Deck 13: Planning and Budgeting

Question 1

Bottlenecks in the production process can be discovered by the budgeting process before they occur.

Answer 1

True

Question 2

Ethical conflicts can occur in the budgeting process because managers supply information for the budgets that are then used to evaluate their performance.

Answer 2

True

Question 3

The production budget must be prepared before the direct materials,direct labor and overhead budgets can be prepared.

Answer 3

True

Question 4

In effect,the cash budget simply restates the budgeted income statement to the cash basis.

Question 5

Estimates for direct labor costs are obtained from the engineering and production management,as well as from the Personnel Department.

Question 6

Participative budgeting eliminates or reduces the amount of budgetary slack inherent in the budgeting process.

Question 7

The cash budget is normally prepared before the budgeted income statement.

Question 8

ABC Company wants to have 10,000 units on hand at the end of the year after selling 100,000 units during the year.If the beginning inventory is 5,000 units,ABC needs to produce 105,000 units during the year.

Question 9

ABC Company has 10,000 units on hand at the beginning of the year and plans to sell 100,000 units during the year.If the ending inventory needs to be twice the beginning inventory,ABC will need to produce 90,000 units during the year.

Question 10

An organization's sales staff is more likely to provide a lower sales forecast than a forecast provided by market researchers.

Question 11

A budget is the plan,stated in financial terms,of how an organization expects to carry out its activities and meet its goals.

Question 12

The sales budget drives the rest of the budgeting process for both manufacturers and merchandisers.

Question 13

A master budget consists of (a)organizational goals,(b)strategic long-range profit plan,and (c)tactical short-range profit plan.

Question 14

Individual managers' beliefs and expectations are incorporated into the budgeting process using grass roots budgeting procedures.

Question 15

The production budget allows management to plan for the resources needed to meet the current sales demand and ensure that inventory levels are sufficient for future sales.

Question 16

Sales projections are often the most difficult part of the budgeting process because it involves a considerable amount of subjectivity.

Question 17

The Delphi technique uses highly sophisticated computerized time series analysis to reduce the subjectivity surrounding the sales forecast.

Question 18

The use of sensitivity analysis techniques allows managers to ask "what-if" questions regarding budget assumptions and estimates.

Question 19

Sensitivity analysis is more likely to be used for sales forecasts than for fixed overhead costs.

Question 20

The production budget is not needed for a service organization.

Question 21

Which of the following types of accounts would not be included on a budgeted balance sheet?

A)cash
B)assets
C)liabilities
D)owners' equity
E)revenues

Question 22

A continuous (rolling)budget

A)presents the plan for a range of activity so that the plan can be adjusted for changes in activity levels.
B)presents a statement of expectations for a period of time but does not present a firm commitment.
C)presents the plan for only one level of activity and does not adjust to changes in the level of activity.
D)drops the current month or quarter and adds a future month or quarter as the current month or quarter is completed.
E)classifies budget requests by activity and estimates the benefits arising from each activity.

Question 23

Which of the following terms is not an alternative for master budget?

A)budget plan
B)static budget
C)profit plan
D)planning budget

Question 24

Which of the following statements does not reflect a difficulty in preparing the marketing and administrative budget?

A)Managers have discretion about how much money is spent.
B)Managers have discretion about the timing of when money is spent.
C)Marketing and administrative expenses are made up of fixed and variable items.
D)Marketing and administrative expenses normally have a one year time horizon.

Question 25

Which of the following statements is (are)true regarding the master budget? (A)A master budget consists of (a)organizational goals,(b)strategic long-range profit plan,and (c)tactical short-range profit plan.
(B)A master budget consists of only a budgeted (a)income statement,(b)balance sheet,and (c)stockholder's equity statement.

A)Only A is true.
B)Only B is true.
C)Both A and B are true.
D)Neither A nor B is true.

Question 26

The forecasting method in which individual forecasts of group members are submitted anonymously and evaluated by the group as a whole is called

A)trend analysis.
B)econometric models.
C)Delphi technique.
D)regression analysis.

Question 27

Which of the following statements is (are)true regarding the benefits associated with participative budgeting? (A)Goal congruence by divisions means top management need not be concerned with overall profitability.
(B)Budget assumptions and estimates are prepared by those closest to the budgeted activity.

A)Only A is true.
B)Only B is true.
C)Both A and B are true.
D)Neither A nor B is true.

Question 28

In general,the first budget prepared is the

A)production budget.
B)direct labor budget.
C)sales budget.
D)overhead budget.
E)capital expenditures budget.

Question 29

Budgetary slack can best be defined as

A)underestimation of budgeted expenses.
B)underestimation of budgeted revenues.
C)overestimation of long-term assets.
D)overestimation of current liabilities.

