Deck 7: Introduction to Budgets and Preparing the Master Budget

Question 1

Budgeting typically uses the future activities of the organization as a starting point for planning.

Answer 1

False

Question 2

Managers may ________ their budgeted costs or ________ their budgeted revenues to create a budget target that is easier to achieve.

A)understate; overstate
B)overstate; understate
C)understate; understate
D)overstate; overstate

Answer 2

B

Question 3

A major benefit of effective budgeting is that ________.

A)it compels managers to think ahead
B)it aids managers in communicating objectives to employees
C)it provides benchmarks to evaluate subsequent performance
D)all of the above

Answer 3

D

Question 4

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

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

Question 5

A budget is an example of an informal business plan.

Question 6

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

Question 7

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

A)past results may be inaccurate
B)results may refer to a different manager
C)inefficiencies may be concealed in past results
D)managers may have cooked the books

Question 8

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 the above

Question 9

Potential problems that can limit the advantages of budgeting do NOT include ________.

A)low levels of employee participation in the budget process
B)incentives to lie and cheat in the budget process
C)difficulties in obtaining accurate sales forecasts
D)an emphasis on forecasting activities and the resources needed for the activities

Question 10

Misalignment between the ________ stressed in budgets and ________ used to reward employees and managers can limit the advantages of budgeting.

A)performance goals; participative goals
B)performance goals; performance measures
C)bonuses; sales goals
D)bonuses; resource goals

Question 11

There are fewer benefits from budgeting in companies with uncertain or complicated environments.

Question 12

One way to reduce negative attitudes of managers toward budgets is by ________.

A)zero-based budgeting
B)activities-based budgeting
C)long range planning
D)participative budgeting

Question 13

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

Question 14

Budgeting can result in incentives to lie and cheat that undermine ________.

A)the Securities and Exchange Commission
B)a company's ethical standards
C)a company's value chain
D)standards of confidentiality promulgated by the Institute of Management Accountants

Question 15

A(n)________ starts with the assumption that current activities in a company will not automatically continue in the next period.

A)activity-based budget
B)strategic budget
C)master budget
D)zero-base budget

Question 16

The most effective budget processes facilitate communication from top management to ________ and from lower level managers and employees to ________.

A)the SEC; the audit committee
B)stockholders; creditors
C)lower level managers and employees; top management
D)creditors; stockholders

Question 17

Budgeted performance goals generally provide a better basis for evaluating actual performance than past performance.

Question 18

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

Question 19

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

Question 20

The effectiveness of any budgeting system depends directly on the attitudes of top management toward the budgeting system.

Question 21

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

Question 22

No matter how many technical experts a company uses in forecasting,the sales budget should ultimately be the responsibility of the ________.

A)staff function
B)audit committee
C)line management
D)board of directors

Question 23

Important factors used to forecast sales for a company include all of the following items EXCEPT ________.

A)past patterns of sales
B)market research studies
C)competitors' actions
D)estimates made by the production staff

Question 24

Decisions made during long-range planning include ________.

A)addition or deletion of product line
B)location of new plant
C)purchase of equipment
D)all of the above

Question 25

A sales forecast is ________.

A)a prediction of sales under a given set of conditions
B)the sales budget
C)based on input from the board of directors
D)based on input from the audit committee

Question 26

Which of the following is NOT a reason for budgetary slack?

A)to buffer managers from budget cuts imposed by top management
B)to provide protection against cost increases or revenue shortfalls due to unforeseen events
C)to facilitate attainment of performance goals
D)to impose a formal structure for planning purposes

Question 27

Budgetary slack helps buffer managers from budget cuts imposed by higher-level management.

Question 28

Accurate sales forecasting is essential to effective budgeting.

Question 29

The sales budget should be the responsibility of line management.

Question 30

How can a company avoid lying by employees when preparing a budget?

A)reward good budget forecasts
B)reward good performance against the budget
C)reward good budget forecasts and reward good performance against the budget
D)reward good recipes for cooking the books

Question 31

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

Question 32

When forecasting sales for a company,________ is NOT an important factor to be considered.

A)estimates made by the sales staff
B)changes in product mix
C)advertising plans
D)new production equipment

Question 33

Which of the following statements is FALSE about a strategic plan?

