CHAPTER6:OPERATIONALANDFINANCIALBUDGETING

MultipleChoice
a1.Thestartingpointinpreparingacomprehensivebudgetis
a.thesalesforecast.
b.thecashbudget.
c.thebudgetedincomestatement.
d.theflexibleexpensebudget.
d2.Budgetsarerelatedtowhichofthefollowingmanagementfunctions?
a.Planning.
b.Control.
c.Performanceevaluation.
d.Alloftheabove.
d3.Whichofthefollowingshouldbeusedtoforecastsales?
a.Regressionanalysis.
b.Thescatterdiagram.
c.Thejudgmentofthemostexperiencedmanagers.
d.Whatevermethodproducesthemostaccurateforecast.
a4.Acriticalfactorforusingindicatormethodstoforecastsalesis
a.theavailabilityofaforecastedvaluefortheindicator.
b.anupwardtrendinthevalueoftheindicator.
c.governmentalcollectionofdataforcomputingandreportingthevalue
oftheindicator.
d.theavailabilityofanindicatorthatcoverstheentirecountry.
d5.Whichofthefollowingequationscanbeusedtobudgetpurchases?(BI=
beginninginventory,EI=endinginventorydesired,CGS=budgetedcost
ofgoodssold)
a.Budgetedpurchases=CGS+BIEI
b.Budgetedpurchases=CGS+BI
c.Budgetedpurchases=CGS+EI+BI
d.Budgetedpurchases=CGS+EIBI
b6.Aflexiblebudgetis
a.onethatcanbechangedwheneveramanagersodesires.
b.adjustedtoreflectexpectedcostsattheactuallevelofactivity.
c.onethatusestheformulatotalcost=costperunitxunits
produced.
d.thesameasacontinuousbudget.
b7.Theuseofflexible(asopposedtostatic)budgetallowancesisLEAST
importantforwhichofthefollowing?
a.Costsoftheproductiondepartment.
b.Costsofthegeneralaccountingdepartment.
c.Costsoftheproductshippingdepartment.
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d.Costsofthematerialreceivingdepartment.

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d8.Budgetssetatveryhighlevelsofperformance(i.e.,verylowcosts)
a.assistinplanningtheoperationsofthecompany.
b.stimulatepeopletoperformbetterthantheyordinarilywould.
c.arehelpfulinevaluatingtheperformanceofmanagers.
d.canleadtolowlevelsofperformance.
c9.Inventorypolicyismostcriticalinthebudgetingof
a.sales.
b.costofgoodssold.
c.purchases.
d.expenses.
a10.Budgetingexpendituresbypurposeiscalled
a.programbudgeting.
b.zerobasedbudgeting.
c.linebudgeting.
d.flexiblebudgeting.
c11.Whichofthefollowingisadifferencebetweenastaticbudgetanda
flexiblebudget?
a.Aflexiblebudgetincludesonlyvariablecosts,astaticbudget
includesonlyfixedcosts.
b.Aflexiblebudgetincludesallcosts,astaticbudgetincludesonly
fixedcosts.
c.Aflexiblebudgetgivesdifferentallowancesfordifferentlevelsof
activity;astaticbudgetdoesnot.
d.Noneoftheabove.
a12.Astaticbudgetismostappropriateforadepartment
a.withonlyfixedcosts.
b.withonlyvariablecosts.
c.withmostlymixedcosts.
d.withanyoftheabovecharacteristics.
d13.WhichofthefollowingisNOTanadvantageofbudgeting?
a.Itrequiresmanagerstostatetheirobjectives.
b.Itfacilitatescontrolbypermittingcomparisonsofbudgetedand
actualresults.
c.Itfacilitatesperformanceevaluationbypermittingcomparisonsof
budgetedandactualresults.
d.Itprovidesacheckupdevicethatallowsmanagerstokeepclosetabs
ontheirsubordinates.
b14.Animposedbudget
a.isthesameasastaticbudget.
b.canleadtopoorperformance.
c.isbestforplanningpurposes.
d.eliminatestheneedforasalesforecast.
b15.Prohibitingmanagersfromoverspendingbudgetallowances
a.improvescompanyperformance.
b.canharmcompanyperformance.
c.eliminatestheneedforcomparisonsofbudgetedandactualamounts.
d.usuallyreducestheneedtoprepareacashbudget.
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77

