Deck 10: Budgetary Planning

Question 1

Budgeting and long-range planning differ in the emphasis and the time period involved.

Answer 1

True

Question 2

Budgets promote efficiency and serve as a deterrent to waste.

Answer 2

True

Question 3

Upper level managers are responsible for preparing the entire budget.

Answer 3

False

Question 4

A budget is more beneficial if accepted by lower level management.

Question 5

A budget facilitates coordination of activities within the business but is a poor tool for evaluating performance.

Question 6

The master budget consists of a plan of action for a specified time period.

Question 7

The last step in the budgeting process is developing a sales forecast.

Question 8

The shorter the budget period, the more reliable the estimates of future outcomes.

Question 9

A budget can be a means of communicating a company's objectives to external parties.

Question 10

Budgets, by their very nature, create a negative effect on human behaviour within companies because they imply that management is trying to control.

Question 11

Budgets represent management's plans in financial terms.

Question 12

Long-range plans reflect management's long-term plans encompassing five years or more.

Question 13

The production budget must be completed before the materials purchases budget because the number of units to be produced must be known to determine how much material to buy.

Question 14

Operating budgets must be completed before the financial budgets can be prepared.

Question 15

Long-range plans are used primarily as an evaluation of specific results to be achieved.

Question 16

A budget committee coordinates the budget activities of a company.

Question 17

The budget itself and the administration of the budget are the responsibility of management.

Question 18

The flow of input data for budgeting should be from the lowest levels of responsibility to the highest level.

Question 19

A sales budget should be prepared before the production budget.

Question 20

The most common budget period is one year.

Question 21

The manufacturing overhead budget generally has separate sections for variable and fixed costs.

Question 22

Companies that do NOT prepare cash budgets have significant cash deficiencies.

Question 23

The number of direct labour hours needed for production is obtained from the direct labour budget.

Question 24

Which of the following is NOT a benefit of budgeting?

A)It promotes efficiency.
B)It deters waste.
C)It is a basis for performance evaluation.
D)It assures the company that management will perform at a particular operational level.

Question 25

Which one of the following is necessary if a company expects its budget to be effective?

A)The company must be operating at less than capacity.
B)The budget period must cover more than one year.
C)The company's organizational structure must be sound.
D)The company must have sufficient cash for operations.

Question 26

The master budget contains which two classes of budgets?

A)the master budget and subsidiary budgets
B)the primary and secondary budgets
C)the historical and current budgets
D)the operating budgets and financial budgets

Question 27

Which one of the following is correct concerning a budget period?

A)A budget is prepared to summarize the organization's activity for the month, quarter, or year just completed.
B)A budget can be prepared for any period of time.
C)A budget must be prepared for a one year period.
D)A budget can be prepared for any period of time, but once that period has been adopted it cannot be changed.

Question 28

In preparing the budgeted balance sheet, management should NOT be concerned if it does NOT balance since it does NOT reflect actual results.

Question 29

The direct materials budget contains only quantity data so the purchasing department knows how much materials should be purchased.

Question 30

What is "budgetary slack"?

A)It is the tolerance that is built into budgets to recognize that actual results will not match budgeted projections exactly.
B)It is the process where managers intentionally underestimate budgeted revenues or overestimate budgeted expenses in order to make it easier to achieve budgetary goals.
C)It is the amount that actual results vary from budgeted projections as reported at the end of the budget period.
D)It is the process where upper management underestimates budgeted revenues or overestimates budgeted expenses in order to motivate lower management.

Question 31

What is a disadvantage of the "bottoms-up" approach to budgeting?

A)Lower level management is not apt to know as much about their specific area as upper management who has a better view of the overall picture.
B)When lower management is part of the budgeting process they are less likely to "buy into it".
C)It is time consuming and therefore more costly.
D)It is more apt to be widely seen as unrealistic than is the case with a "top-down" approach.

Question 32

The "bottoms-up" approach to budgeting is also referred to as which of the following?

A)zero-based budgeting
B)grassroots budgeting
C)participative budgeting
D)cooperative budgeting

Question 33

Companies can use either a predetermined overhead rate or a manufacturing overhead budget.

Question 34

The first budget prepared should be the sales budget.

Question 35

Which of the following individuals should accept the company's budgets in order for the budgets to be most effective?

A)division managers and customers
B)department heads and division managers
C)supervisors and clerks
D)department heads and creditors

Question 36

The budgeted income statement indicates the expected amount of cash expected to be acquired from operations.

