Deck 10: Strategy and the Master Budget

Question 1

Sales forecasts are the first step in the budgeting process of a merchandising firm because:

A)The revenue data are easiest to generate.
B)Sales information is precise in amount.
C)Sales personnel have the quickest access to data.
D)Sales forecasts are the most objective of all budgeted activities.
E)Almost all activities of a firm emanate from (i.e., are linked to) estimated sales demand.

Answer 1

E

Question 2

A comprehensive or overall formal plan for a business that includes specific plans for expected sales, the units of product to be produced, the merchandise (or materials) to be purchased, the manufacturing, selling, administrative, and general expense to be incurred, the long-term assets to be purchased, and the amounts of cash to be borrowed or loans to be repaid, as well as a budgeted income statement and balance sheet, is called a:

A)Master budget.
B)Kaizen budget.
C)Capital expenditures budget.
D)Continuous budget.
E)Operating budget.

Answer 2

A

Question 3

"Budgetary slack" occurs when:

A)Employees refuse to adhere to budgeted plans and operations.
B)The budget is so difficult to meet that employees slack-off from work.
C)An authoritative, or imposed, budgeting process is used.
D)In order to "meet" budget objectives, employees ask for resources in excess of what they need.
E)Employees ask for fewer resources than they need, in order to continuously improve.

Answer 3

D

Question 4

Which of the following budgets must be completed before preparing a cash budget?

A)Cash receipts budget.
B)Rolling budget.
C)Cash financing budget.
D)Pro forma balance sheet.
E)Pro forma income statement.

Question 5

Which of the following budgets is not a financial budget?

A)Sales budget.
B)Cash receipts budget.
C)Budgeted cash-flow statement.
D)Budgeted balance sheet.

Question 6

A plan of dollar amounts to be spent on long-term projects is called a:

A)Cash budget.
B)Capital budget.
C)Rolling budget.
D)Sales budget.
E)Rolling financial forecast.

Question 7

The practice of maintaining budgets for the same number of future periods, revising those budgets as each period is completed and adding a new budget each period, is called:

A)Master budgeting.
B)Cyclical budgeting.
C)Zero-based budgeting (ZBB).
D)Rolling budgets (or, rolling financial forecasts).
E)Kaizen (or continuous-improvement) budgeting.

Question 8

The successful use of a budgeting system generally involves all of the following except which item?

A)Acceptance and support by key management people.
B)A sense of ownership by those assigned to carry out the budgeting process.
C)The budgets are technically correct and reasonably accurate.
D)The budgets include "budgetary slack."
E)The set of budgets in the master budget articulate with one another.

Question 9

Which of the following factors is least likely to be considered in preparing a sales budget?

A)Plant capacity.
B)General economic and industry conditions.
C)Past sales volume.
D)The cash budget.
E)Proposed selling expenses.

Question 10

An accounting statement that presents predicted amounts of the company's assets, liabilities, and stockholders' equity as of the end of the budget period is called a(n):

A)Master balance sheet.
B)Budgeted income statement.
C)Pro forma balance sheet.
D)Pro forma cash flow statement.
E)Operating balance sheet.

Question 11

A master budget is typically prepared for:

A)A period of one year.
B)Top management only.
C)Strategic planning purposes only.
D)Strategic business units only.
E)Operating activities only.

Question 12

Which of the following statements about budgeting is not true?

A)Budgeting is designed to be an aid to planning and control.
B)Budgets create standards for performance evaluation.
C)Budgets help coordinate the activities of the entire organization.
D)Budgeting forces managers to think ahead and formalize long-range objectives.
E)Budgeting eliminates the need for day-to-day monitoring of operations.

Question 13

A plan that states the units or costs of merchandise to be purchased by a retailer or wholesaler during the budget period is called a:

A)Production budget.
B)Merchandise purchases budget.
C)Accounts payable budget.
D)Cash payments budget.
E)Cost of goods sold budget.

Question 14

A plan showing the units of goods expected to be sold and the expected revenue from sales is called the:

A)Cash budget.
B)Sales receipts budget.
C)Selling expense budget.
D)Cash receipts budget.
E)Sales budget.

Question 15

A plan that shows the cash balance on hand at the beginning of a budget period, expected cash flow from operations, cash flows from investing activities, cash flows from financing activities, and an ending cash balance is called a(n):

A)Capital budget.
B)Financial budget.
C)Financial flows budget.
D)Cash budget.
E)Cash receipts budget.

