Deck 9: Profit Planning and Activity-Based Budgeting

Question 1

The budgeted income statement,budgeted balance sheet,and budgeted statement of cash flows comprise:

A)the final portion of the master budget.
B)the depiction of an organization's overall actual financial results.
C)the first step of the master budget.
D)the portion of the master budget prepared after the sales forecast and before the remainder of the operational budgets.
E)the second step of the master budget.

Answer 1

A

Question 2

The budgeting technique that focuses on different phases of a product such as planning and concept design,testing,manufacturing,and distribution and customer service is known as comprehensive budgeting.

Answer 2

False

Question 3

A company's plan for the issuance of stock or incurrence of debt is commonly called a:

A)pro-forma budget.
B)master budget.
C)financial budget.
D)profit plan.
E)capital budget.

Answer 3

C

Question 4

Wilmar Corporation is budgeting its equipment needs on an on-going basis,with a new quarter being added to the budget as the current quarter is completed.This type of budget is most commonly known as a:

A)capital budget.
B)rolling budget.
C)revised budget.
D)pro-forma budget.
E)financial budget.

Question 5

Which of the following choices correctly denotes managerial functions that are commonly associated with budgeting?

A)Choice A
B)Choice B
C)Choice C
D)Choice D
E)Choice E

Question 6

Sainte Claire Corporation has a highly automated production facility.Production volume and management judgment are the two factors that would likely have the most direct influence on the company's manufacturing overhead budget.

Question 7

Which of the following would depict the logical order for preparing (1)a production budget,(2)a cash budget,(3)a sales budget,and (4)a direct-labor budget?

A)1-3-4-2.
B)2-3-1-4.
C)2-1-3-4.
D)3-1-4-2.
E)3-1-2-4.

Question 8

An organization's budgets will often be prepared to cover:

A)one month.
B)one quarter.
C)one year.
D)periods longer than one year.
E)All of thesE.

Question 9

A manufacturing firm would begin preparation of its master budget by constructing a:

A)sales budget.
B)production budget.
C)cash budget.
D)capital budget.
E)set of pro-forma financial statements.

Question 10

A company's expected receipts from sales and planned disbursements to pay bills is commonly called a:

A)pro-forma budget.
B)master budget.
C)financial budget.
D)profit plan.
E)cash budget.

Question 11

That employees make little effort to achieve budgetary goals is an outcome sometimes associated with participative budgeting.

Question 12

A company's plan for the acquisition of long-lived assets,such as buildings and equipment,is commonly called a:

A)pro-forma budget.
B)master budget.
C)financial budget.
D)profit plan.
E)capital budget.

Question 13

A formal budget program will almost always result in:

A)higher sales.
B)more cash inflows than cash outflows.
C)decreased expenses.
D)improved profits.
E)a detailed plan against which actual results can be compared.

Question 14

Which of the following budgets is prepared at the end of the budget-construction cycle?

A)Sales budget.
B)Production budget.
C)Budgeted financial statements.
D)Cash budget.
E)Overhead budget.

Question 15

The comprehensive set of budgets that serves as a company's overall financial plan is commonly known as the financial budget.

Question 16

Which of the following budgets is based on many other master-budget components?

A)Direct labor budget.
B)Overhead budget.
C)Sales budget.
D)Cash budget.
E)Selling and administrative expense budget.

Question 17

A company's sales forecast would likely not consider general economic and industry trends.

Question 18

A budget serves as a benchmark against which:

A)actual results can be compared.
B)allocated results can be compared.
C)actual results become inconsequential.
D)allocated results become inconsequential.
E)cash balances can be compared to expense totals.

Question 19

Generally speaking,budgets are not used to:

A)identify a company's most profitable products.
B)evaluate performance.
C)create a plan of action.
D)assist in the control of profit and operations.
E)facilitate communication and coordinate activities.

Question 20

The comprehensive set of budgets that serves as a company's overall financial plan is commonly known as:

A)an integrated budget.
B)a pro-forma budget.
C)a master budget.
D)a financial budget.
E)a rolling budget.

