Deck 9: Business Planning and Budgeting

Question 1

Which of the following is a benefit of a budget?
A It communicates a clear understanding of business objectives,and staff's responsibilities and constraints within the business
B It provides a benchmark against which performance can be measured,and variations between planned and actual performance can be investigated
C It can be used as a measure to evaluate the performance of mangers and staff
D All of the above

Answer 1

D

Question 2

Choose the correct statement: a budgeted Balance Sheet:
A summarises all the planned activities of the business
B is the budget that is the starting point in the budget process,determining the purchasing and operating expense levels
C is the budget that shows how individual selling,distribution and administrative expense items behave when sales volume changes
D is prepared from the budgeted sales,the budgeted operating expenses,and the budgeted cost of goods sold
E is the budget of expected receipts and payments
F is the budget that is the ending point in the budget process,and cannot be completed until all other budgets are prepared

Answer 2

F

Question 3

Choose the correct statement: a purchases and operating expenses budget:
A summarises all the planned activities of the business
B is the budget that is the starting point in the budget process,determining the purchasing and operating expense levels
C is the budget that shows how individual selling,distribution and administrative expense items behave when sales volume changes
D is prepared from the budgeted sales,the budgeted operating expenses,and the budgeted cost of goods sold
E is the budget of expected receipts and payments
F is the budget that is the ending point in the budget process,and cannot be completed until all other budgets are prepared

Answer 3

C

Question 4

Briefly explain each of the 7 steps in the budgeting process.

Question 5

Fixed costs:
A remain constant regardless of output or activity levels
B remain constant regardless of output or activity levels within the relevant range
C remain in fixed proportion to output or activity levels
D remain in fixed proportion to output or activity levels within the relevant range

Question 6

Which of the following is a characteristic of zero-based budgeting?
A Used in the public sector where the entity is generally told what areas it shall operate in
B Involves the budget being built from the lowest level of management upward,starting at the 'coal face' with workers actually on the job
C The budget for virtually every activity is set initially to nil,then to receive a budget allocation the manager must justify each activity in terms of its ability to meet the objectives of the business
D The budget is developed from a ranking of employees,determined by their relative contribution to the business objectives.

Question 7

Choose the correct statement: a budgeted Income Statement:
A summarises all the planned activities of the business
B is the budget that is the starting point in the budget process,determining the purchasing and operating expense levels
C is the budget that shows how individual selling,distribution and administrative expense items behave when sales volume changes
D is prepared from the budgeted sales,the budgeted operating expenses,and the budgeted cost of goods sold
E is the budget of expected receipts and payments
F is the budget that is the ending point in the budget process,and cannot be completed until all other budgets are prepared

Question 8

What is the correct sequence in the budgeting process?
A Identifying the alternatives;Evaluating the alternatives
Defining the objectives;Monitoring actual performance
Taking corrective action;Creating a long-term plan
Implementing the long-term plan: budgeting
B Identifying the alternatives;Evaluating the alternatives
Taking corrective action;Creating a long-term plan
Defining the objectives;Monitoring actual performance
Implementing the long-term plan: budgeting
C Defining the objectives;Creating a long-term plan
Implementing the long-term plan: budgeting
Monitoring actual performance;Identifying the alternatives
Evaluating the alternatives;Taking corrective action
D Defining the objectives;Identifying the alternatives
Evaluating the alternatives;Creating a long-term plan
Implementing the long-term plan: budgeting
Monitoring actual performance;Taking corrective action

Question 9

Management by exception involves:
A investigating all unfavourable variances
B investigating all favourable variances
C investigating only significant variances from budget
D investigating only unfavourable revenue variances
E investigating only unfavourable expense variances

Question 10

The budget that summarises all the planned activities of the business is called:
A the cash budget
B the sales budget
C the master budget
D the budgeted Balance Sheet
E the budgeted Income Statement
F the purchases and operating expenses budget

Question 11

An example of an unfavourable variance would be:
A an expense that is greater than budgeted
B a revenue that is greater than budgeted
C an expense that is less than budgeted
D a profit that is greater than budgeted

Question 12

Variable costs:
A change in direct proportion to output or activity levels
B change in indirect proportion to output or activity levels
C change in direct proportion to expense levels
D change in indirect proportion to expense levels

Question 13

Choose the correct statement: a cash budget:
A summarises all the planned activities of the business
B is the budget that is the starting point in the budget process,determining the purchasing and operating expense levels
C is the budget that shows how individual selling,distribution and administrative expense items behave when sales volume changes
D is prepared from the budgeted sales,the budgeted operating expenses,and the budgeted cost of goods sold
E is the budget of expected receipts and payments
F is the budget that is the ending point in the budget process,and cannot be completed until all other budgets are prepared

Question 14

Choose the correct statement: a sales budget:
A summarises all the planned activities of the business
B is the budget that is the starting point in the budget process,determining the purchasing and operating expense levels
C is the budget that shows how individual selling,distribution and administrative expense items behave when sales volume changes
D is prepared from the budgeted sales,the budgeted operating expenses,and the budgeted cost of goods sold
E is the budget of expected receipts and payments
F is the budget that is the ending point in the budget process,and cannot be completed until all other budgets are prepared