Question 16

The process of planning business actions in the near future and expressing them as formal plans of action is called:

A)Budgeting.
B)Goal congruence.
C)Budgetary slack.
D)Resource consumption accounting.
E)Financial Accounting.

Question 17

All of the following are ways of setting the budget, except:

A)Negotiation-based budgeting.
B)Two-stage budgeting.
C)Participative budgeting.
D)Authoritative budgeting.
E)All of the above are ways of setting the budget.

Question 18

Which of the following is not a potential benefit of having a sound budgeting process?

A)Improved decision-making.
B)Improved performance-evaluation process.
C)Improved coordination of business activities.
D)Improved motivation for company employees.
E)Lower acceptance rate for capital budgeting projects.

Question 19

Revision of a completed and approved budget:

A)Should be conducted whenever actual events differ significantly from those envisioned when the budget was prepared.
B)Reduces employee commitment to achieve budgeted performance.
C)Should be discouraged.
D)May discourage diligence in its initial preparation.
E)Is never needed under Kaizen budgeting.

Question 20

The master budget for a given accounting period has all the following except:

A)It consists of a series of operating and financial budgets.
B)It is considered the "grand plan of action" for the upcoming period.
C)It culminates in a set of pro forma financial statements.
D)It is considered an important planning document for many organizations.
E)It is based on the actual level of sales activity for the period.

Question 21

Which of the following is not an alternative approach to traditional budgeting practices?

A)Kaizen budgeting.
B)Zero-based budgeting (ZBB)
C)Activity-based budgeting (ABB)
D)Time-driven activity based budgeting (TDABB)
E)Operations budgeting

Question 22

The effect of increasing the targeted (i.e., desired) ending inventory for a given budget period has the following effect on the production budget for the period:

A)Increases the required production for the budget period.
B)Has no effect on the required production for the budget period.
C)Has an indeterminate effect (i.e., additional information is required).
D)None of the above.

Question 23

Which of the following is not an advantage of using a "highly achievable target" when constructing budgets?

A)Increasing managers' commitment to achieving budget targets.
B)Increasing the risk that managers will engage in "earnings management" behavior.
C)Improving predictability of earnings or operating results.
D)Decreasing the cost of achieving organizational control.
E)Enhancing the usefulness of a budget as a planning and coordinating tool.

Question 24

A "participative" budget is a(n):

A)Good two-way communication device.
B)Relatively inexpensive and efficient approach to budget preparation.
C)"Top down" approach.
D)"Zero-based" approach.
E)Alternative budgeting approach to traditional budgeting.

Question 25

Budgeting for production (i.e., units to be produced in an upcoming budget period):

A)Is simply an extension of the sales forecast.
B)Is prepared after the materials purchases budget is prepared.
C)Involves the sales budget and both beginning and ending finished goods inventory amounts.
D)Is not needed under a JIT production philosophy.
E)Is normally the first major step in the master budgeting process.

Question 26

Which one of the following is a budgeting approach that explicitly demands continuous improvement and that incorporates expected improvements in the resultant budget?

A)Flexible budgeting.
B)Time-driven activity-based budgeting (TDABB).
C)Activity-based budgeting (ABB).
D)Kaizen budgeting.
E)Zero-base budgeting (ZBB).

Question 27

A negotiated budgeting process is:

A)Less effective than an authoritative budget.
B)An alternative way to express a "bottom-up" approach to budget preparation.
C)A combination of "top-down" and "bottom-up" approaches to budget preparation.
D)Less costly to implement than an imposed (i.e., authoritative) budget.
E)Is generally completed after one round of negotiation.

Question 28

The budgeted income statement and budgeted balance sheet benefit a business primarily in terms of the ability of the organization to:

A)Meet stockholder requests for planning information from the organization.
B)Narrow the range of budgeted estimates to a manageable subset.
C)Deal with uncertainty inherent in the budgeting process.
D)Summarize the impact of the firm's financial and operating activities for an upcoming period.
E)Satisfy the disclosure requirements of generally accepted accounting principles (GAAP).

Question 29

Unless properly controlled, a "bottom-up" budgeting process can lead to:

A)Excessively tight (i.e., difficult-to-achieve) budgets.
B)Easy budget targets.
C)Excessive downward communication.
D)Reduced incentives for participation.
E)Reduced levels of "budgetary slack."

Question 30

Sales forecasting by its nature is:

A)Precise.
B)Deterministic in nature.
C)Objective.
D)Somewhat subjective.
E)Mechanical.

