Question 1

Ace Ladders has fewer units in beginning finished goods inventory than in ending finished goods inventory. The number of units sold is

Accepted Answer

If the ending finished goods inventory is higher than the beginning inventory, it means that not all produced goods were sold, indicating that the number of units sold is less than the number of units produced.

Question 2

The master budget incorporates individual budgets including those for

Accepted Answer

The master budget includes all of the individual budgets for specific areas of the company such as direct materials, direct labor, and selling and administrative expenses, which are essential to developing a comprehensive financial plan for the organization. The master budget is not concerned with multiple levels of sales volume, past and future accounting periods, or individual employees.

Question 3

Which of the following budgets is prepared last?

Accepted Answer

The budgeted balance sheet is prepared last as it requires information from all other budgets such as sales, production, expenses, and capital acquisitions. Once all of these budgets are prepared, the budgeted balance sheet can be completed to show the financial position of the company at the end of the budget period.

Question 4

A method of budget preparation that requires all budgeted amounts to be justified, even if the amounts were supported in prior periods, is called

Accepted Answer

Zero-based budgeting requires all budgeted amounts to be justified, even if they were supported in prior periods. This approach starts from a "zero base" and requires every activity or expense to be justified, rather than simply adjusting figures from the previous year. This can lead to a more detailed and accurate budget, as well as potential cost savings.

Question 5

Which of the following is not a method that can reasonably be used to forecast sales?

Accepted Answer

Production capacity is a factor that can impact the volume of sales, but it is not a method that can be used to forecast sales. The other options listed (trends in sales data, estimates from salespersons, and mathematical models adjusted by experienced managers) are all commonly used methods to forecast sales.

Question 6

Which of the following is not used in deciding how many units to produce in a period?

Accepted Answer

The number of units of raw material needed for production is used in deciding how many units to purchase, but not in deciding how many units to produce in a period. The other options all relate to production planning and inventory management.

Question 7

A significant difference between the direct material purchases budget and the direct labor budget is that the direct material purchases budget

Accepted Answer

The direct material purchases budget considers the beginning and ending inventory amounts in order to determine the amount of materials that need to be purchased, while the direct labor budget does not involve inventory amounts. The other options are not correct; the direct material purchases budget and the direct labor budget are both based on units produced, they may both be constructed for each quarter or pay period depending on the company's needs, and their construction approach may vary depending on the company's preference.

Question 8

Concerning relationship between beginning finished goods inventory, ending finished goods inventory, production, and sales, which of the following is true?

Accepted Answer

Production needs to account for the sales made during the period and ensure the ending inventory is at the desired level, starting from the beginning inventory. Therefore, to find the production amount, you add the sales to the ending inventory to cover both sold and unsold goods and then subtract the beginning inventory to account for what was already in stock at the start of the period.

Question 9

Which of the following is not typically a part of the master budget?

Accepted Answer

Performance report budget is not typically a part of the master budget. The other options listed (direct material purchases budget, projected cash receipts and disbursements, and budgeted balance sheet) are commonly included in a master budget.

Question 10

Which of the following statements regarding approaches to budgeting is(are) true?
I. Most managers believe that successful budgeting requires a bottom-up approach.
II. A top-down approach involves substantial input from lower-level managers.

Accepted Answer

I is true because a bottom-up approach to budgeting, where lower-level managers contribute significantly to the budgeting process, is often favored for its inclusivity and accuracy. II is false because a top-down approach typically involves senior management setting the budget with little input from lower-level managers.

Question 11

Which of the following budgets is prepared first?

Accepted Answer

The sales budget is typically prepared first, as it serves as the foundation for many other budgets, such as the production budget, selling and administrative expense budget, and cash budget.

Question 12

Less detailed budgets are associated with

Accepted Answer

Less detailed budgets are typically associated with longer time periods because it becomes increasingly difficult to predict specific expenses and revenues with high accuracy as the time horizon extends.

Question 13

Which of the following items affect the amount of direct material that must be purchased during a period?
I. The amount of raw material in beginning inventory
II. The amount of raw material in ending inventory

Accepted Answer

Both the amount of raw material in beginning inventory and the amount of raw material in ending inventory affect the amount of direct material that must be purchased during a period. The amount of raw material in beginning inventory determines how much material is available to use at the beginning of the period, while the amount of raw material in ending inventory determines how much material is left over at the end of the period. The difference between the two amounts represents the amount of material that was used during the period and must be replenished through purchasing more direct material.

Question 14

Why is setting the sales budget very important?

Accepted Answer

The sales budget is the starting point for the entire master budget, as it is the basis for determining the production budget, the cash budget, and ultimately the budgeted income statement and balance sheet. Therefore, setting an accurate and achievable sales budget is crucial for the success of the overall budget and the company's financial performance.

Question 15

Which of the following is the correct order for the preparation of the listed budgets?

Accepted Answer

The sales budget should be prepared first as it determines how much product needs to be produced. This information is then used to prepare the production budget, which will determine the amount of direct materials needed. Finally, the direct material purchases budget can be prepared based on the production budget.

Question 16

Which of the following assumptions is made while preparing a sales budget?

Accepted Answer

The sales budget is based on the assumption of the number of units to be sold and the selling price per unit. These are the key factors that determine the total sales revenue. The other options may be taken into consideration in the budgeting process, but they are not the primary assumptions made while preparing a sales budget.

Question 17

While preparing the production budget, the desired ending finished goods inventory for the first period is

Accepted Answer

The desired ending finished goods inventory for the first period becomes the beginning inventory for the second period, ensuring a smooth transition and continuous production flow.

Question 18

Which of the following is a characteristic of zero-based budgeting?

Accepted Answer

Zero-based budgeting requires a fresh consideration of the validity of budget amounts, rather than simply adjusting the prior period's budget. This is the main characteristic of zero-based budgeting. Option A is incorrect because zero-based budgeting does not use the same level of activity as the prior budget period. Option B is incorrect because zero-based budgeting can be relatively more expensive to implement compared to traditional budgeting methods. Option C is incorrect because zero-based budgeting can be used by any type of company, not just manufacturing companies.

Question 19

Which of the following contains at least one item that is not a common method companies use to estimate sales?

Accepted Answer

The other choices all contain common methods for estimating sales - economic models, trends in sales data, and estimates from a company's own sales force. However, expected production levels may not always be used to estimate sales as production can be influenced by factors other than sales projections (such as inventory management or supply chain constraints).

Question 20

Which of the following is the comprehensive planning document that incorporates a number of individual budgets?

Accepted Answer

The master budget is the comprehensive planning document that combines a number of individual budgets, such as sales, production, and capital expenditures. The other options (static, flexible, and collective budget) do not necessarily include multiple budgets.

Quiz 10: Budgetary Planning and Control