Deck 9: Profit Planning and Budgeting

Question 1

What is the cultural impact on budgeting?

A)Lower-level managers in Germany,the United Kingdom,the United States,New Zealand,Canada,and Australia are less willing to accept the "fact" that top managers are more powerful than they.
B)Lower-level managers in Germany,the United Kingdom,the United States,New Zealand,Canada,and Australia are more likely to not accept top-down budgets.
C)Lower-level managers in Germany,the United Kingdom,the United States,New Zealand,Canada,and Australia are more likely to want to participate in budgeting,
D)all of the above

Answer 1

D

Question 2

Which of the following represent the specific,detailed steps required to achieve the goals of an organization including cost control and market share?

A)organizational goals implementation plan.
B)strategic long-range profit plan.
C)master budget.
D)tactical short-range profit plan.

Answer 2

B

Question 3

Which of the following is included in an organizational plan?

A)organizational goals.
B)the strategic long-range profit plan.
C)the master budget or tactical short-range profit plan.
D)all of the above.

Answer 3

D

Question 4

Many companies have streamlined the budget process,developed business plans,and allowed analysts to be proactive in monitoring results by

A)using hundreds of spreadsheets
B)compiling and verifying data from multiple sources
C)implementing a web-based enterprise-wide budgeting solution
D)adopting a two-year budgeting cycle.

Question 5

Which of the following statements is true concerning budgeting?

A)Budgeting is a dynamic process that ties together goals,plans,decision making,and employee performance evaluation
B)Budgeting is required by generally accepted accounting principles.
C)Budgeting is a static process that ties together goals,plans,decision making,and employee performance evaluation
D)none of the above.

Question 6

Which of the following represents a general framework for guiding management's operating decisions containing projected activity levels for the next year?

A)organizational goals implementation plan.
B)strategic long-range profit plan.
C)master budget.
D)none of the above.

Question 7

Which of the following is not a benefit of participative or grassroots budgeting?

A)The process of participative budgeting can be time consuming.
B)Participating budgeting enhances employee motivation and acceptance of goals.
C)Participative budgeting provides information that enables employees to associate rewards and penalties with performance.
D)Participative budgeting yields information that employees know but managers do not know.

Question 8

Which of the following statements is true concerning the operating budget?

A)The operating budget is a formal short-run plan of action.
B)The operating budget identifies capital projects.
C)The operating budget states the strategy for achieving organizational goals.
D)all of the above.

Question 9

What is the income statement portion of the master budget known as?

A)profit plan.
B)tactical short-range profit plan.
C)static budget.
D)all of the above.

Question 10

What is the cultural impact on budgeting?

A)Lower-level managers in Mexico,Singapore,and Hong Kong are more likely to accept top-down budgets.
B)Lower-level managers in Germany,the United Kingdom,the United States,New Zealand,Canada,and Australia are more likely to not accept top-down budgets.
C)Lower-level managers in Germany,the United Kingdom,the United States,New Zealand,Canada,and Australia are more likely to want to participate in budgeting,
D)all of the above

Question 11

Which of the following terms describes a method of yielding information for developing budgets that employees know but managers do not?

A)benchmarking.
B)participative budgeting.
C)bottom-up budgeting.
D)motivational budgeting.

Question 12

Which of the following describe the broad objectives management establishes and company employees work to achieve?

A)organizational goals.
B)strategic long-range profit plan.
C)master budget.
D)tactical short-range profit plan.

Question 13

Observers of Japanese industry report that Japanese managers and owners have created team orientation or esprit de corps with considerable

A)goal congruence
B)employee individualism
C)self-actualization
D)all of the above

Question 14

What is the continuous process of measuring products,services,or activities against competitors' performance?

A)benchmarking.
B)competitive analysis.
C)performance evaluation
D)none of the above.

Question 15

The master budget for governmental organizations differs from that of public companies because the budget for governmental organizations provides the

A)organization's authority to produce and sell goods.
B)organization's authority to produce and provide services.
C)legal authorization for expenditures.
D)all of the above

Question 16

What is a short-term operating budget?

A)management's quantitative action plan for the coming year.
B)shareholders' quantitative action plan for the coming year.
C)investment bankers' quantitative action plan for the coming year.s' quantitative action plan for the coming year.
D)employees' quantitative action plan for the coming year.

Question 17

Which of the following represents a general framework for guiding management's operating decisions containing projected activity levels for a series of years?

