Deck 14: Cost Planning

Question 1

An example of a committed cost is:

A)employee professional development.
B)administrative supplies.
C)property taxes.
D)advertising expenditures.

Answer 1

C

Question 2

Zero-based budgeting forces managers to:

A)identify and prioritize the activities that are carried out in their departments.
B)justify all of their expenditures for each budget period.
C)both A and B.
D)None of the answers are correct.

Answer 2

C

Question 3

The key data element on which the entire budget is based is the:

A)sales/revenue forecast.
B)income statement budget.
C)cash budget.
D)balance sheet forecast.

Answer 3

A

Question 4

Which of the following is not used in the preparation of a production budget?

A)The sales forecast.
B)The inventory policy.
C)Cash payments for raw materials.
D)The beginning inventory quantity.

Question 5

Budget slack is:

A)sometimes called padding or cushion.
B)the result of budget estimates submitted that are slightly higher than what the costs are really expected to be.
C)an allowance for contingencies built into a budget.
D)All of the answers are correct.

Question 6

A materials purchases budget must be completed immediately after the preparation of the:

A)direct labor budget.
B)operating expense budget.
C)cash budget.
D)production budget.

Question 7

When compared to a single-period budget, ________ budgets are generally more expensive to maintain because more time and effort is required in their preparation.

A)Zero-based
B)Continuous
C)Top-down
D)Operating

Question 8

When little or no input from lower levels of management occurs, this budgeting approach is known as the:

A)top-down approach.
B)discretionary approach.
C)rolling budget approach.
D)participative approach.

Question 9

Which of the following is not a strong reason for budgeting?

A)Budgets provide a benchmark for judging performance.
B)Budgeting requires little effort by non-accounting managers.
C)Budgeting requires management to plan.
D)Budgeting requires coordination among the functional areas of the firm.

Question 10

Operating expenses are best budgeted on the basis of knowledge about:

A)cost behavior patterns.
B)relevant range.
C)prior period actual expenses.
D)current period budget amounts.

Question 11

A budgeting process that involves justifying resource requirements based on an analysis and prioritization of organizational objectives is called:

A)continuous budgeting.
B)zero-based budgeting.
C)discretionary budgeting.
D)single-period budgeting.

Question 12

The budgeting process that most likely creates an attitude supportive of achieving organization goals is:

A)top-down approach.
B)zero-based approach.
C)proportionate increase approach.
D)participative approach.

Question 13

A budget that has been prepared only once prior to the budget period is called a:

A)continuous budget.
B)zero-based budget.
C)discretionary budget.
D)single-period budget.

Question 14

The significance of a cash budget is realized by a firm when:

A)there is a lot of confidence in the sales trends.
B)it has a relatively large amount of cash collections scheduled.
C)the contribution margin ratio has been trending downwards.
D)it may have to negotiate a short-term bank loan.

Question 15

The operating budget depends on key information developed in the:

A)cash forecast.
B)sales forecast.
C)labor forecast.
D)operating forecast.

Question 16

Preparing a budget for several periods in the future, then revising it several times prior to the budget period is called a:

A)rolling budget.
B)participative budget.
C)top-down budget.
D)single-period budget.

Question 17

Which of the following costs are included in the cost classification that is based on the relationship between total cost and volume of activity?

A)Variable cost and fixed cost.
B)Direct cost and indirect cost.
C)Product cost and period cost.
D)Committed cost and discretionary cost.

Question 18

Which of the following costs are included in the cost classification that is based on the time frame perspective?

A)Variable cost and fixed cost.
B)Direct cost and indirect cost.
C)Product cost and period cost.
D)Committed cost and discretionary cost.

Question 19

When a cost is incurred as a result of a long-range policy decision, the cost is known as a:

A)noncontrollable cost.
B)committed cost.
C)zero-based cost.
D)standard cost.

Question 20

Which of the following is not an important factor to consider when preparing a sales forecast?

A)The state of the economy.
B)Seasonal demand variations.
C)A change in the management team.
D)Competitors' actions.

Question 21

A standard cost or production standard that assumes maximum operating conditions and 100% efficiency at all times is called a(n):

A)attainable standard.
B)ideal standard.
C)past experience standard.
D)average standard.