Question 37

Which of the following statements is correct?

A)Long-range planning is just another term for budgeting.
B)Budgeting and long-range planning differ with respect to emphasis, detail and time period.
C)The only difference between budgeting and long-range planning is the time frame.
D)Budgeting is the first step in long-range planning.

Question 38

A merchandiser has a merchandise purchases budget, and a manufacturer has a materials purchases budget.

Question 39

Which budget is normally prepared first?

A)the production budget
B)the sales budget
C)the budgeted income statement
D)the cash budget

Question 40

Which of the following approvals will make the most effective environment for budget acceptance?

A)The budget is prepared by top management.
B)The budget preparation contains input from all levels of management.
C)The budget is prepared by the department heads.
D)Acceptance has nothing to do with who prepares budgets.

Question 41

What is the starting point in preparing a master budget?

A)the production budget
B)the sales budget
C)the direct labour budget
D)the purchases budget

Question 42

Budgetary slack means

A)management delays the completion of its annual budget to await important information.
B)the budgetary process is not given a high priority in the company.
C)the budget contains within it intentional under or over estimated items.
D)the budget must be approved by too many senior levels of management before it is finalized.

Question 43

Which problem might be a result of an unrealistic budget?

A)profitable operations
B)reduced employee morale
C)favourable operating activity
D)minimal differences between actual and budgeted amounts

Question 44

What three differences exist between long-range planning and budgeting?

A)amount of detail, content, and emphasis
B)time periods involved, amount of detail, and content
C)content, emphasis, and amount of detail
D)emphasis, time periods involved, and amount of detail

Question 45

What is true of budgets?

A)They are voted on and approved by shareholders.
B)They are used in the planning, but not the control process.
C)There is a standard form and structure for budgets.
D)They are used in performance evaluation.

Question 46

In many companies, who is assigned the responsibility for coordinating the preparation of the budget?

A)a budget committee
B)the sales managers since the sales budget is the backbone of the master budget
C)the company's board of directors since they approve major corporate changes
D)the company's independent certified general accountants

Question 47

Which one of the following would most likely cause an unrealistic budget to result?

A)All levels of management contributed to its development.
B)The budget has been developed in a participative approach.
C)The budget was developed after considerable planning.
D)The budget has been developed in a top down fashion.

Question 48

How does long-range planning compare to a master budget?

A)It focuses on meeting profit objectives instead of strategies to achieve those goals.
B)It is less detailed than an annual budget.
C)It is prepared by the president, unlike a master budget which is prepared by a budget committee.
D)It generally encompasses a shorter period of time than a master budget.

Question 49

Which one of the following represents the correct order in which the budget documents listed for a manufacturing company would be prepared?

A)production budget, marketing budget, direct materials budget, indirect labour budget
B)sales budget, cash budget, direct materials budget, direct labour budget
C)selling and administrative expense budget, budgeted income statement, cash budget, budgeted balance sheet
D)sales budget, cash budget, marketing budget, direct materials budget

Question 50

Why are budgets useful in the planning process?

A)They provide management with information about the company's past performance.
B)They help communicate goals and provide a basis for evaluation.
C)They guarantee the company will be profitable if it meets its objectives.
D)They enable the budget committee to earn their paycheque.

Question 51

Which of the following is a proper match-up?

A)long-range planning $\rightarrow$ 1 year
B)budgeting $\rightarrow$ review of progress
C)budgeting $\rightarrow$ anticipated trends in economic environment
D)long range planning $\rightarrow$ strategies

Question 52

Which one of the following best describes a master budget?

A)It is an interrelated long-term plan and operating budgets.
B)It includes financial budgets and a long-term plan.
C)It includes interrelated financial budgets and operating budgets.
D)It is all the accounting journals and ledgers used by a company.

Question 53

Under what situation might a budget be most effective?

A)as a tool to assess blame when costs are too high
B)when used to evaluate a manager's performance
C)Budgets are equally effective in all situations.
D)when it is created by top management

Question 54

Which one of the following sets of budgets are financial budgets?

A)budgeted balance sheet and production budget
B)budgeted income statement and sales budget
C)capital expenditure budget and cash budget
D)cash budget and sales budget

Question 55

What is a continuous budget?

