63. Which of the following would represent the order in which most master budgets are prepared? A) Sales, Purchases, Cash, Income Statement B) Purchases, Cash, Sales, Income Statement C) Purchases, Sales, Cash, Income Statement D) Income Statement, Cash, Sales, Purchases Answer: A 64. Which of the following budgets would be prepared by a manufacturing company but not a merchandising company? A) Selling and administrative expense budget B) Cost of goods sold budget C) Raw materials budget D) Sales budget Answer: C Difficulty: 65. Which of the following budgets needs to be prepared prior to preparing a purchases budget? A) Selling and administrative expense budget B) Cash budget C) Sales budget D) All of the above Answer: C Difficulty: 66. Budgeted depreciation expense would not appear on a A) cash budget. B) budgeted income statement. C) selling and administrative expense budget. D) all of the above. Answer: A Learning Objective: 6 67. Which of the following items is not needed to prepare a sales budget by product line? A) Expected unit sales of each product. B) Expected purchase price of each product. C) Expected selling price of each product. D) All of the above items are needed. Answer: B Difficulty 69. McDavid Company has completed its sales budget for the first quarter of 2007. Projected credit sales for the first four months of the year are shown below: The company's past records show collection of credit sales as follows: 30% in the month of sale and the balance in the following month. The total cash collection from receivables in March will be A) $38,700 B) $45,000 C) $42,300 units D) $31,800 Answer: A Difficulty 70. Crowe Company expects the following total sales: The company expects 70% of its sales to be credit sales and 30% for cash. Credit sales are collected as follows: 25% in the month of sale, 72% in the month following the sale with the remainder being uncollectible and written off in the month following the sale. The budgeted accounts receivable balance on May 31 is A) $14,350 B) $15,750 C) $20,550 D) $22,500 Answer: B 76. Cornette Company provided the following information relevant to its inventory sales and purchases for December 2007 and the first quarter of 2008: Desired ending inventory levels are 25% of the following month's projected cost of goods sold. Budgeted purchases of inventory in February 2008 would be A) $ 67,500 B) $ 90,000 C) $ 82,500 D) $112,500 Answer: C 79. Owl Company is in the process of preparing a purchases budget for the first quarter of 2008. The company has budgeted sales as follows: Cost of goods sold is expected to be 75% of sales. The company would like to have ending inventory each month equal to 25% of the following month's predicted cost of sales. The total cost of purchases in January is A) $118,500 B) $ 93,000 C) $ 88,876 D) $ 71,438 Answer: D 81. Select the correct equation format for the purchases budget. A) Beginning inventory + expected sales = required purchases. B) Expected sales + desired ending inventory ? beginning inventory = required purchases. C) Beginning inventory + expected sales ? desired ending inventory = required purchases. D) Expected sales + Desired ending inventory = required purchases. Answer: B 88. Loachapoka Company budgeted the following transactions for April 2008: The beginning cash balance was $50,000. The company desires to have a $25,000 ending cash balance. What is the amount of the cash overage or shortage? A) $20,000 overage B) $40,000 shortage C) $20,000 shortage D) There is no overage or shortage. Answer: C 90. Bartley Company has budgeted the following information for February: If there is a cash shortage, the company borrows money from the bank. All cash is borrowed at the beginning of the month in $1,000 increments and interest is paid monthly at 1% on the first day of the following month. The company had no debt before February 1st. After interest expense, the ending cash balance for February would be A) $44,200 B) $50,000 C) $52,200 D) none of the above Answer: B Difficulty: 94. Dobson Company expects to begin operating on January 1. The company's master budget contained the following operating expense budget: Sales commissions are paid in cash in the month following the month in which the expense is recognized. All other expense items requiring cash payment are paid in the month in which they are recognized. The amount of cash paid for operating expenses during the month of January is A) $25,900 B) $26,800 C) $38,800 D) None of the above Answer: A Difficulty: 45. Summer Company's static budget is based on a planned activity level of 25,000 units. At the same time the static budget was prepared, the management accountant prepared two additional budgets, one based on 20,000 units and one based on 30,000. The company actually produced and sold 29,000 units. In evaluating its performance, management should compare the company's actual revenues and costs to which of the following budgets? A) A budget based on 29,000 units B) A budget based on 25,000 units C) A budget based on 30,000 units D) A budget based on 20,000 units Answer: A Diffi 46. Johansson Company developed the following static budget at the beginning of the company's accounting period: If actual production totals 8,200 units, the flexible budget would show variable costs of A) $16,400. B) $ 4,000. C) $ 4,100. D) $4,800. Answer: C 50. When would a variance be labeled as favorable? A) When standard costs are equal to actual costs B) When standard costs are less than actual costs C) When expected sales are greater than actual sales D) When actual costs are less than standard costs Answer: D Difficulty: 51. When would a variance be labeled as unfavorable? A) When standard costs are more than actual costs B) When expected sales are more than actual sales C) When actual sales are equal to expected sales D) none of the above Answer: B 52. Assuming actual volume is 11,000 units and planned volume is 10,000 units, the sales volume variance A) is 1,000 units favorable. B) is 1,000 units unfavorable. C) cannot be determined without additional information. D) None of the above Answer: A 55. The following master budget is provided: What will be the overall volume variance (effect on net income) if 18,000 units are produced and sold? A) $ 0 B) $160,000 C) $360,000 D) $ 60,000 Answer: D 43. Select the incorrect statement regarding flexible budgets. A) Standard prices and costs are used in preparing a flexible budget. B) A flexible budget is also known as a master budget. C) Flexible budgets show the estimated revenues and costs at multiple volume levels. D) A flexible budget represents an extension of the master budget. Answer: B Difficulty: 54. A difference between the static budget based on planned volume and a flexible budget prepared at actual volume is called a A) flexible budget variance. B) volume variance. C) production activity variance. D) static budget variance. Answer: B
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