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Pleasant Hills Properties is developing a golf course subdivision that includes 225 home lots;
100 lots are golf course lots and will sell for $98,000 each; 125 are street frontage lots and will sell for $68,000.
The developer acquired the land for $1,830,000 and spent another $1,430,000 on street and utilities improvement.
Compute the amount of joint cost to be allocated to the golf course lots using value basis.
(Round your intermediate calculation to one decimal place.)
 
$1,512,640.
$2,041,480.
$1,747,360.
$1,444,640.
$1,800,480.
 
100 x 98,000 = 9,800,000
125 x 68,000 = 8,500,000
9,800,000 + 8,500,000 = 18,300,000
1,830,000 + 1,430,000 = $3,260,000
9,800,000 / 18,300,000 x 3,260,000 = 1,747,360
   
A firm produces and sells two products, Plus and Max.
The following information is available relating to setup costs (a part of factory overhead):
 
                                                                               Plus                       Max       
Units produced                                               200                         16,000  
Batch size (units)                                            10                           500         
Number of setups                                           20                           32            
Direct labor hours per unit                           6                            6              
 
Total direct labor hours                                 1,200                    96,000   
Cost per setup                   $                            1,944     
Total setup cost                $                             101,088                
 
With traditional allocation of overhead costs, using direct labor hours as the allocation base,
the setup cost portion of overhead that is allocated to each unit of product for Plus and Max, respectively is:
 
$6.49; $6.49.
$208.00; $16,640.00.
$200.00; $16,000.00.
$6.24; $6.24
$1.04; $1.04.
 
101,088 / (1,200 + 96,000) x 6 = 6.24
   
Brownley Company has two service departments and two operating (production) departments.
The Payroll Department services all three of the other departments in proportion to the number of employees in each.
The Maintenance Department costs are allocated to the two operating departments in proportion to the floor space used by each.
Listed below are the operating data for the current period:
 
                                              Service Depts.                   Production Depts.            
                                              Payroll                                 Maintenance                     Milling                                 Assembly             
Direct costs                       $21,400                               $28,000                               $81,500                               $115,400              
No. of personnel                                                              20                                           20                                           60            
Sq. ft. of space                                                                 11,000                  16,000  
 
The total cost of operating the Milling Department for the current period is (Do not round your intermediate calculations):
 
$4,280
$17,455.
$15,280.
$98,931.
$97,299.
 
21,400 x 20 / 100 = 4,280
   
A granary allocates the cost of unprocessed wheat to the production of feed, flour, and starch.
For the current period, unprocessed wheat was purchased for $310,000,
and the following quantities of product and sales revenues were produced.
 
Product                Sale Value
Feed                                      $306,000
Flour                                     $174,000
Starch                                   252,000
Total:                                     732,000
                 
How much of the $310,000 cost should be allocated to feed if the value basis is used?
(Round your intermediate percentage to the nearest whole percent.)
 
$240,000.
$127,100.
$0.
$130,200
$310,000.
 
306,000 / 732,000 x 100 = 41.80 (round to 42%)
310,000 x .42 = 130,200
   
A company has two departments, Y and Z that incur delivery expenses.
An analysis of the total delivery expense of $13,000 indicates that Dept.
Y had a direct expense of $1,400 for deliveries and Dept. Z had no direct expense.
The indirect expenses are $11,600. The analysis also indicates that 65% of regular delivery requests originate in Dept.
Y and 35% originate in Dept. Z. Departmental delivery expenses for Dept. Y and Dept. Z, respectively, are:
 
$8,660; $4,410.
$8,450; $4,550.
$7,150; $5,850.
$8,660; $5,850.
$8,940; $4,060
 
1,400 + (11,600 x .65) = 8,940
11,600 x .35 = 4,060
   
A retail store has three departments, S, T, and U, and does general advertising that benefits all departments.
Advertising expense totaled $45,000 for the year, and departmental sales were as follows.
Allocate advertising expense to Department T based on departmental sales. (Do not round your intermediate calculations.)
                                 
