Deck 8: Budgeting and Planning

Question 1

A detailed plan that translates the company's objectives into financial terms, identifying the resources and expenditures that will be required over the planning horizon is a:

A) Strategic plan
B) Budget
C) Tactic
D) Long-term objective

Answer 1

B

Question 2

The production budget must be prepared before the sales budget can be prepared

Answer 2

False

Question 3

Control is a forward-looking process while planning is a backward-looking one

Answer 3

False

Question 4

If a company produces and sells goods to order, the sales budget and production budget are identical

Question 5

Budgeted manufacturing overhead includes indirect manufacturing costs, but not selling or administrative costs

Question 6

Participative budgeting is more likely to motivate people to work toward the organization's goals than is a top-down approach

Question 7

The budget translates a company's objectives into financial terms

Question 8

Preparing the sales budget includes calculating the revenues to be earned from units sold in addition to the number of units to be sold

Question 9

One advantage of participative budgeting is managers can build in budgetary slack

Question 10

Which of the following statements is true about the strategic plan?

A) It is management's vision of what they desire the organization to achieve over the long term.
B) It is created by employees of a company and shared with management for execution.
C) It is management's vision of individual professional development goals over the long term.
D) It is created as a thought exercise for long-term planning purposes, but it does not relate to daily activities.

Question 11

Operating budgets focus on the financial resources needed to support operations

Question 12

Creating a budget is an important part of which phase of the planning and control process?

A) Planning
B) Controlling
C) Implementing
D) Executing

Question 13

The direct labor budget is based on budgeted sales levels

Question 14

Budgeted cash collections are based on the sales budget

Question 15

Manufacturing firms prepare a separate raw materials purchases budget for each material used in production

Question 16

An advantage of budgeting is that it provides a benchmark for evaluating performance

Question 17

The selling and administrative expense budget is based on the production budget

Question 18

A short-term objective is:

A) a specific action managers use to reach their long-term goals.
B) a specific tactic put in place to support the strategic plan.
C) a specific goal that managers need to achieve in no more than a year to reach their long-term goals.
D) a specific component of the budgeted income statement.

Question 19

Which of the following is the forward-looking phase of the planning and control cycle?

A) Planning
B) Directing/Leading
C) Organizing
D) Control

Question 20

Participative budgeting allows employees throughout the organization to have input into the budget-setting process

Question 21

A component of the financial budget is the:

A) production budget.
B) cash budget.
C) inventory budget.
D) selling and administrative budget.

Question 22

Which of the following terms is generally not used to describe the forward-oriented nature of the budgeting process?

A) Predicted
B) Estimated
C) Hoped for
D) Expected

Question 23

_____________ are the specific goals that managers want to achieve over a 5- to 10-year horizon.

A) Strategic plans
B) Long-term objectives
C) Short-term objectives
D) Tactics

Question 24

Which of the following is not a component of the master budget?

A) Operating budget
B) Budgeted income statement
C) Budgeted balance sheet
D) Statement of return on investment

Question 25

Which of the following statements about employee motivation is true?

A) A budget that is too easy to achieve is more likely to motivate than a budget that is too difficult or that is tight but attainable.
B) A budget that is too difficult to achieve is more likely to motivate than a budget that is too easy or that is tight but attainable.
C) A budget that is tight but attainable is more likely to motivate than a budget that is too easy or too difficult to achieve.
D) Budgets are difficult to use for motivation.

Question 26

The starting point for preparing the master budget is the:

A) inventory budget.
B) sales budget.
C) production budget.
D) budgeted balance sheet.

Question 27

From a managerial perspective, which budget is most likely to motivate people to succeed in executing it?

A) A budget that is tight, but attainable because it creates the appropriate level of challenge.
B) A budget that is easy to achieve, because it inspires confidence.
C) A budget that is difficult to achieve, because it encourages people to aim high.
D) A budget that is tight, and nearly impossible to achieve, because it creates camaraderie and an "us versus them" mentality.

Question 28

A top-down approach to budgeting is one that is:

A) participative.
B) motivational.
C) imposed.
D) tight.

Question 29

Participative budgeting is an approach to budgeting that:

A) is top-down in nature.
B) allows top management to set the budget.
C) discourages budget slack.
D) is more likely to motivate people to work towards the organization's goals than a top-down approach.

Question 30

A _____________ is the vision of what management wants the organization to achieve over the long term.

