Question 1

In preparing flexible budgets,the first step is to identify the fixed and variable components of the various costs and expenses being budgeted.

Accepted Answer

This statement is correct. In order to prepare a flexible budget, it is important to differentiate between fixed and variable costs and expenses as they will react differently to changes in activity levels.

Question 2

The budgeted volume of production is based on the sum of (1)the expected sales volume and (2)the desired ending inventory,less (3)the estimated beginning inventory.

Accepted Answer

This statement is true. The budgeted volume of production is calculated by adding the expected sales volume and desired ending inventory, and then subtracting the estimated beginning inventory. This formula ensures that enough products are produced to meet customer demand and maintain adequate inventory levels.

Question 3

The first budget to be prepared is usually the sales budget.

Accepted Answer

The sales budget is typically the first budget prepared as it provides a foundation for other budgets such as the production budget and cash budget.

Question 4

When budget goals are set too tight,the budget becomes less effective for planning and controlling operations.

Accepted Answer

When budget goals are set too tight, there is little or no room for unexpected events or expenses. This can limit a company's ability to plan and adjust to changes, and can also make it difficult to effectively control and manage operations. As a result, it is important to set realistic and flexible budget goals that allow for some degree of flexibility and adjustment.

Question 5

A formal written statement of management's plans for the future,expressed in financial terms,is called a budget.

Accepted Answer

A budget is a formal written statement of management's plans for the future, expressed in financial terms.

Question 6

Budgets are normally used by both profit-making businesses and nonprofit organizations.

Accepted Answer

The answer of Budgets are normally used by both profit-making...

Question 7

The budgeted volume of production is normally computed as the sum of (1)the expected sales volume and (2)the desired ending inventory.

Accepted Answer

The answer of The budgeted volume of production is normally...

Question 8

The budget procedure that requires all levels of management to start from zero in estimating sales,production,and other operating data is called zero-based budgeting.

Accepted Answer

Zero-based budgeting requires all levels of management to start from scratch and justify every expense item in the budget, rather than using the previous year's budget as a base and making incremental changes.

Question 9

The first budget to be prepared is usually the production budget.

Accepted Answer

The answer of The first budget to be prepared is...

Question 10

A budget procedure that provides for the maintenance at all times of a twelve-month projection into the future is called continuous budgeting.

Accepted Answer

Continuous budgeting involves regularly updating and maintaining a budget projection for at least twelve months into the future.

Question 11

Once a static budget has been determined,it is changed regularly as the underlying activity changes.

Accepted Answer

The key characteristic of a static budget is that it remains fixed regardless of changes in activity levels. It is not changed regularly. If activity does change significantly, a flexible budget may be used instead.

Question 12

The master budget of a small manufacturer would normally include all necessary component budgets except the capital expenditures budget.

Accepted Answer

The master budget of a small manufacturer would normally include all necessary component budgets, including the capital expenditures budget.

Question 13

If Division Inc.expects to sell 300,000 units in 2015,desires ending inventory of 22,000 units,and has 24,000 units on hand as of the beginning of the year,the budgeted volume of production for 2015 is 298,000 units.

Accepted Answer

The budgeted volume of production can be calculated as follows:

Budgeted volume of production = Expected sales + Desired ending inventory - Beginning inventory
Budgeted volume of production = 300,000 + 22,000 - 24,000
Budgeted volume of production = 298,000 units

Therefore, the statement is true.

Question 14

If Division Inc.expects to sell 200,000 units in 2015,desires ending inventory of 24,000 units,and has 22,000 units on hand as of the beginning of the year,the budgeted volume of production for 2015 is 198,000 units.

Accepted Answer

The budgeted volume of production for 2015 would be:

Budgeted production = Expected sales + Desired ending inventory - Beginning inventory
Budgeted production = 200,000 + 24,000 - 22,000
Budgeted production = 202,000

Therefore, the statement is false.

Question 15

Employees view budgeting more positively when goals are established for them by senior management.

Accepted Answer

The answer of Employees view budgeting more positively when goals...

Question 16

The budgeted direct materials purchases are based on the sum of (1)the materials needed for production and (2)the desired ending materials inventory,less (3)the estimated beginning materials inventory.

Accepted Answer

This is the correct formula for budgeted direct materials purchases.

Question 17

Goal conflict can be avoided if budget goals are carefully designed for consistency across all areas of the organization.

Accepted Answer

If budget goals are carefully designed for consistency across all areas of the organization, it can help avoid goal conflict. This ensures that all departments and individuals are working towards the same objectives and there is alignment and collaboration towards achieving them.

Question 18

Flexible budgeting builds the effect of changes in level of activity into the budget system.

Accepted Answer

Flexible budgeting adjusts the budget levels based on changes in activity level, allowing for more accurate forecasting and better decision making. It is therefore true that flexible budgeting builds the effect of changes in level of activity into the budget system.

Question 19

The master budget of a small manufacturer would normally include all component budgets that impact the financial statements.

Accepted Answer

A master budget includes all component budgets, such as sales, production, purchasing, and cash budgets, which impact the financial statements. This allows the organization to plan and coordinate its operations with its financial goals.

Question 20

Budgetary slack can be avoided if lower and mid-level managers are requested to support all of their spending requirements with specific operational plans.

Accepted Answer

By requiring lower and mid-level managers to provide specific operational plans for their spending requirements, they will be less likely to include budgetary slack because they will have to justify their expenses and demonstrate how they will be used to achieve business objectives.

Quiz 13: Budgeting and Standard Cost Systems