Department S    $             101,000                
Department T                    219,450                
Department U                   158,350                
Total                      $             478,800                
 
Multiple Choice
 
$10,100.
$15,767.
$13,100.
$45,000.
$20,625
 
219,450 / 478,800 x 45,000 = 20,625
   
Marks Corporation has two operating departments, Drilling and Grinding, and an office.
The three categories of office expenses are allocated to the two departments using different allocation bases.
The following information is available for the current period:
 
Office Expenses                 Total                                      Allocation Basis
Salaries                 $             50,000                      Number of employees   
Depreciation                      34,000                        Cost of goods sold           
Advertising                          68,000                      Net sales               
 
 
Item                                                       Drilling                                  Grinding                               Total     
Number of employees                        1,800                                    2,700                                    4,500   
Net sales                              $             388,000               $             582,000               $             970,000              
Cost of goods sold            $             140,600               $             229,400               $             370,000
 
The amount of depreciation that should be allocated to Grinding for the current period is:
 
$60,120
$90,600.
$105,200.
$152,000.
$600,000.
 
50,000 x 1,800 / 4,500 = 20,000
34,000 x $140,600 / 370,000 = 12,920
68,000 x $388,000 / $970,000 = 27,220
20,000 + 12,920 + 27,220 = 60,120
   
Using the information below, compute the manufacturing cycle time:
                                                 
Process time                                       9.0                          hours
Inspections time                               0.5                          hours
Move time                                          0.6                          hours
Wait time                                            0.9                          hours
Warehouse storage time               83.0                       hours
 
10.1 hours.
11.0 hours
9.5 hours.
101.0 hours.
10.5 hours
 
9 + .5 + .6 + .9 = 11
   
The following is a partially completed lower section of a departmental expense allocation spreadsheet for Brickland.
It reports the total amounts of direct and indirect expenses for the four departments. Purchasing department expenses
are allocated to the operating departments on the basis of purchase orders. Maintenance department expenses are
allocated based on square footage.
 
                                                             Purchasing          Maintenance      Fabrication          Assembly
Operating costs                                 $46,000               $26,400               $110,000             $76,000
No. of purchase orders                       14                           6
Sq.ft. of space                                      4,000                    2,000   
 
Compute the amount of Purchasing department expense to be allocated to Assembly
 
$17,600.
$8,800
$13,200.
$13,800.
$32,200.
 
26,400 x 2,000 / (4000 + 2000) = 8,800
   
Pepper Department store allocates its service department expenses to its various operating (sales) departments.
The following data is available for its service departments:
 
Expense                              Basis for allocation                                       Amount
Rent                                      Square feet of floor space                          $39,000
Advertising                          Amount of dollar sales                                 $60,000
Administrative                     Number of employees                                 $90,000
 
The following information is available for its three operating (sales) departments:
 
Department        Square Feet        Dollar Sales         Number of employees
A                             4,500                    $325,000                             21
B                             4,900                    $345,000                             23
C                             5,100                    $480,000                             25
Totals                    14,500                 $1,150,000                            69
 
What is the total advertising expense allocated to Department C?
 
$60,000.
$25,043
$28,543.
$26,843.
$12,000.
 
325,000 + 345,000 + 480,000 = 1,150,000
480,000 / 1,150,000 = 0.4174
0.4174 x 60,000 = 25,043
   
Kragle Corporation reported the following financial data for one of its divisions for the year; average invested assets of $530,000;
sales of $1,110,000; and income of $129,000. The investment turnover is:
 
47.70.
19.50.
410.90.
11.62
2.09...
 
129,000 / 1,110,000 x 100 = 11.62
   
Ultimo Co. operates three production departments as profit centers. The following information is available for its most recent year.
Department 2's contribution to overhead in dollars is:
 
Dept.                     Sales                      Cost of Goods Sold             Direct Expenses                              Indirect Expenses              
1               $           3,000,000           $ 2,100,000                         $ 300,000                              $             240,000              
2                             1,200,000             450,000                               120,000                                             300,000              
3                             2,100,000             900,000                               450,000                                             60,000                  
 
$630,000
$1,050,000.
$30,000.
$780,000.
$450,000
 
1,200,000 - 450,000 - 120,000 = 630,000
   
CakeCo, Inc. has three operating departments. Information about these departments is listed below.
Maintenance is service department at CakeCo that incurred $11,700 of costs during the period.
If allocated maintenance cost is based on floor space occupied by each of the operating departments, compute the
amount of maintenance cost allocated to the Baking Department.
 
