Exercises for Master Budget

Exercises 1
Weber Company produces floor mats used in gyms and dojos. The sales
budget for four months of the year is as follows:
Unit Sales Dollar Sales

April 12,000 $ 288,000

May 50,000 1,200,000
June 30,000 720,000
July 28,000 672,000
Company policy requires that ending inventories for each month be 15
percent of next month’s sales. At the beginning of April, the beginning
inventory of mats met that policy.
Required:
Prepare a production budget for the second quarter of the year. Show the
number of units that should be produced each month as well as for the
quarter in total.

Solution:

Second Quarter
Total
April May June
Sales 12000 50000 30000 92000
Desired ending inventory 7500 4500 4200 4200
Total Needs 19500 54500 34200 96200
Less: Beginning inventory 1800 7500 4500 1800
Units to be produced 17700 47000 29700 94400
Desired ending inventory/ April = 0.15 * 50000 = 7500
Desired ending inventory/ May = 0.15 * 30000 = 4500
Desired ending inventory/ June = 0.15 * 28000 = 4200
Beginning inventory / April = 0.15 * 12000 = 1800

Exercises 2
Sleepeze Company produces a variety of pillows for catalog sales. Two
popular types are the standard pillow and the neck roll. The standard
pillow sells for $4, and the neck roll sells for $3. Projected sales of the
two types of pillows for the coming four quarters are as follows:
 Standard Pillow Neck Roll
First quarter 5,000 4,000
Second quarter 6,500 4,500
Third quarter 10,000 8,000
Fourth quarter 5,500 5,000

The president of the company believes that the projected sales are
realistic and can be achieved by the company. In the factory, the
production supervisor has received the projected sales figures and
gathered information needed to compile production budgets. He
found that 300 standard pillows and 170 neck rolls were in
inventory on January 1. Company policy dictates that ending
inventory should equal 20 percent of the next quarter’s sales for
standard pillows and 10 percent of next quarter’s sales for neck
rolls.
Required:
1. Prepare a sales budget for each quarter and for the year in total.
Show sales by product and in total for each time period.
2. Prepare a separate production budget for each product for each
of the first three quarters of the year.

Solution:

1.

Sales Budget for Standard Pillow

Quarters
Details Year
1 2 3 4
units 5000 6500 10000 5500 27000
Price $4 $4 $4 $4 $4
Sales 20000 26000 40000 22000 108000

Sales Budget for Neck Roll

Quarters
Details Year
1 2 3 4
units 4000 4500 8000 5000 21500
Price $3 $3 $3 $3 $3
Sales 12000 13500 24000 15000 64500
2.

Production Budget for Standard Pillow

Quarters
Details Total
1 2 3
Sales 5000 6500 10000 21500
Desired ending inventory 1300 2000 1100 1100
Total Needs 6300 8500 11100 22600
Less: Beginning inventory 300 1300 2000 300
Units to be produced 6000 7200 9100 22300
Desired ending inventory/ 1 = 0.20 * 6500 = 1300
Desired ending inventory/ 2 = 0.20 * 10000 = 2000
Desired ending inventory/ 3 = 0.20 * 5500 = 1100

Production Budget for Neck Roll

Quarters
Details Total
1 2 3
Sales 4000 4500 8000 16500
Desired ending inventory 450 800 500 500
Total Needs 4450 5300 8500 17000
Less: Beginning inventory 170 450 800 170
Units to be produced 4280 4850 7700 16830
Desired ending inventory/ 1 = 0.10 * 4500 = 450
Desired ending inventory/ 2 = 0.10 * 8000 = 800
Desired ending inventory/ 3 = 0.10 * 5000 = 500

Exercises 3
Ivans Company produces stuffed toy animals; one of these is Randy the
Reindeer. Each reindeer takes 0.10 yard of fabric and three ounces of
polyfiberfill. Fabric costs $3.50 per yard, and polyfiberfill is $0.05 per
ounce. Ivans has budgeted production of stuffed reindeer for the next four
months as follows:

