Question 1

To reduce subjectivity in the budgeting process and gather as much information as possible,management often uses which of the following method(s)?

Accepted Answer

To reduce subjectivity in the budgeting process and gather as much information as possible, management should use all of the above methods. By combining multiple methods such as asking sales staff and/or market researchers for an estimate of the future period's sales, using the Delphi technique and trend analysis, and entering past sales data into an econometric model, management can obtain a more accurate and reliable estimate of the budget. Using only one method may result in biased or incomplete information, leading to a less effective budgeting process.

Question 2

When is the flexible budget is prepared?

Accepted Answer

A flexible budget is typically prepared after the budget period ends to adjust for actual activity levels and provide a more accurate comparison between budgeted and actual performance.

Question 3

To reduce subjectivity in the budgeting process and gather as much information as possible,management often enters past sales data into which of the following regression models to obtain a statistical estimate of factors affecting sales?

Accepted Answer

Econometric models are designed to estimate the statistical relationships between different variables, such as past sales data and various factors that could impact sales (such as market conditions, advertising, pricing, etc.). By entering past sales data into an econometric model, management can obtain a more objective and data-driven estimate of what factors are most likely to impact sales in the future, which can inform the budgeting process. The other models listed (input-output and Delphi models) are not designed to estimate such relationships and may be less useful for this purpose.

Question 4

Marketing costs include expenditures for salaries,advertising,and sales office costs would be classified as which of the following type of activity?

Accepted Answer

Marketing costs are incurred to maintain the overall facility or organization's functions, which benefits all the products or services. These costs can't be precisely traced to a specific product or unit of production. Therefore, marketing costs are considered facility-level activities.

Question 5

What is often the most difficult aspect of budgeting?

Accepted Answer

Forecasting sales is often the most difficult aspect of budgeting because it involves predicting future demand for a product or service, which is highly subjective and can be influenced by various factors such as economic conditions, consumer behavior, and competition.

Question 6

If direct labor cost is variable,then it is considered to be which type of cost in the cost hierarchy?

Accepted Answer

Direct labor cost is typically incurred on a per-unit basis and varies based on the level of production or units produced, making it a unit-level cost. It is not a facility-level cost as it is not related to operating an entire facility, nor a product-level cost as it is not specific to individual products.

Question 7

When is the master budget prepared?

Accepted Answer

The master budget is typically prepared before the budget period begins, as it is a comprehensive plan that outlines the financial goals and objectives for the upcoming period. This allows companies to anticipate costs, set targets for revenue and expenses, and allocate resources accordingly. It is important to have the master budget in place prior to the start of the budget period so that management can make informed decisions and ensure that the budget is in line with the overall strategic plan of the company.

Question 8

Which statements is correct concerning a flexible budget?

Accepted Answer

A flexible budget is appropriate for any relevant level of activity as it adjusts the budgetary figures based on the level of activity or volume. It provides a more accurate reflection of what the costs and revenues should be at that particular activity level, regardless of whether it is higher or lower than the planned level. Option A is incorrect because fluctuations in volume limits are precisely why a flexible budget is necessary. Options C and D are incorrect because a flexible budget applies to all types of costs, including factory overhead, direct materials, and direct labor.

Question 9

In what type of responsibility centers are the managers responsible for costs,only?

Accepted Answer

In cost centers, managers are responsible for controlling and optimizing costs. They do not have direct responsibility for generating revenue or profits, or for making investment decisions. Their main focus is on minimizing expenses while maintaining quality and efficiency. Therefore, the best choice for the question is A) Cost.

Question 10

If a company wishes to establish a factory overhead budget system in which estimated costs can be derived directly from estimates of activity levels,which type of budget should it prepare?

Accepted Answer

A flexible budget is based on estimates of activity levels, and allows for adjustments to the budget depending on the actual activity level achieved. This is useful for a factory overhead budget system, as it allows for more accurate estimates of costs based on the level of activity in the factory, rather than a fixed budget which may not accurately reflect the actual costs. The other options, zero-based budget and discretionary budget, are not as directly related to activity levels, while a fixed budget would be less flexible and less accurate for a factory overhead system based on activity levels.