Question 21

A company's sales forecast would likely consider all of the following factors except:

A)political and legal events.
B)advertising and pricing policies.
C)general economic and industry trends.
D)top management's attitude toward decentralized operating structures.
E)competition.

Question 22

Swansong plans to sell 10,000 units of a particular product during July,and expects sales to increase at the rate of 10% per month during the remainder of the year.The June 30 and September 30 ending inventories are anticipated to be 1,100 units and 950 units,respectively.On the basis of this information,how many units should Swansong purchase for the quarter ended September 30?

A)31,850.
B)32,150.
C)32,950.
D)33,250.
E)Some other amount.

Question 23

Mayze Production Company,which uses activity-based budgeting,is in the process of preparing a manufacturing overhead budget.Which of the following would likely appear on that budget?

A)Batch-level costs: Production setup.
B)Unit-level costs: Depreciation.
C)Unit-level costs: Maintenance.
D)Product-level costs: Insurance and property taxes.
E)Facility and general operations-level costs: Indirect material.

Question 24

Coleman,Inc.anticipates sales of 50,000 units,48,000 units,and 51,000 units in July,August,and September,respectively.Company policy is to maintain an ending finished-goods inventory equal to 40% of the following month's sales.On the basis of this information,how many units would the company plan to produce in July?

A)46,800.
B)49,200.
C)49,800.
D)52,200.
E)Some other amount.

Question 25

Yorkley Corporation plans to sell 41,000 units of its single product in March.The company has 2,800 units in its March 1 finished-goods inventory and anticipates having 2,400 completed units in inventory on March 31.On the basis of this information,how many units does Yorkley plan to produce during March?

A)40,600.
B)41,400.
C)43,800.
D)46,200.
E)Some other amount.

Question 26

Bird plans to sell 5,000 units each quarter next year.During the first two quarters each unit will sell for $12;during the last two quarters the sales price will increase $1.50 per unit.What is Bird's estimated sales revenue for next year?

A)$240,000.
B)$255,000.
C)$270,000.
D)$244,000.
E)Some other amount.

Question 27

The master budget contains the following components,among others: (1)direct-material budget,(2)budgeted balance sheet,(3)production budget,and (4)cash budget.Which of these components would be prepared first and which would be prepared last?

A)Choice A
B)Choice B
C)Choice C
D)Choice D
E)Choice E

Question 28

Activity-based budgeting:

A)begins with a forecast of products and services to be produced,and customers served.
B)ends with a forecast of products and services to be produced,and customers served.
C)parallels the flow of analysis that is associated with activity-based costing.
D)reverses the flow of analysis that is associated with activity-based costing.
E)is best described by choices "A" and "D" abovE.

Question 29

Which of the following organizations is not likely to use budgets?

A)Manufacturing firms.
B)Merchandising firms.
C)Firms in service industries.
D)Nonprofit organizations.
E)None of these,because all are likely to use budgets.

Question 30

FastTec sells electronics in retail outlets and on the Internet.It uses activity-based budgeting in the preparation of its selling,general,and administrative expense budget.Which of the following costs would the company likely classify as a unit-level expense on its budget?

A)Media advertising.
B)Retail outlet sales commissions.
C)Salaries of web-site maintenance personnel.
D)Administrative salaries.
E)Salary of the sales manager employed at store no.23.

Question 31

Which of the following would have no effect,either direct or indirect,on an organization's cash budget?

A)Sales revenues.
B)Outlays for professional labor.
C)Advertising expenditures.
D)Raw material purchases.
E)None of these,since all of these items would have some influencE.

Question 32

Nonprofit organizations begin their budgeting process with:

A)a sales budget.
B)anticipated funding.
C)proforma financial statements.
D)services to be provideD.
E)a cash budget.

Question 33

A company that uses activity-based budgeting performs the following:
1-Plans activities for the budget period.
2-Forecasts the demand for products and services as well as the customers to be served.
3-Budgets the resources necessary to carry out activities.
Which of the following denotes the proper order of the preceding activities?

A)1-2-3.
B)2-1-3.
C)2-3-1.
D)3-1-2.
E)3-2-1.

Question 34

Which of the following would be considered when preparing a company's sales forecast?

