Deck 9: Budgeting

Question 1

During the budget cycle,the budget can be used to:

A) monitor and investigate any differences between the budget and the entity's actual results.
B) reward positive performance.
C) reconsider long-term strategies.
D) all of the above options.

Answer 1

D

Question 2

The first step in the budgeting process is commonly:

A) preparation of the master budget and sub-budgets.
B) assessment of expected trading and operating conditions.
C) preparation of initial budget estimates.
D) consideration of past performance.

Answer 2

D

Question 3

The schedule of receipts from accounts receivable (debtors)is prepared to provide information for the:

A) cash budget.
B) sales budget.
C) production budget.
D) budgeted balance sheet.

Answer 3

A

Question 4

A budget that estimates the overheads and expenses associated with production activities is known as a:

A) departmental budget.
B) master budget.
C) manufacturing overhead budget.
D) operating budget.

Question 5

The budget process usually focuses on the time frame of one:

A) day.
B) week.
C) month.
D) year.

Question 6

The components of the financial budgets are:

A) budgeted statement of profit or loss, sales or fees budget, cash budget.
B) operating budget and production budget.
C) budgeted statement of profit or loss, budgeted balance sheet, cash budget, and capital expenditure budget.
D) capital expenditure budget and manufacturing budget.

Question 7

The strategic planning process relates to:

A) shorter term planning (usually less than 1 year).
B) longer term planning (often 3 to 5 years).
C) shorter term planning (usually 1 to 3 months).
D) large entities only.

Question 8

Which of the following would be included in the operating budgets for a trampoline park?

A) The sales or fees budget and the budgeted statement of profit or loss.
B) The sales or fees budget, the operating expenses budget and the capital expenditure budget.
C) The sales or fees budget and the cash budget.
D) The sales or fees budget, the labour budget, and the operating expenses budget.

Question 9

Which of the following describes a way in which budgeting can assist in decision making?

A) Identifying expected cash shortages.
B) Determining inventory levels.
C) Setting production targets for managers.
D) All of the above.

Question 10

The difference between budgeted amounts and an entity's actual results is called a:

A) control tool.
B) budget error.
C) variance.
D) excess.

Question 11

Simons's three wheels of planning shows the interrelationships between:

A) cash, sales and profit.
B) profit, cash and assets.
C) cash, profit and return on investment.
D) return on investment, cash and assets.

Question 12

The government's Department of Education and Training would be unlikely to prepare which type of budget?

A) Production budget.
B) Expenses budget.
C) Cash budget.
D) Program budget.

Question 13

Which of these is not a commonly prepared budget?

A) Asset amortisation budget.
B) Operating budget.
C) Manufacturing overhead budget.
D) Inventory budget.

Question 14

An interrelated set of budgets for a future period is known as:

A) a master budget.
B) a combined budget.
C) a program budget.
D) an assembly of budgets.

Question 15

For a retail entity,the key variable which is normally the starting point for the budget process and upon which many other items are based is:

A) labour.
B) sales.
C) production.
D) fixed expenses.

Question 16

Applicable budgets for an accounting firm are likely to include:

A) budgeted balance sheet.
B) expenses budget.
C) labour budget.
D) each of the above budgets.

Question 17

Which of the following is a performance management measure?

A) Increasing sales by 10 per cent p.a.
B) Decreasing manufacturing costs by 5%.
C) Enhancing customer service.
D) Purchasing a new item of equipment.

Question 18

Which of the following statements about a budget is correct?

A) It is an entity's short-term plan expressed quantitatively.
B) It is an entity's long-term plan expressed quantitatively.
C) Budget targets are always impossible to meet.
D) Budgets must be prepared by all types of entities.

Question 19

The decision to expand the business by opening up a new branch in a different city is part of:

A) strategic planning.
B) master budgeting.
C) strategic budgeting.
D) performance planning.

Question 20

The master budget is commonly classified into which two sections?

A) sales and cash budgets.
B) operating and financial budgets.
C) sales and manufacturing budgets.
D) statement of profit or loss and balance sheet budgets.

Question 21

For a cash budget to enable close monitoring of the entity's cash position it should be prepared on a:

A) yearly basis.
B) daily basis.
C) monthly basis.
D) quarterly basis.

Question 22

A budget can be used as an effective control tool in monitoring an entity's achievements of its plans if the structure of its master budget mirrors the entity's:

A) balance sheet.
B) chart of accounts.
C) statement of profit or loss.
D) statement of cash flows.

Question 23

Network Company Pty Ltd made the following estimates for the three months ending 31 March.This is Network Company's first period of operation and their starting cash balance is $5 000.
Estimates:
$\begin{array}{lr}\text { Cash receipts from sales } & \$ 600000 \\ \text { Cash payments for expenses } & 260000 \\ \text { Purchase of fixed assets (\$10 000 will not be paid until April) } & 40000 \\ \text { Depreciation of fixed assets } & 8000 \\ \text { Repayment of bank loan } & 50000\end{array}$
What is the estimated cash balance at 31 March?

