Deck 9: How Are Operating Budgets Created

Question 1

Which of the following best describes an operating budget?

A)An estimate of cash expenditures for long-term assets.
B)A short-term budget that focuses on the daily operations of the organization.
C)A series of budget schedules outlining the organization's plans for the next three years.
D)An estimate of all operating costs other than production.
E)None of the answer choices is correct.

Answer 1

B

Question 2

Companies generally obtain sales forecasts from many different sources.

Answer 2

True

Question 3

A direct labor budget is regarded as the starting point for the master budget.

Answer 3

False

Question 4

The budgeted balance sheet shows an estimate of the organization's profit for a given budget period.

Question 5

Conflicts rarely exist between the planning and control phases of budgeting.

Question 6

Sales personnel who are paid a bonus for exceeding budgeted sales have an incentive to underestimate sales when establishing the sales budget.

Question 7

Service companies tend to have more budget schedules than manufacturing companies.

Question 8

A budget committee is primarily responsible for overseeing the budget process and approving the master budget.

Question 9

The usual starting point in budgeting is the sales budget.

Question 10

The production budget is based on sales projections plus an estimate of desired ending finished goods inventory,less beginning finished goods inventory.

Question 11

In a production budget,if the units to be produced is equal to the expected sales in units,then desired units of ending inventory is equal to the units in beginning inventory.

Question 12

Organizations use budgets to control operations,because budgets provide a means to evaluate employee and company performance.

Question 13

Merchandising companies and service organizations do not use production budgets.

Question 14

An operating budget is similar to a capital budget in that both are long-term budgets.

Question 15

The units to be produced in the production budget is typically the same as the expected sales in units in the sales budget.

Question 16

In general,the budgeted income statement is probably the most carefully scrutinized component of the master budget.

Question 17

Establishing a sales budget that underestimates likely sales will have no effect on materials and labor in a production process.

Question 18

Depreciation is deducted at the bottom of a manufacturing overhead budget to determine cash payments for overhead.

Question 19

For most nonprofit organizations,the approved budget serves as the legal authority for expenditures.

Question 20

A top-down approach to budgeting motivates employees and leads to greater budget acceptance.

Question 21

Which of the following best describes a production budget?

A)A budget that is based on sales projections plus an estimate of desired ending finished goods inventory less beginning finished goods inventory..
B)An estimate of all production costs,other than direct materials,necessary to achieve a desired level of production.
C)A short-term budget that focuses on the daily operations of the organization.
D)A series of budget schedules outlining the organization's plans for the upcoming period
E)None of the answer choices is correct.

Question 22

Miller Inc.had the following sales during 2012:

Miller expects sales in each quarter of 2013 to be 10% more than the respective quarters for 2012.If each unit sells for $110,what amounts will appear as sales revenue in the quarterly sales budgets for 2013?

A)$990,000;$1,089,000;$1,386,000;$1,188,000
B)$1,100,000;$1,210,000;$1,540,000;$1,320,000
C)$1,421,750;$1,421,750;$1,421,750;$1,421,750
D)$1,210,000;$1,331,000;$1,694,000;$1,452,000
E)None of the answer choices is correct.

Question 23

In the budgeting process,the dollar amount for goods sold during the month but not collected is called:

A)accounts receivable.
B)inventory.
C)accounts payable.
D)cash.
E)None of the answer choices is correct.

Question 24

All of the following appear on the manufacturing overhead budget except:

A)direct materials cost per unit.
B)indirect materials cost per unit.
C)indirect labor cost per unit.
D)total variable overhead costs.
E)None of the answer choices is correct.

Question 25

The first line that appears on the direct labor budget is:

A)direct labor hours per unit.
B)projected sales in units.
C)units to be produced.
D)quantity of beginning direct materials ending inventory.
E)None of the answer choices is correct.

Question 26

Budgeted manufacturing overhead costs include all of the following except:

A)direct materials used in production.
B)depreciation of manufacturing equipment.
C)indirect materials used in production.
D)indirect labor such as the salary of a factory supervisor.
E)None of the answer choices is correct.

Question 27

An operating budget is used to communicate plans to:

A)Customers.
B)Employees.
C)Shareholders.
D)Suppliers.
E)All of the answer choices are correct.

