Deck 21: Budgeting

Question 1

A budget procedure that provides for the maintenance at all times of a twelve-month projection into the future is called master budgeting.

Answer 1

False

Question 2

Flexible budgeting requires all levels of management to start from zero and estimate sales, production, and other operating data as though operations were being started for the first time.

Answer 2

False

Question 3

In preparing flexible budgets, the first step is to identify the fixed and variable components of the various costs and expenses being budgeted.

Answer 3

True

Question 4

Budgetary slack can be avoided if lower and mid-level managers are requested to support all of their spending requirements with specific operational plans.

Question 5

Flexible budgeting builds the effect of changes in level of activity into the budget system.

Question 6

When budget goals are set too tight, the budget becomes less effective as a tool for planning and controlling operations.

Question 7

Goal conflict can be avoided if budget goals are carefully designed for consistency across all areas of the organization.

Question 8

Budgets are normally used only by profit-making businesses.

Question 9

Budgets are prepared in the Accounting Department and monitored by various department managers.

Question 10

The flexible budget is, in effect, a series of static budgets for different levels of activity.

Question 11

A formal written statement of management's plans for the future, expressed in financial terms, is called a budget.

Question 12

The objectives of budgeting are (1) establishing specific goals for future operations, (2) executing plans to achieve the goals, and (3) periodically comparing actual results with these goals.

Question 13

Employees view budgeting more positively when goals are established for them by senior management.

Question 14

A budget procedure that provides for the maintenance at all times of a twelve-month projection into the future is called continuous budgeting.

Question 15

The budget procedures used by a large manufacturer of automobiles would probably not differ from those used by a small manufacturer of paper products.

Question 16

The budgeting process is used to effectively communicate planned expectations regarding profits and expenses to the entire organization.

Question 17

The budget procedure that requires all levels of management to start from zero in estimating sales, production, and other operating data is called zero-based budgeting.

Question 18

Once a static budget has been determined, it is changed regularly as the underlying activity changes.

Question 19

A process whereby the effect of fluctuations in the level of activity is built into the budgeting system is referred to as flexible budgeting.

Question 20

The budget procedure that requires all levels of management to start from zero in estimating sales, production, and other operating data is called continuous budgeting.

Question 21

The master budget of a small manufacturer would normally include all component budgets that impact on the financial statements.

Question 22

After the sales budget is prepared, the production budget is normally prepared next.

Question 23

Supervisor salaries, maintenance, and indirect factory wages would normally appear in the factory overhead cost budget.

Question 24

Supervisor salaries, maintenance, and indirect factory wages would normally appear in the operating expenses budget.

Question 25

Detailed supplemental schedules based on department responsibility are often prepared for major items in the operating expenses budget.

Question 26

The budgeted volume of production is normally computed as the sum of (1) the expected sales volume and (2) the desired ending inventory.

Question 27

The first budget to be prepared is usually the sales budget.

Question 28

The first budget to be prepared is usually the cash budget.

Question 29

Supervisor salaries and indirect factory wages would normally appear in the direct labor cost budget.

Question 30

The master budget of a small manufacturer would normally include all necessary component budgets except the budgeted balance sheet.

Question 31

If Division Inc. expects to sell 200,000 units in 2012, desires ending inventory of 24,000 units, and has 22,000 units on hand as of the beginning of the year, the budgeted volume of production for 2012 is 202,000 units.

Question 32

If Division Inc. expects to sell 200,000 units in 2012, desires ending inventory of 24,000 units, and has 22,000 units on hand as of the beginning of the year, the budgeted volume of production for 2012 is 198,000 units.

Question 33

The sales budget is the starting point for preparation of the direct labor cost budget.

Question 34

The master budget of a small manufacturer would normally include all necessary component budgets except the capital expenditures budget.

Question 35

The first budget to be prepared is usually the production budget.

Question 36

The budgeted direct materials purchases is based on the sum of (1) the materials needed for production and (2) the desired ending materials inventory, less (3) the estimated beginning materials inventory.

Question 37

After the sales budget is prepared, the capital expenditures budget is normally prepared next.

Question 38

The budgeted direct materials purchases is normally computed as the sum of (1) the materials for production and (2) the desired ending inventory.

Question 39

The production budget is the starting point for preparation of the direct labor cost budget.

