Deck 13: The Master Budget

Question 1

The interpretation of future plans into monetary amounts so that progress toward organizational goals can be determined is called

A) budgeting.
B) variance analysis.
C) cost-volume-profit analysis.
D) monthly closing process.
E) financial statement preparation.

Answer 1

budgeting.

Question 2

A variance can be a difference between an actual amount and a

Answer 2

E

Question 3

Budgeting processes

A) are the same for all organizations.
B) is important to efficient resource allocation.
C) should reflect current economic conditions.
D) indicate the appropriateness of break-even analysis.
E) start with the preparation of a cash budget.

Answer 3

is important to efficient resource allocation.

Question 4

The budgeting process

A) should be limited to top management because subordinates do not understand the complexities of such a process.
B) ensures that actual goals meet expected goals.
C) does not need to be repeated regularly since the business environment is unchanging.
D) is most effective when the inputs of both top management and subordinates are considered
E) all of the above.

Question 5

The master budget

A) reflects a single sales estimate.
B) is cash-based.
C) ignores current period balance sheet information.
D) concludes with standard cost variance analysis.
E) all of the above

Question 6

The budgeting process results in

A) organizational goals.
B) standard costs and revenues.
C) pro-forma financial statements.
D) cost-volume-profit analysis.
E) none of the above

Question 7

Jeanne Corp. expects that it will sell 200,000 bottles of perfume at $50 per bottle next year. The sales volume is 10% higher than the current year and the expected selling price per bottle is $4 greater than the current year's. Jeanne's sales budget should include

A) 180,000 units and $9,000,000 of sales revenue.
B) 200,000 units and $9,200,000 of sales revenue.
C) 180,000 units and $8,280,000 of sales revenue.
D) 20,000 units and $10,000,000 sales revenue.
E) any of the above are appropriate for next year's budget.

Question 8

A carpet cleaning company that bills all of its customers on account uses which of the following budgets?

Question 9

West Corp.'s December 31, 2009 inventory contains 10,000 units. Forecasted sales for 2010 are 200,000 units and desired 2010 year-end inventory is 15% of beginning inventory. During 2010, West should produce

A) 191,500 units.
B) 200,000 units.
C) 201,500 units.
D) 208,500 units.
E) 211,500 units.

Question 10

North Corp.'s December 31, 2009 inventory contains 20,000 units. Forecasted sales for 2010 are 430,000 units. North's production budget indicates the company should produce 438,000 units during 2010, what is North's desired inventory at December 31, 2010?

A) 10,000 units
B) 12,000 units
C) 18,000 units
D) 28,000 units
E) none of the above

Question 11

East Corp. manufactures a product that uses 3 pounds of raw material. East's raw material inventory at December 31, 2009 is 50,000 pounds; its desired raw material inventory at December 31, 2010 is 25% of beginning inventory. East's estimated 2010 production is 700,000 units of finished product. How many pounds of raw material should East buy during 2010?

A) 662,500
B) 737,500
C) 2,062,500
D) 2,212,500
E) 2,237,500

Question 12

Greyland Inc. manufactures a product that uses 2 ounces of raw material. Greyland's raw material inventory at December 31, 2009 is 21,000 ounces; its desired raw material inventory at December 31, 2010 is 18,000 ounces. Greyland's budgeted production for 2010 is 1,000,000 units of finished product. Each ounce of raw material costs $1.80. What amount of total purchases should Greyland budget for 2010?

A) $1,794,600
B) $1,997,000
C) $3,589,200
D) $3,594,600
E) $3,632,400

Question 13

Annette Co. manufactures earrings. Annette is budgeting production of 300,000 pair of earrings in 2010. It takes 1.25 direct labor hours to produce one pair of earrings and each labor hour costs Annette $9. What is Annette's budgeted labor cost for 2010?

A) $ 375,000
B) $2,160,000
C) $2,700,000
D) $3,375,000
E) none of the above

Question 14

Lakeside Bakery makes pies. Each pie requires ¾ of a direct labor hour. The variable overhead rate is $0.60 per direct labor hour. Lakeside's estimated fixed overhead is $400,000. Lakeside budgets pie production at 500,000 pies for the upcoming year. What is Lakeside's total estimated overhead?

A) $225,000
B) $300,000
C) $525,000
D) $625,000
E) $700,000

Question 15

Use the following information to answer questions
Innovative Inc. budgets 250,000 pair of flip flops sales in January. Desired ending inventory for each month is 5% of the following month's budgeted sales. Assume budgeted unit sales increases by 15% every month and that all units placed into production are completed during the month.