A)It is a budget that is constantly being revised as new information is gained.
B)It is a budget that covers every aspect of the production process from the purchase of raw materials to the collection of revenue from sales.
C)It is a budget where the time period just completed is dropped and an equal future time period is added.
D)It is a term used to describe a budget that is prepared by a budget committee that meets on a continuous basis.

Question 56

Which one of the following is an advantage of using participative budgeting?

A)It is updated daily to reflect current activity.
B)It assures the company is operating at the activity level of the master budget.
C)It allows companies to compare the current with the previous year.
D)Lower level managers are more likely to perceive budgets as fair.

Question 57

Crown, Inc.administered its budget.What did the company do?

A)It prepared the budget one year in advance.
B)Management used the budget as an aid in achieving projected goals.
C)The company allowed each level of management to participate in creating the budget.
D)Management estimated its sales for the budget period.

Question 58

Which one of the following includes people who normally make up the budget committee?

A)sales manager, company president, company treasurer
B)company treasurer, creditors, controller
C)sales manager, controller, investors
D)external auditors, controller, treasurer

Question 59

Which one of the factors below is NOT a major influence on the length of budget periods?

A)the nature of the organization
B)the type of budget
C)prevailing business conditions
D)the profitability of the company

Question 60

What is the last step in developing the master budget?

A)preparing the budgeted balance sheet
B)preparing the cost of goods manufactured budget
C)preparing the budgeted income statement
D)preparing the cash budget

Question 61

One difference between a company's long-range planning efforts and its annual budget preparation is

A)long-range planning documents usually contain more detail than annual budgets.
B)annual budgets usually contain more detail than the long-range planning process.
C)long-range planning documents focus on the company's internal environment more than annual budgets.
D)annual budgets focus on the external environment more than the long-range planning process.

Question 62

Use the following information for questions
At January 1, 2016, Jake, Inc.has beginning inventory of 4,000 surfboards.Jake estimates it will sell 15,000 units during the first quarter of 2016 with a 10% increase in sales each quarter.Jake's policy is to maintain an ending inventory equal to 25% of the next quarter's sales.Each surfboard costs $200 and is sold for $250.
How much is budgeted sales revenue for the third quarter of 2016?

A)$18,150
B)$4,537,500
C)$907,500
D)$3,750,000

Question 63

One statement about budgeting that is generally true is

A)manufacturing companies spend more time on budgets than do service companies.
B)service company budgets tend to change only if there is a major increase or decrease in sales levels from year to year.
C)the budget process is an element of a company's activities and should be used throughout the year to evaluate performance.
D)the budget process is useful to assure shareholders that their interests will be looked after.

Question 64

Which of the following is NOT a characteristic of bottom-up budgeting?

A)It encourages organization-wide input into the process.
B)It takes advantage of employees' intimate knowledge of operations when formulating plans.
C)It is not as time consuming as top-down budgeting.
D)It increases employees' commitment to achieving budget goals.

Question 65

Hargrow, Inc.makes and sells a single product, buckets.It takes 30 ounces of plastic to make one bucket.Budgeted production of buckets for the next three months is as follows: August 90,000 units, September 75,000 units, October 65,000 units.The company wants to maintain monthly ending inventories of plastic equal to 10% of the following month's production needs.On August 31, 195,000 ounces of plastic were on hand.The cost of plastic is $0.03 per ounce.How much is the ending inventory of plastic to be reported on the company's balance sheet at September 30?

A)$195,000
B)$5,850
C)$6,750
D)$7,500

Question 66

DaDum Company desired 12,000 kilograms of raw material on hand on June 1 and 10,500 on June 30.The number of kilograms required for production for June totalled 240,000 kilograms.How many kilograms of raw material should DaDum purchase in June?

A)238,500 kilograms
B)241,500 kilograms
C)250,500 kilograms
D)228,000 kilograms

Question 67

How does a sales forecast differ from a sales budget?

A)A sales forecast includes the company, while a sales budget includes the industry.
B)A sales forecast includes the company and the industry, while a sales budget includes only the industry.
C)A sales forecast includes the company and the industry, while a sales budget includes only the company.
D)They are both the same.

Question 68

Surprise Company's sales budget showed expected sales of 13,400 widgets.Beginning finished goods contained 1,200 widgets.The company determined that 14,100 units should be produced.How many widgets will the company have on hand at the end of the year?

