Deck 22: Master Budgets and Planning

Question 1

A budget can be an effective means of communicating management's plans to the employees of a business.

Answer 1

True

Question 2

Budgets are normally more effective when all levels of management are involved in the budgeting process.

Answer 2

True

Question 3

The merchandise purchases budget depends on information provided by the sales budget.

Answer 3

True

Question 4

Budgeting is an informal plan for future business activities.

Question 5

The merchandise purchases budget is the starting point for preparing the master budget.

Question 6

A budget is a formal statement of future plans,usually expressed in monetary terms.

Question 7

The master budget is a small component of the comprehensive budget.

Question 8

The process of evaluating performance can be improved by using budgets.

Question 9

Part of the budgeting process is summarizing the financial statement effects on the budgeted income statement and the budgeted balance sheet.

Question 10

Personnel who will have performance evaluated according to the budget standards should not be consulted and involved in preparing the budget.

Question 11

A rolling budget is a specific budget application relevant only to a merchandising company.

Question 12

Larger,more complex organizations usually require a longer time to prepare their budgets than smaller organizations because of the considerable effort to coordinate the different units within the business.

Question 13

Budgets are long term financial plans that generally cover more than a one-year period.

Question 14

The sequence of the budgets within the master budget are dictated by GAAP.

Question 15

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

Question 16

The master budget includes individual budgets for sales,production or purchases,various expenses,capital expenditures,and cash.

Question 17

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

Question 18

The responsibility for coordinating the preparation of a master budget should be assigned to the Chief Executive Officer.

Question 19

Continuous budgeting is the practice of revising the entire set of budgets for the periods remaining and adding new budgets to replace those for the periods that have elapsed.

Question 20

One of the major benefits of formal budgeting is the positive effect it can have on employee attitudes if applied correctly.

Question 21

All of the following are necessary for budgets to be effective except:

A)Goals should be attainable.
B)Employees affected by a budget should be consulted when it is prepared.
C)Evaluations should be made carefully with opportunities to explain differences between actual and budgeted amounts.
D)Managers must be aware of potential negative outcomes of budgeting,such as budgetary slack.
E)All budgeted amounts must be spent to ensure that budgets aren't reduced for the next period.

Question 22

A formal statement of future plans,usually expressed in monetary terms,is a:

A)Variance report.
B)Position statement.
C)Budget.
D)Prospectus.
E)Variance analysis.

Question 23

Production budgets always show both budgeted units of product and total costs for the budgeted units.

Question 24

The sales budget is derived from the production budget.

Question 25

A company's history indicates that 20% of its sales are for cash and the remaining 80% are on credit.Collections on credit sales are 30% in the month of the sale and 70% the following month.Projected sales for January,February,and March are $75,000,$92,000 and $60,000,respectively.The March expected cash receipts are $80,500.

Question 26

The manufacturing budgets include the sales budget and the budgeted income statement.

Question 27

The financial statement effects of the budgeting process are summarized on the cash budget and the capital expenditures budget.

Question 28

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

Question 29

A manufacturing budget shows dollar amounts estimated to be spent to purchase additional plant assets and amounts expected to be received from plant asset disposals.

Question 30

Traditional budgeting is generally better than activity-based budgeting when attempting to reduce costs by eliminating non-value-added activities.

Question 31

The budgeted balance sheet and income statement are normally completed after preparation of operating and capital expenditure budgets.

Question 32

A capital expenditures budget is prepared before the operating budgets.

Question 33

The budget process rarely coincides with the accounting period.

Question 34

Activity-based budgeting is a budget system based on expected activities and their levels for the budget period,which helps management plan for the resources required.

Question 35

A cash budget shows the expected cash receipts and cash expenditures during the budget period.

Question 36

The process of planning future business actions and expressing them as a formal plan is called:

A)Budgeting.
B)Cost accounting.
C)Managerial accounting.
D)Variance analysis.
E)Standard cost analysis.

Question 37

The budgeted balance sheet is prepared primarily from data contained in the previously prepared components of the master budget.

