Deck 7: Master Budgets and Performance Planning

Question 1

Continuous budgeting is the practice of preparing a new budget for a selected number of future periods and revising those budgets as each period is completed.

Answer 1

True

Question 2

The process of evaluating performance can be improved by using budgets.

Answer 2

True

Question 3

The merchandise purchases budget is the starting point for preparing the master budget.

Answer 3

False

Question 4

One of the major benefits of formal budgeting is the positive effect it can have on employee attitudes.

Question 5

The budgets within the master budget must be prepared in a definite sequence as dictated by GAAP.

Question 6

Larger, more complex organizations usually require a longer time to prepare their budgets than smaller organizations because of the considerable effort to coordinate the different units within the business.

Question 7

The master budget consists of three major groups of budget components: the operating budgets, the capital expenditures budgets, and the financial budgets.

Question 8

Budgeting is an informal plan for future business activities.

Question 9

A rolling budget is a specific budget application relevant only to a merchandising company.

Question 10

Budget preparation is best determined in a top-down managerial approach.

Question 11

A budget is a formal statement of future plans, usually expressed in monetary terms.

Question 12

Consulting the persons affected by a budget when it is prepared can provide an effective means of motivation and cooperation.

Question 13

The responsibility for coordinating the preparation of a master budget should be assigned to the chief executive officer.

Question 14

The financial budgets of a business include the cash budget, the budgeted income statement, and the budgeted balance sheet.

Question 15

The purchases budget depends on information provided by the sales budget.

Question 16

The master budget is a small component of the comprehensive budget.

Question 17

A budget can be an effective means of communicating management's plans to the employees of a business.

Question 18

The task of preparing a budget should be the sole task of the most important department in an organization.

Question 19

Past performance is the best overall basis for evaluating current performance and assessing the need for corrective action.

Question 20

Budgets are normally more effective when all levels of management are involved in the budgeting process.

Question 21

A formal statement of future plans, usually expressed in monetary terms, is a:

A)Variance report
B)Position statement
C)Budget
D)Prospectus
E)Variance analysis

Question 22

Part of the cash budget is based on information drawn from the capital expenditures budget.

Question 23

The financial budgets include the cash budget and the capital expenditures budget.

Question 24

Activity-based budgeting is a budget system based on expected activities and their activity levels, which helps management plan for the resources required.

Question 25

A master budget refers to a company's sales budget that includes all of its segments or departments.

Question 26

If budgeted beginning inventory is $8,300, budgeted ending inventory is $9,400, and cost of goods sold is expected to be $10,260, then budgeted purchases should be $9,160.

Question 27

A manufacturing budget should include a list of equipment to be scrapped and additional equipment to be purchased if the proposed production budget is carried out.

Question 28

Traditional budgeting is generally better than activity-based budgeting when attempting to reduce costs by eliminating nonvalue-added activities.

Question 29

A capital expenditures budget is prepared before the operating budgets.

Question 30

Effective budgeting requires all of the following except:

A)Attainable goals.
B)Determination of budgets by top levels of management.
C)Evaluation processes that provide opportunities to explain any failures.
D)Clear communication of all budgets.
E)Adequate supporting documentation for the budget.

Question 31

The process of planning future business actions and expressing them as a formal plan is called:

A)Budgeting
B)Cost accounting
C)Managerial accounting
D)Variance analysis
E)Standard cost analysis

Question 32

The budgeted balance sheet is prepared with data contained in the previously prepared components of the master budget.

Question 33

The budget process is a continuous activity of planning, revising, and evaluating business activities.

Question 34

The selling expenses budget is normally prepared before the sales budget because selling expenses affect the amount of sales.

Question 35

The sales budget is derived from the production budget.

Question 36

A company's history indicates that 20% of its sales are for cash and the rest are on credit.Collections on credit sales are 20% in the month of the sale, 50% in the next month, and 30% the following month.Projected sales for January, February, and March are $75,000, $92,000, and $60,000, respectively.The March expected cash receipts from all current and prior credit sales are $80,500.

Question 37

Merchandising companies prepare the production budget after preparing the sales budget.

Question 38

A cash budget is a plan that includes the expected cash receipts and cash expenditures during each of the periods that it covers.

Question 39

The manufacturing budget shows only the direct materials needed for production.

Question 40

Financial budgets are normally completed after preparation of operating and capital expenditure budgets.

Question 41

Which of the following statements about budgeting is false?

A)Budgeting is 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)The master budget should only be prepared by top management.

Question 42

The master budget process usually ends with:

A)The production budget.
B)The sales budget.
C)The selling expense budget.
D)The budgeted balance sheet.
E)The overhead budget.

Question 43

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

A)Budgeting focuses management's attention on the future.
B)Budgeting provides coordination of departments.
C)Budgeting provides a basis for evaluating performance.
D)Budgeting provides motivation for managers and employees.
E)Budgeting ensures the achievement of all goals.