Units
October 40,000
November 80,000
December 50,000
January 60,000
Inventory policy requires that sufficient fabric be in ending monthly
inventory to satisfy 15 percent of the following month’s production needs
and sufficient polyfiberfill be in inventory to satisfy 30 percent of the
following month’s production needs. Inventory of fabric and polyfiberfill
at the beginning of October equals exactly the amount needed to satisfy
the inventory policy. Each reindeer produced requires (on average) 0.2
direct labor hour. The average cost of direct labor is $10.50 per hour.
Required:
1. Prepare a direct materials purchases budget of fabric for the last quarter
of the year showing purchases in units and in dollars for each month and
for the quarter in total.
2. Prepare a direct materials purchases budget of polyfiberfill for the last
quarter of the year showing purchases in units and in dollars for each
month and for the quarter in total.
3. Prepare a direct labor budget for the last quarter of the year showing
the hours needed and the direct labor cost for each month and for the
quarter in total.
Solution:

1.

direct materials purchases budget of fabric

Last Quarter
Details Total
October November December
Units to be produced 40000 80000 50000 170000
Direct materials per
0.10 0.10 0.10 0.10
unit (Yard)
Production needs 4000 8000 5000 17000
Desired ending
1200 750 900 900
inventory
Total needs 5200 8750 5900 17900
Less: Beginning
600 1200 750 600
inventory
Direct materials to be
4600 7550 5150 17300
purchased
Cost per Yard 3.5 3.5 3.5 3.5
Total purchase cost 16100 26425 18025 60550
2.

direct materials purchases budget of polyfiberfill

Last Quarter
Details Total
October November December
Units to be produced 40000 80000 50000 170000
Direct materials per
3 3 3 3
unit (ounce)
Production needs 120000 240000 150000 510000
Desired ending
72000 45000 54000 54000
inventory
Total needs 192000 285000 204000 564000
Less: Beginning
36000 72000 45000 36000
inventory
Direct materials to be
156000 213000 159000 528000
purchased
Cost per Yard 0.05 0.05 0.05 0.05
Total purchase cost 7800 10650 7950 26400

Direct Labor Budget

Last Quarter
Details Total
October November December
Units to be produced 40000 80000 50000 170000
Direct labor time per
0.2 0.2 0.2 0.2
unit (hrs.)
Total hours needed 8000 16000 10000 34000
Wage per hour 10.5 10.5 10.5 10.5
Total Direct Labor
84000 168000 105000 357000
Cost
Exercises 4
Central Drug Store carries a variety of health and beauty aids, including
elastic ankle braces. The sales budget for ankle braces for the first six
months of the year is as follows:

Unit Sales Dollar Sales

January 150 $1,200
February 140 1,120
March 145 1,160
April 160 1,280
May 200 1,600
June 260 2,080

The owner of Central Drug believes that ending inventories should be

sufficient to cover 20 percent of the next month’s projected sales. On
January 1, there were 84 ankle braces in inventory.
Required: Prepare a merchandise purchases budget in units of ankle
braces for as many months as you can.

Jan. Feb. March April May

Sales 150 140 145 160 200
Desired Ending Inventory 28 29 32 40 52
Total Needs 178 169 177 200 252
Less: Beginning Inventory 30 28 29 32 40
Units to be Purchase 148 141 146 168 212

Exercises 5
Crash Dobson, former all-state high school football player, owns a retail
store that sells new and used sporting equipment. Crash has requested a
cash budget for October. After examining the records of the company,
you find the following:

a. Cash balance on October 1 is $1,980.

b. Actual sales for August and September are as follows:

August September
Cash sales $15,000 $ 20,000
Credit sales 80,000 90,000
Total sales $95,000 $110,000
c. Credit sales are collected over a three-month period: 50 percent in the
month of sale, 30 percent in the second month, and 15 percent in the third
month. The remaining sales are uncollectible.
d. Inventory purchases average 70 percent of a month’s total sales. Of
those purchases, 40 percent are paid for in the month of purchase. The
remaining 60 percent are paid for in the following month.
e. Salaries and wages total $2,000 per month.
f. Rent is $2,700 per month.
g. Taxes to be paid in October are $5,000.
h. Crash usually withdraws $4,000 each month as his salary.
i. Advertising is $500 per month.
j. Other operating expenses total $800 per month.
Crash tells you that he expects cash sales of $10,000 and credit sales of
$65,000 for October. He likes to have $2,000 on hand at the end of the
month and is concerned about the potential October ending balance.
Required: Prepare a cash budget for October. Include supporting
schedules for cash collections and cash payments.

