A benefit of budgeting is that it provides definite objectives for evaluating performance.

True

False

Budgets can have a positive or negative effect on human behavior depending on the manner in which the budget is
developed and administered.
Fals
e

Tru
e

Which of the following statements about budget acceptance in an organization is true?

The most widely accepted budget by the organization is the one prepared by the department heads.

Budgets are hardly ever accepted by anyone except top management.

The most widely accepted budget by the organization is the one prepared by top management.

Budgets have a greater chance of acceptance if all levels of management have provided input into the
budgeting process.
If there were 70,000 pounds of raw materials on hand on January 1, 140,000 pounds are desired for inventory at
January 31, and 420,000 pounds are required for January production, how many pounds of raw materials should be
purchased in January?
490,000 pounds

560,000 pounds

280,000 pounds

350,000 pounds

A company budgeted unit sales of 102,000 units for January, 2008 and 120,000 units for February, 2008. The
company has a policy of having an inventory of units on hand at the end of each month equal to 30% of next
month's budgeted unit sales. If there were 30,600 units of inventory on hand on December 31, 2007, how many
units should be produced in January, 2008 in order for the company to meet its goals?
96,600 units

138,000 units

107,400 units

102,000 units

The projection of financial position at the end of the budget period is found on the
 sales budget.

budgeted income statement.

cash budget.

budgeted balance sheet.

Which one of the following items would never appear on a cash budget?
Interest expense

Depreciation expense

Travel expense

Office salaries expense

Fuqua Company has accumulated the following budget data for the
year 2010.
1. Sales: 30,000 units, unit selling price $80.

2. Cost of one unit of finished goods: Direct materials 2 pounds at

$5 per pound, direct labor 3 hours at $12 per hour, and
manufacturing overhead $6 per direct labor hour.

3. Inventories (raw materials only): Beginning, 10,000 pounds;

 ending, 15,000 pounds.

4. Raw materials cost: $5 per pound.

5. Selling and administrative expenses: $200,000.

6. Income taxes: 30% of income before income taxes.

Correct.

Complete the schedule showing the computation of cost of goods sold

for 2010.
FIQUA COMPANY

Computation of Cost of Goods Sold

For the Year Ending December 31, 2010
Cost of one unit of finished goods:

Direct materials $ 10

Direct labor 36

Manufacturing overhead 18

Total $ 64

Cost of goods sold $ 1920000

 Correct.

Complete the budgeted income statement for 2010.

FIQUA COMPANY

Budgeted Income Statement

For the Year Ending December 31, 2010

$ 2,400,000
Sales

1,920,000
Cost of goods sold

Gross profit 480,000

200,000
Selling & administrative expenses

Income before income taxes 280,000

84,000
Income tax expense

Net income $ 196,000

FIQUA COMPANY
 Computation of Cost of Goods Sold
For the Year Ending December 31, 2010
Cost of one unit of finished goods:

Direct materials (2 × $5) $10

Direct labor (3 × $12) 36

Manufacturing overhead (3 × $6) 18

Total $64

Cost of goods sold (30,000 units × $64) $1,920,000

FIQUA COMPANYBudgeted Income Statement

For the Year Ending December 31, 2010
Sales (30,000 × $80)$2,400,000Cost of goods sold (see first part of
question)
1,920,000
Gross profit480,000Selling & administrative expenses
200,000
Income before income taxes280,000Income tax expense ($280,000 ×
30%)
84,000
Net income
$196,000

Goody Company estimates that unit sales will be 10,000 in quarter 1; 12,000
in quarter 2; 14,000 in quarter 3; and 18,000 in quarter 4. Management
desires to have an ending finished goods inventory equal to 20% of the next
quarter's expected unit sales. Complete the production budget by quarters
for the first 6 months of 2010.
GOODY COMPANY

Production Budget
For the Six Months Ending June 30, 2010
Six
Quarter

1 2 Months
Expected unit sales 10000 12000
Add: Desired ending finished

goods
2400 2800
Total required units 12400 14800

Less: Beginning finished

goods inventory
2000 2400
Required production units
10400 12400 22800

BE20-3

GOODY COMPANY

Production Budget
For the Six Months Ending June 30, 2010
Six
Quarter

1 2 Months
10,0 12,
Expected unit sales 00 000

Add: Desired ending finished

goods a 2,400 c 2,800
12,4 14,
Total required units 00 800

Less: Beginning finished goods

inventory b 2,000 2,400
 12,40 22,8
Required production units
10,400 0 00
a 12,000 × .20
b 10,000 × .20
c 14,000 × .20

For Justus Inc. variable manufacturing overhead costs are expected to be

$20,210 in the first quarter of 2010 with $4,350 increments in each of the
remaining three quarters. Fixed overhead costs are estimated to be $35,570
in each quarter. Complete the manufacturing overhead budget by quarters
and in total for the year.
JUSTUS INC.

