans: B AACSB: Analytic AICPA BB: Critical Thinking
AICPA FN: Reporting LO: 4 Level: Medium
Solution:
Materials purchased = Ending inventory + Materials used − Beginning inventory
= (20% × 21,300 × 2.5) + (22,600 × 2.5) − 10,800
= 10,650 + 56,500 − 10,800 = 56,350
Total cost of purchase = 56,350 × $18 = $1,014,300
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Garrison/Noreen/Brewer, Managerial Accounting, Twelfth Edition
Chapter 9 Profit Planning
Use the following to answer questions 80-83:
The International Company makes and sells only one product, Product SW. The company is
in the process of preparing its Selling and Administrative Expense Budget for the last half of
the year. The following budget data are available:
Sales commissions ..............................
Shipping ..............................................
Advertising ..........................................
Executive salaries ................................
Depreciation on office equipment .......
Other ....................................................
Variable Cost
Per Unit Sold
$0.70
$1.10
$0.20
$0.25
Monthly Fixed
Cost
$14,000
$34,000
$11,000
$19,000
All expenses other than depreciation are paid in cash in the month they are incurred.
80. If the company has budgeted to sell 25,000 units of Product SW in July, then the total
budgeted selling and administrative expenses for July will be:
A) $56,250
B) $78,000
C) $134,250
D) $123,250
Ans: C AACSB: Analytic AICPA BB: Critical Thinking
AICPA FN: Reporting LO: 6 Level: Medium
Solution:
Variable cost per unit = ($0.70 + $1.10 + $0.20 + $0.25) = $2.25
Fixed cost = $14,000 + $34,000 + $11,000 + $19,000 = $78,000
Total budgeted selling and administrative expenses = Variable cost + Fixed cost
= ($2.25 × 25,000) + $78,000 = $56,250 + $78,000 = $134,250
Garrison/Noreen/Brewer, Managerial Accounting, Twelfth Edition
9-45
Chapter 9 Profit Planning
81. If the company has budgeted to sell 20,000 units of Product SW in October then the
total budgeted variable selling and administrative expenses for October will be:
A) $45,000
B) $40,000
C) $56,250
D) $78,000
Ans: A AACSB: Analytic AICPA BB: Critical Thinking
AICPA FN: Reporting LO: 6 Level: Medium
Solution:
Variable cost per unit = ($0.70 + $1.10 + $0.20 + $0.25) = $2.25
Total budgeted variable selling and administrative expenses = Variable cost per unit ×
Units sold = $2.25 × 20,000 = $45,000
82. If the budgeted cash disbursements for selling and administrative expenses for
November total $123,250, then how many units of Product SW does the company plan
to sell in November (rounded to the nearest whole unit)?
A) 33,444 units
B) 25,000 units
C) 22,952 units
D) 20,111 units
Ans: B AACSB: Analytic AICPA BB: Critical Thinking
AICPA FN: Reporting LO: 8 Level: Hard
Solution:
Variable cost per unit = ($0.70 + $1.10 + $0.20 + $0.25) = $2.25
Cash disbursements = Variable cost + (Fixed cost − Depreciation)
$123,250 = ($2.25 × Units sold) + ($78,000 − $11,000)
$123,250 = ($2.25 × Units sold) - $67,000
Units sold = ($123,250 − $67,000) ÷ $2.25
Units sold = $56,250 ÷ $2.25
Units sold = 25,000 units
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Garrison/Noreen/Brewer, Managerial Accounting, Twelfth Edition
Chapter 9 Profit Planning
83. If the company has budgeted to sell 24,000 units of Product SW in September, then
the total budgeted fixed selling and administrative expenses for September would be:
A) $54,000
B) $48,000
C) $67,000
D) $78,000
Ans: D AACSB: Analytic AICPA BB: Critical Thinking
AICPA FN: Reporting LO: 7 Level: Medium
Solution:
Advertising ..........................................
Executive salaries ................................
Depreciation on office equipment .......
Other ....................................................
Total.....................................................
Monthly
Fixed Cost
$14,000
34,000
11,000
19,000
$78,000
Use the following to answer questions 84-86:
Davis Corporation is preparing its Manufacturing Overhead Budget for the fourth quarter of
the year. The budgeted variable factory overhead rate is $1.70 per direct labor-hour; the
budgeted fixed factory overhead is $116,000 per month, of which $30,000 is factory
depreciation.
84. If the budgeted direct labor time for October is 8,000 hours, then the total budgeted
factory overhead for October is:
A) $129,600
B) $43,600
C) $99,600
D) $86,000
Ans: A AACSB: Analytic AICPA BB: Critical Thinking
AICPA FN: Reporting LO: 6 Level: Easy
Solution:
Total budgeted factory overhead = Variable manufacturing overhead + Fixed
manufacturing overhead = (8,000 × $1.70) + $116,000 = $13,600 + $116,000
= $129,600
Garrison/Noreen/Brewer, Managerial Accounting, Twelfth Edition
9-47
Chapter 9 Profit Planning
85. If the budgeted direct labor time for November is 7,000 hours, then the total budgeted
cash disbursements for November must be:
A) $41,900
B) $127,900
C) $86,000
D) $97,900
Ans: D AACSB: Analytic AICPA BB: Critical Thinking
AICPA FN: Reporting LO: 6 Level: Medium
Solution:
Cash disbursements = Variable manufacturing overhead + Fixed manufacturing
overhead − Depreciation = (7,000 × $1.70) + $116,000 − $30,000
= $11,900 + $116,000 − $30,000 = $97,900
86. If the budgeted direct labor time for December is 4,000 hours, then the predetermined
factory overhead per direct labor-hour for December would be:
A) $9.20
B) $30.70
C) $23.20
D) $1.70
Ans: B AACSB: Analytic AICPA BB: Critical Thinking
AICPA FN: Reporting LO: 6 Level: Medium
Solution:
Predetermined factory overhead rate = Variable overhead rate per direct labor hour +
Fixed factory overhead rate per hour = $1.70 + ($116,000 ÷ 4,000)
= $1.70 + $29 = $30.70
Use the following to answer questions 87-88:
Cartier Inc. bases its manufacturing overhead budget on budgeted direct labor-hours. The
variable overhead rate is $5.80 per direct labor-hour. The company's budgeted fixed
manufacturing overhead is $39,930 per month, which includes depreciation of $12,870. All
other fixed manufacturing overhead costs represent current cash flows. The direct labor
budget indicates that 3,300 direct labor-hours will be required in April.