Solution:

Sales Collections

Details August September October

Cash Sales 15000 20000 10000
Credit Sales:
%50 40000 45000 32500
%30 24000 27000
%15 12000
Total 81500
Purchases of September = 110000 * %70 = $ 77000

Purchases of October = 75000 * %70 = $ 52500

Payments September October

%40 30800 21000
%60 46200
Total 67200
 Details October
Beginning cash balance $1980
Sales Collections 81500
Total Cash Available $83480
Less disbursements:
Purchases 67200
Salaries and wages 2000
Rent 2700
Taxes 5000
Crash`s Salary 4000
Advertising 500
Other operating expenses 800
Total disbursements $82200
Minimum cash balance 2000
Total cash needs $84200
Excess (deficiency) of cash (720)
available over needs

Exercises 6
Historically, Pine Hill Wood Products has had no significant bad debt
experience with its customers. There are no cash sales; all sales are made
on credit. Payments for credit sales have been received as follows:
40 percent of credit sales in the month of the sale.
30 percent of credit sales in the first subsequent month.
25 percent of credit sales in the second subsequent month.
5 percent of credit sales in the third subsequent month.
The sales forecast is as follows.
January $95,000
February 65,000
March 70,000
April 80,000
May 85,000
Required: What is the forecasted cash inflow for Pine Hill Wood
Products for May?
Exercises 7
Kevin Campbell’s is a men’s clothing store in Mesa, Arizona. Kevin
Campbell’s has its own house charge accounts and has found from past
experience that 20 percent of its sales are for cash. The remaining 80
percent are on credit. An aging schedule for accounts receivable reveals
the following pattern:
15 percent of credit sales are paid in the month of sale.
65 percent of credit sales are paid in the first month following the sale.
18 percent of credit sales are paid in the second month following the sale.
2 percent of credit sales are never collected.
Credit sales that have not been paid until the second month following the
sale are considered overdue and are subject to a 2 percent late charge.
Kevin Campbell’s has developed the following sales forecast:
May $66,000
June 85,000
July 55,000
August 75,000
September 80,000
Required:
Prepare a schedule of cash receipts for August and September.

Exercises 8
Rokat Corporation is a manufacturer of tables sold to schools, restaurants,
hotels, and other institutions. The table tops are manufactured by Rokat,
but the table legs are purchased from an outside supplier. The assembly
department takes a manufactured table top and attaches the four
purchased table legs. It takes 18 minutes of labor to assemble a table. The
company follows a policy of producing enough tables to ensure that 40
percent of next month’s sales are in the finished goods inventory. Rokat
also purchases sufficient materials to ensure that materials inventory is 60
percent of the following month’s scheduled production. Rokat’s sales
budget in units for the next quarter is as follows:
July 2,300
August 2,500
September 2,100

Rokat’s ending inventories in units for June 30 are as follows:

Finished goods 1,900
Materials (legs) 4,000
Required:
1. Calculate the number of tables to be produced during August.
2. Disregarding your response to Requirement 1, assume the required
production units for August and September are 1,600 and 1,800,
respectively, and the July 31 materials inventory is 4,200 table legs.
Compute the number of table legs to be purchased in August.
3. Assume that Rokat Corporation will produce 1,800 units in September.
How many employees will be required for the assembly department in
September? (Fractional employees are acceptable since employees can be
hired on a part-time basis. Assume a 40-hour week and a 4-week month.)

Exercises 9
Electra Manufacturing, Inc., produces control valves used in the
production of oil field equipment. The control valves are sold to various
gas and oil engineering companies throughout the United States.
Projected sales in units for the coming four months are
as follows:
January 20,000
February 25,000
March 30,000
April 30,000
The following data pertain to production policies and manufacturing
specifications followed by Electra:
a. Finished goods inventory on January 1 is 13,000 units. The desired
ending inventory for each month is 70 percent of the next month’s sales.
b. The data on materials used are as follows:
Direct Material Per-Unit Usage Unit Cost
Part 714 5 $4
Part 502 3 3
Inventory policy dictates that sufficient materials be on hand at the
beginning of the month to produce 50 percent of that month’s estimated
sales. This is exactly the amount of material on hand on January 1.
c. The direct labor used per unit of output is two hours. The average
direct labor cost per hour is $15.
d. Overhead each month is estimated using a flexible budget formula.
(Activity is measured in direct labor hours.)
 Fixed Cost Variable Cost
Component Component
Supplies $— $1.00
Power — 0.20
Maintenance 28,000 1.10
Supervision 14,000 —
Depreciation 100,000 —
Taxes 7,000 —
Other 56,000 1.60

