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Accounting 225 Quiz Section #9

Chapter 8 Class Exercises


1. Crydon Inc. manufactures an advanced swim fin for scuba divers. Management is now
preparing detailed budgets for its third quarter, July through September, their busiest time. They
have assembled the following data to help with the preparation.
The marketing department estimates sales of pairs of swim fins as follows:
Month
# fins
Month
# fins
July
6,000 October
4,000
August
7,000 November
3,000
September
5,000 December
3,000
The fins sell for $50 a pair.
All sales are on account. Based on past experience, cash from sales is expected to be
collected in the following pattern:
30% in the month of the sale
60% in the month following the sale
10% uncollectible
The beginning accounts receivable balance (excluding uncollectible amounts) on July 1 is
expected to be $165,000.
Crydon Inc. is fairly confident of its sales forecasts and has limited production capacity.
They therefore maintain finished goods inventories equal to 25% of the following months
sales. The inventory in finished goods on July 1 will be 1,500 pairs.
Each pair of fins requires 2 pounds of geico compound. To prevent shortages, the company
would like the inventory of geico compound on hand at the end of each month to be equal to
30% of the following months production needs. The inventory of geico compound on hand
on July 1 is expected to be 3,750 pounds.
Geico compound costs $5 per pound. Crydon Inc. pays for 60% of its purchases in the
month of purchase; the remainder is paid for in the following month. The accounts payable
balance for geico compound purchases will be $11,400 on July 1.
a) Please prepare a cash receipts budget for July through September.

b) What is the total sales revenue for June?

Accounting 225 Quiz Section #9


Chapter 8 Class Exercises

c) What is the balance of accounts receivable (excluding uncollectible amounts) at September


30?

d) Please prepare a production budget for July through September.


July

August

September

2. The Covey Company is preparing its Manufacturing Overhead Budget for the fourth quarter of
the year. The budgeted variable factory overhead rate is $4.00 per direct labor hour; the budgeted
fixed factory overhead is $64,000 per month, of which $18,000 is factory depreciation.
a)If the budgeted direct labor time for October is 8,000 hours, then the total budgeted factory
overhead for October is:
(a) $64,000
(b) $76,000
(c) $78,000
(d) $96,000

b)If the budgeted cash disbursements for factory overhead for November are $90,000, then the
budgeted direct labor hours for November must be:
2

Accounting 225 Quiz Section #9


Chapter 8 Class Exercises
(a)
(b)
(c)
(d)

2,000 hours
6,500 hours
11,000 hours
22,500 hours

c) If the budgeted direct labor time for December is 4,000 direct labor hours, then the total
budgeted factory overhead per direct labor hour is:
(a)
(b)
(c)
(d)

$15.50
$16.00
$20.00
$24.50

3. The Khaki Company has the following budgeted sales data:


Februar
January
y
March
April
Credit Sales....................................................................................................
$400,000 $350,000 $300,000 $320,000
Cash Sales......................................................................................................
$70,000 $90,000 $80,000 $70,000
The regular pattern of collection of credit sales is 40% in the month of sale, 50% in the month
following sale, and the remainder in the second month following the month of sale. There are no
bad debts.
a) The budgeted cash receipts for April would be:
(a)
(b)
(c)
(d)

$313,000
$320,000
$350,000
$383,000

b) The budgeted accounts receivable balance on February 28 would be:


(a)
(b)
(c)
(d)

$175,000
$210,000
$215,000
$250,000

Accounting 225 Quiz Section #9


Chapter 8 Class Exercises
4. The Orr Company makes and sells only one product called a Bobb. The company is in the
process of preparing its Selling and Administrative Expense Budget for the last half of the year.
The following budget data are available:
Variable Cost
Monthly
Per Bobb Sold
Fixed Cost
Sales Commissions........................................................................................
$0.90
-Shipping.........................................................................................................
$1.10
-Advertising.....................................................................................................
$0.40
$10,000
Executive Salaries..........................................................................................
-$40,000
Depreciation on Office Equipment................................................................
-$15,000
Other..............................................................................................................
$0.45
$25,000
All of these expenses (except depreciation) are paid in cash in the month they are incurred.
a)If the company has budgeted to sell 30,000 Bobbs in August, then the total budgeted selling
and administrative expenses per unit sold for August is:
(a)
(b)
(c)
(d)

$2.85
$3.00
$5.35
$5.85

b)If the company has budgeted to sell 26,000 Bobbs in November, then the total budgeted
variable selling and administrative expenses for November will be:
(a)
(b)
(c)
(d)

$37,700
$62,400
$74,100
$90,000

c)If the company has budgeted to sell 28,000 Bobbs in September, then the total budgeted fixed
selling and administrative expenses for September is:
(a)
(b)
(c)
(d)

$65,000
$75,000
$79,800
$90,000

d) If the budgeted cash disbursements for selling and administrative expenses for October total
$160,500, then how many Bobbs does the company plan to sell in October?
(a)
(b)
(c)
(d)

25,000 units
30,000 units
46,042 units
56,316 units