Test Bank For Introduction To Accounting An Integrated Approach 6th Edition Ainsworth

Test Bank for Introduction to Accounting An Integrated Approach, 6th edition: Ainsworth
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Chapter 6: Planning, the Balanced Scorecard, and Budgeting
Chapter 6
Planning, the Balanced Scorecard, and Budgeting
MATCHING
1. Match the following terms with the descriptions below.
A. Administrative budget
B. Direct labor and manufacturing overhead budget
C. Direct materials purchases budget
D. Marketing and distribution budget
E. Master budget
F. Production budget
G. Sales budget
_____ 1. This budget plans for the firm's advertising and shipping expenditures.
_____ 2. A budget that shows the expected sales for the period in both physical and
financial amounts.
_____ 3. A budget contains the cost of the accounting and financing functions of the
firm.
_____ 4. A budget that reflects the expected cost of the conversion process.
_____ 5. A budget that reflects the expected cost of the materials used in the production
of the product.
_____ 6. The compilation of all the budgets prepared in planning the revenue,
expenditure, and conversion process.
_____ 7. A budget that plans the company's desired ending inventory and units to be
produced in the coming time period.
Answer: 1.D; 2.G; 3.A; 4.B; 5.C; 6.E; 7.F
2. Match the following terms with the descriptions below.
A. Budgetary Slack
B. Budgeting
C. Ideal Standard
D. Incremental budgeting
E. Mandated budgeting
F. Normal standard
G. Participatory budgeting
H. Zero-based budgeting
98 Ainsworth/Deines, Introduction to Accounting: An Integrated Approach, 6/e

_____ 1. The process of expressing the company's goals and objective in quantitative
terms.
_____ 2. A standard that can be achieved only if operating conditions are almost perfect.
_____ 3. A difference between reported budget numbers and realistic budget numbers
_____ 4. A budgeting strategy in which the company considers each budget period a
fresh start.
_____ 5. A standard that can be achieved under practical operating conditions.
_____ 6. A budget set by upper-level management; a top down approach.
_____ 7. Individual who are affected by the budget get input into the process; a bottom
-up approach.
_____ 8. Budgeting using last year's budget as a starting point for this year's budget.
Answer: 1.B; 2.C; 3.A; 4. H; 5.F; 6.E; 7.G; 8.D
3. Match the following processes with the budgets or schedules listed below.
A. Revenue process planning

B. Conversion process planning
C. Expenditure process planning
_____ 1. Production Budget

_____ 2. Sales Budget
_____ 3. Cash Disbursements Schedule
_____ 4. Marketing and Distribution Budget
_____ 5. Accounts Receivable Schedule
_____ 6. Direct Labor and Overhead Budget
_____ 7. Direct Materials Purchases Budget
_____ 8. Cash Receipts Budget
_____ 9. Accounts Payable Schedule
_____ 10. Administrative Budget
Answer: 1.B; 2.A; 3.C; 4.A; 5.A; 6.C; 7.C; 8.A; 9.C; 10.C
Ainsworth/Deines, Introduction to Accounting: An Integrated Approach, 6/e 99

4. Match the following budgets with the activities listed below.
A. Sales Budget
B. Production Budget
C. Marketing and Distribution Budget
D. Direct Labor and Overhead Budget
E. Cash Receipts Budget
F. Administrative Budget
G. Direct Materials Purchase Budget
_____ 1. Based information from sales budget

_____ 2. Plans salaries of accounting department
_____ 3. Plans cost to convert material into finished product
_____ 4. Depends on consumer demand for product
_____ 5. Must consider customers who do not pay their bill
_____ 6. Plans advertising cost for a specified time period
_____ 7. Budget must consider credit terms of suppliers
_____ 8. Accounts receivable schedule is based on this budget
MULTIPLE CHOICE
5. A plan for the future expressed in quantitative terms is called a:

