Deck 22: Master Budgets and Planning

Question 1

Personnel who will have performance evaluated according to the budget standards should not be consulted and involved in preparing the budget.

Answer 1

False

Question 2

The process of evaluating performance can be improved by using budgets.

Answer 2

True

Question 3

The sequence of the budgets within the master budget are dictated by GAAP.

Answer 3

False

Question 4

The capital expenditures budget summarizes the effects of financing activities on cash.

Question 5

Managers must ensure that activities of employees and departments, contribute to meeting the company's overall goals.

Question 6

Continuous budgeting is the practice of revising the entire set of budgets for the periods remaining and adding new budgets to replace those for the periods that have elapsed.

Question 7

One of the major benefits of formal budgeting is the positive effect it can have on employee attitudes if applied correctly.

Question 8

The number and types of budgets included in a master budget depend on the company's size and complexity.

Question 9

Budgets are normally more effective when all levels of management are involved in the budgeting process.

Question 10

The capital expenditures budget summarizes the effects of investing activities on cash.

Question 11

Budgets are long-term financial plans that generally cover more than a one-year period.

Question 12

Budgeting is an informal plan for future business activities.

Question 13

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

Question 14

A rolling budget is a specific budget application relevant only to a merchandising company.

Question 15

Larger, more complex organizations usually require a longer time to prepare their budgets than smaller organizations because of the considerable effort to coordinate the different units within the business.

Question 16

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

Question 17

The responsibility for coordinating the preparation of a master budget should be assigned to the Chief Executive Officer.

Question 18

A budget is a formal statement of future plans, usually expressed in monetary terms.

Question 19

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

Question 20

The merchandise purchases budget depends on information provided by the sales budget.

Question 21

The selling expenses budget is normally prepared before the sales budget because selling expenses affect the amount of sales.

Question 22

The sales budget comes from a careful analysis of forecasted economic and market conditions, business capacity, and advertising plans.

Question 23

The sales budget is derived from the production budget.

Question 24

The production budget is derived from the sales budget and the company's desired inventory levels.

Question 25

Traditional budgeting is generally better than activity-based budgeting when attempting to reduce costs by eliminating non-value-added activities.

Question 26

The merchandise purchases budget is the starting point for preparing the master budget of a merchandiser.

Question 27

If a merchandiser's budgeted beginning inventory is $8,300, budgeted ending inventory is $9,400, and cost of goods sold is expected to be $10,260, then budgeted purchases should be $11,360.

Question 28

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

Question 29

Activity-based budgeting is a budget system based on expected activities and their levels for the budget period, which helps management plan for the resources required.

Question 30

The budgeted balance sheet is prepared primarily from data contained in the previously prepared components of the master budget.

Question 31

The production budget cannot be prepared until the direct materials and direct labor budgets are prepared.

Question 32

A manufacturing budget shows dollar amounts estimated to be spent to purchase additional plant assets and amounts expected to be received from plant asset disposals.

Question 33

To develop the sales budget, companies must estimate both unit sales and the production cost per unit.

Question 34

A capital expenditures budget shows dollar amounts estimated to be spent to purchase additional plant assets and amounts expected to be received from plant asset disposals.

Question 35

A master budget refers to a company's sales budget that includes all of its segments or departments.

Question 36

The budget process rarely coincides with the accounting period.

Question 37

A capital expenditures budget is prepared before the operating budgets.

Question 38

Part of the budgeting process is summarizing the financial statement effects on the budgeted income statement and the budgeted balance sheet.

Question 39

A cash budget shows the expected cash receipts and cash expenditures during the budget period.

Question 40

The master budget includes individual budgets for sales, production or purchases, various expenses, capital expenditures, and cash.

Question 41

The usual budget period for most companies is:

A) An annual period separated into quarterly and monthly budgets.
B) A monthly period separated into daily budgets.
C) A quarterly period separated into weekly budgets.
D) An annual period of 250 working days.
E) An annual period separated into weekly budgets.

Question 42

A formal statement of future plans, usually expressed in monetary terms, is a:

A) Variance report.
B) Prospectus.
C) Position statement.
D) Budget.
E) Variance analysis.

Question 43

A company's history indicates that 20% of its sales are for cash and the remaining 80% are on credit. Collections on credit sales are 30% in the month of the sale and 70% the following month. Projected sales for January, February, and March are $75,000, $92,000 and $60,000, respectively. The March expected cash receipts are $77,920.

Question 44

A budget is best described as:

A) An informal statement of company's future plans usually expressed in monetary terms.
B) The minimum acceptable performance level.
C) A master control device.
D) A formal statement of a company's future plans usually expressed in monetary terms.
E) The most crucial component of a company's evaluation process.

Question 45

Which of the following statements about budgeting is false?

