Deck 5: Planning and Forecasting in a Manufacturing Setting

Question 1

The terms standard price and standard cost can be used interchangeably.

Answer 1

False
The terms standard price and standard cost have different meanings, they are not interchangeable,

Question 2

The direct labor quantity standard is the number of products that can be produced in one hour.

Answer 2

False
The direct labor quantity standard is the time needed to produce one unit of product,

Question 3

Standard direct labor prices are also referred to as direct labor rates.

Answer 3

True

Question 4

In a bottom-up budget approach, at each higher level of management, the budget is reviewed and may be altered to satisfy the competing needs of various units within the organization.

Question 5

A rolling budget always includes 12 months of data and as one month ends, it is removed from the budget and the entire budget rolls forward one month.

Question 6

Zero-based budgeting is not as time consuming as incremental budgeting.

Question 7

Ideal standards represent a level of performance that can be attained with reasonable effort.

Question 8

Since the purchasing agent is responsible for ordering raw materials, he or she would be the one to negotiate a volume discount.

Question 9

Practical standards represent a level of performance that can be attained with reasonable effort.

Question 10

Budgeting is ineffective unless it is tied to strategy and used to manage an organization's overall performance.

Question 11

Budgetary slack is more common in a top-down approach to budgeting than in a bottom-up approach.

Question 12

Bottom-up budgeting is also referred to as a participative budgeting.

Question 13

The most popular way to begin the budgeting process is the incremental approach.

Question 14

A budget is an operating plan that may be expressed in either financial or non-financial terms.

Question 15

A bottom-up approach to budgeting is circular while a top-down approach is linear.

Question 16

Performance-standard setting is not an exact science, but there are some hard and fast criterion for proving one standard right and the other one wrong.

Question 17

The predetermined overhead rate is calculated as: Budgeted Total Manufacturing Overhead divided by Budgeted Activity Level of Application Base.

Question 18

Top-down budgeting is also referred to as participative budgeting.

Question 19

If practical standards are used, the standard quantity for direct materials should not include allowances for waste and spoilage in the normal course of manufacturing.

Question 20

Budgets assist managers in the areas of planning, controlling, evaluating, and decision-making.

Question 21

Under both participative budgeting and imposed budgeting, the process is

A)linear.
B)iterative.
C)curvilinear.
D)None of these answer choices are correct.

Question 22

Which of the following budget approaches will produce a more accurate budget?

A)Participative budgeting.
B)Imposed budgeting.
C)Responsibility budgeting.
D)None of these answer choices are correct.

Question 23

The formula for the production budget is Budgeted Sales + Budgeted Beginning Inventory - Budgeted Ending Inventory = Budgeted Production.

Question 24

Which of the following is not a characteristic of a top-down budget environment?

A)Executive management creates the budget.
B)This approach is referred to as participative budgeting.
C)The budget is pushed down through the organization.
D)All of these answer choices are characteristics of a top-down budget environment.

Question 25

The key inputs for the direct materials purchases budget are the production budget and the direct materials standards for each project.

Question 26

Preparing a budget does not allow managers to

A)eliminate any variances that would have been created without a budget.
B)help divisions within the organization to communicate with one another.
C)assess whether a division's strategic direction is in line with corporate strategy.
D)All of these answer choices are things which preparing a budget allows managers to do.

Question 27

Which of the following is not a characteristic of a participative budget?

A)It will produce a more accurate budget than an imposed budget.
B)It tends to elicit more commitment to the budget than a top-down budget.
C)It is the most efficient method of budget preparation.
D)It is a time-consuming process as many people must provide input.

Question 28

A top-down budget approach is also referred to as

A)participative budgeting.
B)imposed budgeting.
C)responsibility budgeting.
D)None of these answer choices are correct.

Question 29

Since the cash budget drives all other components of the master budget, it is imperative that it be as realistic as possible.

Question 30

The first section of the cash budget reconciles the cash available to the borrowing required to meet the minimum cash balance.