Question 22

Which of the following is a plan for acquiring the resources needed to complete the manufacturing activities that will satisfy the organization's sales forecast?

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

Question 23

The final budget prepared in order to complete development of the operating budget is:

A)the revised sales forecast for next quarter.
B)the budgeted cash flow statement.
C)the budgeted income statement.
D)the budgeted balance sheet.

Question 24

Standard costs are comprised of two elements:

A)the quantity of input and the cost per unit of input.
B)the quality of input and the cost per unit of input.
C)the quantity of input and the cost per unit of output.
D)the quality of input and the cost per unit of output.

Question 25

The fixed cost classifications identified with a time frame perspective are known as:

A)direct and indirect costs.
B)constant and inconsistent costs.
C)committed and discretionary costs.
D)product and period costs.

Question 26

Developing a standard that allows inefficiencies from prior years to be incorporated into the budget, thus providing little incentive for improvement, is known as a(n):

A)ideal standard.
B)engineered standard.
C)attainable standard.
D)past experience standard.

Question 27

Which of the following is the last budgeted financial statement to be prepared?

A)Budgeted income statement.
B)Budgeted balance sheet.
C)Cash budget.
D)It doesn't matter which one is prepared last.

Question 28

The raw materials budgeted to be purchased for the period is equal to:

A)ending inventory + raw material used - beginning inventory.
B)ending inventory + ending inventory - raw material used.
C)beginning inventory - ending inventory + raw material used.
D)beginning inventory + raw material used - ending inventory.

Question 29

A cash budget would not include:

A)sale of preferred stock.
B)payment of dividends.
C)issue of 10-year bonds.
D)depreciation of plant equipment.

Question 30

The operating expense budget is based on the:

A)sales budget.
B)production budget.
C)manufacturing overhead budget.
D)cash budget.

Question 31

The "key" to the entire operating budget is the:

A)forecast of operating activity.
B)operating expense budget.
C)cash budget.
D)production/purchases budget.

Question 32

Which of the following lists the components of the master budget in correct chronological order?

A)Cash budget, budgeted income statement, budgeted balance sheet.
B)Budgeted balance sheet, cash budget, budgeted income statement.
C)Budgeted income statement, cash budget, budgeted balance sheet.
D)It doesn't matter in which order they are prepared.

Question 33

Advertising expense would appear in which of the following budgets?

A)Purchases budget.
B)Manufacturing overhead budget.
C)Operating expense budget.
D)Sales budget.

Question 34

Identify the option which lists the components of the master budget in correct chronological order:

A)production budget, cash budget, cost of goods sold budget.
B)sales budget, production budget, cash budget.
C)sales budget, direct labor budget, production budget.
D)cash budget, sales budget, manufacturing overhead budget.

Question 35

Which of the following items would be included in the operating expense budget?

A)Sales commissions.
B)Raw material purchases.
C)Cash receipts.
D)Cost of goods sold.

Question 36

Which of the following would not appear in the operating expense budget?

A)Sales commissions.
B)Delivery expense.
C)Advertising.
D)Depreciation on the production equipment.

Question 37

Standard costs are used in which of the following phases of the management process?

A)planning.
B)control.
C)organizing.
D)both planning and control.

Question 38

A key to estimating an accurate amount of cash to be collected from sales is:

A)the accuracy of the sales forecast.
B)the accuracy of the estimated collection patterns for sales.
C)the accuracy of the estimated uncollectible sales.
D)All of the answers are correct.

Question 39

A standard cost or production standard that is achievable under actual operating conditions is called a(n):

A)attainable standard.
B)ideal standard.
C)past experience standard.
D)average standard.

Question 40

An important reason for imposing a minimum cash balance in the cash budget is:

A)it provides a cushion that can absorb forecast errors.
B)it provides extra funds for managers to spend.
C)it makes the balance sheet look better.
D)All of the answers are correct.

Question 41

The advantage of a continuous budget is:

A)that it is less costly to produce.
B)that it eliminates the need for annual planning.
C)that it saves time for other management activities.
D)that the final budget for any quarter should be more accurate.

Question 42

Once the standard cost for a unit of product is determined:

A)standards may remain unchanged for many years.
B)standards may be reviewed and revised on an annual basis.
C)standards may be reviewed and revised every 2-3 years.
D)All of the answers are correct.

