Deck 5: Scratch Budgeting

Question 1

The difficulty in preparing a scratch budget is knowing

A) How much output will be demanded
B) What types of resources are needed to produce a product
C) How much of a resource is needed to complete production
D) All of the above

Answer 1

D

Question 2

If the price of labor increases, an organization would most likely shift from

A) Individual processing to mass production
B) A batch processing method to continuous production
C) A labor-intensive production method to a capital-intensive method
D) Start to finish production to purchase and assembly

Answer 2

C

Question 3

Which of the following expenses would be best estimated based on output?

A) Management salaries
B) Staff salaries
C) Health insurance
D) Supplies
E) Rent

Answer 3

D

Question 4

Which of the following expenses is most likely to be a fixed cost?

A) Rent
B) Utilities
C) Salaries and wages
D) Supplies
E) Postage and shipping

Question 5

Which method should be used to estimate health insurance expenses?

A) Fixed cost
B) Variable cost based on output
C) Variable cost based on another expense
D) Variable cost based on revenue

Question 6

Which method should be used to estimate supply expenses?

A) Fixed cost
B) Variable cost based on output
C) Variable cost based on another expense
D) Variable cost based on revenue

Question 7

Assume a lab test requires 15 minutes of a technician's time to draw one vial of blood and lab techs work 2080 hours per year. If 56,000 lab tests are forecasted for the upcoming year, the total man hours (FTEs) needed to complete these tests will be

A) Less than 8320 hours (< 4 FTEs)
B) 8320 hours plus or minus 100 hours (4 FTEs +/-)
C) More than 8320 hours (> 4 FTEs)
D) Cannot be determined

Question 8

Assume a lab test requires 15 minutes of a technician's time to draw one vial of blood, each vial costs $0.50, and 56,000 lab tests are forecasted for the upcoming year. What should the supply expense be for the collection vials?

A) Less than $28,000
B) $28,000 plus or minus $100
C) More than $28,000
D) Cannot be determined

Question 9

Assume a start-up business has forecasted that expenses will exceed revenues during the first year of operation. Which of the following actions can owners/managers enact to improve operating results?

A) Increase price
B) Extend operating hours to increase sales
C) Reduce variable costs
D) Reduce fixed costs
E) All of the above

Question 10

The breakeven formula is

A) Total cost/price
B) Total variable cost/(Price - average fixed cost)
C) Total fixed cost/(Price - average variable cost)
D) Total cost/(Price - average variable cost)

Question 11

An increase in average variable cost will

A) Increase breakeven quantity
B) Have no impact on breakeven quantity
C) Decrease breakeven quantity
D) Have an indeterminate impact on breakeven quantity

Question 12

An increase in average variable cost and a reduction in fixed cost will

A) Increase breakeven quantity
B) Have no impact on breakeven quantity
C) Decrease breakeven quantity
D) Have an indeterminate impact on breakeven quantity

Question 13

An increase in price and a reduction in fixed cost will

A) Increase breakeven quantity
B) Have no impact on breakeven quantity
C) Decrease breakeven quantity
D) Have an indeterminate impact on breakeven quantity

Question 14

Which of the following will decrease breakeven quantity?

A) An increase in price and decreases in average variable and total fixed costs
B) An increase in price and average variable cost and a reduction in total fixed costs
C) An increase in price and total fixed costs and a reduction in average variable costs
D) Increases in price, average variable cost, and total fixed cost
E) Decreases in price, average variable cost, and total fixed costs

Question 15

The contribution margin is

A) The change in total revenue resulting from selling one additional unit of output
B) The change in total cost resulting from producing one additional unit of output
C) The change in profit resulting from selling one additional unit of output
D) The change in total variable cost from producing one additional unit of output

Question 16

The formula for the contribution margin is

A) Price - average variable cost, P-AVC
B) Price - average fixed cost, P-AFC
C) Price - average total cost, P-ATC
D) Total revenue - total cost, TR-TC

Question 17

Assume an organization must invest $100,000 in fixed costs to produce a product that sells for $100 and requires $50 in variable costs to produce one unit. What is the organization's breakeven volume?

A) 1000 units
B) 1500 units
C) 2000 units
D) 2500 units
E) None of the above

Question 18

Assume an organization must invest $700,000 in fixed costs to produce a product that sells for $75 and requires $40 in variable costs to produce one unit. What is the organization's breakeven volume?

A) 9333 units
B) 17,500 units
C) 20,000 units
D) 24,667 units
E) None of the above

Question 19

Assume an organization must invest $700,000 in fixed costs to produce a product that sells for $75 and requires $40 in variable costs to produce one unit. How many units of output must be sold to earn a $50,000 profit?

A) 17,500 units
B) 20,000 units
C) 21,428 units
D) 24,667 units
E) None of the above

Question 20

An organization should shut down immediately if

A) Price does not cover average total cost
B) Price does not cover average variable cost
C) The contribution margin is zero
D) The contribution margin is greater than zero but less than $100
E) All of the above

Question 21

An organization should shut down in the long run if

A) Price does not cover average total cost
B) Price does not cover average variable cost
C) The contribution margin is zero
D) The contribution margin is greater than zero but less than $100
E) All of the above

Question 22

The purpose of the chart of accounts is to organize financial transactions to facilitate management.

Question 23

The advantage of substituting capital for labor in a production is it reduces average variable costs and can be quickly reduced when demand falls.

Question 24

Depreciation records the actual loss of value on equipment and building due to the wear and tear of production.

Question 25

One problem that arises when expenses are estimated based on output or other expenses is the incentive to over-estimate these variables to increase budget allocations.

Question 26

The purpose of breakeven analysis is to determine the approximate quantity of output needed to be sold to recoup fixed costs.