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Exam 7: Planning for Profit and Cost Control

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Question 51

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Bonnie's Bakery is a relatively small company that makes pies,cakes,and cookies sold in supermarkets.Sales employees' bonuses are determined based on meeting or exceeding the budget.For the coming year,sales employees have set a budget target of 3% for sales growth.The market has been growing at 6%,and the company has averaged 10% growth for the last two years.What is the problem here,and how can it be fixed?

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A budget represents a standard by which...

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Question 52

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Oakton Furniture provided the following information relevant to its sales for December Year 1 and the first quarter of Year 2: $\begin{array} { l c c c c } & \begin{array} { c } \text { Dec. Year 1 } \\\text { (Actual) }\end{array} & \begin{array} { c } \text { Jan Year 2 } \\\text { (Budgeted) }\end{array} & \begin{array} { c } \text { Feb. Year 2 } \\\text { (Budgeted) }\end{array} & \begin{array} { c } \text { Mar. Year 2 } \\\text { (Budgeted) }\end{array} \\\text { Credit sales } & \$ 120,000 & \$ 280,000 & \$ 310,000 & \$ 220,000 \\\text { Cash sales } & \$ 20,000 & \$ 50,000 & \$ 60,000 & \$ 24,000\end{array}$ Based on the company's collection history,42% of credit sales are collected in month of sale and the remainder is collected in the following month.Total budgeted cash receipts in February are expected to be:

A) $60,000.
B) $162,400.
C) $352,600.
D) $228,000.

E) None of the above
F) A) and B)

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Question 53

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Which of the following statements is true?

The first budget prepared in a master budget is the cash receipts budget.

Indicate whether each of the following statements is true or false.

Which of the following items typically found on the selling and administrative expense budget will also impact the cash budget?

Budgeting that involves the development of a master budget to direct the firm's activities over the short term is referred to as:

Indicate whether each of the following statements is true or false.

The selling and administrative expense budget is prepared prior to the cash budget.

Indicate whether each of the following statements is true or false.

Scranton Company expects to begin operating on July 1,Year 1.The company's master budget contained the following operating expense budget: $\begin{array}{lrrr}&\text { July } & \text { August }& \text { September }\\\text { Salary expense } & \$ 36,000 & \$ 36,000 & \$ 36,000 \\\text { Sales commissions, } 5 \% \text { of sales } & 30,000 & 32,0000& 24,000 \\\text { Utilities } & 2,800 & 2,800 & 2,800 \\\text { Depreciation on store equipment } & 1,000& 1,000 & 1,000 \\\text { Rent } & 7,200 & 7,200 & 7,200 \\\text { Miscellaneous } & \underline{1,800 }& \underline{1,800 }& \underline{1,800}\\\text { Total operating expenses } &\underline{ \$ 78,800} &\underline{ \$ 80,800 }&\underline{ \$ 72,800}\end{array}$ 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 commissions payable that would appear on the company's pro forma balance sheet as of September 30,Year 1 is:

$\begin{array}{lrrr}&\text { October}&\text { November }&\text { December }\\\text { Budgeted S\&A Expenses }\\\text { Salary Expense } & 10,000 & 10,500 & 11,000 \\\text { Sales Commissions } 5 \% \text { of Sales } & 5,000 & 5,500 & 5,300 \\\text { Insurance Expense } & 2,000 & 2,000 & 2,000 \\\text { Rent } & 2,400 & 2,400 & 2,400 \\\text { Depreciation on equipment } & 1,500 & 1,500 & 1,500 \\\text { Utilities } & \underline{1,100}& \underline{1,300} & \underline{ 1,500}\\\text { Total Operating Expenses } & \underline{22,000} & \underline{ 23,200} & \underline{23,700}\\\text {Schedule of Cash Payments for S\&A }\\\text {Expenses}\\\text { Salary Expense } & ? & 10,500&? \\100 \% \text { of Prior Month Sales Commissions } & 5,100 & ?&? \\\text { Insurance Expense } & 2,000 & 2,000 &2,000\\\text { Rent } & ? & ?&? \\100 \% \text { of Prior Months Utilities Expense } & \underline{1,200} & \underline{\quad ? }& \underline{\quad?}\\\text { Total Payments for S\&A Expenses } & ? & ?&?\end{array}$ The amount of cash paid for S&A expenses during the month of November is:

Which of the following is generally included in a sales budget?

Select the correct statement regarding the selling and administrative (S&A) expense budget.

Select the term from the list of terms that best matches the description provided.

The type of planning that involves long-term decisions,such as defining the scope of the business and deciding what products to make,is known as:

Sound Effects Audio Systems sells and installs car stereo systems.Managers need to prepare an inventory purchases budget for the first quarter of Year 2.The company's sales budget for the first quarter is provided below: $\begin{array} { l c c c } &\text { January } & \text { February } & \text { March } \\\text { Budgeted Sales } & \$ 200,000 & \$ 196,00 \mathrm { C } & \$ 180,000\end{array}$ Based on past experience,the company expects the cost of goods sold to equal 80% of sales.Furthermore,the ending inventory balance each month should be $8,000 plus 20% of the current period's cost of goods sold.The inventory balance on December 31,Year 1 was $34,000.The company makes all purchases on account and pays 60% of accounts payable in the month of purchase and the remaining 40% in the next month.Accounts payable stood at $36,000 at December 31,Year 1. Required: 1)Prepare an inventory purchases budget for January,February,and March of Year 2. 2)Determine the amount of ending inventory and the accounts payable balance that will appear on the March 31,Year 2 pro forma balance sheet. 3)Prepare a schedule of cash payments for inventory for January,February,and March,Year 2.

Najimi Enterprises recently began selling on the internet.Internet sales for the fourth quarter of Year 1 totaled $600,000.The company's internet sales are expected to grow at a rate of 20% per quarter.All sales are made on account.The company's collection experience is that 70% of accounts receivable will be collected in the quarter of sale and 25% in the next quarter.Five percent of receivables will prove uncollectible and are written off during the quarter following the quarter of sale.The balance in accounts receivable at the end of December Year 1 was $150,000. Required: a)Prepare a sales budget for internet sales for the four quarters of Year 2; include a total column that shows total budgeted internet sales for the year. b)Compute the accounts receivable balance as of the end of Year 2. c)Prepare a cash receipts schedule for all four quarters of Year 2 and the year as a whole.

Which of the following items will not appear on a cash budget?

Select the correct statement about budgeting and human behavior.