Deck 9: The Master Budget and Responsibility Accounting

Question 1

Budgets provide benchmarks that help managers evaluate performance.

Answer 1

True

Question 2

The master budget communicates a variable set of plans throughout the company.

Answer 2

False

Question 3

Managers may intentionally build slack into the budget

A) because of certainty about the future.
B) to make their performance look worse.
C) to have the resources they need in the event of budget cuts.
D) because it makes the overall budget more realistic.

Answer 3

C

Question 4

Which of the following is a potential disadvantage of participative budgeting?

A) Managers may build slack into the budget.
B) Managers are more likely to be motivated by budgets they helped to create.
C) Managers should have more detailed knowledge for creating realistic budgets.
D) It requires less time than the top down approach.

Question 5

Company strategies lead to detailed plans, which in turn lead to actions.

Question 6

The capital expenditures budget is part of the operating budget.

Question 7

The master budget is the set of budgeted financial statements and supporting schedules for the entire organization.

Question 8

A rolling budget is a budget that

A) is continuously updated, so that the next 12 months of operations are always budgeted.
B) extends 5-10 years into the future.
C) begins with zero for each expense, and then amounts are added in.
D) is rolled out by upper management.

Question 9

Budgets are used for all of the following EXCEPT

A) planning for the future.
B) controlling operations.
C) directing operations.
D) recording actual results.

Question 10

Budgeting is helpful to plan for cash inflows and outflows.

Question 11

Strategic planning only involves setting short-term goals that extend a year into the future.

Question 12

The operating budgets project the collection and payment of cash, as well as forecast the company's budgeted balance sheet.

Question 13

A zero-based budget is a budget that is continuously updated so that the next 12 months of operations are always budgeted.

Question 14

The master budget only includes the sales budget, the capital expenditures budget, and the financial budget.

Question 15

Strategic planning involves

A) setting short-term goals that extend one year into the future.
B) setting long-term goals that extend 5-10 years into the future.
C) setting goals for next month.
D) executing directives from the board of directors.

Question 16

When developing the budgets each year, most companies use

A) a top-down approach.
B) zero-based budgets.
C) participative budgeting.
D) slack-based budgets.

Question 17

Managers are motivated when obtaining budgeted targets are nearly impossible to achieve.

Question 18

A budget is a qualitative expression of a plan that helps managers coordinate and implement the plan.

Question 19

Management uses budgeting to express its plans and to assess how well it's reaching its goals.

Question 20

One of the key benefits of budgeting is that it forces managers to plan.

Question 21

Which of the following statements about budgeting is NOT true?

A) The operating budget should be prepared by top management, rather than mid-management personnel, because they have the overall objectives of the company in mind.
B) Budgeting is an aid to planning and control.
C) Budgets help to coordinate the activities of the entire organization.
D) Budgets promote communication and coordination between departments.

Question 22

Which of the following is the starting place for budgeting?

A) Last year's budget
B) Last year's actual amounts
C) Zero
D) Any of the above

Question 23

Which of the following statements regarding the budgeting process is TRUE?

A) The budget should be designed from the bottom up, with input from employees at all levels.
B) The budget should be approved by the company's external auditors.
C) The budget should always be designed by top corporate management.
D) All of the listed statements are true regarding the budgeting process.

Question 24

The ________ budget is a major part of the master budget and results with the income statement and its supporting schedules.

A) operating
B) cash
C) capital expenditures
D) financial

Question 25

Managers may intentionally build slack into the budget

A) because of uncertainty about the future.
B) to make their performance look better.
C) to have the resources they need in the event of budget cuts.
D) because of all of the above.

Question 26

Which of the following is an advantage of zero-based budgeting?

A) It is time consuming.
B) It is labour intensive.
C) It forces managers to justify every dollar put in the budget, so some expenses may be lower than they were in previous years.
D) It requires less examination of current expenditures.

Question 27

Which of the following budgets is part of the financial budgets?

A) Capital expenditure budget
B) Direct labour budget
C) Budgeted income statement
D) Manufacturing overhead budget

Question 28

Which of the following budgets is part of the financial budgets?

A) Sales budget
B) Cash budget
C) Direct materials budget
D) Operating expense budget

Question 29

Which of the following alternatives reflects the proper order of preparing components of the master budget? 1. Production budget
2) Sales budget
3) Direct materials budget

A) 2, 3, 1
B) 1, 3, 2
C) 2, 1, 3
D) 3, 1, 2

Question 30

The master budget embraces the impact of

A) operating and managerial decisions.
B) operating and financing decisions.
C) financing and managerial decisions.
D) the differences between the budget and the actual costs, for a given cycle.

