BGN 5e Exam Questions - Chapter 7

1. Spartan Company's sales are 50% in cash and 50% on credit. Seventy percent of the
credit sales are collected in the month of sale, 20% in the month following sale, and 5%
in the second month following sale. The remainder is uncollectible. The following are
budgeted sales data:

September October November December

Total sales $50,000 $70,000 $60,000 $80,000

Total cash receipts in December would be budgeted at:

A) $28,000.
B) $68,000.
C) $75,750.
D) $83,500.

Feedback – The correct answer is C:

Learning Objective 2 – Total cash receipts in December would be budgeted as follows:
Collected
during
Month of Sale December Calculation
December:
Credit $28,000 ($80,000 x .50 x .70)
Cash 40,000 ($80,000 x .50)
November 6,000 ($60,000 x .50 x .20)
October 1,750 ($70,000 x .50 x .05)
Total $75,750

2. Carolina Company plans to sell 24,000 units during the month of August. The company
has 5,000 units on hand at the start of the month and plans to have 4,000 units on hand at
the end of the month. During August, the company must produced:
A) 23,000 units.
B) 24,000 units.
C) 25,000 units.
D) 28,000 units.

Feedback – The correct answer is A:

Learning Objective 3 – Determine the number of units that must be produced during the
month as follows:

Sales 24,000
Plus planned ending inventory 4,000
Less beginning inventory (5,000)
 Units to be produced 23,000

3. East Lansing Company produces and sells volleyballs. To guard against out of stock
situations, the company requires that 20% of the next month's sales be on hand at the end
of each month. Budgeted sales of volleyballs over the next four months are:

January February March April

Budgeted sales in units 60,000 80,000 120,000 100,000

Budgeted production for March would be:

A) 100,000 units.
B) 116,000 units.
C) 124,000 units.
D) 140,000 units.

Feedback – The correct answer is B:

Learning Objective 3 – The budgeted production for March is determined as follows:

Sales 120,000
Plus planned ending inventory (100,000 x .20) 20,000
Less beginning inventory (120,000 x .20) (24,000)
Units to be produced 116,000

4. Williams Company has budgeted production for next year as follows:

First Second Third Fourth

Quarter Quarter Quarter Quarter
Production in units 20,000 24,000 32,000 28,000

Five pounds of raw materials are required for each unit produced. Raw materials on hand
at the start of the year totals 5,000 lbs. The raw materials inventory at the end of each
quarter should equal 10% of the next quarter's production needs. Budgeted purchases of
raw materials in the second quarter would be:
A) 24,800 lbs.
B) 116,000 lbs.
C) 124,000 lbs.
D) 160,000 lbs.

Feedback – The correct answer is C:

Learning Objective 4 – Determine the budgeted purchases of raw materials in the
second quarter as follows:
Required for:
Second quarter production (24,000 x 5) 120,000
Planned ending inventory (32,000 x .1 x 5) 16,000
Less planned beginning inventory (24,000 x .10 x 5) (12,000)
Budget purchases of raw materials during second quarter 124,000