Deck 23: Operational Budgeting

Question 1

A cash budget determines the maximum amount of money that can be spent during the period.

Answer 1

False

Question 2

A master budget actually includes a number of related budgets.

Answer 2

True

Question 3

The typical starting point of a master budget would be to prepare a budgeted balance sheet.

Answer 3

False

Question 4

In a flexible budget, both variable and fixed costs will vary with the level of activity.

Question 5

A company's operating cycle is the time between purchases of direct materials and conversion of these materials back into cash.

Question 6

A flexible budget allows management to spend more or less for labor and materials without regard to the amount of production.

Question 7

If the total quality management approach is employed to determine the level at which budgeted amounts are set, then absolute efficiency is assumed.

Question 8

The operating cycle is the average time required to manufacture products for sale.

Question 9

A master budget is a comprehensive financial plan setting forth the financial and operational goals of a business.

Question 10

A company that is profitable may not have sufficient cash on hand to meet their immediate needs.

Question 11

Under the "total quality management" philosophy, budgeted amounts should be set at realistic and achievable levels rather than at levels representing absolute efficiency.

Question 12

The total quality management approach to budgeting sets budgeted amounts at levels that can be achieved through reasonably efficient operations.

Question 13

In a master budget, the sales forecast would be dependent upon the budgeted production figures.

Question 14

A performance report can be easily adjusted to show budgeted revenues and costs at different levels of activity.

Question 15

If the behavioral approach is employed to determine the levels at which budgeted amounts are set, then reasonable and achievable levels should be used.

Question 16

A budget prepared using the total quality management approach is always achievable by departments within a company.

Question 17

The behavioral approach to budgeting has as its goal the complete elimination of inefficiency.

Question 18

Because a budget is merely a forecast of future events, its benefits are extremely narrow and limited.

Question 19

In preparing a master budget, budgeted levels for production, manufacturing costs, and operating expenses normally are determined after preparing the sales forecast.

Question 20

Flexible budgets can be prepared for sales budgets but not for productions budgets.

Question 21

When budgeted amounts are set at reasonable and achievable levels:

A) They reflect a "total quality management" philosophy of management.
B) A highly efficient department should fall slightly short of budget standards.
C) Meeting the budgeted amounts ensures a maximum level of profitability.
D) Failure to stay within the budget is viewed as an unacceptable level of performance.

Question 22

Which of the following is not a benefit of a careful and thorough budgeting process?

A) Budgeting increases management's awareness of the company's external economic environment.
B) Budgeted net income assures the company of operating profitably.
C) The budget may provide advance warning of pending problems.
D) Budgets provide a yardstick for evaluating future performance.

Question 23

As the volume of output increases:

A) Variable costs per unit will increase.
B) Variable costs per unit will decrease.
C) Variable costs per unit will not change.
D) Variable costs in total will decrease.

Question 24

A debt service budget summarizes cash payments required for interest, and includes those required to pay down principal.

Question 25

Which of the following is not a characteristic of the total quality approach to setting budgetary targets?

A) Absolute efficiency.
B) A perception that the budget is fair.
C) Budgetary targets that are unattainable.
D) Budgeted performance expectations that cannot be exceeded.

Question 26

The preparation of a budgeted balance sheet requires consideration of the budgeted capital expenditures and budgeted net income.

Question 27

Which of the following is not considered an operating budget?

A) Manufacturing cost budget.
B) Production schedule.
C) Capital expenditures budget.
D) Sales forecast.

Question 28

Costs that rise and fall proportionately with the volume of output are often referred to as:

A) Variable costs.
B) Flexible costs.
C) Idle capacity costs.
D) Uncontrollable costs.

Question 29

The benefits of budgeting include all of the following except:

A) Enabling the company to produce more for less cost.
B) Assigning responsibility for situations that require corrective action.
C) Coordinating activities between departments within the organization.
D) Creating standards for evaluating performance.

Question 30

As the volume of output decreases:

A) Fixed costs per unit will increase.
B) Fixed costs per unit will decrease.
C) Fixed costs per unit will not change.
D) Fixed costs in total will decrease.

Question 31

A segment of a master budget relating to that portion of a business under the control of a particular manager is termed a:

A) Performance report.
B) Production report.
C) Responsibility budget.
D) Cash budget.

Question 32

A master budget usually includes all of the following except:

A) A sales forecast.
B) A cash budget.
C) A projected tax return.
D) Projected financial statements.

Question 33

Which element of a master budget would normally be prepared first?

A) A production budget.
B) A cash budget.
C) A budget of operating expenses.
D) A sales forecast.

Question 34

The master budget may be comprised of:

A) The production budget.
B) The current period income statement.
C) The current period balance sheet.
D) The current period statement of cash flows.

Question 35

Which of the following is a major component of a master budget?

A) A production throughput schedule.
B) A machinery maintenance schedule.
C) A manufacturing cost budget.
D) An employee training budget.

Question 36

If a budget is to provide a basis for evaluating departmental performance, departmental managers should not know what their budget targets are until after the budget period has ended.