A) The master budget should only be prepared by top management.
B) Budgeting forces managers to think ahead and formalize future objectives.
C) Budgets help coordinate the activities of the entire organization.
D) Budgeting is an aid to planning and control.
E) Budgets create standards for performance evaluation.

Question 46

The most useful budget figures are developed:

A) By the budget committee.
B) From the "bottom-up" following a participatory process.
C) By the CEO.
D) After the accounting period has begun.
E) From the "top-down".

Question 47

The budgeted balance sheet and income statement are normally completed after preparation of operating and capital expenditure budgets.

Question 48

The process of planning future business actions and expressing them as a formal plan is called:

A) Variance analysis.
B) Budgeting.
C) Cost accounting.
D) Managerial accounting.
E) Standard cost analysis.

Question 49

Assuming a bottom-up process of budget development, which of the following should be initially responsible for developing sales estimates?

A) The accounting department.
B) Top management.
C) The budget committee.
D) The marketing department.
E) The sales department.

Question 50

Production budgets always show both budgeted units of product and total costs for the budgeted units.

Question 51

The manufacturing budgets include the sales budget and the budgeted income statement.

Question 52

A company's history indicates that 20% of its sales are for cash and the remaining 80% are on credit. Collections on credit sales are 30% in the month of the sale and 70% the following month. Projected sales for January, February, and March are $75,000, $92,000 and $60,000, respectively. The March expected cash receipts are $80,500.

Question 53

Which of the following is a benefit derived from budgeting?

A) Budgeting avoids needing industry and economic factors in decision making.
B) Budgeting avoids the need for incentives to improve employee performance.
C) Budgeting provides a basis for evaluating performance.
D) Budgeting focuses management's attention on past performance.
E) Budgeting eliminates the need for coordination across departments.

Question 54

Which of the following is not a result of following a well-designed budgeting process?

A) Improved communication of management's action plans.
B) Assurance of future profits.
C) Improved coordination of business activities.
D) Improved performance evaluations.
E) Improved decision-making processes.

Question 55

Budgets that are periodically revised and have new periods added to replace those that have lapsed are called:

A) Production budgets.
B) Cash budgets.
C) Sales budgets.
D) Capital expenditures budgets.
E) Rolling budgets.

Question 56

The practice of preparing budgets for each of several future periods and revising those budgets as each period is completed, adding a new budget each period so that the budgets always cover the same number of future periods, is called:

A) Balanced budgeting.
B) Participatory budgeting.
C) Primary budgeting.
D) Capital budgeting.
E) Continuous budgeting.

Question 57

The financial statement effects of the budgeting process are summarized on the cash budget and the capital expenditures budget.

Question 58

The central guidance of the budget process is the responsibility of the:

A) Chief Executive Officer (CEO).
B) Budget Committee.
C) Chief Financial Officer (CFO).
D) Board of Directors.
E) Chief Accounting Officer.

Question 59

In a company that employs continuous budgeting on a quarterly basis and has an accounting period that ends December 31 of each year, what period would the first revision and update to the January through December 2017 budget cover?

A) December 2017-November 2018
B) February 2017-January 2018
C) March 2017-February 2018
D) April 2017-March 2018
E) January 2018-December 2018

Question 60

All of the following are necessary for budgets to be effective except:

A) Employees affected by a budget should be consulted when it is prepared.
B) Evaluations should be made carefully with opportunities to explain differences between actual and budgeted amounts.
C) Goals should be challenging and attainable.
D) Managers must be aware of potential negative outcomes of budgeting, such as budgetary slack.
E) All budgeted amounts must be spent to ensure that budgets aren't reduced for the next period.

Question 61

Cameroon Corp. manufactures and sells electric staplers for $16 each. If 10,000 units were sold in December, and management forecasts 4% growth in sales each month, the dollar amount of electric stapler sales budgeted for February should be:

A) $166,400
B) $173,056
C) $160,000
D) $187,177
E) $179,978

Question 62

Which of the following budgets is not an operating budget?

A) Sales budget.
B) Production budget.
C) Cash budget.
D) Selling expenses budget.
E) General and administrative expense budget.

Question 63

Bengal Co. provides the following sales forecast for the next three months: Sales units
$$\begin{array} { l r r } \text { July } & \text { August } & \text { September } \\5,000 & 5,700 & 5,560\end{array}$$ The company wants to end each month with ending finished goods inventory equal to 25% of the next month's sales. Finished goods inventory on June 30 is 1,250 units.

-The budgeted production units for July are:

A) 6,425 units.
B) 6,250 units.
C) 5,175 units.
D) 3,750 units.
E) 2,500 units.

Question 64

A July sales forecast projects that 6,000 units are going to be sold at a price of $10.50 per unit. The management forecasts 2% growth in sales each month

- Total July sales are anticipated to be:

A) $60,000.
B) $64,260.
C) $61,250.
D) $67,500.
E) $63,000.

