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

A master budget is a comprehensive financial plan that includes all aspects of an organization's financial operations and serves as a roadmap for financial decision-making. It typically includes multiple sub-budgets, such as sales, production, and operating expenses, and is usually prepared annually. Other options listed do not accurately describe the characteristics of a comprehensive financial plan for an organization as a whole.

Question 2

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, not non-cash transactions such as depreciation. Interest payments and equipment purchases on credit would affect cash inflows and outflows, respectively, and therefore would be included in the cash budget.

Question 3

Figure 15-3
Projected sales for Sommers, Inc., for next year and beginning and ending inventory data are as follows:  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 answer of Figure 15-3
Projected sales for Sommers, Inc., for...

Question 4

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...

Question 5

Feedee Company has budgeted sales and production (in units) over the next three months as follows:  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

The answer of Feedee Company has budgeted sales and production...

Question 6

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 usually considered the first step in the planning and control process. It involves defining the organization's mission, setting long-term objectives, and developing strategies to achieve those objectives. This provides the framework for preparing the budget and evaluating performance.

Question 7

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 continuous budget keeps track of the ongoing expenses and adjusts for changes as they occur, instead of starting from scratch each year or month. As each month ends, the next month is added to the budget, making it a moving twelve-month budget. This type of budget is helpful in identifying trends and adjusting for unexpected events in real-time.

Question 8

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

Budgets serve as financial plans for the future, help identify objectives and the necessary actions to achieve them, and should be closely aligned with the organization's strategic plan. Therefore, all of the given options are true about budgets.

Question 9

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 as it provides the basis for the production budget by estimating the quantity of goods to be produced. The direct materials purchases budget and direct labor budget are usually prepared after the production budget, as they depend on the quantity of goods to be produced. The cash budget is typically prepared after all the other budgets have been prepared.

Question 10

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 typically the preparation of a sales forecast. This provides a basis for estimating revenues and helps drive the rest of the budget process, including production, expenses, and cash flow.

Question 11

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 determines how much of each product needs to be produced, which affects the amount of direct materials needed for production. The direct materials purchases budget is then based on the production budget. The cash budget, pro forma income statement, and pro forma balance sheet are all prepared after the direct materials purchases budget.

Question 12

Figure 15-3
Projected sales for Sommers, Inc., for next year and beginning and ending inventory data are as follows:  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 13

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 14

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 typically prepared after the sales budget and specifies the number of units to be produced during the budget period. The budget is calculated based on the sales budget and the desired ending inventory. It takes into account the beginning inventory, units to be produced, and desired ending inventory to arrive at a total production quantity. The production budget does not specify the required overhead or direct labour hours.

Question 15

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 because it provides more detailed information about each activity and the cost associated with it. It starts with sales and production budgets similar to a functional-based budget system. It is not necessarily simpler to construct than a functional-based budget system, as it requires a thorough understanding of the various activities within an organization and their associated costs. Therefore, both options A and B are correct.

Question 16

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 serves as both a planning tool and a control tool by allowing organizations to set financial targets and monitor progress toward achieving them. It also serves as a means of communicating goals to different departments or divisions within the firm. Therefore, all of the answer choices are correct.

Question 17

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 cash budget provides information about a company's expected cash inflows and outflows over a period of time. This information is essential for evaluating the company's ability to meet its financial obligations, particularly its ability to repay a loan. While a cash budget may also provide insight into potential employee theft or the company's profitability, its primary purpose is to help lenders and investors evaluate a company's financial health.

Question 18

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

First, we need to calculate how many units need to be produced in total:

Total units needed = units planned to sell + desired ending inventory - beginning inventory
Total units needed = 33,000 + 2,500 - 1,200
Total units needed = 34,300

Therefore, the answer is choice C.

Question 19

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

The answer of Continuous budgeting requires managers to
A) add a...

Question 20

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 choices are advantages of the budgeting process. Budgeting provides information on the availability and allocation of resources, which can be used for decision-making purposes. It also serves as a standard for evaluating performance, as it sets clear goals and expectations for the organization. Finally, budgeting promotes communication and coordination within the organization, as it requires input and collaboration from various departments and stakeholders.

Quiz 15: The Budgeting Process

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

Which of the following appears in the cash budget?

The first step in planning and control is

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

Which of the following is true about budgets?

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

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

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

Which budget is prepared without monetary amounts?

The production budget

Activity-based budgeting

A budget is

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

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?

Continuous budgeting requires managers to

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