Ch09 Profit Planning.docx

Chapter 9 Profit Planning True/False Questions 1. The usual starting point in budgeting is to make a forecast of net income. Ans:  False 2. A budget committee helps provide consistency in the budgeting process because it prepares all of the budgets for the various segments of the organization. Ans:  False 3. A continuous or perpetual budget is one which covers a 12-month period but which is constantly adding a new month on the end as the current month is completed. Ans:  True 4. Control involves developing objectives and preparing the various budgets to achieve those objectives. Ans:  False 5. A self-imposed budget is one prepared by top management and passed downward through an organization. Ans:  False 6. When using the self-imposed budget approach, it is generally best for top management to accept all budget estimates without question in order to minimize adverse behavioral responses from employees. Ans:  False 7. Cash collections in a schedule of cash collections typically consist of collections on sales made to customers in prior periods plus collections on sales made in the current budget period. Ans:  True LO:  2 8. In a production budget, if the number of units in finished goods inventory at the end of the period is less than the number of units in finished goods inventory at the beginning of the period, then the expected number of units sold is greater than the number of units to be produced during the period. Ans:  True LO:  3 9. In a merchandising company, the required merchandise purchases for a period are determined by subtracting the units in beginning inventory from the sum of the units to be sold during the period and the desired ending inventory. Ans:  True LO:  3 10. The direct materials to be purchased for a period can be obtained by subtracting the desired ending inventory of direct materials from the total direct materials needed for the period. Ans:  False LO:  4 11. The direct labor budget begins with sales in units from the sales budget. Ans:  False LO:  5 12. The selling and administrative expense budget lists all costs of production other than direct materials and direct labor. Ans:  False LO:  6,7 13. In the manufacturing overhead budget, the non-cash charges (such as depreciation) are deducted from the total budgeted manufacturing overhead to determine the expected cash disbursements for manufacturing overhead. Ans:  True LO:  6 14. The selling and administrative expense budget lists the budgeted expenses for areas other than manufacturing. Ans:  True LO:  7 15. The disbursements section of a cash budget consists of all cash payments for the period except cash payments for dividends. Ans:  False LO:  8 16. Which of the following budgets are prepared before the sales budget? Budgeted Income Statement Direct Labor Budget A) Yes Yes B) Yes No C) No Yes D) No No Ans:  D 17. The usual starting point for a master budget is: A) the direct materials purchase budget. B) the budgeted income statement. C) the sales forecast or sales budget. D) the production budget. Ans:  C 18. Which of the following budgets are prepared before the cash budget? Selling and Administrative Expense Budget Production Budget A) Yes Yes B) Yes No C) No Yes D) No No Ans:  A 19. Which of the following benefits could an organization reasonably expect from an effective budget program? A) Better control of the organization's costs. B) Better coordination of an organization's activities. C) Better communication of the organization's objectives. D) All of the above. Ans:  D 20. An organization's budget program should not be used: A) to motivate employees. B) to assign blame to managers that do not meet budgetary goals. C) to help evaluate managers. D) to allocate resources to the various parts of an organization. Ans:  B 21. A basic idea underlying __________________ is that a manager should be held responsible only for those items that the manager can actually control to a significant extent. A) participative budgeting B) planning and control C) responsibility accounting D) the master budget Ans:  C 22. When preparing a merchandise purchases budget, the required purchases in units equals: A) budgeted unit sales + beginning merchandise inventory + desired merchandise ending inventory. B) budgeted unit sales - beginning merchandise inventory + desired merchandise ending inventory. C) budgeted unit sales - beginning merchandise inventory - desired merchandise ending inventory. D) budgeted unit sales + beginning merchandise inventory - desired merchandise ending inventory. Ans:  B LO:  3 23. When preparing a direct materials budget, the required purchases of raw materials in units equals: A) raw materials needed to meet the production schedule + desired ending inventory of raw materials - beginning inventory of raw materials. B) raw materials needed to meet the production schedule - desired ending inventory of raw materials - beginning inventory of raw materials. C) raw materials needed to meet the production schedule - desired ending inventory of raw materials + beginning inventory of raw materials. D) raw materials needed to meet the production schedule + desired ending inventory of raw materials + beginning inventory of raw materials. Ans:  A LO:  4 24. Which of the following statements is NOT correct concerning the Manufacturing Overhead Budget? A) The Manufacturing Overhead Budget provides a schedule of all costs of production other than direct materials and labor costs. B) The Manufacturing Overhead Budget shows only the variable portion of manufacturing overhead. C) The Manufacturing Overhead Budget shows the expected cash disbursements for manufacturing overhead. D) The Manufacturing Overhead Budget is prepared after the Sales Budget. Ans:  B LO:  6 25. Which of the following statements is NOT correct concerning the Cash Budget? A) It is not necessary to prepare any other budgets before preparing the Cash Budget. B) The Cash Budget should be prepared before the Budgeted Income Statement. C) The Cash Budget should be prepared before the Budgeted Balance Sheet. D) The Cash Budget builds on earlier budgets and schedules as well as additional data. Ans:  A LO:  8 26. Pitkins Company collects 20% of a month's sales in the month of sale, 70% in the month following sale, and 6% in the second month following sale. The remainder is uncollectible. Budgeted sales for the next four months are: January February March April Budgeted sales $200,000 $300,000 $350,000 $250,000 Cash collections in April are budgeted to be: A) $321,000 B) $313,000 C) $320,000 D) $292,000 Ans:  B LO:  2 Solution: April sales ($250,000 × 20%) $ 50,000 March sales ($350,000 × 70%) 245,000 February sales ($300,000 × 6%) 18,000 Total $313,000 27. Sioux Company is estimating the following sales for the first six months of next year: January $250,000 February $220,000 March $240,000 April $300,000 May $360,000 Sales at Sioux are normally collected as 60% in the month of sale, 35% in the month following the sale, and the remaining 5% being uncollectible. Based on this information, how much cash should Sioux expect to collect during the month of April? A) $250,800 B) $264,000 C) $290,700 D) $306,000 Ans:  B LO:  2 Solution: April sales ($300,000 × 60%) $180,000 March sales ($240,000 × 35%) 84,000 Total $264,000 28. All of Gaylord Company's sales are on account. Thirty-five percent of the credit sales are collected in the month of sale, 45% in the month following sale, and the rest are collected in the second month following sale. Bad debts are negligible and should be ignored. The following are budgeted sales data for the company: January February March April Total sales $50,000 $60,000 $40,000 $30,000 What is the amount of cash that should be collected in March? A) $39,000 B) $37,000 C) $27,500 D) $51,000 Ans:  D LO:  2 Solution: March sales ($40,000 × 35%) $14,000 February sales ($60,000 × 45%) 27,000 January sales ($50,000 × 20%*) 10,000 Total $51,000 *100% ? 35% ? 45% = 20% 29. On January 1, Barnes Company has 8,000 units of Product A on hand. During the year, the company plans to sell 30,000 units of Product A, and plans to have 6,500 units on hand at year end. How many units of Product A must be produced during the year? A) 28,500 B) 31,500 C) 30,000 D) 36,500 Ans:  A LO:  3 Solution: Units produced = Ending inventory + Units sold ? Beginning inventory = 6,500 + 30,000 ? 8,000 = 28,500 30. Betz Company's sales budget shows the following projections for next year: Sales in units First Quarter 60,000 Second Quarter 80,000 Third Quarter 45,000 Fourth Quarter 55,000 Inventory at the beginning of the year was 18,000 units. The finished goods inventory at the end of each quarter is to equal 30% of the next quarter's budgeted unit sales. How many units should be produced during the first quarter? A) 24,000 B) 48,000 C) 66,000 D) 72,000 Ans:  C LO:  3 Source:  CPA, adapted Solution: Units produced = Ending inventory + Units sold + Beginning inventory = (30% × 80,000) + 60,000 ? 18,000 = 24,000 + 60,000 ? 