Deck 23: Operational Budgeting

Question 1

Which of the following is not normally a characteristic of a profit rich, cash poor company?

A) Low inventory turnover.
B) High accounts receivable turnover.
C) High operating income, but low cash flow from operations.
D) A long operating cycle.

Answer 1

High accounts receivable turnover.

Question 2

Which of the following is not considered a benefit from budgeting?

A) Limited managerial perspectives.
B) Advance warning of problems.
C) Better coordination among activities.
D) A measure of performance evaluation.

Answer 2

Limited managerial perspectives.

Question 3

Which of the following is a characteristic of the behavioral approach to setting budget targets?

A) Complete elimination of inefficiency.
B) Complete elimination of non-value-adding activities.
C) Constant need for improvement.
D) Achievable performance expectations.

Answer 3

Achievable performance expectations.

Question 4

Which of the following is not normally considered an element of a master budget?

A) The production schedule.
B) The employee turnover budget.
C) The operating expense budget.
D) The cash budget.

Question 5

Which budget typically serves as a starting point in developing a master budget?

A) The sales budget.
B) The cost of goods sold budget.
C) The employee turnover budget.
D) The manufacturing cost budget.

Question 6

The following budget for the 60,000-unit product level was prepared for the Production Department for September:
During September, the Production Department actually produced 70,000 units at a total manufacturing cost of $210,000.

-Refer to the above data. Which of the following is not an accurate amount to be included in a flexible budget prepared for the 70,000-unit level of production?

A) Total overhead cost, $108,000.
B) Total manufacturing costs, $210,000.
C) Direct materials, $49,000.
D) Direct labor, $59,500.

Question 7

The following budget for the 60,000-unit product level was prepared for the Production Department for September:
During September, the Production Department actually produced 70,000 units at a total manufacturing cost of $210,000.

-Refer to the above data. A performance report prepared for September operations under a flexible budget approach would show:

A) Actual costs under budget by $6,500.
B) Total costs per flexible budget of $215,000.
C) Actual costs under budget by $21,500.
D) Actual costs over budget by $15,000.

Question 8

The following budget for the 60,000-unit product level was prepared for the Production Department for September:
During September, the Production Department actually produced 70,000 units at a total manufacturing cost of $210,000.

-Refer to the above data. The cost-volume relationship used to prepare the flexible budget for this department includes:

A) Manufacturing overhead cost of $1.00 per unit.
B) Fixed cost of $0.83 per unit.
C) Total cost of $2.98 per unit.
D) Variable costs of $2.15 per unit.

Question 9

The Company's actual manufacturing costs for the month of May totaled $144,000, while the budgeted manufacturing costs were $162,000. Comparison of the budgeted costs with actual amounts:

A) Is not significant unless the budgeted and actual figures are based upon the same level of production.
B) Demonstrates that the Manufacturing Department operated very efficiently during May.
C) Indicates that production cost per unit was 10% below budgeted cost per unit.
D) Indicates that the Company produced only 90% of the number of units budgeted for production in May.

Question 10

A flexible budget is used to evaluate:

A) Costs that should have been incurred for a level of output achieved.
B) Costs that should have been incurred for a level of output considered to be normal.
C) How variable unit costs change as output changes.
D) How flexible management was at adapting to changes in business conditions.

Question 11

The cost accountant for Sherman's Co. prepared the following monthly performance report relating to the Production Department.

-Refer to the above data. Compute the amounts that should be included for each of the following in a flexible budget prepared at an 11,000-unit level of production:
a) Direct materials: $____________
b) Direct labor: $____________
c) Fixed manufacturing overhead: $____________

Question 12

The cost accountant for Sherman's Co. prepared the following monthly performance report relating to the Production Department.

-Refer to the above data. Assume that a revised performance report is prepared for the 11,000?unit level of production using a flexible budget approach. Compute the cost variances for each of the following. Indicate whether each variance is favorable (F) or unfavorable (U).
a) Direct materials variance from flexible budget: $____________
b) Direct labor variance from flexible budget: $____________
c) Total manufacturing overhead variance from flexible budget: $____________

Question 13

Hayden Corporation budgeted its cost of finished goods manufactured at $500,000 for May. Its May 31 finished goods inventory budgeted to be twice the level of its May 1 finished goods inventory. The cost of goods sold budget for May has been set at $450,000.
Hayden's finished goods inventory at May 31 is budgeted at: $____________

Question 14

Suffolk Corporation expects to incur $360,000 in expenses during June (excluding interest and taxes). Of this amount, depreciation is budgeted at $70,000, and expired prepayments are budgeted at $35,000. Suffolk's current payables total $60,000 at June 1 and are budgeted to increase to $70,000 by June 30.
Payments on current payables budgeted for June total: $____________

Question 15

Weaver Corporation pays its debt service costs in full each month. April debt service costs are budgeted at $9,000. However, of this amount, only $1,000 represents a reduction of principal. The company expects to issue no new debt during the month.
What cash disbursement amount will be shown on Weaver's debt service budget? $____________

Question 16

Bergen Corporation's accounts receivable remain outstanding approximately 42 days, whereas its inventory remains in stock approximately 12 days before it is sold. It takes suppliers approximately 7 days to deliver inventory to Bergen once an order is received.
Bergen's operating cycle is: __________ days

Question 17

As budgeted output per the flexible budget increases, per-unit fixed costs (increase/decrease): ___________