Question 28

According to the Business in Action "Moving from Spreadsheets to Intranet Budgeting," which of the following is not an advantage of Intranet budgeting?

A)Intranet budgeting minimizes or eliminates the uploading of Excel spreadsheets.
B)Intranet budgeting saves input time.
C)Intranet budgeting provides real-time reports.
D)Intranet budgeting eliminates technology support.
E)None of the answer choices is correct.

Question 29

When preparing a production budget,the desired ending finished goods inventory for the first period is:

A)the beginning finished goods inventory for the second period.
B)always the same as the beginning finished goods inventory for the first period.
C)not used in this budget.
D)always less than the beginning finished goods inventory for the second period.
E)None of the answer choices is correct.

Question 30

Alta Vista Company plans to sell 90,000 units in June and 135,000 units in July.The company's policy is to keep 15% of the next month's sales in ending inventory.If the ending inventory in May was consistent with this policy,how many units should be produced in June?

A)110,250 units
B)83,250 units
C)96,750 units
D)123,750 units
E)There is not enough information to answer this question.

Question 31

To determine how many units to produce in a period for the production budget,you would use all of the following except:

A)the number of units in beginning finished goods inventory.
B)the number of units in beginning raw materials inventory.
C)the expected sales in units.
D)the desired number of units in ending finished goods inventory.
E)None of the answer choices is correct.

Question 32

All of the following appear on the direct labor budget except:

A)units to be produced.
B)labor rate per hour.
C)direct labor hours per unit.
D)indirect labor hours per unit.
E)None of the answer choices is correct.

Question 33

Which of the following best describes the selling and administrative budget?

A)A series of budget schedules outlining the organization's plans for the upcoming period.
B)An estimate of cash expenditures for long-term assets.
C)An estimate of all operating costs other than production costs.
D)A budget that is based on sales projections plus an estimate of desired ending finished goods inventory less beginning finished goods inventory.
E)None of the answer choices is correct.

Question 34

The first line that appears on the direct materials purchases budget is:

A)units to be produced.
B)projected sales in units.
C)quantity of direct materials to be purchased.
D)quantity of beginning direct materials ending inventory.
E)None of the answer choices is correct.

Question 35

The amount of cash paid out for overhead each period does not equal the total overhead costs incurred during the period because:

A)overhead expenses rarely require cash payments.
B)overhead expenses only require cash payments for factory rent.
C)overhead expenses only require cash payments for indirect materials.
D)depreciation expense does not require a cash payment.
E)None of the answer choices is correct.

Question 36

All of the following appear on the manufacturing overhead budget except:

A)total fixed overhead costs.
B)indirect materials cost per unit.
C)indirect labor cost per unit.
D)direct labor rate per hour.
E)None of the answer choices is correct.

Question 37

All of the following appear on the direct materials purchases budget except:

A)units to be produced.
B)projected sales in units.
C)quantity of direct materials to be purchased.
D)quantity of desired direct materials ending inventory.
E)None of the answer choices is correct.

Question 38

All of the following appear on the manufacturing overhead budget except:

A)units to be produced.
B)direct labor cost per unit.
C)indirect labor cost per unit.
D)total fixed overhead costs.
E)None of the answer choices is correct.

Question 39

In the direct materials purchases budget,the key equation used to determine direct materials to be purchased is:

A)Materials needed in production - Desired materials in ending inventory + Materials in beginning inventory.
B)Materials needed in production + Desired materials in ending inventory + Materials in beginning inventory.
C)Materials needed in production + Desired materials in ending inventory - Materials in beginning inventory.
D)Materials needed in production - Desired materials in ending inventory - Materials in beginning inventory.
E)None of the answer choices is correct.

Question 40

Which of the following best describes a master budget?

A)An estimate of cash expenditures for long-term assets.
B)An estimate of all operating costs other than production.
C)A long-term budget that focuses on the daily operations of the organization.
D)A series of budget schedules outlining the organization's plans for the upcoming period.
E)None of the answer choices is correct.

Question 41

All of the following items can appear on the cash collections and cash payments budget except:

A)direct labor.
B)depreciation expense.
C)selling and administrative.
D)direct materials.
E)None of the answer choices is correct.

