Questions: budget preparation

1 Which of the following statements about budgets is false?

A A continuous budget is feasible only for sales projections

B The direct labour budget is specifically dependent on the production budget
C The budgeting process normally begins with preparation of a sales budget
D The cash budget is an element of a master budget

2 Ratty has budgeted next month’s sales at 2500 units.

Opening and closing inventories are as follows:
Opening Closing
(actual) (budgeted)
Finished goods (units) 2000 2500
Raw materials (kilos) 400 1400
Work in progress 0 0

Each item of finished goods requires:

2 kilos of direct material at 3 $ a kilo
1 hour of direct labour at 11 $ per hour

Factory overhead is applied at 7 $ per direct labour hour.

What is the expected production cost for next month?

3 Hiccup expects the following sales volumes for the first quarter of next year:

January 5000 units

February 4000 units
March 8000 units

Finished goods inventory on 1 January is expected to be 1000 units.

However, the company’s policy for next year will be to maintain
finished goods inventory level at 80 % of the following month’s sales.

How many units should be budgeted for production in January?

units.
4 Bling has estimated the following for the next budget period:
$000
Sales 5000
Fixed manufacturing costs 2000

Bling’s variable manufacturing costs are budgeted to be 40 % of sales revenue.

Inventory levels are expected to remain constant.
What is the budgeted cost of goods sold?

$
5 A manufacturing company always carries finished goods inventory equal to 20
% of the next month’s budgeted sales.
Sales for the current month are 2000 units and are budgeted to be
20 % higher next month.

How many units will be produced in the current month?

units.

6 A government funded hospital offers free treatment to patients.

Which of the following is the most likely principal budget factor?

A Demand
B Labour hours
C Materials
D Cash

7 What would be the usual order of budget preparation for a manufacturing company,
whose principal budget factor is sales demand?

A Production budget, sales budget, purchases budget

B Production budget, purchases budget, sales budget
C Sales budget, purchases budget, production budget
D Sales budget, production budget, purchases budget

8 A retailer forecasts the following data for the coming period:

$
Sales 500 000
Opening inventory 40 000
Closing inventory 50 000
%
Mark-up 25
What amount should be budgeted for purchases?

$ (Materials purchases ($))

9 A retailer forecasts that sales in the first month of the year will be 600 000 $
and will then grow a 4 % per month for the next three months.
It prices its products by adding a mark-up of 20 % to its purchase cost.
The retailer always carries sufficient inventory to cover the next month’s forecast sales.

What is the forecast inventory (to the nearest dollar) at the end of the 2
month of the year?

$
10 A company manufactures two products, X and Y, from the same direct material. An equal
number of each product will be produced this period.
Information regarding costs:
Product X Y
Materials required
Material kg 2 3

The company always holds closing inventory of raw material sufficient for 40
% of the next period’s production.
The budgeted closing raw material inventory for the previous period is 900
kgs.

What is the budgeted production of X for the current period?

units.

11 Which of the following is a master budget?

A Labour budget
B Material purchases budget
C Budgeted statement of profit or loss
D Production budget

12 OC had December sales of 30 000 $.

Anticipated sales during January are 40 000 $, and
February sales are projected at 37 500 $.
40 % of sales are for cash, the remainder on credit terms.
For credit sales OC expects to collect 50 % in the month of sale and
45 % in the following month.
5 % of accounts receivable are expected to be uncollectible.

How much cash is expected to be received in February?

13 BD is preparing a cash budget. An extract from its sales budget shows the following sales:
$
March 60 000
April 70 000
May 55 000
June 65 000

40 % of its sales are expected to be for cash. Of its credit sales,

70 % are expected to pay in the month after sale and take a
2 % discount;
27 % are expected to pay in the following month,
and the remainder are presumed to be irrecoverable.

What amount should be included for receipts from sales in the cash budget for May?

$
14 The following details have been extracted from the trade receivables records of CL:
%
Invoices paid in 30 days 50
Invoices paid in 60 days 30
Invoices paid in 90 days 15
Irrecoverable debts 5

Invoices are issued on the last day of each month. Customers paying in 30 days are entitled to
to deduct a 3% settlement discount. Credit sales for July to October are budgeted as follows:
$
July 80 000
August 60 000
September 100 000
October 70 000
How much should be included in the cash budget in October for receipts from trade
receivables?
$

15 Which of the following items would be included in a cash budget?

(1) Depreciation
(2) Allowances for irrecoverable debts
(3) Profit on the sale of equipment
A 1 only
B 2 only
C 3 only
D None of them

16 Which of the following would be included in the cash budget?

(1) Repayment of loan notes
(2) The trade-in value of a car sold in an exchange for a new model
(3) Write-off of an irrecoverable debt
A 1 only
B 2 only
C 1 and 2 only
D 3 only

17 A company manufactures and sells one product which requires 5 kg of raw material in its
manufacture. The budgeted data relating to the next period are as follows:
Units
Sales 21 000
Opening inventory of finished goods 3 500
Closing inventory of finished goods 5 000
Kg
Opening inventory of raw materials 50 000
Closing inventory of raw materials 46 000
What is the quantity of budgeted raw material purchases for next period?
kg
18 A company manufactures a single product. Budgeted production (in units) for the first three
months (M1, M2 and M3) of next year is as follows:
$
M1 4 000
M2 5 000
M3 3 500

Each unit of production uses 3 kg of raw material costing

4 $ per kg.
The budgeted raw material inventory at the end of each month is to be
10 % of the following month’s production.
What are the budgeted raw material purchases for month M2 next year?

EXCEL
19 A company manufactures a single product. In a computer spreadsheet the cells F1 to F12
contain the budgeted monthly sales units for the twelve months of next year in sequence with
January sales in cell F1 and finishing with December sales in F12. The company policy is for
the closing inventory of finished goods each month to be 10% of the budgeted sales units for
the following month.
Which of the following formula will generate the budgeted production (in units) for
March next year?
A [F3 + (0.1*F4)]
B [F3 – (0.1*F4)]
C [(1.1*F3) – (0.1*F4)]
D [(0.9*F3) + (0.1*F4)]
20 An accountant wishes to use the following spreadsheet to calculate budgeted production units:

Which formula should be entered in cell B5?

A A = B3 – C4 + B4
B B = B3 – B4
C C = B3 + C4
D D = B3 + C4 – B4