                                                Mixing                 Baking                   Packaging             
Direct costs         $             24,000                 $18,000                   $12,000                                
Sq. ft. of space                   1,300                     1,950                       650                         
 
    $5,850
    $900.
    $7,800.
    $300.
    $5,200
 
1,300 + 1,950 + 650 = 3,900
11,700 / 3,900 x 1,950 = 5,850
   
A company pays $31,000 per period to rent a small building that has 11,600 square feet of space.
This cost is allocated to the company's three departments on the basis of the amount of the space occupied by each.
Department One occupies 2,320 square feet of floor space, Department Two occupies 3,480 square feet of floor space,
and Department Three occupies 5,800 square feet of floor space. If the rent is allocated based on the total square footage
of the space, Department One should be charged rent expense for the period of:
 
$2,320.
$9,200.
$6,200
$4,640.
$2,552.
 
2,320 x (31,000 / 11,600) = 6,200
   
The Menswear Department of Major's Department Store had sales of $188,000, cost of goods sold of $132,500, indirect
expenses of $13,250, and direct expenses of $27,500 for the current period. The Menswear Department's contribution to
overhead as a percent of sales is:
 
14.89
7.85%.
85.37%.
29.52%.
69.25%.
 
188,000 - 132,500 - 27,500 / 188,000 x 100 = 14.89%
   
Marks Corporation has two operating departments, Drilling and Grinding, and an office. The three categories of office expenses
are allocated to the two departments using different allocation bases. The following information is available for the current period:
 
Office Expenses                 Total                                         Allocation Basis    
Salaries                 $             44,000                                 Number of employees     
Depreciation                        21,000                                 Cost of goods sold             
Advertising                           44,000                                 Net sales               
 
 
Item                                                       Drilling                                 Grinding                               Total       
Number of employees                         900                                        2,100                                 3,000     
Net sales                              $             350,000                 $           525,000                 $           875,000                
Cost of goods sold            $               91,200  $                            148,800                 $           240,000                
 
The amount of the advertising cost that should be allocated to Grinding for the current period is:
 
$69,000.
$47,200.
$17,600.
$26,400
$350,000.
 
44,000 x (525,000 / 875,000) = 26,400
   
Division P of Launch Corporation has the capacity for making 84,500 wheel sets per year and regularly sells 69,500 each year on the
outside market. The regular sales price is $195 per wheel set, and the variable production cost per unit is $141. Division Q of Launch
Corporation currently buys 39,500 wheel sets (of the kind made by Division P) yearly from an outside supplier at a price of $185 per
wheel set. If Division Q were to buy the 39,500 wheel sets it needs annually from Division P at $163 per wheel set, the change in annual
net operating income for the company as a whole, compared to what it is currently, would be:
 
$695,000
$1,738,000
$59,000
$1,801,525
$928,000
 
(39,500 x 163) - (39,500 x 141) = 869,000
39,500 x 185 - (39,500 x 163) = 869,000
869,000 + 869,000 = 1,738,000
   
The following is a partially completed lower section of a departmental expense allocation spreadsheet for Stoneham. It reports the
total amounts of direct and indirect expenses for the four departments. Purchasing department expenses are allocated to the
operating departments on the basis of purchase orders. Maintenance department expenses are allocated based on square footage.
Compute the amount of Purchasing department expense to be allocated to Assembly.
 
                                                            Purchasing       Maintenance      Fabrication          Assembly
Operating costs                                 $35,000               $19,800             $99,000             $65,000
 
No. of purchase orders                      16                           4
Sq.ft. of space                                    3,450                    2,550                    3,950                      2,050                  
 
$7,000
$11,385.
$8,415.
$28,000.
 
16 + 4 = 20
Purchase order to Assembly = 4
35000 x 4 / 20 = 7,000
   
A granary allocates the cost of unprocessed wheat to the production of feed, flour, and starch. For the current period,
unprocessed wheat was purchased for $140,000, and the following quantities of product and sales revenues were produced.

Product                                Pounds                 Price per pound
Feed                                     110,000               $ 0.80 
Flour                                      50,000                  2.20 
Starch                                   20,000                  1.10 

How much of the $140,000 cost should be allocated to flour if the value basis is used
 
70,000
   
Which of the following terms is used to describe a cost center whose costs are charged to other departments in the organization?
Intermediate cost center. Jackman Industries has two service departments, maintenance and power, and two operating departments,
production and assembly. Management has decided to allocate maintenance costs on the basis of direct-labor hours in each department and power costs on the basis of machine hours. The following data were experienced by the company in the current period:
 
                                                   Maintenance                      Power                   Production          Assembly
Direct labor hours.                         0                                       400                        4,000                    2,000
Machine hours.                              2,000                                 0                             8,400                  1,600
Department direct costs $            9,000                               20,000                  70,000                  50,000
 
What is the total service cost allocated to the production department during the period if the direct method of cost allocation is used?
 