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Chapter 9 Profit Planning
87. The April cash disbursements for manufacturing overhead on the manufacturing
overhead budget should be:
A) $59,070
B) $46,200
C) $27,060
D) $19,140
Ans: B AACSB: Analytic AICPA BB: Critical Thinking
AICPA FN: Reporting LO: 6 Level: Easy
Solution:
Cash disbursements for April = (Variable overhead rate × Number of direct-labor
hours) + (Fixed manufacturing overhead less depreciation)
= ($5.80 × 3,300) + ($39,930 − $12,870) = $19,140 + $27,060 = $46,200
88. The company recomputes its predetermined overhead rate every month. The
predetermined overhead rate for April should be:
A) $14.00
B) $5.80
C) $17.90
D) $12.10
Ans: C AACSB: Analytic AICPA BB: Critical Thinking
AICPA FN: Reporting LO: 6 Level: Easy
Solution:
Predetermined factory overhead rate = Variable overhead rate per direct labor hour +
Fixed factory overhead rate per hour = $5.80 + ($39,930 ÷ 3,300)
= $5.80 + $12.10 = $17.90
Use the following to answer questions 89-90:
Avril Inc. bases its manufacturing overhead budget on budgeted direct labor-hours. The
variable overhead rate is $4.60 per direct labor-hour. The company's budgeted fixed
manufacturing overhead is $54,080 per month, which includes depreciation of $3,840. All
other fixed manufacturing overhead costs represent current cash flows. The direct labor
budget indicates that 3,200 direct labor-hours will be required in October.
Garrison/Noreen/Brewer, Managerial Accounting, Twelfth Edition
9-49
Chapter 9 Profit Planning
89. The October cash disbursements for manufacturing overhead on the manufacturing
overhead budget should be:
A) $68,800
B) $64,960
C) $14,720
D) $50,240
Ans: B AACSB: Analytic AICPA BB: Critical Thinking
AICPA FN: Reporting LO: 6 Level: Easy
Solution:
Cash disbursements for October = (Variable overhead rate × Number of direct-labor
hours) + (Fixed manufacturing overhead less depreciation)
= ($4.60 × 3,200) + ($54,080 − $3,840) = $14,720 + $50,240 = $64,960
90. The company recomputes its predetermined overhead rate every month. The
predetermined overhead rate for October should be:
A) $4.60
B) $21.50
C) $20.30
D) $16.90
Ans: B AACSB: Analytic AICPA BB: Critical Thinking
AICPA FN: Reporting LO: 6 Level: Easy
Solution:
Predetermined factory overhead rate = Variable overhead rate per direct labor hour +
Fixed factory overhead rate per hour
= $4.60 + ($54,080 ÷ 3,200) = $4.60 + $16.90 = $21.50
Use the following to answer questions 91-92:
The manufacturing overhead budget at Cardera Corporation is based on budgeted direct laborhours. The direct labor budget indicates that 2,300 direct labor-hours will be required in
January. The variable overhead rate is $1.00 per direct labor-hour. The company's budgeted
fixed manufacturing overhead is $28,060 per month, which includes depreciation of $4,600.
All other fixed manufacturing overhead costs represent current cash flows.
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Garrison/Noreen/Brewer, Managerial Accounting, Twelfth Edition
Chapter 9 Profit Planning
91. The company recomputes its predetermined overhead rate every month. The
predetermined overhead rate for January should be:
A) $1.00
B) $12.20
C) $11.20
D) $13.20
Ans: D AACSB: Analytic AICPA BB: Critical Thinking
AICPA FN: Reporting LO: 6 Level: Easy
Solution:
Predetermined factory overhead rate = Variable overhead rate per direct labor hour +
Fixed factory overhead rate per hour
= $1 + ($28,060 ÷ 2,300) = $1 + $12.20 = $13.20
92. The January cash disbursements for manufacturing overhead on the manufacturing
overhead budget should be:
A) $30,360
B) $2,300
C) $23,460
D) $25,760
Ans: D AACSB: Analytic AICPA BB: Critical Thinking
AICPA FN: Reporting LO: 6 Level: Easy
Solution:
Cash disbursements for January = (Variable overhead rate × Number of direct-labor
hours) + (Fixed manufacturing overhead less depreciation)
= (2,300 × $1) + ($28,060 − $4,600) = $2,300 + $23,460 = $25,760
Use the following to answer questions 93-94:
The manufacturing overhead budget at Polich Corporation is based on budgeted direct laborhours. The direct labor budget indicates that 1,600 direct labor-hours will be required in
February. The variable overhead rate is $3.40 per direct labor-hour. The company's budgeted
fixed manufacturing overhead is $28,320 per month, which includes depreciation of $3,680.
All other fixed manufacturing overhead costs represent current cash flows.
Garrison/Noreen/Brewer, Managerial Accounting, Twelfth Edition
9-51
Chapter 9 Profit Planning
93. The company recomputes its predetermined overhead rate every month. The
predetermined overhead rate for February should be:
A) $3.40
B) $21.10
C) $17.70
D) $18.80
Ans: B AACSB: Analytic AICPA BB: Critical Thinking
AICPA FN: Reporting LO: 6 Level: Easy
Solution:
Predetermined factory overhead rate = Variable overhead rate per direct labor hour +
Fixed factory overhead rate per hour = $3.40 + ($28,320 ÷ 1,600)
= $3.40 + $17.70 = $21.10
94. The February cash disbursements for manufacturing overhead on the manufacturing
overhead budget should be:
A) $24,640
B) $33,760
C) $30,080
D) $5,440
Ans: C AACSB: Analytic AICPA BB: Critical Thinking
AICPA FN: Reporting LO: 6 Level: Easy
Solution:
Cash disbursements for February = (Variable overhead rate × Number of direct-labor
hours) + (Fixed manufacturing overhead less depreciation)
= (1,600 × $3.40) + ($28,320 − $3,680) = $5,440 + $24,640 = $30,080
9-52
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Chapter 9 Profit Planning
Use the following to answer questions 95-97:
Porter Corporation makes and sells a single product called a Yute. The company is in the
process of preparing its Selling and Administrative Expense Budget for the last quarter of the
year. The following budget data are available:
Sales commissions .................................
Shipping .................................................
Advertising .............................................
Executive salaries ...................................
Depreciation on office equipment ..........
