Deck 9: Budgeting, Production, Cash, and Master Budget

Question 1

The cash is directly used in the development of the production budget.

Answer 1

False

Question 2

The sales budget is prepared in units only, NOT dollars.

Answer 2

False

Question 3

Budgets are financial plans for the future which identify objectives and the actions needed to achieve them.

Answer 3

True

Question 4

The master budget is composed of operating budgets and financial budgets.

Question 5

A firm should develop a strategic plan after preparing a budget.

Question 6

There are as many direct materials purchases budgets as there are products.

Question 7

Budgets serve to communication and coordinate plans of the organization to employees.

Question 8

A large difference between actual and planned results is feedback that the system is providing adequate control.

Question 9

The direct materials purchases budget is based on the production budget.

Question 10

The controller usually serves as the budget director to review the budget, provide policy guidelines and budgetary goals, resolve differences that arise as the budget is prepared, approve the final budget, and monitor the actual performance of the organization as the year unfolds.

Question 11

The budget director is the person responsible for directing and coordinating the organization's overall budgeting process.

Question 12

Budgets are a key component of planning.

Question 13

The master budget is typically a comprehensive financial plan for the organization for the past fiscal year.

Question 14

Control is looking ahead to see what actions should be taken to realize particular goals.

Question 15

A strategic plan identifies strategies for future activities and operations, generally covering at least five years.

Question 16

Comparing actual results with budgeted results on a periodic basis provides planning in a budgetary system.

Question 17

Planning is looking ahead to see what actions should be taken to avoid particular goals.

Question 18

A continuous budget is a static 15-month budget.

Question 19

Budgets can be used to improve decision making.

Question 20

The first budget prepared when developing a master budget is the sales budget.

Question 21

Which term reflects looking backward, determining what actually happened, and comparing what actually happened with the previously planned outcomes?

A) control
B) communicating
C) decision making
D) strategic planning

Question 22

The selling and administrative expense budgets are part of the financial budgets.

Question 23

Pseudoparticipation is one of the potential problems with participative budgeting.

Question 24

Which statement best describes a characteristic of budgets?

A) They reflect on financial plans of the past.
B) They are created once during the life of the business.
C) They are key components of recording a financial history.
D) They are identifiers of objectives and the actions needed to achieve them.

Question 25

The output of the cost of goods sold budget is entered into the pro forma income statement.

Question 26

The direct labour budget includes units to be produced, direct labour time needed, and the beginning inventory.

Question 27

Budgets should be based on ideal standards to encourage everyone to reach for the highest level of performance.

Question 28

The cash budget includes the beginning balance of cash, cash receipts, cash disbursements, and the ending balance of cash.

Question 29

If the initial cash budget indicates a cash deficiency, the company must go out of business.

Question 30

Ideally, managers are held accountable for controllable costs.

Question 31

Cash receipts must be at least as much as sales.

Question 32

Individual behaviour that is in basic conflict with the goals of the organization is called dysfunctional behaviour.

Question 33

What are future financial plans called?

A) budgets
B) master plans
C) variable costing
D) absorption income

Question 34

Which statement best describes a use of budgets for control purposes?

A) Communication is improved.
B) Plans can be made for the future.
C) Budgets set a standard against which results can be compared.
D) If conditions change between the formation of the budget and the current time, budgets can be quickly adapted.

Question 35

Monetary incentives include job satisfaction, increased responsibility, and firm recognition of a job well done.

Question 36

When preparing the direct labour budget, the number of hours worked by each employee is the only information needed.

Question 37

Which budget adds an additional month in the future as one month expires so that the company always has a 12-month plan on hand?

A) a yearly budget
B) a financial budget
C) a continuous budget
D) an operational budget

Question 38

Which statement best describes a characteristic of the master budget?

A) It is divided into daily and weekly budgets.
B) It is created externally and imposed on management.
C) It provides a selective financial plan for the organization as a whole.
D) It is typically for a 1-year period corresponding to the fiscal year of the company.

Question 39

Cash budgets are often prepared monthly or even weekly.

Question 40

Myopic behaviour is one of the advantages of participative budgeting.

Question 41

Adjustments to the sales budget need to be made for which of the following items when going from the sales budget to the production budget?

A) cash receipts
B) selling expenses
C) finished goods inventories
D) manufacturing overhead costs

Question 42

Which of the following is classified as an operating budget?

A) the cash budget
B) the budgeted income statement
C) the capital expenditures budget
D) the budgeted statement of cash flows

Question 43

In which order are budgets prepared?

