Test Bank Sales Budgets and Production Budgets

4/3/2020 CMA Exam Review - Part 1
Test Bank Questions
Sales Budgets and Production Budgets

Question 1 (1B4-AT06)
1B4-AT06
After the goals of the company have been established and communicated, the next step in the planning
process would be the development of the:
sales forecast.
production budget.
selling and administrative budget.
direct materials budget.
After the goals of the company have been established and communicated, the budgeting process begins.
The first step in the budgeting process is the completion of a sales forecast.
1B5-AT12
Daffy Tunes manufactures an animated rabbit with moving parts and a built-in voice box. Projected sales in
units are:
Each rabbit requires basic materials that Daffy purchases from a single supplier at $3.50 per rabbit. Voice boxes
are purchased from another supplier at $1.00 each. Assembly labor cost is $2.00 per rabbit and variable
overhead cost is $0.50 per rabbit. Fixed manufacturing overhead applicable to rabbit production is $12,000 per
month.
Daffy's policy is to manufacture 1.5 times the coming month's projected sales every other month starting with
January (i.e., odd-numbered months) for February sales, and to manufacture 0.5 times the coming month's
projected sales in alternate months (i.e., even-numbered months). This allows Daffy to allocate limited
manufacturing resources to other products as needed during the even-numbered months.
The unit production budget for animated rabbits for January is:
15,000 units.
18,000 units.
https://app.efficientlearning.com/pv5/v8/5/app/cma/part1_2020.html?# 1/22
45,000 units.
54,000 units.
The production in odd numbered months is 1.5 times the projected sales for the following month.
Therefore, the production budget for January is 1.5 times the projected sales for February or 1.5(36,000
units) = 54,000 units.
1B5-AT13
Daffy Tunes manufactures an animated rabbit with moving parts and a built-in voice box. Projected sales in
units are:
Each rabbit requires basic materials that Daffy purchases from a single supplier at $3.50 per rabbit. Voice boxes
are purchased from another supplier at $1.00 each. Assembly labor cost is $2.00 per rabbit and variable
overhead cost is $0.50 per rabbit. Fixed manufacturing overhead applicable to rabbit production is $12,000 per
month.
Daffy's policy is to manufacture 1.5 times the coming month's projected sales every other month starting with
January (i.e., odd-numbered months) for February sales, and to manufacture 0.5 times the coming month's
projected sales in alternate months (i.e., even-numbered months). This allows Daffy to allocate limited
manufacturing resources to other products as needed during the even-numbered months.
Assuming any beginning inventory has no impact on the production budget, the dollar production budget for
animated rabbits for February is:
$358,500.
$115,500.
$127,500.
$390,000.
Assuming any beginning inventory has no impact on the production budget means that the February
production budget in dollars can be calculated as (Projected Sales for March × 0.5 × Variable Costs) +
Fixed Costs. Said differently, the budgeted costs for February production are calculated by taking the unit
variable costs of production (basic materials, voice box, assembly labor, and variable overhead per
rabbit) multiplied by the number of rabbits to be produced, and adding that to the monthly fixed
manufacturing overhead costs of $12,000.
The variable costs per rabbit are $3.50 (basic material) + $1.00 (voice box) + $2.00 (direct labor) + $0.50
(variable overhead), which totals $7 per unit.
The number of units budgeted for February (an even-numbered month) are: 0.5 × 33,000 units = 16,500
units.
The budgeted costs for February = ($7 × 16,500 units) + $12,000 = $115,500 + $12,000 = $127,500.
Question 4 (1B5-CQ09)
1B5-CQ09
Streeter Company produces plastic microwave turntables. Sales for the next year are expected to be 65,000
units in the first quarter, 72,000 units in the second quarter, 84,000 units in the third quarter, and 66,000 units
in the fourth quarter.
Streeter usually maintains a finished goods inventory at the end of each quarter equal to one half of the units
expected to be sold in the next quarter. However, due to a work stoppage, the finished goods inventory at the
end of the first quarter is 8,000 units less than it should be.
How many units should Streeter produce in the second quarter?
86,000 units.
78,000 units.
58,000 units.
66,000 units.
Budgeted production is calculated as follows:
Budgeted production = (expected sales) + (expected ending inventory) − (expected beginning inventory)
The expected ending inventory for each quarter equals 50% of the next quarter's expected sales. Since
the finished goods inventory at the end of the first quarter is 8,000 less than it should be, the budgeted
production for the second quarter is calculated as follows:
Budgeted production, second quarter = 72,000 units + 0.5(84,000 units) − [0.5(72,000 units) − 8,000 units]
Budgeted production, second quarter = 72,000 units + 42,000 units − [36,000 units − 8,000 units]
Budgeted production, second quarter = 114,000 units − 28,000 units = 86,000 units
1B5-CQ12
Tidwell Corporation sells a single product for $20 per unit. All sales are on account, with 60% collected in the
month of sale and 40% collected in the following month. A partial schedule of cash collections for January
through March of the coming year reveals the following receipts for the period.
Other information includes the following:
Inventories are maintained at 30% of the following month's sales in units.