Other .......................................................
Variable Cost Monthly Fixed
Per Yute Sold
Cost
$5.90
$5.30
$8.90
$32,000
$178,000
$7,000
$0.60
$20,000
All of these expenses (except depreciation) are paid in cash in the month they are incurred.
95. If the company has budgeted to sell 14,000 Yutes in November, then the total
budgeted selling and administrative expenses for November would be:
A) $526,800
B) $289,800
C) $237,000
D) $519,800
Ans: A AACSB: Analytic AICPA BB: Critical Thinking
AICPA FN: Reporting LO: 7 Level: Medium
Solution:
Total budgeted selling and administrative expenses = Variable cost + Fixed cost =
[14,000 × ($5.90 + $5.30 + $8.90 + $ 0.60)] + ($32,000 + $178,000 + $7,000 +
$20,000) = (14,000 × $20.70) + $237,000 = $526,800
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9-53
Chapter 9 Profit Planning
96. If the company has budgeted to sell 12,000 Yutes in December, then the budgeted
total cash disbursements for selling and administrative expenses for December would
be:
A) $237,000
B) $485,400
C) $248,400
D) $478,400
Ans: D AACSB: Analytic AICPA BB: Critical Thinking
AICPA FN: Reporting LO: 7 Level: Medium
Solution:
Variable cost per unit = $5.90 + $5.30 + $8.90 + $0.60 = $20.70
Fixed cost total = $32,000 + $178,000 + $7,000 + $20,000 = $237,000
Cash disbursements for December = (Variable selling and administrative cost ×
Number of direct-labor hours) + (Fixed manufacturing overhead less depreciation)
= (12,000 × $20.70) + ($237,000 − $7,000) = $248,400 + $230,000 = $478,400
97. If the budgeted cash disbursements for selling and administrative expenses for October
total $518,520, then how many Yutes does the company plan to sell in October?
A) 13,300 units
B) 14,100 units
C) 13,800 units
D) 13,600 units
Ans: D AACSB: Analytic AICPA BB: Critical Thinking
AICPA FN: Reporting LO: 7 Level: Hard
Solution:
($20.70 × Units sold) + $237,000 = $518,520
($20.70 × Units) = $518,520 − $237,000
Units = $281,520 ÷ $20.70 = 13,600
9-54
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Chapter 9 Profit Planning
Use the following to answer questions 98-100:
The Bandeiras Company, a merchandising firm, has budgeted its activity for December
according to the following information:







Sales at $550,000, all for cash.
Merchandise inventory on November 30 was $300,000.
Budgeted depreciation for December is $35,000.
The cash balance at December 1 was $25,000.
Selling and administrative expenses are budgeted at $60,000 for December and are paid in
cash.
The planned merchandise inventory on December 31 is $270,000.
The invoice cost for merchandise purchases represents 75% of the sales price. All
purchases are paid for in cash.
98. The budgeted cash receipts for December are:
A) $412,500
B) $137,500
C) $585,000
D) $550,000
Ans: D AACSB: Analytic AICPA BB: Critical Thinking
AICPA FN: Reporting LO: 8 Level: Easy
Solution:
Since all sales are on a cash basis, the cash receipts for December will be equal to the
sales in December of $550,000.
Garrison/Noreen/Brewer, Managerial Accounting, Twelfth Edition
9-55
Chapter 9 Profit Planning
99. The budgeted cash disbursements for December are:
A) $382,500
B) $442,500
C) $472,500
D) $477,500
Ans: B AACSB: Analytic AICPA BB: Critical Thinking
AICPA FN: Reporting LO: 8 Level: Hard
Solution:
Purchases = Ending inventory + Cost of goods sold − Beginning inventory
= $270,000 + ($550,000 × 75%) − $300,000 = $382,500
Cash disbursements = Purchases + Selling and administrative expenses
= $382,500 + $60,000 = $442,500
100. The budgeted net income for December is:
A) $107,500
B) $137,500
C) $42,500
D) $77,500
Ans: C AACSB: Analytic AICPA BB: Critical Thinking
AICPA FN: Reporting LO: 9 Level: Hard
Solution:
Sales............................................................................ $550,000
Cost of goods sold ($550,000 × 75%) ........................ 412,500
Gross margin .............................................................. 137,500
Depreciation expense .................................................
35,000
Selling and administrative expense ............................
60,000
Net income ................................................................. $ 42,500
Use the following to answer questions 101-102:
Rogers Corporation is preparing its cash budget for July. The budgeted beginning cash
balance is $25,000. Budgeted cash receipts total $141,000 and budgeted cash disbursements
total $139,000. The desired ending cash balance is $30,000.
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Chapter 9 Profit Planning
101. The excess (deficiency) of cash available over disbursements for July is:
A) $23,000
B) $2,000
C) $166,000
D) $27,000
Ans: D AACSB: Analytic AICPA BB: Critical Thinking
AICPA FN: Reporting LO: 8 Level: Easy
Solution:
Excess cash available over disbursements = Beginning cash balance + Budgeted cash
receipts - Budgeted cash disbursements
= $25,000 + $141,000 - $139,000 = $27,000
102. To attain its desired ending cash balance for July, the company should borrow:
A) $30,000
B) $0
C) $3,000
D) $57,000
Ans: C AACSB: Analytic AICPA BB: Critical Thinking
AICPA FN: Reporting LO: 8 Level: Easy
Solution:
Excess cash available over disbursements = Beginning cash balance + Budgeted cash
receipts - Budgeted cash disbursements = $25,000 + $141,000 − $139,000 = $27,000
Borrowing = Desired ending cash balance − Excess cash available over disbursements
= $30,000 − $27,000 = $3,000
Use the following to answer questions 103-104:
Bries Corporation is preparing its cash budget for January. The budgeted beginning cash
balance is $18,000. Budgeted cash receipts total $183,000 and budgeted cash disbursements
total $188,000. The desired ending cash balance is $30,000.