b16.WhichofthefollowingwilloccurifXCo.'sactualsalesinMayare
lowerthanitsbudgetedsalesforthatmonth?
a.Xwon'thaveenoughcashtocoverbillsrequiringpaymentinMay.
b.X'sactualinventoryattheendofMaywillbehigherthanbudgeted.
c.X'sactualpurchasesinJunewillbehigherthanbudgeted.
d.Alloftheabove.
c17.JITmanufacturersaremorelikelythanconventionalmanufacturersto
a.usestaticbudgetallowancesformanufacturingcosts.
b.prepareproductionbudgetswithoutasalesforecast.
c.budgetunitproductionequaltobudgetedunitsales.
d.experiencebudgetvariances.
a18.Ifcashreceiptsfromcustomersaregreaterthansales,whichofthe
followingismostlikelytobetrue?
a.Thebalanceofaccountsreceivablewilldecrease.
b.Thecompany'soutstandingdebtwilldecrease.
c.Thecompany'scashbalancewillincrease.
d.Thecompanywillshowaprofit.
c19.AcashbudgetisNOTprepareduntilacompanyhas
a.obtainedacommitmentfromitsbankthatcashwillbeavailableas
needed.
b.preparedtheproformabalancesheet.
c.prepareditspurchasesbudget.
d.determinedthatenoughcashisavailabletomeetdividendpayments.
a20.WhichofthefollowingisLEASTlikelytobeaffectedifunitsalesfor
thismontharelowerthanbudgeted?
a.Productionforthismonth.
b.Productionfornextmonth.
c.Cashreceiptsfornextmonth.
d.Inventoryattheendofthismonth.
b21."Incrementalbudgeting"refersto
a.linebylineapprovalofexpenditures.
b.settingbudgetallowancesbasedonprioryearexpenditures.
c.requiringtopmanagementapprovalofincreasesinbudgets.
d.usingincrementalrevenuesandcostsinbudgeting.
b22.TheprincipalDISADVANTAGEoflinebudgetingis
a.itcanonlybeusedbynotforprofitentities.
b.itlimitstheflexibilityofmanagerstoaccomplishtheentity's
objectives.
c.itworksonlyinconjunctionwithzerobasedbudgeting.
d.noneoftheabove.
a23.Thecashreceiptsbudget
a.requiresasalesforecast.
b.requiresapurchasesorproductionbudget.
c.ispreparedafterthecashdisbursementsbudget.
d.hasnoneoftheabovecharacteristics.

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c24.Thetypeofcompanymostlikelytorunshortofcashduringtheyearis
onewith
a.littleseasonality.
b.highcontributionmarginpercentage.
c.highseasonalityandrapidsalesgrowth.
d.relativelylowfixedcosts.
d25.Ifacompanyisearningaprofit,
a.itscashbalanceisincreasing.
b.itsmonthlycashdisbursementswillbestable.
c.itsinventoryisincreasing.
d.itmighthavetoborrowmoney.
a26.Onedifferencebetweenbudgetinginforprofitandnotforprofit
entitiesisthatnotforprofitentitiesusually
a.budgetexpensesbeforerevenues.
b.don'tneedacashbudget.
c.arelesslikelytouseincrementalbudgeting.
d.usecomputersoftwarepackagestofacilitatethebudgetingprocess.
d27.Toprepareitscashdisbursementsbudget,acompanyusesinformation
from
a.itsbalancesheetattheendofthepriorperiod.
b.itspurchasesbudget.
c.itscapitalbudget.
d.alloftheabovesources.
b28.Justintimemanufacturersaremorelikelythanconventional
manufacturersto
a.prepareproductionbudgetswithoutasalesforecast.
b.budgetmaterialspurchasesequaltothecurrentmonth'sneedsfor
production.
c.budgetunitproductionforthemonthatgreaterthanbudgetedunit
salesforthemonth.
d.experiencecashshortages.
c29.QuorumCompanydesiresanendinginventoryof$120,000.Itexpectssales
of$240,000andhasabeginninginventoryof$80,000.Costofsalesis
60%ofsales.Budgetedpurchasesare
a.$120,000.
b.$144,000.
c.$184,000.
d.$264,000.
d30.GaramondCompanybudgetedpurchasesof$200,000.Costofsaleswas
$240,000andthedesiredendinginventorywas$84,000.Thebeginning
inventorywas
a.$40,000.
b.$64,000.
c.$84,000.
d.$124,000.