Question 44

The overall coordinating activity of the budget process is the responsibility of the:

A)Chief accounting officer
B)Chief executive officer (CEO)
C)Chief financial officer (CFO)
D)Budget committee
E)Board of directors

Question 45

The usual starting point for preparing a master budget is forecasting or estimating:

A)Expenditures
B)Sales
C)Production
D)Income
E)Cash payments

Question 46

The master budget includes:

A)Only operating budgets and financial budgets.
B)Only a capital expenditures budget and a cash budget.
C)Only a budgeted income statement and a budgeted balance sheet.
D)Only a cash budget and operating budgets.
E)Operating budgets, a capital expenditure budget, and financial budgets.

Question 47

A June sales forecast projects that 6,000 units are going to be sold at a price of $10.50 per unit.The desired ending inventory of units is 15% higher than the beginning inventory of 1,000 units.Total June sales are anticipated to be:

A)$63,000
B)$67,500
C)$61,250
D)$74,250
E)$60,000

Question 48

A budget is best described as:

A)A formal statement of a company's future plans usually expressed in monetary terms.
B)A master control device.
C)An informal statement of company future plans usually expressed in monetary terms.
D)The most crucial component of a company evaluation process.
E)The minimum acceptable performance level.

Question 49

The set of periodic budgets that are prepared and periodically revised in the practice of continuous budgeting is called:

A)Production budgets
B)Sales budgets
C)Cash budgets
D)Rolling budgets
E)Capital expenditures budgets

Question 50

Which of the following is not a benefit of following a well-designed budgeting process?

A)Improved decision-making processes.
B)Improved performance evaluations.
C)Improved coordination of business activities.
D)Assurance of future profits.
E)Improved commitment to meet expected performance by those affected.

Question 51

The most useful budget figures are developed:

A)From the top down.
B)From the bottom up following a participatory process.
C)Solely by the budget committee.
D)By the CEO.
E)After the accounting period has begun.

Question 52

A plan that lists the types and amounts of general and administrative expenses expected during the budget period is referred to as a:

A)General and administrative expense budget.
B)Sales budget.
C)Cash payments budget.
D)Overhead budget.
E)Selling expense budget.

Question 53

Preparing a master budget is usually the responsibility of:

A)The company CEO.
B)The marketing department.
C)A budget committee.
D)The chief financial officer.
E)Lower level management.

Question 54

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 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)Cash budget.
C)Capital expenditures budget.
D)Rolling budget.
E)Production budget.

Question 55

Which of the following is a financial budget?

A)Sales budget.
B)Budgeted balance sheet.
C)Production budget.
D)Capital expenditure budget
E)Merchandise purchasing budget.

Question 56

The practice of preparing budgets for each of several future periods and revising those budgets as each period is completed, adding a new budget each period so that the budgets always cover the same number of future periods, is called:

A)Participatory budgeting
B)Capital budgeting
C)Balanced budgeting
D)Continuous budgeting
E)Primary budgeting

Question 57

Which of the following budgets is not an operating budget?

A)Sales budget.
B)Cash budget.
C)General and administrative expense budget.
D)Selling expenses budget.
E)Merchandise purchases.

Question 58

Operating budgets include all the following budgets except the:

A)Sales budget.
B)Selling expense budget.
C)Cash budget.
D)Merchandise purchases budget.
E)General and administrative expense budget.

Question 59

The usual budget period is:

A)An annual period of 250 working days.
B)A monthly period separated into daily budgets.
C)A quarterly period separated into weekly budgets.
D)An annual period separated into weekly budgets.
E)An annual period separated into quarterly and monthly budgets.

Question 60

A budget system based on expected activities and their levels that enables management to plan for resources required to perform the activities is:

A)Traditional budgeting.
B)Management budgeting.
C)Master budgeting.
D)Activity-based budgeting.
E)Cash budgeting.

Question 61

Tannwin Co.sells a new product called Accountomatic and has predicted the following sales for the first four months of the current year: $\begin{array}{lclrl}& \text { Jan. } & \text { Feb. } & \text { March } & \text { April } \\\text { Sales in units } &1,700 & 1,900 & 2,100 & 1,600\end{array}$ Ending inventory for each month should be 20% of the next month's sales, and the prior December 31 inventory is consistent with that policy.How many units should be purchased in the first quarter of the year?

A)5,100
B)5,680
C)6,300
D)6,000
E)5,700

Question 62

Total budgeted sales of both products for the year would be:

A)$42,000
B)$200,000
C)$264,000
D)$464,000
E)$500,000

Question 63

A sporting goods store purchased $7,000 worth of ski boots in October.The store had $3,000 of ski boots in inventory at the beginning of October and expects to have $2,000 of ski boots in inventory at the end of October to cover part of anticipated November sales.What is the budgeted cost of goods sold for October?

