Question 1

Budgetary slack means
A)management delays the completion of its annual budget to await important information.
B)the budgetary process is not given a high priority in the company.
C)the budget contains within it intentional under or over estimated items.
D)the budget must be approved by too many senior levels of management before it is finalized.

Accepted Answer

Budgetary slack refers to the intentional under or overestimation of items in a budget, which allows for some flexibility in achieving the budgeted numbers. It is often done to create a cushion or allow for unforeseen circumstances.

Question 2

One statement about budgeting that is generally true is
A)manufacturing companies spend more time on budgets than do service companies.
B)service company budgets tend to change only if there is a major increase or decrease in sales levels from year to year.
C)the budget process is an element of a company's activities and should be used throughout the year to evaluate performance.
D)the budget process is useful to assure shareholders that their interests will be looked after.

Accepted Answer

Budgeting is an ongoing process, not just a one-time event. By evaluating actual results against budgeted expectations throughout the year, a company can take corrective action and make necessary adjustments to achieve its financial goals. Therefore, budgeting should be used throughout the year to evaluate performance. Options A, B, and D are not valid statements about budgeting principles.

Question 3

How does a sales forecast differ from a sales budget?
A)A sales forecast includes the company, while a sales budget includes the industry.
B)A sales forecast includes the company and the industry, while a sales budget includes only the industry.
C)A sales forecast includes the company and the industry, while a sales budget includes only the company.
D)They are both the same.

Accepted Answer

A sales forecast is an estimation of future sales based on past performance and industry trends. It covers the entire industry as well as the company's sales. On the other hand, a sales budget is a financial plan that sets targets for the company's sales revenue, expenses, and profits for a specific period of time. It includes only the company's sales and not the industry. Therefore, choice C is the correct answer.

Question 4

At January 1, 2020, Barry, Inc.has beginning inventory of 5,000 widgets.Barry estimates it will sell 40,000 units during the first quarter of 2020 with a 5% increase in sales each quarter.Barry's policy is to maintain an ending inventory equal to 10% of the next quarter's sales.Each widget costs $2 and is sold for $3.How much is budgeted sales revenue for the third quarter of 2020?
A)$44,100
B)$120,000
C)$132,300
D)$119,070

Accepted Answer

To solve this problem, we need to calculate the number of units Barry plans to sell in each quarter, calculate how many units Barry plans to have in ending inventory at the end of each quarter, and calculate the cost of goods sold and sales revenue for each quarter.

First, let's calculate the number of units Barry plans to sell in each quarter:
- Q1: 40,000 units
- Q2: 40,000 * 1.05 = 42,000 units
- Q3: 42,000 * 1.05 = 44,100 units

Next, let's calculate how many units Barry plans to have in ending inventory at the end of each quarter:
- Q1: 10% of Q2 sales = 4,200 units
- Q2: 10% of Q3 sales = 4,410 units
- Q3: no ending inventory is needed since it is the end of the year

Now, let's calculate the cost of goods sold and sales revenue for each quarter:
- Q1:
Beginning inventory: 5,000 units
Sales: 40,000 units
Ending inventory: 4,200 units
Cost of goods sold: (5,000 + 40,000 - 4,200) * $2 = $82,600
Sales revenue: 40,000 units * $3 = $120,000
- Q2:
Beginning inventory: 4,200 units
Sales: 42,000 units
Ending inventory: 4,410 units
Cost of goods sold: (4,200 + 42,000 - 4,410) * $2 = $85,380
Sales revenue: 42,000 units * $3 = $126,000
- Q3:
Beginning inventory: 4,410 units
Sales: 44,100 units
Ending inventory: 0 units
Cost of goods sold: (4,410 + 44,100 - 0) * $2 = $97,020
Sales revenue: 44,100 units * $3 = $132,300

Therefore, the budgeted sales revenue for the third quarter of 2020 is $132,300. The answer is C.

Question 5

Which one of the following is an operating budget?
A)cash budget
B)sales budget
C)budgeted balance sheet
D)capital expenditure budget

Accepted Answer

An operating budget is a financial plan that outlines the expected revenues and expenses for a specific period, typically one year. The sales budget is a key component of an operating budget, as it estimates the amount of revenue the company will generate from sales. The other options mentioned are also important budgeting tools, but they do not specifically relate to the day-to-day operations of the business.

Question 6

Lewis Hats is planning to sell 650 straw hats in April.Each hat requires ½ kilogram of straw and ¼ hour of direct labour.Straw costs $0.20 per kilogram and employees of the company are paid $22 per hour.Lewis has 80 kilograms of straw and 40 hats in beginning inventory and wants to have 50 kilograms of straw and 60 hats in ending inventory.How many units should Lewis Hats produce in April?
A)650
B)670
C)610
D)710

Accepted Answer

To determine the number of units Lewis Hats should produce in April, we need to consider the desired ending inventory and subtract the beginning inventory from the total needed (desired sales plus desired ending inventory). Lewis wants to end with 60 hats but starts with 40, meaning they need an additional 20 hats on top of the 650 they plan to sell. Therefore, they need to produce 650 + 20 = 670 hats.

