Janessa Cañete

BSA III
MULTIPLE CHOICE

1. The following budgets are subunits of the operating budget except the:
a. Production budget
b. Marketing cost budget
c. Administrative cost budget
d. Budgeted balance sheet

2. The following budgets are subunits of the financial budget except the:
a. Capital budget
b. Budgeted income statement
c. Budgeted balance sheet
d. Cash budget

3. The Foster Corporation expects sales of 4,500 units during the 1st quarter of 1992. If the
ending inventory for 1991 is 1,200 units and the planned ending inventory for the st
quarter of 1992 is 1,750 units, the required production for the 1st quarter is:
a. 3,950 units
b. 4,500 units
c. 5,050 units
d. 5,700 units

Solution:

Budgeted sales units 4,500

Add: desired ending inventory 1,750
Total: 6,250
Less: beginning inventory 1,200
Required production 5,050

Use the following data for question 4 and 5.

The Chateau, Ltd. has budgeted production of 4,000 units for the 2nd quarter of 1993. Each
finished units requires 3 yards of materials. The store room expects to have 350 yards in
inventory at the end of the 1st quarter and management wants 720 yards on hand at the end of 2nd
quarter.

4. How much direct material needs to be purchased for the 2nd quarter?
a. 4,870 yards
b. 11,630 yards
c. 12,00 yards
 d. 12,370 yards

Solution:

Required production 4,000

Units of raw material 3
Total: 12,000
Add: desired ending 720
Total: 12,720
Less: beginning 350
DM needed to purchase 12,370

5. Assume each finished unit requires 2.25 hours of labor at an hourly rate of $8.25. The
budgeted direct labor cost for the 2nd quarter is:
a. $32,000
b. $99,000
c. $74,250
d. $33,000

Solution:

Budgeted unit sales 4,000

Direct labor-hour 2.25
Total direct labor hour 9,000
Direct labor cost per item x 8.25
Direct labor cost 74,250

Use the following data for questions 6 and 7.

Management of the Newcastle Company is working on the cash budget for the 1993 fiscal year.
Past experience has shown that the company sells 30% of its merchandise for cash. Of the 70%
sold on credit, 90% is paid during the quarter of the sale and 8% in the following quarter. Sales
in the 1st and 2nd quarters are budgeted at $120,000 and $150,000, respectively.

6. The total cash receipts for the 2nd quarter would be:
a. $139,500
b. $146,220
c. $149,100
d. $150,000

7. If sales in the third quarter is $170,000 the total cash receipts for the 3rd quarter will be:
a. $158,100
b. $166,500
 c. $167,620
d. $170,000

Solution:

Month 1st 2nd 3rd 4th

Sales 120,000 150,000

Beginning cash 36,000

st
Add: Cash receipts 1 75,600 6,720
2nd 45,000 8,400
3rd 94,500 51,000
4th 107,100 9,500

Total cash receipts 111,600 146,220 166,500

8. The marketing cost budget includes all the following items except:
a. Sales salaries
b. Advertising
c. Professional fees
d. Travel

9. The economic order quantity will not be changed due to change in:
a. Annual purchases
b. The cost of carrying one unit of inventory
c. The reorder point
d. The cost of placing an order

10. If the carrying cost decreases, the EOQ will:

a. Increase
b. Decrease
c. Remain constant
d. None of the above

EXERCISES

Use the following data to answer questions 1-4.

The Stevendale Pretzel Company is preparing its production and direct materials for the 3rs
quarter of 1993. The sales budget in units is as follows:

July August September October

Units 10,000 12,000 16,000 8,000

The June 30, finished goods inventory is estimated to be 1,000 pretzels. It is company policy to
maintain an inventory equal to 10% of the coming month’s budgeted sales.

Each pretzel requires a quarter pound of dough. Also, an experimented pretzel twister averages
8,000 pretzels per 8-hour day. Pretzel twisters are paid $5.50 per hour.

The company maintains an ending inventory of direct materials equal to 120% of the coming
month’s budgeted production needs for direct materials. 2,000 pound of dough is expected to be
in the June 30 inventory and 1,800 in the September 30 inventory.
1. Prepare the production budget for the 3rd quarter by month and for the quarter in total.
Month July August September October Total
Budgeted unit sales 10,000 12,000 16,000 8,000 46,000
Add: desired ending 1,200 1,600 800 2,000 2,000
Total needs 11,200 13,600 16,800 10,000 48,000
Less: beginning 1,000 1,200 1,600 800 1,000
Required 10,200 12,400 15,200 9,200 47,000

2. Prepare the direct materials required section of the direct materials budget for each month
and the quarter in total.
Month July August September October Total
Required production 10,200 12,400 15,200 9,200 47,000
Add: desired ending 1,200 1,600 800 2,000 2,000
Total raw materials 11,400 14,000 16,000 11,200 49,000
Less: beginning 1,000 1,200 1,600 800 1,000
Required purchases 10,400 12,800 14,400 10,400 48,000

3. Prepare the direct material purchases section of the direct materials budget for each
month and the quarter in total.
Month July August September October Total
Required production 10,200 12,400 15,200 9,200 47,000
Units of raw materials 4 4 4 4 4
Needed raw materials 40,800 49,600 60,800 36,800 188,000
Add: desired ending 14,880 18,240 11,040 20,000 20,000
Total raw materials 55,680 67,840 71,840 56,800 208,000
Less: beginning 2,000 14,880 18,240 11,040 2,000
Units of materials 53,680 52,960 53,600 45,760 206,000
 4. Prepare the direct labor budget by month and for the quarter in total.
Month July August September October Total
Required production 10,200 12,400 15,200 9,200 47,000

Direct labor hour 0.001 0.001 0.001 0.001 0.001

Total direct labor hours 10.2 12.4 15.2 9.2 47
Direct labor cost 5.50 5.50 5.50 5.50 5.50
Total direct labor cost 56.1 68.2 83.6 50.6 258.5

Use the following data to answer the questions 5-8.

The Oliphant Corporation sells 4,000 cases of beer monthly. Each case cost $5.00 and the
inventory carrying costs are 20% of the unit’s cost. The inventory ordering costs are $33.75 per
purchase order placed.
5. Using the EOQ table, determine the EOQ for order sizes of 1,600; 1,800; 2,000; and
2,200 cases.
EOQ = 2AO/C = /2(1,600) (33.75) (5)/1 = 734.85
EOQ = 2AO/C = /2(1,800) (33.75) (5)/1 = 779.42
EOQ = 2AO/C = /2(2,000) (33.75) (5)/1 = 821.59
EOQ = 2AO/C = /2(2,200) (33.75) (5)/1 = 861.68

6. Compute the EOQ using the EOQ formula.

EOQ = 2AO/C = /2(4,000) (33.75) (5)/1 = 1,161.90
7. Assume Oliphant’s sales are constant, i.e., 1,000 cases per week, and that it takes 2 weeks
to receive an order once it is placed. Determine the reorder point.
Reordering point = 14 days X 285.71 = 4,000
8. Assume beer sale fluctuate: one week sales are 1,400 cases, and another week sales are
750 cases, but the average is 1,000. The highest sales recorded in the past were 1,400
cases. Determine the reorder point under these conditions.
Reorder point = 14 days X 285.71 = 2,000