exam 3, sp07

exam 3, sp07 - 1 A continuous(or perpetual budget A is...

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1. A continuous (or perpetual) budget: A) is prepared for a range of activity so that the budget can be adjusted for changes in activity. B) is a plan that is updated monthly or quarterly, dropping one period and adding another. C) is a strategic plan that does not change. D) is used in companies that experience no change in sales. 2. Which of the following statements is not correct? A) The sales budget is the starting point in preparing the master budget. B) The sales budget is constructed by multiplying the expected sales in units by the sales price. C) The sales budget generally is accompanied by a computation of expected cash receipts for the forthcoming budget period. D) The cash budget must be prepared prior to the sales budget since managers want to know the expected cash collections on sales made to customers in prior periods before projecting sales for the current period. Page 1

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3. Shown below is the sales forecast for Cooper Inc. for the first four months of the coming year. Jan Feb Mar Apr Cash sales \$ 15,000 \$ 24,000 \$ 18,000 \$ 14,000 Credit sales \$100,000 \$120,000 \$ 90,000 \$ 70,000 On average, 50% of credit sales are paid for in the month of the sale, 30% in the month following sale, and the remainder is paid two months after the month of the sale. Assuming there are no bad debts, the expected cash inflow in March is: A) \$138,000. B) \$122,000. C) \$119,000. D) \$108,000. Page 2
4. The Carlquist Company makes and sells a product called Product K. Each unit of Product K sells for \$24 dollars and has a unit variable cost of \$18. The company has budgeted the following data for November: * Sales of \$1,152,000, all in cash. * A cash balance on November 1 of \$48,000. * Cash disbursements during November of \$1,160,000. * A minimum cash balance on November 30 of \$60,000. If necessary, the company will borrow cash from a bank. The amount of cash that must be borrowed on November 1 to cover all cash disbursements and to obtain the desired November 30 cash balance is: A) \$20,000. B) \$21,000. C) \$37,000. D) \$38,000. Page 3

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Use the following to answer questions 5-6: Super Drive is a computer hard drive manufacturer. The company's balance sheet for the fiscal year ended on November 30 appears below: Super Drive, Inc. Statement of Financial Position For the year ended November 30 Assets: Cash \$ 52,000 Accounts receivable 150,000 Inventory 315,000 Property, plant, and equipment 1,000,000 Total assets \$1,517,000 Liabilities and stockholders' equity: Accounts payable \$ 175,000 Common stock 900,000 Retained earnings 442,000 Total liabilities and stockholders' equity \$1,517,000 Additional information regarding Super Drive's operations appear below: * Sales are budgeted at \$520,000 for December and \$500,000 for the upcoming year. * Collections are expected to be 60% in the month of sale and 40% in the month
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exam 3, sp07 - 1 A continuous(or perpetual budget A is...

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