Deck 10: Budgetary Planning and Control

Question 1

The selling and administrative expense budget is based on the numbers in the production budget.

Answer 1

False

Question 2

Changes in economic conditions can be one of the causes for significant deviations from the planned performance.

Answer 2

True

Question 3

A bottom-up approach to budgeting involves substantial input from lower-level managers.

Answer 3

True

Question 4

Only manufacturing firms need to prepare a production budget.

Question 5

Differences between budgeted and actual amounts are referred to as flexible budgets.

Question 6

A company will often have cash flow problems ahead of a period of increasing sales.

Question 7

The first step in the budget process is preparing the sales forecast.

Question 8

All of the dollar amounts in the cash receipts budget represent revenues earned in the current period.

Question 9

The sales budget is constructed after the production budget is finalized based on a company's capacity.

Question 10

A zero-based budgeting is easier to prepare because it is based on prior period's activity levels.

Question 11

The amount and timing of cash flows is the focus of the cash receipts and disbursements budget.

Question 12

The costs of acquisitions in the material purchases budget appear on the budgeted income statement as part of cost of goods sold.

Question 13

The budgeted balance sheet is also called a pro-forma balance sheet.

Question 14

Most managers believe that budgeting is more successful when a bottom-up approach rather than a top-down approach is used.

Question 15

A budget is a formal document that quantifies a company's plans for achieving its goals.

Question 16

If the number of units produced equals the number of units sold, the number of units in ending inventory will equal the number of units in beginning inventory on the production budget.

Question 17

Generally, budgets that span longer time periods provide less detail than those spanning shorter time periods.

Question 18

Budgets are useful in the control process because they provide a basis for evaluating performance.

Question 19

A company that utilizes just-in-time inventory eliminates the need for budgeting.

Question 20

One way a company can perform "what if" budget analysis is by preparing a flexible budget.

Question 21

Which of the following is correct concerning a budget?

A)It is a formal document that quantifies a company's plans for achieving its goals.
B)It is prepared by the budget committee.
C)It identifies the causes of significant deviations from expected performance.
D)All of the answer choices are correct.

Question 22

Generally, it is best to evaluate managers against a static budget since the volume used on a static budget is used to generate expected results for the period.

Question 23

There is an inherent conflict when budgets are used for both planning and control.

Question 24

Which of the following is not a reason that actual results may deviate from planned performance?

A)A bottom-up approach to budgeting was used.
B)Managers have done a particularly good or particularly poor job of managing operations.
C)Conditions have changed since the budget was developed.
D)The budget was poorly conceived and constructed.

Question 25

In a top-down approach to budgeting, what occurs?

A)The upper-level managers impose a budget without soliciting input from department managers.
B)Lower-level managers are the primary source of information used in setting the budget.
C)The production budget is developed before the sales budget.
D)Each budget amount projected by upper-level managers is approved or disapproved by lower-level managers.

Question 26

Budgeting often involves both monetary and nonmonetary measures of performance.

Question 27

In a bottom-up approach to budgeting, the primary source of information used in setting the budget is

A)based on forecasted economic conditions.
B)based on industry forecasts.
C)provided by the controller.
D)provided by lower-level managers.

Question 28

In a management by exception approach, only large, unfavorable variances are investigated.

Question 29

Which statement is not true concerning the development of a budget?

A)It is a means of planning for management.
B)It often involves communication with and input from department managers.
C)It enhances communication and coordination among managers.
D)It is created by the budget committee.

Question 30

A master budget is a set of budget relationships that can be adjusted to various activity levels.

Question 31

Waiting until January 1 to ship an order and recognizing its revenue that was ready on December 29 is an example of income shifting.

Question 32

Who is responsible for the approval of the master budget?

A)The budget committee
B)The company's cost accountant
C)The company's auditors
D)The company's board of directors

Question 33

A static budget is prepared for a single anticipated level of production.

Question 34

A budget is useful in the planning process because it

A)determines who is to blame for poor operations.
B)forces managers to think about goals and objectives and means of achieving them.
C)identifies budget padding.
D)creates budget slack.

Question 35

When a static budget is used for planning and control, managers may be tempted to build slack into their budgets.

Question 36

The formal documents that quantify a company's plans for achieving its goals are called

A)variance reports.
B)budgets.
C)cost sheets.
D)production reports.

