Deck 14: Cost Planning

Question 1

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.

Answer 1

D

Question 2

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.

Answer 2

C

Question 3

A budget that is prepared for several periods in the future, then revised several times prior to the budget period is called a:

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

Answer 3

A

Question 4

A cost that is incurred because of a long-range policy decision is known as a:

A) discretionary cost.
B) committed cost.
C) continuous cost.
D) standard cost.

Question 5

A budgeting approach that implies little or no input from lower levels of management is known as the:

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

Question 6

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 7

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 8

An example of a committed cost is:

A) employee training.
B) manufacturing supplies.
C) real estate taxes.
D) charitable contributions.

Question 9

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 10

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 11

The production budget uses all of the following except:

A) the sales forecast.
B) the inventory policy.
C) the cash receipts budget.
D) the beginning inventory quantity.

Question 12

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 13

The cash budget is especially important to a firm when:

A) there is not a lot of confidence in the sales forecast.
B) it has a relatively large amount of operating cash.
C) the P/E ratio has been trending downwards.
D) it may have to negotiate a short-term bank loan.

Question 14

The operating budget depends on key information developed in the:

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

Question 15

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 16

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 17

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.

Question 18

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 identify and prioritize the activities that are carried out in their departments and justify all of their expenditures for each budget period.
D) none of these.

Question 19

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 these.

Question 20

___________ budgets are generally more expensive to maintain than single-period budgets because more time and effort is required in their preparation:

A) Zero-based
B) Continuous
C) Discretionary
D) Production

Question 21

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 22

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 23

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 24

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 these.

Question 25

The development of the operating budget is complete when:

A) the sales forecast for next year is complete.
B) the budgeted cash flow statement is complete.
C) the budgeted income statement is complete.
D) the budgeted balance sheet is complete.

Question 26

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 27

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 28

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 29

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) both the accuracy of the sales forecast and the accuracy of the estimated collection patterns for sales are keys.
D) neither the accuracy of the sales forecast nor the accuracy of the estimated collection patterns for sales are keys.

Question 30

Depreciation on the office equipment would appear in which of the following budgets?

A) Production budget.
B) Manufacturing overhead budget.
C) Operating expense budget.
D) Cash budget.

Question 31

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 32

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 33

______________ standards allow inefficiencies from prior years to be incorporated into the budget, thus providing little incentive for improvement:

A) Ideal
B) Engineered
C) Attainable
D) Past experience

Question 34

A cash budget would not include:

A) sale of common stock.
B) payment of dividends.
C) payment of property taxes.
D) plant and building depreciation.

Question 35

The operating expense budget is based on the:

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

Question 36

Fixed costs classified according to the time frame perspective are known as:

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

Question 37

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

A) Direct labor budget, production budget, cost of goods sold budget.
B) Sales budget, production budget, cash budget.
C) Sales budget, raw materials budget, production budget.
D) Cash budget, production budget, manufacturing overhead budget.

Question 38

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 39

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 40

What is the "key" to the entire operating budget?

A) The forecast of operating activity.
B) The budgeted income statement.
C) The budgeted balance sheet.
D) The production/purchases budget.

Question 41

The monthly cash budgets for the first quarter of 2013 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 42

The kind of standard that is most useful for planning and control is:

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

Question 43

Standards are likely to be most useful when expressed in:

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

Question 44

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: Peachtree's Siding and Window Co.'s budgeted income statement for each of the next three months is as follows: Prepare a cash budget for the month of October.

Question 45

Dominic's, Inc. had actual sales for January and February and forecasted sales for March, April, May, and June as follows: 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 46

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 47

Pacesetters, Inc., has actual sales for July and August and forecasted sales for September, October, November, and December as follows: (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 48

Remote Center's sales are all made on account. The firm's collection experience has been that 20 percent of a month's sales are collected in the month of sale, 60 percent are collected in the month following the sale, and 18 percent are collected in the second month following the sale. The sales forecast for the months of August through November is: Calculate the cash collections that would be included in the cash budgets for October and November.

Question 49

Brenda, Inc. makes wooden tables. Each table requires 28 pounds of lumber to produce. The sales forecast for March is 1,600 tables. Estimated beginning and desired ending inventories for March are the following: (a.) Calculate the number of tables to be produced in March.
(b.) Calculate the number of pounds of lumber to be purchased in March.

Question 50

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 51

Standard costing is developed and used for:

A) planning purposes.
B) control purposes.
C) product costing purposes.
D) all of these.

Question 52

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 53

The following information for the month of May has been provided for Bowser Company:

Question 54

Avery's Bicycle Shop, a retail store, has an average gross profit ratio of 28 percent. The sales forecast for the next four months follows: Management's inventory policy is to have ending inventory equal to 1.4 times the cost of sales for the subsequent month, although it is estimated that the cost of inventory at March 31 will be $170,000.
Calculate the purchases budget, in dollars, for the months of April, May, and June.

Question 55

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:

Question 56

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 57

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: (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 58

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 59

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: (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.