Assume that March sales total $150,000.
The number of units to be purchased in February is:
7,750 units.
4,900 units.
6,100 units.
3,850 units.
The expected unit purchases for any month is calculated as follows: Expected purchases = (expected
sales in units) + (expected ending inventory) − (expected beginning inventory) The expected ending
inventory for a month is 30% of the next month's expected sales.
Expected sales is calculated as follows: Expected sales = (sales in $) / ($20 selling price per unit)
Number of units to be purchased in February = ($110,000 / $20 per unit) + [0.3($150,000 / $20 per unit)] −
[0.3($110,000 / $20 per unit)]
Number of units to be purchased in February = 5,500 units + [0.3(7,500 units)] − [0.3(5,500 units)]
Number of units to be purchased in February = 5,500 units + 2,250 units − 1,650 units = 6,100 units
1B5-CQ38
Consider the following information for Timbucktoo Kalamazoo Industries:
Additional information:
60% of a month's sales are collected by the month's end; the remaining 40% is collected in the following
month.
40% of a month's purchases are paid by the month's end; the remaining 60% is paid in the following
month.
The desired ending finished goods inventory every month is 30% of the next month's sales.
The desired ending direct materials inventory every month is 25% of the next month's production needs.
What is the total budgeted production in units for the month of December?
1,274.
1,820.
1,564.
2,110.
To solve this problem, a production budget must be created, which is as follows:
1B5-CQ39
Consider the following information for Timbucktoo Kalamazoo Industries:
Additional information:
60% of a month's sales are collected by the month's end; the remaining 40% is collected in the following
month.
40% of a month's purchases are paid by the month's end; the remaining 60% is paid in the following
month.
The desired ending finished goods inventory every month is 30% of the next month's sales.
The desired ending direct materials inventory every month is 25% of next month's production needs.
What is the total budgeted production in units for the month of November?
1,820.
892.
1,438.
1,110.
To solve this problem, a production budget must be created, which is:
Question 8 (1B5-LS08)
1B5-LS08
Using the information from Exhibit A, compute the number of units to be produced in January.
4,990 units.
4,500 units.
5,010 units.
5,510 units.
The number of units to be produced equals sales (5,000 units) plus desired ending inventory (10% of 5,100
= 510) less beginning inventory (10% of 5,000 = 500) = 5,010 units.
1B5-LS16
Which of the following is the element that if inaccurate will throw off all of the other master budget elements?
Capital budget.
Sales forecast.
Production forecast.
Cash budget.
Without an accurate sales forecast, all other budget elements will be inaccurate because production
levels, purchases, etc., are set to match expected sales.
1B5-LS18
A firm has budgeted sales for Period 1 of 50,000 units and Period 2 of 55,000 units. The firm maintains a policy
that ending inventory is 20% of the following period's forecasted sales. The policy is currently met. What is the
budgeted production for Period 1?
49,000 units.
50,000 units.
61,000 units.
51,000 units.
The budgeted production is calculated by adding budgeted sales (50,000) to desired ending inventory
(55,000 × 0.2) minus the beginning inventory (50,000 × 0.2) = 51,000 units.
Question 11 (tb.sp.bud.001_1805)
tb.sp.bud.001_1805
Hailey has been tasked with overseeing the development of the company's master budget. This is the first time
Hailey has had this role, and she's not sure where to start. What advice would you give her? Why?
She should help develop the cash budget before the production budget because understanding cash
flows will help determine the level of production.
She should help develop the direct material and direct labor budgets before the production budget
because the production budget is just the sum of the direct material and direct labor budgets.
She should help develop the selling and administrative budget before developing the manufacturing
overhead budget because selling and administrative expenses are part of manufacturing overhead.
She should help develop the sales budget before the production budget because production will depend
on the number of sales.
The master budget is the overall budget for an organization. It comprises an operating budget (expected
day-to-day activities) and a financial budget (expected sources and uses of cash). Two important sub-
budgets are the sales budget and the production budget. The production budget is based on expected
sales, expected beginning inventory, and targeted ending inventory; therefore, the sales budget must be
developed before the production budget can be developed. Therefore, this is the correct answer.
tb.sp.bud.002_1805
The ________ is derived from the _________.
sales budget, sales forecast
sales forecast, sales budget
production budget, budgeted income statement
production budget, direct labor budget
The sales forecast is the starting point for the master budget process. It is the basis for the sales budget
since the sales budget is based on the sales forecast and expected selling prices. Therefore, this is the
correct answer.
tb.sp.bud.005_1805
Why is a company's sales budget developed before the production budget?