Garrison/Noreen/Brewer, Managerial Accounting, Twelfth Edition
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Chapter 9 Profit Planning
103. The excess (deficiency) of cash available over disbursements for January is:
A) $23,000
B) $13,000
C) ($5,000)
D) $201,000
Ans: B AACSB: Analytic AICPA BB: Critical Thinking
AICPA FN: Reporting LO: 8 Level: Easy
Solution:
Excess cash available over disbursements = Beginning cash balance + Budgeted cash
receipts − Budgeted cash disbursements = $18,000 + $183,000 − $188,000 = $13,000
104. To attain its desired ending cash balance for January, the company should borrow:
A) $17,000
B) $0
C) $30,000
D) $43,000
Ans: A AACSB: Analytic AICPA BB: Critical Thinking
AICPA FN: Reporting LO: 8 Level: Easy
Solution:
Excess cash available over disbursements = Beginning cash balance + Budgeted cash
receipts − Budgeted cash disbursements = $18,000 + $183,000 − $188,000 = $13,000
Borrowing = Desired ending cash balance − Excess cash available over disbursements
= $30,000 − $13,000 = $17,000
Use the following to answer questions 105-106:
Muecke Inc. is working on its cash budget for April. The budgeted beginning cash balance is
$40,000. Budgeted cash receipts total $150,000 and budgeted cash disbursements total
$158,000. The desired ending cash balance is $50,000.
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Chapter 9 Profit Planning
105. The excess (deficiency) of cash available over disbursements for April will be:
A) $32,000
B) $190,000
C) $48,000
D) ($8,000)
Ans: A AACSB: Analytic AICPA BB: Critical Thinking
AICPA FN: Reporting LO: 8 Level: Easy
Solution:
Excess cash available over disbursements = Beginning cash balance + Budgeted cash
receipts − Budgeted cash disbursements = $40,000 + $150,000 − $158,000 = $32,000
106. To attain its desired ending cash balance for April, the company needs to borrow:
A) $18,000
B) $0
C) $50,000
D) $82,000
Ans: A AACSB: Analytic AICPA BB: Critical Thinking
AICPA FN: Reporting LO: 8 Level: Easy
Solution:
Excess cash available over disbursements = Beginning cash balance + Budgeted cash
receipts - Budgeted cash disbursements = $40,000 + $150,000 - $158,000 = $32,000
Borrowing = Desired ending cash balance − Excess cash available over disbursements
= $50,000 − $32,000 = $18,000
Use the following to answer questions 107-108:
Varughese Inc. is working on its cash budget for March. The budgeted beginning cash
balance is $33,000. Budgeted cash receipts total $182,000 and budgeted cash disbursements
total $191,000. The desired ending cash balance is $40,000.
Garrison/Noreen/Brewer, Managerial Accounting, Twelfth Edition
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Chapter 9 Profit Planning
107. The excess (deficiency) of cash available over disbursements for March will be:
A) $215,000
B) $42,000
C) $24,000
D) ($9,000)
Ans: C AACSB: Analytic AICPA BB: Critical Thinking
AICPA FN: Reporting LO: 8 Level: Easy
Solution:
Excess cash available over disbursements = Beginning cash balance + Budgeted cash
receipts − Budgeted cash disbursements = $33,000 + $182,000 − $191,000 = $24,000
108. To attain its desired ending cash balance for March, the company needs to borrow:
A) $40,000
B) $0
C) $16,000
D) $64,000
Ans: C AACSB: Analytic AICPA BB: Critical Thinking
AICPA FN: Reporting LO: 8 Level: Easy
Solution:
Excess cash available over disbursements = Beginning cash balance + Budgeted cash
receipts − Budgeted cash disbursements = $33,000 + $182,000 − $191,000 = $24,000
Borrowing = Desired ending cash balance − Excess cash available over disbursements
= $40,000 − $24,000 = $16,000
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Chapter 9 Profit Planning
Use the following to answer questions 109-113:
Carver Lumber sells lumber and general building supplies to building contractors in a
medium-sized town in Montana. Data regarding the store's operations follow:







Sales are budgeted at $350,000 for November, $320,000 for December, and $300,000 for
January.
Collections are expected to be 90% in the month of sale, 8% in the month following the
sale, and 2% uncollectible.
The cost of goods sold is 75% of sales.
The company purchases 60% of its merchandise in the month prior to the month of sale
and 40% in the month of sale. Payment for merchandise is made in the month following
the purchase.
Other monthly expenses to be paid in cash are $24,700.
Monthly depreciation is $16,000.
Ignore taxes.
Statement of Financial Position
October 31
Assets:
Cash ..................................................................................................
Accounts receivable (net of allowance for uncollectible accounts) .
Inventory ..........................................................................................
Property, plant and equipment (net of $502,000 accumulated
depreciation) .................................................................................
Total assets .......................................................................................
1,002,000
$1,255,500
Liabilities and Stockholders’ Equity:
Accounts payable .............................................................................
Common stock .................................................................................
Retained earnings .............................................................................
Total liabilities and stockholders’ equity .........................................
$ 272,000
780,000
203,500
$1,255,500
Garrison/Noreen/Brewer, Managerial Accounting, Twelfth Edition
$
19,000
77,000
157,500
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Chapter 9 Profit Planning
109. The net income for December would be:
A) $32,900
B) $42,300
C) $39,300
D) $55,300
Ans: A AACSB: Analytic AICPA BB: Critical Thinking
AICPA FN: Reporting LO: 9 Level: Hard
Solution:
Net sales [$320,000 × (100% − 2%)] ......................... $313,600
Cost of goods sold ($320,000 × 75%) ........................ 240,000
Gross margin ..............................................................
73,600
Depreciation expense .................................................
16,000
Selling and administrative expense ............................
24,700
Net income ................................................................. $ 32,900
110. The cash balance at the end of December would be:
A) $19,000
B) $156,600
C) $61,300
D) $137,600
Ans: B AACSB: Analytic AICPA BB: Critical Thinking
AICPA FN: Reporting LO: 10 Level: Hard
Solution:
November
December
October Accounts Receivable
Balance ...................................................................
$ 77,000
Collection of November Sales ....................................
$350,000 × 90% ......................................................
315,000
$350,000 × 8% ........................................................ $ 28,000
Collection of December Sales ....................................
$320,000 × 90% ......................................................
288,000
October Accounts Payable Balance ...........................
(272,000)
Payment for November Purchases .............................
($350,000 × 75%) × 40% ........................................ (105,000)
($320,000 × 75%) × 60% ........................................ (144,000)
Other cash monthly expenses .....................................
(24,700)
(24,700)
Net cash inflow(outflow) per month ..........................
$ 95,300
$ 42,300
9-62
Garrison/Noreen/Brewer, Managerial Accounting, Twelfth Edition
Chapter 9 Profit Planning
Beginning cash balance, October 31 .......................... $ 19,000
Add November net cash inflow ..................................