A)Choice A
B)Choice B
C)Choice C
D)Choice D
E)Choice E

Question 35

What is Swamp Fox's estimated sales in units for next year?

A)41,485 pairs.
B)38,300 pairs.
C)40,000 pairs.
D)40,685 pairs.
E)Some other amount.

Question 36

Which of the following statements best describes the relationship between the sales-forecasting process and the master-budgeting process?

A)The sales forecast is typically completed after completion of the master budget.
B)The sales forecast is typically completed approximately halfway through the master-budget process.
C)The sales forecast is typically completed before the master budget and has no impact on the master budget.
D)The sales forecast is typically completed before the master budget and has little impact on the master budget.
E)The sales forecast is typically completed before the master budget and has significant impact on the master budget.

Question 37

Sainte Claire Corporation has a highly automated production facility.Which of the following correctly shows the two factors that would likely have the most direct influence on the company's manufacturing overhead budget?

A)Sales volume and labor hours.
B)Contribution margin and cash payments.
C)Production volume and management judgment.
D)Labor hours and management judgment.
E)Management judgment and indirect labor cost.

Question 38

A company's sales forecast would likely consider all of the following factors except:

A)past sales levels and trends.
B)the company's intended pricing policy.
C)the company's product costing policy.
D)market research studies.
E)planned advertising and promotions.

Question 39

Bison Sporting Goods sells bicycles throughout the northeastern United States.The following data were taken from the most recent quarterly sales forecast:
On the basis of the information presented,how many bicycles should the company purchase in August?

A)1,860.
B)1,950.
C)2,040.
D)2,250.
E)Some other amount.

Question 40

What is Swamp Fox's estimated sales revenue for next year if each pair sells for an average of $30?

A)$1,149,000.
B)$1,200,000.
C)$1,220,550.
D)$1,244,550.
E)Some other amount.

Question 41

Northcutt's production data for a new deluxe product were taken from the most recent quarterly production budget:
In addition,Northcutt produces 5,000 units a month of its standard product.It takes two direct labor hours to produce each standard unit and 2.25 direct labor hours to produce each deluxe unit.Northwest's cost per labor hour is $15.Direct labor cost for July would be budgeted at:

A)$183,750.
B)$187,125.
C)$189,125.
D)$194,750.
E)Some other amount.

Question 42

Northcutt's production data for a new deluxe product were taken from the most recent quarterly production budget:
In addition,Northcutt produces 5,000 units a month of its standard product.It takes two direct labor hours to produce each standard unit and 2.25 direct labor hours to produce each deluxe unit.Northwest's cost per labor hour is $15.Direct labor cost for August would be budgeted at:

A)$187,125.
B)$194,750.
C)$197,107.
D)$183,250.
E)Some other amount.

Question 43

Verna's makes all sales on account,subject to the following collection pattern: 20% are collected in the month of sale;70% are collected in the first month after sale;and 10% are collected in the second month after sale.If sales for October,November,and December were $70,000,$60,000,and $50,000,respectively,what was the budgeted receivables balance on December 31?

A)$40,000.
B)$46,000.
C)$49,000.
D)$59,000.
E)Some other amount.

Question 44

The following selected data pertain to Phineus Corporation:
July's cash disbursements are expected to be:

A)$404,000.
B)$464,000.
C)$674,000.
D)$734,000.
E)Some other amount.

Question 45

Coleman,Inc.anticipates sales of 50,000 units,48,000 units,51,000 units and 50,000 units in July,August,September and October,respectively.Company policy is to maintain an ending finished-goods inventory equal to 40% of the following month's sales.On the basis of this information,how many units would the company plan to produce in September?

A)46,800.
B)49,200.
C)49,800.
D)50,600.
E)Some other amount.

Question 46

Quattro began operations in April of this year.It makes all sales on account,subject to the following collection pattern: 30% are collected in the month of sale;60% are collected in the first month after sale;and 10% are collected in the second month after sale.If sales for April,May,and June were $60,000,$80,000,and $70,000,respectively,what were the firm's budgeted collections for June?