Question 43

Establishing the standard cost for a unit of product involves:

A)aggregating the standard costs for each of the products inputs.
B)determining the standard costs for raw materials, direct labor, and manufacturing overhead.
C)determining the standard quantities allowed for each unit of input.
D)All of the answers are correct.

Question 44

Titan Fishing Boats had product sales for the current year as follows: Q1, 2,000 boats; Q2, 2,400 boats; Q3, 1,800 boats; Q4, 1,200 boats.Current selling price is $5,000 per boat.A strong economy and specific market initiatives at Titan for next year indicate that sales volume is expected to increase by 2% per quarter cumulatively for each quarter and sales price will increase by 4% per boat. The sales volume forecast for Q2 next year would be:

A)2,448 boats.
B)2,496 boats.
C)2,544 boats.
D)2,592 boats.

Question 45

Standard costing is developed and used for:

A)planning purposes.
B)control purposes.
C)product costing purposes.
D)All of the answers are correct.

Question 46

Which of the following budgets must be completed before a budgeted income statement can be prepared?

A)Sales, cash, and cost of goods sold.
B)Sales, cost of goods sold, and operating expense.
C)Sales, operating expense, and cash.
D)Sales, cash, and balance sheet.

Question 47

When developing standards, a standard that will almost never be achieved and will result in an unrealistic performance target is:

A)an attainable standard.
B)an ideal standard.
C)a negotiated standard.
D)a past experience standard.

Question 48

In addition to developing standard product costs, organizations may also develop standards for such activities as:

A)quality control measures.
B)machine time and performance.
C)delivery service times.
D)All of the answers are correct.

Question 49

After a budgeted income statement is prepared, a ________ budget is prepared prior to the preparation of the budgeted balance sheet.

A)sales
B)production
C)manufacturing overhead
D)cash

Question 50

When developing standards of performance, the type of standard that is most useful for planning and control is:

A)an attainable standard.
B)a logical standard.
C)a negotiated standard.
D)a past performance standard.

Question 51

Standards are considered to be most useful when they are expressed in:

A)dollars per unit of input to the manufacturing process.
B)quantities per unit of output from the process being evaluated.
C)unit and total costs for the accounting period for the department being evaluated.
D)terms most easily related to by the individual whose performance is being evaluated.

Question 52

Standards are most appropriately used to:

A)reward workers and managers who meet them.
B)penalize workers and managers who do not meet them.
C)calculate the unit cost of a product or service.
D)support the planning and control processes of the firm.

Question 53

Titan Fishing Boats had product sales for the current year as follows: Q1 2,000 boats; Q2 2,400 boats; Q3 1,800 boats; Q4 1,200 boats.Current selling price is $5,000 per boat.A strong economy and specific market initiatives at Titan for next year indicate that sales volume is expected to increase by 2% per quarter cumulatively for each quarter and sales price will increase by 4% per boat. The sales revenue forecast for Q4 next year would be:

A)$6,364,800.
B)$6,489,600.
C)$6,614,400.
D)$6,739,200.

Question 54

A cash budget would include:

A)gain on sale of equipment.
B)sale of common stock.
C)building depreciation.
D)accounts receivable.

Question 55

Developing a standard cost for a product or service will usually involve:

A)efforts of cost accounting personnel only.
B)focusing only on variable costs.
C)the same kind of communication involved in the overall budgeting process.
D)concentrating on historical costs and performance levels.

Question 56

Ebony Products has budgeted sales for the year as follows: Q1 20,000 units; Q2 18,000 units; Q3 22,000 units; Q4 24,000 units.Ebony requires 25% of the next quarter's budgeted unit sales as ending finished goods inventory each quarter.The number of units budgeted to be produced in Q2 is:

A)19,000 units.
B)19,500 units.
C)21,000 units.
D)22,500 units.

Question 57

Once standard costs for products or services have been developed:

A)they must be updated monthly to be useful.
B)they can be used for more than planning and control purposes.
C)they need not be revised unless the product or service is modified.
D)performance reports must be issued if the standards are to be useful.