The company needs to find ways to sell as many units as it can maximally produce.
The company's sales managers have more control over the company's finances than the production
managers.
The sales budget is more important than the production budget, so it receives a larger portion of the
company's financial reserves.
The company only wants to produce as many units as it expects to sell.
The sales budget is used to determine expected revenue. It is based on the sales forecast (expected units
to be sold) and expected selling prices. By developing the production budget after the sales budget, a
company can produce only as many units as it expects to sell (before any changes in inventory).
Therefore, this is the correct answer.
tb.sp.bud.006_1805
If the sales budget increases by 10%, the production budget:
Is likely to increase by the same number of units as the sales budget
Is not likely to increase by the same number of units as the sales budget
Is not likely to be affected
Is likely to decrease by the same number of units as the sales budget
The production budget is based on the sales budget (the number of units expected to be sold), expected
beginning inventory, and targeted ending inventory. As the number of units expected to be sold
increases, the number of units expected to be produced increases by the same number of units (assuming
expected beginning inventory and targeted ending inventory remain the same). This ensures production
will satisfy expected sales. Therefore, this is the correct answer.
tb.sp.bud.007_1805
What effect does an increase in the production budget have on the sales budget?
An increase in the production budget will increase the sales budget by the same amount.
An increase in the production budget has no effect on the sales budget.
An increase in the production budget will decrease the sales budget by the same amount.
An increase in the production budget will increase the sales budget by double the amount.
The production budget is based on the sales budget (the number of units expected to be sold), expected
beginning inventory, and targeted ending inventory. As a result, an increase in the production budget has
no effect on the sales budget. An increase in the sales budget results in an increase in the production
budget. Therefore, this is the correct answer.
tb.sp.bud.008_1805
The Burlington Company has 12,000 units in beginning finished goods. If sales are expected to be 60,000 units
for the year and Burlington desires ending finished goods of 15,000 units, how many units must Burlington
produce?
57,000
60,000
63,000
75,000
Units to be produced is calculated as “Expected Sales + Target Ending Inventory − Beginning Inventory.”
In this example 63,000 units are to be produced (60,000 + 15,000 − 12,000). Therefore, this is the correct
answer.
tb.sp.bud.009_1805
Sam Montana manufactures bookcases for colleges and universities to use in dorm rooms. Each bookcase sells
for $65. Due to the cyclical nature of the business, the company budgets two months ahead. In early May, it is
planning for July, its busiest month. The company plans to sell 114,500 bookcases in July. At the end of June, it
expects to have 26,000 assembled bookcases in inventory, and it would like to have 3,000 bookcases in
inventory at the end of July. What is the company's budgeted sales revenue for July?
$5,947,500
$7,442,500
$9,132,500
$1,690,000
Each bookcase is expected to sell for $65 and a total of 114,500 bookcases are expected to be sold. This
results in budgeted sales revenue of $7,442,500 (114,500 × $65). Therefore, this is the correct answer.
tb.sp.bud.010_1805
Sewing Masters produces curtains and sells each curtain for $40. Sewing Masters often sees a spike in sales in
March and April due to spring cleaning. The company plans to sell 257,000 curtains in the month of April. At the
end of March, it expects to have 52,000 curtains in inventory, and it would like to have 15,000 curtains in
inventory at the end of April. What is the company's budgeted sales revenue for April?
$8,800,000
$11,760,000
$10,280,000
$9,680,000
Budgeted revenue is calculated as “Budgeted Unit Sales × Budgeted Selling Price.” Each curtain is
expected to sell for $40 and a total of 257,000 curtains are expected to be sold. This results in budgeted
sales revenue of $10,280,000 (257,000 × $40). Therefore, this is the correct answer.
tb.sp.bud.011_1805
Spartan Bicycles forecasts sales of 12,000 bikes for June and 14,000 bikes for July. Its inventory at the end of
May stands at 3,000 bikes. If Spartan plans to keep an inventory of 25% of July sales at the end of June, how
many bikes should it manufacture for the month of June?
12,000
11,500
13,000
12,500
Planned production is calculated as “Units Needed for Sales + Targeted Ending Inventory − Beginning
Inventory.” In this example the targeted ending inventory for June is 25% of expected July sales or 3,500
units (25% × 14,000). The ending inventory for May is the same as the beginning inventory for June.
Putting it all together yields planned production of 12,500 units (12,000 + 3,500 − 3,000) for June;
therefore, this is the correct answer.
tb.sp.bud.012_1805
CC Candy Manufacturers produces and sells a variety of candies, including fudge. In budgeting for production,
the company requires that 20% of the next month's sales be on hand at the end of each month. Budgeted sales
of fudge for the next four months are:
February March April May