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a31.WildwoodCompanybudgetedpurchasesof20,000units.Thebudgeted
beginninginventorywas4,800unitsandthebudgetedendinginventory
was6,000units.Budgetedsaleswere
a.18,800units.
b.21,200units.
c.24,800units.
d.26,000units.
c32.MenomonieCompanybudgetedsalesof18,000units.Thebudgetedbeginning
inventorywas3,000unitsandthebudgetedendinginventorywas5,000
units.Budgetedproductionis
a.23,000units.
b.21,000units.
c.20,000units.
d.16,000units.
d33.BakerCompanybudgetssuppliesas$20,000+($1.20xdirectlabor
hours).Bakerhasbudgeted18,000directlaborhours,$130,000direct
laborcost.Theflexiblebudgetallowanceforsuppliesis
a.$18,000.
b.$20,000.
c.$150,000.
d.someothernumber.
b34.EquinoxCompanybudgetedsalesof44,000unitsforJanuary,60,000for
February.ThebudgetedbeginninginventoryforJanuary1was14,000
units.Equinoxdesiresanendinginventoryequaltoonehalfofthe
followingmonth'ssalesneeds.BudgetedproductionforJanuaryis
a.74,000units.
b.60,000units.
c.52,000units.
d.28,000units.
c35.SamsCompanymanufacturesasingleproduct.Itkeepsitsinventoryof
finishedgoodsat75%thecomingmonth'sbudgetedsales,inventoryof
rawmaterialsat50%ofthecomingmonth'sbudgetedproductionneeds.
Eachunitofproductrequirestwopoundsofmaterials.Theproduction
budgetis,inunits:May,1,000;June,1,200;July,1,300;August,
1,600.RawmaterialpurchasesinJunewouldbe
a.1,525pounds.
b.2,550pounds.
c.2,800pounds.
d.3,050pounds.
a36.HaywardCompanydesiresanendinginventoryof$70,000.Itexpectssales
of$400,000andhasabeginninginventoryof$65,000.Costofsalesis
65%ofsales.Budgetedpurchasesare
a.$265,000.
b.$395,000.
c.$405,000.
d.$535,000.

