Deck 9: The Budgeting Process

Question 1

In the traditional budget process, budget cutting is undertaken

A) through across the board cuts.
B) by identifying and eliminating nonvalue-added activities.
C) by eliminating unused capacity.
D) All of the above are correct.

Answer 1

A

Question 2

Campbell, Inc., has an operating environment with considerable uncertainty. The company prepares the budget for several different volume levels. Campbell had the following budgeted data:
What are the budgeted costs for materials if 5,000 units were produced?

A) £9,000
B) £4,000
C) £50,000
D) £35,000

Answer 2

D

Question 3

Rydingsward, Inc., has done a cost analysis for its production of reflectors. The following activities and cost drivers have been developed: What is the budgeted maintenance cost if there was production of 50,000 reflectors that will require 8,000 machine hours, 25 batches, and 15,000 purchase orders?

A) £15,000
B) £32,000
C) £47,000
D) £79,000

Answer 3

C

Question 4

Campbell, Inc., has an operating environment with considerable uncertainty. The company prepares the budget for several different volume levels. Campbell had the following budgeted data:
What are the total budgeted costs for 3,000 units?

A) £3,000
B) £55,650
C) £64,650
D) £27,000

Question 5

Campbell, Inc., has an operating environment with considerable uncertainty. The company prepares the budget for several different volume levels. Campbell had the following budgeted data:
What is the difference in total budgeted costs between the volume range of 4,000 and 5,000 units?

A) £-0-
B) £18,550
C) £1,000
D) £9,000

Question 6

Rydingsward, Inc., has done a cost analysis for its production of reflectors. The following activities and cost drivers have been developed: What is the budgeted inspection cost if there was production of 50,000 reflectors that will require 8,000 machine hours, 25 batches, and 15,000 purchase orders?

A) £18,750
B) £60,000
C) £66,000
D) £78,750

Question 7

Campbell, Inc., has an operating environment with considerable uncertainty. The company prepares the budget for several different volume levels. Campbell had the following budgeted data:
What are the total budgeted costs for 5,000 units?

A) £9,000
B) £92,750
C) £101,750
D) £110,000

Question 8

Campbell, Inc., has an operating environment with considerable uncertainty. The company prepares the budget for several different volume levels. Campbell had the following budgeted data:
What are the budgeted costs for rent if 5,000 units were produced?

A) £2,000
B) £100,000
C) £9,000
D) £45,000

Question 9

Armati, Inc., is looking for feedback on company performance. The company compares the budget for the year with the actual costs. Data have been collected below: Armati, Inc., had the following budgeted data:
The following actually occurred:
The total actual costs for 2004 were

A) £13,550.
B) £10,650.
C) £13,600.
D) £13,510.

Question 10

_____ are the quantitative expressions of plans stated in either physical or financial terms or both.

A) Budgets
B) Financial statements
C) Cost of goods sold statements
D) Cost of goods manufactured statements

Question 11

Rydingsward, Inc., has done a cost analysis for its production of reflectors. The following activities and cost drivers have been developed: What is the total budgeted cost if there was production of 50,000 reflectors that will require 8,000 machine hours, 25 batches, and 15,000 purchase orders?

A) £393,750
B) £933,410
C) £3,937,500
D) £38,410,000

Question 12

Traditional budgeting has been used successfully for many years because

A) it was simple and not time consuming.
B) departments decide what they want to do.
C) there is focus on results, not processes.
D) the environment was stable and product mix was simple.

Question 13

Activity-based budgeting

A) focuses on processes that result in output.
B) focuses on eliminating nonvalue-added activities.
C) focuses on the best use of capacity.
D) All of the above are correct.

Question 14

Armati, Inc., is looking for feedback on company performance. The company compares the budget for the year with the actual costs. Data have been collected below: Armati, Inc., had the following budgeted data:
The following actually occurred:
The total budgeted costs for 2004 were

A) £11,440.
B) £13,510.
C) £14,340.
D) £13,460.

Question 15

If a department plans forward from resources to outputs, this describes which criticism of traditional budgeting?

A) department orientation
B) dynamic
C) process oriented, not results oriented
D) results oriented, not process oriented

Question 16

Armati, Inc., is looking for feedback on company performance. The company compares the budget for the year with the actual costs. Data have been collected below: Armati, Inc., had the following budgeted data:
The following actually occurred:
The actual cost for direct materials for 2004 was

A) £3,600.
B) £3,900.
C) £4,500.
D) £3,500.

