ASSESSMENT
MULTIPLE CHOICE:
1. Which of the following budgets are prepared before the production budget?
Direct Materials
Budget Sales Budget
A) Yes Yes
B) Yes No
C) No Yes
D) No No
2. Which of the following represents the normal sequence in which the below budgets are prepared?
A) Sales, Balance Sheet, Income Statement
B) Balance Sheet, Sales, Income Statement
C) Sales, Income Statement, Balance Sheet D) Income Statement, Sales, Balance Sheet
3. The budget method that maintains a constant twelve month planning horizon by adding a new month on the end as
the current month is completed is called:
A) an operating budget.
B) a capital budget.
C) a continuous budget.
D) a master budget.
4. In preparing a master budget, top management is generally best able to: A) prepare detailed departmental-
level budget figures.
B) provide a perspective on the company as a whole.
C) point out the particular persons who are to blame for inability to meet budget goals.
D) responses a, b, and c are all correct.
5. Which of the following benefits could an organization reasonably expect from an effective budget program?
Increased
employee Exposure of
motivation bottlenecks
A) Yes Yes
B) Yes No
C) No Yes
D) No No
6. Which of the following is an advantage of implementing a self-imposed budgeting system?
A) Budgeting is quick and easy because only a few individuals are involved in the budgeting process.
B) Upper level management does not have to review budget estimates.
C) Motivation to meet budget estimates is usually enhanced.
D) All of the above.
7. All the following are considered to be benefits of participative budgeting, except for:
A) Individuals at all organizational levels are recognized as being part of a team; this results in greater
support for the organization.
B) The budget estimates are prepared by those in directly involved in activities.
C) When managers set their own targets for the budget, top management need not be concerned with
the overall profitability of operations.
D) Managers are held responsible for reaching their goals and cannot easily shift responsibility by
blaming unrealistic goals set by others.
8 Which of the following is NOT an objective of the budgeting process?
A) To communicate management's plans throughout the entire organization.
B) To provide a means of allocating resources to those parts of the organization where they can be used most
effectively.
C) To ensure that the company continues to grow.
D) To uncover potential bottlenecks before they occur.
9. When preparing a production budget, the required production equals:
A) budgeted sales + beginning inventory + desired ending inventory.
B) budgeted sales - beginning inventory + desired ending inventory.
C) budgeted sales - beginning inventory - desired ending inventory.
D) budgeted sales + beginning inventory - desired ending inventory.
10. The direct labor budget is based on:
A) the desired ending inventory of finished goods.
B) the beginning inventory of finished goods.
C) the required production for the period.
D) the required materials purchases for the period.
11. Which of the following might be included as a disbursement on a cash budget?
Depreciation
on factory Income taxes
equipment to be paid
A) Yes Yes
B) Yes No
C) No Yes
D) No No
12. Thirty percent of Sharp Company's sales are for cash and 70% are on account. Sixty percent of the account sales
are collected in the month of sale, 25% in the month following sale, and 12% in the second month following sale. The
remainder is uncollectible. The following are budgeted sales data for the company:
January February March April
Total sales .............. P50,000 P60,000 P40,000 P30,000
Total cash receipts in April are expected to be:
A) P24,640
B) P35,200
C) P31,560 D) P33,640
13. Razz Company is estimating the following sales:
July ........................... P45,000
August ....................... P50,000
September ................ P65,000
October ..................... P80,000
November ................. P75,000
December ................. P60,000
Sales at Razz are normally collected as follows: 10% in the month of sale; 60% in the month following the sale;
and the remaining 30% in the second month following the sale. In Razz's budgeted balance sheet at December 31, at
what amount will accounts receivable be shown?
A) P49,500
B) P76,500
C) P120,500 D) P135,500
14. On January 1, Colver Company has 6,500 units of Product A on hand. During the year, the company plans to sell
15,000 units of Product A, and plans to have 5,000 units on hand at year end. How many units of Product A must be
produced during the year?
A) 13,500
B) 16,500
C) 15,000 D) 20,000
15. Douglas Company plans to sell 24,000 units of Product A during July and 30,000 units during August. Sales of
Product A during June were 25,000 units. Past experience has shown that end-of-month inventory should equal
3,000 units plus 30% of the next month's sales. On June 30 this requirement was met. Based on these data, how
many units of Product A must be produced during the month of July?
