Deck 23: Master Budgets and Planning

Question 1

Budgets are normally more effective when all levels of management are involved in the budgeting process.

Answer 1

True

Question 2

Continuous budgeting is the practice of preparing a new budget for a selected number of future periods and replacing budgets for periods that have lapsed.

Answer 2

True

Question 3

The master budget is a small component of the comprehensive budget.

Answer 3

False

Question 4

The merchandise purchases budget depends on information provided by the sales budget.

Question 5

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

Question 6

A budget is a formal statement of future plans, usually expressed in monetary terms.

Question 7

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

Question 8

The merchandise purchases budget is the starting point for preparing the master budget.

Question 9

The budgets within the master budget must be prepared in a definite sequence as dictated by GAAP.

Question 10

A rolling budget is a specific budget application relevant only to a merchandising company.

Question 11

Budgeting is an informal plan for future business activities.

Question 12

Larger, more complex organizations usually require a longer time to prepare their budgets than smaller organizations because of the considerable effort to coordinate the different units within the business.

Question 13

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

Question 14

The master budget consists of three major groups of budget components: the operating budgets, the capital expenditures budgets, and the financial budgets.

Question 15

The responsibility for coordinating the preparation of a master budget should be assigned to the Chief Executive Officer.

Question 16

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

Question 17

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

Question 18

The process of evaluating performance can be improved by using budgets.

Question 19

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

Question 20

One of the major benefits of formal budgeting is the positive effect it can have on employee attitudes if applied correctly.

Question 21

A company's history indicates that 20% of its sales are for cash and the rest are on credit. Collections on credit sales are 20% in the month of the sale, 50% in the next month, and 30% the following month. Projected sales for January, February, and March are $75,000, $92,000 and $60,000, respectively. The March expected cash receipts from all current and prior credit sales are $80,500.

Question 22

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

Question 23

The process of planning future business actions and expressing them as a formal plan is called:

A) Budgeting.
B) Cost accounting.
C) Managerial accounting.
D) Variance analysis.
E) Standard cost analysis.

Question 24

The financial budgets include the cash budget and the capital expenditures budget.

Question 25

A master budget refers to a company's sales budget that includes all of its segments or departments.

Question 26

The selling expenses budget is normally prepared before the sales budget because selling expenses affect the amount of sales.

Question 27

The manufacturing budget shows only the direct materials needed for production.

Question 28

Financial budgets are normally completed after preparation of operating and capital expenditure budgets.

Question 29

For budgets to be effective:

A) Goals should be attainable.
B) Employees affected by a budget should be consulted when it is prepared.
C) Evaluations should be made carefully with opportunities to explain any failures.
D) They should be properly applied to avoid negative effects.
E) All of these.

Question 30

The sales budget is derived from the production budget.

Question 31

Traditional budgeting is generally better than activity-based budgeting when attempting to reduce costs by eliminating nonvalue-added activities.

Question 32

The budgeted balance sheet is prepared from data contained in the previously prepared components of the master budget.

Question 33

A manufacturing budget should include a list of equipment to be scrapped and additional equipment to be purchased if the proposed production budget is carried out.

Question 34

A formal statement of future plans, usually expressed in monetary terms, is a:

A) Variance report.
B) Position statement.
C) Budget.
D) Prospectus.
E) Variance analysis.

Question 35

A cash budget is a plan that includes the expected cash receipts and cash expenditures during each of the periods that it covers.

Question 36

A capital expenditures budget is prepared before the operating budgets.

Question 37

The budget process is a continuous activity of planning, revising, and evaluating business activities.

Question 38

Activity-based budgeting is a budget system based on expected activities and their activity levels, which helps management plan for the resources required.

Question 39

Production budgets should always show both budgeted units of product and costs.

Question 40

If budgeted beginning inventory is $8,300, budgeted ending inventory is $9,400, and cost of goods sold is expected to be $10,260, then budgeted purchases should be $9,160.
Budgeted purchases = $9,400 + $10,260 - $8,300 = $11,360

Question 41

Guidance for preparing a master budget is usually the responsibility of:

A) The company CEO.
B) The marketing department.
C) A budget committee.
D) The chief financial officer.
E) Lower level management.

Question 42

A plan that lists the types and amounts of operating expenses expected that are not included in the selling expenses budget is a:

A) General and administrative expense budget.
B) Sales budget.
C) Cash payments budget.
D) Overhead budget.
E) Selling expense budget.

Question 43

Which of the following statements about budgeting is false?

A) Budgeting is an aid to planning and control.
B) Budgets create standards for performance evaluation.
C) Budgets help coordinate the activities of the entire organization.
D) Budgeting forces managers to think ahead and formalize long-range objectives.
E) The master budget should only be prepared by top management.

Question 44

The overall coordinating activity of the budget process is the responsibility of the:

A) Chief Accounting Officer.
B) Chief Executive Officer (CEO).
C) Chief Financial Officer (CFO).
D) Budget Committee.
E) Board of Directors.