Question 31

The budget committee

A) rarely has the final say on the budget.
B) usually is made up of the accounting staff.
C) usually is made up of the Board of Directors.
D) usually is made up of managers from all areas of the value chain.

Question 32

Which term below best describes "sets the targeted revenue and expenses for the period"?

A) Operating budget
B) Capital budget
C) Responsibility centre
D) Sensitivity analysis

Question 33

Which of the following budgets is part of the operating budgets?

A) Production budget
B) Budgeted balance sheet
C) Capital expenditure budget
D) Cash budget

Question 34

Which of the following budgets is part of the financial budgets?

A) Production budget
B) Budgeted balance sheet
C) Budgeted income statement
D) Sales budget

Question 35

Which of the following is a benefit of budgeting?

A) Focuses management's attention on the future
B) Improved decision-making processes
C) Improved motivation by employees
D) All of the above

Question 36

Which of the following is an advantage of the budgeting process?

A) Assures that the lowest cost materials will be obtained
B) Coordinates the activities of the organization
C) Assures the company will achieve its objectives
D) Guarantees that a profit will be achieved

Question 37

The budget committee does all of the following EXCEPT

A) reviews submitted budgets.
B) removes unwarranted slack.
C) approves the final budget.
D) determines the bonuses awarded to those who achieve budget targets.

Question 38

The ________ budget is the cornerstone of the master budget.

A) cash
B) sales
C) budgeted balance sheet
D) operating expense

Question 39

Which term below best describes "the comprehensive budget"?

A) Operating budget
B) Master budget
C) Responsibility centre
D) Sensitivity analysis

Question 40

Which of the following alternatives reflects the proper order of preparing components of the master budget? 1. Financial budget
2) Operating budget
3) Capital expenditures budget

A) 2, 3, 1
B) 1, 3, 2
C) 1, 2, 3
D) 3, 1, 2

Question 41

Coiffure Inc. owns a chain of hair stylist shops. Management expected to serve 20,000 customers at an average fee of $125. Variable expenses were budgeted to be 60% of sales revenue, and the total fixed expense was budgeted to be $150,000. The actual results for the year showed 18,000 customers were served at an average fee of $150. The actual variable expenses percentage was 70% of sales revenue and the total fixed expenses were as budgeted.
Management has asked you to prepare a performance report for the year.

Question 42

The first component of the operating budget is the production budget.

Question 43

Biker Billy is a motorcycle dealership. Management expected to sell 800 bikes at an average sale price of $20,000. Variable expenses were budgeted to be 85% of sales revenue, and the total fixed expense was budgeted to be $2,500,000. The actual results for the year showed 1,000 bikes sold at an average price of $16,000. The actual variable expenses percentage was 80% of sales revenue and the total fixed expenses were $2,750,000.
Management has asked you to prepare a performance report for the year.

Question 44

The sales budget must be prepared before any other component of the operating budget.

Question 45

Caan Corporation used the following data to evaluate their current operating system. The company sells items for $20 each and used a budgeted selling price of $20 per unit.

Required:
Prepare a performance report using a income statement in contribution margin format. Use the following three column headings: Actual Results, Budget, Variance.

Question 46

List and describe three reasons why a company and its managers could benefit from the use of budgeting.

Question 47

The operating expense budget is the starting point of the master budget.

Question 48

When creating the monthly sales budget, management simply takes the sales from the year before and divides that total by 12 months.

Question 49

Biker Billy is a motorcycle dealership. Management expected to sell 800 bikes at an average sale price of $30,000. Variable expenses were budgeted to be 75% of sales revenue, and the total fixed expense was budgeted to be $2,500,000. The actual results for the year showed 1,000 bikes sold at an average price of $26,000. The actual variable expenses percentage was 80% of sales revenue and the total fixed expenses were $2,500,000.
Management has asked you to prepare a performance report for the year.

Question 50

Saan Corporation used the following data to evaluate their current operating system. The company sells items for $19 each and used a budgeted selling price of $19 per unit.

Required:
Prepare a performance report using a income statement in contribution margin format. Use the following three column headings: Actual Results, Budget, Variance.