e. Monthly selling and administrative expenses are also estimated using a

flexible budgeting formula. (Activity is measured in units sold.)
Fixed Costs Variable Costs
Salaries $30,000 —
Commissions — $0.75
Depreciation 5,000 —
Shipping — 2.60
Other 10,000 0.40
f. The unit selling price of the control valve is $90.
g. In February, the company plans to purchase land for future expansion.
The land costs $90,000.
h. All sales and purchases are for cash. Cash balance on January 1 equals
$162,900. If the firm develops a cash shortage by the end of the month,
sufficient cash is borrowed to cover the shortage. Any cash borrowed is
repaid one month later, as is the interest due. The interest rate is 12
percent per annum.
Required:
Prepare a monthly operating budget for the first quarter with the
following schedules:
1. Sales budget
2. Production budget
3. Direct materials purchases budget
4. Direct labor budget
5. Overhead budget
6. Selling and administrative expense budget
7. Ending finished goods inventory budget
8. Cost of goods sold budget
9. Budgeted income statement (ignore income taxes)
10. Cash budget

Exercises 10
Bernard Creighton is the controller for Creighton Hardware Store. In
putting together the cash budget for the fourth quarter of the year, he has
assembled the following data:
a. Sales
July (actual) $100,000
August (actual) 120,000
September (estimated) 90,000
October (estimated) 100,000
November (estimated) 135,000
December (estimated) 150,000
b. Each month, 20 percent of sales are for cash, and 80 percent are on
credit. The collection pattern for credit sales is 20 percent in the month of
sale, 50 percent in the following month, and 30 percent in the second
month following the sale.
c. Each month, the ending inventory exactly equals 40 percent of the cost
of next month’s sales. The markup on goods is 33.33 percent of cost.
d. Inventory purchases are paid for in the month following purchase.
e. Recurring monthly expenses are as follows:
Salaries and wages $10,000
Depreciation on plant and equipment 4,000
Utilities 1,000
Other 1,700
f. Property taxes of $15,000 are due and payable on September 15.
g. Advertising fees of $6,000 must be paid on October 20.
h. A lease on a new storage facility is scheduled to begin on November 2.
Monthly payments are $5,000.
i. The company has a policy to maintain a minimum cash balance of
$10,000. If necessary, it will borrow to meet its short-term needs. All
borrowing is done at the beginning of the month. All payments on
principal and interest are made at the end of the month. The annual
interest rate is 9 percent. The company must borrow in multiples of
$1,000.
j. A partially completed balance sheet as of August 31 follows. (Accounts
payable is for inventory purchases only.)
Liabilities&
Assets Owners’ Equity
Cash ?$
Accounts receivable ?
Inventory ?
Plant and equipment 431,750
Accounts payable ?$
Common stock 220,000
Retained earnings 268,750
Totals $? $?

Required:
1. Complete the balance sheet given in part (j).
2. Bernard wants to see how the company is doing prior to starting the
month of December. Prepare a cash budget for the months of September,
October, and November and for the three-month period in total (the
period begins on September 1). Provide a supporting schedule of cash
collections.
3. Prepare a pro forma balance sheet as of November 30.

Exercises 11
Bullen & Company makes and sells high-quality glare filters for
microcomputer monitors. John Crave, controller, is responsible for
preparing Bullen’s master budget and has assembled the following data
for 2010.
2010
January February March April
Estimated unit sales 20,000 24,000 16,000 18,000
Sales price per unit $80 $80 $75 $75
Direct labor hours per unit 4.0 4.0 3.5 3.5
Direct labor hourly rate $15 $15 $16 $16
Direct materials cost per unit $10 $10 $10 $10
The direct labor rate includes wages and all employee-related benefits.
Labor saving machinery will be fully operational by March. Also, as of
March 1, the company’s union contract calls for an increase in direct
labor wages that is included in the direct labor rate. Bullen expects to
have 10,000 glare filters in inventory at December 31, 2009, and has a
policy of carrying 50 percent of the following month’s projected sales in
inventory.
Required:
Prepare the following monthly budgets for Bullen & Company for the
first quarter of 2010. Be sure to show supporting calculations.
a. Production budget in units
b. Direct labor budget in hours
c. Direct materials cost budget
d. Sales budget