Question 40

The budgeted volume of production is based on the sum of (1) the expected sales volume and (2) the desired ending inventory, less (3) the estimated beginning inventory.

Question 41

Past performance is the best overall basis for evaluating current performance and assessing the need for corrective action.

Question 42

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

Question 43

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

Question 44

A capital expenditures budget is prepared before the operating budgets.

Question 45

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

Question 46

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

Question 47

The budgeted balance sheet assumes that all operating and financing plans are met.

Question 48

The cash budget presents the expected inflow and outflow of cash for a specified period of time.

Question 49

Consulting the persons affected by a budget when it is prepared can provide an effective means of motivation and cooperation.

Question 50

A formal written statement of management's plans for the future, expressed in financial terms, is a:

A) gross profit report
B) responsibility report
C) budget
D) performance report

Question 51

The budgetary unit of an organization which is led by a manager who has both the authority over and responsibility for the unit's performance is known as a:

A) control center
B) budgetary area
C) responsibility center
D) managerial department

Question 52

The master budget is an integrated set of budgets that tie together a company's operating, financing and investing activities into an integrated plan for the coming year.

Question 53

The capital expenditures budget summarizes future plans for acquisition of fixed assets.

Question 54

The financial budgets of a business include the cash budget, the budgeted income statement, and the budgeted balance sheet.

Question 55

The responsibility for coordinating the preparation of a master budget should be assigned to the CEO of a firm.

Question 56

The budget process involves doing all the following except:

A) establishing specific goals
B) executing plans to achieve the goals
C) periodically comparing actual results with the goals
D) dismissing all managers who fail to achieve operational goals specified in the budget

Question 57

The capital expenditures budget is part of the planned investing activities of a company.

Question 58

The cash budget is affected by the sales budget, the various budgets for manufacturing costs and operating expenses, and the capital expenditures budget.

Question 59

The cash budget summarizes future plans for acquisition of fixed assets.

Question 60

The sales budget is derived from the production budget.

Question 61

A disadvantage of static budgets is that they:

A) are dependent on previous year's actual results
B) cannot be used by service companies
C) do not show possible changes in underlying activity levels
D) show the expected results of a responsibility center for several levels of activity

Question 62

Budgeting supports the planning process by encouraging all of the following activities except:

A) requiring all organizational units to establish their goals for the upcoming period
B) increasing the motivation of managers and employees by providing agreed-upon expectations
C) directing and coordinating operations during the period
D) improving overall decision making by considering all viewpoints, options, and cost reduction possibilities

Question 63

Tanya Inc.'s static budget for 10,000 units of production includes $60,000 for direct materials, $44,000 for direct labor, fixed utilities costs of $5,000, and supervisor salaries of $20,000. A flexible budget for 12,000 units of production would show:

A) the same cost structure in total
B) direct materials of $72,000, direct labor of $52,800, utilities of $5,000, and supervisor salaries of $20,000
C) total variable costs of $154,800
D) direct materials of $60,000, direct labor of $52,800, utilities of $6,000, and supervisor salaries of $20,000

Question 64

For February, sales revenue is $700,000; sales commissions are 5% of sales; the sales manager's salary is $96,000; advertising expenses are $80,000; shipping expenses total 2% of sales; and miscellaneous selling expenses are $2,500 plus 1/2 of 1% of sales. Total selling expenses for the month of February are:

A) $151,000
B) $227,500
C) $225,000
D) $231,000

Question 65

At the beginning of the period, the Cutting Department budgeted direct labor of $155,000, direct material of $165,000 and fixed factory overhead of $15,000 for 9,000 hours of production. The department actually completed 10,000 hours of production. What is the appropriate total budget for the department, assuming it uses flexible budgeting?

A) $416,000
B) $370,556
C) $368,889
D) $335,000

Question 66

At the beginning of the period, the Assembly Department budgeted direct labor of $110,000, direct material of $170,000 and fixed factory overhead of $28,000 for 8,000 hours of production. The department actually completed 10,000 hours of production. What is the appropriate total budget for the department, assuming it uses flexible budgeting.