A)$5,000
B)$7,000
C)$8,000
D)$9,000
E)$10,000

Question 64

Stritch Company is trying to decide how many units of merchandise to order each month.The company's policy is to have 20% of the next month's sales in inventory at the end of each month.Projected sales for August, September, and October are 30,000 units, 20,000 units, and 40,000 units, respectively.How many units must be purchased in September?

A)14,000
B)20,000
C)22,000
D)24,000
E)28,000

Question 65

Budgeted purchases of Product B for the year would be:

A)24,500 units
B)22,500 units
C)16,500 units
D)26,500 units
E)20,500 units

Question 66

A plan that lists the types and amounts of selling expenses expected during the budget period is called a(n):

A)Sales budget
B)Operating budget
C)Capital expenditures budget
D)Selling expense budget
E)Purchases budget

Question 67

Fairway's April sales forecast projects that 6,000 units will sell at a price of $10.50 per unit.The desired ending inventory is 30% higher than the beginning inventory, which was 1,000 units.Budgeted purchases of units in April would be:

A)6,000 units
B)7,000 units
C)6,300 units
D)7,300 units
E)Some other amount

Question 68

Barrett's Fashions forecasts sales of $125,000 for the quarter ended December 31.Its gross profit rate is 20% of sales, and its September 30 inventory is $32,500.If the December 31 inventory is targeted at $41,500, budgeted purchases for the fourth quarter should be:

A)$134,000
B)$109,000
C)$91,500
D)$25,000
E)$91,000

Question 69

Ecology Co.sells a biodegradable product called Dissol and has predicted the following sales for the first four months of the current year: $\begin{array}{lclrl}& \text { Jan. } & \text { Feb. } & \text { March } & \text { April } \\\text { Sales in units } &1,700 & 1,900 & 2,100 & 1,600\end{array}$ Ending inventory for each month should be 20% of the next month's sales, and the December 31 inventory is consistent with that policy.How many units should be purchased in February?

A)1,860
B)1,900
C)1,940
D)1,980
E)2,320

Question 70

Budgeted purchases of Product A for the year would be:

A)22,400 units
B)20,400 units
C)20,000 units
D)19,500 units
E)12,200 units

Question 71

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 capital expenditures budget.
E)Proposed selling expenses, such as advertising.

Question 72

A Company forecasts sales of $91,500 for the quarter ended December 31.Its gross profit rate is 18% of sales, and its September 30 inventory is $25,000.If the December 31 inventory is targeted at $7,500, budgeted purchases for the fourth quarter should be:

A)$57,530
B)$107,530
C)$0
D)$82,530
E)$91,000

Question 73

Bentels Co.desires a December 31 ending inventory of 2,840 units.Budgeted sales for December are 4,000 units.The November 30 inventory was 1,800 units.Budgeted purchases are:

A)5,040 units
B)1,240 units
C)6,840 units
D)4,000 units
E)5,800 units

Question 74

Lingstat Company is trying to decide how many units of merchandise to order each month.The company's policy is to have 15% of the next month's sales in inventory at the end of each month.Projected sales for August, September, and October are 5,000 units, 6,000 units, and 4,000 units, respectively.How many units must be purchased in September?

A)6,600
B)6,150
C)5,850
D)5,700
E)6,300

Question 75

A department store has budgeted sales of 12,000 men's suits in September.Management wants to have 6,000 suits in inventory at the end of the month to prepare for the winter season.Beginning inventory for September is expected to be 4,000 suits.What is the dollar amount of purchase of suits? Each suit has a cost of $75.

A)$750,000
B)$900,000
C)$1,050,000
D)$1,200,000
E)$1,350,000

Question 76

A plan that reports the units or costs of merchandise to be purchased by a merchandising company during the budget period is called a:

A)Selling expenses budget
B)Merchandise purchases budget
C)Sales budget
D)Cash budget
E)Capital expenditures budget

Question 77

A quantity of merchandise or materials over the minimum needed reduce the risk of running short is called:

A)Just-in-time inventory.
B)Budgeted stock.
C)Continuous inventory.
D)Capital stock.
E)Safety stock.

Question 78

A June sales forecast projects that 6,000 units are going to be sold at a price of $10.50 per unit.The desired ending inventory of units is 15% higher than the beginning inventory of 1,000 units.Merchandise purchases for June are projected to include how many units?

A)6,000 units
B)6,150 units
C)5,850 units
D)7,150 units
E)6,500 units

Question 79

A plan that lists dollar amounts to be received from disposing of plant assets and dollar amounts to be spent on purchasing additional plant assets is called a:

A)Cash budget
B)Capital expenditures budget
C)Rolling budget
D)Sales budget
E)Production budget

Question 80

A plan showing the units of goods to be sold and the revenue to be derived from sales, that is the usual starting point in the budgeting process, is called the:

A)Operating budget
B)Business plan
C)Income statement budget
D)Merchandise purchases budget
E)Sales budget