Question 45

A comprehensive or overall formal plan for a business that includes specific plans for expected sales, the units of product to be produced, the merchandise or materials to be purchased, the expenses to be incurred, the long-term assets to be purchased, and the amounts of cash to be borrowed or loans to be repaid, as well as a budgeted income statement and balance sheet, is called a:

A) Master budget.
B) Cash budget.
C) Capital expenditures budget.
D) Rolling budget.
E) Production budget.

Question 46

Financial budgets include all the following except the:

A) Sales budget.
B) Budgeted balance sheet.
C) Budgeted income statement.
D) Cash budget.
E) All of these are financial budgets.

Question 47

The master budget includes:

A) Operating budgets.
B) A capital expenditures budget.
C) A budgeted income statement.
D) A cash budget.
E) All of these.

Question 48

A budget system based on expected activities and their levels that enables management to plan for resources required to perform the activities is:

A) Traditional budgeting.
B) Management budgeting.
C) Master budgeting.
D) Activity-based budgeting.
E) Cash budgeting.

Question 49

A budget is best described as:

A) A formal statement of a company's future plans usually expressed in monetary terms.
B) A master control device.
C) An informal statement of company's future plans usually expressed in monetary terms.
D) The most crucial component of a company's evaluation process.
E) The minimum acceptable performance level.

Question 50

The usual starting point for preparing a master budget is forecasting or estimating:

A) Expenditures.
B) Sales.
C) Production.
D) Income.
E) Cash payments.

Question 51

The set of periodic budgets that are prepared and periodically revised in the practice of continuous budgeting are called:

A) Production budgets.
B) Sales budgets.
C) Cash budgets.
D) Rolling budgets.
E) Capital expenditures budgets.

Question 52

The most useful budget figures are developed:

A) From the "top-down".
B) From the "bottom-up" following a participatory process.
C) Solely by the budget committee.
D) By the CEO.
E) After the accounting period has begun.

Question 53

Which of the following budgets is not an operating budget?

A) Sales budget.
B) Cash budget.
C) General and administrative expense budget.
D) Selling expenses budget.
E) Merchandise purchases.

Question 54

Which of the following is not a result of following a well-designed budgeting process?

A) Improved decision-making processes.
B) Improved performance evaluations.
C) Improved coordination of business activities.
D) Assurance of future profits.
E) All of these are benefits of effective budgeting.

Question 55

Assuming a bottom-up process of budget development, which of the following should be initially responsible for developing sales estimates?

A) The budget committee.
B) The accounting department.
C) The sales department.
D) Top management.
E) The marketing department.

Question 56

Which of the following is a benefit derived from budgeting?

A) Budgeting focuses management's attention on the future.
B) Budgeting provides coordination of departments.
C) Budgeting provides a basis for evaluating performance.
D) Budgeting provides motivation for managers and employees.
E) All of these.

Question 57

Operating budgets include all the following budgets except the:

A) Sales budget.
B) Selling expense budget.
C) Cash budget.
D) Merchandise purchases budget.
E) General and administrative expense budget.

Question 58

The practice of preparing budgets for each of several future periods and revising those budgets as each period is completed, adding a new budget each period so that the budgets always cover the same number of future periods, is called:

A) Participatory budgeting.
B) Capital budgeting.
C) Balanced budgeting.
D) Continuous budgeting.
E) Primary budgeting.

Question 59

The usual budget period is:

A) An annual period of 250 working days.
B) A monthly period separated into daily budgets.
C) A quarterly period separated into weekly budgets.
D) An annual period separated into weekly budgets.
E) An annual period separated into quarterly and monthly budgets.

Question 60

The master budget process usually ends with:

A) The production budget.
B) The sales budget.
C) The selling expense budget.
D) The budgeted balance sheet.
E) The overhead budget.

Question 61

If budgeted beginning inventory is $8,300, budgeted ending inventory is $9,400, and budgeted cost of goods sold is $10,260, budgeted purchases should be:

A) $860
B) $1,100
C) $1,960
D) $9,160
E) $11,360

Question 62

Which of the following factors is least likely to be considered in preparing a sales budget?

A) Plant capacity.
B) General economic and industry conditions.
C) Past sales volume.
D) The capital expenditures budget.
E) Proposed selling expenses, such as advertising.

Question 63

A plan that shows the expected cash inflows and cash outflows during the budget period, including receipts from loans needed to maintain a minimum cash balance and repayments of such loans, is called a(n):

A) Capital expenditures budget.
B) Operating budget.
C) Rolling budget.
D) Cash budget.
E) Income statement.

Question 64

A plan showing the planned sales units and the revenue to be derived from these sales, and is the usual starting point in the budgeting process, is called the:

A) Operating budget.
B) Business plan.
C) Income statement budget.
D) Merchandise purchases budget.
E) Sales budget.

Question 65

A quantity of merchandise or materials over the minimum needed that reduces the risk of running short is called:

A) Just-in-time inventory.
B) Budgeted stock.
C) Continuous inventory.
D) Capital stock.
E) Safety stock.

Question 66

Barrett's Fashions forecasts sales of $125,000 for the quarter ended December 31. Its gross profit rate is 20% of sales, and its September 30 inventory is $32,500. If the December 31 inventory is targeted at $41,500, budgeted purchases for the fourth quarter should be:

A) $134,000.
B) $109,000.
C) $91,500.
D) $25,000.
E) $91,000.