Question 42

Garibaldi Inc.collects 40% of its sales in the month of sale and the other 60% in the following month.The following shows budgeted sales for October through December.

What is the amount of cash receipts budgeted for November?

A)$4,080,000
B)$1,740,000
C)$2,340,000
D)$2,835,000
E)None of the answer choices is correct.

Question 43

Sawyer Inc.plans to sell 75,000 units in September and 165,000 units in October.Sawyer's policy is to keep 25% of the next month's sales in ending inventory.If the ending inventory in August was consistent with this policy,how many units should be produced in September?

A)15,000 units
B)97,500 units
C)135,000 units
D)52,500 units
E)None of the answer choices is correct.

Question 44

Muraki Company has one product and sold 10,000 units in the first quarter of 2012.The company expects to sell 15% more units in the first quarter of 2013,at a price of $50 per unit.Based on this information,what is the amount of sales revenue that will appear in the budgeted income statement for the first quarter of 2013?

A)$500,000
B)$550,000
C)$575,000
D)$600,000
E)None of the answer choices is correct.

Question 45

Exhibit 9-2
Bowline Inc.is a distributor which sells one product for $60 per unit.Bowline pays $33 to buy the product.In addition,fixed costs total $42,000 per month.Bowline wishes to maintain an inventory at the end of each month equal to 25% of the next month's projected sales.Purchases are paid in the month after purchase.
Bowline makes all sales on credit and collects 30% in the month of sale and 70% in the month after sale.Budgeted monthly sales in units for the first five months of 2013 are as follows:

Refer to Exhibit 9-2.What will cash collections be in April?

A)$1,764,000
B)$1,800,000
C)$768,000
D)$1,716,000
E)None of the answer choices is correct.

Question 46

Exhibit 9-2
Bowline Inc.is a distributor which sells one product for $60 per unit.Bowline pays $33 to buy the product.In addition,fixed costs total $42,000 per month.Bowline wishes to maintain an inventory at the end of each month equal to 25% of the next month's projected sales.Purchases are paid in the month after purchase.
Bowline makes all sales on credit and collects 30% in the month of sale and 70% in the month after sale.Budgeted monthly sales in units for the first five months of 2013 are as follows:

Refer to Exhibit 9-2.What dollar amount of merchandise inventory will be purchased in April?

A)$957,000
B)$528,000
C)$1,452,000
D)$1,023,000
E)None of the answer choices is correct.

Question 47

Exhibit 9-1
Sporting Inc.is a distributor which sells one product for $100 per unit.Sporting pays $60 to buy the product.In addition,fixed costs total $60,000 per month.Sporting wishes to maintain an inventory at the end of each month equal to 30% of the next month's projected sales.Purchases are paid in the month after purchase.
Sporting makes all sales on credit and collects 40% in the month of sale and 60% in the month after sale.Budgeted monthly sales in units for the first five months of 2013 are as follows:

Refer to Exhibit 9-1.What will accounts payable be at the end of April?

A)$552,000
B)$1,272,000
C)$1,128,000
D)$1,848,000
E)None of the answer choices is correct.

Question 48

Exhibit 9-1
Sporting Inc.is a distributor which sells one product for $100 per unit.Sporting pays $60 to buy the product.In addition,fixed costs total $60,000 per month.Sporting wishes to maintain an inventory at the end of each month equal to 30% of the next month's projected sales.Purchases are paid in the month after purchase.
Sporting makes all sales on credit and collects 40% in the month of sale and 60% in the month after sale.Budgeted monthly sales in units for the first five months of 2013 are as follows:

Refer to Exhibit 9-1.What dollar amount of merchandise inventory will be purchased in April?

A)$1,848,000
B)$552,000
C)$1,272,000
D)$1,128,000
E)None of the answer choices is correct.

Question 49

Exhibit 9-1
Sporting Inc.is a distributor which sells one product for $100 per unit.Sporting pays $60 to buy the product.In addition,fixed costs total $60,000 per month.Sporting wishes to maintain an inventory at the end of each month equal to 30% of the next month's projected sales.Purchases are paid in the month after purchase.
Sporting makes all sales on credit and collects 40% in the month of sale and 60% in the month after sale.Budgeted monthly sales in units for the first five months of 2013 are as follows:

Refer to Exhibit 9-1.What will cash collections be in April?