Question 31

Which of the following is not a characteristic of a bottom-up budget environment?

A)Executive management creates the budget.
B)At each higher level of management, the budget is reviewed and may be altered.
C)The budget approach may also be referred to as participative budgeting.
D)All of these answer choices are characteristics of a bottom-up budget environment.

Question 32

The master budget is a collection of smaller budgets that lead to pro-forma financial statements.

Question 33

An imposed budget

A)tends to elicit more commitment to the budget from employees since they have had some input into its creation.
B)begins at the lowest levels of management and filters up through the organization.
C)is the least efficient method of budget preparation.
D)involves the fewest number of people in the budgeting process.

Question 34

Pro-forma financial statements are prepared based on assumed rather than actual results.

Question 35

Budgets assist managers in all the following aspects of management except

A)planning.
B)controlling.
C)leading.
D)evaluating.

Question 36

The first component of the master budget is the cash budget.

Question 37

A bottom-up budget approach is also referred to as

A)participative budgeting.
B)imposed budgeting.
C)responsibility budgeting.
D)reverse budgeting.

Question 38

The final component of the operating budget is the ending inventory and cost of goods sold budget.

Question 39

Budgets assist managers which of the following aspects of management?

A)Planning
B)Controlling
C)Evaluating
D)All of these answer choices are correct.

Question 40

Which of the following is a disadvantage of participative budgeting?

A)It is considering to be rolling throughout each budget period.
B)Managers may pad the budget.
C)It is a method of tactical planning.
D)It requires each amount to be justified each budget period.

Question 41

In the manufacturing of swimsuits, in addition to the price of fabric, the standard materials price does not include

A)cost of shipping.
B)volume discounts.
C)taxes.
D)units of material used.

Question 42

Which of the following is not a criticism of ideal standards?

A)After a period of performing below standard, employees will likely lose motivation.
B)Morale will suffer because employees cannot attain the standard.
C)In an effort to meet an ideal efficiency standard, employees may take shortcuts.
D)They encourage employees to achieve high levels of performance.

Question 43

Budgetary slack is also referred to as

A)budgetary padding.
B)bottom-up slack.
C)top-down slack.
D)tactical planning.

Question 44

Sara Speed requested $120,000 in her budget to cover salary expenses.However, Sara realistically expects to spend $110,000 on salaries.This is an example of

A)top-down budgeting.
B)operating income padding.
C)rolling budgeting.
D)budgetary slack.

Question 45

Undesirable behavior is especially common in a bottom-up budget environment because managers

A)may be required to explain unfavorable outcomes for amounts for factors they are able to control that caused the outcomes.
B)have the ability to include budgetary slack to increase his or her chances of receiving a favorable performance evaluation.
C)tend to employ tactical planning.
D)do not control excess spending, and often exceed budgeted expenses.

Question 46

Which of the following is not a consequence of budgetary slack?

A)Resources may not be allocated in the optimal way.
B)Those who implement the budget may engage in undesirable behavior because they had input into setting the budget.
C)Managers may receive bonuses they would not have earned if the budget had been prepared realistically.
D)The pro-forma budgets may not be representative of actual expectations.

Question 47

Which of the following is not a characteristic of a rolling budget?

A)This method of budgeting always includes 12 months of data.
B)As one month ends, it is removed from the budget and the entire budget rolls forward one month.
C)At the beginning of the budget period, management breaks down only the first quarter into months.
D)It requires a top-down approach.

Question 48

Which of the following is not a characteristic of zero-based budgeting?

A)This method of budgeting is often used in governmental entities.
B)This method of budgeting is much more time-consuming than incremental budgeting.
C)This method of budgeting encourages budgetary slack.
D)All of these answer choices are characteristics of zero-based budgeting.

Question 49

A company may set standards for the maximum cost that should be incurred to produce a unit of product.Such cost standards are useful

A)in the directing process.
B)in evaluating how well manufacturing operations are managed.
C)in achieving zero defects.
D)In implementing a rolling budget.

