Saylor BUS105 Exam With Confidence Using Practice Dumps

Comprehensive and Detailed Explanation:

The Manufacturing Overhead account is used to track both actual and applied overhead. At the end of the period, the difference is calculated:

If actual > applied → underapplied (debit balance)

If applied > actual → overapplied (credit balance)

Answer: A

Cash collections and payments for purchases are cash inflows and outflows that must be captured in the Cash Budget. The Cash Budget is a critical component of the master budget and is used to estimate the cash position of the company at various points during the budgeting period. This includes timing of cash collections from sales (accounts receivable) and cash disbursements for purchases, wages, overhead, and other expenses.

As per Saylor Academy BUS105: Managerial Accounting, Unit 9 – How Do Managers Use Budgets?, Section 9.3: Preparing a Cash Budget:

“The cash budget shows the company's expected cash inflows and outflows over a period of time. This includes all cash collected from sales and all payments made for expenses, purchases of direct materials, and other disbursements.”

Therefore:

Option A (Cash budget) is correct.

Option B (Budgeted income statement) records revenues and expenses, not timing of actual cash flows.

Option C (Manufacturing overhead budget) focuses on estimating overhead costs but not cash flow.

Option D (Direct materials purchases budget) estimates how much material to buy but does not directly reflect actual payments.

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To determine the gross profit before and after closing the Manufacturing Overhead account, we must analyze the journal entries and compute:

Total production cost (Cost of Goods Manufactured, or COGM)

Gross profit = Sales Revenue − COGS

Impact of closing overhead account

Step 1: Identify and sum all costs recorded in Work in Process (WIP):

From journal entries:

Direct materials added to WIP:WIP Dr 19 (from: Materials Cr 19)

Direct labor added to WIP:WIP Dr 26 (from: Wages Payable Cr 26)

Manufacturing overhead applied to WIP:WIP Dr 30 (from: Manufacturing Overhead Cr 30)

Total product cost (COGM):

= 19 (materials) + 26 (labor) + 30 (overhead applied)

= $75

Step 2: Record transfer to Finished Goods and then to COGS:

WIP Cr 75 → Finished Goods Dr 75

Then, Finished Goods Cr 75 → COGS Dr 75 (once sold)

Step 3: Calculate gross profit before closing overhead:

Revenue from sale = $150

COGS = $75Gross Profit = $150 − $75 = $75

Step 4: Check the Manufacturing Overhead account:

From journal entries:

Overhead actual incurred:Manufacturing Overhead Dr 31 (from Materials 10 and Wages Payable 21)

Overhead applied to WIP:Manufacturing Overhead Cr 30

Remaining balance in overhead account:

= 31 (debits) − 30 (credits) = 1 (debit balance → underapplied overhead)

Since the underapplied overhead is considered immaterial, it is closed to COGS:

Entry: COGS Dr 1 / Manufacturing Overhead Cr 1

New COGS = $75 (original) + $1 (underapplied) = $76

New Gross Profit = $150 − $76 = $74

Thus:

Gross profit before closing overhead: $75

Gross profit after closing overhead: $74→ Decreased by $1

However, this matches the description in option A (Gross profit was $44; decreased by $1). Wait — there's a conflict here.

Let’s double-check.

The gross profit we calculated is $75, not $44.

Let’s test the logic again.

WIP includes:

Materials: 19

Labor: 26

Overhead: 30→ Total = 75

Sale = $150

→ Gross profit = $150 − $75 = $75

Underapplied overhead = $1 → added to COGS

New gross profit = $74

So the answer should say: Gross profit was $75; decreased by $1 → that would match option C.

But option C says: Gross profit was $75; gross profit decreased by $1.00 after closing manufacturing overhead. That matches our calculation.

So, correct answer: C

CORRECTION: The earlier answer marked as A was misaligned with the actual computed values. Based on this revised and verified calculation:

Answer: C

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Final Calculations Summary:

Direct Materials: $19

Direct Labor: $26

Applied Overhead: $30

Total Cost (COGS before adjustment): $75

Revenue: $150

Gross Profit (before adjustment): $75

Overhead underapplied by $1 → Increases COGS to $76

Gross Profit (after adjustment): $74

Gross Profit Decreased by $1.00 after closing overhead

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