Managerial Accounting 1

Midterm
Theories

1. (d) The requirement is to identify a characteristic of the

master budget. Answer (d) is correct because the master budget
is a comprehensive budget that includes both the operating and
fi nancial budgets. Answer (a) is incorrect because the master
budget does not show actual results. Answer (b) is incorrect
because the master budget shows all costs, controllable and uncontrollable.
Answer (c) is incorrect because the master budget
is not structured for the computation of variances.

2. (c) The requirement is to defi ne a tactical profi t plan.

Answer (c) is correct because tactical profi t plans have the
410 Module 47: Planning, Control, and Analysis
char acteristics of being quantifi ed, detailed and short-term,
and as signing responsibilities at all levels. Answer (a) is
incorrect be cause tactical profi t plans are quantitative with
detailed assigned responsibilities. Answer (b) is incorrect
because tactical profi t plans are detailed. Answer (d) is
incorrect because tactical profi t plans are detailed, short-term,
quantitative, and include assigned responsibilities at all levels.

3.. ANS: B DIF: Easy OBJ: 8-1

4.. ANS: D DIF: Easy OBJ: 8-1

5. ANS: A DIF: Easy OBJ: 8-1

6. ANS: B DIF: Moderate OBJ: 8-1

7. ANS: B DIF: Easy OBJ: 8-1

8. ANS: D DIF: Easy OBJ: 8-1

9. ANS: A DIF: Easy OBJ: 8-1

10. ANS: D DIF: Easy OBJ: 8-2

11. ANS: A DIF: Easy OBJ: 8-2

12. ANS: C DIF: Easy OBJ: 8-2

13. ANS: C DIF: Easy OBJ: 8-1

14. ANS: D DIF: Easy OBJ: 8-3

15.ANS: A DIF: Easy OBJ: 8-3

16. ANS: A DIF: Easy OBJ: 8-3

17. ANS: D DIF: Easy OBJ: 8-3

18. ANS: D DIF: Easy OBJ: 8-3

19. ANS: A DIF: Easy OBJ: 8-3

20. ANS: C DIF: Easy OBJ: 8-2

21. ANS: A DIF: Easy OBJ: 8-3

22. ANS: A DIF: Easy OBJ: 8-4

23. ANS: B DIF: Easy OBJ: 8-4

24. ANS: B DIF: Easy OBJ: 8-4

25. ANS: D DIF: Easy OBJ: 8-4
1. (c) The requirement is to determine the number of kilos
of chemical Loire that Mien is planning to purchase in October.
The fi rst step is to prepare a production budget for product
Nous.
Sales 53,000
Increase in ending inventory 6,000
Total units needed 59,000
Next, a purchases budget for raw material Loire should be prepared.
Production needs (59,000 × 4) 236,000
Decrease in ending inventory (50,000)
Total kilos needed 186,000
Note that the production needs for Loire equal the number
of units of Nous to be produced times the number of kilos of
Loire needed per unit (4).

2. (c) The requirement is to calculate the budgeted cost

of purchases for the month of August. The cost of inventory
needed to meet August forecasted sales is equal to $300,000
($750,000 × 40%). The required ending inventory for August
is equal to $82,500 ($825,000 September sales × 40% ×
25%). The ending inventory for July is equal to $75,000
($750,000 August sales × 40% × 25%). Budgeted cost of
purchases for August would equal to $307,500 ($300,000 cost
of goods sold + $82,500 required ending inventory – $75,000
beginning inventory). Therefore, answer (c) is correct. Answer
(a) is incorrect because the June 30 inventory is deducted.
Answer (b) is incorrect be cause it deducts what should be the
ending inventory for June. Answer (d) is incorrect because it
results from using sales prices for the beginning and ending
inventories.