A) Strategic plan
B) Long-term objective
C) Short-term objective
D) Tactic

Question 31

Which of the following is correct about budgetary slack?

A) Budgetary slack is a bit of cushion built into a budget, making it more likely budgetary goals will be met.
B) Managers may include budgetary slack by overstating budgeted sales figures.
C) Managers may include budgetary slack by understating budgeted expense figures.
D) Budgetary slack helps managers make responsible spending decisions since it removes performance evaluations based on budgeting.

Question 32

____________ are the specific actions managers use to achieve their goals.

A) Strategic plans
B) Long-term objectives
C) Short-term objectives
D) Tactics

Question 33

Which of the following is not a way to reduce the dysfunctional behaviors associated with budgeting?

A) Create budget slack.
B) Use different budgets for planning and for performance evaluation.
C) Use a continuous or rolling budget approach.
D) Use a zero-based budgeting approach.

Question 34

Which of the following is not a benefit of budgeting?

A) It forces managers to look to the future.
B) It plays an important role in communication within the organization.
C) It serves an important role in motivating and rewarding employees.
D) It builds organizational slack.

Question 35

Top-down budgeting is:

A) when the local managers impose a budget on the top management.
B) when top management sets the budget and imposes it on lower levels of the organization.
C) when customers impose a budget on top management of the company.
D) when top management imposes a budget on the board of directors.

Question 36

How might the budgeting process be used ethically within an organization?

A) A sales manager defers sales to future periods once she has met her quota for the month to avoid having her budgeted quota increased in future periods. (She worries an increased quota would prevent her from spending time with her ailing father.)
B) A production manager begins production on orders that have not been placed in order to meet a budgetary goal for production units started during a period. (She worries that failing to meet a production goal will cause her department to forfeit their bonuses for the year.)
C) An entrepreneur offers a steep discount on services to increase the number of clients served during the quarter. (He worries his investor will withdraw funding if the service numbers aren't met and employees will lose their jobs.)
D) An accounting manager implements budgeting procedures to measure the environmental impact of the production process, striving to reduce emissions from the factory. (She worries not enough emphasis is placed on the non-financial measures of success.)

Question 37

Which of the following is not a component of the operating budget?

A) Budgeted balance sheet
B) Sales budget
C) Selling and administrative budget
D) Raw materials purchases budget

Question 38

Which of the following sequences is correct?

A) Sales budget - production budget - direct materials budget - budgeted income statement
B) Budgeted income statement - direct materials budget - production budget - sales budget
C) Cash receipts budget - sales budget - production budget - budgeted income statement
D) Inventory budget - production budget - sales budget - selling and administrative budget

Question 39

Which of the following budgets shows how many units will be produced each period?

A) Direct materials budget
B) Direct labor budget
C) Sales budget
D) Production budget

Question 40

Which of the following is the backward-looking phase of the planning and control cycle?

A) Planning
B) Implementing
C) Executing
D) Control

Question 41

Meadow Company produces hand tools. A sales budget for the next four months is as follows: March 10,000 units, April 13,000, May 16,000 and June 21,000. Meadow Company's ending finished goods inventory policy is 10% of the following month's sales. What is budgeted ending finished goods inventory for May?

A) 1,000
B) 1,300
C) 1,600
D) 2,100

Question 42

Meadow Company produces hand tools. A sales budget for the next four months is as follows: March 10,000 units, April 13,000, May 16,000 and June 21,000. Meadow Company's ending finished goods inventory policy is 10% of the following month's sales. March 1 beginning inventory is projected to be 1,400 units. How many units will be produced in April?

A) 13,300
B) 15,900
C) 12,700
D) 13,000

Question 43

Jackson Inc. produces leather handbags. The production budget for the next four months is: July 5,000 units, August 7,000, September 7,500, October 8,000. Each handbag requires 0.5 square meters of leather. Jackson Inc.'s leather inventory policy is 30% of next month's production needs. On July 1 leather inventory was expected to be 1,000 square meters. Leather is expected to cost $5.00 per square meter in June, but go up to $6.00 per square meter in July. What is the expected cost of leather purchases in July?

A) $13,800
B) $15,300
C) $16,200
D) $16,300

Question 44

Marlow Company produces hand tools. A production budget for the next four months is as follows: March 10,300 units, April 13,300, May 16,500, and June 21,800. Marlow Company's ending finished goods inventory policy is 10% of the following month's sales. Marlow plans to sell 16,000 units in May. What is budgeted ending inventory for March?