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c37.BryceCompanybudgetedsalesof50,000unitsforJanuary,60,000for
February.BryceCompanydesiresanendinginventoryequaltoonehalfof
thefollowingmonth'ssalesneeds.InventoryonJanuary1wasas
desired.BudgetedproductionforJanuaryis
a.22,000units.
b.52,000units.
c.55,000units.
d.74,000units.
c38.ChetekCompanybudgetedpurchasesof19,000units.Thebudgeted
beginninginventorywas12,400unitsandthebudgetedendinginventory
was13,000units.Budgetedsaleswere
a.32,000units.
b.31,400units.
c.18,400units.
d.19,600units.
d39.BarronCompanymanufacturesasingleproduct.Barronkeepsinventoryof
rawmaterialsat50%ofthecomingmonth'sbudgetedproductionneeds.
Eachunitofproductrequiresthreepoundsofmaterials.Theproduction
budgetis,inunits:May,1,000;June,1,200;July,1,300;August,
1,600.RawmaterialpurchasesinJulywouldbe
a.1,450pounds.
b.2,400pounds.
c.3,900pounds.
d.someothernumber.
c40.AckerCompanyhaspreparedthefollowingflexiblebudgetforproduction
costs:totalproductioncosts=$260,000+$5X,whereXisthenumberof
machinehours.Ackerproduced20,000units,using34,000machinehours
atatotalcostof$425,000.Theflexiblebudgetallowancefor
productioncostsis
a.$260,000.
b.$425,000.
c.$430,000.
d.$525,000.
c41.ScooterInc.hasprojectedsalestobe$130,000inJune,$135,000in
Julyand$150,000inAugust.Scootercollects30%ofamonth'ssalesin
themonthofsale,50%inthemonthfollowingthesale,and16%inthe
secondmonthfollowingthesale.CashcollectionsinAugustwouldbe
a.$45,000.
b.$127,300.
c.$133,300.
d.$138,500.
d42.RundallCo.makespaymentsforpurchases30%duringthemonthof
purchaseandtheremainderthefollowingmonth.Aprilpurchasesare
projectedtobe$160,000;Maypurchaseswillbe$240,000.Cashpayments
inMaywillbe
a.$72,000.
b.$108,000.
c.$168,000.
d.$184,000.
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c43.RandallCo.makespaymentsforpurchases30%duringthemonthof
purchaseandtheremainderthefollowingmonth.Aprilpurchasesare
projectedtobe$80,000;Maypurchaseswillbe$120,000.Theaccounts
payablebalanceonMay31willbe
a.$36,000.
b.$54,000.
c.$84,000.
d.$92,000.
c44.AlfuthCo.makespaymentsforpurchases10%duringthemonthof
purchase,60%inthefollowingmonth,andtheremainderinthesecond
monthfollowingthepurchase.Purchasesareprojectedtobe$260,000in
January,$280,000inFebruary,and$320,000inMarch.Marchpayments
willbe
a.$32,000.
b.$168,000.
c.$278,000.
d.someothernumber.
d45.ReidCo.makespaymentsforpurchases10%duringthemonthofpurchase,
60%inthefollowingmonth,andtheremainderinthesecondmonth
followingthepurchase.Purchasesareprojectedtobe$130,000in
January,$140,000inFebruary,and$160,000inMarch.TheMarch31
accountspayablebalancewillbe
a.$48,000.
b.$96,000.
c.$144,000.
d.$186,000.
c46.AndoverInc.hasprojectedsalestobe:February,$10,000;March,
$9,000;April,$8,000;May,$10,000;andJune,$11,000.Andoverhas30%
cashsalesand70%salesonaccount.Accountsarecollected40%inthe
monthfollowingthesaleand55%collectedthesecondmonth.Totalcash
receiptsinMaywouldbe
a.$3,000.
b.$8,150.
c.$8,705.
d.someothernumber.
d47.CondeInc.hasprojectedsalestobe:February,$20,000;March,$18,000;
April,$16,000;May,$20,000;andJune,$22,000.Condehas30%cash
salesand70%salesonaccount.Accountsarecollected40%inthemonth
followingthesaleand60%collectedthesecondmonth.Accounts
receivableforMay31wouldbe
a.$6,160.
b.$13,300.
c.$14,000.
d.$20,720.
d48.Holmgrenestimatesitssuppliespurchasestobe$21,000inAugustand
$28,000inSeptember.Holmgrenpays70%ofitsaccountsinthemonthof
purchasewiththeremainderpaidthefollowingmonth.Septemberpayments
wouldbe
a.$14,700.
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b.$19,600.
c.$23,100.
d.$55,900.
c49.DannerInc.hasprojectedsalestobe$100,000inJune,$90,000inJuly,
and$70,000inAugust.Dannercollects50%ofamonth'ssalesinthe
monthofsale,30%inthemonthfollowingthesale,and16%inthe
secondmonthfollowingthesale.CashcollectionsinAugustwouldbe
a.$35,000.
b.$62,000.
c.$78,000.
d.$86,000.
a50.ClearwaterInc.hasprojectedsalestobe$160,000inApril,$200,000in
May,and$240,000inJune.Clearwatercollects40%ofamonth'ssalesin
themonthofsale,40%inthemonthfollowingthesale,and20%inthe
secondmonthfollowingthesale.TheaccountsreceivablebalanceonJune
30wouldbe
a.$184,000.
b.$144,000.
c.$40,000.
d.someothernumber.