95,300
Add December net cash inflow ..................................
42,300
Ending cash balance, December 31 ............................ $156,600
111. The accounts receivable balance, net of uncollectible accounts, at the end of December
would be:
A) $53,600
B) $83,400
C) $25,600
D) $32,000
Ans: C AACSB: Analytic AICPA BB: Critical Thinking
AICPA FN: Reporting LO: 10 Level: Hard
Solution:
112. Accounts payable at the end of December would be:
A) $231,000
B) $96,000
C) $135,000
D) $240,000
Ans: A AACSB: Analytic AICPA BB: Critical Thinking
AICPA FN: Reporting LO: 10 Level: Hard
Solution:
Cost of
Sales Goods Sold
November ...........................................
$350,000
$262,500
December............................................
$320,000
$240,000
January................................................
$300,000
$225,000
Purchases in December = ($225,000 × 60%) + ($240,000 × 40%)
= $135,000 + $96,000 = $231,000
Garrison/Noreen/Brewer, Managerial Accounting, Twelfth Edition
9-63
Chapter 9 Profit Planning
113. Retained earnings at the end of December would be:
A) $289,600
B) $276,200
C) $236,400
D) $203,500
Ans: B AACSB: Analytic AICPA BB: Critical Thinking
AICPA FN: Reporting LO: 10 Level: Hard
Solution:
Net income calculation for November:
Net sales ($350,000 × 98%) ....................................... $343,000
Less cost of goods sold ($350,000 × 75%) ................ 262,500
Gross margin ..............................................................
80,500
Less depreciation expense ..........................................
16,000
Less selling and administrative expense ....................
24,700
Net income ................................................................. $ 39,800
Net income calculation for December:
Net sales [$320,000 × (100% − 2%)] ......................... $313,600
Less cost of goods sold ($320,000 × 75%) ................ 240,000
Gross margin ..............................................................
73,600
Less depreciation expense ..........................................
16,000
Less selling and administrative expense ....................
24,700
Net income ................................................................. $ 32,900
Retained earnings in December = Retained earnings in October + Net income in
November + Net income in December = $203,500 + $39,800 + $32,900 = $276,200
9-64
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Chapter 9 Profit Planning
Essay Questions
114. Weller Industrial Gas Corporation supplies acetylene and other compressed gases to
industry. Data regarding the store's operations follow:







Sales are budgeted at $330,000 for November, $300,000 for December, and
$320,000 for January.
Collections are expected to be 85% in the month of sale, 14% in the month
following the sale, and 1% uncollectible.
The cost of goods sold is 60% of sales.
The company purchases 80% of its merchandise in the month prior to the month of
sale and 20% in the month of sale. Payment for merchandise is made in the month
following the purchase.
Other monthly expenses to be paid in cash are $21,200.
Monthly depreciation is $21,000.
Ignore taxes.
Statement of Financial Position
October 31
Assets:
Cash .................................................................................................. $ 22,000
Accounts receivable (net of allowance for uncollectible accounts) .
83,000
Inventory ..........................................................................................
158,400
Property, plant and equipment (net of $594,000 accumulated
depreciation) ................................................................................. 1,004,000
Total assets
$1,267,400
Liabilities and Stockholders’ Equity:
Accounts payable ............................................................................. $ 196,000
Common stock ..................................................................................
620,000
Retained earnings .............................................................................
451,400
Total liabilities and stockholders’ equity ......................................... $1,267,400
Required:
a.
b.
c.
d.
e.
Prepare a Schedule of Expected Cash Collections for November and December.
Prepare a Merchandise Purchases Budget for November and December.
Prepare Cash Budgets for November and December.
Prepare Budgeted Income Statements for November and December.
Prepare a Budgeted Balance Sheet for the end of December.
Garrison/Noreen/Brewer, Managerial Accounting, Twelfth Edition
9-65
Chapter 9 Profit Planning
Ans:
a.
Sales ...........................................................
Schedule of Expected Cash Collections
Accounts receivable ...................................
November sales ..........................................
December sales ..........................................
Total cash collections ................................
b.
Cost of goods sold .....................................
$ 83,000
280,500
$363,500
$ 46,200
255,000
$301,200
November December
$198,000 $180,000
Merchandise Purchases Budget
November sales ..........................................
December sales ..........................................
January sales ..............................................
Total purchases ..........................................
$183,600
$ 36,000
153,600
$189,600
Disbursements for merchandise .................
$196,000
$183,600
c.
Cash receipts ..............................................
Cash disbursements:
Disbursements for merchandise..............
Other monthly expenses .........................
Total cash disbursements ........................
Excess (deficiency) of cash available over
disbursements .........................................
d.
Sales ...........................................................
Bad debt expense .......................................
Cost of goods sold .....................................
Gross margin ..............................................
Other monthly expenses ............................
Depreciation ...............................................
Net operating income .................................
9-66
November December
$330,000 $300,000
$ 39,600
144,000
November December
$363,500 $301,200
196,000
21,200
217,200
183,600
21,200
204,800
$146,300
$ 96,400
November December
$330,000 $300,000
3,300
3,000
198,000
180,000
128,700
117,000
21,200
21,200
21,000
21,000
$ 86,500
$ 74,800
Garrison/Noreen/Brewer, Managerial Accounting, Twelfth Edition
Chapter 9 Profit Planning
e.
Statement of Financial Position
December 31
Assets:
Cash............................................................................
Accounts receivable (net of allowance for
uncollectible accounts) ...........................................
Inventory ....................................................................
Property, plant and equipment (net of $636,000
accumulated depreciation)......................................
Total assets .................................................................
962,000
$1,422,300
Liabilities and Stockholders’ Equity:
Accounts payable .......................................................
Common stock ...........................................................
Retained earnings .......................................................
Total liabilities and stockholders’ equity ...................
$ 189,600
620,000
612,700
$1,422,300
AACSB: Analytic AICPA BB: Critical Thinking
AICPA FN: Reporting, Measurement LO: 2,3,8,9,10
$ 264,700
42,000
153,600
Level: Hard
115. At March 31 Streuling Enterprises, a merchandising firm, had an inventory of 38,000
units, and it had accounts receivable totaling $85,000. Sales, in units, have been
budgeted as follows for the next four months:
April.......................
May ........................
June........................
July ........................