Question 38

The selling expenses budget is normally prepared before the sales budget because selling expenses affect the amount of sales.

Question 39

If budgeted beginning inventory is $8,300,budgeted ending inventory is $9,400,and cost of goods sold is expected to be $10,260,then budgeted purchases should be $11,360.
Budgeted purchases = $9,400 + $10,260 - $8,300 = $11,360

Question 40

A master budget refers to a company's sales budget that includes all of its segments or departments.

Question 41

Which of the following budgets is not an operating budget?

A)Sales budget.
B)Cash budget.
C)General and administrative expense budget.
D)Selling expenses budget.
E)Merchandise purchases.

Question 42

Operating budgets include all of the following except the:

A)Sales budget.
B)Budgeted balance sheet.
C)Production budget.
D)Selling expense budget.
E)General and administrative expense budget.

Question 43

The master budgeting process typically begins with the sales budget and ends with a cash budget and:

A)Budgeted financial statements.
B)Forecast budget.
C)Capital expenditures budget.
D)Rolling budget.
E)Production budget.

Question 44

In a company that employs continuous budgeting on a quarterly basis and has an accounting period that ends December 31 of each year,what period would the first revision and update to the January through December 2015 budget cover?

A)February 2015-January 2016
B)March 2015-February 2016
C)December 2015-November 2016
D)April 2015-March 2016
E)January 2016-December 2016

Question 45

The master budget process usually ends with:

A)The production budget.
B)The sales budget.
C)The selling expense budget.
D)The budgeted balance sheet.
E)The overhead budget.

Question 46

Assuming a bottom-up process of budget development,which of the following should be initially responsible for developing sales estimates?

A)The budget committee.
B)The accounting department.
C)The sales department.
D)Top management.
E)The marketing department.

Question 47

The usual budget period for most companies is:

A)An annual period of 250 working days.
B)A monthly period separated into daily budgets.
C)A quarterly period separated into weekly budgets.
D)An annual period separated into weekly budgets.
E)An annual period separated into quarterly and monthly budgets.

Question 48

A plan that lists the types and amounts of operating expenses expected that are not included in the selling expenses budget is a:

A)General and administrative expense budget.
B)Sales budget.
C)Cash payments budget.
D)Overhead budget.
E)Selling expense budget.

Question 49

Budgets that are periodically revised and have new periods added to replace those that have lapsed are called:

A)Production budgets.
B)Sales budgets.
C)Cash budgets.
D)Rolling budgets.
E)Capital expenditures budgets.

Question 50

The usual starting point for preparing a master budget is forecasting or estimating:

A)Expenditures.
B)Sales.
C)Production.
D)Income.
E)Cash payments.

Question 51

Which of the following statements about budgeting is false?

A)Budgeting is an aid to planning and control.
B)Budgets create standards for performance evaluation.
C)Budgets help coordinate the activities of the entire organization.
D)Budgeting forces managers to think ahead and formalize future objectives.
E)The master budget should only be prepared by top management.

Question 52

Operating budgets include all of the following budgets except the:

A)Sales budget.
B)Selling expense budget.
C)Cash budget.
D)Merchandise purchases budget.
E)General and administrative expense budget.

Question 53

The most useful budget figures are developed:

A)From the "top-down".
B)From the "bottom-up" following a participatory process.
C)By the budget committee.
D)By the CEO.
E)After the accounting period has begun.

Question 54

The central guidance of the budget process is the responsibility of the:

A)Chief Accounting Officer.
B)Chief Executive Officer (CEO).
C)Chief Financial Officer (CFO).
D)Budget Committee.
E)Board of Directors.

Question 55

A budget is best described as:

A)A formal statement of a company's future plans usually expressed in monetary terms.
B)A master control device.
C)An informal statement of company's future plans usually expressed in monetary terms.
D)The most crucial component of a company's evaluation process.
E)The minimum acceptable performance level.

Question 56

Which of the following is a benefit derived from budgeting?