A)organizational goals implementation plan.
B)strategic long-range profit plan.
C)master budget.
D)tactical short-range profit plan.

Question 18

Which of the following represents a general framework for guiding management's operating decisions containing projected activity levels for the next year?

A)master budget.
B)tactical short-range profit plan
C)static budget
D)all of the above.

Question 19

Goal congruence occurs if members of an organization have incentives to perform in who's interest?

A)the firm's interest.
B)their own economic interest.
C)the national interest.
D)all of the above

Question 20

Which of the following terms describes the use of input from lower-management and middle-management employees in developing budgets?

A)benchmarking.
B)participative budgeting.
C)bottom-up budgeting.
D)motivational budgeting.

Question 21

Which of the following departments would not be a cost center?

A)advertising department
B)city police department
C)building and grounds department
D)sales department

Question 22

Which of the following costs are the responsibility of profit center managers?

A)costs only.
B)revenues only.
C)both costs and revenues.
D)revenues,costs,and assets.

Question 23

For an organizational unit to be considered a responsibility center,what must be true?

A)The unit must be separable and identifiable.
B)The unit must lack financial measures of performance.
C)The unit must lack control over an activity.
D)all of the above.

Question 24

Which of the following costs are the responsibility of investment center managers?

A)costs only.
B)revenues only.
C)both costs and revenues.
D)revenues,costs,and assets.

Question 25

Which of the following departments would not be classified as a profit center?

A)Hardware department
B)Men's shoes department
C)Accounting department
D)Automotive department

Question 26

What cost centers have input-output relationships sufficiently well established so that a particular set of inputs will provide a predictable and measurable set of outputs?

A)engineered cost centers.
B)direct cost centers.
C)opportunity cost centers.
D)discretionary cost centers.

Question 27

How can budgets motivate people to perform because?

A)Budgets are mandated by the Department of Labor and included in labor union contracts.
B)Budgets are authorized by generally accepted accounting principles.
C)Budgets are required by the Securities and Exchange Commission.
D)Budgets are standards or targets for people to achieve.

Question 28

Which of the following are not controlled by a manager of a profit center?

A)Revenues
B)Costs
C)Investments
D)Profits

Question 29

Which of the following statements is true regarding the master budget?

A)The master budget is a blueprint of the planned operations of a firm for a period.
B)The master budget begins with the production budget.
C)The master budget does not require a sales forecast.
D)all of the above.

Question 30

What cost centers do not have input-output relationships sufficiently well established so that a particular set of inputs will provide a predictable and measurable set of outputs?

A)engineered cost centers.
B)direct cost centers.
C)opportunity cost centers.
D)discretionary cost centers.

Question 31

Which of the following costs are the responsibility of revenue center managers?

A)costs only.
B)revenues only.
C)both costs and revenues.
D)revenues,costs,and assets.

Question 32

Which of the following statements is true concerning the flexible budget?

A)The flexible budget shows the expected relation between costs and volume.
B)The flexible budget has a fixed cost component which is expected to be incurred regardless of the level of activity.
C)The flexible budget has a variable cost per unit of activity component where variable costs change in total as the level of activity changes.
D)all of the above.

Question 33

Which of the following would be a responsibility of a manager in a cost centers?

A)costs only.
B)revenues only.
C)both costs and revenues.
D)revenues,costs,and assets.

Question 34

For which types of operations do firms design operational planning and control systems?

A)manufacturing operations only.
B)marketing and manufacturing operations only.
C)manufacturing and other activities but not marketing.
D)manufacturing,marketing,and other activities.

Question 35

Who are responsible for (1)costs in cost centers, (2)revenues in revenue centers, (3)both costs and revenues in profit centers,and (4)revenues,costs,and assets in an investment center?

A)Shareholders.
B)Employees.
C)Managers.
D)Vendors.

Question 36

Based on the types of costs incurred,what are the two categories of cost centers?

A)engineered cost centers and discretionary cost centers.
B)direct cost centers and indirect cost centers.
C)sunk cost centers and opportunity cost centers.
D)short-term cost centers and long-term cost centers.

Question 37

Who often encounter ethical dilemmas in the budgeting process because they are involved in the creation of the budget,and their performances are subsequently evaluated by comparing the budget to actual results?

A)customers
B)advertising firms
C)shareholders
D)managers

Question 38

An investment center's performance is most likely to be affected by which of the following?