Question 67

The sales budget for Carmel shows that 20,000 units of Product A and 22,000 units of Product B are going to be sold for prices of $10 and $12, respectively. The desired ending inventory of Product A is 20% higher than its beginning inventory of 2,000 units. The beginning inventory of Product B is 2,500 units. The desired ending inventory of B is 3,000 units. Total budgeted sales of both products for the year would be:

A) $42,000.
B) $200,000.
C) $264,000.
D) $464,000.
E) $500,000.

Question 68

A plan that lists the types and amounts of selling expenses expected during the budget period is called a(n):

A) Sales budget.
B) Operating budget.
C) Capital expenditures budget.
D) Selling expense budget.
E) Purchases budget.

Question 69

A sporting goods store purchased $7,000 of ski boots in October. The store had $3,000 of ski boots in inventory at the beginning of October, and expects to have $2,000 of ski boots in inventory at the end of October to cover part of anticipated November sales. What is the budgeted cost of goods sold for October?

A) $5,000.
B) $7,000.
C) $8,000.
D) $9,000.
E) $10,000.

Question 70

Fairway's April sales forecast projects that 6,000 units will sell at a price of $10.50 per unit. The desired ending inventory is 30% higher than the beginning inventory, which was 1,000 units. Budgeted purchases of units in April would be:

A) 6,000 units.
B) 7,000 units.
C) 6,300 units.
D) 7,300 units.
E) Some other amount.

Question 71

A plan that reports the units or costs of merchandise to be purchased by a merchandising company during the budget period is called a:

A) Selling expenses budget.
B) Merchandise purchases budget.
C) Sales budget.
D) Cash budget.
E) Capital expenditures budget.

Question 72

The sales budget for Carmel shows that 20,000 units of Product A and 22,000 units of Product B are going to be sold for prices of $10 and $12, respectively. The desired ending inventory of Product A is 20% higher than its beginning inventory of 2,000 units. The beginning inventory of Product B is 2,500 units. The desired ending inventory of B is 3,000 units. Budgeted purchases of Product A for the year would be:

A) 22,400 units.
B) 20,400 units.
C) 20,000 units.
D) 19,500 units.
E) 12,200 units.

Question 73

Bentels Co. desires a December 31 ending inventory of 2,840 units. Budgeted sales for December are 4,000 units. The November 30 inventory was 1,800 units. Budgeted purchases are:

A) 5,040 units.
B) 1,240 units.
C) 6,840 units.
D) 4,000 units.
E) 5,800 units.

Question 74

A department store has budgeted sales of 12,000 men's suits in September. Management wants to have 6,000 suits in inventory at the end of the month to prepare for the winter season. Beginning inventory for September is expected to be 4,000 suits. What is the dollar amount of the purchase of suits? Each suit has a cost of $75.

A) $750,000.
B) $900,000.
C) $1,050,000.
D) $1,200,000.
E) $1,350,000.

Question 75

A plan that lists dollar amounts to be received from disposing of plant assets and dollar amounts to be spent on purchasing additional plant assets is called a:

A) Cash budget.
B) Capital expenditures budget.
C) Rolling budget.
D) Sales budget.
E) Production budget.

Question 76

When preparing the cash budget, all the following should be considered except:

A) Cash receipts from customers.
B) Cash payments for merchandise.
C) Depreciation expense.
D) Cash payments for income taxes.
E) Cash payments for capital expenditures.

Question 77

The sales budget for Carmel shows that 20,000 units of Product A and 22,000 units of Product B are going to be sold for prices of $10 and $12, respectively. The desired ending inventory of Product A is 20% higher than its beginning inventory of 2,000 units. The beginning inventory of Product B is 2,500 units. The desired ending inventory of B is 3,000 units. Budgeted purchases of Product B for the year would be:

A) 24,500 units.
B) 22,500 units.
C) 16,500 units.
D) 26,500 units.
E) 20,500 units.

Question 78

Stritch Company is trying to decide how many units of merchandise to order each month. The company's policy is to have 20% of the next month's sales in inventory at the end of each month. Projected sales for August, September, and October are 30,000 units, 20,000 units, and 40,000 units, respectively. How many units must be purchased in September?

A) 14,000.
B) 20,000.
C) 22,000.
D) 24,000.
E) 28,000.

Question 79

A June sales forecast projects that 6,000 units are going to be sold at a price of $10.50 per unit. The desired ending inventory of units is 15% higher than the beginning inventory of 1,000 units. Total June sales are anticipated to be:

A) $63,000.
B) $67,500.
C) $61,250.
D) $74,250.
E) $60,000.

Question 80

Ecology Co. sells a biodegradable product called Dissol and has predicted the following sales for the first four months of the current year: Ending inventory for each month should be 20% of the next month's sales, and the December 31 inventory is consistent with that policy. How many units should be purchased in February?

A) 1,860.
B) 1,900.
C) 1,940.
D) 1,980
E) 2,320.