18,000 = 66,000 31. The following information relates to Minorca Manufacturing Corporation for next quarter: January February March Expected sales (in units) 440,000 390,000 400,000 Desired ending finished goods inventory (in units) 28,000 30,000 35,000 How many units should Minorca plan on producing for the month of February? A) 360,000 units B) 388,000 units C) 392,000 units D) 420,000 units Ans:  C LO:  3 Solution: Ending inventory + Units sold ? Beginning inventory = 30,000 + 390,000 - 28,000 = 392,000 32. MJ Department Store expects to generate the following sales figures for the next three months: July August September Expected sales $480,000 $560,000 $600,000 MJ's gross profit rate is 45% of sales dollars. At the end of each month, MJ wants a merchandise inventory balance equal to 30% of the following month's expected sales, stated at cost. What dollar amount of merchandise inventory should MJ plan to purchase in August? A) $257,400 B) $314,600 C) $320,000 D) $327,800 Ans:  B LO:  3 Solution: Inventory cost is 55% of sales dollars (1 – 45% gross profit rate) Inventory purchased = Ending inventory + Sales ? Beginning inventory = [($600,000 × 30%) × 55%] + ($560,000 × 55%) ? [($560,000 × 30%) × 55%] = ($180,000 × 55%) + $308,000 ? ($168,000 × 55%) = $99,000 + $308,000 ? $92,400 = $314,600 33. On October 1, The Gala Manufacturing Company has 300 units of Product XYZ on hand. The company plans to sell 1,200 units of Product XYZ during October, and plans to have 500 units on hand October 31. How many units of Product XYZ must be produced during October? A) 1,400 B) 1,500 C) 1,000 D) 2,000 Ans:  A LO:  3 Solution: Units produced = Ending inventory + Units sold ? Beginning inventory = 500 + 1,200 ? 300 = 1,400 34. 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 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. Purchases of raw materials for Month 2 would be budgeted to be: A) 17,600 pounds B) 23,400 pounds C) 20,600 pounds D) 25,000 pounds Ans:  C LO:  4 Solution: Materials purchased = Ending inventory + Materials used ? Beginning inventory = (20% × 15,000) + 22,000 ? (20% × 22,000) = 3,000 + 22,000 ? 4,400 = 20,600 35. Alexis Fabrication, Inc. manufactures and sells box trailers for semi trucks. Each trailer requires two (2) axles. For next quarter, Alexis has scheduled 720 trailers for production and 750 for sale. Alexis is also moving to just-in-time purchasing next quarter and plans on reducing its inventory of trailer axles by 100. How many axles should Alexis budget for purchase for next quarter? A) 1,240 axles B) 1,300 axles C) 1,340 axles D) 1,400 axles Ans:  C LO:  4 Solution: Materials to be purchased = Ending inventory + Materials to be used ? Beginning inventory = Materials to be used + (Ending inventory ? Beginning inventory) = (720 × 2) ? 100 = 1,440 ? 100 = 1,340 36. Garry Manufacturing Corporation's most recent production budget indicates the following required production: October November December Required production (units) 210,000 175,000 110,000 Each unit of finished product requires 5 pounds of raw materials. The company maintains raw materials inventory equal to 25% of the next month's expected production needs. How many pounds of raw material should Garry plan on purchasing for the month of November? A) 1,006,250 B) 793,750 C) 1,012,500 D) 893,500 Ans:  B LO:  4 Solution: Materials to be purchased = Ending inventory + Materials to be used ? Beginning inventory = (25% × 110,000 × 5) + (175,000 × 5) ? (25% × 175,000 × 5) = 137,500 + 875,000 ? 218,750 = 793,750 37. Depasquale Corporation is working on its direct labor budget for the next two months. Each unit of output requires 0.41 direct labor-hours. The direct labor rate is $8.10 per direct labor-hour. The production budget calls for producing 5,000 units in May and 5,400 units in June. If the direct labor work force is fully adjusted to the total direct labor-hours needed each month, what would be the total combined direct labor cost for the two months? A) $16,605.00 B) $17,933.40 C) $17,269.20 D) $34,538.40 Ans:  D LO:  5 Solution: Total direct labor-hours = 0.41 × (5,000 + 5,400) = 4,264 Direct labor cost = 4,264 × $8.10 = $34,538.40 38. Pooler Corporation is working on its direct labor budget for the next two months. Each unit of output requires 0.15 direct labor-hours. The direct labor rate is $7.00 per direct labor-hour. The production budget calls for producing 6,500 units in April and 6,200 units in May. The company guarantees its direct labor workers a 40-hour paid work week. With the number of workers currently employed, that means that the company is committed to paying its direct labor work force for at least 1,000 hours in total each month even if there is not enough work to keep them busy. What would be the total combined direct labor cost for the two months? A) $13,825.00 B) $13,335.00 C) $14,000.00 D) $13,510.00 Ans:  C LO:  5 Solution: Direct labor-hours needed for production in April = 0.15 × 6,500 = 975 Direct labor-hours needed for production in May = 0.15 × 6,200 = 930 Even though both months’ production needs would require less than 1,000 hours, the company has committed to paying a minimum of 1,000 hours per month. Total direct labor-hours = 1,000 + 1,000 = 2,000 Direct labor cost = 2,000 × $7 = $14,000 39. Traverse Company manufactures and sells women's skirts. Each skirt (unit) requires 2.5 yards of cloth. Selected data from Traverse's master budget for next quarter are shown below: July August September Budgeted sales (in units) 6,000 8,000 9,000 Budgeted production (in units) 8,000 10,500 12,000 Each unit requires 1.5 hours of direct labor, and the average hourly cost of Traverse's direct labor is $10. What is the cost of Traverse Company's direct labor in September? A) $135,000 B) $180,000 C) $157,500 D) $120,000 Ans:  B LO:  5 Solution: 12,000 × 1.5 × $10 = $180,000 40. Haylock Inc. bases its manufacturing overhead budget on budgeted direct labor-hours. The direct labor budget indicates that 5,600 direct labor-hours will be required in August. The variable overhead rate is $5.40 per direct labor-hour. The company's budgeted fixed manufacturing overhead is $69,440 per month, which includes depreciation of $15,680. All other fixed manufacturing overhead costs represent current cash flows. The August cash disbursements for manufacturing overhead on the manufacturing overhead budget should be: A) $99,680 B) $84,000 C) $53,760 D) $30,240 Ans:  B LO:  6 Solution: Variable manufacturing overhead + Fixed manufacturing overhead = (5,600 × $5.40) + ($69,440 ? $15,680) = $30,240 + $53,760 = $84,000 41. Arciba Inc. bases its manufacturing overhead budget on budgeted direct labor-hours. The direct labor budget indicates that 7,400 direct labor-hours will be required in January. The variable overhead rate is $9.50 per direct labor-hour. The company's budgeted fixed manufacturing overhead is $130,980 per month, which includes depreciation of $10,360. All other fixed manufacturing overhead costs represent current cash flows. The company recomputes its predetermined overhead rate every month. The predetermined overhead rate for January should be: A) $27.20 B) $25.80 C) $17.70 D) $9.50 Ans:  A LO:  6 Solution: $9.50 + ($130,980 ÷ 7,400) = $9.50 + $17.70 = $27.20 42. The manufacturing overhead budget at Foshay Corporation is based on budgeted direct labor-hours. The direct labor budget indicates that 5,800 direct labor-hours will be required in May. The variable overhead rate is $9.10 per direct labor-hour. The company's budgeted fixed manufacturing overhead is $104,400 per month, which includes depreciation of $8,120. All other fixed manufacturing overhead costs represent current cash flows. The company recomputes its predetermined overhead rate every month. The predetermined overhead rate for May should be: A) $9.10 B) $27.10 C) $18.00 D) $25.70 Ans:  B LO:  6 Solution: $9.10 + ($104,400 ÷ 5,800) = $9.10 + $18 = $27.10 43. The manufacturing overhead budget at Franklyn Corporation is based on budgeted direct labor-hours. The direct labor budget indicates that 4,400 direct labor-hours will be required in January. The variable overhead rate is $1.30 per direct labor-hour. The company's budgeted fixed manufacturing overhead is $60,280 per month, which includes depreciation of $17,160. All other fixed manufacturing overhead costs represent current cash flows. The January cash disbursements for manufacturing overhead on the manufacturing overhead budget should be: A) $5,720 B) $43,120 C) $48,840 D) $66,000 Ans:  C LO:  6 Solution: (4,400 × $1.30) + ($60,280 ? $17,160) = $5,720 + $43,120 = $48,840 44. Schuepfer Inc. bases its selling and administrative expense budget on budgeted unit sales. The sales budget shows 1,300 units are planned to be sold in March. The variable selling and administrative expense is $4.20 per unit. The budgeted fixed selling and administrative expense is $19,240 per month, which includes depreciation of $3,380 per month. The remainder of the fixed selling and administrative expense represents current cash flows. The cash disbursements for selling and administrative expenses on the March selling and administrative expense budget should be: A) $15,860 B) $5,460 C) $24,700 D) $21,320 Ans:  D LO:  7 Solution: (1,300 × $4.20) + ($19,240 ? $3,380) = $5,460 + $15,860 = $21,320 45. The selling and administrative expense budget of Choo Corporation is based on budgeted unit sales, which are 4,600 units for August. The variable selling and administrative expense is $7.30 per unit. The budgeted fixed selling and administrative expense is $51,980 per month, which includes depreciation of $6,440 per month. The remainder of the fixed selling and administrative expense represents current cash flows. The cash disbursements for selling and administrative expenses on the August selling and administrative expense budget should be: A) $85,560 B) $45,540 C) $79,120 D) $33,580 Ans:  C LO:  7 Solution: (4,600 × $7.30) + ($51,980 ? $6,440) = $33,580 + $45,540 = $79,120 46. Sedita Inc. is working on its cash budget for July. The budgeted beginning cash balance is $46,000. Budgeted cash receipts total $175,000 and budgeted cash disbursements total $174,000. The desired ending cash balance is $50,000. The excess (deficiency) of