A) 28,800
B) 22,200
C) 24,000 D) 25,800
16. Villi Manufacturing Corporation's most recent sales budget indicates the following expected sales (in units):
July August September
Expected unit sales ................ 230,000 275,000 310,000
Villi wants to maintain a finished goods inventory of 20% of the next month's expected sales. How many units
should Villi plan on producing for the month of August?
A) 268,000 units
B) 282,000 units
C) 291,000 units D) 337,000 units
17. Sharp Company, a retailer, plans to sell 15,000 units of Product X during the month of August. If the company has
2,500 units on hand at the start of the month, and plans to have 2,000 units on hand at the end of the month, how
many units of Product X must be purchased from the supplier during the month?
A) 14,500
B) 15,500
C) 15,000 D) 17,000
18. The following are budgeted data:
January February March
Sales in units .......................... 15,000 20,000 18,000
Production in units ................. 18,000 19,000 16,000
One pound of material 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. Purchases of raw materials for February should be:
A) 19,600 pounds
B) 20,400 pounds
C) 18,400 pounds D) 18,600 pounds
19. Rhett Company manufactures and sells dress shirts. Each shirt (unit) requires 3 yards of cloth. Selected data from
Rhett's master budget for next quarter are shown below:
April May June
Budgeted sales (in units) ........................................................ 26,000 28,000 32,000
Budgeted production (in units) ................................................ 28,000 32,000 36,000
Desired ending inventory of cloth (in yards) ........................... 2,100 2,800 3,000
How many yards of cloth should Rhett plan on purchasing in May?
A) 84,700 yards
B) 96,700 yards
C) 98,100 yards D) 98,800 yards
20. Sparks Company has a cash balance of P7,500 on April 1. The company must maintain a minimum cash balance of
P6,000. During April, cash receipts of P48,000 are planned. Cash disbursements during the month are expected to
total P52,000. Ignoring interest payments, during April the company will need to borrow:
A) P3,500
B) P2,500
C) P6,000
D) P4,000
21. For May, Young Company has budgeted its cash receipts at P125,000 and its cash disbursements at P138,000. The
company's cash balance on May 1 is P17,000. If the desired May 31 cash balance is P20,000, then how much cash
must the company borrow during the month (before considering any interest payments)?
A) P4,000
B) P8,000
C) P12,000 D) P16,000
Use the following to answer questions 22-24:
Home Company will open a new store on January 1. Based on experience from its other retail outlets, Home Company is
making the following sales projections:
Cash Sales Credit Sales
January ..................... P60,000 P40,000
February .................... P30,000 P50,000
March ........................ P40,000 P60,000
April ........................... P40,000 P80,000
Home Company estimates that 70% of the credit sales will be collected in the month following the month of sale, with the
balance collected in the second month following the month of sale.
22. Based on these data, the balance in accounts receivable on January 31 will be:
A) P40,000
B) P28,000
C) P12,000 D) P58,000
23. The March 31 balance in accounts receivable will be:
A) P100,000
B) P60,000
C) P95,000 D) P75,000
24. In a cash budget for the month of April, the total cash receipts will be:
A) P74,000
B) P57,000
C) P114,000
D) P97,000
Use the following to answer questions 25-27:
Roberts Company manufactures home cleaning products. One of the products, Quickclean, requires 2 pounds of Material
A and 5 pounds of Material B per unit manufactured. Material A can be purchased from the supplier for P0.30 per pound
and Material B can be purchased for P0.50 per pound. The finished goods inventory on hand at the end of each month
must be equal to 4,000 units plus 25% of the next month's sales. The raw materials inventory on hand at the end of each
month (for either Material A or Material B) must be equal to 80% of the following month's production needs.
