- Pinnacle Corporation is preparing its selling and administrative budget for the first quarter and needs to consider the timing differences between expense recognition and cash payments. Monthly fixed costs total $35,000, with $8,000 representing depreciation. Variable costs are $1.80 per unit sold. The company pays 60% of its variable costs in the month incurred and 40% in the following month. January sales are budgeted at 22,000 units, February at 26,000 units, and March at 24,000 units. Additionally, $4,800 in variable costs from December are still unpaid. What is the total cash outflow for selling and administrative expenses in February?
Answer: $70,920
February cash outflows include: Fixed costs (excluding depreciation): $35,000 - $8,000 = $27,000. February variable costs paid in February: 60% × ($1.80 × 26,000) = 60% × $46,800 = $28,080. January variable costs paid in February: 40% × ($1.80 × 22,000) = 40% × $39,600 = $15,840. Total February cash outflow: $27,000 + $28,080 + $15,840 = $70,920. Choice B includes depreciation incorrectly. Choice C might include some of the December unpaid amount. Choice D omits the January carryover payment.
- Riverfront Company's selling and administrative budget includes both cash and non-cash expenses. For the upcoming quarter, budgeted expenses are: sales commissions $45,000 (paid in the following quarter), office salaries $78,000 (paid monthly), depreciation on equipment $12,000, advertising $18,000 (paid in advance last quarter), and utilities $9,000 (paid in the month incurred). The company also accrues vacation pay expense of $6,000 for the quarter, to be paid in the following year. What is the cash outflow for selling and administrative expenses during the quarter?
Answer: $87,000
Cash outflows during the quarter include only items paid during this period: Office salaries $78,000 (paid monthly during quarter) + Utilities $9,000 (paid in month incurred) = $87,000. Sales commissions are paid next quarter (no cash outflow this quarter). Advertising was prepaid last quarter (no cash outflow this quarter). Depreciation is non-cash. Vacation pay is accrued but not paid until next year. Choice B ($105,000) incorrectly includes some non-cash items. Choice C ($99,000) might incorrectly include part of the vacation accrual. Choice D ($168,000) includes the full expense budget rather than just cash outflows.
- Meridian Company's selling and administrative budget includes depreciation on office equipment of $8,000 per quarter, sales salaries of $45,000 per quarter, and administrative salaries of $32,000 per quarter. Variable selling expenses are 4% of sales revenue, and insurance expense of $6,000 is paid annually each January. If budgeted sales revenue for Q2 is $425,000, what amount should be included in the Q2 selling and administrative expense budget for external reporting purposes?
Answer: $103,500
For external reporting (accrual basis), include: Sales salaries $45,000, administrative salaries $32,000, depreciation $8,000, variable selling expenses 4% × $425,000 = $17,000, and insurance expense allocation $6,000 ÷ 4 quarters = $1,500. Total = $45,000 + $32,000 + $8,000 + $17,000 + $1,500 = $103,500. Choice A ($101,000) omits the insurance allocation. Choice C ($109,500) incorrectly includes the full annual insurance. Choice D ($102,500) likely has a calculation error in the variable component.
- Alpine Corporation allocates corporate administrative costs to operating divisions based on relative sales revenues. The total corporate administrative budget for next year is $480,000, consisting of $360,000 in fixed costs and $120,000 in variable costs. Division A is budgeted to have sales of $2,400,000, while total company sales are budgeted at $8,000,000. If Division A's direct selling and administrative costs are budgeted at $156,000, what is Division A's total selling and administrative expense budget?
Answer: $300,000
Division A's allocation percentage: $2,400,000 ÷ $8,000,000 = 30%. Allocated corporate administrative costs: 30% × $480,000 = $144,000. Division A's total selling and administrative budget: Direct costs $156,000 + Allocated costs $144,000 = $300,000. Choice B ($192,000) only includes direct costs plus a portion of allocation. Choice C ($200,000) appears to use an incorrect allocation base. Choice D ($288,000) might double-count some components or use wrong percentages.