A) cycle
B) budget
C) commentary
D) mathematical model
Answer: B Difficulty: Easy
6. Which of the following does not affect the cost of preparing a budget?
A) Time and resource requirement
B) The budgeting activities of competitors
C) Adaptability of departments
D) Motivation and behavior of individuals
Answer: B Difficulty: Medium

7. Budgetary slack is created when:

A) When the difference between actual and budgeted amounts are accidental
B) When the difference between actual and budgeted amounts are based on unforeseen
events.
C) When the difference between actual and budgeted amounts are the result of
deliberately introduced bias in the budgetary process.
D) When the difference between actual and budgeted amounts are the result of
management's inability to be clairvoyant.
Answer: C Difficulty: Medium
8. The balanced scorecard approach is successful in reducing budgetary slack because:

A) It uses several different measures to assess how successful a department performed.
B) It uses actual results rather than estimated budgeted figures to measure performance.
C) It uses only those measures that balance the budgeted figures with the actual figures.
D) It uses those measures that make the assets balance with the liabilities and owners'
equity.
Answer: A Difficulty: Hard
9. The strategy whereby a company uses the current period's budget as a starting point in
preparing next period's budget is referred to as:
A) mandated budgeting
B) zero-based budgeting
C) incremental budgeting
D) participative budgeting
Answer: C Difficulty: Easy
10. Ideal standards used in the budgeting process -

A) Do not factor in operating inefficiencies in the budgeting process
B) Allows for small deviations from perfection
C) Is based on ideal working conditions but will permit some slack in operations
D) Requires that deviations between actual and budgeted results be minimized.
Answer: A Difficulty: Easy
11. A budgeting system that allows individuals who are affected by the budget to have input
into the budgeting process is called:
A) mandated budgeting
B) zero-based budgeting
C) incremental budgeting
D) participative budgeting
Answer: D Difficulty: Easy

12. A budget based on prior year's budget as a starting point is a:

A) Zero-based budget
B) Prior year budget
C) Incremental budget
D) Mandatory budget
13. An advantage of a participatory budget is:

A) Management can disregard their employee's input if necessary.
B) Employees get a percentage of the budgetary slack introduced into the budget.
C) Participatory budgets are typically more accurate than other types of budgets.
D) Employees provide a wealth of information to management and are motivated by the
process.
Answer: D Difficulty: Medium
14. The question of how many units of product to manufacture would be considered when
preparing the:
A) master budget
B) project budget
C) strategic budget
D) operating budget
15. The final step in a master budget is the preparation of the:

A) cash budget
B) sales budget
C) pro forma financial statements
D) selling and administrative costs budget
16. Conversion cycle planning consists of all the following except:

A) scheduling labor
B) scheduling production
C) purchasing merchandise
D) planning manufacturing overhead
17. Conversion cycle planning consists of all the following except:

A) scheduling labor
B) scheduling production
C) planning manufacturing overhead
D) All of the above are part of the conversion cycle planning process

18. Which of the following is not part of revenue process planning?

A) Sales budget
B) Cash receipts budget
C) Production budget
D) Marketing and Distribution Budget
19. Which of the following is not part of expenditure process planning?

A) Direct labor and overhead budget
B) Direct materials purchases budget
C) Cash disbursements schedule
D) Production budget
20. Which of the following is part of the revenue planning process?

A) Cash receipts budget
B) Direct materials purchasing budget
C) Production budget
D) Cash disbursement budget
21. Which of the following is part of conversion process planning?

A) Production budget
B) Cash receipts schedule
C) Direct materials purchase budget
D) Direct labor and overhead budget
22. The sales budget and the desired level of ending finished goods inventory are primary
inputs into the preparation of the:
A) cash budget
B) production budget
C) manufacturing overhead budget
D) selling and administrative costs budget
Answer: B Difficulty: Easy
23. Which of the following drives all other operating budgets?