60,000
75,000
90,000
81,000
Streuling's board of directors has established a policy to commence in April that the
inventory at the end of each month should contain 40% of the units required for the
following month's budgeted sales.
The selling price is $2 per unit. One-third of sales are paid for by customers in the
month of the sale, the balance is collected in the following month.
Required:
a. Prepare a merchandise purchases budget showing how many units should be
purchased for each of the months April, May, and June.
b. Prepare a schedule of expected cash collections for each of the months April, May,
and June.
Garrison/Noreen/Brewer, Managerial Accounting, Twelfth Edition
9-67
Chapter 9 Profit Planning
Ans:
a.
Budgeted sales, in units ..............
Desired ending inventory (40%) .
Total needs ..................................
Less beginning inventory............
Required purchases .....................
b.
April
60,000
30,000
90,000
38,000
52,000
May
75,000
36,000
111,000
30,000
81,000
June
July
90,000 81,000
32,400
122,400
36,000
86,400
April
May
June
Budgeted sales, at $2 per unit ..... $120,000 $150,000 $180,000
March 31 accounts receivable .... $ 85,000
April sales ...................................
40,000 $ 80,000
May sales ....................................
50,000 $100,000
June sales ....................................
60,000
Total cash collections ................. $125,000 $130,000 $160,000
AACSB: Analytic AICPA BB: Critical Thinking
AICPA FN: Reporting, Measurement LO: 2,3 Level: Medium
9-68
Garrison/Noreen/Brewer, Managerial Accounting, Twelfth Edition
Chapter 9 Profit Planning
116. Capes Corporation is a wholesaler of industrial goods. Data regarding the store's
operations follow:






Sales are budgeted at $390,000 for November, $360,000 for December, and
$340,000 for January.
Collections are expected to be 85% in the month of sale, 10% in the month
following the sale, and 5% uncollectible.
The cost of goods sold is 80% of sales.
The company purchases 40% of its merchandise in the month prior to the month of
sale and 60% in the month of sale. Payment for merchandise is made in the month
following the purchase.
The November beginning balance in the accounts receivable account is $77,000.
The November beginning balance in the accounts payable account is $320,000.
Required:
a. Prepare a Schedule of Expected Cash Collections for November and December.
b. Prepare a Merchandise Purchases Budget for November and December.
Ans:
a.
Sales ........................................................
Schedule of Expected Cash Collections
Accounts receivable ................................
November sales .......................................
December sales .......................................
Total cash collections .............................
b.
Cost of goods sold ..................................
Merchandise Purchases Budget
November sales .......................................
December sales .......................................
January sales ...........................................
Total purchases .......................................
Disbursements for merchandise ..............
November December
$390,000 $360,000
$ 77,000
331,500
$408,500
$ 39,000
306,000
$345,000
November December
$312,000 $288,000
$187,200
115,200
$302,400
$172,800
108,800
$281,600
$320,000
$302,400
AACSB: Analytic AICPA BB: Critical Thinking
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Garrison/Noreen/Brewer, Managerial Accounting, Twelfth Edition
9-69
Chapter 9 Profit Planning
117. Clay Company has projected sales and production in units for the second quarter of
the coming year as follows:
Sales.......................
Production .............
April
May
June
50,000 40,000 60,000
60,000 50,000 50,000
Cash-related production costs are budgeted at $5 per unit produced. Of these
production costs, 40% are paid in the month in which they are incurred and the
balance in the following month. Selling and administrative expenses will amount to
$100,000 per month. The accounts payable balance on March 31 totals $190,000,
which will be paid in April.
All units are sold on account for $14 each. Cash collections from sales are budgeted at
60% in the month of sale, 30% in the month following the month of sale, and the
remaining 10% in the second month following the month of sale. Accounts receivable
on April 1 totaled $500,000 $(90,000 from February's sales and the remainder from
March).
Required:
a. Prepare a schedule for each month showing budgeted cash disbursements for the
Clay Company.
b. Prepare a schedule for each month showing budgeted cash receipts for Clay
Company.
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Chapter 9 Profit Planning
Ans:
a.
April
May
June
Production units ..........................
60,000
50,000
50,000
Cash required per unit .................
× $5
× $5
× $5
Production costs .......................... $300,000 $250,000 $250,000
Cash disbursements:
Production this month (40%) ......
Production prior month (60%) ....
Selling and administrative...........
Total disbursements ....................
April
May
June
$120,000 $100,000 $100,000
190,000 180,000 150,000
100,000 100,000 100,000
$410,000 $380,000 $350,000
Payments relating to the prior month (March) in April represent the balance of
accounts payable at March 31.
b.
April
May
June
Sales units ...................................
50,000
40,000
60,000
Sales price ...................................
× $14
× $14
× $14
Total sales ................................... $700,000 $560,000 $840,000
April
May
June
Cash receipts:
February sales ............................. $ 90,000
March sales ................................. 307,500 $102,500
April sales ................................... 420,000 210,000 $ 70,000
May sales ....................................
336,000 168,000
June sales ....................................
504,000
Total receipts .............................. $817,500 $648,500 $742,000
AACSB: Analytic AICPA BB: Critical Thinking
AICPA FN: Reporting, Measurement LO: 2,4 Level: Hard
Garrison/Noreen/Brewer, Managerial Accounting, Twelfth Edition
9-71
Chapter 9 Profit Planning
118. The Doley Company has planned the following sales for the next three months:
Jan
Feb
Mar
Budgeted sales ....... $40,000 $50,000 $70,000
Sales are made 20% for cash and 80% on account. From experience, the company has
learned that a month’s sales on account are collected according to the following
pattern:
Month of sale ................................. 60%
First month following sale ............. 30%
Second month following sale ........ 8%
Uncollectible ................................. 2%
The company requires a minimum cash balance of $5,000 to start a month. The
beginning cash balance in March is budgeted to be $6,000.
Required:
a. Compute the budgeted cash receipts for March.
b. The following additional information has been provided for March:
Inventory purchases (all paid in March) .............................. $28,000
Selling and administrative expenses (all paid in March) .... $40,000
Depreciation expense for March ......................................... $5,000
Dividends paid in March ..................................................... $4,000
Prepare a cash budget in good form for the month of March, using this information
and the budgeted cash receipts you computed for part (1) above. The company can
borrow in any dollar amount and will not pay interest until April.