A) $288,000
B) $305,000
C) $350,000
D) $378,000

Question 67

The benefits of comparing actual performance of the operations against planned goals include all of the following except:

A) providing prompt feedback to employees about their performance relative to the goal
B) preventing unplanned expenditures
C) helping to establish spending priorities
D) determining how managers are performing against prior years' actual operating results

Question 68

For March, sales revenue is $1,000,000; sales commissions are 5% of sales; the sales manager's salary is $80,000; advertising expenses are $75,000; shipping expenses total 1% of sales; and miscellaneous selling expenses are $2,100 plus 1% of sales. Total selling expenses for the month of March are:

A) $227,100
B) $215,000
C) $217,100
D) $152,100

Question 69

Bob and Sons' static budget for 10,000 units of production includes $50,000 for direct materials, $44,000 for direct labor, variable utilities of $5,000, and supervisor salaries of $25,000. A flexible budget for 12,000 units of production would show:

A) the same cost structure in total
B) direct materials of $60,000, direct labor of $52,800, utilities of $6,000, and supervisor salaries of $30,000
C) total variable costs of $148,000
D) direct materials of $60,000, direct labor of $52,800, utilities of $6,000, and supervisor salaries of $25,000

Question 70

Which of the following budgets allow for adjustments in activity levels?

A) Static Budget
B) Continuous Budget
C) Zero-Based Budget
D) Flexible Budget

Question 71

Scott Manufacturing Co.'s static budget at 10,000 units of production includes $40,000 for direct labor and $4,000 for electric power. Total fixed costs are $25,000. At 12,000 units of production, a flexible budget would show:

A) variable costs of $52,800 and $30,000 of fixed costs
B) variable costs of $44,000 and $25,000 of fixed costs
C) variable costs of $52,800 and $25,000 of fixed costs
D) variable and fixed costs totaling $69,000

Question 72

The process of developing budget estimates by requiring all levels of management to estimate sales, production, and other operating data as though operations were being initiated for the first time is referred to as:

A) flexible budgeting
B) continuous budgeting
C) zero-based budgeting
D) master budgeting

Question 73

For January, sales revenue is $700,000; sales commissions are 5% of sales; the sales manager's salary is $96,000; advertising expenses are $90,000; shipping expenses total 2% of sales; and miscellaneous selling expenses are $2,100 plus 1/2 of 1% of sales. Total selling expenses for the month of January are:

A) $157,100
B) $240,600
C) $183,750
D) $182,100

Question 74

A variant of fiscal-year budgeting whereby a twelve-month projection into the future is maintained at all times is termed:

A) flexible budgeting
B) continuous budgeting
C) zero-based budgeting
D) master budgeting

Question 75

The budgeting process does not involve which of the following activities:

A) Specific goals are established
B) Periodic comparison of actual results to goals
C) Execution of plans to achieve goals
D) Increase in sales by increasing marketing efforts.

Question 76

Cameron Manufacturing Co.'s static budget at 5,000 units of production includes $40,000 for direct labor and $5,000 for variable electric power. Total fixed costs are $20,000. At 8,000 units of production, a flexible budget would show:

A) variable costs of $64,000 and $25,000 of fixed costs
B) variable costs of $64,000 and $20,000 of fixed costs
C) variable costs of $72,000 and $20,000 of fixed costs
D) variable and fixed costs totaling $104,000

Question 77

The primary difference between a static budget and a flexible budget is that a static budget

A) is suitable in volatile demand situation while flexible budget is suitable in a stable demand situation.
B) is concerned only with future acquisitions of fixed assets, whereas a flexible budget is concerned with expenses that vary with sales.
C) includes only fixed costs, whereas a flexible budget includes only variable costs.
D) is a plan for a single level of production, whereas a flexible budget can be converted to any level of production.

Question 78

Budgets need to be fair and attainable for employees to consider the budget important in their normal daily activities. Which of the following is not considered a human behavior problem?

A) Setting goals among managers that conflict with one another.
B) Setting goals too tightly making it difficult to meet performance expectation.
C) Allowing employees the opportunity to be a part of the budget process.
D) Allowing goals to be so low that employees develop a "spend it or lose it" attitude.

Question 79

When management seeks to achieve personal departmental objectives that may work to the detriment of the entire company, the manager is experiencing:

A) budgetary slack
B) padding
C) goal conflict
D) cushions

Question 80

A series of budgets for varying rates of activity is termed a(n):

A) flexible budget
B) variable budget
C) master budget
D) activity budget