Chap7vanderbeck Reviewer

6th Quiz _ Acctg 1206 - Ch7

Question 1
1 / 1 pts
Consider the following budgets:
(1) Production
(2) Cost of goods sold
(3) Direct materials
(4) Income statement

In what order should these budgets be prepared?

 3, 1, 4, 2
 1,3,2,4
 1,4,3,2
 3, 4, 1, 2
Question 2
1 / 1 pts
Expense A is a fixed cost; expense B is a variable cost. During the current year the activity level has
increased, but is still within the relevant range. In terms of cost per unit of activity, we would expect
that:
expense A has remained unchanged.

expense A has decreased
expense B has decreased
Expense B has increased
Question 3
1 / 1 pts
Which of the following is not true about budgeting?
It provides the framework for planning and control

It should rely mainly to historical data.
It is used to help a company reach long-term and short-term objectives.
It aids in the efficient use of resources.
Question 4
1 / 1 pts
The purpose of a flexible budget is to:
Eliminate cyclical fluctuations in production reports by ignoring variable costs.

Reduce the total time in preparing the annual budget.
Compare actual and budgeted results at virtually any level of production.
Allow management some freedom in meeting goals.
Question 5
1 / 1 pts
Amounts from all of the following budgets feed into the pro-forma income statement except the:
Cash budget.
Production budget
Sales budget.
Factory overhead budget.
Question 6
1 / 1 pts
Managers should consider all of the following in developing a sales budget except:
Development of new products.

Present and future economic conditions.
Customer demand.
Plant manager salaries.
Question 7
1 / 1 pts
Which of the following is not a requirement of budgeting?
There must be accountability for actual results.

Management must clearly define its objectives.
The budget must not be changed under any circumstances.
Goals must be realistic and possible to attain.
Question 8
1 / 1 pts
The level of production that is used by most firms for budget development because it represents a
logical balance between maximum production capacity and the capacity demanded by actual sales
volume is:
budgeted capacity.
normal capacity.
theoretical capacity.
practical capacity.
Question 9
1 / 1 pts
Producing goods evenly throughout the year despite having a seasonal sales pattern could lead to:
Employee morale issues.

High costs for recruiting and training new employees.
Relatively stable inventory levels.
The potential for inventory obsolescence.
Question 10
1 / 1 pts
The process of setting unrealistically low budgeting goals in an effort to make only average
performance look good is:
budget slack
safe budget
budget cushion
normal budget
Question 11
2 / 2 pts
Shaw Corporation has developed the following flexible budget formula for annual indirect labor cost:
Total costs = $9,600 + $0.50 per machine hour
Operating budgets for the current year are based upon 30,000 hours of planned machine time.
Indirect labor costs included in this planning budget are:
$15,800. $24,600
$15,000. $189,600
Solution
Total cost $9,600
30,000 hours of planned machine time x $0.50 per machine hour 15,000
$24,600
Cooper Carriers has budgeted production of 180,000 units this fiscal year. There were 18,000 units on
hand in finished goods inventory on January 1 and the company’s desired inventory at the end of the
year is 15,000 units. Cooper’s sales budget in units is:
177,000
183,000
165,000
192,000
Solution:
Sales budget
Production 180,000
Add Beg inventory 18,000
Total 198,000
Less end inventory 15,000
Total sales 183,000
O’Reilly Outfitters Inc. has forecasted sales of 32,000 tents for the upcoming year. The anticipated
finished goods inventory at January 1 is 5,000 units, but management desires this inventory level to
be reduced by 20% on December 31.
Compute the production budget for the upcoming year.
33,000
30,000
34,000
31,000
Solution:
PRODUCTION BUDGET
sales 32,000
Add ending inventory
[ 5,000 jan 1 - [ 5,000 x 20%]] 4,000
total 36,000
Less beg. Inventory 5,000
Total Production budget 31,000
Hola Company has the following totals from its operating budgets for the month:
Cost of goods sold $1,967,000
Sales 2,530,000
Selling and administrative expenses 322,000
How much is the budgeted income for the month assuming a 30% income tax rate?
$563,000
$168,700
$241,000
$172,143
Solution
Sales 2,530,000
Cost of goods sold $1,967,000
Gross profit 563,000

Selling and administrative expenses 322,000
Operating Income 241,000
Income tax [ 241,000 x 30%] 72,300
Net income $168,700
Julia Industries produces cookware. The master budget called for production of 75,000 units this year.
The budget at that level of production follows:
Sales $1,200,000
Direct materials 300,000
Direct labor 150,000
Variable factory overhead 225,000
Fixed factory overhead 262,500
Fixed selling and

112,500
administrative expense
Operating income $ 150,000

Due to the popularity of cooking shows on television, Julia Industries now estimates sales will be
77,500 units. What is budgeted operating income at this level?
$167,500
$230,000
$160,000
$185,000
Solution
Sales @ 77,500 units= $1,200,000 / 75,000 units = $ 16 x 77,500 units= 1,240,000
variable cost @77,500 units= 300,000 +150,000+ 225,000 = 675,000 / 75, 000= $9 x 77,500 units =
697,500
Sales 1,240,000
Variable cost 697,500

