Deck 10: Budgetary Planning

Question 1

Companies that do not prepare cash budgets have significant cash deficiencies.

Answer 1

False

Question 2

The master budget contains which two classes of budgets?

A)the master budget and subsidiary budgets
B)the primary and secondary budgets
C)the historical and current budgets
D)the operating budgets and financial budgets

Answer 2

D

Question 3

Which of the following is not a benefit of budgeting?

A)It promotes efficiency.
B)It deters waste.
C)It is a basis for performance evaluation.
D)It assures the company that management will perform at a particular operational level.

Answer 3

D

Question 4

Which of the following individuals should accept the company's budgets in order for the budgets to be most effective?

A)division managers and customers
B)department heads and division managers
C)supervisors and clerks
D)department heads and creditors

Question 5

A merchandiser has a merchandise purchases budget, and a manufacturer has a materials purchases budget.

Question 6

What is "budgetary slack"?

A)It is the tolerance that is built into budgets to recognize that actual results will not match budgeted projections exactly.
B)It is the process where managers intentionally underestimate budgeted revenues or overestimate budgeted expenses in order to make it easier to achieve budgetary goals.
C)It is the amount that actual results vary from budgeted projections as reported at the end of the budget period.
D)It is the process where upper management underestimates budgeted revenues or overestimates budgeted expenses in order to motivate lower management.

Question 7

Which of the following is true?

A)The budget itself and the administration of the budget are the responsibility of management.
B)Each manager coordinates their respective budget activities.
C)Lower level managers are responsible for preparing the entire budget.
D)The flow of input data for budgeting should be from the highest levels of responsibility to the lowest level.

Question 8

Which one of the following is correct concerning a budget period?

A)A budget is prepared to summarize the organization's activity for the month, quarter, or year just completed.
B)A budget can be prepared for any period of time.
C)A budget must be prepared for a one year period.
D)A budget can be prepared for any period of time, but once that period has been adopted it cannot be changed.

Question 9

A budget

A)can be a means of communicating a company's objectives to external parties.
B)facilitates coordination of activities within the business but is a poor tool for evaluating performance.
C)is more beneficial if accepted by lower level management.
D)represents management's performance in financial terms.

Question 10

The manufacturing overhead budget generally has separate sections for variable and fixed costs.

Question 11

Which of the following approvals will make the most effective environment for budget acceptance?

A)The budget is prepared by top management.
B)The budget preparation contains input from all levels of management.
C)The budget is prepared by the department heads.
D)Acceptance has nothing to do with who prepares budgets.

Question 12

In preparing the budgeted balance sheet, management should not be concerned if it does not balance since it does not reflect actual results.

Question 13

Which budget is normally prepared first?

A)the production budget
B)the sales budget
C)the budgeted income statement
D)the cash budget

Question 14

A service company has no purchases budget.

Question 15

Which one of the following is necessary if a company expects its budget to be effective?

A)The company must be operating at less than capacity.
B)The budget period must cover more than one year.
C)The company's organizational structure must be sound.
D)The company must have sufficient cash for operations.

Question 16

Long-range plans

A)are different than budgeting in terms of the emphasis and the time period involved.
B)are used primarily as an evaluation of specific results to be achieved.
C)reflect management's plans encompassing one year.
D)have the same amount of detail as the budget.

Question 17

Companies can use either a predetermined overhead rate or a manufacturing overhead budget.

Question 18

The "bottoms-up" approach to budgeting is also referred to as which of the following?

A)zero-based budgeting
B)grassroots budgeting
C)participative budgeting
D)cooperative budgeting

Question 19

What is a disadvantage of the "bottoms-up" approach to budgeting?

A)Lower level management is not apt to know as much about their specific area as upper management who has a better view of the overall picture.
B)When lower management is part of the budgeting process they are less likely to "buy into it".
C)It is time consuming and therefore more costly.
D)It is more apt to be widely seen as unrealistic than is the case with a "top-down" approach.