25. Assume that on January 1 the inventory of Quickclean was 8,000 units. Expected sales in January are 14,000 units
and expected sales in February are 18,000 units. The number of units needed to be manufactured in January would
be:
A) 10,500
B) 14,000
C) 14,500
D) 15,000
26. Assume that the production budget calls for 26,000 units of Quickclean to be manufactured in June and 32,000 units
of Quickclean to be manufactured in July. On May 31 there will be 41,600 pounds of Material A in inventory. The
number of pounds of Material A needed for production during June would be:
A) 61,600
B) 51,200
C) 35,600 D) 52,000
27. Assume that the production budget calls for 26,000 units of Quickclean to be manufactured in June and 32,000 units
to be manufactured in July. On May 31 there will be 104,000 pounds of Material B in inventory. The number of
pounds of Material B to be purchased during June would be:
A) 128,000
B) 130,000
C) 154,000 D) 160,000
Use the following to answer questions 28-29:
The TS Company has budgeted sales for the year as follows:
Quarter 1 Quarter 2 Quarter 3 Quarter 4
Sales in units .............. 10,000 12,000 14,000 16,000
The ending inventory of finished goods for each quarter should equal 25% of the next quarter's budgeted sales in units.
The finished goods inventory at the start of the year is 2,500 units. Four pounds of raw materials are required for each unit
produced. Raw materials on hand at the start of the year total 4,200 pounds. The raw materials inventory at the end of
each quarter should equal 10% of the next quarter's production needs in material.
29. Scheduled production for the third quarter should be:
A) 14,500 units
B) 18,500 units
C) 15,500 units D) 13,500 units
29. Scheduled purchases of raw materials for the second quarter should be:
A) 50,000 pounds
B) 55,800 pounds
C) 50,800 pounds D) 55,000 pounds
Use the following to answer questions 30-31:
Sarter Corporation is in the process of preparing its annual budget. The following beginning and ending inventory levels
are planned for the year.
Beginning Inventory Ending Inventory
Finished goods (units) .................. 70,000 20,000
Raw material (grams) ................... 50,000 60,000
Each unit of finished goods requires 3 grams of raw material.
30. If the company plans to sell 880,000 units during the year, the number of units it would have to manufacture
during the year would be:
A) 900,000 units
B) 930,000 units
C) 880,000 units D) 830,000 units
31. How much of the raw material should the company purchase during the year?
A) 2,550,000 grams
B) 2,490,000 grams
C) 2,480,000 grams
D) 2,500,000 grams
Use the following to answer questions 32-34:
The following are budgeted data for the Bingham Company, a merchandising company:
Budgeted Sales (at retail)
January ..................... P300,000
February .................... P340,000
March ........................ P400,000
April ........................... P350,000
Cost of goods sold as a percentage of sales is 60%. The desired ending inventory is 75% of next month's sales.
32. Assuming that the Bingham Company had inventory on hand of P70,000 (at cost) on January 1, the purchases for
January (at cost) would be:
A) P180,000
B) P250,000
C) P263,000 D) P110,000
33. The desired ending inventory (at cost) for the month of February would be:
A) P180,000
B) P300,000
C) P240,000 D) P160,000
34. Assume that all purchases are paid for in the month following the month of purchase. The cash disbursements for
purchases that would appear in the April cash budget would be:
A) P180,000
B) P157,500
C) P240,000 D) P217,500
Use the following to answer questions 35-36:
LFM Corporation makes and sells a product called Product WZ. Each unit of Product WZ requires 3.5 hours of direct labor
at the rate of P16.00 per direct labor-hour. Management would like you to prepare a Direct Labor Budget for June.
35. The budgeted direct labor cost per unit of Product WZ would be:
A) P4.57
B) P19.50
C) P16.00 D) P56.00
36. The company plans to sell 31,000 units of Product WZ in June. The finished goods inventories on June 1 and
June 30 are budgeted to be 100 and 600 units, respectively. Budgeted direct labor costs for June would be:
A) P1,764,000
B) P504,000
C) P1,708,000 D) P1,736,000
Use the following to answer questions 37-38:
Marty's Merchandise has budgeted sales as follows for the second quarter of the year:
April .................... P30,000
May .................... P60,000
June ................... P50,000
Cost of goods sold is equal to 70% of sales. The company wants to maintain a monthly ending inventory equal to 120% of
the cost of goods sold for the following month. The inventory on March 31 was below this target and was only P22,000.
The company is now preparing a Merchandise Purchases Budget for April, May, and June.
37. The desired beginning inventory for June is:
A) P42,000
B) P35,000
C) P50,000
D) P38,000
38. The budgeted purchases for May are:
A) P49,400
B) P50,400
C) P60,000 D) P33,600
Use the following to answer questions 39-40:
Harris, Inc., has budgeted sales in units for the next five months as follows:
June .......................... 9,400 units
July ............................ 7,800 units
August ....................... 7,300 units
September ................ 5,400 units
October ..................... 4,100 units
Past experience has shown that the ending inventory for each month should be equal to 20% of the next month's sales in
units. The inventory on May 31 contained 1,880 units. The company needs to prepare a production budget for the next
five months.