TrueFalse
F1.AjustintimemanufacturerdoesNOTneedasalesbudget.
T2.AflexiblebudgetallowanceisNOTespeciallyusefulforbudgeting
discretionarycosts.
F3.Thepurchasesbudgetispreparedbeforethesalesbudgetbecausethe
companycannotestimatewhatitwillselluntilithassomeideaofwhat
willbeonhand.
F4.Thelongerthetimeperiodcoveredbyabudget,themoreusefulthe
budgetwillbeforcontrollingoperations.
F5.Apurchasesbudgetisnormallypreparedafterthecompanyhasforecast
howmuchcashitwillhaveavailabletopayforpurchases.
F6.Imposedbudgetsareexceptionallyambitiousgoalsnotlikelytobe
achievedwithoutmakingfundamentalchangesinthewayajobisdone.
F7.AJITmanufacturerthatmaintainsnoinventorydoesn'tneedacash
disbursementsbudget.
F8.Thebudgetforaretailerislikelytobemorecomplexthanthatfora
manufacturerbecausearetailerhasawidervarietyofcustomers.
F9.Theincreasingpublicdemandforaccountabilityfromgovernmentaland
othernotforprofitorganizationshasresultedinanincreaseduseof
incrementalbudgeting.

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T10.Linebylinebudgetauthorizationiscommoningovernmentalunits.

85

Problems
1.BallanInc.estimatesitsunitssalesforthecomingmonthstobeas
follows:
March280,000
April260,000
May250,000
June230,000
July240,000
August225,000
Ballanmaintainsinventoryatbudgetedsalesneedsforthenextmonth.
March1inventorywillbe248,000units.

a.PrepareamonthlypurchasingscheduleforMarchthroughJuly.

SOLUTION:
a.Marchpurchases:

292,000units[280,000+260,000248,000]

Aprilpurchases:

250,000units[260,000+250,000260,000]

Maypurchases:

230,000units[250,000+230,000250,000]

Junepurchases:

240,000units[230,000+240,000230,000]

Julypurchases:

225,000units[240,000+225,000240,000]

2.SuperiorCompanymanufacturesasingleproduct.Itkeepsitsinventoryof
finishedgoodsattwicethecomingmonth'sbudgetedsalesandinventoryof
rawmaterialsat150%ofthecomingmonth'sbudgetedproduction.Eachunit
ofproductrequiresfivepoundsofmaterials,whichcost$3perpound.The
salesbudgetis,inunits:May,10,000;June,12,400;July,12,600;August,
13,200.

a.ComputebudgetedproductionforJune.

b.ComputebudgetedproductionforJuly.

c.ComputebudgetedmaterialpurchasesforJuneinpoundsanddollars.

SOLUTION:
a.Juneproduction:12,800units[12,400+(2x12,600)(2x12,400)]
b.Julyproduction:13,800units[12,600+(2x13,200)(2x12,600)]

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c.Junematerialspurchases:71,500pounds;$214,500
Usedinproduction(5lbs.x12,800)64,000lbs.
Endinginventory(5lbs.x13,800x150%)103,500

Total167,500
Lessbeginninginventory(5lbs.x12,800x150%)96,000

Purchases71,500
Timescostperpound$3

Equalsdollarpurchases$214,500
========

3.Ironwoodsellsasingleproductfor$10.Thepurchasecostis$4perunit
andIronwoodpaysa20%salescommission.Fixedcostsare$45,000per
monthincluding$12,000depreciation,andthecompanymaintainsinventory
equaltobudgetedsalesneedsforthefollowingmonth.Thefollowing
budgeteddataareavailable.
Inventoryonhand,February128,000units
BudgetedsalesFebruary24,000units
March26,000units
April25,000units
a.ComputetotalbudgetedincomeforFebruaryandMarch.

b.FindbudgetedinventoryatMarch31inunitsanddollars.

c.FindbudgetedpurchasesforMarchinunitsanddollars.