A)Budgeting focuses management's attention on past performance.
B)Budgeting avoids needing industry and economic factors in decision making.
C)Budgeting provides a basis for evaluating performance.
D)Budgeting avoids the need for incentives to improve employee performance.
E)Budgeting eliminates the need for coordination across departments.

Question 57

A budget system based on expected activities and their levels that enables management to plan for resources required to perform the activities is:

A)Traditional budgeting.
B)Management budgeting.
C)Master budgeting.
D)Activity-based budgeting.
E)Cash budgeting.

Question 58

The master budget of a merchandising company includes a:

A)Production budget.
B)Direct labor budget.
C)Factory overhead budget.
D)Direct materials budget.
E)Purchases budget.

Question 59

Which of the following is not a result of following a well-designed budgeting process?

A)Improved decision-making processes.
B)Improved performance evaluations.
C)Improved coordination of business activities.
D)Assurance of future profits.
E)Improved communication of management's action plans.

Question 60

The practice of preparing budgets for each of several future periods and revising those budgets as each period is completed,adding a new budget each period so that the budgets always cover the same number of future periods,is called:

A)Participatory budgeting.
B)Capital budgeting.
C)Balanced budgeting.
D)Continuous budgeting.
E)Primary budgeting.

Question 61

Alliance Company's budgets production of 24,000 units in January and 28,000 units in the February.Each finished unit requires 4 pounds of raw material K that costs $2.50 per pound.Each month's ending raw materials inventory should equal 40% of the following month's budgeted materials.The January 1 inventory for this material is 38,400 pounds.What is the budgeted materials need in pounds for January?

A)102,400 pounds.
B)96,000 pounds.
C)57,600 pounds.
D)140,800 pounds.
E)83,200 pounds.

Question 62

A department store has budgeted sales of 12,000 men's suits in September.Management wants to have 6,000 suits in inventory at the end of the month to prepare for the winter season.Beginning inventory for September is expected to be 4,000 suits.What is the dollar amount of the purchase of suits if each suit has a cost of $75.

A)$750,000.
B)$900,000.
C)$1,050,000.
D)$1,200,000.
E)$1,350,000.

Question 63

Cameroon Corp.manufactures and sells electric staplers for $16 each.If 10,000 units were sold in December,and management forecasts 4% growth in sales each month,the dollar amount of electric stapler sales budgeted for February should be:

A)$187,177
B)$166,400
C)$179,978
D)$173,056
E)$160,000

Question 64

A plan that lists the types and amounts of selling expenses expected during the budget period is called a(n):

A)Sales budget.
B)General and administrative budget.
C)Capital expenditures budget.
D)Selling expense budget.
E)Purchases budget.

Question 65

Bengal Co.provides the following sales forecast for the next three months: The company wants to end each month with ending finished goods inventory equal to 25% of the next month's sales.Finished goods inventory on June 30 is 1,250 units.The budgeted production units for July are:

A)6,250 units.
B)3,750 units.
C)6,425 units.
D)2,500 units.
E)5,175 units.

Question 66

A plan that reports the units or costs of merchandise to be purchased by a merchandising company during the budget period is called a:

A)Selling expenses budget.
B)Merchandise purchases budget.
C)Sales budget.
D)Cash budget.
E)Capital expenditures budget.

Question 67

A plan that lists dollar amounts to be received from disposing of plant assets and dollar amounts to be spent on purchasing additional plant assets is called a:

A)Cash budget.
B)Capital expenditures budget.
C)Rolling budget.
D)Sales budget.
E)Production budget.

Question 68

A quantity of inventory that provides protection against lost sales caused by unfulfilled demands from customers is called:

A)Just-in-time inventory.
B)Budgeted stock.
C)Continuous inventory.
D)Capital stock.
E)Safety stock.