Question 58

The operating expense budget of MountainTop Creations is comprised of the following budget formulas for its fixed and variable selling and administrative expense items: Selling expenses: $288,000 per year + $18 per unit
Administrative expenses: $552,000 per year + 2% of sales
If MountainTop's sales budget includes sales of 5,000 units each month at a price $50 per unit, the budgeted selling expense for August would be:

A)$29,000.
B)$114,000.
C)$293,000.
D)$378,000.

Question 59

The concept of a standard used for planning and control purposes is most like a:

A)measure of ideal performance.
B)unit budget.
C)measure of maximum efficiency.
D)measure of historical performance.

Question 60

Peoria Manufacturing, Inc., has budgeted production for June of 6,000 units and for July of 8,000 units.Each unit produced requires 4 pounds of raw material A.Peoria's beginning inventory of raw material A in June is 4,800 pounds and Peoria requires 20% of the next month's budgeted production as ending raw material inventory each month.The number of pounds of raw material A budgeted to be purchased in June is:

A)22,400 pounds.
B)24,000 pounds.
C)25,600 pounds.
D)30,400 pounds.

Question 61

Breaded Oak, Inc.has a policy that requires 20 percent of the expected sales of its product to be on hand at the end of the prior month.Forecasted sales, in units, for the months of January through April are as follows:
$\begin{array}{ll}\text { January } & 36,000 \text { units } \\\text { February } & 42,000 \text { units } \\\text { March } & 58,000 \text { units } \\\text { April } & 52,000 \text { units }\end{array}$
(a.)Calculate the number of units planned for ending inventory for January, February, and March.
(b.)Calculate the number of units budgeted to be produced in January, February, and March.

Question 62

Pacesetters, Inc., has actual sales for July and August and forecasted sales for September, October, November, and December as follows:
$\begin{array}{ll}\text { Actual: } & \\\text { July } & 5,900 \text { units } \\\text { August } & 6,200 \text { units } \\\text { Forecast: } & \\\text { September } & 6,000 \text { units } \\\text { October } & 6,800 \text { units } \\\text { November } & 5,600 \text { units } \\\text { December } & 6,100 \text { units }\end{array}$
(a.)The firm's policy is to have finished goods inventory on hand at the end of the month that is equal to 70 percent of the next month's sales.It is currently estimated that there will be 4,200 units on hand at the end of August.Calculate the number of units to be produced in each of the months of September, October, and November.
(b.)Each unit of finished product requires 6.5 pounds of raw materials.The firm's policy is to have raw material inventory on hand at the end of each month that is equal to 60 percent of the next month's estimated usage.It is currently estimated that 26,000 pounds of raw materials will be on hand at the end of August.Calculate the number of pounds of raw materials to be purchased in each of the months of September and October.

Question 63

Peachtree's Siding and Window Co.is a custom home improvement company.All sales are made on account: 30 percent of a month's sales are collected in the month of sale, 60 percent are collected in the month following the sale, and 8 percent are collected in the second month following the sale.Cash on hand on October 1 is estimated to be $32,000.
Merchandise purchases and operating expenses are paid as follows:
$$\begin{array} { | l | l | } \hline \text { In the month during which the merchardise is purchased or the cost is incured } & 80 \% \\\hline \text { In the subsequent month } & 20 \% \\\hline\end{array}$$
Peachtree's Siding and Window Co.'s budgeted income statement for each of the next three months is as follows:
$\begin{array}{lrr}&\text { August } & \text { September }&\text { October }\\ \text {Sales } &\$140,000&\$169,000&\$181,000\\ \text { Cost of goods sold: } &\\ \text { Beginning inventory } &\$16,400&\$28,900&\$25,600\\ \text { Purchases} & \underline{135,300}& \underline{141,500}& \underline{\$149,700}\\ \text {Goods available } &\$151,700&\$170,400&\$175,300\\ \text {Less: End inventory } & \underline{(28,900)}& \underline{(25,600)}& \underline{(21,200)}\\ \text { Cost of goods sold} & \underline{\$122,800}& \underline{\$144,800}& \underline{\$154,100}\\ \text { Gross profit} &\$17,200&\$24,200&\$26,900\\ \text { Operating expenses} & \underline{(11,400)}& \underline{(15,100)}& \underline{(14,300)}\\ \text {Operating income } & \underline{\$5,800}& \underline{\$9,100}& \underline{\$12,600}\\\end{array}$

Prepare a cash budget for the month of October.