A) Marketing and distribution budget
B) Production budget
C) Sales budget
D) Purchases budget

24. The desired ending finished goods inventory would most likely be shown on the:
A) cash budget
B) sales budget
C) production budget
D) direct materials purchases budget
25. Indirect labor would most likely be shown on the:

A) sales budget
B) direct labor budget
C) production budget
D) manufacturing overhead budget
26. Sales commissions would most likely be shown in the:

A) sales budget
B) direct labor budget
C) manufacturing overhead budget
D) Marketing and distribution budget
27. Weasel Corporation's sales for January, 2010, were $1,350,000. Weasel projects a 10%
increase in sales every month through December. The sales for March, 2010, are
estimated at:
A) $1,633,500
B) $1,796,850
C) $1,620,000
D) $1,755,000
Answer: A Difficulty: Medium
28. Klocke Corporation's sales for January, 2010, were $1,350,000. Klocke projects a 10%
increase in monthly sales every 6 months. The sales for December, 2010, are estimated
at:
A) $1,633,500
B) $1,485,000
C) $1,620,000
D) $1,796,850

29. Bergstrom Industries sold 460,000 trash barrels at $12 each during the first quarter of
2010. Unit sales are projected to increase 5% each quarter while the selling price will be
reduced by $.50 each quarter. The estimated sales revenue for the fourth quarter of 2010
is:
A) $5,520,000
B) $5,554,500
C) $5,591,334
D) $5,819,000
30. Lichti Industries sold 50,000 ice chests at $20 each during April of 2010. Unit sales are
projected to increase 10% in May and June while the selling price will be increased by
$1.00 for May and another $1 in June. The estimated sales revenue for June of 2010 is:
A) $1,331,000
B) $1,210,000
C) $1,270,500
D) $1,155,000
31. Lyle Industries sold 80,000 ice chests at $30 each during April of 2010. Unit sales are
projected to increase 5% in May and June while the selling price will be increased by
$2.00 for May and another $1 in June. The estimated sales revenue for June of 2010 is:
A) $2,772,000
B) $2,910,600
C) $2,822,400
D) $2,640,000
32. Clyde, Inc. sells two products, X and Y. Clyde sells twice as much X as Y, and projects
the sale of 57,000 units of X during the coming year. Product Y sells for three times as
much as product X, which sells for $2.75 per unit. The estimated sales revenue for Clyde
for the coming year is:
A) $182,970
B) $340,005
C) $391,875
D) $548,625
Answer: C Difficulty: Hard
33. Roo Corporation budgeted sales of its product during the next fiscal year at 255,000
units, with a selling price of $30 each. Sales commissions run 5% of sales and other
variable selling and administrative costs are 10% of sales. Fixed selling and
administrative costs are estimated at $950,000. The budgeted selling and administrative
costs for the next fiscal year are:
A) $2,097,500

B) $1,147,500
C) $3,000,000
D) $1,064,750
34. Farmer Corporation budgeted sales of its product during the next fiscal year at 225,000
units, with a selling price of $17.50 per unit. Sales commissions are 6% of sales and other
A) $ 477,250
B) $1,020,625
C) $1,192,375
D) $1,256,875
35. Xenon Corporation budgeted sales of its product during the next fiscal year at 200,000
units, with a selling price of $20 per unit. Sales commissions are 6% of sales and other
A) $ 840,000
B) $1,230,000
C) $860,000
D) $1,470,000
36. Gove Company has an accounts receivable balance of $357,000 at the beginning of the
year. Credit sales for the year are projected at $975,000. Management estimates that 95%
of the beginning accounts receivable plus 75% of the credit sales will be collected during
the period. What is the projected balance of the ending accounts receivable?
A) $1,332,000
B) $261,600
C) $1,070,400
D) $243,750
Answer: B Difficulty: Hard
37. The Piante Company has an accounts receivable balance of $256,000 at the beginning of
the year. Credit sales for the year are projected at $923,000. Management estimates that
98% of the beginning accounts receivable plus 82% of the credit sales will be collected
during the period. The projected balance of accounts receivable at year-end equal to:
A) $161,020

B) $166,140
C) $171,260
D) $256,000
Use the following to answer questions 38-40:
Minuteman Company's sales were budgeted for the first six months of its fiscal year as follows:
April $340,000 July $390,000