Question 30

The number of units required for production is equal to

A)budgeted sales plus units in the beginning inventory minus the units in the ending inventory.
B)budgeted sales plus units in the ending inventory minus the units in the beginning inventory.
C)budgeted sales plus the units in the ending inventory.
D)budgeted sales minus the units in the beginning inventory.
E)budgeted sales.

Question 31

Cash disbursements would not include payments for

A)dividends.
B)income taxes.
C)accounts receivable.
D)capital budget expenditures.
E)marketing and administrative expenses.

Question 32

The amount of materials to be purchased during the budget period is equal to budgeted

A)total production needs plus units in the beginning materials inventory minus the units in the ending materials inventory.
B)total production needs plus units in the ending materials inventory minus the units in the beginning materials inventory.
C)units to be produced plus units in the beginning materials inventory minus the units in the ending materials inventory.
D)units to be produced plus units in the ending materials inventory minus the units in the beginning materials inventory.

Question 33

The statistical method of forecasting that relies heavily on regression models is called

A)econometric models.
B)Delphi technique.
C)scattergraph method.
D)participative budgeting.

Question 34

Which one of the following budgets would be the last one prepared in the master budget preparation process?

A)Manufacturing overhead budget.
B)Cost of goods sold budget.
C)Marketing cost budget.
D)Direct labor budget.
E)Cash budget.

Question 35

Which of the following budgets does not require the production budget?

A)Direct materials.
B)Direct labor.
C)Manufacturing overhead.
D)Marketing and administrative expenses.

Question 36

The starting point in preparing a comprehensive budget for a manufacturing company limited by its ability to produce and not by its ability to sell is

A)a sales forecast.
B)an estimate of productive capacity.
C)an estimate of cash receipts and disbursements.
D)a projection of fixed asset acquisitions.

Question 37

In developing a master budget for a manufacturing company,which one of the following items should be done first?

A)development of a sales budget.
B)development of the capital budget.
C)determination of manufacturing capacity.
D)determination of the advertising budget.
E)preparation of a pro forma income statement.

Question 38

A master budget

A)drops the current month or quarter and adds a future month or quarter as the current month or quarter is completed.
B)presents a statement of expectations for a period of time but does not present a firm commitment.
C)presents the plan for only one level of activity and does not adjust to changes in the level of activity.
D)presents the plan for a range of activity so that the plan can be adjusted for changes in activity levels.
E)divides the activities of individual responsibility centers into a series of packages which are ranked ordinally.

Question 39

Long-range planning as a management function is more important

A)at top management levels.
B)at lower management levels.
C)at middle management levels.
D)for staff functions than line functions.
E)for line functions than staff functions.

Question 40

The manufacturing overhead budget requires that costs be separated into their fixed and variable components.Another budget that has this requirement is the

A)direct labor.
B)direct materials.
C)cost of goods sold.
D)marketing and administrative expenses.

Question 41

What are estimated net sales for 2010,assuming the sales return/gross sales relationship remains constant?

A)$646,893
B)$585,000
C)$571,500
D)$567,450
E)$553,950

Question 42

The Tobler Company had budgeted production for the year as follows: Four pounds of raw materials are required for each unit produced.Raw materials on hand at the start of the year total 4,000 lbs.The raw materials inventory at the end of each quarter should equal 10% of the next quarter's production needs in materials.Budgeted purchases of raw materials in the second quarter would be (in lbs.)

A)48,000 lbs.
B)46,400 lbs.
C)49,600 lbs.
D)54,400 lbs.

Question 43

Sensitivity analysis can best be used in the budgeting process to

A)explore the uncertainty surrounding their estimates.
B)remove the subjective nature from the budgeting process.
C)answer "what-if" questions regarding key projections.
D)consider alternatives and options in the budgeting process.

Question 44

The following budgeted information is provided: One pound of material is required for each finished unit.The inventory of materials at the end of each month should equal 20% of the following month's production needs.At the beginning of Month 1,there was 3,200 lbs.of materials on hand.Purchases of raw materials for Month 1 would be (in pounds)

A)25,000.
B)23,400.
C)17,200.
D)22,000.

Question 45

What are the materials requirements (in feet)for 2008?

A)313,750
B)336,250
C)363,750
D)386,250

Question 46

Which of the following budgets is not required in a wholesale organization?

A)cash
B)sales
C)production
D)cost of goods sold
E)marketing and administrative expenses

Question 47

What is the estimated cost of goods sold for 2010 assuming the number of units sold does not change?

A)$464,100
B)$402,900
C)$397,800
D)$357,000

Question 48

What is the production budget (in units)for 2008?

A)60,000
B)65,000
C)75,000
D)85,000

Question 49

Which of the following budgets is not required in a service organization?