Exercises 12
Friendly Freddie’s is an independently owned major appliance and
electronics discount chain with seven stores in a Midwest metropolitan
area. Rapid expansion has created the need for careful planning of cash
requirements to ensure that the chain is able to replenish stock adequately
and meet payment schedules to creditors. Fred Ferguson, founder of the
chain, has established a banking relationship that provides a $200,000
line of credit to Friendly Freddie’s. The bank requires that a minimum
balance of $8,200 be kept in the chain’s checking account at the end of
each month. When the balance goes below $8,200, the bank
automatically extends the line of credit in multiples of $1,000 so that the
checking account balance is at least $8,200 at month-end. Friendly
Freddie’s attempts to borrow as little as possible and repays the loans
quickly in multiples of $1,000 plus 2 percent monthly interest on the
entire loan balance. Interest payments and any principal payments are
paid at the end of the month following the loan. The chain currently has
no outstanding loans. The following cash receipts and disbursements data
apply to the fourth quarter of the
current calendar year:
Estimated beginning cash balance $ 8,800
Estimated cash sales:
 October $ 14,000
November 29,000
December 44,000
Sales on account:
July (actual) $130,000
August (actual) 104,000
September (actual) 128,000
October (estimated) 135,000
November (estimated) 142,000
December (estimated) 188,000

Projected cash collection of sales on account is estimated to be 70 percent

in the month following the sale, 20 percent in the second month following
the sale, and 6 percent in the third month following the sale. The 4
percent beyond the third month following the sale is determined to be
uncollectible. In addition, the chain is scheduled to receive $13,000 cash
on a note receivable in October. All inventory purchases are made on
account as the chain has excellent credit with all vendors because of a
strong payment history. The following information regarding
inventory purchases is available:
Inventory Purchases
September (actual) $120,000
October (estimated) 112,000
November (estimated) 128,000
December (estimated) 95,000
Cash disbursements for inventory are made in the month following
purchase using
an average cash discount of 3 percent for timely payment. Monthly cash
disbursements for operating expenses during October, November, and
December are estimated to be $38,000, $41,000, and $46,000,
respectively.
Required:
Prepare Friendly Freddie’s cash budget for the months of October,
November, and December showing all receipts, disbursements, and credit
line activity, where applicable.
Exercises 13
Choose the correct Answer:

1. Schultz Company expects to manufacture and sell 30,000 baskets in

20x4 for $6 each. There are 3,000 baskets in beginning finished
goods inventory with target ending inventory of 4,000 baskets. The
company keeps no work-in-process inventory. What amount of sales
revenue will be reported on the 20x4 budgeted income statement?
a. $174,000
b. $180,000
c. $186,000
d. $204,000
Answer: b 30,000 x $6 = $180,000

2. DeArmond Corporation has budgeted sales of 18,000 units, target

ending finished goods inventory of 3,000 units, and beginning
finished goods inventory of 900 units. How many units should be
produced next year?
a. 21,900 units
b. 20,100 units
c. 15,900 units
d. 18,000 units
Answer: b 18,000 + 3,000 - 900 = 20,100 units

3. For next year, Galliart, Inc., has budgeted sales of 60,000 units, target
ending finished goods inventory of 3,000 units, and beginning
finished goods inventory of 1,800 units. All other inventories are
zero. How many units should be produced next year?
a. 58,800 units
b. 60,000 units
c. 61,200 units
d. 64,800 units
Answer: c 60,000 + 3,000 - 1,800 = 61,200 units

4. Wilgers Company has budgeted sales volume of 30,000 units and

budgeted production of 27,000 units. 5,000 units are in beginning
finished goods inventory. How many units are targeted for ending
finished goods inventory?
a. 5,000 units
b. 8,000 units
c. 3,000 units
 d. 2,000 units
Answer: d 5,000 + 27,000 - 30,000 = 2,000

