Deck 21: Budgeting

Question 1

Part of the cash budget is based on information drawn from the capital expenditures budget.

Answer 1

True

Question 2

A formal written statement of management's plans for the future, expressed in financial terms, is called a budget.

Answer 2

True

Question 3

The responsibility for coordinating the preparation of a master budget should be assigned to the CEO of a firm.

Answer 3

False

Question 4

A budget can be an effective means of communicating management's plans to the owners of a business.

Question 5

A capital expenditures budget is prepared before the operating budgets.

Question 6

Budgetary slack can be avoided if lower and mid-level managers are requested to support all of their spending requirements with specific operational plans.

Question 7

When budget goals are set too tight, the budget becomes less effective as a tool for planning and controlling operations.

Question 8

The budgeting process is used to effectively communicate planned expectations regarding profits and expenses to the entire organization.

Question 9

The task of preparing a budget should be the sole task of the most important department in an organization.

Question 10

Consulting the persons affected by a budget when it is prepared can provide an effective means of motivation and cooperation.

Question 11

Employees view budgeting more positively when goals are established for them by senior management.

Question 12

Budgets are normally used only by profit-making businesses.

Question 13

Budget preparation is best determined in a top-down managerial approach.

Question 14

Past performance is the best overall basis for evaluating current performance and assessing the need for corrective action.

Question 15

The budget procedures used by a large manufacturer of automobiles would probably not differ from those used by a small manufacturer of paper products.

Question 16

The sales budget is derived from the production budget.

Question 17

A budget procedure that provides for the maintenance at all times of a twelve-month projection into the future is called continuous budgeting.

Question 18

The objectives of budgeting are 1) establishing specific goals for future operations, 2) executing plans to achieve the goals, and 3) periodically comparing actual results with these goals.

Question 19

The financial budgets of a business include the cash budget, the budgeted income statement, and the budgeted balance sheet.

Question 20

Goal conflict can be avoided if budget goals are carefully designed for consistency across all areas of the organization.

Question 21

The flexible budget is, in effect, a series of static budgets for different levels of activity.

Question 22

A process whereby the effect of fluctuations in the level of activity is built into the budgeting system is referred to as flexible budgeting.

Question 23

The budget procedure that requires all levels of management to start from zero in estimating sales, production, and other operating data is called continuous budgeting.

Question 24

The master budget of a small manufacturer would normally include all necessary component budgets except the capital expenditures budget.

Question 25

Budgets are prepared in the Accounting Department and monitored by various department managers.

Question 26

A budget procedure that provides for the maintenance at all times of a twelve-month projection into the future is called master budgeting.

Question 27

The first budget to be prepared is usually the production budget.

Question 28

Flexible budgeting builds the effect of changes in level of activity into the budget system.

Question 29

Flexible budgeting requires all levels of management to start from zero and estimate sales, production, and other operating data as though operations were being started for the first time.

Question 30

After the sales budget is prepared, the production budget is normally prepared next.

Question 31

The master budget of a small manufacturer would normally include all component budgets that impact on the financial statements.

Question 32

After the sales budget is prepared, the capital expenditures budget is normally prepared next.

Question 33

The master budget is an integrated set of budgets that tie together a company's operating, financing and investing activities into an integrated plan for the coming year.

Question 34

The first budget to be prepared is usually the cash budget.

Question 35

Once a static budget has been determined, it is changed regularly as the underlying activity changes.

Question 36

The budgeted volume of production is based on the sum of 1) the expected sales volume and 2) the desired ending inventory, less 3) the estimated beginning inventory.

Question 37

In preparing flexible budgets, the first step is to identify the fixed and variable components of the various costs and expenses being budgeted.

Question 38

The budget procedure that requires all levels of management to start from zero in estimating sales, production, and other operating data is called zero-based budgeting.

Question 39

The first budget to be prepared is usually the sales budget.

Question 40

The master budget of a small manufacturer would normally include all necessary component budgets except the budgeted balance sheet.

Question 41

The budget process involves doing all of the following except

A) establishing specific goals
B) executing plans to achieve the goals
C) periodically comparing actual results with the goals
D) dismissing all managers who fail to achieve operational goals specified in the budget

Question 42

Supervisor salaries and indirect factory wages would normally appear in the direct labor cost budget.