Question 31

Financial budgets include the:

A)Pro forma balance sheet.
B)Projected income statement.
C)Budgeted selling and administrative expenses.
D)Sales budget.
E)Budgeted retained earnings statement.

Question 32

Maintaining a constant production level in a firm has the advantage of:

A)Minimizing the amount of inventory held.
B)Allowing a stable employment level.
C)Meeting customers' changing expectations in terms of demand volume.
D)Supporting the organization's move to JIT (just-in-time).
E)Allowing the firm to compete successfully as a differentiator.

Question 33

Which one of the following is a plan that will allow a manufacturing firm to satisfy its sales goals and have on hand the desired amount of inventory at the end of the budget period?

A)Direct materials usage budget.
B)Sales budget.
C)Selling and administrative expense budget.
D)Production budget.
E)Sales forecast.

Question 34

Which one of the following shows the direct materials required for production and their budgeted cost?

A)Direct materials usage budget.
B)Budgeted cost of goods sold.
C)Direct materials purchases budget.
D)Production budget.
E)Direct materials cost budget.

Question 35

The focal point in budgeting for a service organization is likely to be:

A)Capital assets acquisition.
B)Raw material utilization.
C)Human resource (i.e., personnel) planning.
D)Cost minimization.
E)The process of mission development and goal specification.

Question 36

The cash budget does not include:

A)Cash inflows from the collection of receivables.
B)Cash outflows for purchases of direct materials.
C)Cash outflows for acquisition of fixed (long-term) assets.
D)All sales revenues.
E)Interest paid and interest received.

Question 37

Budgeting provides all of the following except:

A)A means to communicate the organization's short-term goals to its employees.
B)Support for management functions of planning and coordinating activities of the organization.
C)A means to anticipate problems.
D)An ethical framework for decision-making.
E)A basis for motivating employee behavior.

Question 38

The authorization function of budgets is especially important for government and not-for-profit (NFP) entities, where budgeted amounts often serve both as approvals of planned activities (or programs) and as:

A)Measures of quality.
B)Indicators of performance.
C)Certification of actions.
D)Ceilings for expenditures.
E)The basis for contract negotiations.

Question 39

Zero-base budgeting (ZBB) differs from traditional budgeting in terms of its requirement to:

A)Justify budgeted operations and associated spending.
B)Consider the time-value of money in the budgeting process.
C)Start the budgeting process from the lowest level of the organization, the "zero base."
D)Incorporate continuous-improvement standards in the set of financial and operating budgets.
E)Maximize the existence of "budgetary slack."

Question 40

Which one of the following is a budgeting process that requires managers to prepare budgets based on in-depth reviews of all budget items?

A)Flexible budgeting.
B)Continuous budgeting.
C)Activity-based budgeting (ABB).
D)Kaizen budgeting.
E)Zero-base budgeting (ZBB).

Question 41

Blake Company has $15,000 cash at the beginning of June and anticipates $50,000 in cash receipts and $34,500 in cash disbursements.The company requires a minimum cash balance of $20,000.Any excess cash over the minimum desired balance is used to pay down debts.Blake has an agreement with its bank to borrow as needed or to repay loans as funds become available.As of May 31, the company owes $15,000 to the bank.The balance of the loan on June 30 will be:

A)$4,500.
B)$9,500.
C)$15,000.
D)$19,500.
E)$25,500.

Question 42

Worton Distributing expects its September sales to be 25% higher than its August sales of $150,000.Purchases were $100,000 in August and are expected to be $120,000 in September.All sales are on credit and are expected to be collected as follows: 30% in the month of the sale and 70% in the following month.Purchases are paid 25% in the month of purchase and 75% in the following month.The beginning cash balance on September 1 is $10,000.The ending cash balance on September 30 would be:

A)$56,250.
B)$56,500.
C)$65,250.
D)$66,250.
E)$76,250.

Question 43

The Johann's Professional Service Company expects 70% of sales for cash and 30% on credit.The company collects 80% of its credit sales in the month following sale, 15% in the second month following sale, and 5% are not collected.Expected sales for June, July, and August are $48,000, $54,000, and $44,000, respectively.What are the company's expected total cash receipts in August?

A)$45,920.
B)$61,400.
C)$87,600.
D)$50,400
E)$15,120

Question 44

Budgets can serve as the standard against which actual performance is measured.When compensation is based on this comparison, the organization is said to use:

A)Fixed performance contracts.
B)Rolling financial forecasts.
C)Continuous-improvement budgets.
D)Variable compensation contracts.
E)A linear compensation plan.