Exercises 14
Marguerite, Inc., expects to manufacture and sell 20,000 pool cues for
$12.00 each. Direct materials costs are $2.00, direct manufacturing labor
is $4.00, and manufacturing overhead is $0.80 per pool cue. The
following inventory levels apply to 20x4:

Beginning inventory Ending inventory

Direct materials 24,000 units 24,000 units
Finished goods inventory 2,000 units 2,500 units

1. On the 20x4 budgeted income statement, what amount will be reported

for sales?
a. $246,000
b. $240,000
c. $312,000
d. $318,000
Answer: b 20,000 x $12 = $240,000

2. How many pool cues need to be produced in 20x4?

a. 22,500 cues
b. 22,000 cues
c. 20,500 cues
d. 19,500 cues
Answer: c 20,000 + 2,500 - 2,000 = 20,500 cues

3. On the 20x4 budgeted income statement, what amount will be reported

for cost of goods sold?
a. $139,400
b. $136,000
c. $132,600
d. $153,000
Answer: b 20,000 x ($4.00 + $2.00 + $0.80) = $136,000

4. What are the 20x4 budgeted costs for direct materials, direct
manufacturing labor, and manufacturing overhead, respectively?
a. $0; $96,000; $19,200
b. $39,000; $78,000; $15,600
c. $80,000; $40,000; $16,000
d. $41,000; $82,000; $16,400
 Answer: d 20,500 x $2.00 = $41,000; 20,500 x $4.00 = $82,000;
20,500 x $0.80 = $16,400

Exercises 15
Daniel, Inc. expects to manufacture and sell 6,000 ceramic vases for $20
each. Direct materials costs are $2, direct manufacturing labor is $10, and
manufacturing overhead is $3 per vase. The following inventory levels
apply to 20x4:

Beginning inventory Ending inventory

Direct materials 1,000 units 1,000 units
Finished goods inventory 400 units 500 units

1. On the 20x4 budgeted income statement, what amount will be reported

for sales?
a. $122,000
b. $118,000
c. $140,000
d. $120,000
Answer: d 6,000 x $20 = $120,000

2. How many ceramic vases need to be produced in 20x4?

a. 5,900 vases
b. 6,100 vases
c. 7,000 vases
d. 6,000 vases
Answer: b 6,000 + 500 - 400 = 6,100 vases

3. On the 20x4 budgeted income statement, what amount will be reported

for cost of goods sold?
a. $91,500
b. $105,000
c. $90,000
d. $88,500
Answer: c 6,000 x ($2 + $10 + $3) = $90,000

4. What are the 20x4 budgeted costs for direct materials, direct
manufacturing labor, and manufacturing overhead, respectively?
a. $12,200; $61,000; $18,300
b. $12,000; $60,000; $18,000
c. $2,000; $10,000; $3,000
d. $2,000; $0; $18,000
Answer: a
 6,100 x $2 = $12,200; 6,100 x $10 = $61,000; 6,100 x $3 =
$18,300

Exercises 16
The following information pertains to the January operating budget for
Casey Corporation, a retailer:
Budgeted sales are $200,000 for January
Collections of sales are 50% in the month of sale and 50% the next
month
Cost of goods sold averages 70% of sales
Merchandise purchases total $150,000 in January
Marketing costs are $3,000 each month
Distribution costs are $5,000 each month
Administrative costs are $10,000 each month

1. For January, budgeted gross margin is

a. $100,000.
b. $140,000.
c. $60,000.
d. $50,000.
Answer: c $200,000 - $140,000 = $60,000
2. For January, the amount budgeted for the nonmanufacturing costs
budget is
a. $78,000.
b. $10,000.
c. $168,000.
d. $18,000.
Answer: d $3,000 + $5,000 + $10,000 = $18,000
3. For January, budgeted net income is
a. $42,000.
b. $60,000.
c. $50,000.
d. $52,000.
Answer: a
$200,000 - $140,000 - $3,000 - $5,000 - $10,000 = $42,000

Exercises 17
Furniture, Inc., estimates the following number of mattress sales for the
first four months of 20x4:
 Month Sales
January 5,000
February 7,000
March 6,500
April 8,000

Finished goods inventory at the end of December is 1,500 units. Target

ending finished goods inventory is 30% of next month's sales.