Budgeted sales (lbs) 45,000 60,000 90,000 75,000
The budgeted production for April would be ________ pounds.
87,000
72,000
93,000
105,000
Inventory.” In this example the targeted ending inventory for April is 20% of expected May sales or 15,000
units (20% × 75,000). The beginning inventory for April is 20% of expected April sales or 18,000 units (20%
× 90,000). Putting it all together yields planned production of 87,000 units (90,000 + 15,000 − 18,000) for
April; therefore, this is the correct answer.
tb.sp.bud.013_1805
Gulfcoast Shrimp Packaging supplies frozen shrimp to grocery chains. It expects sales of 34 tons of shrimp in
the next quarter. It currently has an inventory of 15 tons of shrimp. If production of shrimp adds up to 26 tons
in the upcoming quarter, what will be the company's inventory at the end of the quarter?
8 tons.
7 tons.
0 tons.
An indeterminate level.
Inventory.” Rearranging these figures results in target ending inventory being calculated as “Planned
Production − Units Needed for Sales + Beginning Inventory.” In this example the targeted ending
inventory is 7 tons (26 − 34 + 15). This is the correct answer.
tb.sp.bud.014_1805
Quality Foods has budgeted $1,500,000 in sales of ginger chicken for May. It wants to end every month with
inventory equal to 10 days’ worth of the next month's sales (based on a 30-day month). April sales are
projected at $1,400,000. The sales price is $5 per box. Inventory at the beginning of April is estimated at 93,400
boxes of ginger chicken. How many boxes of ginger chicken should Quality Foods manufacture in April?
280,000 boxes
273,400 boxes
286,600 boxes
300,000 boxes
Inventory.” A total of 280,000 boxes are needed to satisfy April sales ($1,400,000 ÷ $5). Based on expected
May sales of 300,000 boxes ($1,500,000 ÷ $5), target ending inventory for April is 100,000 boxes (10 days of
May sales). Putting it all together yields planned production of 286,600 boxes in April (280,000 + 100,000 −
93,400). Therefore, this is the correct answer.
tb.sp.bud.015_1805
Boots Unlimited has budgeted for cowboy boots sales of $2,783,104 in October. It wants to end every month
with inventory equal to 15 days’ worth of the next month's sales (based on a 30-day month). September sales
are projected at $2,550,016. The sales price is $128 per pair. Inventory at the beginning of September is
estimated at 9,960 pairs of cowboy boots. How many pairs of cowboy boots should Boots Unlimited
manufacture in September?
30,794 pairs
10,872 pairs
19,010 pairs
20,834 pairs
Planned production is calculated as “Units Needed tor Sales + Targeted Ending Inventory − Beginning
Inventory.” A total of 19,922 pairs are needed to satisfy September sales ($2,550,016 ÷ $128). Based on
expected October sales of 21,743 pairs ($2,783,104 ÷ $128), target ending inventory for September is
10,872 pairs (15 days of October sales). Putting this all together yields planned production of 20,834 pairs
in September (19,922 + 10,872 − 9,960). This is the correct answer.
tb.sp.bud.016_1805
Kids Plastics manufactures plastic action figures for kids. In budgeting for production, the company requires
that 25% of the next month's budgeted sales be on hand at the end of each month. Budgeted sales of action
figures for the next four months are:
October November December January