Question 7

Use the following information for questions 
At January 1, 2020, Jake, Inc.has beginning inventory of 4,000 surfboards.Jake estimates it will sell 15,000 units during the first quarter of 2020 with a 10% increase in sales each quarter.Jake's policy is to maintain an ending inventory equal to 25% of the next quarter's sales.Each surfboard costs $200 and is sold for $250.
-How much is budgeted sales revenue for the third quarter of 2020?
A)$18,150
B)$4,537,500
C)$907,500
D)$3,750,000

Accepted Answer

To calculate the budgeted sales revenue for the third quarter of 2020, first, we need to determine the number of units Jake, Inc. expects to sell in that quarter. The sales pattern is a 10% increase each quarter from an initial 15,000 units in the first quarter. First quarter sales: 15,000 unitsSecond quarter sales: 15,000 units * 110% = 16,500 unitsThird quarter sales: 16,500 units * 110% = 18,150 unitsThe sales price per surfboard is $250, so the budgeted sales revenue for the third quarter is 18,150 units * $250 = $4,537,500.

Question 8

Which of the following is correct?
A)beginning raw material inventory + raw material required for production - desired ending raw material inventory = required raw material to be purchased.
B)beginning raw material inventory + desired ending raw material inventory - raw material required for production = required raw material to be purchased.
C)raw material required for production + beginning raw material inventory - desired ending raw material inventory = required raw material to be purchased.
D)raw material required for production + desired ending raw material inventory - beginning raw material inventory = required raw material to be purchased.

Accepted Answer

The answer of Which of the following is correct?
A)beginning raw...

Question 9

Hargrow, Inc.makes and sells a single product, buckets.It takes 30 ounces of plastic to make one bucket.Budgeted production of buckets for the next three months is as follows: August 90,000 units, September 75,000 units, October 65,000 units.The company wants to maintain monthly ending inventories of plastic equal to 10% of the following month's production needs.On August 31, 195,000 ounces of plastic were on hand.The cost of plastic is $0.03 per ounce.How much is the ending inventory of plastic to be reported on the company's balance sheet at September 30?
A)$195,000
B)$5,850
C)$6,750
D)$7,500

Accepted Answer

The ending inventory of plastic for September is calculated based on 10% of October's production needs. October needs 65,000 buckets, each requiring 30 ounces of plastic, so the total need is 1,950,000 ounces. 10% of this is 195,000 ounces. At $0.03 per ounce, the cost is 195,000 ounces * $0.03 = $5,850.

Question 10

Which of the following is not a characteristic of bottom-up budgeting?
A)It encourages organization-wide input into the process.
B)It takes advantage of employees' intimate knowledge of operations when formulating plans.
C)It is not as time consuming as top-down budgeting.
D)It increases employees' commitment to achieving budget goals.

Accepted Answer

Bottom-up budgeting is typically more time consuming than top-down budgeting because it involves soliciting input and feedback from all levels of the organization.

Question 11

One difference between a company's long-range planning efforts and its annual budget preparation is
A)long-range planning documents usually contain more detail than annual budgets.
B)annual budgets usually contain more detail than the long-range planning process.
C)long-range planning documents focus on the company's internal environment more than annual budgets.
D)annual budgets focus on the external environment more than the long-range planning process.

Accepted Answer

Long-range planning is focused on setting long-term goals and strategies for achieving them. It is done with a broader perspective, considering factors such as market trends, technological changes, and global economic conditions. On the other hand, an annual budget is a more detailed plan that outlines the financial goals and objectives of a company for a specific year. It is based on the long-term plan but includes more specific information such as revenue projections, expense forecasts, and capital investment plans. Therefore, the annual budget is more detailed than the long-range planning process.

Question 12

Orr Corporation's manufacturing costs for August when production was 750 units appears below: Direct material $7 per unit
Direct labour $6,000
Variable overhead 3,000
Factory Depreciation $\mathbf { 2 } , 000$
Factory supervisory salaries
7,000
Other fixed factory costs
1,500
How much is the budgeted manufacturing cost for a month when 500 units are praduced?
A)$13,000
B)$16,500
C)$20,000
D)$9,000

Accepted Answer

The answer of Orr Corporation's manufacturing costs for August when...

Question 13

What might a very conservative sales budget cause?
A)a decrease in selling prices
B)a shortage of inventories
C)increased sales during the year
D)overproduction of goods

Accepted Answer

A very conservative sales budget might lead to underestimating demand, which can cause a shortage of inventories as the company might not produce enough to meet the actual demand.