Question 37

Managers may be tempted to pad the budget to meet performance targets.

Question 38

The person evaluating a manager should consider

A)any deviation from budgeted amounts as an item that should be investigated.
B)all favorable variances as indications of good performance.
C)that managers will focus their attention on those measures that they know will be part of their evaluation.
D)that all unfavorable variances indicate poor performance.

Question 39

If the actual activity level differs from the budgeted activity level on the flexible budget, it is unfair to evaluate cost performance against that budget.

Question 40

The budget committee consists of

A)senior managers, including the CEO and CFO.
B)representatives from the stockholders and suppliers.
C)a company's stockholders.
D)all employees interested in providing input to the budgeting process.

Question 41

Which of the following is the correct order for the preparation of the listed budgets?

A)Budgeted income statement, sales budget, cash budget
B)Cash budget, capital acquisitions budget, direct labor budget
C)Sales budget, production budget, direct material purchases budget
D)Direct labor budget, sales budget, budgeted income statement

Question 42

Less detailed budgets are associated with

A)production costs.
B)governmental agencies.
C)longer time periods.
D)zero-based budgeting.

Question 43

Which of the following is not typically a part of the master budget?

A)Direct material purchases budget
B)Performance report budget
C)Projected cash receipts and disbursements
D)Budgeted balance sheet

Question 44

Concerning relationship between beginning finished goods inventory, ending finished goods inventory, production, and sales, which of the following is true?

A)Production = Beginning Inventory + Sales - Ending Inventory
B)Production = Sales + Ending Inventory - Beginning Inventory
C)Production = Beginning Inventory + Ending Inventory - Sales
D)Production = Beginning Inventory - Ending Inventory + Sales

Question 45

Which of the following contains at least one item that is not a common method companies use to estimate sales?

A)Economic models, and estimates from a company's own sales force
B)Trends in a company's own sales data, and estimates from a company's own sales force
C)Estimates from a company's own sales force, and expected production levels
D)Economic models, and trends in a company's own sales data

Question 46

Which of the following budgets is prepared first?

A)Cash budget
B)Sales budget
C)Production budget
D)Budgeted balance sheet

Question 47

Which of the following is not a method that can reasonably be used to forecast sales?

A)Trends in the company's sales data
B)Production capacity
C)Estimates from the company's salespersons
D)Mathematical models adjusted by an experienced manager using professional judgment

Question 48

A method of budget preparation that requires all budgeted amounts to be justified, even if the amounts were supported in prior periods, is called

A)variance budgeting.
B)flexible budgeting.
C)justified budgeting.
D)zero-based budgeting.

Question 49

Which of the following assumptions is made while preparing a sales budget?

A)The number of units to be sold and selling price per unit
B)The cash to be received from units sold
C)The contribution margin per unit and the number of units to be sold
D)The number of units the manufacturing facility is able to produce

Question 50

Which of the following budgets is prepared last?

A)Sales budget
B)Capital acquisitions budget
C)Budgeted income statement
D)Budgeted balance sheet

Question 51

The master budget incorporates individual budgets including those for

A)direct materials, direct labor, and selling and administrative expenses.
B)multiple levels of sales volume.
C)past and future accounting periods.
D)each employee in the company.

Question 52

Which of the following items affect the amount of direct material that must be purchased during a period?
I)The amount of raw material in beginning inventory
II)The amount of raw material in ending inventory

A)Only I
B)Only II
C)Both I and II
D)Neither I nor II

Question 53

A significant difference between the direct material purchases budget and the direct labor budget is that the direct material purchases budget

A)is based on units sold, while the direct labor budget is based on units produced.
B)considers beginning and ending inventory amounts, which are not part of the direct labor budget.
C)is constructed for each quarter, while the direct labor budget is constructed for each pay period.
D)is constructed from the top down, while the direct labor budget uses a bottom-up approach.

Question 54

Which of the following is a characteristic of zero-based budgeting?

A)It uses the same level of activity as the prior budget period.
B)It is relatively inexpensive to implement.
C)It is used mostly by manufacturing companies.
D)It results in a fresh consideration of the validity of budget amounts.

Question 55

Which of the following is the comprehensive planning document that incorporates a number of individual budgets?