May 420,000 August 360,000
June 550,000 September 480,000
All sales are on credit and management estimates that 55% will be collected in the month
following the sale, with the remaining 45% collected the second month following the sale.
38. Cash collections during June are estimated at:

A) $376,000
B) $384,000
C) $491,500
D) $550,000
39. Cash collections during August are estimated at:

A) $360,000
B) $373,500
C) $462,000
D) $517,000
40. What is the balance in Accounts Receivable at the beginning of June before June sales
are recorded?
A) $189,000
B) $420,000
C) $573,000
D) $231,000
Ness Company's sales were budgeted for the first six months of its fiscal year as follows:
January $470,000 April $530,000

February 420,000 May 660,000
March 550,000 June 480,000

Sales are 40% cash and 60% credit. Management estimates that two-thirds of credit sales will be
collected in the month of sale with the balance collected the following month.
41. Cash collections during March are estimated at:

A) $608,000
B) $524,260
C) $550,000
D) $692,000
42 Cash collections during May are estimated at:

A) $528,000
B) $660,000
C) $740,000
D) $634,260
Answer: D Difficulty: Hard
Redcoat Company's unit sales were budgeted for the first six months of its fiscal year as follows:
January 250,000 April 315,000

February 295,000 May 280,000
March 330,000 June 345,000
Management wants to maintain an ending inventory equal to 15% of the next month's sales.
43. The unit production requirements for February are:

A) 245,500
B) 295,000
C) 300,250
D) 344,500
44. The unit production requirements for May are:

A) 280,000
B) 289,750
C) 331,750
D) 373,750

Trego Company's unit sales were budgeted for the first six months of its fiscal year as follows:
March 255,000 June 250,000

April 290,000 July 225,000
May 295,000 August 250,000
Management wants to maintain an ending inventory equal to 8% of the next month's sales.
45. The production requirements for May are:

A) 295,000
B) 315,000
C) 271,800
D) 291,400
46. The production requirements for June are:

A) 248,000
B) 225,000
C) 223,000
D) 205,000
Waterford Enterprises' unit production was budgeted for the first six months of its fiscal year as
follows:
March 32,000 June 34,500

April 37,500 July 45,500
May 41,000 August 40,000
Each unit of product requires 15 pounds of raw material and management wants to maintain an
ending inventory of raw material equal to 12% of the next month's production requirements.
47. The direct materials purchases budget for May is:

A) 603,300
B) 615,000
C) 677,100
D) 750,900

48. The direct materials purchases budget for June is:

A) 517,500
B) 537,300
C) 599,400
D) 661,500
Hepburn Corporation's sales price is $30 per unit. Unit sales information is presented below:
March (Actual) April (Estimated) May (Estimated)

Cash sales 10,000 12,000 13,000
Credit sales 30,000 40,000 45,000
Management estimates that 2% of credit sales are uncollectible. Of the remaining credit sales,
30 percent are collected in the month of sale and the remainder in the following month. The
March 31 ending inventory is 5,500 units, and Hepburn wants to have 10% of the next month's
sales in ending finished goods inventory.
49. What are Hepburn Corporation's expected cash collections for April?
A) $2,725,000
B) $1,350,000
C) $1,560,000
D) $1,330,200
Answer: D Difficulty: Hard
50. How many units should Hepburn produce during April.

A) 57,800
B) 52,300
C) 52,000
D) 51,700
51. Each finished unit requires 5 units of raw material and raw material can be purchased at
$3 per unit. Hepburn wants to have 15% of the next month's needs in ending raw
materials inventory. The March 31, raw materials inventory is 40,000 units and Hepburn
estimates May production at 58,000 units. What amount should Hepburn budget for raw
material purchases for April?
A) $912,750
B) $855,000
C) $790,500
D) $784,500