Question 17

Armati, Inc., is looking for feedback on company performance. The company compares the budget for the year with the actual costs. Data have been collected below: Armati, Inc., had the following budgeted data:
The following actually occurred:
The budgeted cost for direct labour for 2004 was

A) £1,200.
B) £1,300.
C) £4,800.
D) £5,200.

Question 18

Activity-based budgeting provides better planning because

A) it incorporates change by understanding processes and drivers.
B) it incorporates change by assuming production relationships to be the same.
C) it incorporates change by making inflationary adjustments.
D) All of the above are correct.

Question 19

A budget developed for a single level of activity is called a(n)

A) continuous budget.
B) incremental budget.
C) static budget.
D) flexible budget.

Question 20

Which of the following is NOT a criticism of the traditional master budget?

A) results oriented
B) Interdependencies are recognized.
C) static
D) department oriented

Question 21

A budget where managers must justify all costs based on need is a(n)

A) zero-base budget.
B) participatory budget.
C) continuous budget.
D) incremental budget.

Question 22

The first step in planning and control is

A) preparation of the budget
B) performance evaluation
C) strategic planning
D) setting long-term objectives

Question 23

A budget is

A) a planning tool
B) a control tool
C) a means of communicating goals to the firm's divisions
D) all of the above

Question 24

Which of the following expenses is an example of a discretionary fixed expense?

A) investment in production equipment
B) investment in the factory
C) electricity costs
D) employment costs

Question 25

_____ result when organizations acquire many multiperiod service capacities by paying cash up front or by entering into an explicit contract that requires periodic cash payments.

A) Managed fixed expenses
B) Committed fixed expenses
C) Discretionary fixed expenses
D) Period expenses

Question 26

Activity-based budgets compare costs for items based on activities such as

A) direct material.
B) direct labour.
C) setups.
D) power.

Question 27

Which of the following is an advantage of the budgeting process?

A) Budgeting provides resource information for decision making.
B) Budgeting provides a standard for performance evaluation.
C) Budgeting improves communication and coordination within the organization.
D) all of the above

Question 28

Harald, Inc., has done a cost analysis for its production of bumper stickers. The following activities and cost drivers have been developed: Following are the actual costs of producing 85,000 stickers: 5,000 machine hours; 10 batches; 20 purchase orders
What is the actual cost per sticker? (Round to three decimal places.)

A) £0.468
B) £0.478
C) £0.486
D) £0.487

Question 29

Which of the following is true about budgets?

A) Budgets are financial plans for the future.
B) Budgets identify objectives and the actions needed to achieve them.
C) Budgets should be tightly linked to the strategic plan.
D) all of the above

Question 30

Rydingsward, Inc., has done a cost analysis for its production of reflectors. The following activities and cost drivers have been developed: What is the budgeted setup costs if there was production of 50,000 reflectors that will require 8,000 machine hours, 25 batches, and 15,000 purchase orders?

A) £1,000
B) £25,000
C) £8,000,000
D) £15,000,000

Question 31

Rydingsward, Inc., has done a cost analysis for its production of reflectors. The following activities and cost drivers have been developed: What is the budget for maintenance if 20,000 reflectors were made that required 3,500 machine hours, 12 batches, and 5,000 purchase orders?

A) £3,500
B) £15,000
C) £29,000
D) £14,000

Question 32

A budget based on additions and subtractions from last year's budget is

A) a zero-base budget.
B) a continuous budget.
C) an incremental budget.
D) none of these.

Question 33

Which of the following is an example of a discretionary fixed expense?

A) direct labour
B) depreciation on a factory building
C) insurance on a building
D) property taxes on a factory building

Question 34

Rydingsward, Inc., has done a cost analysis for its production of reflectors. The following activities and cost drivers have been developed: What is the machine cost for production of 50,000 reflectors that will require 8,000 machine hours, 25 batches, and 15,000 purchase orders?

A) £47,000
B) £43,000
C) £38,410,000
D) none of the above

Question 35

Which is NOT one of the four steps needed to build an activity-based budget?

A) Determine output level.
B) Determine the activities and their drivers needed to produce output.
C) Estimate the demand for each activity to produce the output.
D) Estimate the committed capacity.

