Deck 18: Budgeting and Control

Question 1

Which of the following budget development approaches can be used by management?

A) Top-down approach
B) Bottom-up approach
C) A combination of top-down and bottom-up
D) All of these can be used

Answer 1

D

Question 2

Which of the following statements is NOT true of the master budget?

A) The master budget represents the overall operating and financing plans for a specific time period
B) The capital budget is a critical part of the master budget
C) The master budget culminates with pro-forma financial statements
D) The master budget begins with a forecast of sales

Answer 2

B

Question 3

To develop a budget that has the proper behavioral considerations, management must ensure all of the following EXCEPT:

A) Participation by as many managers and employees as possible
B) Constructive response to budget deviations
C) Support of the budget process by top management
D) Plenty of slack in the budget

Answer 3

D

Question 4

Budgeting assists management in which of the following areas?

A) Planning and setting objectives
B) Motivation
C) Performance measurement
D) All of these are correct

Question 5

Which of the following is NOT an advantage of bottom-up budgeting as compared to top-down budgeting?

A) Segment managers know the strategic direction
B) Segment managers have the best information about current operations
C) Participation in the process can lead to positive motivation
D) It is good training for managers

Question 6

What is budgetary slack?

A) Deviations from the budget
B) A budget with easy targets
C) Budget process not supported by top management
D) A bottom-up approach to budgeting

Question 7

Given the following budgets, which would be prepared first when completing the master budget?

A) The direct materials budget
B) The manufacturing overhead budget
C) The pro-forma income statement
D) The cash budget

Question 8

Which of the following is a characteristic of good personal budgeters?

A) Disorganized
B) Inflexible
C) Undisciplined
D) Goal oriented

Question 9

Which budget supplies information for all manufacturing cost budgets?

A) Cash
B) Production
C) Master
D) Direct materials purchases

Question 10

The budget that details immediate goals for revenues, production, expenses, and cash for the next period is called:

A) The strategic plan
B) The capital budget
C) The operating budget
D) The sales budget

Question 11

Which of the following is NOT an uncontrollable external factor affecting sales?

A) The state of technology
B) Customer needs
C) Government policies
D) Product promotion

Question 12

Which of the following is NOT included in the manufacturing overhead budget?

A) Depreciation
B) Utilities
C) Labor for product assembly
D) Labor for equipment maintenance

Question 13

The accuracy of the sales forecast is usually dependent upon all the following EXCEPT:

A) Price changes
B) Advertising and promotion levels
C) Competition
D) Number of employees

Question 14

Which of the following is NOT an internal factor affecting sales?

A) Product pricing
B) Possible entry barriers
C) Product placement
D) Product promotion

Question 15

From a behavioral viewpoint, it is desirable that the operating budget:

A) Be prepared only by top management
B) Have considerable slack built into it
C) Have the support of top management
D) Be set at a level that is difficult to achieve, for maximum motivation

Question 16

Top management's broad, long-range goals are found in:

A) The strategic plan
B) The capital budget
C) The operating budget
D) The sales budget

Question 17

A budget committee includes:

A) Department managers and key employees for each department
B) Divisional managers
C) Vice presidents for sales, production, purchasing and finance and the controller
D) President, vice president and director of each region

Question 18

The overall purpose of a budget is to:

A) Develop a plan to meet a specified goal
B) Determine disposable income
C) Allow ongoing comparison between actual results and a specified plan
D) To develop a plan to meet specified goals and allow ongoing comparison between actual results and a specified plan

Question 19

In a personal budget, the amount of income left after covering the withdrawals and fixed expenditures is referred to as:

A) Necessary expenditures
B) Disposable income
C) Retirement savings
D) Federal withholdings

Question 20

Which of the following factors need NOT be considered in preparing the production budget?

A) Beginning inventory
B) Manufacturing overhead
C) Desired ending inventory
D) Projected sales volume

Question 21

In preparing the sales budget, management should consider:

A) External variables such as customer tastes
B) Internal variables such as advertising expenditures
C) Both external variables and internal variables
D) Neither external variables nor internal variables

Question 22

If Hardy Company plans to sell 350 monitors during the month of October, has 21 monitors on hand on October 1, and wants to maintain an inventory at month-end of 30 monitors, how many monitors must Hardy Company produce during October?