Action Figures 15,800 19,600 145,200 14,700
What is budgeted production for December?
112,575 action figures
Inventory.” Based on the expected January sales, target ending inventory for December is 3,675 action
figures (25% × 14,700). Based on expected December sales, beginning inventory for December is 36,300
action figures (25% × 145,200). This results in planned production of 112,575 action figures in December
(145,200 + 3,675 − 36,300). This is the correct answer.
tb.sp.bud.017_1805
Mounce Inc. produces and sells free-standing quilt frames. In budgeting for production needs, the company
requires that 5% of the next month's sales be on hand at the end of each month. Budgeted sales of quilt frames
over the next four months are:
September October November December

Sales (Units) 20,000 30,000 50,000 40,000
What is budgeted production for October?
30,000 units
31,000 units
29,000 units
32,500 units
Inventory.” Based on expected November sales, target ending inventory for October is 2,500 units (5% ×
50,000). Based on expected October sales, the beginning inventory for October is 1,500 units (5% ×
30,000). Putting this all together yields planned production of 31,000 units in October (30,000 + 2,500 −
1,500). This is the correct answer.
tb.sp.bud.018_1805
Sam Montana Bookcases (SMB) manufactures bookcases for sale to colleges and universities for use in dorm
rooms. Each bookcase sells for $65. Due to the cyclical nature of the business, the company budgets two
months ahead. In early May, company managers are planning for July, the company's busiest month. SMB
plans to sell 114,500 bookcases in July. The company expects to have 26,000 assembled bookcases in its
inventory at the end of June. It also plans to have 560,000 board feet of lumber (cost $6,720,000), 75,000 quarts
of stain (cost $300,000), and 160,000 board feet of trim (cost $2,400,000) in inventory. The company would like
to have 3,000 assembled bookcases, 120,000 board feet of lumber, 4,500 quarts of stain, and 12,000 board feet
of trim on hand at the end of July. What is SMB's budgeted production for July?
143,500
88,500
91,500
85,500
Inventory.” In July 114,500 bookcases are needed to support expected sales. Targeted ending inventory is
3,000 bookcases and beginning inventory is 26,000 bookcases. Putting this all together yields planned
production of 91,500 bookcases (114,500 + 3,000 − 26,000). Therefore, this is the correct answer.
tb.sp.bud.019_1805
Phillip Co. manufactures decorative pillows. Phillip requires that 30% of next month's sales be on hand at the
end of each month. Budgeted unit sales for February through May are as follows:
February March April May June