9-72
Garrison/Noreen/Brewer, Managerial Accounting, Twelfth Edition
Chapter 9 Profit Planning
Ans:
a. Cash sales, March: $70,000 × 20% ........
Collections on account:
Jan. sales: $40,000 × 80% × 8% .............
Feb. sales: $50,000 × 80% × 30% ..........
Mar. sales: $70,000 × 80% × 60% ..........
Total cash receipts ..................................
$14,000
b. Cash balance, beginning .........................
Add cash receipts from sales ..................
Total cash available ................................
$ 6,000
62,160
68,160
Less disbursements:
Inventory purchases ................................
Selling and administrative expenses .......
Dividends ................................................
Total disbursements ................................
Cash excess (deficiency).........................
Financing–borrowing ..............................
Cash balance, ending ..............................
28,000
40,000
4,000
72,000
(3,840)
8,840
$ 5,000
2,560
12,000
33,600
$62,160
AACSB: Analytic AICPA BB: Critical Thinking
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Garrison/Noreen/Brewer, Managerial Accounting, Twelfth Edition
9-73
Chapter 9 Profit Planning
119. A sales budget is given below for one of the products manufactured by the Key Co.:
January...................
February.................
March.....................
April.......................
May ........................
June........................
21,000 units
36,000 units
61,000 units
41,000 units
31,000 units
25,000 units
The inventory of finished goods at the end of each month should equal 20% of the
next month's sales. However, on December 31 the finished goods inventory totaled
only 4,000 units.
Each unit of product requires three specialized electrical switches. Since the
production of these specialized switches by Key's suppliers is sometimes irregular, the
company has a policy of maintaining an ending inventory at the end of each month
equal to 30% of the next month's production needs. This requirement had been met on
January 1 of the current year.
Required:
Prepare a budget showing the quantity of switches to be purchased each month for
January, February, and March and in total for the quarter.
Ans:
Budgeted sales (units) ...................
Add: Desired ending inventory .....
Total needs ....................................
Deduct: Beginning inventory ........
Units to be produced .....................
January February
21,000
36,000
7,200
12,200
28,200
48,200
4,000
7,200
24,200
41,000
March
61,000
8,200
69,200
12,200
57,000
April
41,000
6,200
47,200
8,200
39,000
Units to be produced
Switches per unit
Production needs
Add: Desired ending inventory
Total needs
Deduct: Beginning inventory
Required purchases
January February
March Quarter
24,200
41,000 57,000 122,200
×3
×3
×3
×3
72,600 123,000 171,000 366,600
36,900
51,300 35,100 35,100
109,500 174,300 206,100 401,700
21,780
36,900 51,300 21,780
87,720 137,400 154,800 379,920
Beginning inventory, January 1: 72,600 × 0.3 = 21,780
Ending inventory, March 31: (39,000 × 3) × 0.3 = 35,100
AACSB: Analytic AICPA BB: Critical Thinking
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9-74
Garrison/Noreen/Brewer, Managerial Accounting, Twelfth Edition
Chapter 9 Profit Planning
120. One quarter gram of a rare seasoning is required for each bottle of Dipping Oil, a very
popular product sold through gourmet shops that is produced by The Lucas Company.
The cost of the seasoning is $16 per gram. Budgeted production of Dipping Oil is
given below for the second quarter, and the first month of the third quarter.
April May
June
July
Required production bottles .......... 5,000 8,000 15,000 10,000
The seasoning is so difficult to get that the company must have on hand at the end of
each month 20% of the next month's production needs. A total of 250 grams will be on
hand at the beginning of April.
Required:
Prepare a direct materials budget for the seasoning, by month and in total for the
second quarter. Be sure to include both the quantity to be purchased and its cost for
each month.
Ans:
Lucas Company
Direct Materials Budget for the Second Quarter
April
May
June
Total
Required production (bottles)............
5,000
8,000 15,000
28,000
Seasoning required per bottle
(grams) ...........................................
×0.25
×0.25 ×0.25
×0.25
Production needs (grams) ..................
1,250
2,000 3,750
7,000
Add desired ending inventory of
seasoning........................................
400
750
500
500
Total needs ........................................
1,650
2,750 4,250
7,500
Less beginning inventory of
seasoning........................................
250
400
750
250
Seasoning to be purchased (grams) ...
1,400
2,350 3,500
7,250
Cost of seasoning per gram ...............
× $16
× $16 × $16
× $16
Cost of seasoning to be purchased .... $22,400 $37,600 $56,00 $116,000
AACSB: Analytic AICPA BB: Critical Thinking
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Garrison/Noreen/Brewer, Managerial Accounting, Twelfth Edition
9-75
Chapter 9 Profit Planning
121. Whitmer Corporation is working on its direct labor budget for the next two months.
Each unit of output requires 0.05 direct labor-hours. The direct labor rate is $11.80 per
direct labor-hour. The production budget calls for producing 7,100 units in February
and 6,800 units in March.
Required:
Construct the direct labor budget for the next two months, assuming that the direct
labor work force is fully adjusted to the total direct labor-hours needed each month.
Ans:
Required production in units .........
Direct labor-hours per unit ............
Total direct labor-hours needed .....
Direct labor cost per hour ..............
Total direct labor cost ....................
February March
7,100 6,800
0.05
0.05
355
340
$11.80 $11.80
$4,189 $4,012
AACSB: Analytic AICPA BB: Critical Thinking
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122. Sthilaire Corporation is working on its direct labor budget for the next two months.
Each unit of output requires 0.34 direct labor-hours. The direct labor rate is $11.10 per
direct labor-hour. The production budget calls for producing 8,000 units in April and
8,300 units in May. The company guarantees its direct labor workers a 40-hour paid
work week. With the number of workers currently employed, that means that the
company is committed to paying its direct labor work force for at least 2,840 hours in
total each month even if there is not enough work to keep them busy.
Required:
Construct the direct labor budget for the next two months.
Ans:
April
May
Required production in units .........
8,000
8,300
Direct labor-hours per unit ............
0.34
0.34
Total direct labor-hours needed .....
2,720
2,822
Total direct labor-hours paid .........