A)cash
B)sales
C)labor
D)cost of goods sold
E)marketing and administrative expenses

Question 50

TRS is a large securities dealer.Last year,the company made 120,000 trades with an average commission of $120.Because of the general economic climate,TRS expects trade volume to decline by 20%.Fortunately,the average commission per trade is likely to increase by 10% because trades are expected to be large in the coming year.What are the estimated commission's revenues for TRS in the coming year?

A)$11,520,000
B)$12,672,000
C)$15,552,000
D)$15,840,000

Question 51

Davis Corporation had the following transactions in their first year of operations: What is the cash balance at year end?

A)$150,000
B)$170,000
C)$210,000
D)$280,000

Question 52

What is the amount of cash to be collected in the month of August?

A)$40,106
B)$40,340
C)$38,036
D)$44,140

Question 53

The Waverly Company has budgeted sales for the year as follows: The ending inventory of finished goods for each quarter should equal 25% of the next quarter's budgeted sales in units.The finished goods inventory at the start of the year is 3,000 units.Scheduled production for the third quarter is (in units)

A)17,500 units.
B)18,500 units.
C)18,000 units.
D)16,500 units.

Question 54

The Waverly Company has budgeted sales for the year as follows: The ending inventory of finished goods for each quarter should equal 25% of the next quarter's budgeted sales in units.The finished goods inventory at the start of the year is 3,000 units.Scheduled production for the second quarter is (in units)

A)17,500 units.
B)16,500 units.
C)15,000 units.
D)13,000 units.

Question 55

TLC Credit,Inc.has $35.0 million in consumer loans with an average interest rate of 12.0%.The bank also has $30.0 million in home equity loans with an average interest rate of 8.0%.Finally,the bank owns $5.0 million in corporate securities with an average interest rate of 6%.Next year,consumer loans will increase to $40.0 million because of a rate decrease to 10.0%,while home equity loans will increase to $32.0 million at an average interest rate of 6.5%.Unfortunately,the investment in corporate securities will decrease by 20% and the average interest rate will be only 9.0%.What is TLC's estimated change in revenues next year?

A)$460,000 decrease
B)$460,000 increase
C)$700,000 increase
D)$700,000 decrease

Question 56

What is the amount of cash to be collected in the month of July?

A)$34,022
B)$38,022
C)$42,000
D)$37,580

Question 57

Assume the Task Company charges 1 1/2% on any balance that is not collected in the month following the month of sale.This charge will also change the collection percentages to 15% cash sales,80% of the balance collected in the month following the sale,16% the second month,3% the third month.This stricter credit policy will reduce the estimated sales budgets by 7% each month.What is the amount of cash to be collected in July?

A)$39,199
B)$35,312
C)$38,193
D)$36,242

Question 58

The Sledge Hammer Company manufactures a line of high quality tools.The company sold 1,000,000 hammers at a price of $4 per unit last year.The company estimates that this volume represents a 20% share of the current hammers market.The market is expected to increase by 5%.Marketing specialists have determined that,as a result of a new advertising campaign and packaging,the company will increase its share of this larger market to 24%.Due to changes in prices,the new price for the hammer will be $4.30 per unit.This new price is expected to be in line with the competition and have no effect on the volume estimates.What are the estimated sales revenues in the coming year?

A)$5,040,000.
B)$5,160,000.
C)$5,418,000.
D)$5,689,000.

Question 59

Kaufman Industries has just completed its sales forecasts and its marketing department estimates that the company will sell 36,000 units during the upcoming year.In the past,management has maintained inventories of finished goods at approximately three months' sales.However,the estimated inventory at the start of the year of the budget period is only 6,000 units.Sales occur evenly throughout the year.What is the estimated production level (units)for the first month of the upcoming budget year?

A)12,000
B)9,000
C)6,000
D)3,000

Question 60

The Tobler Company had budgeted production for the year as follows: Four pounds of raw materials are required for each unit produced.Raw materials on hand at the start of the year total 4,000 lbs.The raw materials inventory at the end of each quarter should equal 10% of the next quarter's production needs in materials.Budgeted purchases of raw materials in the third quarter would be (in lbs.)

A)63,200 lbs.
B)62,400 lbs.
C)56,800 lbs.
D)50,400 lbs.

Question 61

Brown Company has developed the following sales projections for the calendar year: Normal cash collection experience has been that 50% of sales is collected during the month of sale and 45% in the month following sale.The remaining 5% of sales are never collected).Brown's budgeted cash collections for the third calendar quarter are (CMA adapted)

A)$450,000
B)$440,000
C)$414,000
D)$360,000

Question 62

The Jack Company is preparing its cash budget for the month of June.The following information is available concerning its inventories: What are the estimated cash disbursements for inventories in June?

A)$264,000.
B)$320,250.
C)$335,250.
D)$341,250.