22,800
   
Budgeting facilitates the coordination of activities within the business by correlating the goals of each segment with overall company objectives.
 
True
   
 
Which one of the following is not a benefit of budgeting?
 
It provides assurance that the company will achieve its objectives.
   
 
Which one of the following is a primary benefit of budgeting?
 
It provides definite objectives for evaluating performance.
   
 
Which of the following is not a benefit of budgeting?
 
It enables disciplinary action to be taken at every level of responsibility
   
A budget
 
is the primary method of communicating agreed-upon objectives throughout an organization.
   
The primary benefits of budgeting include all of the following except it
 
requires only top management to plan ahead and formalize goals.
   
The most common budget period is one month.
 
False 

 
The chief accountant (controller) has responsibility for coordinating the preparation of the budget.
 
False
   
Which one of the following is necessary if a company expects its budget to be effective?
 
The company must have a sound organizational structure.
 
Which of the following is one of the factors that must be present if budgets are to be effective?
 
The company must have a sound organizational structure
   
The essentials of effective budgeting do not include
 
top-down budgeting.
   
Compared to budgeting, long-range planning generally has the
 
longer time period.
 
The most common budget period is a
 
year.
   
 
Coordinating the preparation of the budget is the responsibility of the
 
budget committee.
   
 
Long-range planning usually encompasses a period of
 
at least five years.
   
 
The master budget is a set of interrelated budgets that constitutes a plan of action for a specified time period.
 
True
   
 
The budgeted income statement is the starting point in preparing financial budgets.
 
False
   
 
The production budget is the first budget prepared in the master budget.
 
False
 
The direct materials budget shows both the quantity and cost of direct materials to be purchased.
 
True
 
 
Which of the following lists includes only financial budgets?
 
Budgeted balance sheet, cash budget, and the capital expenditures budget.
   
A sales budget is
 
management's best estimate of sales revenue for the year
 
The formula for the production budget is budgeted sales in units plus
 
desired ending finished goods units less beginning finished goods units
   
Direct materials inventories are kept in pounds in Byrd Company, and the total pounds of direct materials needed for
production is 9,500. If the beginning inventory is 1,000 pounds and the desired ending inventory is 2,200 pounds,
the total pounds to be purchased are
 
10,700.
 
10,700 (9,500 + 2,200 - 1,000).
   
Operating budgets include all of the following except the
 
capital expenditure budget.
   
Each of the other budgets in the master budget depends on the
 
sales budget.
   
In the direct materials budget, the quantity of direct materials to be purchased is computed by adding direct materials
required for production to
 
desired ending direct materials less beginning direct materials
   
The direct labor budget and the manufacturing overhead budget are prepared directly from the
 
production budget.
   
At the beginning of the year, Goldenrod had beginning inventory of 2,000 scooters.
Goldenrod estimates it will sell 5,000 units during the first quarter of the current year, with a 10% increase in sales each quarter.
It is Goldenrod's policy to maintain an ending inventory equal to 20% of the next quarter's budgeted sales.
Each scooter costs $100 to produce and sold for $150.
How much is the budgeted sales revenue for the third quarter of the current year?
 
$907,500.
   
Microtech plans to sell 2,000 computers in April; 1,900 in May; and 2,000 in June.
The company keeps 15% of the next month's sales as ending inventory. How many units should Microtech produce in May?
 
1,915.
   
Tomy Toys is planning to sell 200 action figures and to produce 190 action figures in July.
Each action figure requires 100 grams of plastic and a half hour of direct labor.
The cost of the plastic used in each action figure is $5 per 100 grams.
Employees of the company are paid at a rate of $15.00 per hour.
Manufacturing overhead is applied at a rate of 120% of direct labor costs.
Tomy Toys has 90,000 grams of plastic in its beginning inventory and wants to have 80,000 grams in its ending inventory.
What is the amount of budgeted direct labor cost for the month of July?
 
$1,425
 
190 x 0.5 x 15   
   
Windathon, Inc. expects sales volume totaling $500,000 for June. Data for the month follows:

Sales commissions 4% of sales
Sales manager's salary $30,000 per month
Advertising expense $25,000 per month
Shipping expense. 1% of sales
Miscellaneous selling expenses $2,100 per month plus 3/4% of sales

How much is Windathon's selling expense budget for June?
 