cash available over disbursements for July will be: A) $47,000 B) $221,000 C) $45,000 D) $1,000 Ans:  A LO:  8 Solution: Excess cash available = Beginning cash balance + Cash receipts ? Cash disbursements = $46,000 + $175,000 ? $174,000 = $47,000 47. Bustillo Inc. is working on its cash budget for March. The budgeted beginning cash balance is $35,000. Budgeted cash receipts total $142,000 and budgeted cash disbursements total $151,000. The desired ending cash balance is $30,000. To attain its desired ending cash balance for March, the company needs to borrow: A) $0 B) $4,000 C) $56,000 D) $30,000 Ans:  B LO:  8 Solution: Actual ending cash balance = Beginning cash balance + Cash receipts ? Cash disbursements = $35,000 + $142,000 ? $151,000 = $26,000 Amount borrowed = Desired ending cash balance ? Actual ending cash balance = $30,000 ? $26,000 = $4,000 48. Francis Manufacturing Company is currently preparing its cash budget for next month and has gathered the following information: Expected cash receipts $39,400 Expected disbursements: Direct materials $12,000 Direct labor $9,000 Manufacturing overhead $11,500 Selling and administrative expenses $22,000 The beginning cash balance will be $6,000 and the company requires a minimum cash balance at the end of the month of $5,000. How much will Francis Manufacturing need to borrow to meet its cash needs for the month? A) $9,100 B) $14,100 C) $20,100 D) None of the above. Ans:  B LO:  8 Solution: Actual ending cash balance = Beginning cash balance + Cash receipts ? Cash disbursements = $6,000 + $39,400 ? ($12,000 + $9,000 + $11,500 + $22,000) = $45,400 ? $54,500 = ($9,100) Amount borrowed = Desired ending cash balance ? Actual ending cash balance = $5,000 ? ($9,100) = $14,100 Use the following to answer questions 49-50: KAB Inc., a small retail store, had the following results for May. The budgets for June and July are also given. May June July (actual) (budget) (budget) Sales $42,000 $40,000 $45,000 Less cost of goods sold  21,000  20,000  22,500 Gross margin 21,000 20,000 22,500 Less selling and administrative expenses  20,000  20,000  20,000 Net operating income $ 1,000 $        0 $ 2,500 Sales are collected 80% in the month of the sale and the balance in the month following the sale. (There are no bad debts.) The goods that are sold are purchased in the month prior to sale. Suppliers of the goods are paid in the month following the sale. The "selling and administrative expenses" are paid in the month of the sale. 49. The amount of cash collected during the month of June should be: A) $32,000 B) $40,000 C) $40,400 D) $41,000 Ans:  C LO:  2 Source:  CMA, adapted Solution: June sales ($40,000 × 80%) $32,000 May sales ($42,000 × 20%) 8,400 Total $40,400 50. The cash disbursements during the month of June for goods purchased for resale and for selling and administrative expenses should be: A) $40,000 B) $41,000 C) $42,500 D) $43,500 Ans:  B LO:  3,4 Source:  CMA, adapted Solution: May purchases of goods $21,000 June selling and administrative expenses 20,000 Total $41,000 Use the following to answer questions 51-59: Dilly Farm Supply is located in a small town in the rural west. Data regarding the store's operations follow: Sales are budgeted at $290,000 for November, $310,000 for December, and $210,000 for January. Collections are expected to be 65% in the month of sale, 33% in the month following the sale, and 2% uncollectible. The cost of goods sold is 80% of sales. The company purchases 70% of its merchandise in the month prior to the month of sale and 30% in the month of sale. Payment for merchandise is made in the month following the purchase. Other monthly expenses to be paid in cash are $21,100. Monthly depreciation is $21,000. Ignore taxes. Statement of Financial Position October 31 Assets: Cash $    25,000 Accounts receivable (net of allowance for uncollectible accounts) 77,000 Inventory 162,400 Property, plant and equipment (net of $624,000 accumulated depreciation)  1,026,000 Total assets $1,290,400 Liabilities and Stockholders’ Equity: Accounts payable $   239,000 Common stock 740,000 Retained earnings      311,400 Total liabilities and stockholders’ equity $1,290,400 51. Expected cash collections in December are: A) $310,000 B) $95,700 C) $297,200 D) $201,500 Ans:  C LO:  2 Solution: December sales ($310,000 × 65%) $201,500 November sales ($290,000 × 33%) 95,700 Total $297,200 52. The cost of December merchandise purchases would be: A) $248,000 B) $232,000 C) $117,600 D) $192,000 Ans:  D LO:  3 Solution: Sales Cost of Goods Sold November $290,000 $232,000 December $310,000 $248,000 January $210,000 $168,000 Merchandise purchases = Ending inventory + Cost of goods sold ? Beginning inventory = ($168,000 × 70%) + $248,000 ? ($248,000 × 70%) = $117,600 + $248,000 ? $173,600 = $192,000 53. December cash disbursements for merchandise purchases would be: A) $192,000 B) $243,200 C) $117,600 D) $248,000 Ans:  B LO:  3 Solution: Sales Cost of Goods Sold November $290,000 $232,000 December $310,000 $248,000 January $210,000 $168,000 December cash disbursements = 70% of December Cost of Goods Sold + 30% of November Cost of Good Sold = (70% × $248,000) + (30% × $232,000) = $173,600 + $69,600 = $243,200 54. The excess (deficiency) of cash available over disbursements for December would be: A) $46,600 B) $19,200 C) $13,700 D) $32,900 Ans:  D LO:  8 Solution: Cash collections ? Cash disbursements ? Other monthly expenses = $297,200 ? $243,200 ? $21,100 = $32,900 55. The net income for December would be: A) $13,700 B) $32,900 C) $40,900 D) $19,900 Ans:  A LO:  9 Solution: Sales $310,000 Less uncollectible ($310,000 × 2%) 6,200 Net sales 303,800 Cost of goods sold ($310,000 × 80%) 248,000 Other expenses 21,100 Depreciation expenses 21,000 Net income $ 13,700 56. The cash balance at the end of December would be: A) $63,300 B) $25,000 C) $57,900 D) $38,300 Ans:  A LO:  8 Solution: November December October Accounts Receivable Balance $ 77,000 Collection of November Sales $290,000 × 65% 188,500 $290,000 × 33% $ 95,700 Collection of December Sales $310,000 × 65% 201,500 October Accounts Payable Balance (239,000) Payment for November Purchases ($290,000 × 80%) × 30% (69,600) ($310,000 × 80%) × 70% (173,600) Other cash monthly expenses (21,100) (21,100) Net cash inflow(outflow) per month $ 5,400 $ 32,900 Beginning cash balance, October 31 $25,000 Add November net cash inflow 5,400 Add December net cash inflow 32,900 Ending cash balance, December 31 $63,300 57. The accounts receivable balance, net of uncollectible accounts, at the end of December would be: A) $102,300 B) $198,000 C) $83,200 D) $108,500 Ans:  A LO:  10 Solution: From December sales ($310,000 × 33%): $102,300 58. Accounts payable at the end of December would be: A) $192,000 B) $248,000 C) $117,600 D) $74,400 Ans:  A LO:  10 Solution: Sales Cost of Goods Sold November $290,000 $232,000 December $310,000 $248,000 January $210,000 $168,000 Merchandise purchases = Ending inventory + Cost of goods sold ? Beginning inventory = ($168,000 × 70%) + $248,000 ? ($248,000 × 70%) = $117,600 + $248,000 ? $173,600 = $192,000 59. Retained earnings at the end of December would be: A) $325,100 B) $311,400 C) $335,200 D) $347,200 Ans:  C LO:  10 Solution: Net income in November: Sales $290,000 Less uncollectible ($290,000 × 2%) 5,800 Net sales 284,200 Cost of goods sold ($290,000 × 80%) 232,000 Other expenses 21,100 Depreciation expenses 21,000 Net income $ 10,100 Retained earnings in December = Retained earnings in October + Net income in November + Net income in December = $311,400 + $10,100 + $13,700 = $335,200 Use the following to answer questions 60-63: Bramble Corporation is a small wholesaler of gourmet food products. Data regarding the store's operations follow: Sales are budgeted at $340,000 for November, $320,000 for December, and $310,000 for January. Collections are expected to be 80% in the month of sale, 16% in the month following the sale, and 4% uncollectible. The cost of goods sold is 75% of sales. The company purchases 60% of its merchandise in the month prior to the month of sale and 40% in the month of sale. Payment for merchandise is made in the month following the purchase. Other monthly expenses to be paid in cash are $24,000. Monthly depreciation is $15,000. Ignore taxes. Statement of Financial Position October 31 Assets: Cash $     20,000 Accounts receivable (net of allowance for uncollectible accounts) 70,000 Inventory 153,000 Property, plant and equipment (net of $572,000 accumulated depreciation)  1,094,000 Total assets $1,337,000 Liabilities and Stockholders’ Equity: Accounts payable $   254,000 Common stock 820,000 Retained earnings      263,000 Total liabilities and stockholders’ equity $1,337,000 60. Expected cash collections in December are: A) $54,400 B) $256,000 C) $320,000 D) $310,400 Ans:  D LO:  2 Solution: December sales ($320,000 × 80%) $256,000 November sales ($340,000 × 16%) 54,400 Total $310,400 61. The cost of December merchandise purchases would be: A) $255,000 B) $139,500 C) $235,500 D) $240,000 Ans:  C LO:  3 Solution: Sales Cost of Goods Sold November $340,000 $255,000 December $320,000 $240,000 January $310,000 $232,500 Merchandise purchases = Ending inventory + Cost of goods sold ? Beginning inventory = ($232,500 × 60%) + $240,000 ? ($240,000 × 60%) = $139,500 + $240,000 ? $144,000 = $235,500 62. December cash disbursements for merchandise purchases would be: A) $139,500 B) $246,000 C) $240,000 D) $235,500 Ans:  B LO:  3 Solution: November purchases = Ending inventory + Cost of good sold ? Beginning inventory = ($240,000 × 60%) + $255,000 ? ($255,000 × 60%) = $144,000 + $255,000 ? $153,000 = $246,000 December cash disbursements = November purchases = $246,000 63. The excess (deficiency) of cash available over disbursements for December would be: A) $40,400 B) $68,600 C) $28,200 D) $12,200 Ans:  A LO:  8 Solution: December sales ($320,000 × 80%) $256,000 November sales ($340,000 × 16%) 54,400 Total cash collections in December $310,400 November purchases = Ending inventory + Cost of good sold ? Beginning inventory = ($240,000 × 60%) + $255,000 ? ($255,000 × 60%) = $144,000 + $255,000 ? $153,000 = $246,000 December cash disbursements = November purchases = $246,000 Cash collections ? Cash disbursements ? Other monthly expenses = $310,400 ? $246,000 ? $24,000 = $40,400 Use the following to answer questions 64-67: Information on the actual sales and inventory purchases of the Law Company for the first quarter follow: Sales Inventory Purchases January $120,000 $60,000 February $100,000 $78,000 March $130,000 $90,000 Collections from Law Company's customers are normally 60% in the month of sale, 30% in the month following sale, and 8% in the second month following sale. The balance is uncollectible. Law Company takes full advantage of the 3% discount allowed on purchases paid for by the end of the following month. The company expects sales in April of $150,000 and inventory purchases of $100,000. Selling and administrative expenses for the month of April are expected to be $38,000, of which $15,000 is salaries and $8,000 is depreciation. The remaining selling and administrative expenses are variable with respect to the amount of sales in dollars. Those selling and administrative expenses requiring a cash outlay are paid for during the month incurred. Law Company's cash balance on March 1 was $43,000, and on April 1 was $35,000. 64. The expected cash collections from customers during April would be: A) $150,000 B) $137,000 C) $139,000 D) $117,600 Ans:  B LO:  2 Solution: April sales ($150,000 × 60%) $ 90,000 March sales ($130,000 × 30%) 39,000 February sales ($100,000 × 8%) 8,000 Expected cash collections $137,000 65. The expected cash disbursements during April for inventory purchases would be: A) $100,000 B) $97,000 C) $90,000 D) $87,300 Ans:  D LO:  2 Solution: Expected cash disbursements for April for inventory purchases = March inventory purchases × (100% ? discount percentage for paying by end of month) = $90,000 × (100% ? 3%) = $90,000 × 97% = $87,300 66. The expected cash disbursements during April for selling and administrative expenses would be: A) $38,000 B) $30,000 C) $23,000 D) $15,000 Ans:  B LO:  7 Solution: Expected cash disbursements during April for selling and administrative expenses = Total selling and administrative expenses ? Depreciation = $38,000 ? $8,000 = $30,000 67. The expected cash balance on April 30 would be: A) $54,700 B) $62,700 C) $19,700 D) $28,700 Ans:  A LO:  8 Solution: April sales ($150,000 × 60%) $ 90,000 March sales ($130,000 × 30%) 39,000 February sales ($100,000 × 8%) 8,000 Expected cash collections $137,000 Expected cash disbursements for April for inventory purchases = March inventory purchases × (100% ? discount percentage for paying by end of month) = $90,000 × (100% ? 3%) = $90,000 × 97% = $87,300 Expected cash disbursements = Total selling and administrative expenses ? Depreciation = $38,000 ? $8,000 = $30,000 Expected cash balance = Beginning cash balance + Total cash receipts ? Expected cash disbursements for inventory purchases ? Expected cash disbursements for selling and administrative expenses = $35,000 + $137,000 ? $87,300 ? $30,000 = $35,000 + $19,700 = $54,700 Use the following to answer questions 68-69: The LaPann Company has obtained the following sales forecast data: July August September October Cash sales $80,000 $70,000 $50,000 $60,000 Credit sales $240,000 $220,000 $180,000 $200,000 The regular pattern of collection of credit sales is 20% in the month of sale, 70% in the month following the month of sale, and the remainder in the second month following the month of sale. There are no bad debts. 68. The budgeted accounts receivable balance on September 30 is: A) $126,000 B) $148,000 C) $166,000 D) $190,000 Ans:  C LO:  2 Solution: September sales ($180,000 × 80%*) $144,000 August sales ($220,000 × 10%**) 22,000 Total $166,000 *100% ? 20% **100% ? 20% ? 70% 69. The budgeted cash receipts for October are: A) $188,000 B) $248,000 C) $226,000 D) $278,000 Ans:  B LO:  2 Solution: October cash sales $ 60,000 October credit sales ($200,000 × 20%) 40,000 September credit sales ($180,000 × 70%) 126,000 August credit sales ($220,000 × 10%) 22,000 Total $248,000 Use the following to answer questions 70-71: Sarafiny 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) 20,000 30,000 Raw material (grams) 50,000 40,000 Each unit of finished goods requires 7 grams of raw material. 70. If the company plans to sell 270,000 units during the year, the number of units it would have to manufacture during the year would be: A) 300,000 units B) 270,000 units C) 260,000 units D) 280,000 units Ans:  D LO:  3 Solution: Units produced = Ending inventory + Units sold ? Beginning inventory = 30,000 + 270,000 ? 20,000 = 280,000 71. How much of the raw material should the company purchase during the year? A) 1,960,000 grams B) 1,950,000 grams C) 1,970,000 grams D) 2,000,000 grams Ans:  B LO:  4 Solution: Materials purchased = Ending inventory + Materials to be used ? Beginning inventory = 40,000 + (280,000 × 7) ? 50,000 = 40,000 + 1,960,000 ? 50,000 = 1,950,000 Use the following to answer questions 72-73: LBC 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 $14.50 per direct labor-hour. Management would like you to prepare a Direct Labor Budget for June. 72. The budgeted direct labor cost per unit of Product WZ would be: A) $50.75 B) $14.50 C) $4.14 D) $18.00 Ans:  A LO:  3 Solution: Budgeted direct labor cost per unit = Direct labor-hours per unit × Direct labor rate = 3.5 × $14.50 = $50.75 73. The company plans to sell 39,000 units of Product WZ in June. The finished goods inventories on June 1 and June 30 are budgeted to be 200 and 100 units, respectively. Budgeted direct labor costs for June would be: A) $1,984,325 B) $1,974,175 C) $1,979,250 D) $564,050 Ans:  B LO:  5 Solution: Units produced = Ending inventory + Units sold ? Beginning inventory = 100 + 39,000 ? 200 = 38,900 Budgeted direct labor cost per unit = Direct labor-hours per unit × Direct labor rate = 3.5 × $14.50 = $50.75 Budgeted direct labor cost = Units produced × Budgeted direct labor cost per unit = 38,900 × $50.75 = $1,974,175 Use the following to answer questions 74-75: Barley Enterprises has budgeted unit sales for the next four months as follows: October 4,800 units November 5,800 units December 6,400 units January 5,200 units The ending inventory for each month should be equal to 15% of the next month's sales in units. The inventory on September 30 was below this level and contained only 600 units. 74. The total units to be produced in October are: A) 4,530 B) 5,070 C) 5,670 D) 5,890 Ans:  B LO:  3 Solution: Units produced = Ending inventory + Units sold ? Beginning inventory = (15% × 5,800) + 4,800 ? 600 = 870 + 4,800 ? 600 = 5,070 75. The desired ending inventory for December is: A) 960 B) 870 C) 780 D) 690 Ans:  C LO:  3 Solution: Desired ending inventory for December = 15% of January’s sales in units = 15% × 5,200 = 780 Use the following to answer questions 76-77: Harden, Inc., has budgeted sales in units for the next five months as follows: June 7,000 units July 5,300 units August 7,100 units September 6,800 units October 4,900 units Past experience has shown that the ending inventory for each month should be equal to 15% of the next month's sales in units. The inventory on May 31 contained 1,050 units. The company needs to prepare a production budget for the next five months. 76. The beginning inventory for September should be: A) 1,020 units B) 1,050 units C) 1,065 units D) 735 units Ans:  A LO:  3 Solution: The beginning inventory for September is equal to the ending inventory for August. Desired ending inventory for August = 15% × September’s sales in units = 15% × 6,800 = 1,020 77. The total number of units produced in July should be: A) 5,300 units B) 6,365 units C) 5,570 units D) 5,030 units Ans:  C LO:  3 Solution: Units produced = Ending inventory + Units sold ? Beginning inventory = (7,100 × 15%) + 5,300 ? (5,300 × 15%) = 1,065 + 5,300 ? 795 = 5,570 Use the following to answer questions 78-79: Caspion Corporation makes and sells a product called a Miniwarp. One Miniwarp requires 2.5 kilograms of the raw material Jurislon. Budgeted production of Miniwarps for the next five months is as follows: August 22,600 units September 21,300 units October 22,700 units November 23,900 units December 23,600 units The company wants to maintain monthly ending inventories of Jurislon equal to 20% of the following month's production needs. On July 31, this requirement was not met since only 10,800 kilograms of Jurislon were on hand. The cost of Jurislon is $18.00 per kilogram. The company wants to prepare a Direct Materials Purchase Budget for the next five months. 78. The desired ending inventory of Jurislon for the month of September is: A) $81,720 B) $76,680 C) $191,700 D) $204,300 Ans:  D LO:  4 Solution: Desired ending inventory = 20% × Direct materials needed for October × Cost per kilogram of Jurislon = 20% × (22,700 × 2.5) × $18 = 11,350 × $18 = $204,300 79. The total cost of Jurislon to be purchased in August is: A) $1,839,600 B) $1,014,300 C) $1,208,700 D) $1,017,000 Ans:  B LO:  4 Solution: Materials purchased = Ending inventory + Materials used ? Beginning inventory = (20% × 21,300 × 2.5) + (22,600 × 2.5) ? 