52. Each finished unit requires 2 direct labor hours. The average direct labor rate is $14 per
hour. What amount should Hepburn budget for direct labor for April?
A) $1,596,000
B) $1,464,400
C) $ 732,200
D) $ 104,600
53. Hepburn applies overhead at the rate of $10 for each machine hour. Each unit of finished
goods requires 0.5 machine hours. What amount should Hepburn budget for overhead
for April?
A) $2,615,000
B) $ 523,000
C) $ 366,100
D) $ 261,500
54. Hepburn pays for direct labor and overhead as incurred. It pays for 80 percent of raw
material purchases during the month of purchase and the remainder during the next
month. Accounts payable on March 31, was $400,000. What amount should Hepburn
budget for cash payments for production costs during April?
A) $2,760,100
B) $2,600,100
C) $2,360,100
D) $1,725,900
55. Hepburn's SG&A expenses, paid as incurred, are $100,000 per month plus 5 per cent of
sales. What amount should Hepburn budget for SG&A for April?
A) $230,000
B) $178,000
C) $160,000
D) $102,600
56. Takai Corporation has a sales price of $20 per unit. Unit sales information is presented
below:
December (Actual) January (Estimated)

Cash sales 30,000 20,000
Credit sales 70,000 50,000
Management estimates that 4% of credit sales (in dollars) are uncollectible. Of the

remaining credit sales, 60 percent are collected in the month of sale and the remainder in
the following month. What are Takai's estimated cash collections and sales revenue for
January?
Collections Sales revenue

A) $1,560,000 $1,400,000
B) $1,560,000 $1,344,000
C) $1,513,600 $1,400,000
D) $1,513,600 $1,344,000
57. Which of the following is not one of the benefits of budgeting?

A) understanding of the interaction among different parts of the firm
B) ensures that resources are allocated to value-added activities
C) aids management in identifying areas requiring correction
D) eliminates mistakes
58. Which of the following budgets is completed last?

A) raw materials purchases
B) cash payments
C) production
D) sales
59. Which of the following budgets is completed first?

A) raw materials purchases
B) cash payments
C) production
D) sales
60. Budgets are prepared by the top-level executives of Phififfer Company. This is an
example of which type of budgeting?
A) participative
B) zero-based
C) mandated
D) ideal

61. Which of the following must be estimated before a production budget can be completed?
A) unit sales
B) fixed factory overhead
C) cash collection pattern
D) raw materials purchases
ESSAYS
62. Define the term "budgeting." Describe the benefits and costs of implementing a
budgeting process.
Answer:
Budgeting is the process of expressing a company's goals and objectives in quantitative
terms. It is a crucial part of the planning process. A budget outlines how resources are
expected to be obtained from, and used by operating, investing, and financing activities
of the business during a specified period of time.
The primary benefits of budgeting are:

(a) Planning - a budget presents and describes the financial ramifications of plans for the
future. It requires individuals to consider possible future courses of actions and the
resources needed to accomplish the various alternatives.
(b) Communication and Coordination - budgeting promotes communication and
coordination among divisions or departments within a company. Managers must
understand the interaction among the departments and how the actions of one department
affect another.
(c) Resource Allocation - budgeting aids resource allocation by ensuring that scarce
resources are utilized for the activities most needed by the company. Activities are
analyzed to determine if they add value to the company.
(d) Evaluation and Control - a budget serves as a useful benchmark against which to
evaluate and control actual performance. The process consists of comparing actual
performance results to the budget to determine what areas deviated from the planned
activities and whether corrective actions are necessary.
The primary costs of budgeting are:

(a) Time and Resource Requirements - budgeting is time consuming and costly,
involving numerous individuals throughout the company.
(b) Adaptability of Departments of the Business - budgets are often rigidly adhered to,
inhibiting a department from responding to changes in the environment.
(c) Motivation and Behavior of Individuals - individuals preparing budgets may be
motivated to misrepresent future expectations, building in budgetary slack or padding the
budget.
63. What information must a firm have to prepare a sales budget? How does it get this

information?
Answer:
Projected sales volume and sales price are necessary to prepare a sales budget. The
volume depends, to some extent, on the sales price. Estimating the sales volume involves
analysis of past sales levels and trends; surveys of customers; demographic analysis;
analysis of economic, political, legal, competitive, and social trends; and analysis of plans
for promotion.
64. Describe how the sales budget is related to the production budget.
Answer:
The production budget depends on the number of units the company expects to sell,
which is taken from the sales budget. Once the number of units the company expects to
sell is determined the production budget shows when the goods will be produced.
65. Describe the relationship between the Production Budget used in Conversion Process
Planning and the Direct Materials Purchase Budget and the Direct Labor and Overhead
Budget used in the Expenditure Planning Process.
Answer:
The Production Budget describes the units that must be produced in a particular time
period but not the cost of the production. The Direct Materials Budget describes the
expected cost of the direct materials necessary to produce the projected production of a
particular time period. The Direct Labor and Overhead Budget describes the expected
cost of the direct labor and overhead necessary to produce the project production of a
particular time period.
66. In the budgeting process a company can use either an ideal for normal standard. What is
the difference between an ideal standard and a normal standard? What impact do you
think each would have on employee morale?
Answer:
An ideal standard is based on the assumption that the company can operate at near
perfection. Normal standards are based on a more realistic assumption that inefficiencies
will occur and that the budget should take these into consideration. Employees realize
that ideal standards are not achievable which would impair their motivation to achieve
company goals. Normal standard might not motivate employees to do their best the
standards have inefficiencies built into the budgetary process and will not challenge
workers to work harder.
PROBLEMS
67. Greenleaf Company's actual sales for April through June, and budgeted sales for July
through September of the current year are as follows:

April $290,000 July $420,000

May 315,000 August 360,000
June 405,000 September 325,000
All sales are on credit. Management estimates that 10% will be collected in the month of
sale, 55% will be collected in the month following the sale, and the balance will be
collected the second month following the sale. Prepare a cash receipts schedule for
Greenleaf Company for the period July through September.
Answer:
Greenleaf Company
Cash Receipts Schedule
July – September
July August September
Collections 10% $ 42,000 $ 36,000 $ 32,500
Collections 55% 222,750 231,000 198,000
Collections 35% 110,250 141,750 147,000
Total Collections $375,000 $408,750 $377,500
68. Valentine Company's actual sales for January through March, and budgeted sales for
April through June of the current year are as follows:
Jan $390,000 April $520,000

Feb 415,000 May 460,000
March 505,000 June 425,000
10% of sales are cash and the rest are credit sales. Management estimates that 20% of
credit sales will be collected in the month of sale, 78% will be collected in the month
following the sale, and the balance will not be collected. Prepare a cash receipts schedule
for Valentine Company for the period April through June.
Answer:
Valentine Company
Cash Receipts Schedule
April – June
April May June
Cash from sales $ 52,000 $ 46,000 $ 42,500
10%
20% Receivables 104,000 82,800 76,500
78% Receivables 354,510 365,040 322,920
Total Collections $510,510 $493,840 $441,920
69. Logan Enterprises' unit production is budgeted for the first six months of its upcoming
fiscal year as follows:

Jan 142,000 April 154,500 July 130,000

Feb 137,500 May 165,500
March 127,000 June 140,000
Each unit of product requires 20 pounds of raw material that Logan purchases for $3.50
per pound. The company began the month of March with 13,160 pounds of raw material
but wants its ending inventory of raw material to be 2% of the next month's production
requirements beginning with the end of March.
Logan pays for 20% of its purchases in the month of purchase, with the remainder paid
the following month. Determine the amount of planned cash disbursements for purchases
of raw materials for April, May and June.
Answer:
Purchases of Raw Materials:
March:127,000 + 3,090 – 13,160 = 116,930 x 20 pounds x $3.50 per pound = $8,185,100