Question 50

Which of the following is an advantage of ideal standards?

A)Employees will be motivated.
B)Employees will take pride in their work.
C)Employee morale will be high.
D)Workers operate at 100% efficiency.

Question 51

A manager estimates that revenues for the coming period will be $85,000 but includes only $80,000 in her budget.This is an example of

A)pro-forma variance.
B)revenue slack.
C)budgetary padding.
D)unfavorable planning.

Question 52

Which of the following is not a behavioral issue related to a top-down budgeting environment?

A)Employees may feel that an imposed budget is unfair.
B)Employees will have no motivation to attempt to meet the budget.
C)Employees may engage in budgetary padding.
D)The organization's resources may be wasted.

Question 53

In the manufacturing of swimsuits, in addition to the price of fabric, the standard materials price includes all of the following items except

A)the cost of shipping.
B)the cost of advertising.
C)a volume discount.
D)sales taxes.

Question 54

Which of the following is not a criticism of ideal standards?

A)Product quality may decline if standards are not met.
B)Employee morale will suffer if standards are not met.
C)Employees may take shortcuts in order to meet the standards.
D)Employees will perform with zero defects.

Question 55

Deviations from the budget may occur because of

A)bad decisions.
B)events beyond the company's control.
C)good decisions.
D)All of these answer choices are correct.

Question 56

In a manufacturing setting, practical standards do not allow for

A)machine breakdowns.
B)employee fatigue.
C)vacations.
D)excess employee idleness.

Question 57

Which of the following is the most popular way to begin the budgeting process?

A)The incremental approach
B)Zero-based approach
C)Rolling approach
D)Padding approach.

Question 58

Which of the following budget approaches begins each year at $0 and each individual budget item must be justified?

A)Dollar value-based budgeting
B)Governmental-based budgeting
C)Justification-based budgeting
D)Zero-based budgeting

Question 59

Direct materials standards specify both

A)quantity and efficiency.
B)quantity and price.
C)efficiency and price.
D)quality and usage.

Question 60

An ideal standard signifies

A)perfection.
B)realistic projections.
C)attainable goals.
D)padding.

Question 61

In setting the direct labor quantity standard, allowances are made for

A)wage rate changes.
B)employee terminations.
C)cost of time inefficiencies.
D)excess use of materials.

Question 62

In setting the direct labor quantity standard, allowances are made for such items as rest time and machine down-time, based on estimates made by

A)the controller.
B)the engineering department.
C)the human resources department.
D)production workers.

Question 63

The standard price of direct labor includes all of the following except

A)payroll taxes.
B)health insurance.
C)retirement contributions.
D)employee-paid union dues.

Question 64

In setting the direct labor quantity standard, estimated time can be derived from

A)published labor rates in benchmark studies.
B)time-and-motion studies.
C)union contracts.
D)payroll records.

Question 65

The calculation for the standard direct labor cost is

A)standard wage rate per direct labor hour × actual quantity of direct labor hours.
B)standard wage rate per direct labor hour × standard quantity of direct labor hours.
C)actual wage rate per direct labor hour × standard quantity of direct labor hours.
D)actual wage rate per direct labor hour × actual quantity of direct labor hours.

Question 66

Jody Jewelry manufactures jewelry.In October Jody is planning to make 500 rings, 400 bracelets, and 210 pendants.Each ring requires 3 ounces of gold and 2 semi-precious stones.Each bracelet requires 4 ounces of gold and 4 semi-precious stones.Each pendant requires 3.5 ounces of gold and 1 semi-precious stone.The company can purchase the 10k gold it uses in its manufacturing for $215 an ounce, and can purchase a lot of 100 semi-precious stones for $3,080.What is the standard cost for direct materials per pendant?