A)$21,000.
B)$60,000.
C)$69,000.
D)$75,000.
E)Some other amount.

Question 47

Quattro began operations in April of this year.It makes all sales on account,subject to the following collection pattern: 30% are collected in the month of sale;60% are collected in the first month after sale;and 10% are collected in the second month after sale.If sales for April,May,and June were $60,000,$80,000,and $70,000,respectively,what were the firm's budgeted collections for May?

A)$21,000.
B)$60,000.
C)$69,000.
D)$75,000.
E)Some other amount.

Question 48

To derive the raw material to purchase during an accounting period,an accountant would calculate the raw material required for production and then:

A)add the beginning raw-material inventory and the desired ending raw-material inventory.
B)subtract the beginning raw-material inventory and the desired ending raw-material inventory.
C)add the beginning raw-material inventory and subtract the desired ending raw-material inventory.
D)add the desired ending raw-material inventory and subtract the beginning raw-material inventory.
E)add the desired ending raw-material inventory and subtract both the beginning raw-material inventory and the expected units to be sold.

Question 49

Nguyen plans to sell 40,000 units of product no.75 in June,and each of these units requires five square feet of raw material.Pertinent data follow.
If the company purchases 201,000 square feet of raw material during the month,the estimated raw-material inventory on June 30 would be:

A)11,000 square feet.
B)13,000 square feet.
C)23,000 square feet.
D)25,000 square feet.
E)some other amount.

Question 50

Northcutt's production data for a new deluxe product were taken from the most recent quarterly production budget:
In addition,Northcutt produces 5,000 units a month of its standard product.It takes two direct labor hours to produce each standard unit and 2.25 direct labor hours to produce each deluxe unit.Northwest's cost per labor hour is $15.Direct labor cost for September would be budgeted at:

A)$187,125.
B)$183,075.
C)$194,750.
D)$197,075.
E)Some other amount.

Question 51

Quattro began operations in April of this year.It makes all sales on account,subject to the following collection pattern: 30% are collected in the month of sale;60% are collected in the first month after sale;and 10% are collected in the second month after sale.If sales for April,May,and June were $60,000,$80,000,and $70,000,respectively,what were the firm's budgeted collections for the quarter?

A)$121,000.
B)$140,000.
C)$153,000.
D)$175,000.
E)Some other amount.

Question 52

Northcutt's production data for a new deluxe product were taken from the most recent quarterly production budget:
In addition,Northcutt produces 5,000 units a month of its standard product.It takes two direct labor hours to produce each standard unit and 2.25 direct labor hours to produce each deluxe unit.Northwest's cost per labor hour is $15.Direct labor cost for the quarter would be budgeted at:

A)$519,075.
B)$533,125.
C)$547,750.
D)$553,950.
E)Some other amount.

Question 53

Northwest's production data for one of its products were taken from the most recent quarterly production budget:
If it takes two direct labor hours to produce each unit and Northwest's cost per labor hour is $15,direct labor cost for August would be budgeted at:

A)$16,500.
B)$31,200.
C)$33,000.
D)$34,800.
E)Some other amount.

Question 54

Coleman,Inc.anticipates sales of 50,000 units,48,000 units,and 51,000 units in July,August,and September,respectively.Company policy is to maintain an ending finished-goods inventory equal to 40% of the following month's sales.On the basis of this information,how many units would the company plan to produce in August?

A)48,000.
B)49,200.
C)49,800.
D)50,600.
E)Some other amount.

Question 55

Telfair & Company had 3,000 units in finished-goods inventory on December 31.The following data are available for the upcoming year:
The number of units the company expects to sell in January is:

A)6,900.
B)8,900.
C)9,400.
D)9,900.
E)11,900.

Question 56

Dragon makes all sales on account,subject to the following collection pattern: 30% are collected in the month of sale;60% are collected in the first month after sale;and 10% are collected in the second month after sale.If sales for June,July,and August were $120,000,$160,000,and $220,000,respectively,what were the firm's budgeted collections for August and the company's budgeted receivables balance on August 31?

