[5] Aggregate, or total, spending is the combined spending for new goods and services of all:
A) households.
B) households and businesses.
C) households, businesses, and government units.
D) households, businesses, government units, and foreign buyers.

[6] The sector of the economy that purchases the most goods and services is the:
A) foreign sector.
B) business sector.
C) household sector.
D) government sector.

[7] Household spending:
A) is based primarily on unearned income.
B) tends to fluctuate widely as the economy moves through the business cycle.
C) is larger than the combined spending of all U.S. businesses, government units, and foreign buyers.
D) all of these answers are correct.

[8] The main determinant of total household spending is the:
A) size of household income.
B) stock of household wealth.
C) level of household borrowing.
D) availability of government transfer payments.

[9] If the only spending in the economy were household spending based on earned income, and if households always spent all of their incomes, from one year to the next the level of economic activity would:
A) increase.
B) decrease.
C) not change.
D) change in no predictable way.

[10] Injections into the spending stream come from:
A) household earned income.
B) profits, rents, and interest, but not wages.
C) household earned income, transfer payments, and borrowing.
D) sources other than household earned income, and include transfer payments and borrowing.

[11] Which of the following is an injection into the spending stream?
A) Taxes paid to the government.
B) Spending from transfer payments.
C) Spending from household earned income.
D) All of these answers are correct.

[12] Which of the following is a leakage from the spending stream by households?
A) Saving.
B) A decrease in earned income.
C) The receipt of transfer payments.
D) Borrowing from financial institutions.

[13] Personal consumption expenditures would likely increase if there were an increase in:
A) taxes.
B) savings.
C) transfer payments.
D) all of these answers are correct.

[14] Holding all else equal, you would expect the level of economic activity to increase if household:
A) saving were less than taxes.
B) saving plus taxes were more than earned income.
C) saving plus taxes were less than spending from borrowed funds and transfer payments.
D) all of these answers are correct.

[15] Considering only the household sector, an economy will:
A) expand as spending from transfers and borrowing, and savings and taxes increase.
B) contract as spending from transfers and borrowing, and savings and taxes increase.
C) expand as spending from transfers and borrowing increases, and contract as savings and taxes increase.
D) contract as spending from transfers and borrowing increases, and expand as savings and taxes increase.

For each item listed below, indicate whether you feel it relates to financial or managerial accounting. Explain your reasoning behind your answer for each item.

a. Projected net income for next quarter by division

b. Defective goods produced as a percentage of all goods produced

c. Income statement for the most current year, prepared in accordance with U.S. GAAP.

d. Monthly sales broken down by geographic region

e. Production department budget for the next quarter.

f. Balance sheet at the end of the current year, prepared in accordance with U.S. GAAP.

Please be sure to explain the reasoning.

Quality Products Company has a broad range of products it sells in a four-state area. Sales for the four quarters of 2019 are expected to be $575,000, $412,000, $749,000, and $638,000, for an annual total of $2,374,000.

Cost of goods sold averages 57% of sales. Ending inventory for each quarter should be 10% of cost of goods sold for the following quarter. Inventory at January 1 is expected to be $40,000.

Required:

1. Show calculations for ending inventory, purchases, and cost of goods sold for the first three quarters of 2019.
2. Show calculations for third-quarter purchases assuming that the ending inventory should be 40% of the next quarter’s sales and that January 1 inventory was $130,000.
3. Briefly explain in your own words what additional information the company will need before they can prepare the schedule of cash collections for the same three quarters.

a) Indicate whether the following statements are true or false. Provide an explanation for your answer:

i. The most important role of money is to serve as a store of value.

ii. An increase in the money supply will shift the AD curve upwards and to the left.

iii. Rising output coupled with falling prices is called stagflation.

iv. A cut in taxes will shift the aggregate demand curve upwards and to the right.

v. Free trade is based on the principle of comparative advantage.

vi. A tariff is a tax on domestic goods and services.

[9] When trying to maximize economic well-being from choosing among the purchase of different goods, the individual must consider:

A) the prices of the goods.

B) his or her limited income.

C) the utility received from the different goods.

D) all of the above.

[10] The goal of an individual in making a spending decision is to purchase the combination of goods and services that:

A) is the least expensive.

B) allows the greatest amount of saving.

C) requires the smallest amount of time to obtain.

D) gives maximum satisfaction within the limits of his/her income.

[11] Unlimited liability is a risk faced by:

A) a sole proprietor.

B) a bondholder in a corporation.

C) a stockholder in a corporation.

D) all of the above.

[12] To maximize satisfaction from purchasing several different goods and services, expenditures must be allocated so that:

A) the cost of the purchases is minimized.

B) only the items that have the highest utility numbers are selected.

C) the percentage of expenditures going to durable goods is maximized.

D) the items that give the most utility for the purchaser's money are selected.

[13] A proprietorship is a:

A) legal entity with limited liability.

B) single-owner business with limited liability.

C) single-owner business with unlimited liability.

D) multiple-owner business with unlimited liability.

