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Exam 9: How Are Operating Budgets Created

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Question 1

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The units to be produced in the production budget is typically the same as the expected sales in units in the sales budget.

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Question 2

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To determine how many units to produce in a period for the production budget,you would use all of the following except:

A) the number of units in beginning finished goods inventory.
B) the number of units in beginning raw materials inventory.
C) the expected sales in units.
D) the desired number of units in ending finished goods inventory.
E) None of the answer choices is correct.

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B

Question 3

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Miller Inc.had the following sales during 2016: $\begin{array}{ll}\text { Quarter 1 } & 10,000 \text { units } \\\text { Quarter 2 } & 11,000 \text { units } \\\text { Quarter 3 } & 14,000 \text { units } \\\text { Quarter 4 } & 12,000 \text { units }\end{array}$ Miller expects sales in each quarter of 2013 to be 10% more than the respective quarters for 2016.If each unit sells for $110,what amounts will appear as sales revenue in the quarterly sales budgets for 2013?

An operating budget is similar to a capital budget in that both are long-term budgets.

Exhibit 9-1 Sporting Inc.is a distributor which sells one product for $100 per unit.Sporting pays $60 to buy the product.In addition,fixed costs total $60,000 per month.Sporting wishes to maintain an inventory at the end of each month equal to 30% of the next month's projected sales.Purchases are paid in the month after purchase. Sporting makes all sales on credit and collects 40% in the month of sale and 60% in the month after sale.Budgeted monthly sales in units for the first five months of 2013 are as follows: $\begin{array}{ll}\text { January } & 10,000 \text { units } \\\text { February } & 15,000 \text { units } \\\text { March } & 18,000 \text { units } \\\text { April } & 20,000 \text { units } \\\text { May } & 16,000 \text { units }\end{array}$ -Refer to Exhibit 9-1.What will accounts payable be at the end of April?

Fireside Inc.had sales as follows during 2016: $\begin{array}{ll}\text { Quarter 1 } & 15,000 \text { units } \\\text { Quarter 2 } & 15,500 \text { units } \\\text { Quarter 3 } & 18,000 \text { units } \\\text { Quarter 4 } & 16,000 \text { units }\end{array}$ Fireside expects sales in each quarter of 2013 to be 15% more than the respective quarters for 2016.If each unit sells for $40,what amounts will appear as sales revenue in the quarterly sales budgets for 2013?

Exhibit 9-2 Bowline Inc.is a distributor which sells one product for $60 per unit.Bowline pays $33 to buy the product.In addition,fixed costs total $42,000 per month.Bowline wishes to maintain an inventory at the end of each month equal to 25% of the next month's projected sales.Purchases are paid in the month after purchase. Bowline makes all sales on credit and collects 30% in the month of sale and 70% in the month after sale.Budgeted monthly sales in units for the first five months of 2013 are as follows: $\begin{array}{ll}\text { January } & 20,000 \text { units } \\\text { February } & 25,000 \text { units } \\\text { March } & 28,000 \text { units } \\\text { April } & 30,000 \text { units } \\\text { May } & 26,000 \text { units }\end{array}$ -Refer to Exhibit 9-2.What will budgeted net income be for March?

The production budget for Ventura Company shows the company expects to produce 3,000 units in the first quarter and 3,200 units in the second quarter.Each unit requires 30 pounds of direct materials at a cost of $5 per pound.The company prefers to maintain raw materials inventory equal to 25 percent of next quarter's materials needed in production. Prepare a direct materials purchases budget for the first quarter.

For most nonprofit organizations,the approved budget serves as the legal authority for expenditures.

In the budgeting process,the dollar amount for goods sold during the month but not collected is called:

Alta Vista Company plans to sell 90,000 units in June and 135,000 units in July.The company's policy is to keep 15% of the next month's sales in ending inventory.If the ending inventory in May was consistent with this policy,how many units should be produced in June?

Service companies tend to have more budget schedules than manufacturing companies.

All of the following appear on the selling and administrative budget except:

Muraki Company has one product and sold 10,000 units in the first quarter of 2016.The company expects to sell 15% more units in the first quarter of 2013,at a price of $50 per unit.Based on this information,what is the amount of sales revenue that will appear in the budgeted income statement for the first quarter of 2013?

All of the following appear on the manufacturing overhead budget except:

Sales personnel who are paid a bonus for exceeding budgeted sales have an incentive to underestimate sales when establishing the sales budget.

All of the following appear on the direct labor budget except:

According to the Business in Action "Moving from Spreadsheets to Intranet Budgeting," which of the following is not an advantage of Intranet budgeting?

Depreciation is deducted at the bottom of a manufacturing overhead budget to determine cash payments for overhead.

In a production budget,if the units to be produced is equal to the expected sales in units,then desired units of ending inventory is equal to the units in beginning inventory.