A)Choice A
B)Choice B
C)Choice C
D)Choice D
E)Choice E

Question 57

An examination of Shorter Corporation's inventory accounts revealed the following information:
Raw materials,June 1: 46,000 units
Raw materials,June 30: 51,000 units
Purchases of raw materials during June: 185,000 units
Shorter's finished product requires four units of raw materials.On the basis of this information,how many finished products were manufactured during June?

A)45,000.
B)47,500.
C)57,750.
D)70,500.
E)Some other amount.

Question 58

Northwest manufactures a product requiring 0.5 ounces of platinum per unit.The cost of platinum is approximately $360 per ounce;the company maintains an ending platinum inventory equal to 10% of the following month's production usage.The following data were taken from the most recent quarterly production budget:
The cost of platinum to be purchased to support August production is:

A)$195,840.
B)$198,000.
C)$200,160.
D)$391,680.
E)Some other amount.

Question 59

Tidewater plans to sell 85,000 units of product no.794 in May,and each of these units requires three units of raw material.Pertinent data follow.
On the basis of the information presented,how many units of raw material should Tidewater purchase for use in May production?

A)228,000.
B)246,000.
C)264,000.
D)282,000.
E)Some other amount.

Question 60

Quattro began operations in April of this year.It makes all sales on account,subject to the following collection pattern: 30% are collected in the month of sale;60% are collected in the first month after sale;and 10% are collected in the second month after sale.If sales for April,May,and June were $60,000,$80,000,and $70,000,respectively,what were the firm's budgeted collections for April?

A)$18,000.
B)$21,000.
C)$60,000.
D)$65,000.
E)Some other amount.

Question 61

If a manager builds slack into a budget,how would that manager handle estimates of revenues and expenses?

A)Choice A
B)Choice B
C)Choice C
D)Choice D
E)Choice E

Question 62

Gingham's budgeted cash payments in February are:

A)$75,660.
B)$94,860.
C)$97,200.
D)$99,860.
E)$102,200.

Question 63

Consider the following statements about companies that are involved with international operations:
I)Budgeting for these firms is often very involved because of fluctuating values in foreign currencies.
II)Multinational firms may encounter hyperinflationary economies.
III)Such organizations often face changing laws and political climates that affect business activity.
Which of the above statements is (are)true?

A)I only.
B)III only.
C)I and II.
D)II and III.
E)I,II,and III.

Question 64

Digregory makes all purchases on account,subject to the following payment pattern:
Paid in the month of purchase: 30%
Paid in the first month following purchase: 60%
Paid in the second month following purchase: 10%
If purchases for January,February,and March were $200,000,$180,000,and $230,000,respectively,what were the firm's budgeted payments in March?

A)$69,000.
B)$138,000.
C)$177,000.
D)$197,000.
E)Some other amount.

Question 65

Wolverine,Inc.began operations on January 1 of the current year with a $12,000 cash balance.Forty percent of sales are collected in the month of sale;60% are collected in the month following sale.Similarly,20% of purchases are paid in the month of purchase,and 80% are paid in the month following purchase.The following data apply to January and February:
If operating expenses are paid in the month incurred and include monthly depreciation charges of $2,500,determine the change in Wolverine's cash balance during February.

A)$2,000 increase.
B)$4,500 increase.
C)$5,000 increase.
D)$7,500 increase.
E)Some other amount.

Question 66

Consider the following statements about budgeting and a product's life cycle:
I)Budgets should focus on costs that are incurred only after a product has been introduced to the marketplace.
II)Life-cycle costs would include those related to product planning,preliminary design,detailed design and testing,production,and distribution and customer service.
III)When a life cycle is short,companies must make certain that before a commitment is made to a product,the product's life-cycle costs are covered.
Which of the above statements is (are)true?

A)I only.
B)II only.
C)I and II.
D)II and III.
E)I,II,and III.

Question 67

When an organization involves its many employees in the budgeting process in a meaningful way,the organization is said to be using an approach most commonly known as:

A)budgetary slack.
B)participative budgeting.
C)budget padding.
D)imposed budgeting.
E)employee-based budgeting.

Question 68

The difference between the revenue or cost projection that a person provides,and a realistic estimate of the revenue or cost,is called:

A)passing the buck.
B)budgetary slack.
C)false budgeting.
D)participative budgeting.
E)resource allocation processing.

