Deck 23: Operational Budgeting

Question 1

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

Answer 1

False

Question 2

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

Answer 2

True

Question 3

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.

Answer 3

False

Question 4

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 5

A master budget actually includes a number of related budgets.

Question 6

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

Question 7

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

Question 8

A budget provides a comprehensive plan enabling multiple departments to work together in a coordinated manner.

Question 9

Once a company determines its desired production level,it uses that estimated production level to forecast sales for the period.

Question 10

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

Question 11

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

Question 12

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

Question 13

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

Question 14

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

Question 15

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

Question 16

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

Question 17

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

Question 18

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

Question 19

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

Question 20

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

Question 21

A common means of performance evaluation occurs by comparing budgeted amounts with actual amounts.

Question 22

The most widely used budgeting philosophy is the:

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

Question 23

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

Question 24

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 25

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

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

Question 26

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

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

Question 27

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 28

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)Quarterly budget.

Question 29

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

Question 30

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

Question 31

Capital expenditures budgets are typically prepared for a period of:

A)3 months.
B)6 months.
C)One year.
D)Several years.

Question 32

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 33

Benefits derived from budgeting include all of the following except:

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

Question 34

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 35

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)The strategic approach.
D)The master budget approach.

Question 36

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

Question 37

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

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

Question 38

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 39

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 40

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

Question 41

Which of the following is considered an operating budget?

A)The prepayments budget
B)The debt service budget
C)The customer service budget
D)The capital expenditures budget

Question 42

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 43

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

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

Question 44

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 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

[The following information applies to the questions displayed below.]
The following information is from the manufacturing budget and budgeted financial statements of Altman Corp.:

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 47

[The following information applies to the questions displayed below.]
Ross Corporation makes all sales on account.The June 30th balance sheet balance in its accounts receivable is $400,000,of which $240,000 pertain to sales that were made during June.Budgeted sales for July are $1,250,000.Ross collects 70% of sales in the month of sale;20% in the following month;and the final 10% in the second month after the sale.
What are Ross's budgeted collections for July?

A)$1,275,000
B)$939,000
C)$1,195,000
D)$915,000

Question 48

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 49

[The following information applies to the questions displayed below.]
The following information is from the manufacturing budget and budgeted financial statements of Altman Corp.:

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

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

Question 50

[The following information applies to the questions displayed below.]
The following information is from the manufacturing budget and budgeted financial statements of Altman Corp.:

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

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

Question 51

[The following information applies to the questions displayed below.]
On March 1,Hugh Corporation plans to borrow $550,000 from the Scotland State Bank by signing a 12%,15-year note payable.The note calls for 180 monthly payments of $6,000,which includes both interest and principal components.
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 52

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 sales forecast.
D)Anticipation of operating expenses.

Question 53

[The following information applies to the questions displayed below.]
Ross Corporation makes all sales on account.The June 30th balance sheet balance in its accounts receivable is $400,000,of which $240,000 pertain to sales that were made during June.Budgeted sales for July are $1,250,000.Ross collects 70% of sales in the month of sale;20% in the following month;and the final 10% in the second month after the sale.
What is the budgeted balance of Ross's accounts receivable as of July 31?

A)$375,000
B)$455,000
C)$415,000
D)$396,000

Question 54

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 55

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 56

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 57

[The following information applies to the questions displayed below.]
On March 1,Hugh Corporation plans to borrow $550,000 from the Scotland State Bank by signing a 12%,15-year note payable.The note calls for 180 monthly payments of $6,000,which includes both interest and principal components.
Hugh's budgeted interest expense for March is:

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

Question 58

Which of the following is considered a financial budget?

A)The marketing budget
B)The cost of goods sold budget
C)The overhead budget
D)The capital expenditures budget

Question 59

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 60

[The following information applies to the questions displayed below.]
The following information is from the manufacturing budget and budgeted financial statements of Altman Corp.:

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 61

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 62

[The following information applies to the questions displayed below.]
On October 1 of the current year,Molloy Corporation prepared a cash budget for October,November,and December.All of Molloy's sales are made on account.The following information was used in preparing estimated cash collections:
Approximately 60% of all sales are collected in the month of the sale,30% is collected in the following month,and 10% is collected in the month thereafter.
Budgeted collections from customers in October total:

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

Question 63

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 64

[The following information applies to the questions displayed below.]
Skelton Corporation had planned to produce 50,000 units of product during the first quarter of the current year.The company prepared the following budget on May 1:
During the first quarter,Skelton produced 60,000 units and incurred total manufacturing costs of $184,000.
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

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 66

A flexible budget:

A)Consists of 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 67

[The following information applies to the questions displayed below.]
Baskin Promotions,Inc.sells T-shirts decorated for a variety of concert performers.The company has developed the following budget for the coming year based on a sales forecast of 80,000 T-shirts:
Cost of goods sold and variable operating expenses vary directly with sales,and the income tax rate is 30% at all levels of operating income.
If the concert season is slow due to poor weather,Baskin estimates that sales could fall to as low as 60,000 T-shirts.
What unit cost did Baskin use in budgeting the cost of goods sold for the year?

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

Question 68

[The following information applies to the questions displayed below.]
Skelton Corporation had planned to produce 50,000 units of product during the first quarter of the current year.The company prepared the following budget on May 1:
During the first quarter,Skelton produced 60,000 units and incurred total manufacturing costs of $184,000.
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 69

[The following information applies to the questions displayed below.]
Baskin Promotions,Inc.sells T-shirts decorated for a variety of concert performers.The company has developed the following budget for the coming year based on a sales forecast of 80,000 T-shirts:
Cost of goods sold and variable operating expenses vary directly with sales,and the income tax rate is 30% at all levels of operating income.
If the concert season is slow due to poor weather,Baskin estimates that sales could fall to as low as 60,000 T-shirts.
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 70

[The following information applies to the questions displayed below.]
Baskin Promotions,Inc.sells T-shirts decorated for a variety of concert performers.The company has developed the following budget for the coming year based on a sales forecast of 80,000 T-shirts:
Cost of goods sold and variable operating expenses vary directly with sales,and the income tax rate is 30% at all levels of operating income.
If the concert season is slow due to poor weather,Baskin estimates that sales could fall to as low as 60,000 T-shirts.
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 71

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 72

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 73

A budget that can be easily adjusted 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 74

A factory produces 50,000 units for the month of June,although its budgeted output was 40,000 units.In this case:

A)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 75

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 76

[The following information applies to the questions displayed below.]
On October 1 of the current year,Molloy Corporation prepared a cash budget for October,November,and December.All of Molloy's sales are made on account.The following information was used in preparing estimated cash collections:
Approximately 60% of all sales are collected in the month of the sale,30% is collected in the following month,and 10% is collected in the month thereafter.
Budgeted collections from customers in December total:

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

Question 77

[The following information applies to the questions displayed below.]
Skelton Corporation had planned to produce 50,000 units of product during the first quarter of the current year.The company prepared the following budget on May 1:
During the first quarter,Skelton produced 60,000 units and incurred total manufacturing costs of $184,000.
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 78

As the volume of output decrease:

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 79

[The following information applies to the questions displayed below.]
On October 1 of the current year,Molloy Corporation prepared a cash budget for October,November,and December.All of Molloy's sales are made on account.The following information was used in preparing estimated cash collections:
Approximately 60% of all sales are collected in the month of the sale,30% is collected in the following month,and 10% is collected in the month thereafter.
Budgeted collections from customers in November total:

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

Question 80

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.