Question 64

The monthly cash budgets for the first quarter of 2016 are shown below ($000 omitted)for XYZ Company.A minimum cash balance of $40,000 is required.A line of credit has been established with ABC's bank at a 7.5% interest rate.Calculate the missing amounts:

Question 65

The operating expense budget of MountainTop Creations is comprised of the following budget formulas for its fixed and variable selling and administrative expense items: Selling expenses: $288,000 per year + $18 per unit
Administrative expenses: $552,000 per year + 2% of sales
If MountainTop's sales budget includes sales of 5,000 units each month at a price $50 per unit, the total budgeted operating expense for the year would be:

A)$612,000.
B)$840,000.
C)$1,080,000.
D)$1,980,000.

Question 66

Mario's Record Shop, a retail store, has an average gross profit ratio of 30 percent.The sales forecast for the next four months follows:
$$\begin{array} { l r } \text { September } & \$ 65,000 \\\text { October } & 82,000 \\\text { Novernber } & 96,000 \\\text { Decermber } & 102,000\end{array}$$
Mario's inventory policy is to have ending inventory equal to 1.25 times the cost of sales for the subsequent month, although it is estimated that the cost of inventory at August 31 will be $85,000.
Calculate the purchases budget, in dollars, for the months of September, October, and November.

Question 67

Danzi, Inc., has budgeted sales for the month of July and estimated cost behavior patterns for a number of its expenses listed below.From this information prepare an operating expense budget for the month of July.

Question 68

XYZ Company has budgeted production of Item #123 for April, May, and June of 2,400, 3,200, and 2,800 units, respectively.XYZ Company currently pays a standard rate of $3 per foot for raw material A and $5 per sheet for raw material B.Each unit produced requires 4 feet of raw material A and 2 sheets of raw material B.Each unit produced also requires 30 minutes of cutting direct labor time at a standard rate of $16 per hour and 2 hours of assembly direct labor time at a standard rate of $20 per hour.Manufacturing overhead is applied at the standard rate of $10 per direct labor hour. The total standard cost of May's budgeted production of Item #123 is:

A)$198,400.
B)$208,800.
C)$304,000.
D)$308,800.

Question 69

Canine Supply Company has a cash balance of $65,000 on October 1 and requires a minimum ending cash balance of $50,000.Cash receipts and disbursements budgeted for August amount to $140,000 and $170,000, respectively.Canine Supply's cash budget for August will indicate cash borrowings of:

A)$0.
B)$15,000.
C)$30,000.
D)$35,000.

Question 70

Pinedale, Inc.makes wooden tables.Each table requires 25 pounds of lumber to produce.The sales forecast for May is 3,200 tables.Estimated beginning and desired ending inventories for May are the following:
$$\begin{array} { | l | r | r | } \hline & \text { Estimated Begiming Inventory } & \text { Desired Ending Inventory } \\\hline \text { Tables } & 1,000 & 1,440 \\\hline \text { Lumber (pourds) } & 16,000 & 18,500 \\\hline\end{array}$$
(a.)Calculate the number of tables to be produced in May.
(b.)Calculate the number of pounds of lumber to be purchased in May.

Question 71

Aborkian Co.is forecasting sales of 75,000 units of product for November.To make one unit of finished product, seven pounds of raw materials are required.Actual beginning and desired ending inventories of raw materials and finished goods are:
$$\begin{array} { | l | r | r | } \hline & \text { November 1 } & { \text { November 30 } } \\\hline & \text { (Actual) } & { \text { (Desired) } } \\\hline \text { Raw materials (pounds) } & 91,400 & 8 6 , 4 0 0 \\\hline \text { Finished goods } & 8,500 & 9,600 \\\hline\end{array}$$ (a.)Calculate the number of units of product to be produced during November.
(b.)Calculate the number of pounds of raw materials to be purchased during November.