3. (b) The requirement is to calculate the budgeted amount

of cash receipts from sales and collection for September.
Forecasted sales for September are $825,000 of which
$165,000 (20%) are cash sales. In addition, 40% of credit sales
are col lected in the month of sale, which is equal to $264,000
($825,000) × 80% × 40%). Collections of August sales in
September are equal to $342,000 ($750,000 × 80% × 57%).
Ac cordingly, the projected collections for September are
$771,000 ($165,00 + $264,000 + $342,000), and answer (b)
is correct. Answer (a) is incorrect because $757,000 ignores
cash sales. Answer (c) is incorrect because $793,800 assumes
57% of Octo ber sales are collected in September. Answer
(d) is incorrect because $856,500 assumes the collections in
September for Au gust sales are 57% of total sales.

4. (d) The requirement is to identify the budgeting technique

that focuses on improving operations. Answer (d) is
cor rect because Kaizen budgeting projects costs on the basis
of im provements to be implemented. Answer (a) is incorrect
because responsibility budgeting focuses on the ability of the
manager to control the cost. Answer (b) is incorrect because
activity-based budgeting uses cost drivers to determine
budgeted costs. Answer (c) is incorrect because operational
budgeting focuses on bud geting operating costs.

5. (b) The requirement is to identify the item that is part of

a fi nancial budget. Answer (b) is correct. The fi nancial budget
includes the capital budget, cash budget, and the budgeted
statement of cash fl ows. The operating budget includes the
budgeted income statement and supporting budgets. Answers
(a), (c), and (d) are incorrect because they are part of the operating
budget.

6. (c) Calculation of the cash payments for components in

May is shown below.
Payments for June sales $1,750 ($7,000 × 25%)
Payment for July sales $6,000 ($8,000 × 75%)
Total cash payments $7,750
Answer (a) is incorrect because parts are ordered two months
prior to sales. Therefore, costs of components for sales of June
and July should be considered. Answer (b) is incorrect because
parts are ordered two months prior to sales. Therefore, costs of
components for sales of June and July should be considered.
Answer (d) is incorrect because parts are ordered two months
prior to sales. Therefore, costs of components for sales of June
and July should be considered.

7. (c) The requirement is to determine budgeted cash

disbursements for purchases for 2014. The solutions approach
is to use T-accounts to trace the fl ow of budgeted costs through
the accounts.
Inventory
Bal. 1/1/14 30,000
Purchases ? 300,000 CGS
Bal. 12/31/14 42,000
T-account analysis reveals that total purchases of inventory for
the year must be $312,000.
Goods sold or on hand
at 12/31 – Beginning
inventory = Purchases
($300,000 + $42,000) – $30,000 = $312,000
Payments for purchases are made in the month following purchase.
Thus, accounts payable at 1/1/14 will be paid in January
2014 and 1/12 of 2014 purchases (since Toyi is purchased in
equal amounts each month) will be paid for in January 2014.
Accounts payable is depicted as follows:
Accounts Payable
Cash
disbursements
306,000* 20,000 Bal. 1/1/14
312,000 Purchases
26,000** Bal.
12/31/14
* ($312,000 purchases × 11/12) + $20,000 beg. AP
** $312,000 purchases × 1/12
Therefore, budgeted cash payments for Toyi for 2014 is
$306,000.

8. (a) The requirement is to calculate the budgeted cash

 from collection of accounts receivable. Answer (a) is correct
because the amount is equal to July’s collections in September
plus August’s collections in September. This amount is
$169,800 (36% × $120,000 + 60% × $211,000)

9. (b) The requirement is to fi nd the total budgeted costs

for the seven stores in the coming year. Fixed costs last year
were $70,000, and therefore variable costs totaled $430,000.
The key is to fi nd the variable costs per store. This is
calculated by divid ing variable costs ($430,000) by the number
of stores last year (fi ve), or, $86,000. Therefore, total costs
budgeted in the new year is calculated as follows:
Variable cost per store $ 86,000
Number of stores × 7
Total budgeted variable costs 602,000
Add: fi xed costs 70,000
Total budgeted costs $672,000

10.

ANS: C
Ending inventory--May 10,000 lbs.
 Production needs: 200,000 units * 2 400,000 lbs.
lbs/unit
Inventory needed 410,000 lbs.
Beginning inventory--May (2,000) lbs.
Total purchase requirements 408,000 lbs.