Question 36

Realistic budgets reflect

A) actual levels of activity, full capacity usage, efficiencies, and general economic trends.
B) actual levels of activity, seasonal variations, efficiencies, and general economic trends.
C) ideal levels of activity, full capacity usage, efficiencies, and general economic trends.
D) ideal levels of activity, full capacity usage, and efficiencies.

Question 37

Harald, Inc., has done a cost analysis for its production of bumper stickers. The following activities and cost drivers have been developed: Following are the actual costs of producing 85,000 stickers: 5,000 machine hours; 10 batches; 20 purchase orders
What is the budgeted cost per sticker? (Round to three decimal places.)

A) £0.468
B) £0.478
C) £0.486
D) £0.487

Question 38

Activity-based budgeting is most useful when

A) output is homogeneous.
B) production processes are simple.
C) diverse products are produced.
D) volume levels are stable.

Question 39

Rydingsward, Inc., has done a cost analysis for its production of reflectors. The following activities and cost drivers have been developed: What is the budgeted purchasing cost if there was production of 50,000 reflectors that will require 8,000 machine hours, 25 batches, and 15,000 purchase orders?

A) £150,000
B) £200,000
C) £100,000
D) none of the above

Question 40

_____ are costs incurred for the acquisition of short-run activity capacity, usually as the result of yearly planning.

A) Discretionary fixed expenses
B) Committed fixed expenses
C) Mixed costs
D) Step-variable costs

Question 41

Depreciation on the production equipment would appear in which of the following budgets?

A) cash budget
B) production budget
C) selling and administrative expenses budget
D) manufacturing overhead budget

Question 42

A bank manager may review a company's cash budget to

A) determine whether the firm will earn net income
B) uncover possible employee theft
C) evaluate the company's ability to repay a loan
D) do all of the above

Question 43

The cash budget must be prepared before you can complete the

A) schedule of cash receipts
B) sales budget
C) production budget
D) budgeted balance sheet

Question 44

The first step in the budgeting process is the preparation of the

A) production budget
B) selling and administrative expenses budget
C) sales forecast
D) cash budget

Question 45

A merchandising firm does NOT prepare which of the following budgets?

A) cash receipts budget
B) production budget
C) sales budget
D) cash payments budget

Question 46

Activity-based budgeting

A) is a more powerful planning and control tool than a functional-based budget system
B) starts with sales and production budgets similar to a functional-based budget system
C) is simpler to construct than a functional-based budget system
D) Both a and b above are correct.

Question 47

Jiggy Company plans to sell 33,000 units during the month of May. The company plans to have 2,500 units on hand at the end of the month. If 1,200 units are on hand on May 1, how many units must be produced during May?

A) 33,000
B) 35,500
C) 34,300
D) 31,800

Question 48

Which of the following is usually prepared before the direct materials purchases budget?

A) production budget
B) cash budget
C) pro forma income statement
D) pro forma balance sheet

Question 49

If the company's cash budget for the month shows a significant amount of cash in excess of their needs, the company should consider doing which of the following?

A) making short-term or long-term investments
B) paying dividends
C) doing nothing
D) both a and b

Question 50

The budget that is a comprehensive financial plan for the organization as a whole is called a

A) capital budget
B) master budget
C) comprehensive budget
D) continuous budget

Question 51

Jiggy Company plans to sell 33,000 units during the month of May. Beginning inventory was 1,200 units. The company plans to have 2,500 units on hand at the end of the month. Each unit requires 3 pounds of raw materials. If raw material inventory on May 1 is 4,400 pounds and desired ending inventory is 2,200 pounds, how many pounds of raw materials must be purchased during May?

A) 103,500
B) 102,900
C) 105,100
D) 100,700

Question 52

Of the budgets listed below, which is usually prepared last?

A) production budget
B) cash budget
C) sales budget
D) overhead budget

Question 53

The production budget

A) summarizes the cost of producing units for the budget period
B) is calculated based on the sales budget and the desired ending inventory
C) specifies the required overhead
D) specifies the required direct labour hours

Question 54

Which of the following appears in the cash budget?

A) interest payments
B) purchase of equipment on credit
C) depreciation
D) all of the above

Question 55

Which budget is prepared without monetary amounts?

A) direct materials purchases budget
B) overhead budget
C) production budget
D) all of the above

Question 56

Which of the following is usually prepared before the production budget?