1. How many mattresses need to be produced in January 20x4?

a. 4,400 mattresses
b. 5,600 mattresses
c. 6,500 mattresses
d. 7,100 mattresses
Answer: b
5,000 + (7,000 x 0.30) - $1,500 = 5,600 mattresses
2. How many mattresses need to be produced in the first quarter (January,
February, March) of 20x4?
a. 18,500 mattresses
b. 19,400 mattresses
c. 20,900 mattresses
d. 22,400 mattresses
Answer: b
5,000 + 7,000 + 6,500 + (8,000 x 0.30) - 1,500 = 19,400 mattresses

Exercises 18
Wallace Company provides the following data for next year:
Month Budgeted Sales
January $120,000
February 108,000
March 132,000
April 144,000
The gross profit rate is 40% of sales. Inventory at the end of December is
$21,600 and target ending inventory levels are 30% of next month's sales,
stated at cost.
1. Purchases budgeted for January total
a. $130,800.
b. $72,000.
c. $69,840.
d. $74,160.
Answer: c
($120,000 x 0.6) + ($108,000 x 0.6 x 0.3) - $21,600 = $69,840
2. Purchases budgeted for February total
a. $69,120.
b. $60,480.
c. $115,200.
d. $64,800.
Answer: a
($108,000 x 0.6) + ($132,000 x 0.6 x 0.3) - ($108,000 x 0.6 x 0.3) =
$69,120

Exercises 19
Ossmann Enterprises reports year-end information from 20x4 as follows:

Sales (80,000 units) $480,000

Cost of goods sold 320,000

Gross margin 160,000

Operating expenses 130,000

Operating income $ 30,000

Ossmann is developing the 20x5 budget. In 20x5 the company would like
to increase selling prices by 8%, and as a result expects a decrease in
sales volume of 10%. All other operating expenses are expected to
remain constant. Assume that COGS is a variable cost and that operating
expenses are a fixed cost.

1. What is budgeted sales for 20x5?

a. $518,400
b. $533,333
c. $466,560
d. $432,000
Answer: c $480,000 x 1.08 x 0.90 = $466,560
2. What is budgeted cost of goods sold for 20x5?
a. $311,040
b. $288,000
c. $345,600
d. $320,000
Answer: b $320,000 x 0.90 = $288,000
3. Should Ossmann increase the selling price in 20x5?
a. Yes, because operating income is increased for 20x5.
b. Yes, because sales revenue is increased for 20x5.
c. No, because sales volume decreases for 20x5.
d. No, because gross margin decreases for 20x5.
 Answer: a
$466,560 - $288,000 - 130,000 = $48,560 Yes, because it would
result in an increase in operating income compared to 20x4.

Exercises 20
The following information pertains to Basrah Company:

Month Sales Purchases

January $30,000 $16,000
February $40,000 $20,000
March $50,000 $28,000

 Cash is collected from customers in the following manner:

Month of sale 30%
Month following the sale70%
 40% of purchases are paid for in cash in the month of purchase,
and the balance is paid the following month.
 Labor costs are 20% of sales. Other operating costs are $15,000
per month (including $4,000 of depreciation). Both of these are
paid in the month incurred.
 The cash balance on March 1 is $4,000. A minimum cash
balance of $3,000 is required at the end of the month. Money can
be borrowed in multiples of $1,000.

1. How much cash will be collected from customers in March?

a. $47,000
b. $43,000
c. $50,000
d. None of the above
Answer: b ($40,000 x 70%) + ($50,000 x 30%) = $43,000
2. How much cash will be paid to suppliers in March?
a. $23,200
b. $28,000
c. $44,000
d. None of the above
Answer: a ($20,000 x 60%) + ($28,000 x 40%) = $23,200
3. How much cash will be disbursed in total in March?
a. $21,000
b. $25,000
c. $44,200
d. $48,200
Answer: c $23,200 + ($50,000 x 20%) + ($15,000 -$4,000) =
$44,200
4. What is the ending cash balance for March?
a. ($25,000)
b. $3,000
c. $3,200
d. $3,800
Answer: d $4,000 + $43,000 - $44,200 + $1,000 = $3,800