[14] Which of the following costs and benefits should always be ruled out when determining the well-being from holding a job?

A) The personal satisfaction from holding the job.

B) The financial costs, such as travel costs, of holding the job.

C) The nonmonetary costs, such as long hours, of holding the job.

D) None of the above should be ruled out.

[15] In order to operate, a business must be legally organized as a:

A) corporation.

B) partnership.

C) proprietorship.

D) any of the above.

[16] Opportunity costs:

A) are incurred in every activity an individual carries out.

B) apply only to individuals' spending and earning decisions.

C) are associated only with decisions involving money outlays.

D) cannot be evaluated since they are costs of alternatives that have been forgone, and therefore, no costs have actually been incurred.

[17] The change in total satisfaction from consuming each additional unit of a good, service, or activity is:

A) total utility.

B) average utility.

C) adjusted utility.

D) marginal utility.

[18] The satisfaction received from consuming a specified number of units of a good, service, or activity is:

A) net utility.

B) end utility.

C) total utility.

D) marginal utility.

The Grilton Tire Company manufactures racing tires for bicycles. Grilton sells tires for $50 each. Grilton is planning for next year by developing a master budget by quarters. Grilton’s balance sheet for December 31, 2016 follows:

GRILTON TIRE COMPANY

Balance Sheet

December 31, 2016

Assets

Current Assets:

   Cash                                                                                            $ 39,000

   Accounts Receivable                                                                    40,000

   Raw Materials Inventory                                                               2,400

   Finished Goods Inventory                                                             8,700

   Total Current Assets                                                                                               $ 90,100

Property, Plant and Equipment:

   Equipment                                                                                  177,000

   Less: Accumulated Depreciation                                            (42,000)                135,000

Total Assets                                                                                                                $225,100

Liabilities

Current Liabilities:

   Accounts Payable                                                                                                   $ 8,000

Stockholder’s Equity

Common Stock, no par                                                            $ 130,000

Retained Earnings                                                                          87,100

   Total Stockholder’s Equity                                                                                   217,100

Total Liabilities and Stockholder’s Equity                                                          $225,100

Other data for Grilton Tire Company:

Budgeted Sales are 1,600 for the first quarter and expected to increase by 200 tires per quarter. Cash Sales are expected to be 20% of total sales, with the remaining 80% of sales on account.

Finished Goods Inventory on December 31, 2016 consists of 300 tires at $29 each.

Desired ending Finished Goods Inventory is 40% of the next quarter’s sales; first quarter sales for 2018 are expected to be 2,400 tires and second quarter sales for 2018 are expected to be 2,600. FIFO inventory costing method is used.

Direct Materials cost is $8 per tire.

Desired ending Raw Materials Inventory is 30% of the next quarter’s direct materials needed for production.

Each tire requires 0.25 hours of direct labor; direct labor costs average $16 per hour.

Variable manufacturing overhead is $3 per tire produced.

Fixed manufacturing overhead includes $4,500 per quarter in depreciation and $26,780 per quarter for other costs, such as utilities, insurance, and property taxes.

Fixed selling and administrative expenses include $8,000 per quarter for salaries; $1,800 per quarter for rent; $1,200 per quarter for insurance; and $500 per quarter for depreciation.

Variable selling and administrative expenses include supplies at 2% of sales.

Capital expenditures include $50,000 for new manufacturing equipment, to be purchased and paid in the first quarter.

Cash receipts for sales on account are 60% in the quarter of sale and 40% in the quarter following the sale; December 31, 2016, Accounts Receivable is received in the first quarter of 2017.

Direct materials purchases are paid 70% in the quarter purchased and 30% in the following quarter; December 31, 2016, Accounts Payable is paid in the first quarter of 2017.

Direct labor, manufacturing overhead, and selling and administrative costs are paid in the quarter incurred.

Income tax expense is projected at $4,500 per quarter and is paid in the quarter incurred.

Grilton desires to maintain a minimum cash balance of $39,000 and borrows from the local bank as needed in increments of $1,000 at the beginning of the quarter; principal repayments are made at the beginning of the quarter when excess funds are available and in increments of $1,000; interest is 6% per year and paid at the beginning of the quarter based on the amount outstanding from the previous quarter.

REQUIREMENTS:

Prepare a sales budget in units and dollars for each quarter and in total for the year 2017.      (5 pts.)

Prepare a schedule of expected cash collections for each quarter and in total for the year 2017.   (10 pts.)

On January 1, 2020, the Ivanhoe Company budget committee has reached agreement on the following data for the 6 months ending June 30, 2020. Sales units: First quarter 5,800; second quarter 6,600; third quarter 7,600. Ending raw materials inventory: 40% of the next quarter’s production requirements. Ending finished goods inventory: 25% of the next quarter’s expected sales units. Third-quarter production: 7,780 units. The ending raw materials and finished goods inventories at December 31, 2019, follow the same percentage relationships to production and sales that occur in 2020. 4 pounds of raw materials are required to make each unit of finished goods. Raw materials purchased are expected to cost $4 per pound.