Question 45

Zero-base budgeting (ZBB):

A)Involves the review of changes made to an organization's original budget.
B)Does not provide a projection of annual expenditures.
C)Has as the primary objective to reduce budget expenditures to zero.
D)Involves rigorous review of each cost item before inclusion in the budget.
E)Emphasizes zero increase in expenditures.

Question 46

Cripe Corporation maintains ending inventory for each month at 5% of the following month's sales.It predicted the following sales (in units) for the first four months of the coming year: How many units should be produced in March?

A)2,810.
B)2,850.
C)2,970.
D)2,990.
E)4,250.

Question 47

Doanne's budgeted purchases (in pounds) for raw materials during June should be:

A)414,000.
B)420,000.
C)426,000.
D)456,000.
E)498,000.

Question 48

The budgeted production (in units) for Gorberchev Food Processing for May should be:

A)112,000.
B)134,000.
C)140,000.
D)142,000.
E)146,000.

Question 49

Consistency between goals of the firm and the goals of its employees is referred to as:

A)Goal optimization.
B)Goal conformance.
C)Goal congruence.
D)Goal internalization.
E)Goal compensation.

Question 50

Oracle Supply Co.supply forecasts purchases of 15,000 widgets in June.It sells the widget at $12.00 per unit.The company has 1,000 units on hand on June 1.The desired ending inventory of widgets on June 30 is to be 20% lower than the beginning inventory.Total June sales for widgets are anticipated to be (in dollars):

A)$177,600.
B)$180,000.
C)$182,400.
D)$189,600.
E)$192,000.

Question 51

Joe's Mart policy is to have 20% of the next month's sales on hand at the end of the current month.Projected sales for August, September, and October are 25,000 units, 20,000 units, and 30,000 units, respectively.How many units must be purchased in September?

A)16,000.
B)17,000.
C)22,000.
D)26,000.
E)28,000.

Question 52

Tony's Fashions forecasts sales of $300,000 for the quarter ended December 31.Its gross profit rate is 20% of sales, and its September 30 inventory is $100,000.If the December 31 inventory is targeted at $40,000, budgeted purchases for the quarter should be:

A)$140,000.
B)$160,000.
C)$180,000.
D)$200,000.
E)$240,000.

Question 53

The budgeted production (in units) for Gorberchev Food Processing for April should be:

A)112,000.
B)120,000.
C)127,200.
D)128,000.
E)142,000.

Question 54

LeMinton Company expects the following credit sales for the first five months of the year: January, $25,000; February, $40,000; March, $30,000; April, $36,000, May $40,000.Experience has shown that payment for the credit sales is received as follows: 60% in the month of sale, 25% in the first month after sale, 12% in the second month after sale, and the remainder is uncollectible.How much cash can LeMinton Company expect to collect in March as a result of credit sales?

A)$18,000.
B)$28,600.
C)$30,000.
D)$31,000.
E)$32,040.

Question 55

Doanne's budgeted purchases for raw materials (in pounds) during April should be:

A)224,000.
B)360,000.
C)363,000.
D)399,000.
E)435,000.

Question 56

Critics (e.g., The Beyond Budgeting Roundtable) of traditional budgeting assert that the budgeting process:

A)Reflects too much of a "bottom-up" process, which is costly and inefficient.
B)Puts too much pressure on individuals to attain the budget, at whatever cost.
C)Makes too much use of so-called linear compensation plans.
D)Unnecessarily incorporates excessive detail.

Question 57

ACEM Hardware purchased 5,000 gallons of paint in March.The store had 1,500 gallons on hand at the beginning of March, and expects to have 1,000 gallons on hand at the end of March.What is the budgeted number of gallons to be sold during March?

A)3,500.
B)4,500.
C)5,000.
D)5,500.
E)7,500.

Question 58

Wild West Fashion expects the total costs of goods sold to be $30,000 in November and $60,000 in December for one of its young adult suits.Management also wants to have on hand at the end of each month 10 percent of the expected total cost of sales for the following month.What dollar amount of suits should be purchased in November?1.Required Purchases = Budgeted Sales + Desired Ending Inventory - Beginning Inventory 2.Therefore, Required Purchases = $30,000 + ($60,000 × 0.1) - ($30,000 × 0.1) = $33,000

A)$26,000.
B)$27,000.
C)$33,000.
D)$36,000.
E)$60,000.

Question 59

Salich Manufacturing Corporation has provided the following sales budget information: Cash sales are normally 40% of total sales and the credit sales are expected to be collected in their entirety in the month following the month of sale.The amount of cash expected to be received from customers in September is:

A)$24.000.
B)$55,000.
C)$57,000.
D)$58,000.
E)$60,000.