A)$245.80
B)$783.30
C)$752.50
D)$3,295.00

Question 67

Jody Jewelry manufactures jewelry.It applies overhead based on direct labor hours.In October Jody is planning to make 500 rings, 400 bracelets, and 210 pendants.The company expects the total manufacturing overhead for the year would be $3,450,000 and that total direct labor hours for the year would be 75,000.Actual overhead incurred for October was $295,920.Each ring requires 6.25 hours of labor to manufacture; each bracelet requires 5.5 hours of labor to manufacture, and each pendant requires 4 hours of labor to manufacture.What is the standard overhead cost per ring?

A)$46.00
B)$287.50
C)$300.00
D)$48.00

Question 68

The amounts to be included in the standard price of direct labor are generally determined by

A)each employee's supervisor.
B)the plant manager.
C)the payroll department.
D)the CFO.

Question 69

In setting the direct labor quantity standard, allowances are made for

A)rest time.
B)overtime pay.
C)payroll taxes.
D)fringe benefits.

Question 70

The position responsible for negotiating a volume discount is the

A)purchasing agent.
B)production manager.
C)accounts payable supervisor.
D)corporate controller.

Question 71

The standard cost of direct material is the

A)standard price of direct material input × standard quantity of direct material inputs.
B)standard price of direct material input × actual quantity of direct material inputs.
C)actual price of direct material input × standard quantity of direct material inputs.
D)actual price of direct material input × actual quantity of direct material inputs.

Question 72

The amounts to be included in the standard price of direct labor are generally provided by

A)each employee's supervisor.
B)the human resources department.
C)the plant manager.
D)the controller.

Question 73

Because people talk about wage rates rather than wage prices, we refer to standard direct labor prices as direct labor rates, expressed as

A)per direct labor hour.
B)per unit.
C)a percentage.
D)per direct labor dollar.

Question 74

Overhead is typically divided into which of the following components?

A)Direct and indirect
B)Fixed and variable
C)Product and period
D)Controllable and non-controllable.

Question 75

The standard price of direct labor does not include which of the following items?

A)FICA taxes
B)health insurance
C)retirement contributions
D)vacation pay.

Question 76

Jody Jewelry manufactures jewelry.In October Jody is planning to make 500 rings, 400 bracelets, and 210 pendants.Each ring requires 3 ounces of gold and 2 semi-precious stones.Each bracelet requires 4 ounces of gold and 4 semi-precious stones.Each pendant requires 3.5 ounces of gold and 1 semi-precious stone.The company can purchase the 10k gold it uses in its manufacturing for $215 an ounce, and can purchase a lot of 100 semi-precious stones for $3,080.What is the standard cost for direct materials per bracelet?

A)$338.20
B)$983.20
C)$890.80
D)$245.80

Question 77

The time needed to produce one unit of product is referred to as

A)the direct labor efficiency standard.
B)the direct labor time standard.
C)the direct labor quantity standard.
D)the direct labor standard.

Question 78

The difference in standard price and standard cost of direct material is that

A)standard price is the amount to produce one unit of product; standard cost is the amount paid to obtain one unit of material from a vendor.
B)standard price is the amount paid to obtain one unit of material from a vendor; standard cost is the amount to produce one unit of product.
C)standard price is the amount added to work in process as material is put into production; standard cost is the amount to produce one unit of product.
D)standard price is the amount to produce one unit of product; standard cost is the amount added to work in process as material is put into production.

Question 79

The predetermined overhead rate is calculated by

A)dividing the budgeted activity level of application base by the budgeted total manufacturing overhead.
B)multiplying the budgeted activity level of application base by the budgeted total manufacturing overhead.
C)dividing the budgeted total manufacturing overhead by the budgeted activity level.
D)multiplying the budgeted total manufacturing overhead by the budgeted activity level.

Question 80

ABC Corporation allocates overhead based on direct labor cost.Assume ABC expects to incur a total of $1,025,000 in overhead costs and $820,000 in direct labor costs.Actual overhead costs incurred totaled $1,050,000 and actual direct labor costs totaled $800,100.ABC's predetermined overhead rate is closest to

A)125% of direct labor cost.
B)128% of direct labor cost.
C)98% of direct labor costs.
D)100% of direct labor costs.