DIF: Moderate OBJ: 8-4

11.

ANS: C
Sales Commissions (1,000 units * $ 5,000
$5/plane
Administration $10,000
Labor in SG&A $15,000

DIF: Moderate OBJ: 8-4

12.

ANS: D
Direct labor per unit $5.00/unit
Indirect labor per unit 3.00/unit
8.00/unit
Units produced 1,200 units
Total budgeted labor $9,600
cost

DIF: Moderate OBJ: 8-4

13.

ANS: D
Ending Inventory, May 1,200 units
Sales: May 5,000 units
Requirements for May 6,200 units
Less: Beginning Inventory, May 1,600 units
Units to be produced 4,600 units
3 hrs/unit * $13/hr
 $179,400

DIF: Difficult OBJ: 8-4

14.

ANS: C
June sales ($150,000 * 70%) $105,000
May sales (160,000 * 15%) 24,000
April sales (140,000 * 14%) 19,600
Total cash collections--June $148,600

DIF: Difficult OBJ: 8-5

15.

ANS: A
Beginning Cash Balance $ 50,000
Cash Collections 1,000,000
Borrowings 70,000
 Cash Available 1,120,000
Less: Ending Cash Balance 30,000
Projected Cash Disbursements $1,090,000

DIF: Moderate OBJ: 8-4

16.

ANS: D
April 1 balance $ 23,000
Add: Cash Collections 876,000
$899,000
Deduct: Cash 978,600
Disbursements
Cash Deficit $(79,600)
Minimum Cash Balance 20,000
Amount to Borrow $ 99,600
rounded up to $100,000

DIF: Moderate OBJ: 8-5

17.

ANS: C
Ending Cash $ 200
Deduct Borrowings (300)
Cash Shortage $(100)
Add Disbursements 500
Deduct Beginning cash (100)
Budgeted cash $ 300
collections

DIF: Moderate OBJ: 8-5

18.

ANS: A
Ending Cash $ 200
Deduct Borrowings (100)
 Cash Balance $ 100
Deduct collections (400)
Deduct Beginning cash (300)
Budgeted cash $(600)
disbursements

DIF: Moderate OBJ: 8-5

19.

ANS: B
Ending Cash $ 100
Add Repayments 300
Cash Balance $ 400
Add disbursements 600
Deduct Beginning cash (700)
Budgeted cash $ 300
collections

DIF: Moderate OBJ: 8-5

20.

ANS: D
(6,000 units * $3.00/unit) + $75,000 =
$93,000
Variable Fixed

DIF: Easy OBJ: 8-4

21.

ANS: D
Balance in A/R from April sales: $21,000/0.15 = $140,000
15% represents the amount of April receivables uncollected at the end of
May.

DIF: Moderate OBJ: 8-4

22.
ANS: B
Increase in inventory = 3,000 units
3,000/0.30 = 10,000 increase for April over March.

DIF: Moderate OBJ: 8-4

 23.

ANS: C
Beginning Inventory for June 1,600 units (4,000 * 40%)
Produced in June 6,000 units
Deduct: June sales (4,000) units
Ending inventory for June 3,600 units

3,600/0.40 = 9,000 units

DIF: Difficult OBJ: 8-4

24.

ANS: B

Card tables to be produced in June:

$136,500 / $13 = 10,500 hours 10,500 hrs/3 hrs/table = 3,500 card tables

Beginning Inventory for July 1,200 units (3,000 * 40%)

Produced in June 3,500 units
Deduct: June sales (3,000) units
Ending inventory for June 1,700 units

1,700/0.40 = 4,250 units

DIF: Difficult OBJ: 8-4

25.

ANS: D
Ending Inventory, February 3,200 units
February Sales 25,000 units
Requirements for Month 28,200 units
Less Beginning Inventory, (2,500) units
February
Production scheduled for 25,700 units
February

DIF: Moderate OBJ: 8-4

Source:
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