2,840
2,840
Direct labor cost per hour .............. $11.10 $11.10
Total direct labor cost .................... $31,524 $31,524
AACSB: Analytic AICPA BB: Critical Thinking
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9-76
Garrison/Noreen/Brewer, Managerial Accounting, Twelfth Edition
Chapter 9 Profit Planning
123. Brockney Inc. bases its manufacturing overhead budget on budgeted direct laborhours. The variable overhead rate is $8.60 per direct labor-hour. The company's
budgeted fixed manufacturing overhead is $107,970 per month, which includes
depreciation of $9,760. All other fixed manufacturing overhead costs represent current
cash flows. The July direct labor budget indicates that 6,100 direct labor-hours will be
required in that month.
Required:
a. Determine the cash disbursement for manufacturing overhead for July.
b. Determine the predetermined overhead rate for July.
Ans:
a.
b.
Budgeted direct labor-hours ...........................................
Variable overhead rate ....................................................
Variable manufacturing overhead ..................................
Fixed manufacturing overhead .......................................
Total manufacturing overhead ........................................
Less depreciation ............................................................
Cash disbursement for manufacturing overhead ............
July
6,100
$8.60
$ 52,460
107,970
160,430
9,760
$150,670
Total manufacturing overhead (a) ..................................
Budgeted direct labor-hours (b)......................................
Predetermined overhead rate for the month (a)/(b) ........
$160,430
6,100
$26.30
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Garrison/Noreen/Brewer, Managerial Accounting, Twelfth Edition
9-77
Chapter 9 Profit Planning
124. The manufacturing overhead budget of Reigle Corporation is based on budgeted direct
labor-hours. The February direct labor budget indicates that 5,800 direct labor-hours
will be required in that month. The variable overhead rate is $4.60 per direct laborhour. The company's budgeted fixed manufacturing overhead is $82,360 per month,
which includes depreciation of $16,820. All other fixed manufacturing overhead costs
represent current cash flows.
Required:
a. Determine the cash disbursement for manufacturing overhead for February. Show
your work!
b. Determine the predetermined overhead rate for February. Show your work!
Ans:
a.
Budgeted direct labor-hours ...........................................
Variable overhead rate ....................................................
Variable manufacturing overhead...................................
Fixed manufacturing overhead .......................................
Total manufacturing overhead ........................................
Less depreciation ............................................................
Cash disbursement for manufacturing overhead ............
February
5,800
$4.60
$ 26,680
82,360
109,040
16,820
$ 92,220
b. Total manufacturing overhead (a) ..................................
Budgeted direct labor-hours (b) ......................................
Predetermined overhead rate for the month (a)/(b) ........
$109,040
5,800
$18.80
AACSB: Analytic AICPA BB: Critical Thinking
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9-78
Garrison/Noreen/Brewer, Managerial Accounting, Twelfth Edition
Chapter 9 Profit Planning
125. Wala Inc. bases its selling and administrative expense budget on the number of units
sold. The variable selling and administrative expense is $8.20 per unit. The budgeted
fixed selling and administrative expense is $132,800 per month, which includes
depreciation of $14,400. The remainder of the fixed selling and administrative expense
represents current cash flows. The sales budget shows 8,000 units are planned to be
sold in July.
Required:
Prepare the selling and administrative expense budget for July.
Ans:
July
Budgeted unit sales ....................................................................
8,000
Variable selling and administrative expense per unit................
$8.20
Budgeted variable expense ........................................................ $ 65,600
Budgeted fixed selling and administrative expense .................. 132,800
Total budgeted selling and administrative expense................... 198,400
Less depreciation .......................................................................
14,400
Cash disbursements for selling and administrative expenses .... $184,000
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Garrison/Noreen/Brewer, Managerial Accounting, Twelfth Edition
9-79
Chapter 9 Profit Planning
126. The selling and administrative expense budget of Garney Corporation is based on the
number of units sold, which are budgeted to be 1,800 units in October. The variable
selling and administrative expense is $2.00 per unit. The budgeted fixed selling and
administrative expense is $22,680 per month, which includes depreciation of $7,020.
The remainder of the fixed selling and administrative expense represents current cash
flows.
Required:
Prepare the selling and administrative expense budget for October.
Ans:
Budgeted unit sales .....................................................................
Variable selling and administrative expense per unit.................
Budgeted variable expense .........................................................
Budgeted fixed selling and administrative expense ...................
Total budgeted selling and administrative expense....................
Less depreciation ........................................................................
Cash disbursements for selling and administrative expenses .....
October
1,800
$2.00
$ 3,600
22,680
26,280
7,020
$19,260
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9-80
Garrison/Noreen/Brewer, Managerial Accounting, Twelfth Edition
Chapter 9 Profit Planning
127. Romeiro Corporation is preparing its cash budget for September. The budgeted
beginning cash balance is $46,000. Budgeted cash receipts total $160,000 and
budgeted cash disbursements total $152,000. The desired ending cash balance is
$70,000. The company can borrow up to $120,000 at any time from a local bank, with
interest not due until the following month.
Required:
Prepare the company's cash budget for September in good form.
Ans:
Cash balance, beginning ...........................................................
Add cash receipts .....................................................................
Total cash available ..................................................................
Less cash disbursements...........................................................
Excess (deficiency) of cash available over disbursements .......
Borrowings ...............................................................................
Cash balance, ending ................................................................
$ 46,000
160,000
206,000
152,000
54,000
16,000
$ 70,000
AACSB: Analytic AICPA BB: Critical Thinking
AICPA FN: Reporting, Measurement LO: 8 Level: Easy
Garrison/Noreen/Brewer, Managerial Accounting, Twelfth Edition
9-81
Chapter 9 Profit Planning
128. Zolezzi Inc. is preparing its cash budget for March. The budgeted beginning cash
balance is $42,000. Budgeted cash receipts total $178,000 and budgeted cash
disbursements total $175,000. The desired ending cash balance is $50,000. The
company can borrow up to $160,000 at any time from a local bank, with interest not
due until the following month.
Required:
Prepare the company's cash budget for March in good form. Make sure to indicate
what borrowing, if any, would be needed to attain the desired ending cash balance.
Ans:
Cash balance, beginning .........................................................
Add cash receipts ...................................................................
Total cash available ................................................................
Less cash disbursements.........................................................
Excess (deficiency) of cash available over disbursements .....
Borrowings .............................................................................
Cash balance, ending ..............................................................
$ 42,000
178,000
220,000
175,000
45,000
5,000
$ 50,000
AACSB: Analytic AICPA BB: Critical Thinking
AICPA FN: Reporting, Measurement LO: 8 Level: Easy
9-82
Garrison/Noreen/Brewer, Managerial Accounting, Twelfth Edition