A) 329
B) 341
C) 350
D) 359

Question 23

Which two factors from the master budget are used to calculate the predetermined overhead rate for manufacturing overhead?

A) Annual production volume and annual direct labor hours
B) Annual direct labor hours and annual variable manufacturing overhead
C) Annual sales volume and annual total manufacturing overhead
D) Annual direct labor hours and annual total manufacturing overhead

Question 24

The formula underlying the budget for direct materials usage is:

A) Desired ending inventory + Units needed for production - Beginning inventory
B) Desired ending inventory + Units needed for production + Beginning inventory
C) Desired ending inventory - Units needed for production + Beginning inventory
D) Total units needed for production × Cost of materials

Question 25

The production budget is computed as:

A) Beginning inventory + Sales budget - Desired ending inventory
B) Sales budget + Desired ending inventory - Beginning inventory
C) Sales budget × Beginning inventory - Desired ending inventory
D) Beginning inventory + Desired ending inventory - Sales budget

Question 26

Which of the following accumulates all the costs for direct materials, direct labor and manufacturing overhead?

A) Production budget
B) Budgeted product cost sheet
C) Sales budget
D) Selling and administrative expense budget

Question 27

When determining the amount of cash payments for manufacturing overhead, which costs are removed from the budgeted manufacturing overhead?

A) Depreciation
B) Direct labor
C) Direct materials
D) Sales commissions

Question 28

Operating budgets:

A) Quantify management's objectives
B) Assist in coordinating activities of the business segments
C) Are benchmarks against which performance is measured
D) All of these are correct

Question 29

A manufacturing overhead budget:

A) Can be divided into quarters by dividing the yearly budget by four
B) Is also used to calculate the manufacturing overhead rates
C) Will vary with each quarter's production level
D) Is used to calculate the manufacturing overhead rates and will vary with each quarter's production level

Question 30

Which of the following is LEAST likely to be affected if actual June production is less than budgeted June production?

A) Purchases costs for June
B) Direct labor costs for June
C) Selling and administrative costs for June
D) Manufacturing overhead costs for June

Question 31

The master budgeting process is part of:

A) Strategic planning
B) Operations budgeting
C) Capital budgeting
D) Strategic planning, operations budgeting, and capital budgeting

Question 32

Credit sales are $92,000 in June and $80,500 in July; 80% are collected in the month of sale and 20% collected in the following month. Total July collections are:

A) $27,600
B) $64,400
C) $82,800
D) $80,500

Question 33

In preparing the master budget, which of the following is created first?

A) Direct materials budget
B) Production budget
C) Sales budget
D) Pro-forma statements

Question 34

The master budget includes all the following schedules EXCEPT the:

A) Capital expenditures budget
B) Production budget
C) Selling and administrative expense budget
D) Direct materials budget

Question 35

Which of the following budgets is based on the expected sales volume and the desired ending inventory of finished goods and is adjusted for the expected beginning inventory of finished goods?

A) Sales budget
B) Production budget
C) Direct materials budget
D) Budgeted product cost sheet

Question 36

The formula underlying the direct labor budget is:

A) Number of units produced × Direct labor hours per unit × Cost per hour
B) Number of units produced × Direct labor hours per unit - Cost per hour
C) Number of units produced × Direct labor hours per unit + Cost per hour
D) Number of units produced + Direct labor hours per unit × Cost per hour

Question 37

Insufficient raw materials inventory may cause:

A) High storage costs
B) Costly work stoppages
C) Excessive investment in inventory
D) All of these are correct

Question 38

Which of the following costs are generally allocated evenly to each quarter?

A) Estimated fixed costs
B) Labor costs for part-time employees
C) Estimated production costs
D) Indirect materials costs

Question 39

The budgeted product cost sheet accumulates costs for all of the following EXCEPT:

A) Direct materials
B) Manufacturing overhead
C) Direct labor
D) Sales commissions

Question 40

Which of the following would NOT be in the selling and administrative budget?