A) sales budget, cash budget, production budget
B) production budget, sales budget, direct labour budget
C) sales budget, production budget, direct materials purchases budget
D) production budget, cost of goods sold budget, direct labour budget

Question 44

A company expects the following sales for the coming year: $\begin{array}{lllll}&\text { 1st Ouarter}&\text {2nd Ouarter }&\text {3rd Ouarter}&\text { 4th Ouarter }\\\text { Units } & 50,000 & 40,000 & 30,000 & 90,000 \\\text { Average selling price } & \$ 5 & \$ 4.50 & \$ 5 & \$ 6\end{array}$ What is the company's budgeted sales revenue for the year?

A) $1,050,000
B) $1,120,000
C) $1,155,000
D) $1,260,000

Question 45

A company plans to sell 450 units. The selling price per unit is $5. The company has 45 units in beginning finished goods inventory and would like to have 100 units in ending finished goods inventory. How many units should be produced for the coming period?

A) 365
B) 400
C) 505
D) 2,000

Question 46

For which organization is having a production budget most important?

A) retail stores
B) manufacturing firms
C) not-for-profit agencies
D) local government agencies

Question 47

Bright Lights Company manufactures lamps. The estimated lamp sales for the last three months of the current year are as follows: Month Sales
October 10,000
November 13,000
December 15,000
Finished goods inventory at the end of September was 3,000 units. Ending finished goods inventory is budgeted to equal 25% of the next month's sales. The company expects to sell the lamps for $25 each. The first three months of the next year's sales are projected at 16,000 lamps. How many lamps should be produced in November?

A) 10,500 lamps
B) 11,000 lamps
C) 13,500 lamps
D) 14,000 lamps

Question 48

A company has had stable sales and production for several years. Next year, sales are expected to increase by at least 50%. Assume that the company maintains its policy for desired ending inventories of finished product and direct materials purchases. What will be the likely effect on the desired ending finished goods inventory?

A) It will increase.
B) It will decrease.
C) It will stay the same.
D) It will be twice the size of the desired ending direct materials inventory.

Question 49

Barkin Company budgeted the following sales in units: April 50,000
May 20,000
June 40,000
The company's policy is to have 20% of the following month's sales in finished goods inventory. On April 1, finished goods inventory equalled 10,000 units. What is May's production in units?

A) 20,000
B) 24,000
C) 26,500
D) 28,000

Question 50

Sleep Country Company produces and sells pillows. It expects to sell 10,000 pillows the coming year, and it had 1,000 pillows in the finished goods inventory at the end last year. The company would like to complete operations in the coming year with at least 1,250 completed pillows in finished goods inventory. There is no ending work-in-process inventory. The pillows sell for $5 each. How many pillows should be produced in the coming year?

A) 10,000 pillows
B) 10,250 pillows
C) 11,000 pillows
D) 11,250 pillows

Question 51

What is NOT a characteristic of the master budget?

A) The sales forecast is prepared before the sales budget.
B) The production budget is prepared in units and dollars.
C) One approach to forecasting sales is the bottom-up approach.
D) The master budget is the comprehensive plan for the organization as a whole.

Question 52

Which of the following generally reflects the most appropriate formula to compute the units to be produced?

A) units produced = units sold
B) units produced = units sold + units in beginning finished goods inventory + units in ending finished goods inventory
C) units produced = units sold + units in beginning finished goods inventory - units in ending finished goods inventory
D) units produced = units sold ?2- units in beginning finished goods inventory + units in ending finished goods inventory

Question 53

When generating a master budget, what schedule is created first?

A) cash budget
B) sales budget
C) production budget
D) direct labour budget

Question 54

What is the most common starting point in the information-gathering process for budgeting?

A) sales forecast
B) personnel forecast
C) production forecast
D) projected income statement

Question 55

Which of the following is responsible for directing and coordinating an organization's overall process of budgeting?

A) the budget director
B) the department manager
C) the chief financial planner
D) the chief executive officer

Question 56

What is characteristic of the master budget?

A) The master budget can reflect seasonal effects.
B) Monthly budgets are derived by dividing the master budget by 12.
C) Fixed costs on the master budget cannot change from one month to another.
D) Variable costs on the master budget cannot change from one month to another.

Question 57

Which budget describes how many units must be made to meet sales needs and ending finished goods inventory objectives?

A) cash budget
B) production budget
C) budgeted income statement
D) direct materials purchases budget

Question 58

Which statement best describes an aspect of the master budget?

A) The production budget is converted into dollars.
B) The direct labour budget uses an average wage rate for direct labour.
C) The manufacturing overhead budget is converted to dollars per unit of finished product.
D) The manufacturing overhead budget is typically composed exclusively of variable manufacturing overhead.

Question 59

Which statement best describes a characteristic of the master budget?

A) Service firms need not prepare a master budget.
B) The budgeted balance sheet is prepared after the cash budget.
C) The cash budget is prepared before the direct materials purchases budget.
D) The production budget is the first budget to be prepared in the master budget.