$85,850.
 
4% + 1% + 3/4% x $500,000 = 28,750
30,000 + $25,000 + $2,100 = 57,100
28,750 + 57,100 = 85,850.
   
Heaters, Inc. provided the following budgeted information for March through July:

                                                                       March                   April                       May                       June                       July
Projected sales                                           $104,600             $123,000             $115,000             $132,000             $141,400
Projected merchandise purchases            $82,000               $92,400               $75,300               $66,600               $73,000
Inventory at end of month                            $12,000               $13,600               $11,300               $12,400               $14,300

Heaters estimates that it will collect 30% of its sales in the month of sale and 70% in the month after the sale.
General operating expenses are budgeted to be $31,000 per month of which depreciation is $3,000 of this amount. Heater pays operating expenses in the month incurred.
The income tax rate is 30%.
How much is budgeted net income for May?
 
$4,480.

Net income is comprised of revenues less expenses as follows:

Sales revenue                                                              $115,000
Cost of goods sold:
Beginning inventory                                                    $13,600
Purchases                                                                       75,300
Less ending inventory (11,300)                  77,600
Gross profit                                                                      37,400
Operating expenses                                                      31,000
Income before taxes                                                      6,400
Income taxes expense (30% x $6,400)    1,920
Net income                                                                        $4,480
   
Each of the following budgets is used in preparing the budgeted income statement except the
 
capital expenditure budget
   
The budgeted income statement is
 
the end-product of the operating budgets.
   
The important end-product of the operating budgets is the
 
budgeted income statement.
   
The financing section of a cash budget shows expected borrowings and the repayment of borrowed funds plus interest.
 
True
   
The budgeted balance sheet is developed from the budgeted balance sheet for the preceding year and the budgets for the current year.
 
True
   
Which one of the following budgets is considered to be the most important financial budget?
 
Cash budget.
   
Drew Enterprises reports all its sales on credit, and pays operating costs in the month incurred. Estimated amounts for the months of June through October are:

                                                                                June                       July                 August                September         October
Budgeted sales                                                 $310,000             $330,000             $300,000             $280,000             $260,000
Budgeted purchases                                       $144,000              $120,000            $128,000             $132,000             $90,000
 
Customer amounts on account are collected 60% in the month of sale and 40% in the following month.
Cost of goods sold is 45% of sales.
Drew purchases and pays for merchandise 30% in the month of acquisition and 70% in the following month.
How much cash is budgeted to be received during August?
 
$312,000.

300,000 x 60% = 180,000
330,000 x 40% = 132,000
180,000 + 132,000 = 312,000.  
The budgeted balance sheet is developed from the budgeted balance sheet for the preceding year and the budgets for the
current year. The format of a cash budget is
Beginning cash balance + Cash receipts - Cash disbursements +/- Financing = Ending cash balance.
Expected direct materials purchases in Read Company are $70,000 in the first quarter and $90,000 in the second quarter.
Forty percent of the purchases are paid in cash as incurred, and the balance is paid in the following quarter.
The budgeted cash payments for purchases in the second quarter are
 
$78,000
 
70,000 x .6 + 90,000 x .4 = 78,000
   
Financial budgets consist of all of the following except the
 
budgeted income statement.
   
The budget that is often considered to be the most important financial budget is the
 
cash budget.
   
The cash budget contains sections for each of the following except
 
capital expenditures
   
At the beginning of the year, Opal Company has a cash balance of $23,000. During the year, the company expects cash
disbursements of $160,000, and cash receipts of $140,000. If Opal Company requires an ending cash balance of $20,000,
how much must the company borrow?
 
$17,000.

23,000 + 140,000 - 160,000 = 3,000
20,000 - 3,000 = 17,000
   
A merchandiser uses a merchandise purchases budget in addition to a production budget.
 
False
   
Which one of the following is an input that is needed in order to budget a service company?
 
Determining expected billing time for each staff member.
   
Which one of the following budgets would not be prepared for a merchandising company?
 
Production budget.
   
In most cases, not-for-profit entities
 
begin the budgeting process by budgeting expenditures rather than receipts.
   
In the merchandise purchases budget, required merchandise purchases are computed by adding
 
budgeted cost of goods sold and desired ending merchandise inventory together and deducting beginning
merchandise inventory.

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