A) 1,030
B) 1,300
C) 1,330
D) 1,650

Question 45

When calculating raw materials purchases, the starting point should be:

A) actual materials purchases from the previous year.
B) budgeted sales.
C) budgeted production.
D) budgeted cost of raw materials.

Question 46

Meadow Company produces hand tools. A sales budget for the next four months is as follows: March 10,000 units, April 13,000, May 16,000 and June 21,000. Meadow Company's ending finished goods inventory policy is 10% of the following month's sales. March 1 beginning inventory is projected to be 1,400 units. How many units will be produced in March?

A) 10,000
B) 9,900
C) 13,000
D) 10,100

Question 47

Parker Corp., which operates on a calendar year, expects to sell 4,000 units in October, and expects sales to increase 20% each month thereafter. Sales price is expected to stay constant at $8 per unit. What are budgeted revenues for the fourth quarter?

A) $32,000
B) $96,000
C) $115,200
D) $116,480

Question 48

Jeremy Inc. produces leather handbags. The production budget for the next four months is: July 5,000 units, August 7,000, September 7,500, October 8,000. Each handbag requires 0.5 square meters of leather. Jeremy Inc.'s leather inventory policy is 30% of next month's production needs. If the leather policy is met, what will the July 1 inventory be?

A) 750 square meters
B) 1,050 square meters
C) 1,825 square meters
D) 300 square meters

Question 49

Which of the following is not a source that can be used in preparing the sales budget?

A) Prior sales.
B) The production budget.
C) Industry trends.
D) Marketing activities.

Question 50

Jared Inc. produces leather handbags. The sales budget for the next four months is: July 5,000 units, August 7,000, September 7,500, October 8,000. Each handbag requires 0.5 square meters of leather. Jared Inc.'s finished goods inventory policy is 10% of next month's sales needs. Jared Inc.'s leather inventory policy is 30% of next month's production needs. What will leather purchases be in August?

A) 3,425 square meters
B) 3,450 square meters
C) 3,508 square meters
D) 3,600 square meters

Question 51

Budgeted production is calculated by:

A) adding budgeted unit sales to budgeted beginning finished goods inventory, and subtracting budgeted ending finished goods inventory.
B) adding budgeted unit sales to budgeted beginning work in process inventory, and subtracting budgeted ending work in process inventory.
C) adding budgeted unit sales to budgeted ending finished goods inventory, and subtracting budgeted beginning finished goods inventory.
D) adding budgeted unit sales to budgeted ending work in process inventory, and subtracting budgeted beginning work in process inventory.

Question 52

Lea Company produces hand tools. Budgeted sales for March are 10,000 units. Beginning finished goods inventory in March is budgeted to be 1,300 units, and ending finished goods inventory is budgeted to be 1,400 units. How many units will be produced in March?

A) 9,900
B) 10,000
C) 10,100
D) 12,700

Question 53

Jackson Inc. produces leather handbags. The production budget for the next four months is: July 5,000 units, August 7,000, September 7,500, October 8,000. Each handbag requires 0.5 square meters of leather. Jackson Inc.'s leather inventory policy is 30% of next month's production needs. On July 1 leather inventory was expected to be 1,000 square meters. What will leather purchases be in August?

A) 7,150 square meters
B) 3,575 square meters
C) 7,075 square meters
D) 3,425 square meters

Question 54

The number of units included in the production budget:

A) are always the same as the number of units in the sales budget.
B) depends on the raw materials purchases budget.
C) is based on the number of units in the sales budget, and increased for increases in the selling and administrative expense budget to account for increased demand.
D) may differ from the number of units in the sales budget, depending on ending inventory goals.

Question 55

Johnson Inc. produces leather handbags. Johnson Inc. estimates it will use 3,500 square meters of leather in production in August, and 3,750 square meters of leather in production in September. Johnson Inc.'s leather inventory policy is 30% of next month's production needs. What will leather purchases be in August?