Question 43

The sales budget is the starting point for preparation of the direct labor cost budget.

Question 44

The budgeted direct materials purchases is based on the sum of 1) the materials needed for production and 2) the desired ending materials inventory, less 3) the estimated beginning materials inventory.

Question 45

The budgeted balance sheet assumes that all operating and financing plans are met.

Question 46

The production budget is the starting point for preparation of the direct labor cost budget.

Question 47

A formal written statement of management's plans for the future, expressed in financial terms, is a

A) gross profit report
B) responsibility report
C) budget
D) performance report

Question 48

Detailed supplemental schedules based on department responsibility are often prepared for major items in the operating expenses budget.

Question 49

The budgeted volume of production is normally computed as the sum of 1) the expected sales volume and 2) the desired ending inventory.

Question 50

The cash budget summarizes future plans for acquisition of fixed assets.

Question 51

The capital expenditures budget is part of the planned investing activities of a company.

Question 52

Supervisor salaries, maintenance, and indirect factory wages would normally appear in the operating expenses budget.

Question 53

The cash budget presents the expected inflow and outflow of cash for a specified period of time.

Question 54

If Division Inc. expects to sell 200,000 units in the current year, desires ending inventory of 24,000 units, and has 22,000 units on hand as of the beginning of the year, the budgeted volume of production for the year is 198,000 units.

Question 55

The cash budget is affected by the sales budget, the various budgets for manufacturing costs and operating expenses, and the capital expenditures budget.

Question 56

The capital expenditures budget details future plans for acquisition of fixed assets.

Question 57

If Division Inc. expects to sell 200,000 units in the current year, desires ending inventory of 24,000 units, and has 22,000 units on hand as of the beginning of the year, the budgeted volume of production for the year is 202,000 units.

Question 58

The budgetary unit of an organization which is led by a manager who has both the authority over and responsibility for the unit's performance is known as a

A) control center
B) budgetary area
C) responsibility center
D) managerial department

Question 59

Supervisor salaries, maintenance, and indirect factory wages would normally appear in the factory overhead cost budget.

Question 60

The budgeted direct materials purchases is normally computed as the sum of 1) the materials for production and 2) the desired ending inventory.

Question 61

Principal components of a master budget include

A) production budget
B) sales budget
C) capital expenditures budget
D) all of these

Question 62

Chelsa Manufacturing Co.'s static budget at 5,000 units of production includes $40,000 for direct labor and $5,000 for variable electric power. Total fixed costs are $23,000. At 8,000 units of production, a flexible budget would show

A) variable costs of $64,000, and $28,000 of fixed costs
B) variable costs of $64,000, and $23,000 of fixed costs
C) variable costs of $72,000, and $23,000 of fixed costs
D) variable and fixed costs totaling $107,000

Question 63

If budgeted beginning inventory is $8,000, budgeted ending inventory is $9,400, and budgeted cost of goods sold is $10,260, budgeted production should be

A) $1,400
B) $9,600
C) $11,660
D) $11,550

Question 64

When management seeks to achieve personal departmental objectives that may work to the detriment of the entire company, the manager is experiencing

A) budgetary slack
B) padding
C) goal conflict
D) cushions

Question 65

At the beginning of the period, the Assembly Department budgeted direct labor of $110,000, direct materials of $170,000, and fixed factory overhead of $28,000 for 8,000 hours of production. The department actually completed 10,000 hours of production. What is the appropriate total budget for the department, assuming it uses flexible budgeting?

A) $288,000
B) $305,000
C) $350,000
D) $378,000

Question 66

Which of the following budgets allow for adjustments in activity levels?

A) static budget
B) continuous budget
C) zero-based budget
D) flexible budget

Question 67

At the beginning of the period, the Cutting Department budgeted direct labor of $155,000, direct materials of $165,000, and fixed factory overhead of $15,000 for 9,000 hours of production. The department actually completed 10,000 hours of production. What is the appropriate total budget for the department, assuming it uses flexible budgeting?