Sales (Units) 25,000 22,000 30,000 44,000 60,000
What is the budgeted production for May?
44,000 units
62,000 units
30,800 units
48,800 units
Inventory.” In May 44,000 units are needed to support expected sales. Targeted ending inventory is 18,000
units (30% of expected June sales) and beginning inventory is 13,200 units (30% of expected May sales).
Putting this all together yields planned production of 48,800 units in May (44,000 + 18,000 − 13,200).
Therefore, this is the correct answer.
tb.sp.bud.020_1805
Mounds Company has provided you with the following sales data:
September October November December

Sales (Units) 20,000 30,000 50,000 40,000
The company requires that 5% of the next month's sales be on hand at the end of each month. Budgeted
production for September would be how many units?
20,500
20,000
21,500
19,000
Planned production is calculated as “Units Needed for Sales + Targeted Ending Inventory – Beginning
Inventory.” Based on expected October sales, target ending inventory for September is 1,500 units (5% ×
30,000). Based on expected September sales of 20,000 units, beginning inventory for September is 1,000
units (5% × 20,000). Putting this all together yields planned production of 20,500 units in September
(20,000 + 1,500 – 1,000). Therefore, this is the correct answer.
tb.sp.bud.021_1805
In early March, Percy's Pickled Snacks is preparing the upcoming quarter's budget for pickled beets. Budgeted
sales are 12,000 jars for April, 16,000 jars for May, and 19,000 jars for June. Each jar requires 1.2 pounds of beets
and sells for $15. Percy requires ending finished goods inventory equal to 25% of the following month's
budgeted sales. What is Percy's budgeted production for April?
12,000 units
13,000 units
16,000 units
11,000 units
Inventory.” Based on expected May sales, target ending inventory for April is 4,000 units (25% × 16,000).
Based on expected April sales, beginning inventory for April is 3,000 units (25% × 12,000). Putting this all
together yields planned production of 13,000 units in April (12,000 + 4,000 – 3,000). Therefore, this is the
correct answer.
tb.sp.bud.022_1805
In early February, Heavenly Swimwear is preparing the summer season swimsuits budget. Budgeted sales are
47,600 suits for May, 58,200 suits for June, and 43,500 suits for July. Each suit requires 1.3 yards of fabric.
Heavenly Swimwear requires ending Finished Goods inventory equal to 30% of the following month's
budgeted sales. What is Heavenly Swimwear's budgeted production for May?
47,600 units
65,060 units
50,780 units
44,420 units
Inventory.” Based on expected June sales, target ending inventory for May is 17,460 units (30% × 58,200).
Based on expected May sales, beginning inventory for May is 14,280 units (30% × 47,600). Putting this all
together yields planned production of 50,780 units in May (47,600 + 17,460 – 14,280). Therefore, this is the
correct answer.
tb.sp.bud.023_1805
The Crawford Company has 3,000 units in beginning finished goods. The sales budget shows expected sales to
be 12,000 units. If the production budget shows that 14,000 units are required for production, what was the
desired ending finished goods?
1,000
3,000
23,000
5,000
Units to be produced is calculated as “Expected Sales + Target Ending Inventory − Beginning Inventory.”
Rearranging the formula results in Targeted Ending Inventory calculated as “Production + Beginning
Inventory − Expected Sales.” In this example targeted ending inventory is 5,000 units (14,000 + 3,000 −
12,000). Therefore, this is the correct answer.
tb.sp.bud.024_1809
Which statement is most correct concerning the role of the sales budget in the development of an accurate
annual profit plan?
Having an accurate sales budget ensures a company of having an accurate annual profit plan.
Without an accurate sales budget a company is less likely to have an accurate annual profit plan.
It is more likely for a company to have an accurate annual profit plan with an inaccurate sales budget.
The accuracy of a company's annual profit plan is unrelated to the accuracy of its sales forecast.
Correct. A sales budget is an estimate of expected unit sales and expected selling prices. The two factors
are combined to determine budgeted sales revenue. The expected unit sales figure is used to determine
the production budget as well as the selling expense budget. If the expected unit sales figure is not
accurate, these other budgets are also less likely to be accurate. This makes an accurate annual profit
plan less likely.
tb.sp.bud.025_1809
All of the following statements concerning the relationship between the sales budget and the annual profit
plan are correct except:
The sales budget is an input for preparing the selling expense budget.
Without an accurate sales budget a company is less likely to have an accurate annual profit plan.
It does not matter when the sales budget is developed while preparing the annual profit plan as it only
impacts budgeted sales revenue.
The sales budget is an input for preparing the production budget.
Correct. A sales budget is an estimate of expected unit sales and expected selling prices. The two factors
are combined to determine budgeted sales revenue. In addition, the expected unit sales figure is used to
determine the production budget as well as the selling expense budget. Therefore, it needs to be
prepared at the beginning of the annual profit plan development process.
tb.sp.bud.026_1809
Which statement is correct concerning preparing a sales budget?
Sales forecasts should only be based on statistical analysis techniques such as regression analysis and
time series analysis.
Sales forecasts should only be based on qualitative analysis techniques such as sales managers’
knowledge about the market and customer needs.
Sales forecasts should be based on both statistical analysis and qualitative analysis techniques.
Last year's sales should be used as the sales forecast for the current year.