A) 3,425 square meters
B) 3,500 square meters
C) 3,575 square meters
D) 4,625 square meters

Question 56

The formula for budgeted raw materials purchases is:

A) Budgeted production units + Ending raw materials inventory - Beginning raw materials inventory
B) Budgeted production units + Beginning raw materials inventory - Ending raw materials inventory
C) Materials needed for production + Ending raw materials inventory - Beginning raw materials inventory
D) Materials needed for production + Beginning raw materials inventory - Ending raw materials inventory

Question 57

Budgeted direct labor hours are calculated as:

A) Budgeted production units × Direct labor requirements per unit + Ending inventory - Beginning inventory
B) Budgeted production units × Direct labor requirements per unit + Beginning inventory - Ending inventory
C) Budgeted production units × Direct labor requirements per unit
D) Budgeted sales units × Direct labor requirements per unit

Question 58

Jackson Inc. produces leather handbags. The production budget for the next four months is: July 5,000 units, August 7,000, September 7,500, October 8,000. Each handbag requires 0.5 square meters of leather. Jackson Inc.'s leather inventory policy is 30% of next month's production needs. On July 1 leather inventory was expected to be 1,000 square meters. What will leather purchases be in July?

A) 2,300 square meters
B) 2,550 square meters
C) 2,700 square meters
D) 3,575 square meters

Question 59

If a company is planning to build inventory:

A) production should exceed sales.
B) sales should exceed production.
C) production should equal sales.
D) production should equal inventory.

Question 60

Marlow Company produces hand tools. A production budget for the next four months is as follows: March 10,300 units, April 13,300, May 16,500, and June 21,800. Marlow Company's ending finished goods inventory policy is 10% of the following month's sales. Meadow plans to sell 16,000 units in May. How many units will be sold in April?

A) 12,380
B) 13,000
C) 13,570
D) 13,620

Question 61

Jillian Inc. produces leather handbags. The production budget for the next four months is: July 5,000 units, August 7,000, September 7,500, October 8,000. Each handbag requires 1.3 hours of unskilled labor (paid $8 per hour) and 2.2 hours of skilled labor (paid $15 per hour). What will be the total labor cost for the month of August?

A) $303,800
B) $231,000
C) $121,500
D) $161,000

Question 62

Skylark has forecast production for the next three months as follows: July 4,900 units, August 6,600 units, September 7,500 units. Monthly manufacturing overhead is budgeted to be $17,000 plus $6 per unit produced. What is budgeted manufacturing overhead for August?

A) $56,600
B) $17,000
C) $39,600
D) $62,000

Question 63

Budgeted cost of goods sold should include which of the following?

A) Raw materials and direct labor
B) Raw materials, direct labor, and manufacturing overhead
C) Raw materials, direct labor, manufacturing overhead, and selling expenses
D) Raw materials, direct labor, manufacturing overhead, selling expenses, and administrative expenses

Question 64

Lemon, Inc. has prepared the following budgets for March. In March, budgeted production is 1,000 units, budgeted sales is 1,200 units, and raw materials inventory and unit costs will stay constant. What is budgeted cost of goods sold for March?

A) $40,734
B) $42,400
C) $48,880
D) $50,880

Question 65

Jaybird Inc. produces leather handbags. The sales budget for the next four months is: July 5,000 units, August 7,000, September 7,500, October 8,000. Jaybird Inc.'s ending finished goods inventory policy is 10% of the following month's sales. Each handbag requires 1.3 hours of unskilled labor (paid $8 per hour) and 2.2 hours of skilled labor (paid $15 per hour). How much is total labor cost during the three months July through September?

A) $69,300
B) $327,670
C) $846,300
D) $859,320

Question 66

Jillian Inc. produces leather handbags. The production budget for the next four months is: July 5,000 units, August 7,000, September 7,500, October 8,000. Each handbag requires 1.3 hours of unskilled labor (paid $8 per hour) and 2.2 hours of skilled labor (paid $15 per hour). How many unskilled labor hours will be budgeted for August?

A) 7,000
B) 9,100
C) 15,400
D) 24,500

Question 67

Crystal, Inc. has prepared the following budgets for March. In March, budgeted production is 1,000 units, budgeted sales is 1,200 units, and raw materials inventory will stay constant. What is budgeted cost of goods sold for March?

A) $20,367
B) $21,200
C) $25,440
D) $35,040

Question 68

Harney, Inc. has prepared the following budgets for March. In March, budgeted production equals budgeted sales, and raw materials inventory will stay constant. What is budgeted cost of goods sold for March?