A)an increase is sales volume.
B)a decrease in expenses.
C)an increase in interest rates.
D)all of the above.

Question 39

A manufacturing division of a company would most likely be evaluated as a(n)

A)cost center.
B)investment center.
C)revenue center.
D)asset center.

Question 40

Which of the following departments is likely to be an investment center?

A)Machining department
B)Food products division
C)Personnel department
D)Accounting department

Question 41

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

A)asking sales staff and/or market researchers for an estimate of the future period's sales.
B)using the Delphi technique and trend analysis.
C)entering past sales data into a regression model to obtain a statistical estimate of factors affecting sales (econometric model).
D)all of the above.

Question 42

When is the flexible budget is prepared?

A)before the budget period begins.
B)after the budget period begins,but before it ends.
C)about half way through the budget period begins.
D)after the budget period ends.

Question 43

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?

A)econometric model.
B)input-output model.
C)Delphi model
D)none of the above.

Question 44

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

A)customer-level activities.
B)facility-level activities.
C)product-level activities.
D)unit-level activities.

Question 45

What is often the most difficult aspect of budgeting?

A)forecasting sales because it involves considerable subjectivity.
B)forecasting sales because it involves considerable objectivity.
C)forecasting production requirements because it involves considerable subjectivity.
D)forecasting production requirements because it involves considerable objectivity.

Question 46

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

A)product-level cost.
B)facility-level cost.
C)unit-level cost.
D)all of the above.

Question 47

When is the master budget prepared?

A)before the budget period begins.
B)after the budget period begins,but before it ends.
C)about half way through the budget period begins.
D)at the end or after the budget period ends.

Question 48

Which statements is correct concerning a flexible budget?

A)A flexible budget is not appropriate when costs and expenses are affected by fluctuations in volume limits.
B)A flexible budget is appropriate for any relevant level of activity.
C)A flexible budget is appropriate for control of factory overhead but not for control of direct materials and direct labor.
D)A flexible budget is appropriate for control of direct materials and direct labor but not for control of factory overhead.

Question 49

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

A)Cost.
B)Revenue.
C)Profit.
D)Investment.

Question 50

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?

A)zero-based budget.
B)flexible budget.
C)discretionary budget.
D)fixed budget.

Question 51

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

A)A fixed budget includes only fixed costs,while a flexible budget includes only variable costs.
B)A fixed budget is concerned only with future acquisitions of fixed assets,while a flexible budget is concerned with expenses,which vary with sales.
C)A fixed budget cannot be changed after the period begins,while a flexible budget can be changed after the period begins.
D)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).

Question 52

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

A)customer-level activities.
B)facility-level activities.
C)product-level activities.
D)unit-level activities.

Question 53

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?

A)$6.00.
B)$6.50.
C)$7.50.
D)$8.13.

Question 54

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?

A)customer-level activities.
B)facility-level activities.
C)product-level activities.
D)unit-level activities.

Question 55

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

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

A)$275,000
B)$300,000
C)$775,000
D)$900,000

Question 56

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

A)product-level cost.
B)facility-level cost.
C)unit-level cost.
D)either "a" or "b"

Question 57

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

A)No No
B)No Yes
C)Yes No
D)Yes Yes

Question 58

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

A)Cost.
B)Revenue.
C)Profit.
D)Investment.

Question 59

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

A)Decrease Increase
B)Decrease No Change
C)No Change No Change
D)No Change Increase

Question 60

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

A)Cost
B)Revenue
C)Profit
D)Investment

Question 61

What forms the basis for analyzing the differences between planned and actual results?

A)comparing actual results achieved with the master budget,only.
B)comparing actual results with the flexible and master budgets.
C)comparing actual results with the normal or average budget for the industry.
D)comparing actual results achieved with the actual results of the prior years.

Question 62

Which of the following is not a component of a comprehensive master budget?

A)budgeted income statement,
B)budgeted balance sheet.
C)budgeted retained earnings statement.
D)budgeted statement of cash flows.

Question 63

In profit planning and budgeting,which statement is true concerning an unfavorable variance?

A)An unfavorable variance would decrease operating profit,holding all other things constant.
B)An unfavorable variance is always negative (bad),holding all other things constant.
C)both "a" and "b"
D)none of the above.

Question 64

In profit planning and budgeting,which statement is true concerning a favorable variance?

