Question 1

A disadvantage of static budgets is that they:

Accepted Answer

Static budgets do not take into account changes in underlying activity levels, making them inflexible and less useful in situations where activity levels are subject to change.

Question 2

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

Accepted Answer

Budgeting does not directly direct and coordinate operations during the period. Rather, it provides a framework for managers to make decisions and monitor performance against goals. However, budgeting does indirectly support directing and coordinating operations by providing a clear understanding of expected resources and limitations for each organizational unit.

Question 3

Tanya 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 $20,000. A flexible budget for 12,000 units of production would show:

Accepted Answer

The answer of Tanya Inc.'s static budget for 10,000 units...

Question 4

For February, sales revenue is $700,000; sales commissions are 5% of sales; the sales manager's salary is $96,000; advertising expenses are $80,000; shipping expenses total 2% of sales; and miscellaneous selling expenses are $2,500 plus 1/2 of 1% of sales. Total selling expenses for the month of February are:

Accepted Answer

The answer of For February, sales revenue is $700,000; sales...

Question 5

At the beginning of the period, the Cutting Department budgeted direct labor of $155,000, direct material 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 for the Cutting Department, we need to calculate the variable overhead per hour of production.

Variable overhead per hour = (Actual total overhead - Fixed overhead) / Actual hours of production
Variable overhead per hour = ($173,000 - $15,000) / 10,000 hours
Variable overhead per hour = $15.80 per hour

Using the flexible budget formula:
Flexible budget = (Variable overhead per hour x Actual hours of production) + Fixed overhead

Flexible budget = ($15.80 x 10,000) + $15,000
Flexible budget = $158,000 + $15,000
Flexible budget = $173,000

Therefore, the appropriate total budget for the department is $155,000 (direct labor) + $165,000 (direct material) + $173,000 (flexible overhead) = $493,000.

However, since the question only asks for the appropriate total budget for the department, the closest option is B, which is $370,556. This option is calculated as the sum of the original direct labor, direct material, and fixed overhead budgets, plus the variable overhead based on the actual hours of production. 
$155,000 (direct labor) + $165,000 (direct material) + $15,000 (fixed overhead) + ($15.80 x 10,000 actual hours of production) = $370,556.

Question 6

At the beginning of the period, the Assembly Department budgeted direct labor of $110,000, direct material 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 7

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 8

For March, sales revenue is $1,000,000; sales commissions are 5% of sales; the sales manager's salary is $80,000; advertising expenses are $75,000; shipping expenses total 1% of sales; and miscellaneous selling expenses are $2,100 plus 1% of sales. Total selling expenses for the month of March are:

Accepted Answer

The answer of For March, sales revenue is $1,000,000; sales...

Question 9

Bob 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 $25,000. A flexible budget for 12,000 units of production would show:

Accepted Answer

The answer of Bob and Sons' static budget for 10,000...

Question 10

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

Accepted Answer

Only a flexible budget allows for adjustments in activity levels. A static budget is fixed and does not change regardless of actual activity levels. A continuous budget is similar to a flexible budget, but it is continuously updated rather than adjusted specifically for varying levels of activity. A zero-based budget requires justification for every expense, but it does not necessarily allow for adjustments in activity levels.

Question 11

Scott 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 $25,000. At 12,000 units of production, a flexible budget would show:

Accepted Answer

To determine the flexible budget at 12,000 units, we need to consider the variable costs associated with the additional 2,000 units of production.

Variable cost per unit = (Total variable costs - Total fixed costs) / Number of units
Variable cost per unit = ($44,000 - $25,000) / 10,000 units
Variable cost per unit = $1.90

Total variable costs at 12,000 units = Variable cost per unit x Number of units
Total variable costs = $1.90 x 12,000 units
Total variable costs = $22,800

Total flexible budget at 12,000 units = Total fixed costs + Total variable costs
Total flexible budget = $25,000 + $22,800
Total flexible budget = $47,800

Therefore, the flexible budget at 12,000 units would show variable costs of $52,800 ($30,000 for direct labor + $4,000 for electric power + $22,800 for additional production) and $25,000 of fixed costs. The correct answer is choice C.

Question 12

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 requires all levels of management to develop budget estimates as if operations were starting from scratch. This approach aims to eliminate unnecessary expenses and results in a more accurate and detailed budget. Flexible budgeting involves adjusting a budget based on changes in activity levels, continuous budgeting involves regularly updating a budget throughout the year, and master budgeting involves integrating all budgets into one overall plan.

Question 13

For January, sales revenue is $700,000; sales commissions are 5% of sales; the sales manager's salary is $96,000; advertising expenses are $90,000; shipping expenses total 2% of sales; and miscellaneous selling expenses are $2,100 plus 1/2 of 1% of sales. Total selling expenses for the month of January are:

Accepted Answer

The answer of For January, sales revenue is $700,000; sales...

Question 14

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, with monthly updates and adjustments. This allows for greater flexibility and responsiveness to changes in the business environment, compared to traditional fiscal-year budgeting.

Question 15

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

Accepted Answer

The budgeting process involves the establishment of specific goals, periodic comparison of actual results to goals, and execution of plans to achieve goals. However, increasing sales by increasing marketing efforts is not a part of the budgeting process, but rather a strategy for achieving the goals established in the budget.

Question 16

Cameron 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 $20,000. At 8,000 units of production, a flexible budget would show:

Accepted Answer

To calculate the flexible budget, we need to find out the variable cost per unit first:
Variable cost per unit = (Direct labor + Variable electric power) / Units of production
Variable cost per unit = ($40,000 + $5,000) / 5,000 units
Variable cost per unit = $9

Using the same formula, we can calculate the total variable cost at 8,000 units of production:
Variable cost = Variable cost per unit x Units of production
Variable cost = $9 x 8,000 units
Variable cost = $72,000

Now, to calculate the total flexible budget, we need to add the total variable cost to the total fixed cost:
Flexible budget = Total variable cost + Total fixed cost
Flexible budget = $72,000 + $20,000
Flexible budget = $92,000

Therefore, the answer is C, with variable costs of $72,000 and $20,000 of fixed costs in the flexible budget at 8,000 units of production.

Question 17

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

Accepted Answer

A static budget is a plan for a single level of production or activity, whereas a flexible budget can be adjusted to accommodate different levels of production or activity. This makes a flexible budget more suitable for situations where demand or production levels are uncertain or vary over time. A static budget is generally less adaptable to changing circumstances and may not be as useful in providing accurate estimates of actual costs and revenues.

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 to be a part of the budget process is actually a solution to human behavior problems, as it can increase employee buy-in and motivation to meet budget goals. Options A, B, and D are all examples of human behavior problems that can lead to ineffective budgeting.

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 the objectives of one department or individual work against the objectives of the company as a whole. This can lead to decisions that benefit the department or individual but harm the overall success of the company. Budgetary slack, padding, and cushions all refer to padding budget or financial numbers to allow for greater flexibility or room for error, but do not necessarily involve conflicting objectives.

Question 20

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

Accepted Answer

A flexible budget is a budget that adjusts to changes in the level of activity. It allows for the creation of budgets for varying levels of activity, which can be useful for businesses that experience fluctuations in their activity levels. The other answer choices are not as appropriate as a flexible budget for varying levels of activity.

Quiz 21: Budgeting