Question 20

Which of the following is false in terms of budgets?

A)The master budget consists of a plan of action for a specified time period.
B)Operating budgets must be completed before the financial budgets can be prepared.
C)The production budget must be completed before the materials purchases budget because the number of units to be produced must be known to determine how much material to buy.
D)The cash budget displays expected cash flows in two sections: cash receipts and cash disbursements.

Question 21

Which of the following statements is correct?

A)Long-range planning is just another term for budgeting.
B)Budgeting and long-range planning differ with respect to emphasis, detail and time period.
C)The only difference between budgeting and long-range planning is the time frame.
D)Budgeting is the first step in long-range planning.

Question 22

In many companies, who is assigned the responsibility for coordinating the preparation of the budget?

A)a budget committee
B)the sales managers since the sales budget is the backbone of the master budget
C)the company's board of directors since they approve major corporate changes
D)the company's independent certified general accountants

Question 23

Which one of the following sets of budgets are financial budgets?

A)budgeted balance sheet and production budget
B)budgeted income statement and sales budget
C)capital expenditure budget and cash budget
D)cash budget and sales budget

Question 24

Why are budgets useful in the planning process?

A)They provide management with information about the company's past performance.
B)They help communicate goals and provide a basis for evaluation.
C)They guarantee the company will be profitable if it meets its objectives.
D)They enable the budget committee to earn their paycheque.

Question 25

What three differences exist between long-range planning and budgeting?

A)amount of detail, content, and emphasis
B)time periods involved, amount of detail, and content
C)content, emphasis, and amount of detail
D)emphasis, time periods involved, and amount of detail

Question 26

Which one of the following represents the correct order in which the budget documents listed for a manufacturing company would be prepared?

A)production budget, marketing budget, direct materials budget, indirect labour budget
B)sales budget, cash budget, direct materials budget, direct labour budget
C)selling and administrative expense budget, budgeted income statement, cash budget, budgeted balance sheet
D)sales budget, cash budget, marketing budget, direct materials budget

Question 27

What is the last step in developing the master budget?

A)preparing the budgeted balance sheet
B)preparing the cost of goods manufactured budget
C)preparing the budgeted income statement
D)preparing the cash budget

Question 28

Which problem might be a result of an unrealistic budget?

A)profitable operations
B)reduced employee morale
C)favourable operating activity
D)minimal differences between actual and budgeted amounts

Question 29

Which one of the factors below is not a major influence on the length of budget periods?

A)the nature of the organization
B)the type of budget
C)prevailing business conditions
D)the profitability of the company

Question 30

Which one of the following would most likely cause an unrealistic budget to result?

A)All levels of management contributed to its development.
B)The budget has been developed in a participative approach.
C)The budget was developed after considerable planning.
D)The budget has been developed in a top-down fashion.

Question 31

Which one of the following includes people who normally make up the budget committee?

A)sales manager, company president, company treasurer
B)company treasurer, creditors, controller
C)sales manager, controller, investors
D)external auditors, controller, treasurer

Question 32

What is true of budgets?

A)They are voted on and approved by shareholders.
B)They are used in the planning, but not the control process.
C)There is a standard form and structure for budgets.
D)They are used in performance evaluation.

Question 33

What is the starting point in preparing a master budget?

A)the production budget
B)the sales budget
C)the direct labour budget
D)the purchases budget

Question 34

How does long-range planning compare to a master budget?

A)It focuses on meeting profit objectives instead of strategies to achieve those goals.
B)It is less detailed than an annual budget.
C)It is prepared by the president, unlike a master budget which is prepared by a budget committee.
D)It generally encompasses a shorter period of time than a master budget.

Question 35

What is a continuous budget?