A)500
B)1,200
C)1,900
D)700

Question 69

Waco's Widgets plans to sell 22,000 widgets during May, 19,000 units in June, and 20,000 during July.Waco's policy is to keep 10% of the next month's sales as ending inventory.How many units should Waco produce during June?

A)18,900
B)21,000
C)19,100
D)19,000

Question 70

What information is found on the direct materials budget?
I.How many units of direct materials should be purchased?
II.How much is the cost of direct materials to be purchased?

A)I only
B)II only
C)Both I and II
D)Neither I nor II

Question 71

At January 1, 2016, Barry, Inc.has beginning inventory of 5,000 widgets.Barry estimates it will sell 40,000 units during the first quarter of 2016 with a 5% increase in sales each quarter.Barry's policy is to maintain an ending inventory equal to 10% of the next quarter's sales.Each widget costs $2 and is sold for $3.How much is budgeted sales revenue for the third quarter of 2016?

A)$44,100
B)$120,000
C)$132,300
D)$119,070

Question 72

Which one of the following helps improve the reliability of the sales forecast?

A)reduction of differences between actual and estimated amounts
B)creation of management awareness
C)consideration of industry trends
D)extension of the budget period

Question 73

Jelly Box, Inc.budgeted the following manufacturing costs for 25,000 calculators: $\begin{array}{ll}\text { Fixed manufacturing costs } & \$ 12,000 \text { per month } \\\text { Variable manufacturing costs } & \$ 16.00 \text { per unit }\end{array}$ Jelly Box produced 20,000 calculators during March.How much are budgeted total manufacturing costs in March?

A)$320,000
B)$412,000
C)$400,000
D)$332,000

Question 74

Use the following information for questions
At January 1, 2016, Jake, Inc.has beginning inventory of 4,000 surfboards.Jake estimates it will sell 15,000 units during the first quarter of 2016 with a 10% increase in sales each quarter.Jake's policy is to maintain an ending inventory equal to 25% of the next quarter's sales.Each surfboard costs $200 and is sold for $250.
How many units should Jake produce during the first quarter of 2016?

A)15,125
B)15,000
C)12,500
D)11,000

Question 75

What might a very conservative sales budget cause?

A)a decrease in selling prices
B)a shortage of inventories
C)increased sales during the year
D)overproduction of goods

Question 76

Which one of the following is an operating budget?

A)cash budget
B)sales budget
C)budgeted balance sheet
D)capital expenditure budget

Question 77

Orr Corporation's manufacturing costs for August when production was 750 units appears below: $\begin{array}{lr}\text { Direct material } & \$ 7 \text { per unit } \\\text { Direct labour } & \$ 6,000 \\\text { Variable overhead } & 3,000 \\\text { Factory Depreciation } & 2,000 \\\text { Factory supervisory salaries } & 7,000 \\\text { Other fixed factory costs } & 1,500\end{array}$ How much is the budgeted manufacturing cost for a month when 500 units are produced?

A)$13,000
B)$16,500
C)$20,000
D)$9,000

Question 78

Which of the following is correct?

A)beginning raw material inventory + raw material required for production - desired ending raw material inventory = required raw material to be purchased.
B)beginning raw material inventory + desired ending raw material inventory - raw material required for production = required raw material to be purchased.
C)raw material required for production + beginning raw material inventory - desired ending raw material inventory = required raw material to be purchased.
D)raw material required for production + desired ending raw material inventory - beginning raw material inventory = required raw material to be purchased.

Question 79

Lewis Hats is planning to sell 650 straw hats in April.Each hat requires ½ kilogram of straw and ¼ hour of direct labour.Straw costs $0.20 per kilogram and employees of the company are paid $22 per hour.Lewis has 80 kilograms of straw and 40 hats in beginning inventory and wants to have 50 kilograms of straw and 60 hats in ending inventory.How many units should Lewis Hats produce in April?

A)650
B)670
C)610
D)710

Question 80

Items from Sap Company's budget for March in which 2,100 units were produced and sold appear below: $\begin{array}{lr}\text { Direct materials } & \$ 12,000 \\\text { Indirect materials\_variable } & 2,000 \\\text { Supervisor salaries } & 10,000 \\\text { Depreciation on factory equipment } & 8,000 \\\text { Direct labour } & 7,000 \\\text { Property taxes on factory } & 3,000 \\\text { Total }&\$42,000\end{array}$ At 2,200 units, how much are budgeted variable manufacturing costs?

A)$22,000
B)$43,000
C)$21,000
D)$19,905