Question 1

All of the dollar amounts in the cash receipts budget represent revenues earned in the current period.

Accepted Answer

The cash receipts budget can also include expected revenues from future periods if the company has made prepayments or has customers with payment plans.

Question 2

One way a company can perform "what if" budget analysis is by preparing a flexible budget.

Accepted Answer

A flexible budget is designed to adjust for changes in activity levels, allowing a company to perform "what if" scenarios by plugging in different sales or production figures and seeing how the budget would change.

Question 3

The selling and administrative expense budget is based on the numbers in the production budget.

Accepted Answer

The selling and administrative expense budget is based on factors other than the production budget, such as the company's marketing and administrative plans and strategies.

Question 4

A zero-based budgeting is easier to prepare because it is based on prior period's activity levels.

Accepted Answer

Zero-based budgeting requires each expense to be justified and evaluated, regardless of the prior period's activity levels. It starts from scratch and requires a thorough analysis of all expenses, making it more time-consuming to prepare compared to traditional budgeting.

Question 5

The sales budget is constructed after the production budget is finalized based on a company's capacity.

Accepted Answer

The sales budget is actually constructed before the production budget. It outlines the expected sales revenue for the upcoming period, which is then used to determine the amount of production capacity needed.

Question 6

Budgets are useful in the control process because they provide a basis for evaluating performance.

Accepted Answer

Budgets set specific goals and targets for different departments or individuals within an organization. By comparing actual results to budgeted amounts, managers can evaluate performance and identify areas where corrective action may be necessary. This helps in the control process by providing a benchmark against which actual results can be measured and evaluated.

Question 7

Generally, budgets that span longer time periods provide less detail than those spanning shorter time periods.

Accepted Answer

This is because as the time period increases, there is more uncertainty and variability in the future, making it difficult to predict and plan for every detail. Therefore, longer-term budgets tend to focus on broader categories and goals rather than specific line items.

Question 8

A company will often have cash flow problems ahead of a period of increasing sales.

Accepted Answer

The answer of A company will often have cash flow...

Question 9

The budgeted balance sheet is also called a pro-forma balance sheet.

Accepted Answer

The budgeted balance sheet is also known as a pro-forma balance sheet as it represents the estimated financial position of a company based on the budgeted income and expenses.

Question 10

If the number of units produced equals the number of units sold, the number of units in ending inventory will equal the number of units in beginning inventory on the production budget.

Accepted Answer

If the number of units produced equals the number of units sold, then there will be no change in inventory levels, and the number of units in ending inventory will be equal to the number of units in beginning inventory. This assumption is a key component of the production budget.

Question 11

A company that utilizes just-in-time inventory eliminates the need for budgeting.

Accepted Answer

While just-in-time inventory eliminates the need for holding excess inventory, budgeting is still necessary for managing expenses, forecasting revenue, and making strategic decisions.

Question 12

A bottom-up approach to budgeting involves substantial input from lower-level managers.

Accepted Answer

A bottom-up approach to budgeting involves input from lower-level managers who have a deeper understanding of the organization's operational needs and resources. This approach can lead to more accurate and detailed budgets, as well as increased buy-in from employees at all levels.

Question 13

Changes in economic conditions can be one of the causes for significant deviations from the planned performance.

Accepted Answer

Economic conditions such as recessions, inflation, and shifts in the market can all affect a company's performance and cause deviations from planned outcomes.

Question 14

Only manufacturing firms need to prepare a production budget.

Accepted Answer

The answer of Only manufacturing firms need to prepare a...

Question 15

A budget is a formal document that quantifies a company's plans for achieving its goals.

Accepted Answer

A budget is a formal document that outlines a company's financial plans and goals, including expected revenues and expenses. It is used as a tool for monitoring and controlling the company's financial performance.

Question 16

The first step in the budget process is preparing the sales forecast.

Accepted Answer

The preparation of a sales forecast is the first step in the budget process. This helps to determine the expected revenue for the budget period and provides the basis for planning and allocating resources in other areas such as production, marketing, and personnel.

Question 17

Differences between budgeted and actual amounts are referred to as flexible budgets.

Accepted Answer

Differences between budgeted and actual amounts are referred to as variances, not flexible budgets. Flexible budgets adjust or flex for changes in the volume of activity.

Question 18

Most managers believe that budgeting is more successful when a bottom-up approach rather than a top-down approach is used.

Accepted Answer

Most managers prefer a bottom-up approach to budgeting, where employees at all levels of the organization are involved in the budgeting process and provide input on their department's needs and expenses. This approach is seen as more effective as it increases employee engagement and ownership in the budgeting process, leading to greater accountability and better alignment of resources with actual needs. A top-down approach, on the other hand, involves senior management determining the budget for the organization and then imposing it on lower levels without their input, leading to potential resistance and lack of buy-in from employees.

Question 19

The costs of acquisitions in the material purchases budget appear on the budgeted income statement as part of cost of goods sold.

Accepted Answer

The answer of The costs of acquisitions in the material...

Question 20

The amount and timing of cash flows is the focus of the cash receipts and disbursements budget.

Accepted Answer

The cash receipts and disbursements budget focuses on the amount and timing of cash flows, including inflows and outflows. It is used to plan and monitor the organization's cash position and ensure sufficient cash availability to meet its short-term obligations.

Quiz 10: Budgetary Planning and Control