Question 51

Biker Billy is a motorcycle dealership. Management expected to sell 800 bikes at an average sale price of $15,000. Variable expenses were budgeted to be 80% of sales revenue, and the total fixed expense was budgeted to be $2,000,000. The actual results for the year showed 1,000 bikes sold at an average price of $14,000. The actual variable expenses percentage was 85% of sales revenue and the total fixed expenses were $2,100,000.
Management has asked you to prepare a performance report for the year.

Question 52

A limitation of comparing a company's performance against actual results of last year is that

A) it includes adjustments for future conditions.
B) feedback is no longer a possibility.
C) the benchmark may be unrealistic.
D) past results can contain inefficiencies of the past year.

Question 53

Coiffure Inc. owns a chain of hair stylist shops. Management expected to serve 20,000 customers at an average fee of $200. Variable expenses were budgeted to be 60% of sales revenue, and the total fixed expense was budgeted to be $150,000. The actual results for the year showed 30,000 customers were served at an average fee of $150. The actual variable expenses percentage was 65% of sales revenue and the total fixed expenses were $180,000.
Management has asked you to prepare a performance report for the year.

Question 54

The three components of the operating budget are the sales budget; inventory, purchases and cost of goods sold budget; and the cash budget.

Question 55

Budgeting includes planning for ending inventory.

Question 56

Biker Billy is a motorcycle dealership. Management expected to sell 1,000 bikes at an average sale price of $30,000. Variable expenses were budgeted to be 80% of sales revenue, and the total fixed expense was budgeted to be $2,500,000. The actual results for the year showed 800 bikes sold at an average price of $32,000. The actual variable expenses percentage was 75% of sales revenue and the total fixed expenses were $2,500,000.
Management has asked you to prepare a performance report for the year.

Question 57

Coiffure Inc. owns a chain of hair stylist shops. Management expected to serve 30,000 customers at an average fee of $115. Variable expenses were budgeted to be 60% of sales revenue, and the total fixed expense was budgeted to be $150,000. The actual results for the year showed 28,000 customers were served at an average fee of $125. The actual variable expenses percentage was 50% of sales revenue and the total fixed expenses were as budgeted.
Management has asked you to prepare a performance report for the year.

Question 58

Stretch goals in budgeting tend to

A) decrease line-management participation in attaining corporate goals.
B) increase anxiety without motivation.
C) motivate improved performance beyond the status quo.
D) improve communication and coordination.

Question 59

Coiffure Inc. owns a chain of hair stylist shops. Management expected to serve 25,000 customers at an average fee of $200. Variable expenses were budgeted to be 60% of sales revenue, and the total fixed expense was budgeted to be $150,000. The actual results for the year showed 28,000 customers were served at an average fee of $165. The actual variable expenses percentage was 60% of sales revenue and the total fixed expenses were $180,000.
Management has asked you to prepare a performance report for the year.

Question 60

Winnie and Pooh have just purchased a small honey manufacturing company that was having financial difficulties. After a brief operating period, they decided that the company's main problem was lack of any financial planning. The company made a good product and market potential was great.
Required:
Explain why a company needs a good budgeting plan. Specifically address the need for a master budget.

Question 61

A plan that shows the units to be sold and the projected selling price and is also the starting point in the budgeting process, is called the

A) cash budget.
B) budgeted statement of cash flows.
C) sales budget.
D) budgeted income statement.

Question 62

On the direct materials budget, the total quantity of direct materials needed is computed as

A) units to be produced + desired end inventory of DM - beginning inventory of DM.
B) quantity needed for production + desired end inventory of DM - beginning inventory of DM.
C) units to be produced - desired end inventory of DM +beginning inventory of DM.
D) quantity needed for production - desired end inventory of DM + beginning inventory DM.

Question 63

On the production budget, the number of units to be produced is computed as

A) unit sales + desired end inventory - beginning inventory.
B) unit sales + desired end inventory + beginning inventory.
C) unit sales - desired end inventory - beginning inventory.
D) unit sales - desired end inventory + beginning inventory.

Question 64

Which of the following budgets usually shows separate sections for fixed and variable costs?

A) Operating expense budget and manufacturing overhead budget
B) Manufacturing overhead budget and production budget
C) Production budget and manufacturing overhead budget
D) Direct materials and manufacturing overhead budget

Question 65

MedSupplies Company has budgeted purchases of inventory for December of $140,000. Expected beginning inventory on December 1 and ending inventory on December 31 are $90,000 and $120,000, respectively. If cost of goods sold averages 80% of sales, what are budgeted sales for December?