SOLUTION:
a.Budgetedincome:$110,000
Sales[(24,000+26,000)x$10]$500,000
Costofsales(50,000x$4)200,000

Grossprofit$300,000
Commissionsat20%100,000

Contributionmargin$200,000
Fixedcosts(2x45,000)90,000

Income$110,000
========

b.Budgetedinventory:25,000units;$100,000($4x25,000)

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c.Budgetedpurchases:25,000units;$100,000
Costofsales26,000units$104,000
Endinginventory25,000100,000

Totalrequired51,000$204,000
Lessbeginninginventory26,000104,000

Purchases25,000unitsx$4$100,000
==============

4.Westrumestimatesproductionoverheadcostsequalto$300,000+$2X,where
Xisthenumberofmachinehoursused.Westrumbudgeted40,000machine
hoursfor20X4.Westrumproduced23,000unitsin20X4,eachrequiring3
machinehours.Actualproductioncostswere$420,000.
a.Calculatetheflexiblebudgetallowanceforproductionoverheadcosts
for20X4.
b.Findtheamountanddirectionofthebudgetvariancefor20X4for
productionoverhead.(favorableunfavorable)Circleoneanswer.

SOLUTION:
a.Flexiblebudgetallowance,$438,000[$300,000+(23,000x3x$2)]
b.Budgetvariance:$18,000favorable($438,000$420,000)

5.AcmeInc.estimatesitsdollarsalesforthecomingmonthstobeas
follows.
June$340,000
July360,000
August300,000
September260,000
October240,000
November200,000
Acmehasanaveragegrossmarginof40%ofsalesandmaintainsinventoryat
75%ofbudgetedsalesneedsforthenextmonth.AcmebeganJunewith
$150,000ininventory.

a.Prepareamonthlypurchasingschedule(in$)forasmanymonthsasis
possible.

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SOLUTION:
a.
Sales
x40%
CostofSales
+EndingInv
BegInv
Purchases

June
$340,000
x.40

$136,000
108,000
(150,000)

$94,000
========

July
$360,000
x.40

$144,000
90,000
(108,000)

$126,000
========

August
$300,000
x.40

$120,000
78,000
(90,000)

$108,000
========

September
$260,000
x.40

$104,000
72,000
(78,000)

$98,000
========

October
$240,000
x.40

$96,000
60,000
(72,000)

$84,000
========

6.BayCityestimatesproductionoverheadcostsequalto$200,000+$4X+$7Y,
whereXisthenumberofdirectlaborhoursusedandYisthenumberof
machinehoursused.BayCitybudgeted20,000directlaborhoursand50,000
machinehoursfor20X2.BayCityproduced30,000unitsin20X2,each
requiring1directlaborhourand2.5machinehours.Actualproduction
costswere$890,000.
a.Calculatetheflexiblebudgetallowanceforproductionoverheadcosts
for20X2.
b.Findtheamountanddirectionofthebudgetvariancefor20X2for
productionoverhead.(favorableunfavorable)Circleoneanswer.

SOLUTION:
a.Flexiblebudgetallowance,$845,000[$200,000+(30,000x1x$4)+
(30,000x2.5x7)]
b.Budgetvariance:$45,000unfavorable($845,000$890,000)

7. WebsterCompanyhasthefollowingsalesbudget.
January$200,000
February$240,000
March$300,000
April$360,000
Costofsalesis70%ofsales.Salesarecollected40%inthemonthof
saleand60%inthefollowingmonth.Websterkeepsinventoryequalto
doublethecomingmonth'sbudgetedsalesrequirements.Itpaysfor
purchases80%inthemonthofpurchaseand20%inthemonthafterpurchase.
InventoryatthebeginningofJanuaryis$190,000.Websterhasmonthly
fixedcostsof$30,000including$6,000depreciation.Fixedcosts
requiringcasharepaidasincurred.
a.ComputebudgetedcashreceiptsinMarch.

b.ComputebudgetedaccountsreceivableattheendofMarch.
89

c.ComputebudgetedinventoryattheendofFebruary.

d.ComputebudgetedpurchasesinFebruary.

e.Marchpurchasesare$290,000.ComputebudgetedcashpaymentsinMarchto
suppliersofgoods.

f.ComputebudgetedaccountspayableforgoodsattheendofFebruary.

g.CashattheendofFebruaryis$45,000.Cashdisbursementsarenot
requiredforanythingotherthanpaymentstosuppliersandfixedcosts.
ComputethebudgetedcashbalanceattheendofMarch.

