Question 1

The budget that is a comprehensive financial plan for the organization as a whole is called a
A)capital budget.
B)master budget.
C)comprehensive budget.
D)continuous budget.

Accepted Answer

The master budget is a comprehensive financial plan for the entire organization that projects future revenues, expenses, and cash flows. It includes individual budgets for sales, production, overhead expenses, capital expenditures, cash inflows and outflows, and net income.

Question 2

Figure 15-3
Projected sales for Sommers, Inc., for next year and beginning and ending inventory data are as follows: $\begin{array}{lr}
\text { Sales } & 50,000 \text { units } \
\text { Beginning inventory } & 4,000 \text { units } \
\text { Desired ending inventory } & 8,000 \text { units }
\end{array}$ The selling price is £40 per unit. Each unit requires four pounds of material which costs £6 per pound. The beginning inventory of raw materials is 12,000 pounds. The company wants to have 3,000 pounds of material in inventory at the end of the year.
-Refer to Figure 15-3. According to Sommers' production budget, how many units should be produced?
A)54,000
B)46,000
C)62,000
D)38,000

Accepted Answer

To determine the number of units Sommers, Inc. should produce, we use the formula: Required production = Sales + Desired ending inventory - Beginning inventory. Plugging in the given numbers: Required production = 50,000 units + 8,000 units - 4,000 units = 54,000 units.

Question 3

The first step in planning and control is
A)preparation of the budget.
B)performance evaluation.
C)strategic planning.
D)setting long-term objectives.

Accepted Answer

Strategic planning is the first step in planning and control because it involves setting the overall direction, mission, and goals of the organization. Without a clear strategic plan, it is difficult to prepare a budget, evaluate performance, or set long-term objectives.

Question 4

The first step in the budgeting process is the preparation of the
A)production budget.
B)selling and administrative expenses budget.
C)sales forecast.
D)cash budget.

Accepted Answer

The first step in the budgeting process is to prepare a sales forecast. This is because the sales forecast drives all other budgets and estimates in the budgeting process. Without a sales forecast, the organization would not know how much to spend on production, selling and administrative expenses, capital expenditures, or financing. Therefore, a sales forecast is the starting point for all budgeting activities.

Question 5

Continuous budgeting requires managers to
A)add a future month as the current month expires.
B)constantly update the budget to include new information.
C)continuously refer to the budget when making decisions.
D)assign budgeting responsibilities to a defined group of employees.

Accepted Answer

Continuous budgeting involves adding a future month as the current month expires to maintain a rolling budget.

Question 6

A budget is
A)a planning tool.
B)a control tool.
C)a means of communicating goals to the firm's divisions.
D)all of the above.

Accepted Answer

A budget is all of the above. It is a planning tool used to set expectations and goals, a control tool used to monitor performance and make adjustments, and a means of communicating the company's objectives to its various divisions.

Question 7

A bank manager may review a company's cash budget to
A)determine whether the firm will earn net income.
B)uncover possible employee theft.
C)evaluate the company's ability to repay a loan.
D)do all of the above.

Accepted Answer

A company's cash budget shows the amount of cash they expect to have available in the future. This information is important for a bank manager to evaluate the company's ability to repay a loan. It does not provide information on net income or possible employee theft.

Question 8

The production budget
A)summarizes the cost of producing units for the budget period.
B)is calculated based on the sales budget and the desired ending inventory.
C)specifies the required overhead.
D)specifies the required direct labour hours.

Accepted Answer

The production budget is calculated based on the sales budget and the desired ending inventory. It summarizes the production cost and the number of units to be produced during a budget period. Overhead and direct labor hours may be included in the budget, but they are not the primary focus of the production budget.

Question 9

Feedee Company has budgeted sales and production (in units) over the next three months as follows: $$\begin{array} { l c c c } 
& \text { January } & \text { February } & \text { March } \
\text { Sales } & 50,000 & ? & 80,000 \
\text { Froduction } & 52,000 & 64,000 & 78,000
\end{array}$$ There are 10,000 units on hand on January 1. A minimum of 20 per cent of the next month's sales in units must be on hand at the end of each month. April sales are expected to be 70,000. Budgeted sales for February would be
A)64,000.
B)78,000.
C)60,000.
D)52,000.

Accepted Answer

To find the budgeted sales for February, we need to consider the inventory requirements and the production and sales data provided. 1. **January Ending Inventory Requirement:** 20% of February's sales (since February's sales are unknown, we'll call this X). So, the requirement is 0.20X.2. **January Starting Inventory:** 10,000 units + January Production (52,000 units) - January Sales (50,000 units) = 12,000 units available at the end of January.3. **February Ending Inventory Requirement:** 20% of March's sales = 20% of 80,000 = 16,000 units.4. **February's Starting Inventory:** This is January's ending inventory, which we calculated as 12,000 units.5. **February's Production:** 64,000 units.Given this, the total units available in February = February's starting inventory (12,000 units) + February's production (64,000 units) = 76,000 units.To meet March's beginning inventory requirement (February's ending inventory), we need 16,000 units, meaning the units available for February's sales = 76,000 units - 16,000 units = 60,000 units.Therefore, February's sales must be 60,000 units to meet the inventory requirements and production capabilities.

Question 10

A moving twelve-month budget where a future month is added as the current month expires is called a(n)
A)zero-base budget.
B)incremental budget.
C)revolving budget.
D)continuous budget.

Accepted Answer

A moving twelve-month budget where a future month is added as the current month expires is known as a continuous budget. This approach allows for ongoing budget adjustments and planning.