Question 60

A significant advantage of using either an activity-based budgeting (ABB) or a time-driven activity-based budgeting (TDABB) system is:

A)Reduction in the cost of developing budget amounts.
B)Estimation of the cost of unused capacity, as a by-product of the budgeting process.
C)Increased levels of budgetary slack, which has a positive influence on motivation.
D)Elimination of the need to generate a sales forecast for the upcoming period.
E)The incorporation of continuous-improvement standards within the budgets.

Question 61

Budgeted cash payments in December for November inventory purchases by Yekstop Corp.are:

A)$76,625.
B)$94,905.
C)$115,200.
D)$161,280.
E)$221,445.

Question 62

How many pounds of aluminum powder does Ardel Co.need to purchase during September if Ardel plans to manufacture 150,000 units of Zbox in September?

A)143,000 pounds.
B)157,000 pounds.
C)286,000 pounds.
D)293,000 pounds.
E)300,000 pounds.

Question 63

Total budgeted inventory purchases in December by Yekstop Corp.are:

A)$86,250.
B)$140,400.
C)$226,650.
D)$258,750.
E)$345,000.

Question 64

What are Boone Co.'s budgeted cash receipts for February?

A)$85,400.
B)$95,000.
C)$106,600.
D)$109,400.
E)$112,900.

Question 65

Total budgeted cash collections for Yekstop Corp.in December are:

A)$556,512.
B)$375,216.
C)$495,080.
D)$502,568.
E)$506,780.

Question 66

The estimated total cash collections by Fresplanade Co.during October from accounts receivable is:

A)$113,160.
B)$101,400.
C)$143,640.
D)$125,640.
E)$102,420.

Question 67

Budgeted cash payments in November for November inventory purchases by Yekstop Corp.are:

A)$76,625.
B)$94,905.
C)$115,200.
D)$161,280.
E)$221,445.

Question 68

The estimated total cash collections by Fresplanade Co.during November from collection of accounts receivable is:

A)$113,160.
B)$101,400.
C)$143,640.
D)$125,640.
E)$102,420.

Question 69

Total budgeted cash collections in January by Yekstop Corp.are:

A)$556,512.
B)$375,216.
C)$421,728.
D)$464,006.
E)$502,568.

Question 70

Budgeted December cash payments by Yekstop Corp.for December inventory purchases are:

A)$67,995.
B)$103,500.
C)$158,655.
D)$241,500.
E)$289,440.

Question 71

The estimated total cash collections by Fresplanade Co.during December from accounts receivable is:

A)$113,160.
B)$101,400.
C)$143,640.
D)$125,640.
E)$102,420.

Question 72

The estimated cash collection by Fresplanade Co.during August from July and August credit sales is:

A)$83,160.
B)$79,380.
C)$87,840.
D)$54,000.
E)$71,640.

Question 73

The estimated cash collection by Fresplanade Co.during September from credit sales in July, August, and September is:

A)$83,160.
B)$79,380.
C)$87,840.
D)$54,000.
E)$71,640.

Question 74

The estimated cash collections during July from credit sales made in July by Fresplanade Co.is:

A)$83,160.
B)$79,380.
C)$87,840.
D)$54,000.
E)$71,640.

Question 75

Brownsville's budgeted cost of goods sold (CGS) in May is:

A)$120,000.
B)$180,000.
C)$198,000.
D)$252,000.
E)$240,000.

Question 76

How many units of Zbox are to be manufactured by Adel Co.during September?

A)150,000.
B)189,000.
C)200,000.
D)201,000.
E)202,000.

Question 77

Total budgeted inventory purchases in November by Yekstop Corp.are:

A)$258,750.
B)$316,350.
C)$384,000.
D)$489,150.
E)$527,250.

Question 78

What are Boone Co.'s budgeted cash receipts for January?

A)$74,200.
B)$85,000.
C)$87,000.
D)$94,200.
E)$99,000.

Question 79

Budgeted January cash payments for December inventory purchases by Yekstop Corp.are:

A)$67,995.
B)$103,500.
C)$158,655.
D)$241,500.
E)$289,440.

Question 80

How many pounds of steel powder does Ardel Co.need to purchase during September if Ardel plans to manufacture 150,000 units of Zbox in September?

A)725,000 pounds.
B)745,000 pounds.
C)750,000 pounds.
D)755,000 pounds.
E)775,000 pounds.