Question 60

A company provided the following information on its projected sales for the coming year: $\begin{array}{lllll}&\text { 1st Ouarter}&\text {2nd Ouarter }&\text {3rd Ouarter}&\text { 4th Ouarter }\\\text { Units } & 50,000 & 40,000 & 30,000 & 80,000 \\\text { Average selling price } & \$ 5 & \$ 5 & \$ 5 & \$ 6\end{array}$ Assume that the beginning finished goods inventory is 5,000 units, and that the company policy is to have 25% of the next quarter's sales in ending finished goods inventory. Which quarter will have the lowest production?

A) Quarter 1
B) Quarter 2
C) Quarter 3
D) Quarter 4

Question 61

Shortie Company
Shortie Company produces two products: X Brand and Y Brand. Budgeted sales are as follows: $$\begin{array} { l r r } & \underline { X \text { Brand } } & \underline { Y \text { Brand }}\\\text { May } & 10,000 & 40,000 \\\text { June } & 20,000 & 70,000 \\\text { July } & 15,000 & 80,000 \\\text { August } & 30,000 & 90,000\end{array}$$ The company's ending finished goods inventory policy is that X Brand should have 10% of its next month's sales in ending finished goods inventory and Y Brand should have 20% of next month's sales in its ending finished goods inventory. On May 1, finished goods inventory consisted of 1,000 units of X Brand and 9,000 units of Y Brand.Y Brand requires four units of component A. (X Brand does not use component A.) On May 1, 2,100 units of component A were in direct materials inventory. The company wants to have 30% of the following month's production needs in direct materials inventory for component A.

-Refer to Shortie Company. How many units of component A are budgeted to be purchased in May?

A) 64,500
B) 66,600
C) 180,000
D) 264,300

Question 62

Refer to Emerald Company. What is the budget for direct materials purchases in February?

A) 30,000 kg
B) 32,000 kg
C) 54,000 kg
D) 72,000 kg

Question 63

What calculation is used when budgeting direct labour hours for the coming year?

A) Divide production in units by the direct labour hours per unit.
B) Subtract direct labour hours per unit from production in units.
C) Multiply production in units by the direct labour hours per unit.
D) Subtract production in units from the direct labour hours per unit.

Question 64

A company has provided a sales budget for the next four months (January, February, March, and April). It bases its production budget on the sales budget. According to company policy, each month's ending finished goods inventory must be equal to 25% of the following month's sales needs. The direct materials purchases budget is based on the production budget. Company policy states that each month's ending direct materials inventory must be equal to 10% of the following month's production needs for direct materials. For how many months can the company prepare direct materials purchases budgets?

A) 1 month
B) 2 months
C) 3 months
D) 4 months

Question 65

Shortie Company
Shortie Company produces two products: X Brand and Y Brand. Budgeted sales are as follows: $$\begin{array} { l r r } & \underline { X \text { Brand } } & \underline { Y \text { Brand }}\\\text { May } & 10,000 & 40,000 \\\text { June } & 20,000 & 70,000 \\\text { July } & 15,000 & 80,000 \\\text { August } & 30,000 & 90,000\end{array}$$ The company's ending finished goods inventory policy is that X Brand should have 10% of its next month's sales in ending finished goods inventory and Y Brand should have 20% of next month's sales in its ending finished goods inventory. On May 1, finished goods inventory consisted of 1,000 units of X Brand and 9,000 units of Y Brand.Y Brand requires four units of component A. (X Brand does not use component A.) On May 1, 2,100 units of component A were in direct materials inventory. The company wants to have 30% of the following month's production needs in direct materials inventory for component A.

-Refer to Shortie Company. What is the desired ending inventory of component A for May?

A) 2,100
B) 58,500
C) 86,000
D) 86,400

Question 66

What do many companies use when preparing the manufacturing overhead budget?

A) participative costing
B) activity-based costing
C) multiple drivers for a simple budget
D) a unit-based driver such as direct labour hours

Question 67

A company requires 400 kg of plastic to meet the production needs of a product. It currently has 40 kg of plastic inventory. The desired ending inventory of plastic is 120 kg. How many kilograms of plastic should be budgeted for purchasing during the coming period?

A) 160 kg
B) 200 kg
C) 480 kg
D) 520 kg

Question 68

BCB Company budgeted production of 250,000 units for June, 240,000 units for July, and 350,000 units for August. Each unit requires 0.35 direct labour hours. How many direct labour hours are budgeted for August?

A) 5,000
B) 50,000
C) 52,500
D) 122,500

Question 69

Hoovern Company provided the following data for May: $\begin{array}{lr}\text { Direct materials } & \$ 60,000 \\\text { Direct labour } & \$ 30,000 \\\text { Manufacturing overhead } & \$ 80,000 \\\text { Beginning finished goods inventory } & \$ 15,000 \\\text { Ending finished goods inventory } & \$ 34,000 \\\text { Production in units } & 10,000\end{array}$ What is the cost of goods sold?

