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Exam 22: Master Budgets

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Question 61

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The cash budget of a manufacturer is comprised of three sections: cash receipts, cash payments and long-term financing.

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Question 62

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Jaborosa, Inc., a merchandising company, has provided the following budgeted amounts for the next budget period. $\begin{array} { | l | r | } \hline \text { Beginning cash balance } & \$ 30,200 \\\hline \text { Cash collections } & 682,000 \\\hline \text { Payments for: } & \\\hline \text { Purchases of merchandise inventory } &350,000 \\\hline \text { Selling and administrative expenses } &70,200\\\hline \text { Capital expenditures } & 88,500 \\\hline\end{array}$ A minimum cash balance of $250,000 is required to be maintained. The company can borrow in increments of $10,000 as and when required. Assume the company can borrow the needed funds at the end of the period. Calculate the ending cash balance for the budget period.

A) $712,200
B) $253,500
C) $203,500
D) $732,000

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Question 63

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All organizations use one standardized budgeting process.

The production budget determines the number of units to be produced during the period.

The manufacturing overhead budget calculates the budgeted overhead cost for the year, but not the predetermined overhead allocation rate for the year.

Budgeting software is often designed as a component of the company's Enterprise Resource Planning (ERP) system.

Burchfield, Inc. has prepared its third quarter budget and provided the following data: $\begin{array} { | l | r | r | r | } \hline & { \text { Jul } } & { \text { Aug } } & { \text { Sep } } \\\hline \text { Cash collections } & \$ 49,000 & \$ 39,900 & \$ 47,700 \\\hline \text { Cash payments: } & & & \\\hline \text { Purchases of direct materials } & 30,000 & 21,300 & 17,400 \\\hline \text { Operating expenses } & 12,100 & 8800 & 11,100 \\\hline \text { Capital expenditures } & 13,100 & 24,700 & 0 \\\hline\end{array}$ The cash balance on June 30 is projected to be $4000. The company has to maintain a minimum cash balance of $5,000 and is authorized to borrow at the end of each month to make up any shortfalls. It may borrow in increments of $5,000 and has to pay interest every month at an annual rate of 4%. All financing transactions are assumed to take place at the end of the month. The loan balance should be repaid in increments of $5,000 whenever there is surplus cash. Calculate the amount of principal repayment at the end of September.

To develop the cost of goods sold budget, it is necessary to start by calculating the projected cost to produce each unit.

For manufacturing companies, the primary source of cash is from its customers.

Hutchinson, Inc. provides the following data taken from its third quarter budget: $\begin{array} { | l | r | r | r | } \hline &{ \text { Jul } } & { \text { Aug } } & { \text { Sep } } \\\hline \text { Cash collections } & \$ 66,000 & \$ 38,000 & \$ 45,000 \\\hline \text { Cash payments: } & & & \\\hline \text { Purchases of direct materials } & 37,000 & 31,000 & 50,000 \\\hline \text { Operating expenses } & 10,000 & 19,000 & 20,000 \\\hline \text { Capital expenditures } & 0 & 35,000 & 6000 \\\hline\end{array}$ The cash balance on June 30 is projected to be $15,000. Based on the above data, calculate the shortfall the company is projected to have at the end of August.

The budget process is a loop that consists of ________.

Fedor, Inc. has prepared the following direct materials purchases budget: $\begin{array} { | l | r | } \hline \text { Month } & { \begin{array} { c } \text { Budgeted DM } \\\text { Purchases }\end{array} } \\\hline \text { June } & \$ 68,000 \\\hline \text { July } & 79,500 \\\hline \text { August } & 78,700 \\\hline \text { September } & 77,800 \\\hline \text { October } & 70,200 \\\hline\end{array}$ All purchases are paid for as follows: 10% in the month of purchase, 40% in the following month, and 50% two months after purchase. Calculate total budgeted cash payments made in October for purchases.

Which of the following is an example of the benchmarking function of the budgeting process?

Nyree Company is preparing its budget for the third quarter. The cash balance on June 30 was $32,000. Additional budgeted data are provided here: $\begin{array} { | l | r | r | r | } \hline & { \text { July } } & { \text { Aug } } & { \text { Sep } } \\\hline \text { Cash collections } & \$ 53,000 & \$ 51,000 & \$ 56,000 \\\hline \text { Cash payments } & & & \\\hline \text { Purchases of direct materials } & 20,000 & 20,000 & 20,000 \\\hline \text { Operating expenses } & 32,000 & 20,000 & 23,000 \\\hline \text { Capital expenditures } & 16,000 & 7000 & 9000 \\\hline\end{array}$ What amount should be shown in the cash budget for the cash balance at the end of July?

Which of the following statements is true of the budgeting process?

When a manufacturing company prepares the budgeted balance sheet, the balance of the Accounts Payable account is taken from the cash budget.

The financial budgets include the cash budget and the budgeted financial statements-the budgeted income statement and budgeted balance sheet.

The forecast of sales revenue is the cornerstone of the master budget.

Budgets provide a benchmark that motivates employees and helps managers evaluate performance.

The inventory, purchases, and cost of goods sold budget determines cost of goods sold for the budgeted income statement, and ending Merchandise Inventory for the budgeted balance sheet.