A)$1,880,000
B)$2,060,000
C)$2,000,000
D)$1,920,000
E)None of the answer choices is correct.

Question 50

All of the following appear on the selling and administrative budget except:

A)cash payments for selling and administrative costs.
B)advertising costs.
C)units to be produced.
D)depreciation deduction.
E)None of the answer choices is correct.

Question 51

Victoria Company's policy is to keep 20% of the next month's sales in ending inventory.If Victoria meets this policy for its ending inventory in May,and sales are expected to be 14,000 units in June and 20,000 units in July,how many units need to be produced in June?

A)20,800 units
B)12,800 units
C)18 000 units
D)15,200 units
E)None of the answer choices is correct.

Question 52

Freeman Company plans to sell 65,000 units in June and 72,500 units in July.Freeman's policy is to keep 30% of the next month's sales in ending inventory.If the ending inventory in May was consistent with this policy,how many units should be produced in June?

A)86,750 units
B)106,250 units
C)67,250 units
D)62,750 units
E)None of the answer choices is correct.

Question 53

Exhibit 9-2
Bowline Inc.is a distributor which sells one product for $60 per unit.Bowline pays $33 to buy the product.In addition,fixed costs total $42,000 per month.Bowline wishes to maintain an inventory at the end of each month equal to 25% of the next month's projected sales.Purchases are paid in the month after purchase.
Bowline makes all sales on credit and collects 30% in the month of sale and 70% in the month after sale.Budgeted monthly sales in units for the first five months of 2013 are as follows:

Refer to Exhibit 9-2.What will budgeted net income be for March?

A)$1,638,000
B)$714,000
C)$657,300
D)$184,800
E)None of the answer choices is correct.

Question 54

All of the following are required to calculate the cost of goods sold in the budgeted income statement except:

A)the manufacturing overhead costs per unit.
B)the selling and administrative costs per unit.
C)the number of units sold.
D)the direct material and direct labor costs per unit.
E)None of the answer choices is correct.

Question 55

Dryer Company's policy is to keep 25% of the next month's sales in ending inventory.If Dryer meets its ending inventory policy at the end of April and sales are expected to be 24,000 units in May and 41,000 units in June,how many units need to be produced in May?

A)19,750 units
B)28,250 units
C)40,250 units
D)34,250 units
E)None of the answer choices is correct.

Question 56

Exhibit 9-1
Sporting Inc.is a distributor which sells one product for $100 per unit.Sporting pays $60 to buy the product.In addition,fixed costs total $60,000 per month.Sporting wishes to maintain an inventory at the end of each month equal to 30% of the next month's projected sales.Purchases are paid in the month after purchase.
Sporting makes all sales on credit and collects 40% in the month of sale and 60% in the month after sale.Budgeted monthly sales in units for the first five months of 2013 are as follows:

Refer to Exhibit 9-1.What will accounts receivable be at the end of February?

A)$600,000
B)$900,000
C)$1,500,000
D)$405,000
E)None of the answer choices is correct.

Question 57

Silo Company has one product and sold 35,000 units in the first quarter of 2012.The company expects to sell 30% more units in the first quarter of 2013,at a price of $20 per unit.Based on this information,what is the amount of sales revenue that will appear in the budgeted income statement for the first quarter of 2013?

A)$910,000
B)$700,000
C)$1,183,000
D)$730,000
E)None of the answer choices is correct.

Question 58

Fireside Inc.had sales as follows during 2012:

Fireside expects sales in each quarter of 2013 to be 15% more than the respective quarters for 2012.If each unit sells for $40,what amounts will appear as sales revenue in the quarterly sales budgets for 2013?

A)$690,000;$713,000;$828,000;$736,000
B)$741,750;$741,750;$741,750;$741,750
C)$540,000;$558,000;$648,000;$576,000
D)$600,000;$620,000;$720,000;$640,000
E)None of the answer choices is correct.

Question 59

Sugar Pine Inc.collects 30% of its sales in the month of sale and the other 70% in the following month.The following shows budgeted sales for January through March.

