Question 1

Which of the following budgets allow for adjustments in activity levels?

Accepted Answer

A flexible budget allows for adjustments in activity levels, meaning that as the level of activity changes, the budget can be adjusted accordingly. The other budgets listed (static, continuous, and zero-based) do not allow for this type of adjustment.

Question 2

If budgeted beginning inventory is $8,000, budgeted ending inventory is $9,400, and budgeted cost of goods sold is $10,260, budgeted production should be

Accepted Answer

The answer of If budgeted beginning inventory is $8,000, budgeted...

Question 3

Miller and Sons' static budget for 10,000 units of production includes $50,000 for direct materials, $44,000 for direct labor, variable utilities of $5,000, and supervisor salaries of $24,000. A flexible budget for 12,000 units of production would show

Accepted Answer

A flexible budget adjusts costs based on changes in the level of output. Direct materials, direct labor, and utilities are variable costs that will increase as production increases. Supervisor salaries are a fixed cost and will not change with the level of production. For 12,000 units, direct materials and direct labor costs increase proportionally (12,000/10,000 = 1.2), so $50,000 * 1.2 = $60,000 for materials, and $44,000 * 1.2 = $52,800 for labor. Utilities, being variable, also increase proportionally, so $5,000 * 1.2 = $6,000. Supervisor salaries remain unchanged at $24,000 because they are fixed costs.

Question 4

A disadvantage of static budgets is that they

Accepted Answer

Static budgets do not show possible changes in underlying activity levels. This means that if there are unexpected changes in activity levels, the static budget becomes less useful and can lead to inaccurate results.

Question 5

The budgeting process does not involve which of the following activities?

Accepted Answer

The budgeting process involves establishing specific goals, periodically comparing actual results to goals, and executing plans to achieve goals. However, increasing sales by increasing marketing efforts is not part of the budgeting process. It may be a strategy to achieve budgeted sales goals, but it is not a direct part of the budgeting process itself.

Question 6

The production budgets are used to prepare which of the following budgets?

Accepted Answer

The production budgets are used to prepare the budgets for direct materials purchases, direct labor cost, and factory overhead cost. These budgets are directly related to the production process and therefore require information from the production budget. Operating expenses are not directly related to production, and sales budgets (both in units and dollars) are prepared separately from the production budget.

Question 7

Budgeting supports the planning process by encouraging all of the following activities except

Accepted Answer

Budgeting does not directly support directing and coordinating operations during the period. Instead, it helps with planning and decision making prior to the start of the period.

Question 8

Laurie Inc.'s static budget for 10,000 units of production includes $60,000 for direct materials, $44,000 for direct labor, fixed utilities costs of $5,000, and supervisor salaries of $25,000. A flexible budget for 12,000 units of production would show

Accepted Answer

A flexible budget adjusts costs based on changes in the level of output. For Laurie Inc., direct materials and direct labor are variable costs that will increase in proportion to the increase in production from 10,000 to 12,000 units. The costs for fixed utilities and supervisor salaries remain constant regardless of the level of production. Therefore, for 12,000 units, direct materials and direct labor costs increase proportionally (by 20%), while fixed utilities and supervisor salaries remain unchanged.

Question 9

A series of budgets for varying rates of activity is termed a(n)

Accepted Answer

A flexible budget is designed to adjust to varying levels of activity, making it the best choice. A variable budget and activity budget are not commonly used terms, and a master budget typically does not incorporate varying levels of activity.

Question 10

The process of developing budget estimates by requiring all levels of management to estimate sales, production, and other operating data as though operations were being initiated for the first time is referred to as

Accepted Answer

Zero-based budgeting is a process of developing budget estimates from scratch by requiring all levels of management to estimate sales, production, and other operating data as though operations were being initiated for the first time. This process is helpful in identifying unnecessary expenses and focusing on cost control.

Question 11

The benefits of comparing actual performance of the operations against planned goals include all of the following except

Accepted Answer

The answer of The benefits of comparing actual performance of...

Question 12

The primary difference between a static budget and a flexible budget is that a static budget

Accepted Answer

A static budget is designed for a specific level of production or sales, while a flexible budget can be adjusted for different levels of production or sales. Therefore, a flexible budget is more useful in situations where demand is uncertain or varies, while a static budget may be sufficient in more stable situations. Option A is incorrect as it confuses the suitable scenarios for the budgets. Option B is incorrect as it wrongly states that a static budget is concerned only with future acquisitions of fixed assets. Option C is incorrect as it wrongly states what the budgets include.

