Deck 10: Budgetary Planning

Question 1

A budget is more beneficial if accepted by lower level management.

Answer 1

True

Question 2

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.

Answer 2

True

Question 3

Budgets, by their very nature, create a negative effect on human behaviour within companies because they imply that management is trying to control.

Answer 3

False

Question 4

Budgets promote efficiency and serve as a deterrent to waste.

Question 5

The last step in the budgeting process is developing a sales forecast.

Question 6

The master budget consists of a plan of action for a specified time period.

Question 7

The flow of input data for budgeting should be from the lowest levels of responsibility to the highest level.

Question 8

A budget facilitates coordination of activities within the business but is a poor tool for evaluating performance.

Question 9

Operating budgets must be completed before the financial budgets can be prepared.

Question 10

Long-range plans are used primarily as an evaluation of specific results to be achieved.

Question 11

Upper level managers are responsible for preparing the entire budget.

Question 12

The budget itself and the administration of the budget are the responsibility of management.

Question 13

A budget can be a means of communicating a company's objectives to external parties.

Question 14

Budgets represent management's plans in financial terms.

Question 15

The most common budget period is one year.

Question 16

Long-range plans reflect management's long-term plans encompassing five years or more.

Question 17

The number of direct labour hours needed for production is obtained from the direct labour budget.

Question 18

Budgeting and long-range planning differ in the emphasis and the time period involved.

Question 19

A budget committee coordinates the budget activities of a company.

Question 20

The shorter the budget period, the more reliable the estimates of future outcomes.

Question 21

A sales budget should be prepared before the production budget.

Question 22

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

Question 23

Use the following information for questions
Livanos, Inc.reports all its sales on credit, and pays operating costs in the month incurred.Amounts for 2012 are:

-Customer amounts on account are collected 70% in the month of sale and 30% in the following month.
-Cost of goods sold is 60% of sales.
-Livanos purchases and pays for merchandise 40% in the month of acquisition and 60% in the following month.
-Operating expenses are: Salaries, $50,000; Depreciation, $12,000; Rent, $15,000; and Utilities, $14,000;
-Accounts payable is used only for inventory acquisitions.

-How much is Livanos' May 30, 2012 budgeted Accounts Receivable?

A)$320,000
B)$96,000
C)$224,000
D)$311,000

Question 24

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

Question 25

Weaver, Inc.has budgeted direct materials purchases of $150,000 in March and $240,000 in April.Past experience indicates that the company pays for 70% of its purchases in the month of purchase and the remaining 30% in the next month.Other costs are all paid during the month incurred.During April, the following items were budgeted: How much is budgeted cash disbursements for April?

A)$324,000
B)$213,000
C)$348,000
D)$366,000

Question 26

The direct materials budget contains only quantity data so the purchasing department knows how much materials should be purchased.

Question 27

Gottberg Mugs is planning to sell 2,000 mugs and produce 2,200 mugs during April.Each mug requires 2 kilograms of resin and one-half hour of direct labour.Resin costs $1 per kilogram and employees of the company are paid $12.50 per hour.Manufacturing overhead is applied at a rate of 120% of direct labour costs.Gottberg has 2,000 kilograms of resin in beginning inventory and wants to have 2,400 kilograms in ending inventory.How much is the total amount of budgeted direct labour for April?

A)$12,500
B)$13,750
C)$25,000
D)$27,500

Question 28

Use the following information for questions
Livanos, Inc.reports all its sales on credit, and pays operating costs in the month incurred.Amounts for 2012 are:

-Customer amounts on account are collected 70% in the month of sale and 30% in the following month.
-Cost of goods sold is 60% of sales.
-Livanos purchases and pays for merchandise 40% in the month of acquisition and 60% in the following month.
-Operating expenses are: Salaries, $50,000; Depreciation, $12,000; Rent, $15,000; and Utilities, $14,000;
-Accounts payable is used only for inventory acquisitions.

-How much is Livanos' budgeted balance for Accounts Payable at May 30, 2012?

A)$124,800
B)$72,000
C)$51,200
D)$76,800

Question 29

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

Question 30

During December, the capital budget indicates a $280,000 purchase of equipment.The ending November cash balance is budgeted to be $40,000.Cash receipts are $840,000, and cash disbursements are $610,000 during December.The company wants to maintain a minimum cash balance of $20,000.What is the minimum cash loan that must be planned to be borrowed from the Bank during December?

A)$30,000
B)$10,000
C)$50,000
D)$0

Question 31

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

Question 32

Use the following information for questions
Livanos, Inc.reports all its sales on credit, and pays operating costs in the month incurred.Amounts for 2012 are:

-Customer amounts on account are collected 70% in the month of sale and 30% in the following month.
-Cost of goods sold is 60% of sales.
-Livanos purchases and pays for merchandise 40% in the month of acquisition and 60% in the following month.
-Operating expenses are: Salaries, $50,000; Depreciation, $12,000; Rent, $15,000; and Utilities, $14,000;
-Accounts payable is used only for inventory acquisitions.

