Question

11.)

Smith LLC is an oilfield service company that measures its output by the number of wells serviced. The company has provided the following fixed and variable cost estimates used for budgeting purposes.

	Fixed Element per Month	Variable Element per Well Serviced
Revenue		$4,500
Employee salaries and wages	$56,400	$900
Servicing materials		$700
Other expenses	$35,400

When the company prepared its planning budget at the beginning of December, it assumed that 34 wells would have been serviced. However 32 wells were actually serviced during the period. The "Servicing materials" in the planning (static) budget for December would have been closest to:

a. $23,800

b. $59,200

c. $22,400

d. $23,100

12.) Which of the following pro forma financial statements is created first in a master budget?

a. income statement

b. balance sheet

c. statement of retained earnings

d. statement of cash flows

13.) A company estimates its bad debt expense?

a. based on the cash receipts budget and cash disbursements budget.

b. based on its budgeted credit sales and cash receipts schedule.

c. based on its budgeted credit sales and its cash disbursements schedule

d. A company cannot estimate bad debt expense before it occurs.

Answer 1

11.)	Number of well served as per budget	34
	x Cost per well served	700
	Servicing materials" in the planning (static) budget	$ 23,800
	Correct answer is option a .

12.)	Income statement pro forma financial statements is created first in a master budget .
	Correct answer is option a .
13.)	A company estimates its bad debt expense based on its budgeted credit sales and cash receipts schedule, as the difference in sales & collection will be of Bad debt.
	Correct answer is option b .