-How many pair of flip flops are budgeted to be sold during the quarter?

A) 824,719 pair
B) 855,625 pair
C) 868,125 pair
D) 884,656 pair
E) cannot be determined from the above information

Question 16

Use the following information to answer questions
Innovative Inc. budgets 250,000 pair of flip flops sales in January. Desired ending inventory for each month is 5% of the following month's budgeted sales. Assume budgeted unit sales increases by 15% every month and that all units placed into production are completed during the month.

-If Innovative Inc.'s ending inventory in December conforms to the desired ending inventory, how many pair of flip flops must be produced to meet budgeted unit sales for January?

A) 251,875 pair
B) 273,180 pair
C) 292,819 pair
D) 292,901 pair
E) 306,600 pair

Question 17

Use the following information to answer questions
Innovative Inc. budgets 250,000 pair of flip flops sales in January. Desired ending inventory for each month is 5% of the following month's budgeted sales. Assume budgeted unit sales increases by 15% every month and that all units placed into production are completed during the month.

-What is the budgeted ending inventory of flip flops in March (round to the nearest whole pair)?

A) 12,500 pair
B) 14,375 pair
C) 16,531 pair
D) 19,011 pair
E) 330,625 pair

Question 18

Acadiana Corporation plans to buy a new drilling system for $250,000 in March 2011. Acadiana will pay for the purchase over a five-month period beginning in March. The system will be placed into service in April 2011. In the first quarter of 2011, this proposed purchase will be shown in the company's

Question 19

Which of the following will affect the cash budget?

Question 20

In preparing a cash budget, management

A) generally includes a minimum cash balance.
B) subtracts cash payments for stock dividends.
C) subtracts an estimated amount for uncollectible accounts receivable.
D) ignores cash payments for long-term capital assets.
E) all of the above..

Question 21

Use the following information to answer questions
Skyline Corporation began operations on January 1, 2010. Skyline's budgeted January 2010, February 2010, and March 2010 sales are $1,000,000, $1,200,000, and $2,000,000 respectively. The company estimates that 75% of its sales will be made on credit. The company also estimates that 50% of Skyline's customers will pay their outstanding balances in the month of the sale, 30% in the first month subsequent to the sale, and 20% in the second month subsequent to the sale

-How much cash should Skyline expect to receive from its customers in January 2010?

A) $250,000
B) $375,000
C) $500,000
D) $625,000
E) $750,000

Question 22

Use the following information to answer questions
Skyline Corporation began operations on January 1, 2010. Skyline's budgeted January 2010, February 2010, and March 2010 sales are $1,000,000, $1,200,000, and $2,000,000 respectively. The company estimates that 75% of its sales will be made on credit. The company also estimates that 50% of Skyline's customers will pay their outstanding balances in the month of the sale, 30% in the first month subsequent to the sale, and 20% in the second month subsequent to the sale

-How much cash should Skyline expect to receive from its customers in February 2010?

A) $450,000
B) $675,000
C) $750,000
D) $900,000
E) $975,000

Question 23

Use the following information to answer questions
Skyline Corporation began operations on January 1, 2010. Skyline's budgeted January 2010, February 2010, and March 2010 sales are $1,000,000, $1,200,000, and $2,000,000 respectively. The company estimates that 75% of its sales will be made on credit. The company also estimates that 50% of Skyline's customers will pay their outstanding balances in the month of the sale, 30% in the first month subsequent to the sale, and 20% in the second month subsequent to the sale

-How much cash should Skyline expect to receive from its customers in March 2010?

A) $1,170,000
B) $1,500,000
C) $1,670,000
D) $1,707,500
E) $1,920,000

Question 24

Use the following information to answer questions
Cyclone Inc. is a wholesaler of mattresses that began business on January 1. The company's sales policy requires 40% payment in the month of sale, 30% the next month, and 30% due the third month. Purchases will be paid 60% in the month of purchase and 40% in the following month. Cyclone expects to begin operations in January with $5,000 in cash. Cyclone's expected transactions from January to May are as follows:


-The budgeted available cash balance for February is

A) $ 8,000.
B) $13,000.
C) $30,000.
D) $35,000.
E) none of the above.