A) Office supplies
B) Sales commissions
C) Depreciation on factory building
D) Advertising expense

Question 41

Meadowland Clothing uses 3 yards of material for each garment produced. On May 1, Meadowland had 24 yards of material on hand. If Meadowland desires an ending inventory of 15 yards of material and plans to produce 65 garments during the month, how many yards of material should the company purchase during May?

A) 186
B) 195
C) 204
D) 168

Question 42

Exhibit 18-4 Playtime Toys began operations on January 1, 2011. During January it produced 2,000 toys and sold 1,850 toys. The following are needed to make 1 toy:
Manufacturing overhead is applied at a rate of $4 per direct labor hour.
Refer to Exhibit 18-4. Given the information above, ending inventory would be:

A) $4,050
B) $4,650
C) $5,250
D) $5,850

Question 43

Exhibit 18-4 Playtime Toys began operations on January 1, 2011. During January it produced 2,000 toys and sold 1,850 toys. The following are needed to make 1 toy:
Manufacturing overhead is applied at a rate of $4 per direct labor hour.
Refer to Exhibit 18-4. Given the information above, the cost of goods available for sale for January would be:

A) $54,000
B) $62,000
C) $72,150
D) $78,000

Question 44

Exhibit 18-1 Elsie's Dairy produces various types of cheese. The following resources are used to make five pounds of cheddar cheese:
Refer to Exhibit 18-1. Based on the information above, what is the cost of making five pounds of cheese?

A) $10.00
B) $12.00
C) $20.00
D) $25.00

Question 45

Exhibit 18-3 Thorne Chemicals makes cleaning solution. The following information is available on December 1, 2011:
Refer to Exhibit 18-3. Given the information above, how many units of raw material Y should be purchased during December?

A) 424
B) 480
C) 532
D) 643

Question 46

Exhibit 18-1 Elsie's Dairy produces various types of cheese. The following resources are used to make five pounds of cheddar cheese:
Refer to Exhibit 18-1. Based on the information above, what is the cost of producing one pound of cheese?

A) $2.00
B) $2.40
C) $3.40
D) $4.00

Question 47

Bondy Corporation makes widgets. The following are needed to make 1 widget: The cost of wood is 30 cents per board foot, the cost of paint is $4 per gallon, and employees are paid $12 per hour. Also, variable manufacturing overhead is applied at the rate of $6 per direct labor hour. Given this information, the total direct materials cost of making 150 widgets is:

A) $900
B) $1,800
C) $2,700
D) $7,200

Question 48

NewGen Computers is preparing its budget for 2011. Sales for the year are budgeted at $1,000,000; 20% are cash sales and 80% are credit sales. The company expects to collect 60% of all credit sales in 2011. Budgeted expenses are $800,000. These expenditures include $25,000 for depreciation and $497,000 for variable manufacturing overhead. Given this information, total cash inflows from sales for 2011 would be:

A) $800,000
B) $680,000
C) $480,000
D) $455,000

Question 49

Exhibit 18-4 Playtime Toys began operations on January 1, 2011. During January it produced 2,000 toys and sold 1,850 toys. The following are needed to make 1 toy:
Manufacturing overhead is applied at a rate of $4 per direct labor hour.
Refer to Exhibit 18-4. Given the information above, the cost of direct materials used in January would be:

A) $18,000
B) $16,600
C) $12,000
D) $11,100

Question 50

Exhibit 18-2 Makeby Corporation makes sharbees. The following data are available on December 1, 2011:
Refer to Exhibit 18-2. Given the information above, cost of materials to be used in December is:

A) $5,256
B) $9,928
C) $4,672
D) $8,064

Question 51

Exhibit 18-3 Thorne Chemicals makes cleaning solution. The following information is available on December 1, 2011:
Refer to Exhibit 18-3. Given the information above, the cost of materials used in production for the month of December will be:

A) $3,246
B) $3,120
C) $3,266
D) $994

Question 52

If it takes 20 hours to make a boat motor and direct labor employees are paid $10 per hour, how much does it cost for labor to make 100 motors?