Question 37

Which philosophy in setting budgeted amounts assumes both the complete elimination of inefficiencies and a level of absolute efficiency?

A) The behavioral approach.
B) The total quality management approach.
C) Both philosophies.
D) Neither philosophy.

Question 38

A budget that adds a new month when the current month ends is called a:

A) Capital budget.
B) Master budget.
C) Rolling budget.
D) There is no such budget.

Question 39

Which of the following is considered an operating budget estimate?

A) The prepayments budget.
B) The debt service budget.
C) The manufacturing cost budget.
D) The capital expenditures budget.

Question 40

Flexible budgeting may be viewed as combining the concepts of budgeting with cost-volume-profit analysis.

Question 41

Hugh's budgeted interest expense for March is:

A) $500.
B) $2,444.
C) $5,500.
D) $6,000.

Question 42

For the year, budgeted cash payments to suppliers amounted to:

A) $344,000.
B) $350,000.
C) $334,000.
D) $354,000.

Question 43

If the volume of output of a factory for the month of June is 50,000 units, while the budgeted output was 40,000 units:

A) Comparison of budgeted results and actual results will be misleading unless the company uses a flexible budget.
B) Actual fixed costs per unit may be expected to exceed budgeted levels.
C) Actual cost per unit will be higher than standard cost per unit.
D) Both total production costs and unit production costs should be approximately 25% above budgeted levels.

Question 44

Of Hugh's budgeted debt service cost of $6,000 in March, the amount applied to the principal of the note totals:

A) $500.
B) $4,000.
C) $4,500.
D) $5,000.

Question 45

Which element of a master budget would normally be prepared last?

A) A cash budget.
B) A budgeted balance sheet.
C) A budgeted income statement.
D) A production budget.

Question 46

A flexible budget:

A) Consists of advance estimates of costs and expenses for various possible levels of activity.
B) Is designed to be adjusted at frequent intervals for changes in the general price level.
C) Is better suited for use with a job cost system than a standard cost system.
D) Cannot be prepared when a standard cost system is in use.

Question 47

Wateredge Corporation has budgeted a total of $361,800 in costs and expenses for the upcoming quarter. Of this amount, $45,000 represents depreciation expense and $7,300 represents the expiration of prepayments. Wateredge's current payables balance is $265,000 at the beginning of the quarter. Budgeted payments on current payables for the quarter amount to $370,000. The company's estimated current payables balance at the end of the quarter is:

A) $179,500.
B) $204,500.
C) $203,500.
D) $310,000.

Question 48

Preparation of a budgeted income statement does not require:

A) Estimates of cost of goods sold.
B) Estimates of the timing of cash receipts and payments.
C) Preparation of a sales forecast.
D) Anticipation of operating expenses.

Question 49

A cash budget is affected directly by each of the following except:

A) A capital expenditures budget.
B) A sales forecast.
C) A manufacturing cost budget.
D) A budgeted income statement.

Question 50

Flexible budgeting may be used for profit centers by applying cost-volume-profit relationships to the actual level of:

A) Units produced.
B) Resources consumed.
C) Costs incurred.
D) Sales achieved.

Question 51

The sales forecast directly affects many elements of the master budget. Which of the following would be least affected by short-term fluctuations in the sales forecasts?

A) The production schedule.
B) The budgeted income statement.
C) The capital expenditures budget.
D) The operating expense budget.

Question 52

In a flexible budget for a profit center, which of the following items would not be expected to vary with the level of activity?

A) Revenue.
B) Fixed manufacturing overhead.
C) Direct materials cost.
D) Variable manufacturing overhead.

Question 53

Sherman has budgeted sales for the upcoming quarter as follows: The desired ending finished goods inventory for each month is one-half of next month's budgeted sales. Three pounds of direct material are required for each unit produced. If direct material costs $5 per pound, and must be paid for in the month of purchase, the budgeted direct materials purchases (in dollars) for April are:

A) $17,500.
B) $40,500.
C) $26,250.
D) $38,250.

Question 54

Which of the following is considered a financial budget estimate?

A) The manufacturing cost budget.
B) The cost of goods sold budget.
C) The operating expense budget.
D) The prepayments budget.

Question 55

For the year, budgeted purchases of direct materials amounted to:

A) $344,000.
B) $328,000.
C) $360,000.
D) $370,000.

Question 56

In a cash budget, the budgeted level of cash receipts depends on all of the following except:

A) The sales forecast.
B) The credit terms offered to customers.
C) The credit terms offered by suppliers.
D) Experience in collecting receivables.

Question 57

The production schedule in units:

A) Cannot be prepared until the budgeted income statement is completed.
B) Is dependent upon the sales forecast for the period.
C) Is based upon the manufacturing cost budget, that is, upon the level of funds available for manufacturing costs.
D) Is the starting point in the preparation of the master budget.

Question 58

A budget that can be adjusted easily to show budgeted revenues, costs, and cash flows at different levels of activity is known as:

A) A flexible budget.
B) A master budget.
C) A production budget.
D) A multi-level budget.