A)Static budget
B)Master budget
C)Flexible budget
D)Collective budget

Question 56

Which of the following is not used in deciding how many units to produce in a period?

A)The desired number of units in ending finished goods inventory
B)The expected sales in units
C)The number of units in beginning finished goods inventory
D)The number of units of raw material needed for production

Question 57

While preparing the production budget, the desired ending finished goods inventory for the first period is

A)the same as the beginning inventory for the second period.
B)often expressed as a percentage of the first period's sales.
C)generally more than the beginning finished goods inventory for the first period.
D)always zero.

Question 58

Ace Ladders has fewer units in beginning finished goods inventory than in ending finished goods inventory.The number of units sold is

A)less than the number of units produced.
B)greater than the number of units produced.
C)less than the number of units in beginning finished goods inventory.
D)greater than the number of units in ending finished goods inventory.

Question 59

Why is setting the sales budget very important?

A)The rest of the master budget is driven by the sales budget.
B)It is based on the production targets set by the production department.
C)It establishes the actual profits that will be earned by a company.
D)None of the answer choices are correct.

Question 60

Which of the following statements regarding approaches to budgeting is(are) true?
I)Most managers believe that successful budgeting requires a bottom-up approach.
II)A top-down approach involves substantial input from lower-level managers.

A)Only I
B)Only II
C)Both I and II
D)Neither I nor II

Question 61

Alpha Caps Company has budgeted production of 14,000 units and sales of 16,500 units in January.Each unit requires 12 minutes of labor.The standard labor rate is $13.00 per hour.How much are total budgeted direct labor costs for January?

A)$36,400
B)$21,840
C)$42,900
D)$2,184,000

Question 62

SalaRita's sales are 32% cash and 68% credit.Of the credit sales, 40% of credit sales are collected in the month of sale, 45% in the month following the sale, and 15% is collected two months after.Budgeted sales data is as follows: $$\begin{array} { l r } \text { June } & \$ 200,000 \\\text { July } & 120,000 \\\text { August } & 150,000\end{array}$$ How much is total 'Accounts Receivable' at the end of August?

A)$61,200
B)$73,440
C)$99,600
D)$108,000

Question 63

Shorstein Manufacturing Company purchases raw materials on account each month.Purchases are paid for according to the following schedule:
30% is paid in the month of the purchase
60% is paid in the month following the purchase
10% is paid in the second month following the purchase
Budgeted purchases are as follows: $$\begin{array} { l l } \text { March } & \$ 75,000 \\\text { April } & \$ 90,000 \\\text { May } & \$ 85,000\end{array}$$
How much will be reported for Accounts Payable for material purchases as of the end of May?

A)$59,500
B)$68,500
C)$87,000
D)$95,500

Question 64

When using a computer program to do budgeting, which one of the following is not true?

A)A company can easily run "what if" analysis if the spreadsheet is well designed.
B)Cash flow problems generally erupt since cash is difficult to track and predict.
C)Worksheets should be formula driven so that a change in sales will update all schedules.
D)A change in the sales budget should carry throughout all the individual budgets.

Question 65

Wisdom Toys has budgeted sales and production over the next quarter as follows: $$\begin{array} { l c c } & \text { Unit Sales } & \text { Production } \\\text { September } & 43,000 & 44,400 \\\text { October } & 50,000 & 52,800 \\\text { November } & 64,000 & 61,200\end{array}$$ The company requires that 20% of the next month's sales in units are on hand at the end of each month.December sales are expected to be 50,000 units.How many video games are in inventory at October 31?

A)12,800 units
B)34,400 units
C)4,000 units
D)10,000 units

Question 66

Which of the following is not required to calculate cost of goods sold in the budgeted income statement?

A)Number of units to be sold
B)Direct material costs to be used and direct labor costs to be incurred
C)Manufacturing overhead costs incurred
D)Direct material purchases expected during the period

Question 67

Which of the following is likely to increase the amount budgeted for depreciation in the manufacturing overhead budget?

A)Sale of production equipment at a loss
B)Increased variable costs related to estimated increases in sales
C)Planned acquisitions of new equipment
D)A decrease in the number of units to be produced

Question 68

Which of the following is least likely to produce a need for temporary financing to bridge a cash shortfall?