A)A strategic plan does not deal with a specific time period.
B)A strategic plan does not produce forecasted financial statements.
C)A strategic plan guides day-to-day operations.
D)A strategic plan provides an overall framework for a long-range plan.

Question 34

"Cooking the books" refers to recording fictitious sales or omitting costs.

Question 35

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

Question 36

You may have various forecasts of sales corresponding to different levels of advertising.The ________ for the one level of advertising you decide to implement becomes the ________.

A)sales forecast; sales budget
B)sales budget; sales forecast
C)sales forecast; sales goal
D)sales goal; sales forecast

Question 37

Misuse of budgets can lead to incentives to cheat and lie.Cheating and lying 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)budgetary slack
C)decreasing profits when actual profits significantly exceed the profit target
D)all of the above

Question 38

Which of the following statements about long-range plans is FALSE?

A)Long-range plans provide forecasted financial statements for five to ten year periods.
B)Long-range plans guide day-to-day operations.
C)Companies coordinate long-range plans with capital budgets.
D)A decision made during long-range planning is the acquisition of a plant building.

Question 39

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

A)sales goal
B)sales budget
C)sales forecast
D)master budget

Question 40

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

Question 41

The master budget is a detailed and comprehensive analysis of the ________ of the ________ plan.

A)first year; activity-based strategic
B)first year; strategic
C)first year; continuous
D)first year; long-range

Question 42

Which of the following is NOT a component of the operating budget?

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

Question 43

A decision made during long-range planning includes whether to delete a product from a company's product line.

Question 44

________ set the overall goals and objectives of the organization.

A)Capital budgets
B)Cash budgets
C)Master budgets
D)Strategic plans

Question 45

Which of the following is NOT a component of the financial budget?

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

Question 46

________ are sometimes called rolling budgets.

A)Strategic plans
B)Capital budgets
C)Master budgets
D)Continuous budgets

Question 47

The financial budget focuses on the effects that the ________ and other plans will have on ________.

A)master budget; resources
B)continuous budget; resources
C)long-range plan; activities
D)operating budget; cash balances

Question 48

Which of the following is a component of the financial budget?

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

Question 49

The most forward-looking and least detailed budget is the strategic plan.

Question 50

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

A)Cash budgets
B)Capital budgets
C)Operating budgets
D)Purchases budgets

Question 51

Short-term budgets help managers manage ________.Long-term budgets reinforce a company's ________.

A)day-to-day operations; ethical standards
B)day-to-day operations; long-term goals
C)short-term capital budgeting problems; operational goals
D)short-term financing needs; operational goals

Question 52

Which of the following is NOT a component of the operating budget?

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

Question 53

The two main components of the master budget are the ________.

A)cash budget and the capital budget
B)purchases budget and the budgeted income statement
C)budgeted income statement and the budgeted balance sheet
D)operating budget and the financial budget

Question 54

What is the final result of the operating budget process?

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

Question 55

A cash budget is a business plan that includes a set of schedules and financial statements.

Question 56

The financial budget includes ________.

A)the capital budget and the sales budget
B)the capital budget and the budgeted income statement
C)the capital budget,the cash budget and the budgeted balance sheet
D)the cash budget and the purchases budget

Question 57

The ________ budget focuses on the income statement and the supporting schedules.

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

Question 58

The financial budget process ends with the ________.

A)budgeted balance sheet
B)budgeted income statement
C)budgeted cash flow statement
D)budgeted statement of stockholders' equity

Question 59

The elements of a financial budget for a merchandising firm include the capital budget,the cash budget and the budgeted balance sheet.

Question 60

The master budget quantifies forecasts for all of the following EXCEPT ________.

A)cash disbursements
B)purchases of merchandise
C)operating expenses
D)cost of Securities and Exchange Commission to a firm

Question 61

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

A)Output from the financial budget is used to prepare the operating budget.
B)Output from the operating budget is used to prepare the financial budget.
C)Output from the financial budget is used to prepare the income statement.
D)Output from the financial budget is used to prepare the operating expense budget.

Question 62

The first step in preparing the master budget is the ________.

A)cash budget
B)capital budget
C)operating expense budget
D)sales budget

Question 63

Diamond Company has the following sales budget for the last six months of 2010: Historically,the cash collection of sales has been as follows:
65% of sales collected in month of sale
25% of sales collected in month following sale
8% of sales collected in second month following sale
2% of sales uncollectible
What is the expected cash collection of sales in October?