Question 25

Use the following information to answer questions
Cyclone Inc. is a wholesaler of mattresses that began business on January 1. The company's sales policy requires 40% payment in the month of sale, 30% the next month, and 30% due the third month. Purchases will be paid 60% in the month of purchase and 40% in the following month. Cyclone expects to begin operations in January with $5,000 in cash. Cyclone's expected transactions from January to May are as follows:


-Budgeted cash collections for April are

A) $ 36,000.
B) $ 40,000.
C) $ 63,000.
D) $ 75,000.
E) $100,000.

Question 26

Use the following information to answer questions
Cyclone Inc. is a wholesaler of mattresses that began business on January 1. The company's sales policy requires 40% payment in the month of sale, 30% the next month, and 30% due the third month. Purchases will be paid 60% in the month of purchase and 40% in the following month. Cyclone expects to begin operations in January with $5,000 in cash. Cyclone's expected transactions from January to May are as follows:


-Cyclone anticipates borrowing $25,000 in May and paying for a piece of equipment costing $7,600. Given these expectations, what is May's budgeted ending cash balance?

A) $ 88,400
B) $ 93,400
C) $116,000
D) $145,000
E) none of the above

Question 27

Union Air's January 2010, February 2010, and March 2010 purchases were $2,000,000, $1,500,000, and $4,000,000 respectively. Union Air pays 75% of its invoices in the month that those purchases take place, 20% in the first month subsequent to the purchase, and 5% in the second month subsequent to the purchase. How much cash will Union Air disburse in March 2010?

A) $2,000,000
B) $3,300,000
C) $3,400,000
D) $4,000,000
E) $4,400,000

Question 28

Buck Manufacturing's Work in Process Inventory at January 1, 2010, is $300,000. Buck estimates that $150,000 of raw material, $200,000 of direct labor, $30,000 of overhead, and $25,000 of administrative costs will be incurred during 2010. December 31, 2010, WIP Inventory is budgeted to be $135,000. What is Buck's estimated cost of goods manufactured for 2010?

A) $245,000
B) $270,000
C) $380,000
D) $545,000
E) $570,000

Question 29

Leiser Mfg.'s Finished Goods Inventory at January 1, 2010, is $150,000. Leiser estimates that $520,000 of manufacturing costs and $358,000 of general and administrative costs will be incurred during 2010. The company expects that $550,000 of goods will be completed during the year. Leiser has budgeted Work in Process and Finished Goods Inventory balances for December 31, 2010, of $75,000 and $225,000, respectively. What is Leiser Manufacturing's estimated cost of goods sold for 2010?

A) $400,000
B) $445,000
C) $475,000
D) $578,000
E) $803,000

Question 30

The following information is from Beryl Corporation's 2010 income statement.

Beryl's gross profit is expected to increase by 10% and interest expense is expected to decrease by 20% in 2011. Calculate Beryl's budgeted 2011 net income.

A) $494,000
B) $534,000
C) $590,000
D) $594,000
E) $644,000

Question 31

A financial statement typically not included in a set of pro-forma financial statements is a

A) balance sheet.
B) income statement.
C) statement of cash flows.
D) statement of fund balance.
E) statement of stockholders' equity.

Question 32

Chandra Corp. always has a 12-month budget under which its managers work. Chandra Corp. maintains a

A) rolling budget.
B) pro forma budget.
C) standard budget.
D) financing budget.
E) strategic budget.

Question 33

A rolling budget

A) provides timely information and helps management in making informed business decisions .
B) delineates a specific budget period end.
C) is prepared once in a year.
D) is significantly comparable to a static budget.
E) provides timely information and helps management in making informed business decisions.

Question 34

A standard cost represents the

A) benchmark cost incurred by a company's competitors to produce the company's product.
B) budgeted cost to manufacture one unit of product or service.
C) actual cost to manufacture one unit of product or service minus all unfavorable cost variances.
D) budgeted variable cost to manufacture one unit of product or service.
E) process of determining the standard-to-actual differences and assessing whether those differences are favorable or unfavorable.

Question 35

Which of the following will be considered favorable to a purchasing manager during a variance analysis evaluation?

A) Actual material price is more than standard material price.
B) Standard labor rate is less than actual labor rate.
C) Standard material price is more than actual material price.
D) Actual labor hours are more than standard labor hours.
E) Actual labor quantity is more than standard labor quantity.