Question 59

A flexible budget is one that:

A) Is revised monthly in the light of changing business conditions.
B) Is a compromise plan reflecting diverse views of various supervisors.
C) Contains estimated cost data for several different levels of activity.
D) Separates factory overhead between the variable and fixed portions.

Question 60

Flexible budgeting may be viewed as combining the concepts of budgeting and:

A) Incremental analysis.
B) Product costing.
C) Cost-volume-profit analysis.
D) Financial statement analysis.

Question 61

Budgeted collections from customers in November total:

A) $32,000.
B) $53,000.
C) $59,000.
D) $48,000.

Question 62

What are Ross's budgeted collections for July?

A) $800,000.
B) $939,000.
C) $1,083,000.
D) $915,000.

Question 63

Steps in the budgeting process
Listed below are eight operating budget estimates. In the space provided, list which of these estimates is typically made first, second, third, etc.
(a) ___ Operating expense budget
(b) ___ Budgeted income statement
(c) ___ Ending finished goods forecast
(d) ___ Production schedule (in units)
(e) ___ Manufacturing cost estimates
(f) ___ Cost of goods sold budget
(g) ___ Sales forecast
(h) ___ Manufacturing cost budget

Question 64

The cost-volume relationship used to prepare Skelton's flexible budget for various production levels includes:

A) Fixed cost of $1.17 per unit.
B) Manufacturing overhead costs of $1.43 per unit.
C) Variable costs of $2.07 per unit.
D) Total cost of $3.05 per unit.

Question 65

Budgeted collections from customers in December total:

A) $55,000.
B) $60,000.
C) $64,000.
D) $59,000.

Question 66

The Mentha company currently has the following statistics: Days in inventory 80
Days in accounts receivable 68
What is Mentha's operating cycle?

A) 80.
B) 68.
C) 148.
D) Cannot be determined from the information given.

Question 67

Armstrong, Inc. uses a flexible budget. Armstrong produced 16,000 units in May incurring direct materials cost of $20,480. Its master budget for the year projected direct materials cost of $362,500, at a production volume of 290,000 units. A flexible budget for May should reflect direct materials cost of:

A) $20,480.
B) $20,000.
C) $21,000.
D) $19,750.

Question 68

A performance report for Skelton's first quarter of operations using a flexible budget approach would show:

A) Actual costs over budget by $1,300.
B) Actual costs over budget by $11,700.
C) Actual costs over budget by $15,150.
D) Total costs per the flexible budget of $194,400.

Question 69

Which of the following amounts should not be included in Skelton's flexible budget at a 60,000-unit level?

A) Direct materials used, $43,200.
B) Direct labor, $54,000.
C) Variable overhead, $27,000.
D) Fixed manufacturing overhead, $70,200.

Question 70

What is the budgeted balance of Ross's accounts receivable as of July 31?

A) $375,000.
B) $399,000.
C) $415,000.
D) $396,000.

Question 71

In a flexible budget for sales of 60,000 T-shirts, how much would Baskin budget for operating expenses?

A) $238,800.
B) $338,800.
C) $218,400.
D) $418,400.

Question 72

The most widely used budgeting philosophy is the:

A) Operational approach.
B) Behavioral approach.
C) Strategic approach.
D) Tactical approach.

Question 73

The Mentha company currently has the following statistics: Days in accounts receivable 68
Operating cycle 148
What is Mentha's days in inventory?

A) 80.
B) 68.
C) 148.
D) Cannot be determined from the information given.

Question 74

Budgeted material purchases and payments to suppliers
On January 1 of the current period, Gotham Corporation has direct materials on hand of $82,000. Of this amount, Gotham owes suppliers $51,000 on account. The company has prepared the following budget estimates for January:
(a) Purchases of direct materials budgeted in January amount to: $________________
(b) Cash payments to suppliers budgeted in January amount to: $________________ Computations

Question 75

The Mentha company currently has the following statistics: Days in inventory 80
Operating cycle 148
What is Mentha's days in accounts receivable?

A) 80.
B) 68.
C) 148.
D) Cannot be determined from the information given.

Question 76

What unit cost did Baskin use in budgeting the cost of goods sold for the year?

A) $6.
B) $10.25.
C) $17.50.
D) Some other amount.

Question 77

Assume Baskin actually achieves the 60,000 unit sales level, and that net income actually earned at this level was $70,000. A performance report would indicate that net income was:

A) $2,660 over budget.
B) $43,120 under budget.
C) $90,000 under budget.
D) At the budgeted level.

Question 78

Benefits derived from budgeting do not include:

A) Improved relationship with shareholders.
B) Enhanced management responsibilities.
C) Improved coordination of activities.
D) Enhanced performance evaluations.

Question 79

Budgeted collections from customers in October total:

A) $39,000.
B) $27,000.
C) $31,000.
D) $110,000.

Question 80

Capital expenditures budgets are typically prepared for a period of:

A) 3 months.
B) 6 months.
C) The entire fiscal year.
D) Several years.