-How much cash will Livanos receive during May from customers?

A)$308,000
B)$311,000
C)$224,000
D)$299,000

Question 33

The first budget prepared should be the sales budget.

Question 34

A service company has no purchases budget.

Question 35

Lewis Hats is planning to sell 650 straw hats.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 36

Looker Hats is planning to sell 1,000 felt hats, and 800 will be produced during June.Each hat requires .75 metres of felt and 1/2 hour of direct labour.Felt costs $5.00 per metre and employees of the company are paid $15 per hour.How much is the total amount of budgeted direct labour for June?

A)$9,750
B)$45,000
C)$6,000
D)$7,500

Question 37

At January 1, 2012, Barry, Inc.has beginning inventory of 5,000 widgets.Barry estimates it will sell 40,000 units during the first quarter of 2012 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 2012?

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

Question 38

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 keep10% 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 39

The budgeted income statement indicates the expected amount of cash expected to be acquired from operations.

Question 40

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

Question 41

Which budget is normally prepared first?

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

Question 42

Leak Company sells only on credit.It reported the following information for 2012: Customer amounts on account are collected 45% in the month of sale and 55% in the following month.How much is the November 30, 2009 budgeted Accounts Receivable?

A)$467,500
B)$382,500
C)$827,500
D)$528,000

Question 43

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 44

Nunnallikash Manufacturing Company has furnished the following information which occurred during May: The accounts payable account is used only for direct materials.How much will Nunnallikash report as accounts payable on the balance sheet at the end of May?

A)$21,000
B)$103,000
C)$8,000
D)$15,000

Question 45

Harrah Company provided the following information for the month of October: Harrah's policy is to keep a minimum end of the month cash balance of $30,000.How much will Harrah's need to borrow during August?

A)$20,000
B)$25,000
C)$10,000
D)$0

Question 46

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.

Question 47

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

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

Question 48

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

A)Zero-based budgeting
B)Grassroots budgeting
C)Participative budgeting
D)Cooperative budgeting

Question 49

Each production worker can produce 5 wooden chairs per hour.During the month of June, Chairs, Inc.has forecasted sales of 100,000 chairs.The beginning inventory was 1,000 chairs, and desired ending inventory is 2,500 chairs.How many hours of direct labour must be budgeted to meet production needs?

A)20,300
B)20,000
C)21,200
D)19,700

Question 50

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 51

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

Question 52

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 53

Orr Corporation's manufacturing costs for August when production was 750 units appears below: How much is the budgeted manufacturing cost for a month when 500 units are produced?

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

Question 54

Razmataz Company makes and sells umbrellas.The company is in the process of preparing its Selling and Administrative Expense Budget for the last half of the year.The following budget data are available: Expenses are paid in the month incurred.If the company has budgeted to sell 2,000 umbrellas in October, how much is the total budgeted variable selling expenses for October?

A)$41,000
B)$4,600
C)$4,900
D)$1,800

Question 55

Use the following information for questions
At January 1, 2012, Jake, Inc.has beginning inventory of 4,000 surfboards.Jake estimates it will sell 15,000 units during the first quarter of 2012 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 2012?

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

Question 56

Use the following information for questions
At January 1, 2012, Jake, Inc.has beginning inventory of 4,000 surfboards.Jake estimates it will sell 15,000 units during the first quarter of 2012 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 2012?

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

Question 57

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 58

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 59

Lewis Production is planning to sell 220 boxes of bricks and produce 200 boxes of bricks during May.Each box of bricks requires 20 kilograms of brick mix and a half hour of direct labour.Brick mix costs $5 per 100 kilograms and employees of the company are paid $12.00 per hour.Manufacturing overhead is applied at a rate of 120% of direct labour costs.Lewis Production has 600 kilograms of brick mix in beginning inventory and wants to have 800 kilograms of brick mix in ending inventory.What is the total amount to be budgeted for manufacturing overhead for the month?

A)$1,440
B)$2,640
C)$2,400
D)$1,200

Question 60

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 buckets.The company wants to maintain monthly ending inventories of plastic equal to 10% of the following month's production needs.On August 31^st, 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 61

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 62

Which one of the following is a financial budget?

A)Capital expenditure budget
B)Production budget
C)Manufacturing overhead budget
D)Sales budget

Question 63

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 64

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 65

Which one of the following is an operating budget?

A)Cash budget
B)Sales budget
C)Budgeted balance sheet
D)Capital expenditure budget

Question 66

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 67

Which of the following is a proper match-up?

A)Long-range planning  1 year
B)Budgeting  Review of progress
C)Budgeting  Anticipated trends in economic environment
D)Long range planning  Strategies

Question 68

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 69

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 70

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 71

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 72

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 73

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 74

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 75

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 76

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 77

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 78

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 79

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 80

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.