Question 69

The budgeting technique that focuses on different phases of a product such as planning and concept design,testing,manufacturing,and distribution and customer service is known as:

A)cash-flow budgeting.
B)integrative budgeting.
C)base budgeting.
D)comprehensive budgeting.
E)life-cycle budgeting.

Question 70

Consider the following statements about budget administration:
I)The budgeting process is a very formal process in all organizations regardless of an organization's size.
II)The budget manual is prepared to communicate budget procedures and deadlines to employees throughout an organization.
III)Effective internal control procedures require that the budget director be an individual other than the controller.
Which of the above statements is (are)true?

A)I only.
B)II only.
C)III only.
D)I and II.
E)I and III.

Question 71

Which of the following statements concerning the budget director is false?

A)The budget director is often an organization's controller.
B)The budget director has the responsibility of specifying the process by which budget data will be gathered.
C)The budget director collects information and participates in preparing the master budget.
D)The budget director communicates budget procedures and deadlines to employees throughout an organization.
E)The budget director usually has the authority to give final approval to the master budget.

Question 72

Gingham's budgeted cash receipts in February are:

A)$91,000.
B)$95,000.
C)$113,090.
D)$113,640.
E)$114,000.

Question 73

The following events took place when Managers A,B,and C were preparing budgets for the upcoming period:
I)Manager A increased property tax expenditures by 2% when she was informed of a recent rate hike by local authorities.
II)Manager B reduced sales revenues by 4% when informed of recent aggressive actions by a new competitor.
III)Manager C,who supervises employees with widely varying skill levels,used the highest wage rate in the department when preparing the labor budget.
Assuming that the percentage amounts given are reasonable,which of the preceding cases is (are)an example of building slack in budgets?

A)I only.
B)II only.
C)III only.
D)I and II.
E)II and III.

Question 74

Gingham's expected cash balance at the end of January is:

A)$87,000.
B)$89,160.
C)$92,000.
D)$94,160.
E)$113,160.

Question 75

Gingham's expected cash balance at the end of February is:

A)$87,000.
B)$89,160.
C)$92,000.
D)$94,160.
E)$113,300.
Change numbering through the remainder of chapter! ok

Question 76

Which of the following statements about financial planning models (FPMs)is (are)false?

A)FPMs express a company's financial and operating relationships in mathematical terms.
B)FPMs allow a user to explore the impact of changes in variables.
C)FPMs are commonly known as "what-if" models.
D)FPMs have become less popular in recent years because of computers and spreadsheets.
E)Statements "C" and "D" are both falsE.

Question 77

End-of-period figures for accounts receivable and payables to suppliers would be found on the:

A)cash budget.
B)budgeted schedule of cost of goods manufactured.
C)budgeted income statement.
D)budgeted balance sheet.
E)budgeted statement of cash flows.

Question 78

Which of the following outcomes is (are)sometimes associated with participative budgeting?

A)Employees make little effort to achieve budgetary goals.
B)Budget preparation time can be somewhat lengthy.
C)The problem of budget padding may arise.
D)Financial modeling becomes much more difficult to undertake.
E)Both choices B and C are correct.

Question 79

Consider the following statements about budgetary slack:
I)Managers build slack into a budget so that they stand a greater chance of receiving favorable performance evaluations.
II)Budgetary slack is used by managers to guard against uncertainty and unforeseen events.
III)Budgetary slack is used by managers to guard against dollar cuts by top management in the resource allocation process.
Which of the above statements is (are)true?

A)I only.
B)II only.
C)I and II.
D)II and III.
E)I,II,and III.

Question 80

Brooke-lyn makes all purchases on account,subject to the following payment pattern:
Paid in the month of purchase: 30%
Paid in the first month following purchase: 65%
Paid in the second month following purchase: 5%
If purchases for April,May,and June were $200,000,$160,000,and $250,000,respectively,what was the firm's budgeted payables balance on June 30?

A)$175,000.
B)$179,000.
C)$183,000.
D)$189,000.
E)Some other amount.