A) $1,000
B) $2,000
C) $16,600
D) $20,000

Question 53

Exhibit 18-4 Playtime Toys began operations on January 1, 2011. During January it produced 2,000 toys and sold 1,850 toys. The following are needed to make 1 toy:
Manufacturing overhead is applied at a rate of $4 per direct labor hour.
Refer to Exhibit 18-4. Given the information above, the manufacturing overhead cost per toy would be:

A) $6
B) $9
C) $12
D) $30

Question 54

Exhibit 18-2 Makeby Corporation makes sharbees. The following data are available on December 1, 2011:
Refer to Exhibit 18-2. Given the information above, the direct materials purchases cost during December will be:

A) $5,352
B) $4,624
C) $9,976
D) $8,153

Question 55

Exhibit 18-4 Playtime Toys began operations on January 1, 2011. During January it produced 2,000 toys and sold 1,850 toys. The following are needed to make 1 toy:
Manufacturing overhead is applied at a rate of $4 per direct labor hour.
Refer to Exhibit 18-4. Given the information above, the direct labor cost per toy would be:

A) $6
B) $10
C) $18
D) $30

Question 56

Johnson Electric plans to sell 125 boat motors during March. If it currently has 10 motors on hand and must maintain an inventory of 25, how many motors must the firm make during March?

A) 140
B) 125
C) 150
D) 110

Question 57

Dean's Dairy uses 4 gallons of milk to make 1 batch of cheese. Dean currently has 40 gallons of milk and desires to maintain an inventory of 20 gallons of milk. If 49 batches of cheese will be produced, how much milk must be purchased?

A) 156 gallons
B) 176 gallons
C) 216 gallons
D) 236 gallons

Question 58

Larry's Custom Bird Cages has budgeted unit sales for the first quarter of the year as follows: Larry wishes to have 20% of the next month's sales in ending inventory. If the January 1 beginning inventory consisted of 74 units, budgeted purchases for February would be:

A) 480 units
B) 418 units
C) 402 units
D) 344 units

Question 59

Exhibit 18-2 Makeby Corporation makes sharbees. The following data are available on December 1, 2011:
Refer to Exhibit 18-2. Given the information above, budgeted production for December is:

A) 142 sharbees
B) 144 sharbees
C) 146 sharbees
D) 164 sharbees

Question 60

Exhibit 18-3 Thorne Chemicals makes cleaning solution. The following information is available on December 1, 2011:
Refer to Exhibit 18-3. Given the information above, budgeted production for December is:

A) 97 gallons
B) 115 gallons
C) 142 gallons
D) 178 gallons

Question 61

Which of the following budgets contains the labor costs involved directly in providing the service for a service firm?

A) Supplies budget
B) Revenue budget
C) Overhead budget
D) Wages and salaries budget

Question 62

Another name for the sales budget in a service firm is the:

A) Supplies budget
B) Revenue budget
C) Overhead budget
D) Wages and salaries budget

Question 63

If Mercedes Corporation plans to sell 1,000 computers during the month of July, has 80 computers on hand on July 1, and wants to maintain an inventory at month-end of 50 monitors, how many monitors must Heather Corporation purchase during July?

A) 1,050
B) 1,000
C) 1,030
D) 970

Question 64

The format of the merchant's purchases budget is very similar to the format of the manufacturer's:

A) Direct labor budget
B) Sales budget
C) Production budget
D) Manufacturing overhead budget

Question 65

Exhibit 18-5 Dr. Gatten began practicing dentistry on January 1, 2011. During January she served 250 patients who had their teeth examined and cleaned. The following information is known in relation to each patient visit:
Refer to Exhibit 18-5. Given the information above, total wages and salaries expense for January would be:

A) $3,750
B) $5,625
C) $10,000
D) $15,625

Question 66

Percy's Plants plans to sell 500 tomato plants during April. If it currently has 60 tomato plants on hand and must maintain an inventory of 90, how many tomato plants must the firm purchase during April?