Question 63

Selana Company's total costs of operating five sales offices last year were $500,000,of which $70,000 represented fixed costs.Selana has determined that total costs are significantly influenced by the number of sales offices operated.Last year's costs and number of sales offices can be used as the basis for predicting annual costs.What would be the budgeted cost for the coming year if Selana were to operate seven sales offices? (CPA adapted)

A)$700,000
B)$672,000
C)$602,000
D)$586,000

Question 64

The Smart Company is preparing its cash budget for the month of June.The following information is available concerning its accounts receivable: What are the estimated cash receipts from accounts receivable collections in June?

A)$221,250.
B)$227,250.
C)$229,250.
D)$239,250.

Question 65

The major objectives of any budget system are to (CIA adapted)

A)define responsibility centers,provide a framework for performance evaluation,and promote communication and coordination among organization segments.
B)define responsibility centers,facilitate the fixing of blame for missed budget predictions,and ensure goal congruence between superiors and subordinates.
C)foster the planning of operations,provide a framework for performance evaluation,and promote communication and coordination among organization segments.
D)foster the planning of operations,facilitate the fixing of blame for missed budget predictions,and ensure goal congruence between superiors and subordinates.

Question 66

From the perspective of corporate management,the use of budgetary slack (CMA adapted)

A)increases the effectiveness of the corporate planning process.
B)increases the ability to identify potential budget weaknesses.
C)encourages the use of effective corrective actions.
D)increases the likelihood of inefficient resource allocation.

Question 67

Pardee Company makes 30% of its sales for cash and 70% on account.60% of the account sales are collected in the month of sale,25% in the month following sale,and 12% in the second month following sale.The remainder is uncollectible.The following information has been gathered for the current year: Total cash receipts in Month 4 will be

A)$38,000.
B)$47,900.
C)$27,230.
D)$36,230.

Question 68

Pardee Company makes 30% of its sales for cash and 70% on account.60% of the account sales are collected in the month of sale,25% in the month following sale,and 12% in the second month following sale.The remainder is uncollectible.The following information has been gathered for Pardee's first year of operations: Total cash receipts in Month 3 will be

A)$52,200.
B)$53,290.
C)$50,000.
D)$51,510.

Question 69

The Richburn Manufacturing Company increased its merchandise inventory by $17,000 over the year.The company also granted its customers more liberal credit terms which increased the accounts receivable by $37,500.Sales were $975,000 and the accounts payable decreased by $27,500.The gross profit on sales is 45%.Selling and administrative expenses were $145,000; this included depreciation expense of $4,000.What were the cash disbursements for the year?

A)$721,750.
B)$706,500.
C)$689,500.
D)$599,750.

Question 70

A company is preparing its cash budget for the coming month.All sales are on account.Given the following: What is the expected cash balance of the company at the end of the coming month? (CIA adapted)

A)$15,000
B)$40,000
C)$45,000
D)$70,000

Question 71

The master budget process usually begins with the (CMA adapted)

A)production budget.
B)operating budget.
C)financial budget.
D)sales budget.

Question 72

What are the budgeted cash collections during the month of May?

A)$445,894
B)$453,880
C)$472,114
D)$474,934

Question 73

What are the budgeted merchandise purchases (in dollars)for May?

A)$338,250
B)$355,500
C)$357,000
D)$375,750

Question 74

A company is formulating its plans for the coming year,including the preparation of its cash budget.Historically,the company's sales are 30% cash.The remaining sales are on credit with the following collection pattern: Sales for the first 5 months of the coming year are forecast as follows:
For the month of April,the total cash receipts from sales and collections on account would be (CIA adapted)

A)$3,729,968
B)$3,781,600
C)$4,025,200
D)$4,408,000

Question 75

What are the budgeted cash disbursements during the month of June?

A)$407,520
B)$419,400
C)$421,950
D)$434,280

Question 76

A company has the following annual budget data: What are total budgeted production costs for the year? (CIA adapted)

A)$2,100,000
B)$2,180,000
C)$2,240,000
D)$2,320,000

Question 77

What are the budgeted merchandise purchases (in dollars)for June?

A)$319,500
B)$342,000
C)$364,500
D)$375,000

Question 78

What are the budgeted number of inventory units that need to be purchased in July?

A)11,750
B)15,000
C)12,250
D)12,000

Question 79

The Sport Company is preparing a cash budget for the month of July.The following information on accounts receivable collections is available from Sport's past collection experience: The remaining 4% are not collected and are written off as bad debts.
Credit sales to date are as follows:
What are the estimated collections in July?

A)$125,250.
B)$131,250.
C)$133,250.
D)$137,250.

Question 80

Rizzo Corporation had 17,000 units of brake calipers on hand at the end of 2008.The company's inventory policy was to maintain an ending inventory equal to 15% of the current year's sales.During 2009,Rizzo sold 210,000 units of calipers.How many units did Rizzo purchase in 2009?

A)224,500.
B)210,000.
C)196,150.
D)194,700.