Fixed factory overhead 262,500
Fixed selling and administrative expense 112,500
Total $167,500
Pinecroft Company manufactures one product that requires 4 hours of machining direct labor and 3
hours of assembly direct labor. The standard labor rate is $20.00 per direct labor hour in the
Machining Department and $16.00 per direct labor hour in the Assembly Department. The product
has forecasted sales of 3,000 units in July. The estimated finished goods inventory at July 1 is 300
units and the desired ending inventory at July 31 is 400 units.
Compute for the direct labor budget for the month.
$730,800
$371,200
$384,000
$396,800
Solution
Production budget
Sales 3,000
Desired ending 400
Total 3,400
Estimated beg. 300
Total production 3,100
Direct labor budget

Hours required for Machining Assembly TOTAL
production 12,400 9,300
MACH-3,100 x 4 hours
ASSEM-3,100 x 3 hours
HOURLY RATE $20.00 $16.00
TOTAL 248,000 148,800 $396,800
Lunchco Inc. produces picnic tables in a two-step process. Pretreated wood is cut in the Cutting
Department and then the lumber is assembled into tables in the Assembly Department. It takes 10
minutes of direct labor time to cut the lumber and the standard hourly labor rate in the Cutting
Department is $12. The tables take one hour to assemble and the standard hourly rate in the
Assembly Department is $11. If Lunchco’s production budget is 20,000, what is the company’s direct
labor budget?
$240,000
$320,000
$260,000
$340,000
HOURS REQUIRED FOR CUTTING ASSEMBLY TOTAL
PRODUCTION
CUTTING 20,000 X 3,333.3333 20,000
[10MIN/60MIN]
ASSEMBLY20,000 X 1HR
HOURLY RATE $12 $11
TOTAL 40,000 220,000 $260,000
Brazil Co. plans to produce 100,000 toy cars during June. Planned production for July is 125,000 cars.
Sales are forecasted at 90,000 toy cars for June and 120,000 toy cars for July. Each toy car requires
four wheels. Brazil's policy is to maintain a 10% of the next month's production in inventory at the
end of the month. How many wheels should Brazil purchase during June.
390,000
410,000
400,000
360,000
SOLUTION
FORECASTED SALES JUNE 90,000
PLUS ENDING INVENTORY
[125,000 JUL - [125,000 X 10%] 112,500
TOTAL 202,500
LESS BEG. INVENTORY 100,000
TOTAL PRODUCTION 102,500
DIRECT MATERIALS INVENTORY

QUANTY REQUIRED FOR PRODUCTION
[ 102,500 X 4 WHEELS] 410,000
How much will be the cost of goods sold budget for the S Company for the upcoming year from the
following estimates?
Inventories:
Work in Process Finished Goods

Direct Materials
January 1 $22,600 $32,500 $50,200
December 31 31,400 30,400 48,300
Totals from other budgets:
Direct materials purchased $234,500
Direct labor 192,600
Factory overhead 185,700
$616,800
$614,700
$612,800
$608,000
SOLUTION COST OF GOODS SOLD BUDGET
FINISHED GOODS JANUARY $50,200

DIRECT MATERIALS JAN $22,600
ADD DIRECT MATERIALS
PURCHASED $234,500
TOTAL MATERIALS 257,100
AVAILABLE
LESS DIRECT MATERIALS 31,400
DEC.
COST OF DIRECT MATERIALS 225,700
DIRECT LABOR 192,600
FACTORY OVERHEAD 185,700
MANUFACTURING COST 604,000
ADD WIP JAN. $32,500
TOTAL 636,500
LESS WIP DEC 30,400
COST OF GOODS 606,100
MANUFACTURED
TOTAL COST OF GOODS 656,300
AVAILABLE
LESS FINISHED GOODS DEC. 48,300
COST OF GOODS SOLD $608,000
The normal capacity of Yule Company is 5,000 units per month. At this volume, budgeted fixed and
variable factory overhead are $22,500 and $20,000, respectively. In December, actual production was
4,500 units and actual overhead incurred was $46,300.
What is the factory overhead application rate at the actual level of production (rounded to the
nearest penny)?
$9.00
$9.21
$8.50
$10.28
@ 4,500 units
FIXED COST $22,500
VARIABLE [ $20,000/ 5,000] $4 X 4,500 18,000
TOTAL 40,500
UNIT COST 40,500/ 4,500= $9.00

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6th Quiz _ Acctg 1206 - Ch7

In what order should these budgets be prepared?

expense A has remained unchanged.

It provides the framework for planning and control

Eliminate cyclical fluctuations in production reports by ignoring variable costs.

Development of new products.

There must be accountability for actual results.

Employee morale issues.

Compute the production budget for the upcoming year.

Cost of goods sold $1,967,000

Selling and administrative expenses 322,000

Cost of goods sold $1,967,000

Gross profit 563,000

Direct materials 300,000

Direct labor 150,000

Variable factory overhead 225,000

Fixed factory overhead 262,500

Fixed selling and

Operating income $ 150,000

Variable cost 697,500

Compute for the direct labor budget for the month.

Direct labor budget

DIRECT MATERIALS INVENTORY

Work in Process Finished Goods

January 1 $22,600 $32,500 $50,200

December 31 31,400 30,400 48,300

Totals from other budgets:

Direct materials purchased $234,500

Direct labor 192,600

Factory overhead 185,700

FINISHED GOODS JANUARY $50,200

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