A)It is a budget that is constantly being revised as new information is gained.
B)It is a budget that covers every aspect of the production process from the purchase of raw materials to the collection of revenue from sales.
C)It is a budget where the time period just completed is dropped and an equal future time period is added.
D)It is a term used to describe a budget that is prepared by a budget committee that meets on a continuous basis.

Question 36

Which of the following is a proper match-up?

A)long-range planning $\rightarrow$ 1 year
B)budgeting $\rightarrow$ review of progress
C)budgeting $\rightarrow$ anticipated trends in economic environment
D)long-range planning $\rightarrow$ strategies

Question 37

Crown, Inc.administered its budget.What did the company do?

A)It prepared the budget one year in advance.
B)Management used the budget as an aid in achieving projected goals.
C)The company allowed each level of management to participate in creating the budget.
D)Management estimated its sales for the budget period.

Question 38

Which one of the following best describes a master budget?

A)It is an interrelated long-term plan and operating budgets.
B)It includes financial budgets and a long-term plan.
C)It includes interrelated financial budgets and operating budgets.
D)It is all the accounting journals and ledgers used by a company.

Question 39

Under what situation might a budget be most effective?

A)as a tool to assess blame when costs are too high
B)when used to evaluate a manager's performance
C)Budgets are equally effective in all situations.
D)when it is created by top management

Question 40

Which one of the following is an advantage of using participative budgeting?

A)It is updated daily to reflect current activity.
B)It assures the company is operating at the activity level of the master budget.
C)It allows companies to compare the current with the previous year.
D)Lower level managers are more likely to perceive budgets as fair.

Question 41

Budgetary slack means

A)management delays the completion of its annual budget to await important information.
B)the budgetary process is not given a high priority in the company.
C)the budget contains within it intentional under or over estimated items.
D)the budget must be approved by too many senior levels of management before it is finalized.

Question 42

One statement about budgeting that is generally true is

A)manufacturing companies spend more time on budgets than do service companies.
B)service company budgets tend to change only if there is a major increase or decrease in sales levels from year to year.
C)the budget process is an element of a company's activities and should be used throughout the year to evaluate performance.
D)the budget process is useful to assure shareholders that their interests will be looked after.

Question 43

How does a sales forecast differ from a sales budget?

A)A sales forecast includes the company, while a sales budget includes the industry.
B)A sales forecast includes the company and the industry, while a sales budget includes only the industry.
C)A sales forecast includes the company and the industry, while a sales budget includes only the company.
D)They are both the same.

Question 44

At January 1, 2020, Barry, Inc.has beginning inventory of 5,000 widgets.Barry estimates it will sell 40,000 units during the first quarter of 2020 with a 5% increase in sales each quarter.Barry's policy is to maintain an ending inventory equal to 10% of the next quarter's sales.Each widget costs $2 and is sold for $3.How much is budgeted sales revenue for the third quarter of 2020?

A)$44,100
B)$120,000
C)$132,300
D)$119,070

Question 45

Which one of the following is an operating budget?

A)cash budget
B)sales budget
C)budgeted balance sheet
D)capital expenditure budget

Question 46

Lewis Hats is planning to sell 650 straw hats in April.Each hat requires ½ kilogram of straw and ¼ hour of direct labour.Straw costs $0.20 per kilogram and employees of the company are paid $22 per hour.Lewis has 80 kilograms of straw and 40 hats in beginning inventory and wants to have 50 kilograms of straw and 60 hats in ending inventory.How many units should Lewis Hats produce in April?

A)650
B)670
C)610
D)710

Question 47

Use the following information for questions
At January 1, 2020, Jake, Inc.has beginning inventory of 4,000 surfboards.Jake estimates it will sell 15,000 units during the first quarter of 2020 with a 10% increase in sales each quarter.Jake's policy is to maintain an ending inventory equal to 25% of the next quarter's sales.Each surfboard costs $200 and is sold for $250.
How much is budgeted sales revenue for the third quarter of 2020?