A) 530
B) 500
C) 470
D) 590

Question 67

The purchases budget for a merchandising firm replaces four budgets for a manufacturing firm. These four budgets are:

A) Production budget, sales budget, direct materials budget, and direct labor budget
B) Production budget, direct materials budget, direct labor budget, and manufacturing overhead budget
C) Production budget, direct materials budget, direct labor budget, and selling and administrative expense budget
D) Production budget, manufacturing overhead budget, direct labor budget, and sales budget

Question 68

How much cash will be needed to pay the following general and administrative expenses?

A) $15,250
B) $20,500
C) $21,725
D) $16,475

Question 69

Which of the following budgets contains the supplies needed to operate for a service firm?

A) Supplies budget
B) Revenue budget
C) Overhead budget
D) Wages and salaries budget

Question 70

Which of the following would NOT be in the overhead budget of a hotel?

A) Depreciation
B) Utilities
C) TV and telephone
D) Manager's salary

Question 71

Which of the following accumulates all the costs for supplies, wages and salaries, and overhead for a service firm?

A) Budgeted service cost sheet
B) Selling and administrative expense budget
C) Budgeted product cost sheet
D) Revenue budget

Question 72

Exhibit 18-5 Dr. Gatten began practicing dentistry on January 1, 2011. During January she served 250 patients who had their teeth examined and cleaned. The following information is known in relation to each patient visit:
Refer to Exhibit 18-5. Given the information above, total service cost per patient served in January would be:

A) $79.50
B) $69.50
C) $62.50
D) $57.00

Question 73

The following resources are required to make 1 batch of ice cream: Given this information, what is the cost of making 1 batch of ice cream?

A) $14.00
B) $21.50
C) $23.00
D) $26.00

Question 74

Theodore's Musical Toys makes xylophones. Each xylophone takes 3 labor hours to make at a rate of $10.00 per hour. What is the budgeted production of xylophones if the budgeted direct labor cost for July is $16,200?

A) 540
B) 1,200
C) 1,620
D) 5,400

Question 75

Which of the following budgets are the same for both a manufacturing firm and a merchandising firm?

A) Sales budget and selling and administrative expense budget
B) Sales budget and production budget
C) Direct materials budget and manufacturing overhead budget
D) Production budget and direct labor budget

Question 76

Which of the following budgets contains the sales volume (or production) for a service firm?

A) Supplies budget
B) Revenue budget
C) Overhead budget
D) Wages and salaries budget

Question 77

Highland Corporation is a high-speed Internet service provider that will open business January 1. Highland has enough band-width to potentially have 2,000 subscriptions each month at a cost of $50 per subscription. Highland expects that during January, the band-width will run at only 30% capacity. Highland plans to collect payment for each subscription at the beginning of each month. Given this information, how much revenue does Highland expect to earn during January?

A) $100,000
B) $70,000
C) $30,000
D) $10,000

Question 78

Exhibit 18-5 Dr. Gatten began practicing dentistry on January 1, 2011. During January she served 250 patients who had their teeth examined and cleaned. The following information is known in relation to each patient visit:
Refer to Exhibit 18-5. Given the information above, total supplies expense for January would be:

A) $1,750
B) $750
C) $1,000
D) $2,500

Question 79

Patricia's Piano Palace has budgeted piano sales for the fourth quarter of the year as follows: Larry wishes to have 20% of the next month's sales in ending inventory. If the September 1 beginning inventory consisted of 7 pianos, budgeted purchases for October would be:

A) 29 pianos
B) 28 pianos
C) 27 pianos
D) 26 pianos

Question 80

Cachet Inc. had a $93,000 balance in Accounts Receivable on July 1. In July, it expects to collect 55% of these receivables and 30% of the July credit sales, which are budgeted at $138,000. What is the budgeted accounts receivable at the end of July?

A) $41,400
B) $51,150
C) $92,550
D) $138,450