Manufacturing Overhead Budget

For the Year Ending December 31, 2010
Quarter

1 2 3 4 Year

Variable
$ 20,210 $ 24,560 $ 28910 $ 33260 $ 106940
costs

Fixed costs 35,570 35,570 35,570 35,570 142280

Total manuf.
overhead $ 55780 $ 60130 $ 64480 $ 68830 $ 249220

On January 1, 2011 the Batista Company budget committee has

reached agreement on the following data for the 6 months ending June
30, 2011.
First quarter 5,000; second quarter 6,000;
Sales units:
third quarter 7,000

Ending raw materials 50% of the next quarter's production

inventory: requirements

Ending finished goods 30% of the next quarter's expected sales

inventory: units

Third-quarter production: 7,250 units

The ending raw materials and finished goods inventories at December 31, 2010, follow the same percentage
relationships to production and sales that occur in 2011. Three pounds of raw materials are required to make
each unit of finished goods. Raw materials purchased are expected to cost $4 per pound.

Correct.

Complete the production budget by quarters for the 6-month period

ended June 30, 2011.
BATISTA COMPANY

Production Budget
For the Six Months Ending June 30, 2011
Quarter Six

1 2 Months

Expected unit sales

5000 6000

Add: Desired ending

finished goods units
1800 2100

Total required units 6800 8100

Less: Beginning finished

1500 1800
goods units

Required production units 5300 6300 11600

 Correct.

Complete the direct materials budget by quarters for the 6-month

period ended June 30, 2011.
BATISTA COMPANY

Direct Materials Budget

For the Six Months Ending June 30, 2011
Quarter Six

1 2 Months

Units to be produced
5300 6300

Direct materials per unit ×3 ×3

Total pounds needed for

15900 18900
production

Add: Desired ending direct

9450 10875
materials

Total materials required 25350 29775

Less: Beginning direct 7950 9450

 materials

Direct materials purchases 17400 20325

×$4 ×$4
Cost per pound

Total cost of direct

materials purchases $ 69600 $ 81300 $ 150900

E20-6

BATISTA COMPANY

Production Budget
For the Six Months Ending June 30, 2011
Quarter Six

1 2 Months

5,00 6,0
Expected unit sales
0 00

Add: Desired ending finished (2)2,10

goods units 1,800
(1)
0

6,80 8,1
Total required units
0 00

Less: Beginning finished goods (3) 1,500 1,800

units

Required production units 5,300 6,300

11,6
00
(1) 30% × 6,000
(2) 30% × 7,000
(3) 30% × 5,000

E20-6

BATISTA COMPANY

Direct Materials Budget

For the Six Months Ending June 30, 2011

Quarter Six

1 2 Months

Units to be produced 5,300 6,300

×3 ×3
Direct materials per unit
18,90
Total pounds needed for production 15,900
0
(1)9,45 (2)10,8

Add: Desired ending direct materials (pounds) 0 75

29,77
Total materials required 25,350
5
(3) 7,95
9,450
Less: Beginning direct materials (pounds) 0

20,32
Direct materials purchases 17,400
5
× $4 × $4
Cost per pound
$69,60 $81,3 $150
Total cost of direct materials purchases 0 00 ,900

(1) 50% × $18,900

(2) 7,250 × (3 × 50%)
(3) 50% × 15,900

Donnegal Dental Clinic is a medium-sized dental service specializing in family dental care. The clinic is currently
preparing the master budget for the first 2 quarters of 2010. All that remains in this process is the cash budget. The
following information has been collected from other portions of the master budget and elsewhere.

Beginning cash balance $ 30,000

Required minimum cash balance 25,000

Payment of income taxes (2nd quarter) 4,000

Professional salaries:

1st quarter 140,000

2nd quarter 140,000

Interest from investments (2nd quarter) 5,000

Overhead costs:

1st quarter 75,000

2nd quarter 100,000

Selling and administrative costs, including

$3,000 depreciation:

1st quarter 50,000

2nd quarter 70,000

Purchase of equipment (2nd quarter) 50,000

Sale of equipment (1st quarter) 15,000

Collections from clients:

1st quarter 230,000

2nd quarter 380,000

Interest payments (2nd quarter) 300

Complet the cash budget for each of the first two quarters of 2010. (List multiple entries from largest to smallest
amounts, e.g. 10, 5, 1. for January. If answer is zero please enter 0, do not leave any fields blank.)

