Question 1

Which of the following is not an advantage of the budgeting process?

Accepted Answer

The budget process being costly and time-consuming is considered a disadvantage, not an advantage. The other options (A, B, C) are recognized benefits of budgeting, such as aiding in performance evaluation, helping coordinate activities, and forcing management to plan ahead.

Question 2

The master budget includes the operating budget, the capital expenditures budget and the financial budget.

Accepted Answer

The master budget is a comprehensive financial planning document that includes the operating budget (covering revenue and expense activities), the capital expenditures budget (detailing planned investments in long-term assets), and the financial budget (forecasting cash flows, income statements, and balance sheets).

Question 3

Which of the following budgets is a major part of the master budget and focuses on the income statement and its supporting schedules?

Accepted Answer

The operating budget is a comprehensive projection of how a company will perform from a financial perspective during a specific period. It includes detailed plans for revenue, production, labor costs, overhead costs, and other expenses related to the day-to-day operations of the business. This budget focuses on the income statement and its supporting schedules, outlining the expected revenues and expenses, thereby providing a basis for estimating net income.

Question 4

Which of the following statements is incorrect?

Accepted Answer

The sales and cash collections budgets primarily influence the cash budget and the budgeted income statement also depends on other budgets like the cost of goods sold, operating expenses, and others, not just sales and cash collections.

Question 5

The starting point of the budgeting process is to predict operating income for the upcoming period.

Accepted Answer

The starting point of the budgeting process is typically to forecast sales or revenue for the upcoming period, as this will drive the subsequent budgeting for expenses, capital expenditures, and other financial activities.

Question 6

Budgeted finished goods inventory will increase when budgeted sales are greater than budgeted production.

Accepted Answer

Budgeted finished goods inventory will decrease when budgeted sales are greater than budgeted production, as more goods are being sold than produced, reducing the inventory.

Question 7

Budgeted cash operating expenses include depreciation expense.

Accepted Answer

Depreciation expense is a non-cash charge and therefore is not included in budgeted cash operating expenses.

Question 8

Spencer Company expects cash sales for July of $12,000, and a 10% monthly increase during August and September. Credit sales of $4,000 in July should be followed by 25% increases during August and September. What are budgeted cash sales and budgeted credit sales for September respectively?

Accepted Answer

Cash sales for September are $12,000 * 1.10 * 1.10 = $14,520. Credit sales for September are $4,000 * 1.25 * 1.25 = $6,250.

Question 9

Which of the following budgets is not an operating budget?

Accepted Answer

The budgeted balance sheet is not an operating budget because it is a financial budget that projects the financial position of a company at the end of a period, whereas operating budgets relate to the company's primary activities such as sales, production, and expenses.

Question 10

A March sales forecast projects that 10,000 units of Product A and 12,000 units of Product B are going to be sold at prices of $11 and $13, respectively. The desired ending inventory of Product A is 20% higher than the beginning inventory of 1,000 units. How much are total March sales for Product A anticipated to be?

Accepted Answer

The total March sales for Product A are calculated by multiplying the projected units sold (10,000 units) by the selling price per unit ($11), which equals $110,000.

Question 11

Wright Company expects cash sales for July of $12,000, and a 20% monthly increase during August and September. Credit sales of $4,000 in July should be followed by 10% decreases during August and September. What are budgeted cash sales and budgeted credit sales for September?

Accepted Answer

Cash sales for September = July cash sales * (1 + 20%)^2 = $12,000 * 1.2^2 = $17,280. Credit sales for September = July credit sales * (1 - 10%)^2 = $4,000 * 0.9^2 = $3,240.

Question 12

Heath Company has beginning inventory of 21,000 units and expected sales of 48,000 units. If the desired ending inventory is 15,500 units, how many units should be produced?

Accepted Answer

To find the number of units Heath Company should produce, you add the expected sales to the desired ending inventory and then subtract the beginning inventory. So, (48,000 + 15,500) - 21,000 = 42,500 units.

Question 13

Janeway Corporation desires a December 31 ending inventory of 1,500 units. Budgeted sales for December are 2,300 units. The November 30 inventory was 850 units. What are budgeted purchases in units?

Accepted Answer

To calculate budgeted purchases: Desired ending inventory (1,500) + Budgeted sales (2,300) - Beginning inventory (850) = 2,950 units.

Question 14

Which of the following budgets or financial statements is an operating budget?

Accepted Answer

The sales budget is an operating budget as it relates to the day-to-day operations and revenue generation of a business.

Question 15

Griffith Company has budgeted purchases of inventory for December of $105,000. Expected beginning inventory on December 1 and ending inventory on December 31 are $120,000 and $129,000, respectively. If cost of goods sold averages 75% of sales, what are budgeted sales for December?