10,800 = 10,650 + 56,500 ? 10,800 = 56,350 Total cost of purchase = 56,350 × $18 = $1,014,300 Use the following to answer questions 80-83: The International Company makes and sells only one product, Product SW. 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 Per Unit Sold Monthly Fixed Cost Sales commissions $0.70 Shipping $1.10 Advertising $0.20 $14,000 Executive salaries $34,000 Depreciation on office equipment $11,000 Other $0.25 $19,000 All expenses other than depreciation are paid in cash in the month they are incurred. 80. If the company has budgeted to sell 25,000 units of Product SW in July, then the total budgeted selling and administrative expenses for July will be: A) $56,250 B) $78,000 C) $134,250 D) $123,250 Ans:  C LO:  6 Solution: Variable cost per unit = ($0.70 + $1.10 + $0.20 + $0.25) = $2.25 Fixed cost = $14,000 + $34,000 + $11,000 + $19,000 = $78,000 Total budgeted selling and administrative expenses = Variable cost + Fixed cost = ($2.25 × 25,000) + $78,000 = $56,250 + $78,000 = $134,250 81. If the company has budgeted to sell 20,000 units of Product SW in October then the total budgeted variable selling and administrative expenses for October will be: A) $45,000 B) $40,000 C) $56,250 D) $78,000 Ans:  A LO:  6 Solution: Variable cost per unit = ($0.70 + $1.10 + $0.20 + $0.25) = $2.25 Total budgeted variable selling and administrative expenses = Variable cost per unit × Units sold = $2.25 × 20,000 = $45,000 82. If the budgeted cash disbursements for selling and administrative expenses for November total $123,250, then how many units of Product SW does the company plan to sell in November (rounded to the nearest whole unit)? A) 33,444 units B) 25,000 units C) 22,952 units D) 20,111 units Ans:  B LO:  8 Solution: Variable cost per unit = ($0.70 + $1.10 + $0.20 + $0.25) = $2.25 Cash disbursements = Variable cost + (Fixed cost ? Depreciation) $123,250 = ($2.25 × Units sold) + ($78,000 ? $11,000) $123,250 = ($2.25 × Units sold) - $67,000 Units sold = ($123,250 ? $67,000) ÷ $2.25 Units sold = $56,250 ÷ $2.25 Units sold = 25,000 units 83. If the company has budgeted to sell 24,000 units of Product SW in September, then the total budgeted fixed selling and administrative expenses for September would be: A) $54,000 B) $48,000 C) $67,000 D) $78,000 Ans:  D LO:  7 Solution: Monthly Fixed Cost Advertising $14,000 Executive salaries 34,000 Depreciation on office equipment 11,000 Other   19,000 Total $78,000 Use the following to answer questions 84-86: Davis Corporation is preparing its Manufacturing Overhead Budget for the fourth quarter of the year. The budgeted variable factory overhead rate is $1.70 per direct labor-hour; the budgeted fixed factory overhead is $116,000 per month, of which $30,000 is factory depreciation. 84. If the budgeted direct labor time for October is 8,000 hours, then the total budgeted factory overhead for October is: A) $129,600 B) $43,600 C) $99,600 D) $86,000 Ans:  A LO:  6 Solution: Total budgeted factory overhead = Variable manufacturing overhead + Fixed manufacturing overhead = (8,000 × $1.70) + $116,000 = $13,600 + $116,000 = $129,600 85. If the budgeted direct labor time for November is 7,000 hours, then the total budgeted cash disbursements for November must be: A) $41,900 B) $127,900 C) $86,000 D) $97,900 Ans:  D LO:  6 Solution: Cash disbursements = Variable manufacturing overhead + Fixed manufacturing overhead ? Depreciation = (7,000 × $1.70) + $116,000 ? $30,000 = $11,900 + $116,000 ? $30,000 = $97,900 86. 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) $9.20 B) $30.70 C) $23.20 D) $1.70 Ans:  B LO:  6 Solution: Predetermined factory overhead rate = Variable overhead rate per direct labor hour + Fixed factory overhead rate per hour = $1.70 + ($116,000 ÷ 4,000) = $1.70 + $29 = $30.70 Use the following to answer questions 87-88: Cartier Inc. bases its manufacturing overhead budget on budgeted direct labor-hours. The variable overhead rate is $5.80 per direct labor-hour. The company's budgeted fixed manufacturing overhead is $39,930 per month, which includes depreciation of $12,870. All other fixed manufacturing overhead costs represent current cash flows. The direct labor budget indicates that 3,300 direct labor-hours will be required in April. 87. The April cash disbursements for manufacturing overhead on the manufacturing overhead budget should be: A) $59,070 B) $46,200 C) $27,060 D) $19,140 Ans:  B LO:  6 Solution: Cash disbursements for April = (Variable overhead rate × Number of direct-labor hours) + (Fixed manufacturing overhead less depreciation) = ($5.80 × 3,300) + ($39,930 ? $12,870) = $19,140 + $27,060 = $46,200 88. The company recomputes its predetermined overhead rate every month. The predetermined overhead rate for April should be: A) $14.00 B) $5.80 C) $17.90 D) $12.10 Ans:  C LO:  6 Solution: Predetermined factory overhead rate = Variable overhead rate per direct labor hour + Fixed factory overhead rate per hour = $5.80 + ($39,930 ÷ 3,300) = $5.80 + $12.10 = $17.90 Use the following to answer questions 89-90: Avril Inc. bases its manufacturing overhead budget on budgeted direct labor-hours. The variable overhead rate is $4.60 per direct labor-hour. The company's budgeted fixed manufacturing overhead is $54,080 per month, which includes depreciation of $3,840. All other fixed manufacturing overhead costs represent current cash flows. The direct labor budget indicates that 3,200 direct labor-hours will be required in October. 89. The October cash disbursements for manufacturing overhead on the manufacturing overhead budget should be: A) $68,800 B) $64,960 C) $14,720 D) $50,240 Ans:  B LO:  6 Solution: Cash disbursements for October = (Variable overhead rate × Number of direct-labor hours) + (Fixed manufacturing overhead less depreciation) = ($4.60 × 3,200) + ($54,080 ? $3,840) = $14,720 + $50,240 = $64,960 90. The company recomputes its predetermined overhead rate every month. The predetermined overhead rate for October should be: A) $4.60 B) $21.50 C) $20.30 D) $16.90 Ans:  B LO:  6 Solution: Predetermined factory overhead rate = Variable overhead rate per direct labor hour + Fixed factory overhead rate per hour = $4.60 + ($54,080 ÷ 3,200) = $4.60 + $16.90 = $21.50 Use the following to answer questions 91-92: The manufacturing overhead budget at Cardera Corporation is based on budgeted direct labor-hours. The direct labor budget indicates that 2,300 direct labor-hours will be required in January. The variable overhead rate is $1.00 per direct labor-hour. The company's budgeted fixed manufacturing overhead is $28,060 per month, which includes depreciation of $4,600. All other fixed manufacturing overhead costs represent current cash flows. 91. The company recomputes its predetermined overhead rate every month. The predetermined overhead rate for January should be: A) $1.00 B) $12.20 C) $11.20 D) $13.20 Ans:  D LO:  6 Solution: Predetermined factory overhead rate = Variable overhead rate per direct labor hour + Fixed factory overhead rate per hour = $1 + ($28,060 ÷ 2,300) = $1 + $12.20 = $13.20 92. The January cash disbursements for manufacturing overhead on the manufacturing overhead budget should be: A) $30,360 B) $2,300 C) $23,460 D) $25,760 Ans:  D LO:  6 Solution: Cash disbursements for January = (Variable overhead rate × Number of direct-labor hours) + (Fixed manufacturing overhead less depreciation) = (2,300 × $1) + ($28,060 ? $4,600) = $2,300 + $23,460 = $25,760 Use the following to answer questions 93-94: The manufacturing overhead budget at Polich Corporation is based on budgeted direct labor-hours. The direct labor budget indicates that 1,600 direct labor-hours will be required in February. The variable overhead rate is $3.40 per direct labor-hour. The company's budgeted fixed manufacturing overhead is $28,320 per month, which includes depreciation of $3,680. All other fixed manufacturing overhead costs represent current cash flows. 93. The company recomputes its predetermined overhead rate every month. The predetermined overhead rate for February should be: A) $3.40 B) $21.10 C) $17.70 D) $18.80 Ans:  B LO:  6 Solution: Predetermined factory overhead rate = Variable overhead rate per direct labor hour + Fixed factory overhead rate per hour = $3.40 + ($28,320 ÷ 1,600) = $3.40 + $17.70 = $21.10 94. The February cash disbursements for manufacturing overhead on the manufacturing overhead budget should be: A) $24,640 B) $33,760 C) $30,080 D) $5,440 Ans:  C LO:  6 Solution: Cash disbursements for February = (Variable overhead rate × Number of direct-labor hours) + (Fixed manufacturing overhead less depreciation) = (1,600 × $3.40) + ($28,320 ? $3,680) = $5,440 + $24,640 = $30,080 Use the following to answer questions 95-97: Porter 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 Per Yute Sold Monthly Fixed Cost Sales commissions $5.90 Shipping $5.30 Advertising $8.90 $32,000 Executive salaries $178,000 Depreciation on office equipment $7,000 Other $0.60 $20,000 All of these expenses (except depreciation) are paid in cash in the month they are incurred. 