April:154,500 + 3,310 - 3,090 = 154,720 x 20 pounds x $3.50 per pound = $10,830,400
May: 165,500 + 2,800 – 3,310 = 164,990 x 20 pounds x $3.50 per pound = $11,549,300
June: 140,000 + 2,600 – 2,800 = 139,800 x 20 pounds x $3.50 per pound = $9,786,000
April May June

Disbursements 20% $2,166,080 $2,309,860 $1,957,200
Disbursements 80% 6,548,080 8,664,320 9,239,440
Total Disbursements $8,714,160 $10,974,180 $11,196,640
70. The Ellis Company is preparing its sales and production budget for 2011. Ellis sells its
product for $37 and thinks it sales in January 2011 will be 230,000 units and this will
increase by 10% in February and March and then by 20% for April and May. Ellis has a
beginning inventory of 23,000 units and wants to reduce its ending inventory to 1% of the
next month's units sales. Create a sales budget (in both units and dollars) and the
production budget for the first quarter of the year.
Answer:
Sales Budget In Units and Dollars
January February March April
Sales in Units 230,000 253,000 278,300 333,960
Sales in Dollars $8,510,000 $9,361,000 $10,297,100 $12,356,520
Production Budget
January February March April
Sales in Units 230,000 253,000 278,300 333,960
Add: Ending Inventory 2,530 2,783 3,340
Total Units Needed 232,530 255,783 381,640

Less: Beginning Inventory 23,000 2,530 2,783

Units to Produce 209,530 253,253 378,857
71. The Hoxie Corporation budgeted production for the first three months of 2011 is listed
below. Each unit produced requires 3 pounds of direct material that cost $9 per pound.
Hoxie wants to have 10% on next month’s production in ending inventory each month.
Hoxie receives a 3% discount on all purchases paid made during the month and pays 90%
of its materials bill during the month.
January February March

Budgeted Production 100,000 110,000 90,000
Accounts Payable Balance $210,000 on January 1, 2011

Raw materials inventory 28,500 pounds at $9 $256,500
Required:
(A.) How many pounds and what is the price of the direct material Hoxie plans to
purchase in February?
(B.) How much cash does Hoxie plan to pay for materials in February?
(C.) How much will the ending balance of accounts payable be February?
Answer:
(A.)
January February
Pounds needed for planned production 300,000 330,000
Add: Pounds for Ending inventory 33,000 27,000
Less: Pounds in Beginning Inventory (28,500 ) (33,000 )
Pounds of material needed 304,500 324,000
Cost of Planned Purchases in $2,740,500 $2,916,000
(B.)
Cash Paid for material in February
Beginning A/P $2,740,500 x .1 $ 274,050
Purchases paid in February $2,916,000 x .9 x .97 2,545,668
Cash paid in February $2,819,718
(C.)
Ending Balance of Accounts Payable in February $2,916,000 x .1 = $291,600
72. The Olpe Corporation budgeted production for the first three months of 2011 is listed
below. Each unit produced requires 5 pounds of direct material that cost $8 per pound.
Hoxie wants to have 5% on next month’s production in ending inventory each month.
Hoxie receives a 2% discount on all purchases paid made during the month and pays 80%
of its materials bill during the month.


Accounts Payable Balance $110,000 on January 1, 2011

Raw materials inventory 30,000 pounds at $8 - $240,000
Required:
(A.) How many pounds and what is the price of the direct material Hoxie plans to
purchase in February?
(B.) How much cash does Hoxie plan to pay for materials in February?
(C.) How much will the ending balance of accounts payable be February?
Answer:
(A.)
January February
Pounds needed for planned production 1,000,000 1,100,000
Add: Pounds for Ending inventory 55,000 45,000
Less: Pounds in Beginning Inventory (30,000) (55,000 )
Pounds of material needed 1,025,000 1,090,000
Cost of Planned Purchases in $8,200,000 $8,720,000
(B.)
Cash Paid for material in February
Beginning A/P $8,200,000 x .2 $1,640,000
Purchases paid in February $8,720,000 x .8 x .98 6,836,480
Cash paid in February $8,476,480
(C.)
Ending Balance of Accounts Payable in February $8,720,000 x .2 = $1,744,000
73. Onaga Corporation has the production budget described below. Each unit requires 4
hours of direct labor time at $15 per hour. Unit-related overhead is $20 per machine hour
and each unit requires one-quarter of an hour. Batch-related overhead is $2,000 per batch
with a batch-size of 500 units. Facility overhead, including depreciation of $150,000 is
$820,000 per month.