39. The beginning inventory for September should be:
A) 820 units
B) 1,880 units
C) 1,460 units D) 1,080 units
40. The total number of units produced in July should be:
A) 9,260 units
B) 7,700 units
C) 7,800 units D) 7,900 units
Use the following to answer questions 41-42:
Hamway Products, Inc. makes and sells a single product called a Wob. It takes two yards of material A to make one Wob.
Budgeted production of Wobs for the next four months is as follows:
April .................... 12,000 units
May .................... 13,500 units
June ................... 12,400 units
July ..................... 11,200 units
The company wants to maintain monthly ending inventories of material A equal to 10% of the following month's production
needs. On March 31 this target had not been met since only 1,500 yards of material A were on hand. The cost of material
A is P.90 per yard.
41. The total cost of material A to be purchased in April is:
A) P22,680
B) P24,750
C) P26,750 D) P26,780
42. The desired ending inventory of material A for the month of June is
A) 2,480 yards
B) 1,120 yards
C) 1,870 yards D) 2,240 yards
Use the following to answer questions 43-45:
The Gerald Company makes and sells a single product called a Clop. Each Clop requires the use of 1.1 hours of direct
labor time. The planned cost of direct labor time is P8.20 per hour. The direct labor workforce is fully adjusted each month
to the required workload. The company wishes to prepare a Direct Labor Budget for the first quarter of the year.
43. If the company has budgeted to produce 20,000 Clops in January, then the budgeted direct labor cost for January
is:
A) P164,000
B) P180,400
C) P172,200 D) P195,600
44. If the budgeted direct labor cost for February is P162,360, then the budgeted production of Clops for February is:
A) 23,200 units
B) 21,000 units
C) 19,800 units D) 18,000 units
45. The budgeted direct labor cost per Clop is:
A) P7.45
B) P8.20
C) P9.02 D) P9.76
Use the following to answer questions 46-47:
Acmal Manufacturing Company is estimating the following raw material purchases for the last four months of the year:
September ................... P850,000
October ........................ P900,000
November..................... P810,000
December..................... P780,000
At Acmal, 25% of raw materials purchases are normally paid for in the month of purchase. The remaining 75% is paid for
in the month following the purchase.
46. How much cash should Acmal expect to pay out for raw material purchases during the month of November?
A) P202,500
B) P832,500
C) P862,500 D) P877,500
47. In Acmal's budgeted balance sheet at December 31, at what amount will accounts payable be shown? (Assume
that accounts payable is only used for raw material purchases.)
A) P585,000
B) P607,500
C) P780,000 D) P802,500
Use the following to answer questions 48-49:
Cashan Corporation makes and sells a product called a Miniwarp. One Miniwarp requires 1.5 kilograms of the raw
material Jurislon. Budgeted production of Miniwarps for the next five months is as follows:
August .......................... 24,500 units
September ................... 24,700 units
October ........................ 24,600 units
November..................... 26,400 units
December..................... 24,500 units
The company wants to maintain monthly ending inventories of Jurislon equal to 30% of the following month's production
needs. On July 31, this requirement was not met since only 10,400 kilograms of Jurislon were on hand. The cost of
Jurislon is P4.00 per kilogram. The company wants to prepare a Direct Materials Purchase Budget for the next five
months.
48. The desired ending inventory of Jurislon for the month of September is:
A) P29,640
B) P29,520
C) P44,460 D) P44,280
49. The total cost of Jurislon to be purchased in August is:
A) P149,860
B) P252,400
C) P191,460 D) P147,000
Use the following to answer questions 50-53:
The Panza Company makes and sells only one product called a Deb. The company is in the process of preparing its
Selling and Administrative Expense Budget for next year. The following budget data are available:
Variable
Monthly Cost Per
Fixed Cost Deb Sold
Sales commissions .......................................... P0.75
Shipping ........................................................... P1.30
Advertising ....................................................... P30,000 P0.20
Executive salaries ............................................ P25,000
Depreciation on office equipment .................... P15,000
Other ................................................................ P7,000
All of these expenses (except depreciation) are paid in cash in the month they are incurred.