Question 36

Use the following information to answer questions
In manufacturing its product, City Manufacturing's recipe requires 3 ounces of Material X at a standard cost of $0.20 per ounce. During January 2010, City bought and used 2,000 ounces of Material X at a cost of $0.18 per ounce and made 700 units of product. The company has estimated that it will produce 750 units of product per month.

-What is City's material price variance?

A) $20 favorable
B) $20 unfavorable
C) $40 favorable
D) $40 unfavorable
E) $60 favorable

Question 37

Use the following information to answer questions
In manufacturing its product, City Manufacturing's recipe requires 3 ounces of Material X at a standard cost of $0.20 per ounce. During January 2010, City bought and used 2,000 ounces of Material X at a cost of $0.18 per ounce and made 700 units of product. The company has estimated that it will produce 750 units of product per month.

-What is City's standard quantity of material allowed?

A) 700 ounces
B) 750 ounces
C) 2,000 ounces
D) 2,100 ounces
E) 2,250 ounces

Question 38

Use the following information to answer questions
In manufacturing its product, City Manufacturing's recipe requires 3 ounces of Material X at a standard cost of $0.20 per ounce. During January 2010, City bought and used 2,000 ounces of Material X at a cost of $0.18 per ounce and made 700 units of product. The company has estimated that it will produce 750 units of product per month.

-What is City's material quantity variance?

A) $0
B) $3 favorable
C) $5 favorable
D) $20 favorable
E) $20 unfavorable

Question 39

Assume that City purchased 2,000 ounces of material but only used 1,900 ounces in making products during 2010. What is City's material quantity variance?

A) $20 favorable
B) $20 unfavorable
C) $40 unfavorable
D) $30 favorable
E) none of the above

Question 40

Use the following information to answer questions
Aruba Factory produces hand-crafted items. During October, 46,000 units of product were manufactured and each unit takes 15 minutes. Line workers are paid $12 per hour. Total labor cost for the month was $135,140 for 11,650 hours. Production budgeted for October was 45,000 units.

-What is the labor rate variance?

A) $2,860 favorable
B) $4,660 favorable
C) $8,814 favorable
D) $9,180 favorable
E) none of the above

Question 41

Use the following information to answer questions
Aruba Factory produces hand-crafted items. During October, 46,000 units of product were manufactured and each unit takes 15 minutes. Line workers are paid $12 per hour. Total labor cost for the month was $135,140 for 11,650 hours. Production budgeted for October was 45,000 units.

-The standard time allowed for production in October was

A) 9,200 hours.
B) 11,500 hours.
C) 11,650 hours.
D) 12,415 hours.
E) none of the above

Question 42

Use the following information to answer questions
Aruba Factory produces hand-crafted items. During October, 46,000 units of product were manufactured and each unit takes 15 minutes. Line workers are paid $12 per hour. Total labor cost for the month was $135,140 for 11,650 hours. Production budgeted for October was 45,000 units.

-What is the labor efficiency variance?

A) $1,800 unfavorable
B) $1,800 favorable
C) $2,860 favorable
D) $2,860 unfavorable
E) none of the above

Question 43

Use the following information to answer questions
Tennis Pro's standard assembly time per tennis racket is 0.40 hours at a standard cost of $10 per labor hour. During January 2010, Tennis Pro produced 5,000 tennis rackets in 2,300 labor hours at a cost of $9.50 per labor hour. Tennis Pro had budgeted to produce 4,800 tennis rackets in January 2010.

-What is Tennis Pro's labor rate variance?

A) $1,150 favorable
B) $1,150 unfavorable
C) $190 favorable
D) $960 favorable
E) $960 unfavorable

Question 44

Use the following information to answer questions
Tennis Pro's standard assembly time per tennis racket is 0.40 hours at a standard cost of $10 per labor hour. During January 2010, Tennis Pro produced 5,000 tennis rackets in 2,300 labor hours at a cost of $9.50 per labor hour. Tennis Pro had budgeted to produce 4,800 tennis rackets in January 2010.

-What is Tennis Pro's standard quantity of labor allowed?

A) 1,920 hours
B) 2,000 hours
C) 2,300 hours
D) 2,400 hours
E) 2,500 hours

Question 45

Use the following information to answer questions
Tennis Pro's standard assembly time per tennis racket is 0.40 hours at a standard cost of $10 per labor hour. During January 2010, Tennis Pro produced 5,000 tennis rackets in 2,300 labor hours at a cost of $9.50 per labor hour. Tennis Pro had budgeted to produce 4,800 tennis rackets in January 2010.