A)$18,150
B)$4,537,500
C)$907,500
D)$3,750,000

Question 48

Which of the following is correct?

A)beginning raw material inventory + raw material required for production - desired ending raw material inventory = required raw material to be purchased.
B)beginning raw material inventory + desired ending raw material inventory - raw material required for production = required raw material to be purchased.
C)raw material required for production + beginning raw material inventory - desired ending raw material inventory = required raw material to be purchased.
D)raw material required for production + desired ending raw material inventory - beginning raw material inventory = required raw material to be purchased.

Question 49

Hargrow, Inc.makes and sells a single product, buckets.It takes 30 ounces of plastic to make one bucket.Budgeted production of buckets for the next three months is as follows: August 90,000 units, September 75,000 units, October 65,000 units.The company wants to maintain monthly ending inventories of plastic equal to 10% of the following month's production needs.On August 31, 195,000 ounces of plastic were on hand.The cost of plastic is $0.03 per ounce.How much is the ending inventory of plastic to be reported on the company's balance sheet at September 30?

A)$195,000
B)$5,850
C)$6,750
D)$7,500

Question 50

Which of the following is not a characteristic of bottom-up budgeting?

A)It encourages organization-wide input into the process.
B)It takes advantage of employees' intimate knowledge of operations when formulating plans.
C)It is not as time consuming as top-down budgeting.
D)It increases employees' commitment to achieving budget goals.

Question 51

One difference between a company's long-range planning efforts and its annual budget preparation is

A)long-range planning documents usually contain more detail than annual budgets.
B)annual budgets usually contain more detail than the long-range planning process.
C)long-range planning documents focus on the company's internal environment more than annual budgets.
D)annual budgets focus on the external environment more than the long-range planning process.

Question 52

Orr Corporation's manufacturing costs for August when production was 750 units appears below: Direct material $7 per unit
Direct labour $6,000
Variable overhead 3,000
Factory Depreciation $\mathbf { 2 } , 000$
Factory supervisory salaries
7,000
Other fixed factory costs
1,500
How much is the budgeted manufacturing cost for a month when 500 units are praduced?

A)$13,000
B)$16,500
C)$20,000
D)$9,000

Question 53

What might a very conservative sales budget cause?

A)a decrease in selling prices
B)a shortage of inventories
C)increased sales during the year
D)overproduction of goods

Question 54

Use the following information for questions
At January 1, 2020, Jake, Inc.has beginning inventory of 4,000 surfboards.Jake estimates it will sell 15,000 units during the first quarter of 2020 with a 10% increase in sales each quarter.Jake's policy is to maintain an ending inventory equal to 25% of the next quarter's sales.Each surfboard costs $200 and is sold for $250.
How many units should Jake produce during the first quarter of 2020?

A)15,125
B)15,000
C)12,500
D)11,000

Question 55

Jelly Box, Inc.budgeted the following manufacturing costs for 25,000 calculators: Jelly Box produced 20,000 calculators during March.How much are budgeted total manufacturing costs in March?

A)$320,000
B)$412,000
C)$400,000
D)$332,000

Question 56

Items from Sap Company's budget for March in which 2,100 units were produced and sold appear below: At 2,200 units, how much are budgeted variable manufacturing costs?

A)$22,000
B)$43,000
C)$21,000
D)$19,905

Question 57

DaDum Company desired 12,000 kilograms of raw material on hand on June 1 and 10,500 on June 30.The number of kilograms required for production for June totalled 240,000 kilograms.How many kilograms of raw material should DaDum purchase in June?

A)238,500 kilograms
B)241,500 kilograms
C)250,500 kilograms
D)228,000 kilograms

Question 58

Waco's Widgets plans to sell 22,000 widgets during May, 19,000 units in June, and 20,000 during July.Waco's policy is to keep 10% of the next month's sales as ending inventory.How many units should Waco produce during June?

