Deck 7: Introduction to Budgets and Preparing the Master Budget

Question 1

The financial budgets of a nonmanufacturing company include the capital budget, the cash budget, and the budgeted balance sheet.

Answer 1

True

Question 2

The effectiveness of any budgeting system depends directly on whether a budget is understood and accepted by top management.

Answer 2

True

Question 3

Sales forecasts are usually prepared under the direction of the top sales executive.

Answer 3

True

Question 4

Budgeting may use nonfinancial terms.

Question 5

Budgeted performance goals generally do not provide a better basis for evaluating actual results than do a simple comparison with past performance.

Question 6

Participative budgeting is the active participation of all affected employees in the formulation of the budgets.

Question 7

The major drawback of using historical results for judging current performance is that inefficiencies may be concealed in the past performance.

Question 8

Budgetary slack helps buffer managers from budget cuts imposed by higher-level management and provides protection against cost increases or revenue shortfalls due to unforeseen events.

Question 9

Budgets are a manager's tool to plan, understand, and control operations.

Question 10

Budgets tell employees what their superiors expect of them.

Question 11

Cheating does not include making short-run decisions to increase profits that are not in the company's best long-run interests.

Question 12

The sales budget is the responsibility of line management.

Question 13

A budget is a qualitative expression of a plan of action.

Question 14

An operating budget is the major part of a master budget that focuses on the income statement and its supporting schedules.

Question 15

"Cooking the books" refers to reporting false accounting numbers.

Question 16

Managers may lie to increase the resources allocated to their department.

Question 17

A capital budget is a periodic business plan that includes a coordinated set of detailed operating schedules and financial statements.

Question 18

Activity-based budgets are an example of functional budgeting.

Question 19

A sales budget is a prediction of sales under a given set of conditions.

Question 20

A budget is an example of an informal business plan.

Question 21

The working capital cycle moves from cash to inventory to receivables and back to cash.

Question 22

Managers want a very large cash balance possible at all times.

Question 23

Line operating managers usually prepare and use the operating budget.

Question 24

Accurate sales forecasting is essential to effective budgeting.

Question 25

The master budgeting process summarizes the key decisions regarding all aspects of the company's value chain.

Question 26

The most forward-looking budget is the strategic plan.

Question 27

Preparing a master budget using a spreadsheet is a quick and easy task.

Question 28

The operating budget is a better measure of a company's overall performance than is the financial budget.

Question 29

Financial planning models enable managers to get answers to "what-if" questions.

Question 30

Depreciation expense is usually subtracted as an operating expense to calculate budgeted ending cash on hand.

Question 31

Examples of expenses driven by sales volume include rent and insurance.

Question 32

The beginning available cash balance equals the beginning cash balance + the minimum cash balance desired.

Question 33

Decisions made during long-range planning include the design of a new plant and whether to delete a product from a company's product line.

Question 34

A good budget process communicates from the top down, but not from the bottom up.

Question 35

Budgeted purchases = beginning inventory + cost of goods sold - desired ending inventory.

Question 36

The first step in preparing the master budget is generally the preparation of the budgeted income statement.

Question 37

A major benefit of effective budgeting is that _____.

A)it compels managers to think ahead
B)it aids managers in communicating objectives to units
C)it provides benchmarks to evaluate subsequent performance
D)all of these answers are correct

Question 38

If cash available plus net cash receipts minus disbursements is negative, then borrowing is necessary.

Question 39

Cash collections from customers include the current month's cash sales plus collections on credit sales.

Question 40

The cash budget begins with the ending cash balance from the previous period.

Question 41

A _____ gives the expected sales under a given set of conditions.

A)sales prediction
B)sales budget
C)budget forecast
D)sales forecast

Question 42

Budgets are generally more effective if they are _____.

A)created with the active participation of all affected employees
B)understood and accepted by affected managers
C)supported by top management
D)all of these answers are correct

Question 43

The master budget quantifies targets for all of the following except _____.