Prepare a production budget by quarters for the 6-month period ended June 30, 2020.

Prepare a direct materials budget by quarters for the 6-month period ended June 30, 2020.

Cook Farm Supply Company manufactures and sells a pesticide called Snare. The following data are available for preparing budgets for Snare for the first 2 quarters of 2017. 1. Sales: quarter 1, 29,400 bags; quarter 2, 44,000 bags. Selling price is $61 per bag. 2. Direct materials: each bag of Snare requires 5 pounds of Gumm at a cost of $3.8 per pound and 6 pounds of Tarr at $1.75 per pound. 3. Desired inventory levels: Type of Inventory January 1 April 1 July 1 Snare (bags) 8,500 12,300 18,500 Gumm (pounds) 9,400 10,200 13,100 Tarr (pounds) 14,400 20,500 25,500 4. Direct labor: direct labor time is 15 minutes per bag at an hourly rate of $16 per hour. 5. Selling and administrative expenses are expected to be 15% of sales plus $180,000 per quarter. 6. Interest expense is $100,000. 7. Income taxes are expected to be 30% of income before income taxes. Your assistant has prepared two budgets: (1) the manufacturing overhead budget shows expected costs to be 125% of direct labor cost, and (2) the direct materials budget for Tarr shows the cost of Tarr purchases to be $299,000 in quarter 1 and $426,500 in quarter 2. Prepare the sales budget. Prepare the production budget. Prepare the direct materials budget. Prepare the direct labor budget. Prepare the selling and administrative expense budget. Prepare the budgeted multiple-step income statement for the first 6 months.

The Grilton Tire Company manufactures racing tires for bicycles. Grilton sells tires for $50 each. Grilton is planning for next year by developing a master budget by quarters. Grilton’s balance sheet for December 31, 2017 follows:

GRILTON TIRE COMPANY

Balance Sheet

December 31, 2017

Assets

Current Assets:

   Cash                                                                                            $ 39,000

   Accounts Receivable                                                                    40,000

   Raw Materials Inventory                                                               2,400

   Finished Goods Inventory                                                             8,700

   Total Current Assets                                                                                               $ 90,100

Property, Plant and Equipment:

   Equipment                                                                                  177,000

   Less: Accumulated Depreciation                                            (42,000)                135,000

Total Assets                                                                                                                $225,100

Liabilities

Current Liabilities:

   Accounts Payable                                                                                                   $ 8,000

Stockholder’s Equity

Common Stock, no par                                                            $ 130,000

Retained Earnings                                                                          87,100

   Total Stockholder’s Equity                                                                                   217,100

Total Liabilities and Stockholder’s Equity                                                          $225,100

Other data for Grilton Tire Company:

Budgeted Sales are 1,500 for the first quarter and expected to increase by 200 tires per quarter. Cash Sales are expected to be 30% of total sales, with the remaining 70% of sales on account.

Finished Goods Inventory on December 31, 2017 consists of 300 tires at $29 each.

Desired ending Finished Goods Inventory is 40% of the next quarter’s sales; first quarter sales for 2019 are expected to be 2,300 tires and second quarter sales for 2019 are expected to be 2,500. FIFO inventory costing method is used.

Direct Materials cost is $8 per tire.

Desired ending Raw Materials Inventory is 30% of the next quarter’s direct materials needed for production.

Each tire requires 0.40 hours of direct labor; direct labor costs average $16 per hour.

Variable manufacturing overhead is $2 per tire produced.

Fixed manufacturing overhead includes $4,500 per quarter in depreciation and $26,780 per quarter for other costs, such as utilities, insurance, and property taxes.

Fixed selling and administrative expenses include $8,000 per quarter for salaries; $1,800 per quarter for rent; $1,200 per quarter for insurance; and $500 per quarter for depreciation.

Variable selling and administrative expenses include supplies at 2% of sales.

Capital expenditures include $45,000 for new manufacturing equipment, to be purchased and paid in the first quarter.

Cash receipts for sales on account are 60% in the quarter of sale and 40% in the quarter following the sale. The December 31, 2017 Accounts Receivable ($40,000) is received in the first quarter of 2018.

Direct materials purchases are paid 70% in the quarter purchased and 30% in the following quarter. The December 31, 2017 Accounts Payable ($8,000) is paid in the first quarter of 2018.

Direct labor, manufacturing overhead, and selling and administrative costs are paid in the quarter incurred.

Income tax expense is projected at $3,500 per quarter and is paid in the quarter incurred.

Grilton desires to maintain a minimum cash balance of $35,000 and borrows from the local bank as needed in increments of $1,000 at the beginning of the quarter; principal repayments are made at the beginning of the quarter when excess funds are available and in increments of $1,000; interest is 6% per year and paid at the beginning of the quarter based on the amount outstanding from the previous quarter. Interest must be paid at the beginning of each quarter.

What types of information do your budgets yield? Is cash flow adequate? Do sales need to be increased, costs reduced? Etc….. ( 5 pts.)