A) $416,000
B) $370,556
C) $368,889
D) $335,000

Question 68

A series of budgets for varying rates of activity is termed an)

A) flexible budget
B) variable budget
C) master budget
D) activity budget

Question 69

Budgeting supports the planning process by encouraging all of the following activities except

A) requiring all organizational units to establish their goals for the upcoming period
B) increasing the motivation of managers and employees by providing agreed-upon expectations
C) directing and coordinating operations during the period
D) improving overall decision making by considering all viewpoints, options, and cost reduction possibilities

Question 70

The benefits of comparing actual performance of the operations against planned goals include all of the following except

A) providing prompt feedback to employees about their performance relative to the goal
B) preventing unplanned expenditures
C) helping to establish spending priorities
D) determining how managers are performing against prior years' actual operating results

Question 71

A variant of fiscal-year budgeting whereby a twelve-month projection into the future is maintained at all times is termed

A) flexible budgeting
B) continuous budgeting
C) zero-based budgeting
D) master budgeting

Question 72

The process of developing budget estimates by requiring all levels of management to estimate sales, production, and other operating data as though operations were being initiated for the first time is referred to as

A) flexible budgeting
B) continuous budgeting
C) zero-based budgeting
D) master budgeting

Question 73

Budgets need to be fair and attainable for employees to consider the budget important in their normal daily activities. Which of the following is not considered a human behavior problem?

A) setting goals among managers that conflict with one another
B) setting goals too tightly making it difficult to meet performance expectation
C) allowing employees the opportunity to be a part of the budget process
D) allowing goals to be so low that employees develop a "spend it or lose it" attitude

Question 74

A disadvantage of static budgets is that they

A) are dependent on previous year's actual results
B) cannot be used by service companies
C) do not show possible changes in underlying activity levels
D) show the expected results of a responsibility center for several levels of activity

Question 75

The production budgets are used to prepare which of the following budgets?

A) operating expenses
B) direct materials purchases, direct labor cost, and factory overhead cost
C) sales in dollars
D) sales in units

Question 76

Miller and Sons' static budget for 10,000 units of production includes $50,000 for direct materials, $44,000 for direct labor, variable utilities of $5,000, and supervisor salaries of $24,000. A flexible budget for 12,000 units of production would show

A) the same cost structure in total
B) direct materials of $60,000, direct labor of $52,800, utilities of $6,000, and supervisor salaries of $29,000
C) total variable costs of $148,000
D) direct materials of $60,000, direct labor of $52,800, utilities of $6,000, and supervisor salaries of $24,000

Question 77

The budgeting process does not involve which of the following activities?

A) Specific goals are established.
B) Periodic comparison of actual results to goals.
C) Execution of plans to achieve goals.
D) Increase in sales by increasing marketing efforts.

Question 78

Laurie Inc.'s static budget for 10,000 units of production includes $60,000 for direct materials, $44,000 for direct labor, fixed utilities costs of $5,000, and supervisor salaries of $25,000. A flexible budget for 12,000 units of production would show

A) the same cost structure in total
B) direct materials of $72,000, direct labor of $52,800, fixed utilities of $5,000, and supervisor salaries of $25,000
C) total variable costs of $159,800
D) direct materials of $60,000, direct labor of $52,800, fixed utilities of $6,000, and supervisor salaries of $25,000

Question 79

The primary difference between a static budget and a flexible budget is that a static budget

A) is suitable in volatile demand situation while flexible budget is suitable in a stable demand situation
B) is concerned only with future acquisitions of fixed assets, whereas a flexible budget is concerned with expenses that vary with sales
C) includes only fixed costs, whereas a flexible budget includes only variable costs
D) is a plan for a single level of production, whereas a flexible budget can be converted to any level of production

Question 80

Jase Manufacturing Co.'s static budget at 10,000 units of production includes $40,000 for direct labor and $4,000 for electric power. Total fixed costs are $24,000. At 12,000 units of production, a flexible budget would show

A) variable costs of $52,800 and $29,000 of fixed costs
B) variable costs of $44,000 and $24,000 of fixed costs
C) variable costs of $52,800 and $24,000 of fixed costs
D) variable and fixed costs totaling $68,000