A)sales
B)production
C)markets
D)cost-driver activity

Question 44

Budgets generate negative feelings if they are _____.

A)used to point out managers' failings
B)used primarily to limit spending
C)congruent with rewards
D)used to point out managers' failings and used primarily to limit spending

Question 45

Cheating may take the form of _____.:

A)making short-run decisions to increase profits that are not in the company's best long-run interests
B)creating budgetary slack
C)decreasing profits when actual profits are significantly exceeding the profit target.
D)all of these answers are correct

Question 46

Continuous budgets are constructed by adding a _____.

A)new goal as a current goal is achieved
B)new cost object as a current cost object is eliminated
C)month in the future as the month just ended is dropped
D)year in the future as the current year just ended is dropped

Question 47

_____ is an important factor considered by sales forecasters.

A)Past patterns of sales
B)Estimates made by the sales force
C)General economic conditions
D)All of these answers are correct

Question 48

_____ are sometimes called rolling budgets.

A)Strategic plans
B)Capital budgets
C)Pro forma statements
D)Continuous budgets

Question 49

_____ budgeting is when budgets are formulated with the active participation of all affected employees

A)Financial
B)Team
C)Participative
D)Shared

Question 50

_____ detail the planned expenditures for facilities, equipment, new products, and other long-term investments.

A)Strategic plans
B)Capital budgets
C)Pro forma statements
D)Continuous budgets

Question 51

The financial budget includes _____.

A)only the capital budget and the cash budget
B)only the capital budget and the budgeted balance sheet
C)the capital budget, the cash budget, and the budgeted balance sheet
D)the cash budget, the budgeted statement of cash flows, and the retained earnings budget

Question 52

Continuous budgets are a common form of _____.

A)strategic plans
B)capital budgets
C)pro forma statements
D)financial reports

Question 53

The master budget includes forecasts for all of the following except _____.

A)sales
B)number of employees
C)balance sheets
D)cash disbursements

Question 54

Pro forma statements are most closely associated with the _____.

A)master budget
B)operating budget
C)financial budget
D)strategic plan

Question 55

_____ is considered a long-range planning decision.

A)Addition or deletion of product lines)
B)Design and location of new plants)
C)Acquisition of buildings and equipment
D)All of these answers are correct

Question 56

A major drawback of using historical results for judging current performance is that _____.

A)past results may be incorrect
B)results may refer to a different manager
C)inefficiencies may be concealed in the past performance
D)all of these answers are correct

Question 57

_____ set the overall goals and objectives of the organization.

A)Strategic plans
B)Capital budgets
C)Pro forma statements
D)Continuous budgets

Question 58

_____ are components of a master budget.

A)A strategic plan and an operating budget
B)An operating budget and a financial budget
C)A continuous budget and a static budget
D)A cash budget and an activity budget

Question 59

Important factors considered by sales forecasters include all of the following except _____.

A)past patterns of sales
B)marketing research studies
C)competitors' activities
D)the desired level of sales

Question 60

A sales forecast is _____.

A)a prediction of sales under a given set of conditions
B)the result of decisions to create conditions
C)the same as a sales budget that will generate a desired level of sales
D)all of these answers are correct

Question 61

Preparing the master budget begins by establishing _____.

A)a targeted balance sheet
B)a targeted income statement
C)the expected cash
D)the expected sales

Question 62

Gore Company has budgeted sales of 7,000 units, target ending finished goods inventory of 1,000 units, and a beginning finished goods inventory of 300 units. _____ units should be produced.

A)8,300
B)7,700
C)6,300
D)5,700

Question 63

_____ budget is a major part of the master budget that focuses on the income statement and its supporting schedules.

A)An operating
B)A financial
C)A cash
D)A capital

Question 64

For next year, Dunphy Company has budgeted sales of 30,000 units, target ending finished goods inventory of 1,000 units, and a beginning finished goods inventory of 800 units.All other inventories are zero._____ units should be pro?duced.