Required: Prepare Onaga's direct labor and manufacturing overhead budget for February.

Test Bank for Introduction to Accounting An Integrated Approach, 6th edition: Ainsworth
Answer:
February
Number of units to produce 200,000
Direct Labor 200,000 x 4 x $15 $12,000,000

Unit-related overhead 200,000/4 x $20 1,000,000
Batch-related overhead 200,000/500 x $2,000 800,000
Facility Overhead 820,000
Total manufacturing overhead for February $14,620,000
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1. Match the following terms with the descriptions below.

2. Match the following terms with the descriptions below.

98 Ainsworth/Deines, Introduction to Accounting: An Integrated Approach, 6/e

A. Revenue process planning

_____ 1. Production Budget

Ainsworth/Deines, Introduction to Accounting: An Integrated Approach, 6/e 99

4. Match the following budgets with the activities listed below.

_____ 1. Based information from sales budget

5. A plan for the future expressed in quantitative terms is called a:

100 Ainsworth/Deines, Introduction to Accounting: An Integrated Approach, 6/e

7. Budgetary slack is created when:

8. The balanced scorecard approach is successful in reducing budgetary slack because:

10. Ideal standards used in the budgeting process -

Ainsworth/Deines, Introduction to Accounting: An Integrated Approach, 6/e 101

12. A budget based on prior year's budget as a starting point is a:

13. An advantage of a participatory budget is:

15. The final step in a master budget is the preparation of the:

16. Conversion cycle planning consists of all the following except:

17. Conversion cycle planning consists of all the following except:

102 Ainsworth/Deines, Introduction to Accounting: An Integrated Approach, 6/e

18. Which of the following is not part of revenue process planning?

19. Which of the following is not part of expenditure process planning?

20. Which of the following is part of the revenue planning process?

21. Which of the following is part of conversion process planning?

23. Which of the following drives all other operating budgets?

Ainsworth/Deines, Introduction to Accounting: An Integrated Approach, 6/e 103

25. Indirect labor would most likely be shown on the:

26. Sales commissions would most likely be shown in the:

104 Ainsworth/Deines, Introduction to Accounting: An Integrated Approach, 6/e

Ainsworth/Deines, Introduction to Accounting: An Integrated Approach, 6/e 105

106 Ainsworth/Deines, Introduction to Accounting: An Integrated Approach, 6/e

Use the following to answer questions 38-40:

April $340,000 July $390,000

38. Cash collections during June are estimated at:

39. Cash collections during August are estimated at:

Use the following to answer questions 41-42:

January $470,000 April $530,000

Ainsworth/Deines, Introduction to Accounting: An Integrated Approach, 6/e 107

41. Cash collections during March are estimated at:

42 Cash collections during May are estimated at:

Use the following to answer questions 43-44:

January 250,000 April 315,000

43. The unit production requirements for February are:

44. The unit production requirements for May are:

108 Ainsworth/Deines, Introduction to Accounting: An Integrated Approach, 6/e

Use the following to answer questions 45-46:

March 255,000 June 250,000

45. The production requirements for May are:

46. The production requirements for June are:

Use the following to answer questions 47-48:

March 32,000 June 34,500

47. The direct materials purchases budget for May is:

Ainsworth/Deines, Introduction to Accounting: An Integrated Approach, 6/e 109

48. The direct materials purchases budget for June is:

Use the following to answer questions 49-55:

March (Actual) April (Estimated) May (Estimated)

50. How many units should Hepburn produce during April.

110 Ainsworth/Deines, Introduction to Accounting: An Integrated Approach, 6/e

December (Actual) January (Estimated)