50. If the company has budgeted to sell 18,000 Debs in January, then the total budgeted variable selling and
administrative expenses for January will be:
A) P13,500
B) P23,400
C) P37,900 D) P40,500
51. If the company has budgeted to sell 16,000 Debs in February, then the total budgeted fixed selling and
administrative expenses for February is:
A) P36,000
B) P77,000
C) P62,000
D) P98,000
E) none of these
42. If the company has budgeted to sell 20,000 Debs in March, then the total budgeted selling and administrative
expenses per unit sold for March is:
A) P2.25
B) P5.35
C) P5.80 D) P6.10
53. If the budgeted cash disbursements for selling and administrative expenses for April total P116,000, then how many
Debs does the company plan to sell in April?
A) 17,333 units
B) 18,250 units
C) 24,000 units D) 26,800 units
Use the following to answer questions 54-56:
Davey Corporation is preparing its Manufacturing Overhead Budget for the fourth quarter of the year. The budgeted
variable factory overhead rate is P3.00 per direct labor-hour; the budgeted fixed factory overhead is P66,000 per month,
of which P10,000 is factory depreciation.
54. If the budgeted direct labor time for October is 6,000 hours, then the total budgeted factory overhead for October is:
A) P28,000
B) P56,000
C) P74,000 D) P84,000
55. If the budgeted direct labor time for November is 9,000 hours, then the total budgeted cash disbursements for
November must be:
A) P56,000
B) P83,000
C) P37,000 D) P93,000
56. If the budgeted direct labor time for December is 4,000 hours, then the predetermined factory overhead per direct
labor-hour for December would be:
A) P3.00
B) P19.50
C) P5.50
D) P17.00
Use the following to answer questions 57-59:
Poriss Corporation makes and sells a single product called a Yute. The company is in the process of preparing its Selling
and Administrative Expense Budget for the last quarter of the year. The following budget data are available:
Variable Cost Monthly Fixed
Per Yute Sold Cost
Sales commissions ....................................... P2.10
Shipping ........................................................ P3.90
Advertising .................................................... P7.40 P34,000
Executive salaries ......................................... P198,000
Depreciation on office equipment ................. P10,000
Other ............................................................. P0.60 P38,000
All of these expenses (except depreciation) are paid in cash in the month they are incurred.
57. If the company has budgeted to sell 19,000 Yutes in November, then the total budgeted variable selling and
administrative expenses for November would be:
A) P546,000
B) P280,000
C) P266,000 D) P536,000
58. If the company has budgeted to sell 16,000 Yutes in December, then the budgeted total cash disbursements for
selling and administrative expenses for December would be:
A) P280,000
B) P494,000
C) P224,000 D) P504,000
59. If the budgeted cash disbursements for selling and administrative expenses for October total P459,200, then how
many Yutes does the company plan to sell in October?
A) 13,300 units
B) 12,500 units
C) 13,000 units D) 12,800 units
Use the following to answer questions 60-62:
Sipan Retail Company was recently created with a beginning cash balance of P12,000. The owner expects the following
for the first month of operations:
Cash sales to customers ..................................................... P8,000
Sales on account to customers ........................................... P30,000
Cash collected from account customers ............................. P12,000
Cost of merchandise purchased ......................................... P35,000
Cash paid for merchandise purchased ............................... P24,500
Cost of merchandise sold ................................................... P26,600
Cash paid for display cases ................................................ P9,600
Selling and administrative expenses .................................. P4,000
The display cases above were purchased at the beginning of the month and are being depreciated at a rate of P200 per
month. This amount is included in the selling and administrative expenses figure above. All other selling and
administrative expenses are paid as incurred. Sipan wants to maintain a cash balance of P10,000. Any amount below this
can be borrowed from a local bank as needed in increments of P1,000. All borrowings are made at month end.
60. In Sipan's cash budget for this first month, how much money will Sipan need to borrow at month end?
A) P7,000
B) P16,000
C) P17,000 D) P28,000
61. In Sipan's budgeted income statement for this first month, what will net income (loss) be for this first month?
A) P(1,000)
B) P(2,000)
C) P7,400 D) P9,500
62. In Sipan's budgeted balance sheet at the end of this first month, at what amount will accounts receivable be shown?
A) P0
B) P9,600
C) P18,000
D) P26,000