Correct. A sales budget is an estimate of expected unit sales and expected selling prices. One way to
determine expected unit sales is to use statistical analysis techniques such as regression analysis and
time series analysis. These techniques have the advantage of being able to incorporate a large amount of
data in an objective way. In addition, qualitative techniques that rely on sales managers’ judgment and
experience are also useful as these can provide information that statistical techniques cannot. Using both
of these types of techniques results in better forecasts than relying on only one type of technique.
tb.sp.bud.027_1809
Each of following factors is likely to be considered when preparing a sales budget except:
Expected advertising and marketing expenditures.
Historical sales trends.
Expected competitor actions.
Desired ending inventory level.
Correct. A sales budget is an estimate of expected unit sales and expected selling prices. Desired ending
inventory level impacts the production budget, not the sales budget. It is not likely to impact expected
sales and expected selling prices.
tb.sp.bud.028_1809
Which of the following correctly lists the components of a sales budget?
Expected unit sales and expected selling prices.
Expected unit sales, beginning inventory, and desired ending inventory.
Expected production needs, beginning inventory, and desired ending inventory.
Expected selling prices and desired ending inventory.
Correct. A sales budget is an estimate of expected sales revenue for a period. It is based on expected unit
sales and expected selling prices. These are multiplied together to determine expected sales revenue.
tb.sp.bud.029_1809
The Thomas Company has the following information for the second quarter. Based on this information, what is
the sales budget for the second quarter?
April May June
Sales in units 10,000 11,000 12,000
Selling price per unit $15 $15.25 $15.50
$503,750
$495,000
$511,500
$503,250
sales and expected selling prices. Expected revenue is $150,000 in April (10,000 × $15), $167,750 in May
(11,000 × 15.25), and $186,000 in June (12,000 × $15.50). These three add up to $503,750.
tb.sp.bud.030_1809
The Jupiter Company has the following information for the first quarter. Based on this information, what is the
sales budget for the first quarter?
January February March
Sales in units 20,000 22,000 24,000
Selling price per unit $16 $16.50 $17
$1,091,000
$1,056,000
$1,122,000
$1,089,000
sales and expected selling prices. Expected revenue is $320,000 in January (20,000 × $16), $363,000 in
February (22,000 × 16.50), and $408,000 in March (24,000 × $17). These three add up to $1,091,000.
tb.sp.bud.031_1809
Which of the following statements correctly describes the relationship between the sales budget and the
production budget?
The sales budget is prepared after the production budget.
The production budget is prepared after the sales budget.
The production budget is used to prepare the sales budget.
The production budget and the sales budget are the same things.
sales and expected selling prices. The expected units to be sold is used to prepare the production budget
as it is one component of production needs. The other two components are beginning inventory and
desired ending inventory. This means the production budget is prepared after the sales budget.
tb.sp.bud.032_1809
Which of the following statements correctly describes the impact of finished goods inventory on the
production budget?
Beginning finished goods inventory increases budgeted production while desired ending inventory of
finished goods decreases budgeted production.
Beginning finished goods inventory and desired ending inventory of finished goods both increase
budgeted production.
Finished goods inventory levels do not impact the production budget.
Beginning finished goods inventory decreases budgeted production while desired ending inventory of
finished goods increases budgeted production.
Correct. A production budget is an estimate of expected production for a period. It is based on expected
unit sales, beginning finished goods inventory, and desired ending inventory of finished goods. The
amount of beginning finished goods inventory decreases budgeted production as these units can be used
to satisfy finished goods needs. In addition, desired ending inventory of finished goods increases
budgeted production as this increases the need for finished goods.
tb.sp.bud.033_1809
production budget?
An increase in beginning finished goods inventory increases the units needed to be produced.
An increase in desired ending inventory of finished goods inventory decreases the units needed to be
produced.
An increase in desired ending inventory of finished goods inventory increases the units needed to be
produced.
A decrease in beginning finished goods inventory decreases the units needed to be produced.
unit sales, beginning finished goods inventory, and desired ending inventory of finished goods. Desired
ending inventory of finished goods is one component of the total finished goods units needed in a period
(expected sales is the other). As desired ending inventory of finished goods inventory increases, the units
needed to be produced also increases.
tb.sp.bud.034_1809
production budget?
A decrease in beginning finished goods inventory decreases the units needed to be produced.
An increase in desired ending inventory of finished goods inventory does not impact the units needed to
be produced.
A decrease in desired ending inventory of finished goods inventory decreases the units needed to be
produced.
An increase in beginning finished goods inventory does not impact the units needed to be produced.
unit sales, beginning finished goods inventory, and desired ending inventory of finished goods. Desired
ending inventory of finished goods is one component of the total finished goods units needed in a period
(expected sales is the other). As desired ending inventory of finished goods inventory decreases, the units
needed to be produced also decreases.