Question 11

Jiggy Company plans to sell 33,000 units during the month of May. The company plans to have 2,500 units on hand at the end of the month. If 1,200 units are on hand on May 1, how many units must be produced during May?
A)33,000
B)35,500
C)34,300
D)31,800

Accepted Answer

To find the number of units that must be produced during May, we need to use the following formula:

Units to be produced = planned sales + desired ending inventory - beginning inventory

Planned sales = 33,000 
Desired ending inventory = 2,500 
Beginning inventory = 1,200

Units to be produced = 33,000 + 2,500 - 1,200 = 34,300

Therefore, the answer is (C) 34,300 units.

Question 12

Activity-based budgeting
A)is a more powerful planning and control tool than a functional-based budget system.
B)starts with sales and production budgets similar to a functional-based budget system.
C)is simpler to construct than a functional-based budget system.
D)Both a and b above are correct.

Accepted Answer

Activity-based budgeting is a more powerful planning and control tool than a functional-based budget system as it focuses on the activities involved in producing goods or services rather than just the functions or departments. It also starts with sales and production budgets, similar to a functional-based budget system. Therefore, both options A and B are correct. Option C is incorrect as activity-based budgeting is often more complex to construct due to the detailed analysis of activities required.

Question 13

Which of the following appears in the cash budget?
A)interest payments
B)purchase of equipment on credit
C)depreciation
D)all of the above

Accepted Answer

The cash budget only includes cash inflows and outflows, therefore only interest payments, which are a cash outflow, will appear in the budget. Choices B and C involve non-cash transactions (equipment on credit and depreciation) and do not affect the cash budget.

Question 14

Which budget is prepared without monetary amounts?
A)direct materials purchases budget
B)overhead budget
C)production budget
D)all of the above

Accepted Answer

The production budget is prepared without monetary amounts, as it simply outlines the expected quantity of units to be produced during a certain time period. The direct materials purchases budget and overhead budget both involve monetary amounts as they outline the expected costs of direct materials and overhead expenses, respectively.

Question 15

Which of the following is an advantage of the budgeting process?
A)Budgeting provides resource information for decision making.
B)Budgeting provides a standard for performance evaluation.
C)Budgeting improves communication and coordination within the organization.
D)all of the above

Accepted Answer

All of the options are advantages of the budgeting process. Budgeting provides resource information for decision making, as it helps organizations determine how much money they have available to allocate towards different initiatives. Budgeting also provides a standard for performance evaluation, as it allows organizations to compare actual results against budgeted expectations. Finally, budgeting improves communication and coordination within the organization by aligning everyone towards common goals and objectives.

Question 16

Figure 15-3
Projected sales for Sommers, Inc., for next year and beginning and ending inventory data are as follows: $\begin{array}{lr}
\text { Sales } & 50,000 \text { units } \
\text { Beginning inventory } & 4,000 \text { units } \
\text { Desired ending inventory } & 8,000 \text { units }
\end{array}$ The selling price is £40 per unit. Each unit requires four pounds of material which costs £6 per pound. The beginning inventory of raw materials is 12,000 pounds. The company wants to have 3,000 pounds of material in inventory at the end of the year.
-Refer to Figure 15-3. Sommers' budgeted sales would be
A)£2,160,000.
B)£2,320,000.
C)£2,480,000.
D)£2,000,000.

Accepted Answer

The budgeted sales are calculated by multiplying the projected sales units (50,000) by the selling price per unit (£40), resulting in £2,000,000.

Question 17

Which of the following is usually prepared before the production budget?
A)direct materials purchases budget
B)direct labour budget
C)sales budget
D)cash budget

Accepted Answer

The sales budget is usually prepared before the production budget because the production budget is based on the sales forecast. The sales forecast provides the information needed to determine how much of each product needs to be produced, which in turn affects the direct materials purchases and direct labour budgets. The cash budget is also usually prepared after the production budget, as it takes into account the cash inflows and outflows related to production and sales activities.

Question 18

Which of the following is usually prepared before the direct materials purchases budget?
A)production budget
B)cash budget
C)pro forma income statement
D)pro forma balance sheet

Accepted Answer

The production budget is usually prepared before the direct materials purchases budget because it provides information on how much raw materials will be needed for production.

Question 19

Which of the following is true about budgets?
A)Budgets are financial plans for the future.
B)Budgets identify objectives and the actions needed to achieve them.
C)Budgets should be tightly linked to the strategic plan.
D)all of the above

Accepted Answer

All three options are true about budgets. Budgets are financial plans for the future that enable organizations to identify objectives and the actions necessary to achieve them. Budgets should be well aligned with the company's strategic plan, which outlines the organization's goals, mission, values, and vision.

Question 20

Jiggy Company plans to sell 33,000 units during the month of May. Beginning inventory was 1,200 units. The company plans to have 2,500 units on hand at the end of the month. Each unit requires 3 pounds of raw materials. If raw material inventory on May 1 is 4,400 pounds and desired ending inventory is 2,200 pounds, how many pounds of raw materials must be purchased during May?
A)103,500
B)102,900
C)105,100
D)100,700

Accepted Answer

The answer of Jiggy Company plans to sell 33,000 units...

Quiz 15: The Budgeting Process

The budget that is a comprehensive financial plan for the organization as a whole is called a

The first step in planning and control is

The first step in the budgeting process is the preparation of the

Continuous budgeting requires managers to

A budget is

A bank manager may review a company's cash budget to

The production budget

A moving twelve-month budget where a future month is added as the current month expires is called a(n)

Jiggy Company plans to sell 33,000 units during the month of May. The company plans to have 2,500 units on hand at the end of the month. If 1,200 units are on hand on May 1, how many units must be produced during May?

Activity-based budgeting

Which of the following appears in the cash budget?

Which budget is prepared without monetary amounts?

Which of the following is an advantage of the budgeting process?

Which of the following is usually prepared before the production budget?

Which of the following is usually prepared before the direct materials purchases budget?

Which of the following is true about budgets?