Question 65

Bengal Co. provides the following sales forecast for the next three months: Sales units
$$\begin{array} { l r r } \text { July } & \text { August } & \text { September } \\5,000 & 5,700 & 5,560\end{array}$$ The company wants to end each month with ending finished goods inventory equal to 25% of the next month's sales. Finished goods inventory on June 30 is 1,250 units.

-The budgeted production units for August are:

A) 4,135 units.
B) 6,950 units.
C) 5,665 units.
D) 4,310 units.
E) 7,090 units.

Question 66

Cameroon Corp. manufactures and sells electric staplers for $16 each. If 10,000 units were sold in December, and management forecasts 4% growth in sales each month, the number of electric stapler sales budgeted for March should be:

A) 11,249
B) 10,400
C) 10,000
D) 10,816
E) 11,000

Question 67

Aloan Co. provides the following sales forecast for the next three months: Sales units
$$\begin{array} { r r r } \text { January } & \text { February } & \text { March } \\3.000 & 4,200 & 5,000\end{array}$$ The company wants to end each month with ending finished goods inventory equal to 10% of the next month's sales. Finished goods inventory on December 31 is 300 units.

- The budgeted production units for February are:

A) 4,120 units.
B) 4,700 units.
C) 5,000 units.
D) 4,200 units.
E) 4,280 units.

Question 68

A July sales forecast projects that 6,000 units are going to be sold at a price of $10.50 per unit. The management forecasts 2% growth in sales each month.

-Total August sales are anticipated to be:

A) $67,500.
B) $64,260.
C) $61,250.
D) $60,000.
E) $63,000.

Question 69

Cameroon Corp. manufactures and sells electric staplers for $16 each. If 10,000 units were sold in December, and management forecasts 4% growth in sales each month, the number of electric stapler sales budgeted for February should be:

A) 10,000
B) 10,816
C) 11,249
D) 11,000
E) 10,400

Question 70

Flack Corporation, a merchandiser, provides the following information for its December budgeting process: The November 30 inventory was 1,800 units. Budgeted sales for December are 4,000 units. Desired December 31 inventory is 2,840 units.
Budgeted purchases are:

A) 4,000 units.
B) 5,040 units.
C) 1,240 units.
D) 5,800 units.
E) 6,840 units.

Question 71

The master budget process usually ends with:

A) The selling expense budget.
B) The production budget.
C) The budgeted balance sheet.
D) The overhead budget.
E) The sales budget.

Question 72

The master budget of a merchandising company includes a:

A) Direct materials budget.
B) Purchases budget.
C) Production budget.
D) Factory overhead budget.
E) Direct labor budget.

Question 73

Operating budgets include all the following budgets except the:

A) Cash budget.
B) Production budget.
C) General and administrative expense budget.
D) Sales budget.
E) Selling expense budget.

Question 74

A plan that lists dollar amounts to be received from disposing of plant assets and dollar amounts to be spent on purchasing additional plant assets is called a:

A) Production budget.
B) Cash budget.
C) Rolling budget.
D) Sales budget.
E) Capital expenditures budget.

Question 75

A plan that lists the types and amounts of operating expenses expected that are not included in the selling expenses budget is a:

A) Sales budget.
B) Cash payments budget.
C) Selling expense budget.
D) General and administrative expense budget.
E) Overhead budget.

Question 76

Aloan Co. provides the following sales forecast for the next three months: Sales units
$$\begin{array} { r r r } \text { January } & \text { February } & \text { March } \\3.000 & 4,200 & 5,000\end{array}$$ The company wants to end each month with ending finished goods inventory equal to 10% of the next month's sales. Finished goods inventory on December 31 is 300 units.

- The budgeted production units for January are:

A) 3,120 units.
B) 2,880 units.
C) 3,720 units.
D) 3,420 units.
E) 3,000 units.

Question 77

Operating budgets include all the following except the:

A) Budgeted balance sheet.
B) Sales budget.
C) General and administrative expense budget.
D) Selling expense budget.
E) Production budget.

Question 78

A budget system based on expected activities and their levels that enables management to plan for resources required to perform the activities is:

A) Cash budgeting.
B) Master budgeting.
C) Traditional budgeting.
D) Activity-based budgeting.
E) Management budgeting.

Question 79

The master budgeting process typically begins with the sales budget and ends with a cash budget and:

A) Budgeted financial statements.
B) Rolling budget.
C) Forecast budget.
D) Capital expenditures budget.
E) Production budget.

Question 80

The usual starting point for preparing a master budget is forecasting or estimating:

A) Expenditures.
B) Income.
C) Production.
D) Sales.
E) Cash payments.