A)A favorable variance would increase operating profit,holding all other things constant.
B)A favorable variance is always positive (good),holding all other things constant.
C)A favorable variance would decrease operating profit,holding all other things constant.
D)A favorable variance is always negative (bad),holding all other things constant.

Question 65

Which of the following statements is true concerning the fixed component of power cost?

A)This would be categorized as a unit level activity.
B)This is a cost that would be incurred regardless of the level of output.
C)This would be categorized as a facility-related cost.
D)both "b" and "c"

Question 66

Which of the following describes the difference in operating profits from the flexible budget to the master budget results from the difference between budgeted sales volume and actual sales volume?

A)the margin of safety.
B)a profit-volume variance.
C)a sales volume variance.
D)a differential volume variance.

Question 67

Variable manufacturing overhead costs such as power are considered to be which of the following?

A)a semivariable,or mixed,cost having both variable and fixed components.
B)a variable cost with variable components,only.
C)a fixed cost with fixed components,only.
D)all of the above

Question 68

Which of the following statements is correct regarding marketing travel costs?

A)Marketing travel costs are incurred for customer-related activities.
B)Marketing travel costs are fixed in the long-term.
C)Marketing travel costs are variable in the short-term.
D)both "a" and "b"

Question 69

Which of the following statements is true concerning the variable component of power cost?

A)This cost would be categorized as a unit level activity.
B)This cost would be categorized as a cost which varies in total with the unit level of output.
C)This cost would be categorized as a facility-related cost.
D)both "a" and "b"

Question 70

Which statement is true concerning direct materials?

A)are materials traceable to individual units produced.
B)costs are almost always variable.
C)costs are almost always fixed.
D)"a" and "b"

Question 71

Planning capital expenditures involves which of the following?

A)making the capital budget decision.
B)identifying opportunities for capital expenditures.
C)identifying alternative options.
D)all of the above.

Question 72

Manufacturing Overhead costs such as maintenance,rent,insurance,and depreciation should be categorized as which of the following?

A)fixed overhead costs and facility-level activities.
B)variable overhead costs and facility-level activities.
C)fixed overhead costs and product-level activities.
D)variable overhead costs and product-level activities.

Question 73

Which cost can be cut for a period of time because their reduction presents no serious short-term threats to production and marketing?

A)discretionary costs.
B)committed costs.
C)sunk costs.
D)opportunity costs.

Question 74

In determining the Production Budget,what is the formula for computing the quantity of each product to be produced?

A)Units to Be Produced = Number of Units to Be Sold + Desired Units in Ending Inventory - Units in Beginning Inventory
B)Number of Units to Be Sold = Units to Be Produced + Desired Units in Ending Inventory - Units in Beginning Inventory
C)Units to Be Produced = Number of Units to Be Sold + Units in Beginning Inventory - Desired Units in Ending Inventory
D)none of the above.

Question 75

Lydia Company projects the following sales in units for the third quarter of the year:

If the company wishes to maintain an inventory balance of 5,000 units and has 2,500 units on hand at the end of June,how many units will need to be produced in July?

A)10,000
B)12,500
C)15,000
D)17,500

Question 76

Which statement is true concerning direct labor?

A)is work traceable directly to particular units of production.
B)uses estimates which allow for normal,periodic rest periods,yet motivates employees to perform efficiently.
C)could be fixed,if the firm is a high-tech company having only a few workers,or variable
D)all of the above.

Question 77

Marshall Company's sales budget shows the following projections for the year ending December 31

Inventory at December 31 of the prior year was budgeted at 18,000 units.The quantity of finished goods inventory at the end of each quarter is to equal 30% of the next quarter's budgeted unit sales.How much should the production budget show for units to be produced during the first quarter?

A)24,000.
B)48,000.
C)66,000.
D)72,000.

Question 78

Which statement is true concerning variable manufacturing overhead costs?

A)Variable manufacturing costs vary with units produced.
B)Variable manufacturing costs such as indirect labor and supplies are considered to be batch-level activities.
C)Variable manufacturing costs such as power are considered to be a true variable cost.
D)all of the above

Question 79

If management desires finished goods inventory to decrease over the period,what can be said about the relationship between units produced and units sold?

A)Units produced > units sold.
B)Units produced < units sold.
C)Units produced = units sold.
D)Nothing can be said without more information.

Question 80

In using the budget for performance evaluation,accountants compare actual results achieved with budgets to derive

A)variances.
B)delta(s).
C)flexible budgets.
D)master budgets.