Deck 22: Budgeting

Question 1

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

Answer 1

True

Question 2

The budget procedure that requires managers to estimate sales, production, and other operating data as though operations were being started for the first time is called zero-based budgeting.

Answer 2

True

Question 3

Budget preparation is best determined in a top-down managerial approach.

Answer 3

False

Question 4

Budgets are normally used only by profit-making businesses.

Question 5

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

Question 6

The flexible budget is, in effect, a series of static budgets for different levels of activity.

Question 7

A budget procedure that provides for the maintenance at all times of a 12-month projection into the future is called master budgeting.

Question 8

Consulting the persons affected by a budget when it is prepared can provide an effective means of motivation and cooperation.

Question 9

A capital expenditures budget is prepared before the operating budgets.

Question 10

The budget procedure that requires managers to estimate sales, production, and other operating data as though operations were being started for the first time is called continuous budgeting.

Question 11

Budgets are prepared in the Accounting Department and monitored by various department managers.

Question 12

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

Question 13

Budgeting involves (1) establishing specific goals for future operations, (2) executing plans to achieve the goals, and (3) periodically comparing actual results with the goals.

Question 14

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

Question 15

The task of preparing a budget should be the sole task of the most important department in an organization.

Question 16

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

Question 17

A budget procedure that provides for the maintenance at all times of a 12-month projection into the future is called continuous budgeting.

Question 18

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

Question 19

Past performance is the best overall basis for evaluating current performance and assessing the need for corrective action.

Question 20

The responsibility for coordinating the preparation of the annual budget should be assigned to the CEO of a firm.

Question 21

After the sales budget is prepared, the production budget is normally prepared next.

Question 22

After the sales budget is prepared, the capital expenditures budget is normally prepared next.

Question 23

The budgeted direct materials purchases is 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.

Question 24

The budgeted direct materials purchases is normally computed as the sum of (1) the materials for production and (2) the desired ending inventory.

Question 25

The financial budgets of a business include the cash budget, the capital expenditures budget, and the budgeted balance sheet.

Question 26

The operating budgets are used to prepare the budgeted income statement.

Question 27

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

Question 28

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

Question 29

Most companies prepare a master budget on a yearly basis.

Question 30

A process whereby the effect of fluctuations in the level of activity is built into the budgeting system is referred to as flexible budgeting.

Question 31

Flexible budgeting requires managers to estimate sales, production, and other operating data as though operations were being started for the first time.

Question 32

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

Question 33

The financial budgets are prepared before the operating budgets.

Question 34

If Division Inc. expects to sell 200,000 units in the current year, 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 the year is 198,000 units.

Question 35

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

Question 36

The sales budget is derived from the production budget.

Question 37

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

Question 38

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.

Question 39

The master budget is an integrated set of budgets that tie together a company's operating, financing and investing activities into an integrated plan for the coming year.

Question 40

If Division Inc. expects to sell 200,000 units in the current year, 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 the year is 202,000 units.

Question 41

A budgeted income statement integrates the sales budget, cost of goods sold budget, and selling and administrative expenses budget, but excludes estimates of other revenue, other expense, and income tax.

Question 42

Supervisor salaries and indirect factory wages would normally appear in the direct labor cost budget.

Question 43

Supervisor salaries, maintenance, and indirect factory wages would normally appear in the selling and administrative expenses budget.

Question 44

The cash budget summarizes future plans for the acquisition of fixed assets.

Question 45

The production budget is the starting point for preparation of the direct labor cost budget.

Question 46

The budget process involves all of the following except

A)establishing specific goals
B)executing plans to achieve the goals
C)periodically comparing actual results with the goals
D)dismissing all managers who fail to achieve operational goals specified in the budget

Question 47

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

A)gross profit report
B)responsibility report
C)budget
D)performance report

Question 48

The budgetary unit of an organization that is led by a manager who has both the authority over and responsibility for the unit's performance is known as a

A)control center
B)budgetary area
C)responsibility center
D)managerial department

Question 49

The cash budget presents the expected inflows and outflows of cash for a specified period of time.

Question 50

The sales budget is the starting point for preparation of the direct labor cost budget.

Question 51

The budgeted balance sheet is also called a pro forma balance sheet.

Question 52

The capital expenditures budget summarizes plans for acquiring fixed assets.

Question 53

The cash budget is affected by the sales budget, the various budgets for manufacturing costs and operating expenses, and the capital expenditures budget.

Question 54

Part of the cash budget is based on information drawn from the capital expenditures budget.

Question 55

Supervisor salaries, maintenance, and indirect factory wages would normally appear in the factory overhead cost budget.

Question 56

The primary budget in nonmanufacturing businesses is the staffing budget.

Question 57

Detailed supplemental schedules based on department responsibility are often prepared for major items in the operating expenses budget.