A) Surplus of $252 000.
B) Surplus of $265 000.
C) Surplus of $272 000.
D) Surplus of $255 000.

Question 24

Skyline Pty Ltd sells bicycle helmets.The desired ending inventory for December is budgeted at 400 helmets.If there are 300 helmets on hand at the beginning of December,and the expected sales volume for the month is expected to be 1800 units,how many helmets will Skyline Pty Ltd need to purchase for the month?

A) 1900
B) 1700
C) 1500
D) 2500

Question 25

T.Bailey Pty Ltd is planning to purchase equipment costing $45 000.The planned delivery date is 11 April with settlement on that date.On 17 January,T.Bailey Pty Ltd paid a deposit of $15 000.The amount that will appear in the cash budget for the quarter ending 31 March is:

A) $0. No cash flows are recorded until settlement date.
B) outflow of $30 000.
C) outflow of $15 000.
D) outflow of $45 000.

Question 26

From the following options,select the budgets and the order in which they would be prepared,when developing an operating budget for a hair salon.

A) Sales budget, materials budget, operating expenses budget.
B) Production budget, sales budget, operating expenses budget.
C) Sales budget, labour budget, operating expenses budget.
D) Sales budget, production budget, labour budget.

Question 27

An entity's cash budget predicts a period of cash shortage throughout the final quarter of the financial year.What corrective action can the entity take to help restore the cash position to a cash surplus during this period?

A) Improve inflows of cash by offering incentives to customers for early payment.
B) Reduce cash outflows by decreasing the amount of inventory on hand.
C) Reduce cash outflows by delaying the acquisition of fixed assets during that period.
D) All of the above actions can help to restore the cash position of the entity.

Question 28

Beta Ltd estimates their sales volume for the year is 30 000 units.If the beginning materials inventory is $300 000,and the desired ending materials inventory is $240 000,calculate the budgeted cost of materials for the year if the materials cost per unit is $60.

A) $1 740 000
B) $1 860 000
C) $1 800 000
D) $2 040 000

Question 29

Bristol Ltd settles their creditors' accounts as follows: 25% in the month of purchase and 75% in the month following purchase.For the month of August their credit purchases totalled $32 000 and in September were $43 000.How much cash did Bristol Ltd pay to their creditors in the month of September?

A) $34 750
B) $40 250
C) $43 000
D) $24 000

Question 30

The production budget for Skate Line Ltd shows that 500 skateboards are to be produced for the month of October.It takes 2 labour hours to produce each skateboard and labour is paid at $280 per 8 hour day.The budget cost of labour for the month of October is:

A) $17 500
B) $35 000
C) $14 000
D) $28 000

Question 31

Which of these is not a strategy to reduce cash outflow?

A) Minimise inventory on hand.
B) Sell unnecessary non-current assets.
C) Defer capital expenditure.
D) Make use of credit terms offered by suppliers.

Question 32

From the following data calculate the estimated cash received from total sales for the month of June.
Total sales for April,$42 000; May,$54 000; June,$38 000.
Credit sales are normally settled in the pattern: 50% in the month of sale,40% in the first month following the sale,and the balance in the second month following the sale.

A) $44 800
B) $25 800
C) $19 000
D) $40 600

Question 33

The schedule of cash receipts from accounts receivable (debtors)provides information to include in the:

A) sales budget.
B) cash budget.
C) budgeted statement of profit or loss.
D) budgeted balance sheet.

Question 34

Preparing a cash budget is part of the process.

A) cash
B) control
C) planning
D) monitoring

Question 35

At the end of February,Brayden Pty Ltd reviewed its performance for the month and noted the following:
$\begin{array}{|l|r|r|}\hline \text{ Account } & \text{ Budget } & \text{ Actual } \\\hline \text{ Sales }& \$ 125000 & \$ 132000 \\\hline\text{ Advertising expense} & \$ 5000 &\$ 3800\\\hline\text{ Wages expense }&\$ 12000 &\$ 13500 \\\hline\end{array}$
The respective variances will be reported as:

A) $7000 U, $1200 U, $1500 F.
B) $7000 F, $1200 F, $1500 U.
C) $7000 U, $1200 F, $1500 U.
D) $$7000 F, $1200 U, $1500 U.

Question 36

Which of the following statements about a cash budget is true?

A) It documents the timing of all estimated cash receipts and cash payments.
B) It assists with the planning of borrowings.
C) It helps to identify periods of cash shortages and/or cash surpluses.
D) All of these options are true.

Question 37

Sharpe Ltd made these estimates for the six months ending 31 December.
Estimates:
$\begin{array}{lr}\text { Cash receipts from services provided } & \$ 60000 \\ \text { Cash payments for expenses, including rent paid in advance }(\$ 3000) & 43000 \\ \text { Purchase of equipment }(\$ 1500 \text { will not be paid until February) } & 20000 \\ \text { Depreciation of equipment } & 4000 \\ \text { Borrowings } & 15000\end{array}$
The cash balance at 1 July is $13 000.The estimated cash balance at 31 December is:

A) surplus of $13 500.
B) surplus of $26 500.
C) surplus of $11 000.
D) deficit of $15 000.