SOLUTION:
a.Marchreceipts:$264,000[($240,000x60%)+($300,000x40%)]

b.ReceivablesatendofMarch:$180,000[$300,000x(100%40%)]
c.InventoryatendofFebruary:$420,000($300,000x70%x2)
d.Februarypurchases:$252,000[($240,000x70%)+($300,000x2x70%)
($240,000x2x70%)]

e.Marchpayments:$282,400[(252,000x20%)+($290,000x80%)]
f.APatendofFebruary:$50,400($252,000x20%)
g.CashatendofMarch:$2,600($25,000+$264,000$282,400$24,000)

8. WeaselCompanyhasthefollowingsalesprojectionsfor20X3:
January
February
March
April
May
June

$200,000
210,000
225,000
230,000
245,000
240,000

Weaselcollects40%ofitssalesinthemonthofsale,45%inthemonth
followingthesaleand13%inthesecondmonthfollowingthesale.Records
showthatsaleswere$225,000inNovemberand$208,000inDecember20X2.
a. Prepareascheduleofcashreceiptsforthefirstthreemonthsof20X3.
b. Whatwouldbetheaccountsreceivable(netofbaddebts)balanceon
March31,20X3?

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SOLUTION:
a. Januarycollections: (13%x225,000)=$29,250
(45%x208,000)=93,600
(40%x200,000)=80,000

$202,850
========
Februarycollections:(13%x208,000)=$27,040
(45%x200,000)=90,000
(40%x210,000)=84,000

$201,040
========
Marchcollections:(13%x200,000)=$26,000
(45%x210,000)=94,500
(40%x225,000)=90,000

$210,500
========
b.

$157,800

$27,300=Februarysales210,000x13%
$130,500=Marchsales225,000x(45%+13%)

$157,800
========

9.Bismarckhasthefollowingsalesbudget:
March
April
May
June

$300,000
$312,000
$320,000
$348,000

Costofsalesis55%ofsales.Bismarckkeepsaninventoryequaltoone
fourththecomingmonth'sbudgetedsalesrequirements.Itpaysfor
purchases40%inthemonthofpurchaseand60%inthemonthafterpurchase.
AccountsPayableis$94,800onMarch1.

a.PrepareamonthlypurchasingscheduleforMarchthroughMay.
b.PrepareamonthlycashpaymentscheduleforMarchthroughMay.
c. ComputetheaccountspayablebalanceasofMay31.

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SOLUTION:
a.

March
$300,000
x.55

$165,000
42,900
(41,250)

$166,650
========

Sales
x55%
CostofSales
+EndingInv
BegInv
Purchases

April
$312,000
x.55

$171,600
44,000
(42,900)

$172,700
========

May
$320,000
x.55

$176,000
51,975
(44,000)

$183,975
========

b. Marchpayments:

(40%x166,650)=$66,660
Mar1AcctPay=94,800

$161,460
========

Aprilpayments:

(40%x172,700)=$69,080
(60%x166,650)=99,990

$169,070
========

Maypayments:

(40%x183,975)=$73,590
(60%x172,700)=103,620

$177,210
========

c. AccountsPayable,May31:$110,385

[60%x$183,975]

10.HicksCompanyhasthefollowingsalesprojectionsfor20X4:
January $160,000
February 168,000

March 175,000
April 180,000

May
June

195,000
190,000

Hickscollects30%ofitssalesinthemonthofsale,45%inthemonth
followingthesale,and24%inthesecondmonthfollowingthesale.Records
showthatsaleswere$160,000inNovemberand$168,000inDecember20X3.
a. Prepareascheduleofcashreceiptsforthefirstthreemonthsof20X4.
b. Whatwouldbetheaccountsreceivablebalance(netofbaddebts)on
March31,20X4?

92

SOLUTION:
a. Januarycollections: (24%x160,000)= $38,400
(45%x168,000)= 75,600
(30%x160,000)= 48,000

$162,000
========
Februarycollections:(24%x168,000)=$40,320
(45%x160,000)=72,000
(30%x168,000)=50,400

$162,720
========
Marchcollections:(24%x160,000)=$38,400
(45%x168,000)=75,600
(30%x175,000)=52,500

$166,500
========
b.

$161,070

$40,320=Februarysales(168,000x24%)
120,750=Marchsales[175,000x(45%+24%)]

$161,070
========

93