DONNEGAL DENTAL CLINIC

Cash Budget
 For the the Two Quarters Ending June 30, 2010

1st Quarter 2nd Quarter

$30,000 $25,000
Beginning cash balance

Add: Receipts
Collections from clients 230,000 380,000
Sale of equipment 15,000 0
0 5,000
Investment interest
245,000 385,000
Total receipts
275,000 410,000
Total available cash
Less: Disbursements
Professional salaries 140,000 140,000
Overhead costs 75,000 100,000
Selling and administrative costs 47,000 67,000
Equipment purchase 0 50,000
0 4,000
Payment of income taxes
262,000 361,000
Total disbursements
Excess (deficiency) of available cash over cash disbursements 13,000 49,000
Financing
Borrowings 12,000 0
0 12,300
Repayments
$25,000 $36,700
Ending cash balance

Larussa Inc. is preparing its annual budgets for the year ending December 31, 2011. assistants furnish the data
shown below.

Product Product

JB 50 JB 60

Sales budget:
Anticipated volume in units 400,000 200,000
Unit selling price $20 $25
Production budget:
Desired ending finished goods units 25,000 15,000
Beginning finished goods units 30,000 10,000
Direct materials budget:
Direct materials per unit (pounds) 2 3
Desired ending direct materials pounds 30,000 15,000
Beginning direct materials pounds 40,000 10,000
Cost per pound $3 $4
Direct labor budget:
Direct labor time per unit 0.4 0.6
Direct labor rate per hour $12 $12
 Budgeted income statement:
Total unit cost $12 $21
An accounting assistant has prepared the detailed manufacturing overhead budget and the selling and administrative
expense budget. The latter shows selling expenses of $660,000 for product JB 50 and $360,000 for product JB 60,
and administrative expenses of $540,000 for product JB 50 and $340,000 for product JB 60. Income taxes are
expected to be 30%.

Complete the following budgets for the year. (List operating expenses from largest to smallest amount, e.g. 10, 5,
2.)

(a) Sales (d) Direct labor

(b) Production (e)

Income statement (Note: Income taxes are not allocated to the
products.)
(c) Direct materials

LARUSSA INC.

Sales Budget

For the Year Ending December 31, 2011

JB 50 JB 60 Total

Expected unit sales

400,000 200,000

Unit selling price × $ 20 × $ 25

Total sales $ 8,000,000 $ 5000000 $ 13000000

LARUSSA INC.

Production Budget

For the Year Ending December 31, 2011

JB 50 JB 60 Total

400,000 200000

Expected unit sales

25,000 15,000
Add: Desired ending finished goods units
 425,000 215000
Total required units

30,000 10,000

Less: Beginning finished goods units

395,000 205000 600000

Required production units

LARUSSA INC.

Direct Materials Budget

For the Year Ending December 31, 2011

JB 50 JB 60 Total

Units to be produced 395,000 205000

×2 ×3
Direct materials per unit

Total pounds needed for production

790,000 615000
Add: Desired ending direct materials

Total materials required

Less: Beginning direct materials

Direct materials purchases

×$3 ×$4
Cost per pound

Total cost of direct materials purchases $ $ $

 LARUSSA INC.

Direct Labor Budget

For the Year Ending December 31, 2011

JB 50 JB 60 Total

Units to be produced
395,000 205000

Direct labor time (hours) per unit × .4 × .6

Total required direct labor hours

158000 123000

Direct labor cost per hour × $ 12 × $ 12

$ 1896000 $ 1476000 $ 3372000

Total direct labor cost

LARUSSA INC.

Budgeted Income Statement

For the Year Ending December 31, 2011

JB 50 JB 60 Total

$ 8,000,000 $ 5000000 $ 13000000

Sales

4800000 4200000 9000000

Cost of goods sold

Gross profit 3200000 800000 4000000

Operating expenses
1,020,000

Selling expenses
660,000 360,000
Administrative expenses
540,000 340,000 880,000
 1,200,000 1,900,000

Total operating expenses

700,000

$ 2000000 $ 100000

Income before income taxes

2100000

630000
Income tax expense
$ 1470000
Net income