A)$58,500
B)$86,000
C)$92,400
D)$99,500

Question 64

Happy Hotels operates a 100-room property in Palm Harbor,Florida.Occupancy rates average 97% in March and 90% in April.The average room rental rate is $150 per night.Expected revenues for April are ________.

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

Question 65

Jaggers Company has the following data: The cost of goods sold percentage is 65% of sales and the desired ending inventory level is 25% of next month's sales at cost.What are the expected total purchases for June?

A)$17,500
B)$32,500
C)$32,825
D)$40,950

Question 66

Jaeger Company has the following data: The cost of goods sold percentage is 65% of sales and the desired ending inventory is 25% of next month's sales at cost.What are the total purchases budgeted for July?

A)$33,150
B)$33,800
C)$41,600
D)$42,250

Question 67

Falcons Company expects May sales to be $10,000.Approximately 40% of sales are cash sales.Collection of credit sales are 50% in the month of sale,40% in the month following sale and 5% two months following sale.The remaining 5% is uncollectible.________ is the expected cash collection in May from May sales.

A)$4,000
B)$5,000
C)$7,000
D)$10,000

Question 68

The first step in preparing the operating budget is the ________.

A)cash budget
B)capital budget
C)operating expense budget
D)sales budget

Question 69

Full Hotels operates a 100-room property in Naples,Florida.Occupancy rates average 95% in March and 80% in April.The average room rental rate is $150 per night.Expected revenues for March are ________.

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

Question 70

Atlanta Company expects June sales to be $20,000.Of these sales,credit sales are expected to be $12,000.Collection of credit sales are 50% in the month of sale,40% in the month following sale and 5% two months following sale.The remaining 5% is uncollectible.________ is the expected cash collection in June from June sales.

A)$9,200
B)$14,000
C)$17,200
D)$20,000

Question 71

Caravan Company has the following data: The cost of goods sold percentage is 70% of sales and the desired ending inventory level is 25% of next month's sales at cost.________ was the beginning inventory on May 1.

A)$7,000
B)$8,050
C)$8,750
D)$12,075

Question 72

San Francisco Company expects August sales to be $32,000.Approximately 40% of sales are cash sales.Collection of credit sales are 50% in the month of sale,40% in the month following sale and 5% two months following sale.The remaining 5% is uncollectible.________ is the expected cash collection in August from August sales.

A)$8,000
B)$12,000
C)$16,000
D)$22,400

Question 73

Voyager Company has the following data: The cost of goods sold percentage is 80% of sales and the desired ending inventory level is 25% of next month's sales at cost.What is the beginning inventory on August 1?

A)$4,200
B)$8,450
C)$9,600
D)$38,400

Question 74

Pinto Company has the following data: Cost of goods sold average 60% of sales.The inventory at December 31 was $19,440.Desired ending inventory levels are 30% of next month's sales at cost.What is the desired ending inventory value at February 28?

A)$23,760
B)$25,920
C)$39,600
D)$43,200

Question 75

Yesterday Company has a sales budget for next month of $300,000.Cost of goods sold is expected to be 40% of sales.All units are paid for in the month following purchase.The beginning inventory is $10,000 and an ending inventory of $12,000 is desired.Beginning accounts payable is $76,000.The purchases for next month are ________.

A)$78,000
B)$118,000
C)$120,000
D)$122,000

Question 76

For next year,Dummie Company has budgeted sales of 7,000 units,target ending inventory of 1,000 units and a beginning inventory of 300 units.How many units should be purchased?

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

Question 77

Taurus Company has the following data: The gross profit rate is 40% of sales and ending inventory at December 31 was $19,440.Desired ending inventory levels are 30% of next month's sales at cost.What are the expected total purchases for February?

A)$79,200
B)$81,360
C)$102,960
D)$105,120

Question 78

An operating budget is the major part of the master budget that focuses on the balance sheet and supporting schedules.

Question 79

For next year,Dunphy Company has budgeted sales of 30,000 units,target ending inventory of 1,000 units and a beginning inventory of 800 units.How many units should be purchased?

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

Question 80

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

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