A)18,900
B)21,000
C)19,100
D)19,000

Question 59

What information is found on the direct materials budget? How many units of direct materials should be purchased?
I. How much is the cost of direct materials to be purchased?

A)I only
B)II only
C)Both I and II
D)Neither I nor II

Question 60

Which one of the following helps improve the reliability of the sales forecast?

A)reduction of differences between actual and estimated amounts
B)creation of management awareness
C)consideration of industry trends
D)extension of the budget period

Question 61

Sudler Production is planning to sell 600 boxes of ceramic tile, with production estimated at 580 boxes during May.Each box of tile requires 44 kilograms of clay mix and a quarter hour of direct labour.Clay mix costs $0.50 per kilogram and employees of the company are paid $15.00 per hour.Manufacturing overhead is applied at a rate of 110% of direct labour costs.Sudler has 2,600 kilograms of clay mix in beginning inventory and wants to have 3,000 kilograms in ending inventory.What is the total amount to be budgeted in kilograms for direct materials to be purchased for the month?

A)25,520
B)25,120
C)25,920
D)26,800

Question 62

Drive, Inc.determined its estimated production for the month is 300,000 units.Each unit requires 2 kilograms of material.The beginning direct materials are 1% of the current months expected needs.Ending inventory desired is 7,500 kilograms.How much are estimated direct materials purchases in kilograms?

A)601,500 kilograms
B)607,500 kilograms
C)301,500 kilograms
D)598,500 kilograms

Question 63

Tripod Exports, Inc.budgets on an annual basis for its fiscal year.The following beginning and ending inventory levels are planned for the fiscal year of July 1, 2019 to June 30, 2020: $\begin{array}{llcc} & \underline{\text { June30,2020} } & \underline{\text { June30,2019}} \\ \text { Raw Materials } & \text {3,000 kilos } & \text {2,000kilos } \\\end{array}$
Three kilos of raw materials are needed to produce each unit of finished product.If Tripod Exports plans to produce 280,000 units during the 2019-2020 fiscal year, how many kilos of materials will the company need to purchase for its production during the year?

A)841,000
B)843,000
C)840,000
D)839,000

Question 64

The direct materials budget shows: $\begin{array}{llcc} \text { Desired ending direct materials } & \text { 2,000 kilograms} \\ \text { Materials purchased } & \text { 51,400 kilograms } \\ \text { Beginning inventory on hand} & \text {1.200 kilograms }\\\end{array}$
How much are the total direct materials needed for production?

A)50,600 kilograms
B)52,600 kilograms
C)52,200 kilograms
D)51,400 kilograms

Question 65

Skate Rink Company revised its sales budget to show a 15% increase in sales.As a result of this change, which other budgets would change?

A)all of its other budgets
B)only its selling and administrative expenses budget
C)its marketing budget only
D)only its production budget

Question 66

The production budget shows that expected unit sales are 86,000 for May and 87,000 for June.The company desires to have units on hand at the end of the month equal to 10% of next month's sales.How many units should the company produce during May?

A)86,100
B)94,600
C)85,900
D)94,700

Question 67

Jason Company determined that the budgeted cost of producing a product is $1.20 per unit.On June 1, there were 11,000 units on hand.The sales department budgeted sales of 320,000 units in June.The company desires to have 8,000 units on hand on June 30.How much is the budgeted cost of goods manufactured for June?

A)$380,400
B)$317,000
C)$323,000
D)$387,600

Question 68

Green Plants plans to sell 160 potted plants during April and 120 units in May.Green Plants keeps 15% of the next month's sales as ending inventory.How many units should Green Plants produce during April?

A)154
B)166
C)160
D)178

Question 69

Which of the following is correct regarding the manufacturing overhead budget?

A)The manufacturing overhead budget should include all costs of marketing and advertising.
B)The budget should show only indirect materials and indirect labour.
C)Manufacturing overhead costs should be broken down by cost behaviour.
D)Total budgeted manufacturing overhead should be calculated using a predetermined overhead rate.