A) $212,500
B) $88,000
C) $137,500
D) $437,500

Question 66

Clark Company has beginning inventory of 16,000 units and expected sales of 23,000 units. If the desired ending inventory is 18,000 units, how many units should be produced?

A) 25,000
B) 21,500
C) 11,000
D) 57,000

Question 67

Benson Stores wants to have 500 flashlights in ending inventory on December 31. Budgeted sales for December are 1,950 flashlights. The November 30 inventory was 300 flashlights. How many flashlights should Benson Stores purchase for December?

A) 2,450
B) 1,750
C) 2,150
D) 2,750

Question 68

Which of the following budgets or financial statements is part of the operating budget?

A) Capital expenditures budget
B) Budgeted balance sheet
C) Sales budget
D) Cash budget

Question 69

Lawrence Corporation desires a December 31 ending inventory of 900 units. Budgeted sales for December are 2,650 units. The November 30 inventory was 750 units. What are budgeted purchases in units?

A) 3,550
B) 2,800
C) 2,500
D) 4,300

Question 70

Good Doggie Treatz Company expects to sell 5,000 gourmet dog biscuits in January and 9,000 in February for $2 each. What will be the total sales revenue reflected in the sales budget for those months?

A) January $2,500; February $4,500
B) January $18,000; February $10,000
C) January $4,500; February $2,500
D) January $10,000; February $18,000

Question 71

Rong Company expects cash sales for July of $15,000, and a 20% monthly increase during August and September. Credit sales of $6,000 in July should be followed by 10% decreases during August and September. What are budgeted cash sales and budgeted credit sales for September?

A) $12,150 and $8,640
B) $18,000 and $5,400
C) $21,600 and $4,860
D) $13,500 and $7,200

Question 72

Bright Lights Company produces and sells a lantern for $20 each. The beginning inventory is 2,000 lanterns, and the desired ending inventory is 2,200 lanterns. If budgeted production is 12,500 lanterns, what is the forecasted sales revenue from the lanterns?

A) $166,000
B) $334,000
C) $254,000
D) $246,000

Question 73

Desired ending inventory is 25% more than beginning inventory. If purchases total $160,000, which of the following statements is TRUE regarding cost of goods sold (COGS)?

A) COGS will exceed cost of goods available for sale.
B) COGS will exceed purchases.
C) COGS will be less than purchases.
D) COGS will equal $55,000.

Question 74

Desired ending inventory is 80% of beginning inventory. If cost of goods sold is $300,000, which of the following statements is TRUE regarding purchases?

A) Purchases will be more than cost of goods sold.
B) Purchases will be 80% of cost of goods sold.
C) Purchases will equal cost of goods sold.
D) Purchases will be less than cost of goods sold.

Question 75

Beedie Company has two products: Beedlez and Bugz. A March sales forecast projects 20,000 units of Beedlez and 15,000 units of Bugz are going to be sold at prices of $10 and $12, respectively. The desired ending inventory of Beedlez is 20% higher than the beginning inventory, which was 2,000 units. How much are total March sales for Beedlez anticipated to be?

A) $200,000
B) $180,000
C) $100,000
D) $240,000

Question 76

Stiller Company expects cash sales for July of $15,000, and a 20% monthly increase during August and September. Credit sales of $10,000 in July should be followed by 25% increases during August and September. What are budgeted cash sales and budgeted credit sales for September respectively?

A) $18,000 and $12,500
B) $21,600 and $15,625
C) $23,438 and $14,400
D) $18,750 and $12,000

Question 77

Which of the following budgets begins with the number of units to be sold?

A) Manufacturing overhead budget
B) Production budget
C) Direct materials budget
D) Capital expenditures budget

Question 78

Artwell Company wants to have an ending inventory of 7,000 units. Artwell Company has beginning inventory of 8,000 units and expects to sell 33,000 units. How many units should Artwell Company produce?

A) 48,000
B) 40,000
C) 34,000
D) 32,000

Question 79

Which of the following budgets is the only one stated only in units, not dollars?

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

Question 80

Lacy's Department Store has budgeted cost of goods sold of $42,000 for its men's suits in March. Management also wants to have $7,500 of men's suits in inventory at the end of March to prepare for the summer season. Beginning inventory of men's suits for March is expected to be $5,500. What dollar amount of men's suits should be purchased in March?

A) $44,000
B) $40,000
C) $55,000
D) $29,000