Exercises 21
Fiscal Company has the following sales budget for the last six months of
20x3:
July $100,000 October $ 90,000
August 80,000 November 100,000
September 110,000 December 94,000

Historically, the cash collection of sales has been as follows:

65% of sales collected in the month of sale,
25% of sales collected in the month following the sale,
8% of sales collected in the second month following the sale,
and 2% of sales are uncollectible.
1. Cash collections for September are
a. $71,500.
b. $86,700.
c. $99,500.
d. $102,000.
Answer: c
($110,000 x 0.65) + ($80,000 x 0.25) + ($100,000 x 0.08) = $99,500
2. What is the ending balance of accounts receivable for September,
assuming uncollectible balances are written off during the second
month following the sale?
a. $99,500
b. $48,500
c. $44,900
d. $46,500
Answer: d ($110,000 x 0.35) + ($80,000 x 0.10) = $46,500
3. Cash collections for October are
a. $58,500.
b. $92,400.
c. $99,500.
d. $88,200.
Answer: b
($90,000 x 0.65) + ($110,000 x 0.25) + ($80,000 x 0.08) = $92,400
 Exercises 22
Bear Company has the following information:
Month Budgeted Purchases
January $26,800
February 29,000
March 30,520
April 29,480
May 27,680

Purchases are paid for in the following manner:

10% in the month of purchase
50% in the month after purchase
40% two months after purchase
1. What is the expected balance in Accounts Payable as of March 31?
a. $39,068
b. $18,312
c. $2,900
d. $30,520
Answer: a ($30,520 x 0.9) + ($29,000 x 0.4) = $39,068
2. What is the expected balance in Accounts Payable as of April 30?
a. $26,532
b. $38,740
c. $12,208
d. $17,688
Answer: b ($29,480 x 0.9) + ($30,520 x 0.4) = $38,740
3. What is the expected Accounts Payable balance as of May 31?
a. $11,792
b. $24,912
c. $36,704
d. $2,948
Answer: c ($27,680 x 0.9) + ($29,480 x 0.4) = $36,704

Exercises 23
The following information pertains to the January operating budget for
Casey Corporation.
 Budgeted sales for January $100,000 and February $200,000.
 Collections for sales are 60% in the month of sale and 40% the
next month.
 Gross margin is 30% of sales.
‫اريف ادارية‬‫ مص‬Administrative costs are $10,000 each month.
‫ دائنون اول املدة‬ Beginning accounts receivable $20,000.
‫مخزون اول املده‬  Beginning inventory $14,000.
 Beginning accounts payable $60,000. (All from inventory
‫مدينون اول املده‬ purchases.)
 Purchases are paid in full the following month.
 Desired ending inventory is 20% of next month’s cost of goods
sold (COGS).

1. For January, budgeted cash collections are

a. $20,000.
b. $60,000.
c. $80,000.
d. none of the above.
Answer: c $20,000 + ($100,000 x 60%) = $80,000
2. At the end of January, budgeted accounts receivable is
a. $20,000.
b. $40,000.
c. $60,000.
d. none of the above. ٪٤٠ ‫النسبة الخ‬
Answer: b $100,000 x 40% = $40,000
3. For January, budgeted cost of goods sold is
a. $20,000.
b. $30,000.
c. $40,000.
d. none of the above. ‫متمم ال مارجني‬

Answer: d $100,000 x 70% = $70,000

4. For January, budgeted net income is
a. $20,000.
b. $30,000.
c. $40,000.
d. none of the above.
‫ مصاريف‬- cost of good -‫املابيعات‬
Answer: a $100,000 - $70,000 - $10,000 = $20,000
5. For January, budgeted cash payments for purchases are
a. $14,000.
b. $70,000.
c. $60,000
d. none of the above.
Answer: c Accounts payable, $60,000 as stated
6. At the end of January, budgeted ending inventory is
a. $20,000.
b. $28,000.
‫اخر املده من جنيوري‬
c. $40,000. cost of gold ‫ من الشهر الي بعده من‬٪٢٠ ‫املده‬
d. none of the above.
Answer: b $200,000 x 70% x 20% = $28,000
‫ للشهر الي بعده ) فبراير( ومجهول الزم استخرجه‬cost gold ‫ من‬٪٢٠ = ‫نهاية املده‬
C g = salse * ‫النسبة‬