A) $75,000
B) $151,000
C) $165,000
D) $184,000

Question 70

Shortie Company
Shortie Company produces two products: X Brand and Y Brand. Budgeted sales are as follows: $$\begin{array} { l r r } & \underline { X \text { Brand } } & \underline { Y \text { Brand }}\\\text { May } & 10,000 & 40,000 \\\text { June } & 20,000 & 70,000 \\\text { July } & 15,000 & 80,000 \\\text { August } & 30,000 & 90,000\end{array}$$ The company's ending finished goods inventory policy is that X Brand should have 10% of its next month's sales in ending finished goods inventory and Y Brand should have 20% of next month's sales in its ending finished goods inventory. On May 1, finished goods inventory consisted of 1,000 units of X Brand and 9,000 units of Y Brand.Y Brand requires four units of component A. (X Brand does not use component A.) On May 1, 2,100 units of component A were in direct materials inventory. The company wants to have 30% of the following month's production needs in direct materials inventory for component A.

-Refer to Shortie Company. How many units of X Brand are budgeted for production in May?

A) 10,000
B) 11,000
C) 12,000
D) 13,000

Question 71

Refer to Bortolli Company. What is the total manufacturing overhead budgeted for the month of June?

A) $42,100
B) $80,000
C) $92,100
D) $160,000

Question 72

Refer to Bortolli Company. What is the direct labour cost budgeted for June?

A) $20,000
B) $40,000
C) $150,000
D) $450,000

Question 73

Which statement reflects the calculation for the direct materials needed for production?

A) Add units to be produced to direct materials per unit.
B) Divide units to be produced by direct materials per unit.
C) Multiply units to be produced by direct materials per unit.
D) Subtract units to be produced from direct materials per unit.

Question 74

Shortie Company
Shortie Company produces two products: X Brand and Y Brand. Budgeted sales are as follows: $$\begin{array} { l r r } & \underline { X \text { Brand } } & \underline { Y \text { Brand }}\\\text { May } & 10,000 & 40,000 \\\text { June } & 20,000 & 70,000 \\\text { July } & 15,000 & 80,000 \\\text { August } & 30,000 & 90,000\end{array}$$ The company's ending finished goods inventory policy is that X Brand should have 10% of its next month's sales in ending finished goods inventory and Y Brand should have 20% of next month's sales in its ending finished goods inventory. On May 1, finished goods inventory consisted of 1,000 units of X Brand and 9,000 units of Y Brand.Y Brand requires four units of component A. (X Brand does not use component A.) On May 1, 2,100 units of component A were in direct materials inventory. The company wants to have 30% of the following month's production needs in direct materials inventory for component A.

-Refer to Shortie Company. How many units of Y Brand are budgeted for production in June?

A) 45,000
B) 64,000
C) 70,000
D) 72,000

Question 75

The following forecasted sales pertain to Nyak Company: Month Sales
April $200,000
May 250,000
June 150,000
July 100,000
Collection pattern:
60% in month of sale
40% in month following the sale
Accounts receivable as of March 31 $35,000
Finished goods inventory as of March 31 4,000 units
The company has a selling price of $10 per unit and expects to maintain ending inventories equal to 20% of the next month's sales. How many units are expected to be produced in April?

A) 19,000 units
B) 20,000 units
C) 21,000 units
D) 25,000 units

Question 76

What would be included in the selling and administrative expenses budget?

A) cost of goods sold
B) manufacturing overhead
C) fixed production expense
D) variable cost of commissions

Question 77

Which of the following receives necessary information from the ending finished goods inventory budget?

A) the sales budget
B) the cash budget
C) the cost of goods sold budget
D) the budgeted income statement

Question 78

Boxes R Us Corporation manufactures boxes. The estimated number of boxes to be sold for the first three months of the year is as follows: Month Sales
January 3,000
February 4,200
March 3,900
Finished goods inventory at the end of December was 900 units. Ending finished goods inventory is equal to 20% of the next month's sales. The company expects to sell the boxes for $5 each. April sales are projected at 4,500 boxes. How many boxes should be produced in February?

A) 3,900 boxes
B) 4,140 boxes
C) 4,200 boxes
D) 4,260 boxes

Question 79

What budgets are needed to calculate a budgeted unit cost?

A) budgeted income statement, direct labour budget, and cash budget
B) direct materials purchases budget, direct labour budget, and manufacturing overhead budget
C) budgeted balance sheet, selling and administration budget, and finished goods inventory budget
D) direct materials purchases budget, selling and administration budget, finished goods inventory budget

Question 80

Refer to Emerald Company. What was the ending direct materials inventory for January?

A) 3,000 kg
B) 4,000 kg
C) 6,000 kg
D) 12,000 kg