95. If the company has budgeted to sell 14,000 Yutes in November, then the total budgeted selling and administrative expenses for November would be: A) $526,800 B) $289,800 C) $237,000 D) $519,800 Ans:  A LO:  7 Solution: Total budgeted selling and administrative expenses = Variable cost + Fixed cost = [14,000 × ($5.90 + $5.30 + $8.90 + $ 0.60)] + ($32,000 + $178,000 + $7,000 + $20,000) = (14,000 × $20.70) + $237,000 = $526,800 96. If the company has budgeted to sell 12,000 Yutes in December, then the budgeted total cash disbursements for selling and administrative expenses for December would be: A) $237,000 B) $485,400 C) $248,400 D) $478,400 Ans:  D LO:  7 Solution: Variable cost per unit = $5.90 + $5.30 + $8.90 + $0.60 = $20.70 Fixed cost total = $32,000 + $178,000 + $7,000 + $20,000 = $237,000 Cash disbursements for December = (Variable selling and administrative cost × Number of direct-labor hours) + (Fixed manufacturing overhead less depreciation) = (12,000 × $20.70) + ($237,000 ? $7,000) = $248,400 + $230,000 = $478,400 97. If the budgeted cash disbursements for selling and administrative expenses for October total $518,520, then how many Yutes does the company plan to sell in October? A) 13,300 units B) 14,100 units C) 13,800 units D) 13,600 units Ans:  D LO:  7 Solution: ($20.70 × Units sold) + $237,000 = $518,520 ($20.70 × Units) = $518,520 ? $237,000 Units = $281,520 ÷ $20.70 = 13,600 Use the following to answer questions 98-100: The Bandeiras Company, a merchandising firm, has budgeted its activity for December according to the following information: Sales at $550,000, all for cash. Merchandise inventory on November 30 was $300,000. Budgeted depreciation for December is $35,000. The cash balance at December 1 was $25,000. Selling and administrative expenses are budgeted at $60,000 for December and are paid in cash. The planned merchandise inventory on December 31 is $270,000. The invoice cost for merchandise purchases represents 75% of the sales price. All purchases are paid for in cash. 98. The budgeted cash receipts for December are: A) $412,500 B) $137,500 C) $585,000 D) $550,000 Ans:  D LO:  8 Solution: Since all sales are on a cash basis, the cash receipts for December will be equal to the sales in December of $550,000. 99. The budgeted cash disbursements for December are: A) $382,500 B) $442,500 C) $472,500 D) $477,500 Ans:  B LO:  8 Solution: Purchases = Ending inventory + Cost of goods sold ? Beginning inventory = $270,000 + ($550,000 × 75%) ? $300,000 = $382,500 Cash disbursements = Purchases + Selling and administrative expenses = $382,500 + $60,000 = $442,500 100. The budgeted net income for December is: A) $107,500 B) $137,500 C) $42,500 D) $77,500 Ans:  C LO:  9 Solution: Sales $550,000 Cost of goods sold ($550,000 × 75%) 412,500 Gross margin 137,500 Depreciation expense 35,000 Selling and administrative expense 60,000 Net income $ 42,500 Use the following to answer questions 101-102: Rogers Corporation is preparing its cash budget for July. The budgeted beginning cash balance is $25,000. Budgeted cash receipts total $141,000 and budgeted cash disbursements total $139,000. The desired ending cash balance is $30,000. 101. The excess (deficiency) of cash available over disbursements for July is: A) $23,000 B) $2,000 C) $166,000 D) $27,000 Ans:  D LO:  8 Solution: Excess cash available over disbursements = Beginning cash balance + Budgeted cash receipts - Budgeted cash disbursements = $25,000 + $141,000 - $139,000 = $27,000 102. To attain its desired ending cash balance for July, the company should borrow: A) $30,000 B) $0 C) $3,000 D) $57,000 Ans:  C LO:  8 Solution: Excess cash available over disbursements = Beginning cash balance + Budgeted cash receipts - Budgeted cash disbursements = $25,000 + $141,000 ? $139,000 = $27,000 Borrowing = Desired ending cash balance ? Excess cash available over disbursements = $30,000 ? $27,000 = $3,000 Use the following to answer questions 103-104: Bries Corporation is preparing its cash budget for January. The budgeted beginning cash balance is $18,000. Budgeted cash receipts total $183,000 and budgeted cash disbursements total $188,000. The desired ending cash balance is $30,000. 103. The excess (deficiency) of cash available over disbursements for January is: A) $23,000 B) $13,000 C) ($5,000) D) $201,000 Ans:  B LO:  8 Solution: Excess cash available over disbursements = Beginning cash balance + Budgeted cash receipts ? Budgeted cash disbursements = $18,000 + $183,000 ? $188,000 = $13,000 104. To attain its desired ending cash balance for January, the company should borrow: A) $17,000 B) $0 C) $30,000 D) $43,000 Ans:  A LO:  8 Solution: Excess cash available over disbursements = Beginning cash balance + Budgeted cash receipts ? Budgeted cash disbursements = $18,000 + $183,000 ? $188,000 = $13,000 Borrowing = Desired ending cash balance ? Excess cash available over disbursements = $30,000 ? $13,000 = $17,000 Use the following to answer questions 105-106: Muecke Inc. is working on its cash budget for April. The budgeted beginning cash balance is $40,000. Budgeted cash receipts total $150,000 and budgeted cash disbursements total $158,000. The desired ending cash balance is $50,000. 105. The excess (deficiency) of cash available over disbursements for April will be: A) $32,000 B) $190,000 C) $48,000 D) ($8,000) Ans:  A LO:  8 Solution: Excess cash available over disbursements = Beginning cash balance + Budgeted cash receipts ? Budgeted cash disbursements = $40,000 + $150,000 ? $158,000 = $32,000 106. To attain its desired ending cash balance for April, the company needs to borrow: A) $18,000 B) $0 C) $50,000 D) $82,000 Ans:  A LO:  8 Solution: Excess cash available over disbursements = Beginning cash balance + Budgeted cash receipts - Budgeted cash disbursements = $40,000 + $150,000 - $158,000 = $32,000 Borrowing = Desired ending cash balance ? Excess cash available over disbursements = $50,000 ? $32,000 = $18,000 Use the following to answer questions 107-108: Varughese Inc. is working on its cash budget for March. The budgeted beginning cash balance is $33,000. Budgeted cash receipts total $182,000 and budgeted cash disbursements total $191,000. The desired ending cash balance is $40,000. 107. The excess (deficiency) of cash available over disbursements for March will be: A) $215,000 B) $42,000 C) $24,000 D) ($9,000) Ans:  C LO:  8 Solution: Excess cash available over disbursements = Beginning cash balance + Budgeted cash receipts ? Budgeted cash disbursements = $33,000 + $182,000 ? $191,000 = $24,000 108. To attain its desired ending cash balance for March, the company needs to borrow: A) $40,000 B) $0 C) $16,000 D) $64,000 Ans:  C LO:  8 Solution: Excess cash available over disbursements = Beginning cash balance + Budgeted cash receipts ? Budgeted cash disbursements = $33,000 + $182,000 ? $191,000 = $24,000 Borrowing = Desired ending cash balance ? Excess cash available over disbursements = $40,000 ? $24,000 = $16,000 Use the following to answer questions 109-113: Carver Lumber sells lumber and general building supplies to building contractors in a medium-sized town in Montana. Data regarding the store's operations follow: Sales are budgeted at $350,000 for November, $320,000 for December, and $300,000 for January. Collections are expected to be 90% in the month of sale, 8% in the month following the sale, and 2% uncollectible. The cost of goods sold is 75% of sales. The company purchases 60% of its merchandise in the month prior to the month of sale and 40% in the month of sale. Payment for merchandise is made in the month following the purchase. Other monthly expenses to be paid in cash are $24,700. Monthly depreciation is $16,000. Ignore taxes. Statement of Financial Position October 31 Assets: Cash $    19,000 Accounts receivable (net of allowance for uncollectible accounts) 77,000 Inventory 157,500 Property, plant and equipment (net of $502,000 accumulated depreciation)  1,002,000 Total assets $1,255,500 Liabilities and Stockholders’ Equity: Accounts payable $   272,000 Common stock 780,000 Retained earnings     203,500 Total liabilities and stockholders’ equity $1,255,500 109. The net income for December would be: A) $32,900 B) $42,300 C) $39,300 D) $55,300 Ans:  A LO:  9 Solution: Net sales [$320,000 × (100% ? 2%)] $313,600 Cost of goods sold ($320,000 × 75%) 240,000 Gross margin 73,600 Depreciation expense 16,000 Selling and administrative expense 24,700 Net income $ 32,900 110. The cash balance at the end of December would be: A) $19,000 B) $156,600 C) $61,300 D) $137,600 Ans:  B LO:  10 Solution: November December October Accounts Receivable Balance $ 77,000 Collection of November Sales $350,000 × 90% 315,000 $350,000 × 8% $ 28,000 Collection of December Sales $320,000 × 90% 288,000 October Accounts Payable Balance (272,000) Payment for November Purchases ($350,000 × 75%) × 40% (105,000) ($320,000 × 75%) × 60% (144,000) Other cash monthly expenses (24,700) (24,700) Net cash inflow(outflow) per month $ 95,300 $ 42,300 Beginning cash balance, October 31 $ 19,000 Add November net cash inflow 95,300 Add December net cash inflow 42,300 Ending cash balance, December 31 $156,600 111. The accounts receivable balance, net of uncollectible accounts, at the end of December would be: A) $53,600 B) $83,400 C) $25,600 D) $32,000 Ans:  C LO:  10 Solution: 112. Accounts payable at the end of December would be: A) $231,000 B) $96,000 C) $135,000 D) $240,000 Ans:  A LO:  10 Solution: Sales Cost of Goods Sold November $350,000 $262,500 December $320,000 $240,000 January $300,000 $225,000 Purchases in December = ($225,000 × 60%) + ($240,000 × 40%) = $135,000 + $96,000 = $231,000 113. Retained earnings at the end of December would be: A) $289,600 B) $276,200 C) $236,400 D) $203,500 Ans:  B LO:  10 Solution: Net income calculation for November: Net sales ($350,000 × 98%) $343,000 Less cost of goods sold ($350,000 × 75%) 262,500 Gross margin 80,500 Less depreciation expense 16,000 Less selling and administrative expense 24,700 Net income $ 39,800 Net income calculation for December: Net sales [$320,000 × (100% ? 