Accepted Answer

The answer of Griffith Company has budgeted purchases of inventory...

Question 16

Which of the following statements is incorrect?

Accepted Answer

An increase in budgeted accounts payable occurs when budgeted purchases exceed budgeted cash payments to suppliers, not the other way around. This is because accounts payable represents the amount the company owes to its suppliers, which would increase if the company is purchasing more than it is paying off within the budget period.

Question 17

Hogan's management has forecasted sales of 50,000 units and an increase in finished goods of 10,000 units for the upcoming year. How many units is Hogan planning to produce next year?

Accepted Answer

Hogan plans to produce 60,000 units next year because the forecasted sales are 50,000 units plus an increase in finished goods inventory of 10,000 units, totaling 60,000 units.

Question 18

Yokeley Enterprises recorded sales of $160,000 during March. Management expects sales to increase 5% in April, 3% in May, and 5% in June. Cost of goods sold is expected to be 70% of sales. What is the budgeted gross profit for June?

Accepted Answer

The answer of Yokeley Enterprises recorded sales of $160,000 during...

Question 19

Lan Corporation had beginning inventory of 42,000 units and expects sales of 96,000 units during the year. Desired ending inventory is 31,000 units. How many units should Lan Corporation produce?

Accepted Answer

The answer of Lan Corporation had beginning inventory of 42,000...

Question 20

Norton Company prepared the following sales budget:
$$\begin{array} { | l | l | } 
\hline \text { Month } & \text { Budgeted Sales } \
\hline \text { March } & \$ 200,000 \
\hline \text { April } & \$ 180,000 \
\hline \text { May } & \$ 220,000 \
\hline \text { June } & \$ 260,000 \
\hline
\end{array}$$ The expected gross profit rate is 40% and the inventory at the end of February was $36,000. Desired inventory levels at the end of the month are 30% of the next month's cost of goods sold. What is the desired beginning inventory on June 1?

Accepted Answer

To find the desired beginning inventory on June 1, we first calculate the cost of goods sold (COGS) for June. Since the gross profit rate is 40%, the cost rate is 60% (100% - 40%). The budgeted sales for June are $260,000, so the COGS for June is 60% of $260,000 = $156,000. The desired inventory level at the end of May (beginning of June) is 30% of June's COGS, which is 30% of $156,000 = $46,800.

Quiz 21: The Master Budget and Responsibility Accounting

Which of the following is not an advantage of the budgeting process?

The master budget includes the operating budget, the capital expenditures budget and the financial budget.

Which of the following budgets is a major part of the master budget and focuses on the income statement and its supporting schedules?

Which of the following statements is incorrect?

The starting point of the budgeting process is to predict operating income for the upcoming period.

Budgeted finished goods inventory will increase when budgeted sales are greater than budgeted production.

Budgeted cash operating expenses include depreciation expense.

Spencer Company expects cash sales for July of $12,000, and a 10% monthly increase during August and September. Credit sales of $4,000 in July should be followed by 25% increases during August and September. What are budgeted cash sales and budgeted credit sales for September respectively?

Which of the following budgets is not an operating budget?

Wright Company expects cash sales for July of $12,000, and a 20% monthly increase during August and September. Credit sales of $4,000 in July should be followed by 10% decreases during August and September. What are budgeted cash sales and budgeted credit sales for September?

Heath Company has beginning inventory of 21,000 units and expected sales of 48,000 units. If the desired ending inventory is 15,500 units, how many units should be produced?

Janeway Corporation desires a December 31 ending inventory of 1,500 units. Budgeted sales for December are 2,300 units. The November 30 inventory was 850 units. What are budgeted purchases in units?

Which of the following budgets or financial statements is an operating budget?

Griffith Company has budgeted purchases of inventory for December of $105,000. Expected beginning inventory on December 1 and ending inventory on December 31 are $120,000 and $129,000, respectively. If cost of goods sold averages 75% of sales, what are budgeted sales for December?

Which of the following statements is incorrect?

Hogan's management has forecasted sales of 50,000 units and an increase in finished goods of 10,000 units for the upcoming year. How many units is Hogan planning to produce next year?

Yokeley Enterprises recorded sales of $160,000 during March. Management expects sales to increase 5% in April, 3% in May, and 5% in June. Cost of goods sold is expected to be 70% of sales. What is the budgeted gross profit for June?

Lan Corporation had beginning inventory of 42,000 units and expects sales of 96,000 units during the year. Desired ending inventory is 31,000 units. How many units should Lan Corporation produce?