Question 72

Dominic's, Inc.had actual sales for January and February and forecasted sales for March, April, May, and June as follows:
$\begin{array}{ll}\text { Actual: } & \\\text { January } & \$ 192,000 \\\text { February } & \$ 218,000 \\\text { Forecast: } & \\\text { March } & \$ 225,000 \\\text { April } & \$ 202,000 \\\text { May } & \$ 234,000 \\\text { June } & \$ 250,000\end{array}$
Based on company experience, it is estimated that 35 percent of a month's sales are collected in the month of sale, 48 percent in the month following the sale, and 16 percent in the second month following the sale.
Calculate the estimated cash collections for March, April, and May.

Question 73

XYZ Company produces high quality widgets.Three raw materials are converted into the finished product by two labor groups.Manufacturing overhead is applied to finished units based on direct labor hours.The following standards have been established for each widget produced:
$$\begin{array} { | l | l | } \hline \text { Raw material \#1 } & 50 \mathrm { lbs } @ \$ 6.50 / \mathrm { lb } \\\hline \text { Raw material \#2 } & 24 \mathrm { ft } @ \$ 4.75 / \mathrm { ft } \\\hline \text { Raw material \#3 } & 1 \text { container } 916.00 \\\hline \text { Labor group \#1 } & 3 \mathrm { hrs } @ \$ 20.00 / \mathrm { hr } \\\hline \text { Labor group \#2 } & 1.5 \mathrm { hrs } @ \$ 30.00 \mathrm { hr } \\\hline \text { Manufacturing overhead } & \$ 20.00 / \mathrm { dhr } \\\hline\end{array}$$
a)Calculate the standard cost of producing 400 high quality widgets.

Question 74

Canine Supply Company's budgeted sales for January, February, and March are $120,000, $160,000, and $140,000, respectively.Based on past experience, ABC expects that 25% of a month's sales will be collected in the month of sale, 65% in the following month, and 9% in the second month following the sale.Budgeted cash receipts for the month of March would be:

A)$135,400.
B)$140,000.
C)$141,800.
D)$149,800.

Question 75

XYZ Company has budgeted production of Item #123 for April, May, and June of 2,400, 3,200, and 2,800 units, respectively.XYZ Company currently pays a standard rate of $3 per foot for raw material A and $5 per sheet for raw material B.Each unit produced requires 4 feet of raw material A and 2 sheets of raw material B.Each unit produced also requires 30 minutes of cutting direct labor time at a standard rate of $16 per hour and 2 hours of assembly direct labor time at a standard rate of $20 per hour.Manufacturing overhead is applied at the standard rate of $10 per direct labor hour. The standard cost per unit of Item #123 is:

A)$62.
B)$82.
C)$87.
D)$95.

Question 76

The following information for the month of May has been provided for Bowser Company:
$\begin{array}{lr}\text { May 1, cash balance } & \$ 56,000 \\\text { Cash collections anticipated in May } & 68,000 \\\text { Expected May cash expenditures for operating expenses } & 22,600 \\\text { Inventory purchases to be paid in May } & 54,200 \\\text { Cash dividends declared in May and to be paid in June } & 18,000 \\\text { May depreciation expense } & 9,600 \\\text { Interest income to be received from investments } & 4,200 \\\text { Production equipment purchase } 50 \% \text { of which will be paid in May and } & \\\text { the balance will be paid in June } & 66,000\end{array}$
Prepare a cash budget for May.

Question 77

XYZ, Inc., processes soy beans into Product A and Product B and the company's productivity and cost standards follow:
• From every bushel of beans processed, 6 pounds of Product A and 4 pounds of
Product B should be produced.
• Standard direct labor and variable overhead total $0.85 per bushel of beans processed.
• Standard fixed overhead (the predetermined fixed overhead application rate)
is $0.70 per bushel processed.
Calculate the standard absorption cost per pound for Product A and Product B produced from the processing of 24,000 bushels of beans if the average cost per bushel is $3.75.

Question 78

Sunset Center's sales are all made on account.The firm's collection experience has been that 25 percent of a month's sales are collected in the month of sale, 65 percent are collected in the month following the sale, and 8 percent are collected in the second month following the sale.The sales forecast for the months of May through August is:
$$\begin{array} { l l } \text { May } & \$ 240,000 \\\text { June } & \$ 280,000 \\\text { July } & \$ 300,000 \\\text { August } & \$ 350,000\end{array}$$
Calculate the cash collections that would be included in the cash budgets for July and August.