Question 69

A sporting goods manufacturer budgets production of 45,000 pairs of ski boots in the first quarter and 30,000 pairs in the second quarter of the upcoming year.Each pair of boots require 2 kg of a key raw material.The company aims to end each quarter with ending raw materials inventory equal to 20% of the following quarter's material needs.Beginning inventory for this material is 18,000 kg and the cost per kg is $8.What is the budgeted materials purchases cost for the first quarter?

A)$720,000.
B)$672,000.
C)$576,000.
D)$729,600.
E)$864,000.

Question 70

Masterson Company's budgeted production calls for 56,000 liters in April and 52,000 liters in May of a key raw material that costs $1.85 per liter.Each month's ending raw materials inventory should equal 30% of the following month's budgeted materials.The January 1 inventory for this material is 16,800 liters.What is the budgeted cost of materials purchases for April?

A)$106,560.
B)$101,380.
C)$103,600.
D)$72,520.
E)$132,460.

Question 71

When preparing the cash budget,all of the following should be considered except:

A)Cash receipts from customers.
B)Cash payments for merchandise.
C)Depreciation expense.
D)Cash payments for income taxes.
E)Cash payments for capital expenditures.

Question 72

Bengal Co.provides the following sales forecast for the next three months: The company wants to end each month with ending finished goods inventory equal to 25% of the next month's sales.Finished goods inventory on June 30 is 1,250 units.The budgeted production units for August are:

A)6,950 units.
B)4,310 units.
C)7,090 units.
D)5,665 units.
E)4,135 units.

Question 73

Schrank Company is trying to decide how many units of merchandise to order each month.The company's policy is to have 20% of the next month's sales in inventory at the end of each month.Projected sales for August,September,and October are 30,000 units,20,000 units,and 40,000 units,respectively.How many units must be purchased in September?

A)14,000.
B)20,000.
C)22,000.
D)24,000.
E)28,000.

Question 74

A July sales forecast projects that 6,000 units are going to be sold at a price of $10.50 per unit.The management forecasts 2% growth in sales each month.Total July sales are anticipated to be:

A)$63,000.
B)$67,500.
C)$61,250.
D)$64,260.
E)$60,000.

Question 75

Cameroon Corp.manufactures and sells electric staplers for $16 each.If 10,000 units were sold in December,and management forecasts 4% growth in sales each month,the number of electric stapler sales budgeted for March should be:

A)10,000
B)11,249
C)10,400
D)10,816
E)11,000

Question 76

Flack Corporation provides the following information for its December budgeting process: The November 30 inventory was 1,800 units.
Budgeted sales for December are 4,000 units.
Desired December 31 inventory is 2,840 units.
Budgeted purchases are:

A)5,040 units.
B)1,240 units.
C)6,840 units.
D)4,000 units.
E)5,800 units.

Question 77

A sporting equipment store expects to purchase $8,000 of ski boots in October.The store had $2,000 of ski boots in merchandise inventory at the beginning of October,and expects to have $3,000 of ski boots in merchandise inventory at the end of October to cover part of anticipated November sales.What is the budgeted cost of goods sold for October?

A)$5,000.
B)$7,000.
C)$8,000.
D)$9,000.
E)$10,000.

Question 78

Which of the following factors is least likely to be considered in preparing a sales budget?

A)Business capacity.
B)Forecasted economic and market conditions.
C)Prediction of unit sales.
D)The capital expenditures budget.
E)Proposed selling expenses,such as advertising.

Question 79

A plan showing the planned sales units and the revenue to be derived from these sales,and is the usual starting point in the budgeting process,is called the:

A)Operating budget.
B)Business plan.
C)Income statement budget.
D)Merchandise purchases budget.
E)Sales budget.

Question 80

Masterson Company's budgeted production calls for 56,000 liters in April and 52,000 liters in May of a key raw material that costs $1.85 per liter.Each month's ending raw materials inventory should equal 30% of the following month's budgeted materials.The January 1 inventory for this material is 16,800 liters.What is the budgeted materials need in liters for April?

A)71,600 liters.
B)39,200 liters.
C)57,600 liters.
D)56,000 liters.
E)54,800 liters.