Question 58

The staffing budget in a nonmanufacturing business is highly inflexible to service demands.

Question 59

The capital expenditures budget is part of the planned investing activities of a company.

Question 60

The budgeted balance sheet assumes that all operating and financial plans are met.

Question 61

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

A)establishment of specific goals
B)periodic comparison of actual results to goals
C)execution of plans to achieve goals
D)increased marketing efforts to boost sales

Question 62

A disadvantage of static budgets is that they

A)are dependent on the previous year's actual results
B)cannot be used by service companies
C)do not allow for possible changes in activity levels
D)show the expected results of a responsibility center for several levels of activity

Question 63

When a manager seeks to achieve personal departmental objectives that may work to the detriment of the overall firm, the manager is experiencing

A)budgetary slack
B)padding
C)goal conflict
D)cushions

Question 64

Jase 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 $24,000. At 12,000 units of production, a flexible budget would show

A)variable costs of $52,800 and $29,000 of fixed costs
B)variable costs of $44,000 and $24,000 of fixed costs
C)variable costs of $52,800 and $24,000 of fixed costs
D)variable and fixed costs totaling $68,000

Question 65

A variant of fiscal-year budgeting whereby a 12-month projection into the future is maintained at all times is termed _____ budgeting.

A)flexible
B)continuous
C)zero-based
D)master

Question 66

At the beginning of the period, the Assembly Department budgeted direct labor of $110,000, direct materials 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. The appropriate total budget for the department, assuming it uses flexible budgeting, is

A)$288,000
B)$305,000
C)$350,000
D)$378,000

Question 67

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

A)static budget
B)continuous budget
C)zero-based budget
D)flexible budget

Question 68

Principal components of a master budget include

A)production budget
B)sales budget
C)capital expenditures budget
D)all of these choices

Question 69

Which of the following budgets is not directly associated with the production budget?

A)direct materials purchases budget
B)sales budget
C)capital expenditures budget
D)direct labor cost budget

Question 70

The operating budgets of a company include the

A)cash budget
B)capital expenditures budget
C)financial budgets
D)production budget

Question 71

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

A)is suitable in a volatile demand situation while a flexible budget is suitable in a stable demand situation
B)is concerned only with future acquisitions of fixed assets, whereas a flexible budget is concerned with expenses that vary with sales
C)includes only fixed costs, whereas a flexible budget includes only variable costs
D)is a plan for a single level of activity, whereas a flexible budget adjusts for changes in the activity level

Question 72

Miller 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 $24,000. A flexible budget for 12,000 units of production would show

A)the same cost structure in total
B)direct materials of $60,000, direct labor of $52,800, utilities of $6,000, and supervisor salaries of $29,000
C)total variable costs of $148,000
D)direct materials of $60,000, direct labor of $52,800, utilities of $6,000, and supervisor salaries of $24,000

Question 73

Budgets need to be fair and attainable for employees to consider the budget important in their normal daily activities. Which of the following situations will not lead to human behavior problems?

A)setting goals among managers that conflict with one another
B)setting goals too tightly making it difficult to meet performance expectations
C)allowing employees the opportunity to be a part of the budget process
D)setting goals too loosely, creating a budgetary slack

Question 74

The production budget is used to prepare which of the following budgets?

A)operating expenses
B)direct materials purchases, direct labor cost, and factory overhead cost
C)sales in dollars
D)sales in units

Question 75

The process of developing budget estimates by requiring managers to estimate sales, production, and other operating data as though operations were being initiated for the first time is referred to as _____ budgeting.

A)flexible
B)continuous
C)zero-based
D)master

Question 76

Chelsa 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 $23,000. At 8,000 units of production, a flexible budget would show

A)variable costs of $64,000 and $28,000 of fixed costs
B)variable costs of $64,000 and $23,000 of fixed costs
C)variable costs of $72,000 and $23,000 of fixed costs
D)variable and fixed costs totaling $107,000

Question 77

If budgeted beginning finished goods inventory is $8,000, budgeted ending finished goods inventory is $9,400, and budgeted cost of goods sold is $10,260, budgeted cost of goods manufactured should be

A)$1,400
B)$9,600
C)$11,660
D)$11,550

Question 78

At the beginning of the period, the Cutting Department budgeted direct labor of $155,000, direct materials 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. The appropriate total budget for the department, assuming it uses flexible budgeting, is

A)$416,000
B)$370,500
C)$368,889
D)$335,000

Question 79

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

A)the same cost structure in total
B)direct materials of $72,000, direct labor of $52,800, fixed utilities of $5,000, and supervisor salaries of $25,000
C)total variable costs of $159,800
D)direct materials of $60,000, direct labor of $52,800, fixed utilities of $6,000, and supervisor salaries of $25,000

Question 80

A series of budgets for varying levels of activity is termed a(n) _____ budget.

A)flexible
B)variable
C)master
D)activity