Question 70

Which of the following is needed to prepare a sales budget?

A)the sales forecast
B)number of units of finished goods in inventory
C)the production capacity of the organization
D)estimated cost of goods sold

Question 71

Sargent.Com plans to sell 2,000 purple lawn chairs during May, 1,900 in June, and 2,000 during July.The company keeps 15% of the next month's sales as ending inventory.How many units should Sargent.Com produce during June?

A)1,915
B)2,200
C)1,885
D)not enough information to determine

Question 72

The following information is taken from the production budget for the first quarter: How many finished goods units should be produced during the quarter if the company desires 800 units available to start the next quarter?

A)114,500
B)113,500
C)118,500
D)114,800

Question 73

At January 1, 2020, Ceatric, Inc.has beginning inventory of 10,000 boogie boards.Ceatric estimates it will sell 7,000 units during the first quarter of 2020 with a 7% increase in sales each quarter.Ceatric's policy is to maintain an ending inventory equal to 14% of the next quarter's sales.Each surfboard costs $95 and is sold for $130.How much is budgeted sales revenue for the third quarter of 2020?

A)$80,143
B)$910,000
C)$1,041,859
D)$280,500.50

Question 74

Nextel Company showed the following on its direct materials budget for June: $\begin{array}{llcc} \text { Units to be produced} &25,000\\ \text { Total kilograms needed for production } &10,000\\ \text { Total kilograms of materials to be purchased }& 9,000\\\end{array}$
The materials cost $2 per kilogram.How much is the cost of direct materials per unit?

A)$0.80
B)$0.72
C)$1.52
D)$5.00

Question 75

Spirit, Inc.budgeted sales are 433,000 units for January and 420,000 units for February.The company's policy requires maintaining units on hand at the end of each month equal to 8% of next month's budgeted unit sales.How many units should the company produce in January?

A)442,700 units
B)423,300 units
C)466,600 units
D)431,960 units

Question 76

Surprise Company's sales budget showed expected sales of 13,400 widgets.Beginning finished goods contained 1,200 widgets.The company determined that 14,100 units should be produced.How many widgets will the company have on hand at the end of the year?

A)500
B)1,200
C)1,900
D)700

Question 77

In what order are the following budgets prepared? IS. budgeted income statement
P.production budget
SA.selling and administrative budge
MP.materials purchases budget

A)SA, P, MP, IS
B)P, MP, IS, SA
C)P, MP, SA, IS
D)MP, P, SA, IS

Question 78

The production budget shows expected unit sales are 1,800.The required production units are 1,700.Which of the following represents possible inventory balances? $\quad$ $\quad$ $\quad$$\begin{array}{llcc}\underline{\text { Beginning Units}} &\underline{\text {Ending Units }}\end{array}$
a) $\quad$ $\quad$$\quad$ $\quad$ $\quad$ 200 $\quad$ $\quad$ $\quad$ $\quad$ $\quad$ 100
b) $\quad$ $\quad$$\quad$ $\quad$ $\quad$ 100 $\quad$ $\quad$$\quad$ $\quad$ $\quad$ 200
c) $\quad$ $\quad$$\quad$ $\quad$ $\quad$ 200 $\quad$ $\quad$$\quad$ $\quad$ $\quad$ 200
d) $\quad$ $\quad$$\quad$ $\quad$ $\quad$ 0 $\quad$ $\quad$$\quad$ $\quad$ $\quad$ 100

Question 79

Why is the sales budget the single most important source in preparing budgets?

A)All the other budgets depend on it.
B)It enables the company to determine the unit cost of products.
C)It is the best determination of profitability of a company.
D)It is the only budget that requires estimates.

Question 80

Of the following items, which one is found as the bottom amount on an individual budget?

A)total variable costs
B)required production units
C)cost of production
D)financing needed