A) direct materials purchases budget
B) direct labour budget
C) sales budget
D) cash budget

Question 57

Continuous budgeting requires managers to

A) add a future month as the current month expires
B) constantly update the budget to include new information
C) continuously refer to the budget when making decisions
D) assign budgeting responsibilities to a defined group of employees

Question 58

A moving twelve-month budget where a future month is added as the current month expires is called a(n)

A) zero-base budget
B) incremental budget
C) revolving budget
D) continuous budget

Question 59

Which of the following budgets are identical in a service firm?

A) the cash receipts budget and the cash payments budget
B) the production budget and the materials purchases budget
C) the sales budget and the production budget
D) the materials purchases budget and the cash payments budget

Question 60

In the production budget, the total units to be produced is computed as

A) Expected sales - Desired ending inventory - Beginning inventory
B) Expected sales + Desired ending inventory + Beginning inventory
C) Expected sales - Desired ending inventory + Beginning inventory
D) Expected sales + Desired ending inventory - Beginning inventory

Question 61

Feedee Company has budgeted sales and production (in units) over the next three months as follows: There are 10,000 units on hand on January 1. A minimum of 20 percent of the next month's sales in units must be on hand at the end of each month. April sales are expected to be 70,000. Budgeted sales for February would be

A) 64,000
B) 78,000
C) 60,000
D) 52,000

Question 62

Figure 2
Budgeted sales for the second quarter of the current year are as follows:
The company collects 20 percent in the month of sale, 70 percent in the first month following the sale, and 10 percent in the second month following the sale.
Refer to Figure 2. April sales to be collected in May are

A) £30,000
B) £105,000
C) £104,000
D) £-0-

Question 63

Figure 3
Wemberly Company sells a product for £10. Budgeted sales for the first quarter of the current year are as follows:
The company collects 65 percent in the month of sale and 30 percent in the following month. Five percent of all sales are uncollectible and written off.
Refer to Figure 3 above. Wemberly's budgeted cash receipts for March are

A) £300,000
B) £335,000
C) £195,000
D) £261,000

Question 64

Figure 1
Projected sales for Sommers, Inc., for next year and beginning and ending inventory data are as follows:
The selling price is £40 per unit. Each unit requires four pounds of material which costs £6 per pound. The beginning inventory of raw materials is 12,000 pounds. The company wants to have 3,000 pounds of material in inventory at the end of the year.
Refer to Figure 1. According to Sommers' production budget, how many units should be produced?

A) 54,000
B) 46,000
C) 62,000
D) 38,000

Question 65

At the beginning of the current month, Melrose had £10,000. Cash disbursements were £260,000 and cash collections were £235,000. Melrose invests all excess cash in a money market fund and has a line of credit to cover cash deficiencies. If Melrose wishes to start the next month with £15,000, Melrose must

A) borrow £15,000
B) borrow £30,000
C) borrow £45,000
D) do nothing

Question 66

Budgeted sales for the second quarter for Maxwell Company, a retailer, are as follows: Maxwell started the quarter with an inventory of 30,000 units. The company likes to maintain an inventory equal to 10 percent of next month's budgeted sales.
Budgeted purchases in units for May would be

A) 146,000
B) 120,000
C) 134,000
D) 122,000

Question 67

Figure 1
Projected sales for Sommers, Inc., for next year and beginning and ending inventory data are as follows:
The selling price is £40 per unit. Each unit requires four pounds of material which costs £6 per pound. The beginning inventory of raw materials is 12,000 pounds. The company wants to have 3,000 pounds of material in inventory at the end of the year.
Refer to Figure 1. How many pounds of material would Sommers need to purchase?

A) 216,000
B) 225,000
C) 207,000
D) 201,000

Question 68

Cal Company uses the following formula for annual overhead: £360,000 + £1.20 for each machine hour used. For the upcoming month, Cal plans to manufacture 6,000 units. Each unit requires 2 machine hours. Cal's budgeted overhead for the month is

A) £367,200
B) £37,200
C) £374,400
D) £44,400

Question 69

Arlo Company uses an annual cost formula for overhead of £72,000 + £1.60 for each direct labour hour worked. For the upcoming month, Arlo plans to manufacture 96,000 units. Each unit requires five minutes of direct labour. Arlo's budgeted overhead for the month is

A) £12,800
B) £18,800
C) £84,800
D) £225,600

Question 70

Figure 2
Budgeted sales for the second quarter of the current year are as follows:
The company collects 20 percent in the month of sale, 70 percent in the first month following the sale, and 10 percent in the second month following the sale.
Refer to Figure 2 above. If the accounts receivable balance on April 1 is £125,000, what is the budgeted accounts receivable as of June 30?