A)29,800
B)30,000
C)30,200
D)31,800

Question 65

What is the sequence of steps used in preparing the master budget?

A)Output from operating budgets is used to prepare the financial budgets.
B)Output from financial budgets is used to prepare the operating budgets.
C)Operating and financial budgets are prepared independently at the beginning of the budgeting process.
D)Operating and financial budgets are prepared independently at the end of the budgeting process.

Question 66

Homer Company has a production schedule of 11,000 units and a budgeted sales volume of 10,000 units for the current year.In addition, 2,000 units are in beginning finished goods inventory._____ units are expected to be in ending finished goods inventory.

A)13,000
B)9,000
C)5,000
D)3,000

Question 67

_____ expense is influenced by sales.

A)Commission
B)Rent
C)Insurance
D)Depreciation

Question 68

Which of the following is not a major benefit of budgeting?

A)Budgeting compels managers to think ahead.
B)Budgeting provides definite expectations that are the best framework for judging subsequent performance.
C)Budgeting aids managers in coordinating their efforts so the objectives of the organization as a whole match the objectives of its parts.
D)Budgeting allows managers to operate day-to-day, reacting to current events rather than planning for the future.

Question 69

Unit sales of Product A are currently 10,000, while unit sales of Product B are double those of Product A.The com?pany's sales forecast will be _____, assuming sales of Product A increase by 10% and those of Product B increase by 4,000 units.

A)10,000 and 20,000 units, respectively
B)11,000 and 22,000 units, respectively
C)11,000 and 24,000 units, respectively
D)none of these answers is correct

Question 70

The financial-budget process results in the _____.

A)budgeted balance sheet
B)budgeted cash sales
C)sales budget
D)budgeted statement of income

Question 71

All of the following are operating budgets except the _____.

A)sales budget
B)operating expenses budget
C)budgeted income statement
D)cash budget

Question 72

All of the following are operating budgets except the _____.

A)purchases budget
B)capital budget
C)cost of goods sold budget
D)budgeted income statement

Question 73

All of the following are financial budgets except the _____.

A)purchases budget
B)capital budget
C)cash budget
D)budgeted balance sheet

Question 74

All of the following are financial budgets except the _____.

A)budgeted balance sheet
B)capital budget
C)cash budget
D)budgeted income statement

Question 75

The operating-budget process results in the _____.

A)budgeted balance sheet
B)budgeted cash balance
C)sales budget
D)budgeted statement of income

Question 76

Busted Company expects to produce 19,000 units.Beginning finished goods inventory is 2,000 units and expected sales are 18,000 units.Expected ending finished goods inventory is _____.

A)39,000
B)5,000
C)4,000
D)3,000

Question 77

Super Hotels operates a 100-room property in a location popular for "spring breakers".Occupancy rates average 95% in March and 80% in April.The average room rental is $150 per night.Expected sales for March are _____.

A)$372,000
B)$418,500
C)$427,500
D)$441,750

Question 78

Haggle Corporation, a wholesaler, has a sales budget for next month of $400,000.Cost of units sold is expected to be 35% of sales.All units are paid for in the month following purchase.The beginning inventory of units is $10,000, and an ending amount of $12,000 is desired.Beginning accounts payable is $76,000. The cost of units sold for next month is expected to be _____.

A)$220,000
B)$172,000
C)$162,000
D)$140,000

Question 79

_____ is generally prepared as the first step in preparing the operating budgets.

A)A sales budget
B)An operating expense budget
C)A purchases budget
D)A budgeted income statement

Question 80

Hot Hotels operates a 100-room property in a location popular for "spring breakers".Occupancy rates average 97% in March and 90% in April.The average room rental is $150 per night.Expected sales for April are _____.

A)$405,000
B)$418,500
C)$436,500
D)$450,000