2%)] $313,600 Less cost of goods sold ($320,000 × 75%) 240,000 Gross margin 73,600 Less depreciation expense 16,000 Less selling and administrative expense 24,700 Net income $ 32,900 Retained earnings in December = Retained earnings in October + Net income in November + Net income in December = $203,500 + $39,800 + $32,900 = $276,200 Essay Questions 114. Weller Industrial Gas Corporation supplies acetylene and other compressed gases to industry. Data regarding the store's operations follow: Sales are budgeted at $330,000 for November, $300,000 for December, and $320,000 for January. Collections are expected to be 85% in the month of sale, 14% in the month following the sale, and 1% uncollectible. The cost of goods sold is 60% of sales. The company purchases 80% of its merchandise in the month prior to the month of sale and 20% in the month of sale. Payment for merchandise is made in the month following the purchase. Other monthly expenses to be paid in cash are $21,200. Monthly depreciation is $21,000. Ignore taxes. Statement of Financial Position October 31 Assets: Cash $    22,000 Accounts receivable (net of allowance for uncollectible accounts) 83,000 Inventory 158,400 Property, plant and equipment (net of $594,000 accumulated depreciation)  1,004,000 Total assets $1,267,400 Liabilities and Stockholders’ Equity: Accounts payable $   196,000 Common stock 620,000 Retained earnings      451,400 Total liabilities and stockholders’ equity $1,267,400 Required: Prepare a Schedule of Expected Cash Collections for November and December. Prepare a Merchandise Purchases Budget for November and December. Prepare Cash Budgets for November and December. Prepare Budgeted Income Statements for November and December. Prepare a Budgeted Balance Sheet for the end of December. Ans: a. November December Sales $330,000 $300,000 Schedule of Expected Cash Collections Accounts receivable $ 83,000 November sales  280,500 $ 46,200 December sales  255,000 Total cash collections $363,500 $301,200 b. November December Cost of goods sold $198,000 $180,000 Merchandise Purchases Budget November sales $ 39,600 December sales  144,000 $ 36,000 January sales  153,600 Total purchases $183,600 $189,600 Disbursements for merchandise $196,000 $183,600 c. November December Cash receipts $363,500 $301,200 Cash disbursements: Disbursements for merchandise 196,000 183,600 Other monthly expenses    21,200    21,200 Total cash disbursements  217,200  204,800 Excess (deficiency) of cash available over disbursements $146,300 $ 96,400 d. November December Sales $330,000 $300,000 Bad debt expense 3,300 3,000 Cost of goods sold  198,000  180,000 Gross margin  128,700  117,000 Other monthly expenses 21,200 21,200 Depreciation    21,000    21,000 Net operating income $ 86,500 $ 74,800 e. Statement of Financial Position December 31 Assets: Cash $  264,700 Accounts receivable (net of allowance for uncollectible accounts) 42,000 Inventory 153,600 Property, plant and equipment (net of $636,000 accumulated depreciation)     962,000 Total assets $1,422,300 Liabilities and Stockholders’ Equity: Accounts payable $   189,600 Common stock 620,000 Retained earnings     612,700 Total liabilities and stockholders’ equity $1,422,300 LO:  2,3,8,9,10 115. At March 31 Streuling Enterprises, a merchandising firm, had an inventory of 38,000 units, and it had accounts receivable totaling $85,000. Sales, in units, have been budgeted as follows for the next four months: April 60,000 May 75,000 June 90,000 July 81,000 Streuling's board of directors has established a policy to commence in April that the inventory at the end of each month should contain 40% of the units required for the following month's budgeted sales. The selling price is $2 per unit. One-third of sales are paid for by customers in the month of the sale, the balance is collected in the following month. Required: Prepare a merchandise purchases budget showing how many units should be purchased for each of the months April, May, and June. Prepare a schedule of expected cash collections for each of the months April, May, and June. Ans: a. April May June July Budgeted sales, in units 60,000 75,000 90,000 81,000 Desired ending inventory (40%)  30,000  36,000  32,400 Total needs 90,000 111,000 122,400 Less beginning inventory  38,000  30,000  36,000 Required purchases  52,000  81,000  86,400 b. April May June Budgeted sales, at $2 per unit $120,000 $150,000 $180,000 March 31 accounts receivable $ 85,000 April sales    40,000 $ 80,000 May sales    50,000 $100,000 June sales    60,000 Total cash collections $125,000 $130,000 $160,000 LO:  2,3 116. Capes Corporation is a wholesaler of industrial goods. Data regarding the store's operations follow: Sales are budgeted at $390,000 for November, $360,000 for December, and $340,000 for January. Collections are expected to be 85% in the month of sale, 10% in the month following the sale, and 5% uncollectible. The cost of goods sold is 80% of sales. The company purchases 40% of its merchandise in the month prior to the month of sale and 60% in the month of sale. Payment for merchandise is made in the month following the purchase. The November beginning balance in the accounts receivable account is $77,000. The November beginning balance in the accounts payable account is $320,000. Required: Prepare a Schedule of Expected Cash Collections for November and December. Prepare a Merchandise Purchases Budget for November and December. Ans: a. November December Sales $390,000 $360,000 Schedule of Expected Cash Collections Accounts receivable $ 77,000 November sales  331,500 $ 39,000 December sales  306,000 Total cash collections $408,500 $345,000 b. November December Cost of goods sold $312,000 $288,000 Merchandise Purchases Budget November sales $187,200 December sales  115,200 $172,800 January sales  108,800 Total purchases $302,400 $281,600 Disbursements for merchandise $320,000 $302,400 LO:  2,3 117. Clay Company has projected sales and production in units for the second quarter of the coming year as follows: April May June Sales 50,000 40,000 60,000 Production 60,000 50,000 50,000 Cash-related production costs are budgeted at $5 per unit produced. Of these production costs, 40% are paid in the month in which they are incurred and the balance in the following month. Selling and administrative expenses will amount to $100,000 per month. The accounts payable balance on March 31 totals $190,000, which will be paid in April. All units are sold on account for $14 each. Cash collections from sales are budgeted at 60% in the month of sale, 30% in the month following the month of sale, and the remaining 10% in the second month following the month of sale. Accounts receivable on April 1 totaled $500,000 $(90,000 from February's sales and the remainder from March). Required: Prepare a schedule for each month showing budgeted cash disbursements for the Clay Company. Prepare a schedule for each month showing budgeted cash receipts for Clay Company. Ans: a. April May June Production units 60,000 50,000 50,000 Cash required per unit × $5 × $5 × $5 Production costs $300,000 $250,000 $250,000 Cash disbursements: April May June Production this month (40%) $120,000 $100,000 $100,000 Production prior month (60%) 190,000 180,000 150,000 Selling and administrative  100,000  100,000  100,000 Total disbursements $410,000 $380,000 $350,000 Payments relating to the prior month (March) in April represent the balance of accounts payable at March 31. b. April May June Sales units 50,000 40,000 60,000 Sales price × $14 × $14 × $14 Total sales $700,000 $560,000 $840,000 April May June Cash receipts: February sales $ 90,000 March sales 307,500 $102,500 April sales  420,000 210,000 $ 70,000 May sales  336,000 168,000 June sales  504,000 Total receipts $817,500 $648,500 $742,000 LO:  2,4 118. The Doley Company has planned the following sales for the next three months: Jan Feb Mar Budgeted sales $40,000 $50,000 $70,000 Sales are made 20% for cash and 80% on account. From experience, the company has learned that a month’s sales on account are collected according to the following pattern: Month of sale 60% First month following sale 30% Second month following sale 8% Uncollectible 2% The company requires a minimum cash balance of $5,000 to start a month. The beginning cash balance in March is budgeted to be $6,000. Required: Compute the budgeted cash receipts for March. The following additional information has been provided for March: Inventory purchases (all paid in March) $28,000 Selling and administrative expenses (all paid in March) $40,000 Depreciation expense for March $5,000 Dividends paid in March $4,000 Prepare a cash budget in good form for the month of March, using this information and the budgeted cash receipts you computed for part (1) above. The company can borrow in any dollar amount and will not pay interest until April. Ans: a. Cash sales, March: $70,000 × 20% $14,000 Collections on account: Jan. sales: $40,000 × 80% × 8% 2,560 Feb. sales: $50,000 × 80% × 30% 12,000 Mar. sales: $70,000 × 80% × 60%  33,600 Total cash receipts $62,160 b. Cash balance, beginning $ 6,000 Add cash receipts from sales  62,160 Total cash available  68,160 Less disbursements: Inventory purchases 28,000 Selling and administrative expenses 40,000 Dividends   4,000 Total disbursements  72,000 Cash excess (deficiency) (3,840) Financing–borrowing    8,840 Cash balance, ending $ 5,000 LO:  2,8 119. A sales budget is given below for one of the products manufactured by the Key Co.: January 21,000 units February 36,000 units March 61,000 units April 41,000 units May 31,000 units June 25,000 units The inventory of finished goods at the end of each