Question 15

Which of the following is an advantage specific to zero-based budgeting?
A By involving the people 'at the coal face',managers are likely to get a budget that is more accurate
B Managers are more likely to accept the budget and strive to achieve it if they are involved in its preparation
C It forces managers to justify each activity of the business,and to consider people,processes and technology,and real solutions,rather than mere 'savings'
D All of the above

Question 16

Breakeven point is the point where:
A total sales revenue equals total fixed costs
B total sales revenue equals total variable costs
C total sales revenue equals total costs
D All of the above

Question 17

Choose the correct statement: a budget is:
A a statement of past results based on future estimations
B a detailed short-term plan that shows the present financial situation
C a detailed short-term plan that shows the past financial situation
D a statement of future estimations based on past results

Question 18

Which of the following is a disadvantage of participative budgeting?
A It takes time to prepare and produce the information needed
B Many of the participants at this level are insufficiently trained in the budgeting process
C Many managers at this level treat the process as a game - that is,they try to 'win' more for their section than their fellow managers
D All of the above

Question 19

Which of the following is a characteristic of the participative approach to budgeting?
A Used in the public sector where the entity is generally told what areas it shall operate in
B Involves the budget being built from the lowest level of management upward,starting at the 'coal face' with workers actually on the job
C The budget for virtually every activity is set initially to nil,then to receive a budget allocation the manager must justify each activity in terms of its ability to meet the objectives of the business
D The budget is developed from a ranking of activities,determined by their relative contribution to the business objectives.

Question 20

Which of the following is not a purpose or benefit of a budget?
A It forces mangers to think ahead and plan for future conditions
B It can be used as a punishment tool for staff who are underperforming
C It coordinates all of the business's activities into a common plan
D It provides a motivational tool for managers and staff to achieve a set goal

Question 21

Prepare Miriam's Budgeted Income Statement for the 20X2 year based on the following:
• sales units are expected to be 16,000
• sales price will increase by 10% on the 20X1 year's budget,as will other direct expenses related to sales - Cost of sales,Delivery out,Packaging and Sales bonuses
• a new rent agreement comes into force which will increase the rent by 4% on the 20X1 actual amount
• telephone and internet are expected to be 20% lower than the 20X1 budget.

Question 22

Which of the following is not a limitation of breakeven analysis: breakeven analysis assumes that:
A costs and income have a linear relationship over the relevant range,but this will not be true if a business gives volume discounts for sales
B if the business has multiple products,the sales mix remains constant over time,but this will not be true except in the very short term
C the number of units produced equals the number sold,but this is not true except in very limited situations
D none of the above

Question 23

'Miriam's Munchies' prepares lunches for sale each day,6 days a week,from Miriam's lunch bar.
The variable costs to make each lunch average $2.50 per lunch.
The average sale price for each lunch is $8.70.
Miriam's weekly fixed costs (advertising,rates,mortgage interest and others)total $310 per week.
a What is Miriam's average contribution margin per lunch?
b Calculate the average number of lunches Miriam must make and sell each week to break even.
c Miriam has a target profit of $2,400 per week.How many lunches must she sell on average each week to achieve this goal?

Question 24

Breakeven analysis enables a firm to estimate the effect on net profit of:
A a change in either fixed or variable cost
B a reduction or increase in selling price
C a change in sales volume
D all of the above

Question 25

Randolph's Budgeted Income Statement for the year ending 31/03 is as follows:
a Calculate the variances for 20X5 and state as F (favourable)or U (unfavourable).
b Which variances would you investigate first and why?
c Prepare the 20X6 budget assuming it is based on the 20X5 budget adjusted as follows:
• Sales price will increase by 16%,sales units by 10%
• Cost of goods sold,Delivery and Packaging will be the same % of sales as in 20X5
• Sales bonuses will be 3% of sales in 20X6
• Advertising will increase by 15% on the 20X5 budget figure
• all other expenses to be same as the 20X5 budget figures.
d Calculate the variances for 20X6 and state as F or U.
e Explain possible reasons for variances and comment on the sales price decision for 20X6.
f Assume Cost of goods,Delivery,Packaging and Sales bonuses are the only variable expenses (i.e.the other expenses are all fixed).
Calculate the breakeven point in units for both years using the budget figures.

Question 26

After reviewing Miriam's accounting and business operations for her lunch bar,you find that:
• her average figures for sales are based on 3 different lunches:
- a rice dish which sells for $8,of which last year she sold on average 50 per day
- a vegetarian dish which sells for $9,of which last year she sold on average 30 per day
- a meat dish which sells for $10,of which last year she sold on average 20 per day
• the figures were taken from her accounting results for the year from 1 January 20X1 to 31 December 20X1;she does not have results for January-June of the current (20X2)year,as her accountant is still finalising her tax records
• her vegetables and meat are trucked from farms just outside Palmerston North once a week.
a Briefly explain limitations in calculating Miriam's breakeven and target profits relating to the accounting and business operations information above.
b State 2 other external factors that limit the accuracy of Miriam's calculations.

Question 27

Miriam's Income Statement for the previous (20X1)year was as follows:
a Calculate the variances from budget (and designate as favourable or unfavourable).
b Explain possible reasons for the 3 most significant revenue or expense item budget variances (ignore profit and subtotal variances);also explain a possible reason for the telephone and internet variance.