-What is Tennis Pro's labor efficiency variance?

A) $3,800 unfavorable
B) $2,850 unfavorable
C) $2,850 favorable
D) $3,000 favorable
E) $3,000 unfavorable

Question 46

Use the following information to answer questions
Bow Wow Corp. uses a standard cost system to compute product costs. Standard costs are as follow:

During April, Bow Wow produced 200,000 units.

-What is Bow Wow's total standard production cost?

A) $100,000
B) $200,000
C) $400,000
D) $600,000
E) $700,000

Question 47

Use the following information to answer questions
Bow Wow Corp. uses a standard cost system to compute product costs. Standard costs are as follow:

During April, Bow Wow produced 200,000 units.

-During April, Bow Wow Corporation incurred $104,000 of overhead cost. At the end of April, Bow Wow

A) had $4,000 of underapplied overhead.
B) had $4,000 of overapplied overhead.
C) had a $4,000 favorable overhead rate variance.
D) needs to increase Work in Process Inventory by $4,000.
E) none of the above.

Question 48

The standard overhead cost is equal to the

A) predetermined overhead rate per unit.
B) underapplied overhead at the end of an accounting period.
C) flexible budget overhead amount at the company's budgeted level of activity for the period.
D) actual units produced times the predetermined overhead rate.
E) standard hours allowed for the production achieved times the actual overhead rate per hour.

Question 49

An extremely large favorable material price variance could mean that

Question 50

Purchasing higher quality material than normally purchased would likely cause

A) a favorable material price variance and a favorable material usage variance.
B) an unfavorable material price variance and a favorable overhead variance.
C) an unfavorable material price variance and an unfavorable labor rate variance.
D) an unfavorable material price variance and a favorable labor efficiency variance.
E) a favorable labor rate variance and a favorable labor efficiency variance.

Question 51

State Corp. investigates variances that deviate 10% or more from established standards. This type of investigation is called

A) cost-volume-profit analysis.
B) marginal analysis.
C) management by exception.
D) ineffective management.
E) participatory budgeting.M/C Answers

Question 52

An organization's budget should align with its goals and objectives.

Question 53

At reasonable intervals during a period, actual performance should be compared to budgeted performance to determine positive and negative variances.

Question 54

The budgeting process should include information only from management personnel.

Question 55

Budgets should be based on the current operating conditions of the business.

Question 56

In all organizations, the budgeting process will begin with an estimated number of units to be sold.

Question 57

The master budget does not include pro forma financial statements.

Question 58

Individual budgets may be prepared independently of one another.

Question 59

The sales budget should specify the number of units to be sold, the selling price of the units, and the timing of the sales.

Question 60

The production budget is used to calculate how many items need to be manufactured in a particular period.

Question 61

To calculate the number of units to be produced in a period, units in beginning inventory are added to sales in units and desired ending inventory units are subtracted.

Question 62

The production budget is calculated in both units and dollars.

Question 63

The purchasing budget is calculated in both units and dollars.

Question 64

Quantities in the purchasing budget are units of finished goods.

Question 65

The direct labor budget is expressed in number of people working in the production area.

Question 66

The overhead budget is typically divided into variable and fixed overhead costs.

Question 67

A capital budget should be prepared if the company intends to make or pay for any plant assets during a period.

Question 68

The schedule of cash collections should be prepared using established and expected collection patterns.

Question 69

The amount of sales per month is generally equal to the amount of cash collected from customers per month.

Question 70

The percentages for cash collections may not total to 100% because of the possibility of uncollectible accounts.

Question 71

The percentages for cash payments pattern may not total to 100% because of the possibility of unpaid accounts.

Question 72

Depreciation is not included on the overhead or the cash budget, but it is included on the pro forma income statement.

Question 73

Companies often include a desired minimum cash balance in their cash budgets.

Question 74

If actual sales are equal to budgeted sales, the pro forma financial statements will be the same as the actual financial statements.

Question 75

In a manufacturing company, the schedule of cost of goods manufactured must be prepared before the income statement can be prepared.

Question 76

A rolling budget allows companies to adjust expectations in response to changes in the business environment.

Question 77

A rolling budget reflects a process of "rolling in" (or adding) budget results to actual results of a period.

Question 78

A standard is a norm or an average.

Question 79

Standards allow management to exercise control over operations.

Question 80

Standards should be calculated as average costs experienced in the past for operating activities.