A) £159,000
B) £125,000
C) £164,000
D) £144,000

Question 71

Bronco Company sells a product for £10. Budgeted sales for the first quarter of the current year are as follows: The company wants to maintain an inventory of finished units equal to 30 percent of the following month's sales, and 10,000 units are on hand at the beginning of the year.
Each unit requires two pounds of raw material costing £1 per pound. The company maintains a raw materials inventory equal to 20 percent of the following month's production needs.
Budgeted production in units for February would be

A) 131,000
B) 107,000
C) 83,000
D) 80,000

Question 72

Figure 2
Budgeted sales for the second quarter of the current year are as follows:
The company collects 20 percent in the month of sale, 70 percent in the first month following the sale, and 10 percent in the second month following the sale.
Refer to Figure 2 above. Total cash collected in June will be

A) £180,000
B) £191,000
C) £90,000
D) £140,000

Question 73

Brown, Inc., has budgeted £60,000 for annual fixed overhead costs for the coming year. Budgeted variable overhead is £0.10 per unit. For the next quarter, Brown plans to manufacture 500,000 units. Brown's budgeted overhead for the quarter is

A) £50,000
B) £65,000
C) £110,000
D) £150,000

Question 74

Budgeted sales for the first quarter for Cullison Company, a retailer, are as follows: Cullison started the year with an inventory of 7,500 units. The company likes to maintain an inventory equal to 10 percent of next month's budgeted sales.
Budgeted purchases in units for February would be

A) 111,000
B) 110,000
C) 101,000
D) 100,000

Question 75

Diely Company has the following sales budget: Credit sales represent 80 percent of budgeted sales. Of the credit sales, 20 percent is collected in the month of the sale, 60 percent in the month after the sale, and the remaining 15 percent is collected two months after the sale. Five percent of all sales are uncollectible and written-off. Cash receipts from sales in September amounted to

A) £169,150
B) £135,320
C) £107,200
D) £162,120

Question 76

Discretionary fixed costs are also known as:

A) capacity costs.
B) managed fixed costs.
C) committed fixed costs.
D) mixed costs.

Question 77

Figure 1
Projected sales for Sommers, Inc., for next year and beginning and ending inventory data are as follows:
The selling price is £40 per unit. Each unit requires four pounds of material which costs £6 per pound. The beginning inventory of raw materials is 12,000 pounds. The company wants to have 3,000 pounds of material in inventory at the end of the year.
Refer to Figure 1. Sommers' budgeted total purchase cost of direct materials would be

A) £1,350,000
B) £1,242,000
C) £1,206,000
D) £1,296,000

Question 78

Figure 1
Projected sales for Sommers, Inc., for next year and beginning and ending inventory data are as follows:
The selling price is £40 per unit. Each unit requires four pounds of material which costs £6 per pound. The beginning inventory of raw materials is 12,000 pounds. The company wants to have 3,000 pounds of material in inventory at the end of the year.
Refer to Figure 1. Sommers' budgeted sales would be

A) £2,160,000
B) £2,320,000
C) £2,480,000
D) £2,000,000

Question 79

Nichols Company sells a product for £20. Budgeted sales for the first quarter of the current year are as follows: The company wants to maintain an inventory of finished units equal to 30 percent of the following month's sales, and 1,000 units are on hand at the beginning of the year.
Each unit requires two pounds of raw material costing £1 per pound. The company maintains a raw materials inventory equal to 10 percent of the following month's production needs.
Budgeted production in units for February would be

A) 2,500
B) 3,100
C) 3,850
D) 4,600

Question 80

Figure 3
Wemberly Company sells a product for £10. Budgeted sales for the first quarter of the current year are as follows:
The company collects 65 percent in the month of sale and 30 percent in the following month. Five percent of all sales are uncollectible and written off.
Refer to Figure 3. Wemberly's budgeted cash receipts for February are

A) £220,000
B) £209,000
C) £194,000
D) £143,000