month should equal 20% of the next month's sales. However, on December 31 the finished goods inventory totaled only 4,000 units. Each unit of product requires three specialized electrical switches. Since the production of these specialized switches by Key's suppliers is sometimes irregular, the company has a policy of maintaining an ending inventory at the end of each month equal to 30% of the next month's production needs. This requirement had been met on January 1 of the current year. Required: Prepare a budget showing the quantity of switches to be purchased each month for January, February, and March and in total for the quarter. Ans: January February March April Budgeted sales (units) 21,000 36,000 61,000 41,000 Add: Desired ending inventory  7,200 12,200  8,200  6,200 Total needs 28,200 48,200 69,200 47,200 Deduct: Beginning inventory  4,000  7,200 12,200  8,200 Units to be produced 24,200 41,000 57,000 39,000 January February March Quarter Units to be produced 24,200 41,000 57,000 122,200 Switches per unit ×3 ×3 ×3 ×3 Production needs 72,600 123,000 171,000 366,600 Add: Desired ending inventory  36,900  51,300  35,100  35,100 Total needs 109,500 174,300 206,100 401,700 Deduct: Beginning inventory  21,780  36,900  51,300  21,780 Required purchases  87,720 137,400 154,800 379,920 Beginning inventory, January 1: 72,600 × 0.3 = 21,780 Ending inventory, March 31: (39,000 × 3) × 0.3 = 35,100 LO:  4 120. One quarter gram of a rare seasoning is required for each bottle of Dipping Oil, a very popular product sold through gourmet shops that is produced by The Lucas Company. The cost of the seasoning is $16 per gram. Budgeted production of Dipping Oil is given below for the second quarter, and the first month of the third quarter. April May June July Required production bottles 5,000 8,000 15,000 10,000 The seasoning is so difficult to get that the company must have on hand at the end of each month 20% of the next month's production needs. A total of 250 grams will be on hand at the beginning of April. Required: Prepare a direct materials budget for the seasoning, by month and in total for the second quarter. Be sure to include both the quantity to be purchased and its cost for each month. Ans: Lucas Company Direct Materials Budget for the Second Quarter April May June Total Required production (bottles) 5,000 8,000 15,000 28,000 Seasoning required per bottle (grams) ×0.25 ×0.25 ×0.25 ×0.25 Production needs (grams) 1,250 2,000 3,750 7,000 Add desired ending inventory of seasoning    400    750    500    500 Total needs 1,650 2,750 4,250 7,500 Less beginning inventory of seasoning    250    400    750    250 Seasoning to be purchased (grams) 1,400 2,350 3,500 7,250 Cost of seasoning per gram × $16 × $16 × $16 × $16 Cost of seasoning to be purchased $22,400 $37,600 $56,00 $116,000 LO:  4 121. Whitmer Corporation is working on its direct labor budget for the next two months. Each unit of output requires 0.05 direct labor-hours. The direct labor rate is $11.80 per direct labor-hour. The production budget calls for producing 7,100 units in February and 6,800 units in March. Required: Construct the direct labor budget for the next two months, assuming that the direct labor work force is fully adjusted to the total direct labor-hours needed each month. Ans: February March Required production in units 7,100 6,800 Direct labor-hours per unit 0.05 0.05 Total direct labor-hours needed 355 340 Direct labor cost per hour $11.80 $11.80 Total direct labor cost $4,189 $4,012 LO:  5 122. Sthilaire Corporation is working on its direct labor budget for the next two months. Each unit of output requires 0.34 direct labor-hours. The direct labor rate is $11.10 per direct labor-hour. The production budget calls for producing 8,000 units in April and 8,300 units in May. The company guarantees its direct labor workers a 40-hour paid work week. With the number of workers currently employed, that means that the company is committed to paying its direct labor work force for at least 2,840 hours in total each month even if there is not enough work to keep them busy. Required: Construct the direct labor budget for the next two months. Ans: April May Required production in units 8,000 8,300 Direct labor-hours per unit 0.34 0.34 Total direct labor-hours needed 2,720 2,822 Total direct labor-hours paid 2,840 2,840 Direct labor cost per hour $11.10 $11.10 Total direct labor cost $31,524 $31,524 LO:  5 123. Brockney Inc. bases its manufacturing overhead budget on budgeted direct labor-hours. The variable overhead rate is $8.60 per direct labor-hour. The company's budgeted fixed manufacturing overhead is $107,970 per month, which includes depreciation of $9,760. All other fixed manufacturing overhead costs represent current cash flows. The July direct labor budget indicates that 6,100 direct labor-hours will be required in that month. Required: Determine the cash disbursement for manufacturing overhead for July. Determine the predetermined overhead rate for July. Ans: a. July Budgeted direct labor-hours 6,100 Variable overhead rate $8.60 Variable manufacturing overhead $ 52,460 Fixed manufacturing overhead  107,970 Total manufacturing overhead 160,430 Less depreciation      9,760 Cash disbursement for manufacturing overhead $150,670 b. Total manufacturing overhead (a) $160,430 Budgeted direct labor-hours (b) 6,100 Predetermined overhead rate for the month (a)/(b) $26.30 LO:  6 124. The manufacturing overhead budget of Reigle Corporation is based on budgeted direct labor-hours. The February direct labor budget indicates that 5,800 direct labor-hours will be required in that month. The variable overhead rate is $4.60 per direct labor-hour. The company's budgeted fixed manufacturing overhead is $82,360 per month, which includes depreciation of $16,820. All other fixed manufacturing overhead costs represent current cash flows. Required: Determine the cash disbursement for manufacturing overhead for February. Show your work! Determine the predetermined overhead rate for February. Show your work! Ans: a. February Budgeted direct labor-hours 5,800 Variable overhead rate $4.60 Variable manufacturing overhead $ 26,680 Fixed manufacturing overhead   82,360 Total manufacturing overhead 109,040 Less depreciation   16,820 Cash disbursement for manufacturing overhead $ 92,220 b. Total manufacturing overhead (a) $109,040 Budgeted direct labor-hours (b) 5,800 Predetermined overhead rate for the month (a)/(b) $18.80 LO:  6 125. Wala Inc. bases its selling and administrative expense budget on the number of units sold. The variable selling and administrative expense is $8.20 per unit. The budgeted fixed selling and administrative expense is $132,800 per month, which includes depreciation of $14,400. The remainder of the fixed selling and administrative expense represents current cash flows. The sales budget shows 8,000 units are planned to be sold in July. Required: Prepare the selling and administrative expense budget for July. Ans: July Budgeted unit sales 8,000 Variable selling and administrative expense per unit $8.20 Budgeted variable expense $ 65,600 Budgeted fixed selling and administrative expense  132,800 Total budgeted selling and administrative expense 198,400 Less depreciation    14,400 Cash disbursements for selling and administrative expenses $184,000 LO:  7 126. The selling and administrative expense budget of Garney Corporation is based on the number of units sold, which are budgeted to be 1,800 units in October. The variable selling and administrative expense is $2.00 per unit. The budgeted fixed selling and administrative expense is $22,680 per month, which includes depreciation of $7,020. The remainder of the fixed selling and administrative expense represents current cash flows. Required: Prepare the selling and administrative expense budget for October. Ans: October Budgeted unit sales 1,800 Variable selling and administrative expense per unit $2.00 Budgeted variable expense $ 3,600 Budgeted fixed selling and administrative expense  22,680 Total budgeted selling and administrative expense 26,280 Less depreciation    7,020 Cash disbursements for selling and administrative expenses $19,260 LO:  7 127. Romeiro Corporation is preparing its cash budget for September. The budgeted beginning cash balance is $46,000. Budgeted cash receipts total $160,000 and budgeted cash disbursements total $152,000. The desired ending cash balance is $70,000. The company can borrow up to $120,000 at any time from a local bank, with interest not due until the following month. Required: Prepare the company's cash budget for September in good form. Ans: Cash balance, beginning $ 46,000 Add cash receipts  160,000 Total cash available 206,000 Less cash disbursements  152,000 Excess (deficiency) of cash available over disbursements 54,000 Borrowings    16,000 Cash balance, ending $ 70,000 LO:  8 128. Zolezzi Inc. is preparing its cash budget for March. The budgeted beginning cash balance is $42,000. Budgeted cash receipts total $178,000 and budgeted cash disbursements total $175,000. The desired ending cash balance is $50,000. The company can borrow up to $160,000 at any time from a local bank, with interest not due until the following month. Required: Prepare the company's cash budget for March in good form. Make sure to indicate what borrowing, if any, would be needed to attain the desired ending cash balance. Ans: Cash balance, beginning $ 42,000 Add cash receipts  178,000 Total cash available 220,000 Less cash disbursements  175,000 Excess (deficiency) of cash available over disbursements 45,000 Borrowings      5,000 Cash balance, ending $ 50,000 LO:  8