Question 13

Jase Manufacturing Co.'s static budget at 10,000 units of production includes $40,000 for direct labor and $4,000 for electric power. Total fixed costs are $24,000. At 12,000 units of production, a flexible budget would show

Accepted Answer

Variable costs (direct labor and electric power) at 10,000 units are $44,000 ($40,000 + $4,000). To find the variable cost per unit, divide $44,000 by 10,000 units, which equals $4.40 per unit. At 12,000 units, the total variable costs would be 12,000 units * $4.40 = $52,800. Fixed costs remain unchanged at $24,000 regardless of the level of production.

Question 14

Chelsa Manufacturing Co.'s static budget at 5,000 units of production includes $40,000 for direct labor and $5,000 for variable electric power. Total fixed costs are $23,000. At 8,000 units of production, a flexible budget would show

Accepted Answer

To find the flexible budget, we need to first separate the costs into their variable and fixed components:
Variable costs per unit = $40,000 (direct labor) / 5,000 units + $5,000 (electric power) / 5,000 units = $9 per unit
Fixed costs = $23,000
Using these figures, we can calculate the flexible budget at 8,000 units:
Variable costs = $9 per unit x 8,000 units = $72,000
Fixed costs = $23,000 (remains constant regardless of production level)
Total flexible budget = $72,000 (variable) + $23,000 (fixed) = $95,000
Therefore, the correct answer is C) variable costs of $72,000, and $23,000 of fixed costs.

Question 15

At the beginning of the period, the Assembly Department budgeted direct labor of $110,000, direct materials of $170,000, and fixed factory overhead of $28,000 for 8,000 hours of production. The department actually completed 10,000 hours of production. What is the appropriate total budget for the department, assuming it uses flexible budgeting?

Accepted Answer

The answer of At the beginning of the period, the...

Question 16

Principal components of a master budget include

Accepted Answer

The principal components of a master budget include the production budget, sales budget, and capital expenditures budget, as well as budgets for direct materials, direct labor, and overhead expenses. Therefore, all of these options are the best choice.

Question 17

A variant of fiscal-year budgeting whereby a twelve-month projection into the future is maintained at all times is termed

Accepted Answer

Continuous budgeting involves maintaining a rolling twelve-month projection into the future, which means that at any given time, there is always a twelve-month budget in place. This allows for more accurate and timely adjustments to changing conditions, as opposed to the traditional annual budgeting process. Flexible budgeting is a type of budget that adjusts for changes in activity levels, zero-based budgeting involves starting from scratch every budget cycle, and master budgeting is a comprehensive plan that outlines all of a company's financial activities for a given period.

Question 18

Budgets need to be fair and attainable for employees to consider the budget important in their normal daily activities. Which of the following is not considered a human behavior problem?

Accepted Answer

Allowing employees the opportunity to be a part of the budget process is not considered a human behavior problem, but instead is a recommended way to increase employee engagement and ownership in the budget. A, B, and D all describe potential human behavior problems that can negatively affect the effectiveness and buy-in of the budget process.

Question 19

When management seeks to achieve personal departmental objectives that may work to the detriment of the entire company, the manager is experiencing

Accepted Answer

Goal conflict occurs when an individual or department seeks to achieve its own objectives at the expense of the common goal of the organization. This can result in sub-optimization and a lack of cooperation among departments, ultimately harming the overall success of the company. Budgetary slack, padding, and cushions are all related to manipulating budget numbers rather than conflicting objectives.

Question 20

At the beginning of the period, the Cutting Department budgeted direct labor of $155,000, direct materials of $165,000, and fixed factory overhead of $15,000 for 9,000 hours of production. The department actually completed 10,000 hours of production. What is the appropriate total budget for the department, assuming it uses flexible budgeting?

Accepted Answer

To calculate the flexible budget, we need to adjust the budgeted amounts based on the actual hours of production.

Direct labor rate per hour = Budgeted direct labor / Budgeted hours of production = $155,000 / 9,000 hours = $17.22 per hour

Direct materials cost per hour = Budgeted direct materials / Budgeted hours of production = $165,000 / 9,000 hours = $18.33 per hour

Fixed factory overhead cost per hour = Budgeted fixed factory overhead / Budgeted hours of production = $15,000 / 9,000 hours = $1.67 per hour

Using these rates, we can calculate the flexible budget for the Cutting Department:

Direct labor = Actual hours of production x Direct labor rate per hour = 10,000 x $17.22 = $172,200

Direct materials = Actual hours of production x Direct materials cost per hour = 10,000 x $18.33 = $183,300

Fixed factory overhead = Actual hours of production x Fixed factory overhead cost per hour = 10,000 x $1.67 = $16,700

Total flexible budget = Direct labor + Direct materials + Fixed factory overhead = $172,200 + $183,300 + $16,700 = $372,200

Therefore, the appropriate total budget for the department, assuming it uses flexible budgeting, is $370,556 (rounded to the nearest dollar). Answer B is the best choice.

Quiz 7: Budgeting