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Practice Exam Questions – Chapter 8 – Set A
Use the following information for the NEXT TWO QUESTIONS:
Allstate Company budgeted the following sales for the last three months of the year:
October November December
Cash Sales $80,000 $90,000 $106,000
Credit Sales 360,000 380,000 400,000
Credit sales are normally collected as follows: 30% in the month of sale and 70% in the month
following the sale.
1. How much cash should Allstate Company expect to collect in December?
a. $480,400.
b. $488,000.
c. $492,000.
d. $388,000.
2. Allstate Company’s December 31, balance sheet will report Accounts Receivable of:
a. $120,000.
b. $280,000.
c. $296,000.
d. None of the above.
3. The concept of responsibility accounting means that
a. Budgetary data should be reviewed and approved by the budget committee.
b. Budgetary data should be reviewed and approved by all levels of management.
c. An employee’s performance should be evaluated only on those items under his or her control.
d. An employee’s performance should be evaluated only by his or her immediate supervisor.
4. ABC Manufacturing Company is working on its cash budget for August. The budgeted beginning
cash balance is $46,000. Budgeted collections from customers total $175,000 and budgeted cash
disbursements for operating costs total $154,000. In addition, the company plans on purchasing for
cash equipment during August for $20,000. The desired ending cash balance is $50,000. The
excess (deficiency) of cash available over disbursements for August will be:
a. $47,000.
b. $45,000.
c. $1,000.
d. $67,000.
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5. Stevens Manufacturing Corporation provided the following budget information:
April May June
Sales, in units 200,000 190,000 120,000
Required production (units) 210,000 175,000 110,000
Each unit of finished product requires 5 pounds of direct materials. The company maintains direct
materials inventory equal to 25% of the next month’s expected production needs of direct
materials. How many pounds of direct material should the company plan on purchasing for the
month of May?
a. 793,750.
b. 1,012,500.
c. 893,500.
d. 862,500.
6. A self-imposed budget or _____________________ is a budget that is prepared with the full
cooperation of managers at all levels.
a. perpetual budget.
b. master budget.
c. participative budget.
d. zero-based budget.
7. Which one of the following items would never appear as a cash disbursement on a cash budget?
a. Inventory purchases.
b. Depreciation.
c. Equipment purchases.
d. All of the above answers can appear as cash disbursements on a cash budget.
8. Budgeted purchases for the Kent Company for the first quarter are:
January February March
Budgeted Purchases $125,000 $150,000 $250,000
The company pays for 40% of their purchases in the month of purchase and 60% in the following
month. Budgeted cash payments for inventory for February would be:
a. $150,000.
b. $135,000.
c. $90,000.
d. $60,000.
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9. The Wright Company sells a product for $10. Budgeted sales for the first quarter are:
January February March
Budgeted Sales $400,000 $600,000 $700,000
The company wants to maintain an inventory of finished goods equal to 30% of next month’s sales
in units and 12,000 units are on hand at the beginning of the year. Each unit requires two pounds of
direct material costing $1 per pound. The company maintains direct material inventory equal to
10% of the following month’s production needs. Budgeted production in units for February would
be:
a. 81,000.
b. 60,000.
c. 63,000.
d. 40,000.
10. The following information was taken from Simon Company’s cash budget for the month of July:
Beginning cash balance $90,000
Cash receipts 57,000
Cash disbursements 102,000
If the company has a policy of maintaining a minimum end of the month cash balance of $75,000,
the amount the company would have to borrow is:
a. $30,000.
b. $15,000.
c. $45,000.
d. $18,000.
11. A company budgeted unit sales for February and March of 51,000 and 60,000 units, respectively.
The company has a policy of having an inventory of units on hand at the end of each month equal
to 30% of next month’s budgeted unit sales. If there were 15,300 units of inventory on hand at the
end of January, how many units should be produced in February in order for the company to meet
its goals?
a. 53,700 units.
b. 51,000 units.
c. 48,300 units.
d. 69,000 units.
12. Which of the following is the correct sequence used in preparing the following four budgets?
a. Production, Sales, Direct Material Purchases. Cash.
b. Sales, Production, Direct Material Purchases, Cash.
c. Sales, Direct Material Purchases, Production, Cash.
d. Sales, Direct Material Purchases, Cash, Production.
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13. Candle Company sells a product for $10. Budgeted sales for the first quarter of are:
January February March April
Budgeted Sales $200,000 $300,000 $350,000 $300,000
All sales are on account. The company collects 70% of the credit sales in the month of sale and
25% in the month following sales. The remainder is estimated to be uncollectible. Budgeted cash
receipts for March would be:
a. $300,000.
b. $335,000.
c. $245,000.
d. $320,000.
14. The following are budgeted data:
Month 1 Month 2 Month 3
Sales, in units 15,000 20,000 18,000
Production, in units 16,000 22,000 15,000
One pound of material costing $2.50 per pound is required for each finished unit. The inventory of
materials at the end of each month should equal 20% of the following month’s production needs. At
the beginning of Month 1, 3,200 lbs. of materials were on hand. The cost of purchases of raw
materials for Month 2 would be budgeted to be:
a. $49,000.
b. $58,500.
c. $51,500.
d. $43,000.
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Use the following information to answer the NEXT TWO QUESTIONS:
ABC Department Store (a merchandiser) budgeted the following for the second quarter:
April May June
Sales $665,000 $630,000 $595,000
Less: Cost of Goods Sold 266,000 252,000 238,000
Gross Profit $399,000 $378,000 $357,000
The company’s gross profit percentage is 60% and inventory balances are maintained at 30% of next
month’s sales, stated at cost.
15. The Inventory balance at May 31 is budgeted to be:
a. $102,000.
b. $30,600.
c. $75,600
d. $71,400.
16. What dollar amount of inventory should ABC Department Store plan to purchase in May?
a. $106,200.
b. $247,800.
c. $176,400.
d. $75,500.
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Answer Key
1. C
2. B
3. C
4. A
5. A
6. C
7. B
8. B
9. C
10. A
11. A
12. B
13. D
14. C
15. D
16. B