Question 1

When an organization's actual revenues are greater than its budgeted revenues, the difference is referred to as a favourable variance.

Accepted Answer

A favourable variance is when actual revenues exceed budgeted revenues.

Question 2

Master budgets are often summarized in a company's short-term operating plans.

Accepted Answer

False

Question 3

In a production budget, beginning inventory plus budgeted production equals sales plus targeted ending inventory.

Accepted Answer

This is true. The production budget is designed to ensure that the company produces the right amount of goods to meet sales demand while also maintaining a targeted level of ending inventory. This is achieved through the formula of beginning inventory plus budgeted production equals sales plus targeted ending inventory.

Question 4

A financial budget is the master budget component that leads to all budgeted financial statements.

Accepted Answer

The answer of A financial budget is the master budget...

Question 5

Favourable variances are positive amounts; unfavourable variances are negative amounts.

Accepted Answer

Favourable variances indicate better-than-expected performance (e.g., lower costs or higher revenues than planned), while unfavourable variances indicate worse-than-expected performance. However, whether these variances are represented as positive or negative amounts depends on the context and accounting practices, not on their nature as favourable or unfavourable.

Question 6

The cash budget is included in an organization's operating budget.

Accepted Answer

The cash budget is typically part of the financial budget, not the operating budget. The operating budget focuses on income and expenses related to the core business operations, while the cash budget deals with cash inflows and outflows.

Question 7

The master budget includes two components: an operating budget and a time budget.

Accepted Answer

The master budget includes an operating budget and a financial budget, not a time budget.

Question 8

The ending inventories budget is typically expressed in terms of costs, while the production budget is typically expressed in units.

Accepted Answer

The ending inventories budget is usually in terms of costs because it involves determining the value of the goods that will be stored or held as inventory at the end of the period. On the other hand, the production budget is typically expressed in units since it focuses on the quantity or volume of goods that will be produced during the period.

Question 9

A formalized financial plan for organizational operations is called a long-term strategy.

Accepted Answer

A formalized financial plan for organizational operations is called a budget, not a long-term strategy. A long-term strategy involves setting long-term goals and determining actions to achieve those goals, which may include financial planning but encompasses much more.

Question 10

A flexible budget reflects a range of operations.

Accepted Answer

A flexible budget shows how expenses and revenues would change based on different levels of activity or operations. It allows for adjustments and more accurate forecasting as actual operations vary from the original budgeted plan.

Question 11

A master budget is a comprehensive plan for an upcoming financial period.

Accepted Answer

A master budget is a detailed plan outlining the expected revenues and expenses for a period, typically a fiscal year, and covering all aspects of an organization's activity.

Question 12

Managers need information from current beginning inventories and required ending inventories to prepare the production budget.

Accepted Answer

This statement is true. Managers use information about beginning and ending inventories to determine how much product needs to be produced in a given period of time.

Question 13

Budget variances cannot be calculated from a static budget.

Accepted Answer

Budget variances can be calculated from a static budget by comparing the actual results to the budgeted figures, which allows for the analysis of any deviations.

Question 14

Cost-volume-profit analysis is a simplified version of a flexible budget.

Accepted Answer

Cost-volume-profit analysis is a simplified version of a flexible budget as it focuses on the relationship between costs, volume, and profit. Flexible budgets, on the other hand, are more comprehensive and include multiple levels of activity and different cost structures.

Question 15

To prepare a budgeted income statement, managers draw data from the revenue budget, the cost of goods sold budget, and the cash budget.

Accepted Answer

A budgeted income statement is prepared using data from the revenue budget, cost of goods sold budget, and operating expenses budget, not the cash budget.

Question 16

If actual activities do not follow plans, a variance is likely to result.

Accepted Answer

If actual activities deviate from the planned activities, a variance will occur. This is because the plan is a detailed framework of what is expected to happen, and any divergence from it means that things are going differently than anticipated. This can lead to both positive and negative variances, depending on the nature of the deviation.

Question 17

Differences between budgeted amounts and actual amounts are called budget variances.

Accepted Answer

This statement is true. Budget variances measure the difference between the planned or budgeted amounts of a certain item and the actual amounts spent or earned.

Question 18

An operating budget is the component of a master budget that contains management's plans for revenues, production, and operating costs.

Accepted Answer

This statement is true.

Question 19

Production and inventory budgets form the basis for developing the revenue budget.

Accepted Answer

The revenue budget is typically developed first as it estimates the total sales and revenue expected. This forecast then informs the production and inventory budgets, as they need to align with the sales expectations to meet demand efficiently.

Question 20

Budgeting provides a means for defining managers' decision rights.

Accepted Answer

Budgeting involves setting targets for various departments and areas of the organization, which in turn define the decision rights of managers. This allows for a clear understanding of who is responsible for what, and helps to align decision-making with the overall goals and objectives of the organization.

Quiz 10: Static and Flexible Budgets