A)Building up inventory in anticipation of increased sales in the months ahead
B)Allowing customers to purchase on credit
C)Paying insurance policies in advance of the period insured
D)Purchasing materials on a just-in-time inventory basis

Question 69

A significant difference between the direct material purchases budget and the production budget is that the production budget considers

A)units to be produced, while the direct material purchases budget is based on units to be sold.
B)beginning and ending finished goods inventory amounts, which are not part of a direct material purchases budget.
C)finished goods inventory levels, while the material purchases budget considers raw material inventory levels.
D)the capacity of the factory, while the direct material purchases budget does not.

Question 70

If budgeted net income is projected to be less than the company's goal, the company should try to

A)increase revenues and decrease expenses.
B)incur more fixed costs and less variable costs.
C)increase the collection of cash receipts.
D)finance operations with a loan.

Question 71

Which of the following is a reason the amount of cash paid out for manufacturing overhead each period does not equal the total overhead incurred?

A)Depreciation is an overhead expense that does not require the use of cash.
B)Overhead expenses are only estimates, and they do not require cash.
C)Cash is only paid out for variable manufacturing overhead expenses.
D)The amount of cash paid out is adjusted for the number of units sold.

Question 72

Washam Company must maintain a minimum cash balance of $25,000.At the beginning of June the company's cash balance was $17,000.Budgeted cash receipts for June are $150,000 and budgeted cash disbursements are $201,000.Budgeted net income for July totals $11,000.How much will Washam Company need to borrow by the end of June?

A)$43,000
B)$34,000
C)$9,000
D)$59,000

Question 73

Which of the following does not appear on the cash budget?

A)Beginning cash balance
B)Purchase of long-lived assets
C)Cost of goods sold
D)Collection of credit sales

Question 74

Which of the following transactions will affect the cash budget for a particular month in which each transaction occurs?

A)Sale of a product when payment will be received in 60 days
B)Payment for direct labor
C)Amortization of prepaid insurance
D)Depreciation of a piece of equipment that was purchased last year

Question 75

Winslow Inc.determined it had sold products during the month but not collected all of the amounts owed.Where will this amount owed be reflected in the master budget for the month?

A)On the budgeted balance sheet in the assets section
B)On the budgeted income statement
C)As part of the cash receipts section of the cash budget
D)As a reduction of inventory to be produced in the production budget

Question 76

SalaRita's sales are 32% cash and 68% credit.Of the credit sales, 40% of credit sales are collected in the month of sale, 45% in the month following the sale, and 15% is collected two months after.Budgeted sales data is as follows: $$\begin{array} { l r } \text { June } & \$ 200,000 \\\text { July } & 120,000 \\\text { August } & 150,000\end{array}$$ How much is total cash collected during August?

A)$145,920
B)$105,120
C)$88,800
D)$144,000

Question 77

A cash budget fails to alert the management for:

A)low projected cash balance.
B)low profit levels.
C)availability of excess cash for investment purposes.
D)availability of sufficient cash for loan repayments.

Question 78

Which of the following statements is true concerning the capital acquisitions budget?

A)It consists of a plan to acquire long-lived assets.
B)It is constructed directly from the values in the sales budget.
C)It is the same as the capital budgeting process.
D)It is dependent upon plant capacity.

Question 79

Budgeted sales (in units) for the Rockwall Energy Drink Company are as follows: $$\begin{array} { l l } \text { September } & 45,000 \text { units } \\\text { October } & 60,000 \text { units } \\\text { November } & 40,000 \text { units } \\\text { December } & 75,000 \text { units }\end{array}$$ The company wishes to have 10% of the next month's sales on hand at the end of each month.How much is budgeted production for November?

A)43,500 units
B)40,000 units
C)47,500 units
D)36,000 units

Question 80

Each unit produced by Terra Electronics requires 4 pounds of raw materials.The raw materials inventory must be equal to 10% of the next month's production.Each pound of raw materials costs $2.00.Budgeted production information follows. $$\begin{array} { l l } \text { April } & 28,000 \text { units } \\\text { May } & 30,000 \text { units } \\\text { June } & 25,000 \text { units }\end{array}$$ How much are budgeted purchases of raw materials for May?

A)$118,000
B)$236,000
C)$221,000
D)None of the answer choices are correct.