Question 14

Use the following information for questions 
At January 1, 2020, Jake, Inc.has beginning inventory of 4,000 surfboards.Jake estimates it will sell 15,000 units during the first quarter of 2020 with a 10% increase in sales each quarter.Jake's policy is to maintain an ending inventory equal to 25% of the next quarter's sales.Each surfboard costs $200 and is sold for $250.
-How many units should Jake produce during the first quarter of 2020?
A)15,125
B)15,000
C)12,500
D)11,000

Accepted Answer

Jake, Inc. plans to sell 15,000 units in the first quarter with a 10% increase each quarter, so second quarter sales are expected to be 15,000 * 1.10 = 16,500 units. The policy is to maintain an ending inventory of 25% of the next quarter's sales, so the desired ending inventory for the first quarter is 16,500 * 0.25 = 4,125 units. The beginning inventory is 4,000 units, and the sales are expected to be 15,000 units. To find out how many units Jake should produce, we calculate the required units to meet sales and desired ending inventory minus the beginning inventory: (15,000 sales + 4,125 desired ending inventory) - 4,000 beginning inventory = 15,125 units.

Question 15

Jelly Box, Inc.budgeted the following manufacturing costs for 25,000 calculators:  Jelly Box produced 20,000 calculators during March.How much are budgeted total manufacturing costs in March?
A)$320,000
B)$412,000
C)$400,000
D)$332,000

Accepted Answer

The answer of Jelly Box, Inc.budgeted the following manufacturing costs...

Question 16

Items from Sap Company's budget for March in which 2,100 units were produced and sold appear below:  At 2,200 units, how much are budgeted variable manufacturing costs?
A)$22,000
B)$43,000
C)$21,000
D)$19,905

Accepted Answer

The answer of Items from Sap Company's budget for March...

Question 17

DaDum Company desired 12,000 kilograms of raw material on hand on June 1 and 10,500 on June 30.The number of kilograms required for production for June totalled 240,000 kilograms.How many kilograms of raw material should DaDum purchase in June?
A)238,500 kilograms
B)241,500 kilograms
C)250,500 kilograms
D)228,000 kilograms

Accepted Answer

To calculate the amount of raw material DaDum should purchase in June, we start with the desired ending inventory of 10,500 kilograms, add the amount required for production (240,000 kilograms), and then subtract the beginning inventory (12,000 kilograms). This gives us 10,500 + 240,000 - 12,000 = 238,500 kilograms.

Question 18

Waco's Widgets plans to sell 22,000 widgets during May, 19,000 units in June, and 20,000 during July.Waco's policy is to keep 10% of the next month's sales as ending inventory.How many units should Waco produce during June?
A)18,900
B)21,000
C)19,100
D)19,000

Accepted Answer

Waco's ending inventory for May = 22,000 x 10% = 2,200
Expected sales for June = 19,000
Waco's desired ending inventory for June = 19,000 x 10% = 1,900
So, the total units needed for June = Expected sales for June + Ending inventory for June − Ending inventory from May
= 19,000 + 1,900 − 2,200
= 18,700
Therefore, Waco should produce 18,700 units for June. However, this answer is not one of the choices provided. The closest choice is C, which is 19,100 units. This could be the correct answer if Waco wants a higher level of ending inventory for June than the desired 10%.

Question 19

What information is found on the direct materials budget? How many units of direct materials should be purchased?
I. How much is the cost of direct materials to be purchased?
A)I only
B)II only
C)Both I and II
D)Neither I nor II

Accepted Answer

I. The quantity and cost of materials needed for production
The direct materials budget includes information on the quantity and cost of the raw materials needed for production. This is based on the production budget and the materials required for each unit of production.

II. The timing of purchases and payments
The direct materials budget also includes information on the timing of purchases and payments for the raw materials. This is important for managing cash flow and ensuring that materials are available when needed for production.

Question 20

Which one of the following helps improve the reliability of the sales forecast?
A)reduction of differences between actual and estimated amounts
B)creation of management awareness
C)consideration of industry trends
D)extension of the budget period

Accepted Answer

Considering industry trends helps improve the reliability of sales forecasts by incorporating broader market dynamics and potential shifts in demand, making the forecast more accurate and reflective of external factors.

Quiz 10: Budgetary Planning

Budgetary slack means

One statement about budgeting that is generally true is

How does a sales forecast differ from a sales budget?

Which one of the following is an operating budget?

Which of the following is correct?

Which of the following is not a characteristic of bottom-up budgeting?

One difference between a company's long-range planning efforts and its annual budget preparation is

What might a very conservative sales budget cause?

Jelly Box, Inc.budgeted the following manufacturing costs for 25,000 calculators: Jelly Box produced 20,000 calculators during March.How much are budgeted total manufacturing costs in March?

Items from Sap Company's budget for March in which 2,100 units were produced and sold appear below: At 2,200 units, how much are budgeted variable manufacturing costs?

DaDum Company desired 12,000 kilograms of raw material on hand on June 1 and 10,500 on June 30.The number of kilograms required for production for June totalled 240,000 kilograms.How many kilograms of raw material should DaDum purchase in June?

Waco's Widgets plans to sell 22,000 widgets during May, 19,000 units in June, and 20,000 during July.Waco's policy is to keep 10% of the next month's sales as ending inventory.How many units should Waco produce during June?

What information is found on the direct materials budget? How many units of direct materials should be purchased? I. How much is the cost of direct materials to be purchased?

Which one of the following helps improve the reliability of the sales forecast?