A) $14,560
B) $24,960
C) $27,560
D) $37,960

Question 69

Skybird has forecast sales for the next three months as follows: July 4,000 units, August 6,000 units, September 7,500 units. Skybird's policy is to have an ending inventory of 40% of the next month's sales needs on hand. July 1 inventory is projected to be 1,500 units. Monthly costs are budgeted as follows: What is budgeted manufacturing overhead cost for July?

A) $32,000
B) $41,000
C) $46,400
D) $17,000

Question 70

Jillian Inc. produces leather handbags. The production budget for the next four months is: July 5,000 units, August 7,000, September 7,500, October 8,000. Each handbag requires 1.3 hours of unskilled labor (paid $8 per hour) and 2.2 hours of skilled labor (paid $15 per hour). How much will be paid to skilled labor during the three months July through September?

A) $742,500
B) $643,500
C) $4,387,500
D) $292,500

Question 71

When calculating the direct labor budget, the starting point should be:

A) actual direct labor hours from the previous year.
B) budgeted sales.
C) budgeted production.
D) budgeted cost of direct labor.

Question 72

Larken has forecast sales for the next three months as follows: July 4,000 units, August 6,000 units, September 7,500 units. Larken's policy is to have an ending inventory of 40% of the next month's sales needs on hand. July 1 inventory is projected to be 1,500 units. Monthly manufacturing overhead is budgeted to be $17,000 plus $6 per unit produced. What is budgeted manufacturing overhead for August?

A) $56,600
B) $17,000
C) $53,000
D) $38,600

Question 73

Pacific has forecast sales for the next three months as follows: July 4,000 units, August 6,000 units, September 7,500 units. Pacific's policy is to have an ending inventory of 40% of the next month's sales needs on hand. July 1 inventory is projected to be 1,500 units. Monthly costs are budgeted as follows: What is budgeted manufacturing overhead cost for August?

A) $50,000
B) $47,000
C) $33,000
D) $32,000

Question 74

Jaybird Inc. produces leather handbags. The sales budget for the next four months is: July 5,000 units, August 7,000, September 7,500, October 8,000. Jaybird Inc.'s ending finished goods inventory policy is 10% of the following month's sales. Each handbag requires 1.3 hours of unskilled labor (paid $8 per hour) and 2.2 hours of skilled labor (paid $15 per hour). What will be the total labor cost for the month of August?

A) $24,675
B) $225,680
C) $303,800
D) $305,970

Question 75

Budgeted cost of goods manufactured reflects:

A) all the costs required to manufacture and sell the product.
B) all the costs required to manufacture the product, but not to sell it.
C) all the costs required to sell the product, but not manufacture it.
D) direct costs required to manufacture a product, but not indirect manufacturing costs (like manufacturing overhead).

Question 76

Crystal, Inc. has prepared the following budgets for March. In March, budgeted production is 1,000 units, budgeted sales is 1,200 units, and raw materials inventory unit costs will stay constant. What is budgeted cost of goods sold for March?

A) $30,551
B) $31,800
C) $36,660
D) $38,160

Question 77

Jillian Inc. produces leather handbags. The production budget for the next four months is: July 5,000 units, August 7,000, September 7,500, October 8,000. Each handbag requires 1.3 hours of unskilled labor (paid $8 per hour) and 2.2 hours of skilled labor (paid $15 per hour). How many total labor hours will be budgeted for September?

A) 7,500
B) 9,750
C) 16,500
D) 26,250

Question 78

Atlantic, Inc. has prepared the following budgets for March. In March, budgeted production equals budgeted sales of 1,000 units, and raw materials inventory will stay constant. What is budgeted cost of goods sold for March?

A) $16,800
B) $24,300
C) $31,800
D) $43,800

Question 79

Larken has forecast sales for the next three months as follows: July 4,000 units, August 6,000 units, September 7,500 units. Larken's policy is to have an ending inventory of 40% of the next month's sales needs on hand. July 1 inventory is projected to be 1,500 units. Monthly manufacturing overhead is budgeted to be $17,000 plus $6 per unit produced. What is budgeted manufacturing overhead for July?

A) $29,400
B) $41,000
C) $46,400
D) $17,000

Question 80

Skylark has forecast production for the next three months as follows: July 4,900 units, August 6,600 units, September 7,500 units. Monthly manufacturing overhead is budgeted to be $17,000 plus $6 per unit produced. What is budgeted manufacturing overhead for July?

A) $29,400
B) $47,000
C) $46,400
D) $17,000