Test Bank Sales Budgets and Production Budgets

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Test Bank Sales Budgets and Production Budgets

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4/3/2020 CMA Exam Review - Part 1

Test Bank Questions

Sales Budgets and Production Budgets

selling and administrative budget.

direct materials budget.

How many units should Streeter produce in the second quarter?

Budgeted production is calculated as follows:

Other information includes the following:

Inventories are maintained at 30% of the following month's sales in units.

The number of units to be purchased in February is:

Consider the following information for Timbucktoo Kalamazoo Industries:

To solve this problem, a production budget must be created, which is as follows:

Consider the following information for Timbucktoo Kalamazoo Industries:

To solve this problem, a production budget must be created, which is:

sales forecast, sales budget

production budget, budgeted income statement

production budget, direct labor budget

Is not likely to be affected

Is likely to decrease by the same number of units as the sales budget

An increase in the production budget has no effect on the sales budget.

February March April May

The budgeted production for April would be ________ pounds.

October November December January

What is budgeted production for December?

112,575 action figures

148,875 action figures

108,900 action figures

177,825 action figures

September October November December

What is budgeted production for October?

February March April May June

What is the budgeted production for May?

September October November December

Historical sales trends.

Expected competitor actions.

Desired ending inventory level.

Expected unit sales, beginning inventory, and desired ending inventory.

Expected production needs, beginning inventory, and desired ending inventory.

Expected selling prices and desired ending inventory.

The sales budget is prepared after the production budget.

The production budget is prepared after the sales budget.

The production budget is used to prepare the sales budget.

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