Question 11

What is the primary difference between a fixed budget and a flexible budget?

Accepted Answer

The primary difference between a fixed budget and a flexible budget is that a fixed budget is a plan for a single level of sales (or other measure of activity), while a flexible budget consists of several plans, one for each of several levels of sales (or other measure of activity). Additionally, a fixed budget cannot be changed after the period begins, while a flexible budget can be adjusted as needed throughout the period. Therefore, choice D is the best answer.

Question 12

Central corporate administrative costs are fixed and considered to be which of the following?

Accepted Answer

Central corporate administrative costs are not directly related to the production or sale of a specific product, but rather they are related to the overall operation and management of the entire organization. These costs are typically facility-level activities, as they are necessary to maintain the overall infrastructure of the organization, such as rent or maintenance costs for corporate office buildings, salaries and benefits for administrative staff, and similar expenses.

Question 13

Julia Electronics LLC is preparing a flexible budget for the coming year and the following maximum capacity estimates for the furniture division are available

Assume that Julia Electronics LLC 's normal capacity is 80% of maximum capacity.What would be the total factory overhead rate,based on direct labor hours,in a flexible budget at normal capacity?

Accepted Answer

Normal capacity = 80% of maximum capacity
Direct labor hours at normal capacity = 59,840 hours (80% of 74,800 hours)
Total factory overhead at normal capacity = $448,800 (80% of $561,000)
Factory overhead rate = Total factory overhead / Direct labor hours
Factory overhead rate = $448,800 / 59,840 hours
Factory overhead rate = $7.50 per direct labor hour. 
Therefore, the best choice is C.

Question 14

Marketing costs include expenditures for sales commissions (2% of sales dollars)and shipping costs (20 cents per unit)are variable marketing costs and considered to be which of the following?

Accepted Answer

Sales commissions and shipping costs are directly tied to the number of units sold, making them unit-level activities.

Question 15

Jones Corporation estimates manufacturing costs as follows for the coming year:

If 25,000 units are produced,what is the total manufacturing costs?

Accepted Answer

The answer of Jones Corporation estimates manufacturing costs as follows...

Question 16

If direct labor cost is fixed,then it is considered to be which type of cost in the cost hierarchy?

Accepted Answer

Direct labor cost is a facility-level cost because it is incurred regardless of the level of production.

Question 17

A flexible budget is appropriate for a which of the following types of costs?
Direct-Labor Marketing
Budget Budget

Accepted Answer

A flexible budget is appropriate for both direct-labor and marketing budgets because it adjusts costs based on changes in activity levels or other cost drivers, making it useful for areas where costs are variable and can fluctuate with production volume or sales activities.

Question 18

In what type of responsibility centers are the managers responsible for revenues,costs,and assets?

Accepted Answer

Investment centers are the type of responsibility centers where managers are responsible for revenues, costs, and assets. This is because in investment centers, managers are evaluated based on their ability to generate profits and efficiently manage the center's assets to achieve a return on investment.

Question 19

When production levels are expected to increase within a relevant range,and a flexible budget is used,what effects would be anticipated with respect to each of the following?
Fixed Costs Variable Costs
Per Unit Per Unit

Accepted Answer

When production levels increase within a relevant range, fixed costs remain the same because they are not affected by changes in activity levels. On the other hand, variable costs per unit are expected to remain constant in the short run. Therefore, using a flexible budget would result in a decrease in the fixed cost per unit and no change in the variable cost per unit since the production levels are within a relevant range. Hence, the best option is B, i.e., Decrease in Fixed Costs and No Change in Variable Costs per unit.

Question 20

In what type of responsibility centers are the managers responsible for revenues,only?

Accepted Answer

Managers responsible for revenues only are typically found in revenue centers. In these centers, the manager's main responsibility is to generate revenue for the organization. They do not have control over costs or investments, which are managed by other departments.

Quiz 9: Profit Planning and Budgeting

To reduce subjectivity in the budgeting process and gather as much information as possible,management often uses which of the following method(s) ?