What is the amount of cash receipts budgeted for February?

A)$97,500
B)$271,250
C)$272,500
D)$302,500
E)None of the answer choices is correct.

Question 60

All of the following appear on the budgeted income statement except:

A)selling and administrative expenses.
B)cost of goods sold.
C)accounts payable.
D)sales.
E)None of the answer choices is correct.

Question 61

Exhibit 9-2
Bowline Inc.is a distributor which sells one product for $60 per unit.Bowline pays $33 to buy the product.In addition,fixed costs total $42,000 per month.Bowline wishes to maintain an inventory at the end of each month equal to 25% of the next month's projected sales.Purchases are paid in the month after purchase.
Bowline makes all sales on credit and collects 30% in the month of sale and 70% in the month after sale.Budgeted monthly sales in units for the first five months of 2013 are as follows:

Refer to Exhibit 9-2.What will accounts receivable be at the end of February?

A)$450,000
B)$1,500,000
C)$1,050,000
D)$375,000
E)None of the answer choices is correct.

Question 62

Bailey Company purchases all direct materials on credit.The company expects to pay 60 percent of purchases in the quarter of purchase and 40 percent the following quarter.Accounts payable at the end of last year totaled $1,000,000,all of which will be paid in the first quarter of this coming year.Bailey's direct materials purchases budget shows the following projected cost of materials to be purchased:

Prepare a cash payments budget for purchases of materials for each of the four quarters.

Question 63

Marker Products Inc sells all of its products on credit.The company expects to collect 65 percent of sales in the quarter of sale and 35 percent the quarter following the sale.Accounts receivable at the end of last year totaled $3 million,all of which will be collected in the first quarter of the coming year.Marker's sales budget shows the following projected sales revenues:

Prepare a budget for cash collections from sales for each of the four quarters.

Question 64

Cathy's Cookies produces cookies for resale at local grocery stores.The company is currently in the process of establishing a master budget on a quarterly basis for this coming fiscal year,which ends December 31.Prior year quarterly sales were as follows (1 unit = 1 batch):

Unit sales are expected to increase 20 percent,and each unit is expected to sell for $5.Management prefers to maintain ending finished goods inventory equal to 15 percent of next quarter's sales.Assume finished goods inventory at the end of the fourth quarter budget period is estimated to be 2,000 units.
(1)Prepare a sales budget for Cathy's Cookies.
(2)Prepare a production budget for Cathy's Cookies.

Question 65

The production budget for Ventura Company shows the company expects to produce 3,000 units in the first quarter and 3,200 units in the second quarter.Each unit requires 30 pounds of direct materials at a cost of $5 per pound.The company prefers to maintain raw materials inventory equal to 25 percent of next quarter's materials needed in production.Each unit of product requires four direct labor hours at a cost of $20 per hour.
Prepare a direct labor budget for the first quarter.

Question 66

The production budget for Ventura Company shows the company expects to produce 3,000 units in the first quarter and 3,200 units in the second quarter.Each unit requires 30 pounds of direct materials at a cost of $5 per pound.The company prefers to maintain raw materials inventory equal to 25 percent of next quarter's materials needed in production.Each unit of product requires four direct labor hours at a cost of $20 per hour.Variable overhead cost per unit is $5 for indirect materials,$8 for indirect labor,and $12 for other items.Fixed overhead cost per quarter is $90,000 for salaries,$50,000 for rent,and $10,000 for depreciation.
Prepare a manufacturing overhead budget for the first quarter.

Question 67

When an employee is paid a bonus for meeting budgeted sales goals,all of the following are ways the employee might manipulate the numbers to improve her chances of getting the bonus except:

A)underestimating budgeted costs.
B)overestimating budgeted costs.
C)underestimating sales growth.
D)underestimating budgeted sales.
E)All of the answer choices are correct.

Question 68

The production budget for Ventura Company shows the company expects to produce 3,000 units in the first quarter and 3,200 units in the second quarter.Each unit requires 30 pounds of direct materials at a cost of $5 per pound.The company prefers to maintain raw materials inventory equal to 25 percent of next quarter's materials needed in production.
Prepare a direct materials purchases budget for the first quarter.