Question 38

Production units x material cost per item plus target ending materials inventory less beginning materials inventory is the formula for which budget item?

A) required production units.
B) production overhead.
C) sales.
D) cost of material purchases.

Question 39

From the following data calculate the estimated cash received from credit sales during the month of May.Credit sales for March,$25 000; April,$30 000; May,$18 000.
Credit sales are normally settled in the following pattern: 50% in the month of sale,40% in the month following the sale,and 10% in the second month following the sale.

A) $12 000
B) $21 000
C) $9 000
D) $23 500

Question 40

An unfavourable variance occurs when:

A) actual expenses are less than budgeted expenses.
B) budgeted expenses are greater than actual expenses.
C) actual sales are higher than budgeted sales.
D) budgeted sales are higher than actual sales.

Question 41

Which of the following factors will most likely have a negative impact on a manager's motivation with regards to the budget?

A) The budget targets are challenging but attainable.
B) The manager's input was highly regarded throughout the budget setting process.
C) The budget includes some budgetary slack.
D) The budget provides too little scope for managers to perform their duties.

Question 42

To enable the budget to be used as a control tool to monitor financial performance the master budget should classify items in the same format as an entity's __________ ___ ____________.

Question 43

The authoritarian style of budgeting can lead to:

A) unit managers taking very little ownership of the budget.
B) unattainable targets.
C) demotivation of employees.
D) all of the above.

Question 44

Which of the following statements regarding the participative style of budgeting is not true?

A) Department managers do not have ownership of the targets and budgets.
B) The targets and budgets are prepared after negotiations between senior management and department managers.
C) Provides department managers with an opportunity to create some 'room to move'.
D) Often results in targets that are easier to achieve.

Question 45

____________________ management involves setting business targets in other than just financial terms.

Question 46

A program budget is commonly used in the __________ and not-for-profit sector.

Question 47

The difference between actual and budgeted results is known as a ________________.

Question 48

Requiring managers to prepare the budgets from scratch or zero-base may help them to overcome the problem of:

A) motivation.
B) budget ownership.
C) embedded budget slack.
D) unattainable targets.

Question 49

Budgets provide the financial frameworks for an entity's _______________ plan.

Question 50

Which of the following budgeted expenses has a favourable variance?

A) Advertising $30 000, actual advertising $40 000.
B) Telephone $4 000, actual telephone $3 700.
C) Salary and wages $52 000, actual salary and wages $56 000.
D) Interest $500, actual interest $500.

Question 51

The master budget is a set of __________ budgets for a future period.

Question 52

Throughout the budgeting process,participation may be sought from the managers who are in control of the entity's ______________ centres.

Question 53

A review of the financial performance for the month of July noted the following:
$\begin{array}{|l|r|r|}\hline \text{ Account } & \text{ Budget } & \text{ Actual } \\\hline \text{ Bank balance at 1 July }& \$ 8000 & \$ 8000 \\\hline \text{ Total cash payments} & \$ 12000 &\$ 10200 \\\hline \text{ Total cash receipts }&\$ 25000 & \$ 21500 \\\hline\end{array}$
The actual bank balance and variance at 31 July is:

A) bank balance $(3300), Variance $1700 F.
B) bank balance $(3300), Variance $1700 U.
C) bank balance $19 300, Variance $1700 F.
D) bank balance $19 300, Variance $1700 U.

Question 54

The budget that sets the expected level of activity for the budget period is the ______________ or ______________ budget.

Question 55

The purchases budget sets the required level of inventory or direct materials for merchandising or _________________ entities.

Question 56

Which of the following budgeted revenues has an unfavourable variance?

A) Rent $4 000, actual rent revenue $4 000.
B) Dividends $7 500, actual dividends revenue $8 500.
C) Interest $2 000, actual interest revenue $1 400.
D) Cash sales $50 000, actual cash sales $70 000.

Question 57

The cash budget assists in identifying periods of cash surpluses and cash _____________ throughout the budget period.

Question 58

The cash budget shows the ____________ future cash receipts and cash payments.

Question 59

Which of the following statements regarding the authoritarian style of budgeting is correct?

A) The budget is set by senior management.
B) Department managers have no influence over the budget targets.
C) Department managers are not consulted during the budget setting process.
D) All of the above statements are correct.

Question 60

Having a budget that directly links employee bonuses with sales targets may lead to:

A) a culture among sales staff where sales targets are to be achieved regardless of the consequences.
B) a change of focus of sales staff away from that of customer satisfaction.
C) unfavourable variances in budgeted expenses.
D) all of the above.

Question 61

If the actual cash receipts is $35 000 for the month and the budgeted cash receipts is $40 000,there is a(n)_____________ (favourable/unfavourable)variance of $_________.

Question 62

Preparing budget targets through a process of discussion and negotiation between senior managers and unit managers is the ______________ style of budgeting.

Question 63

The ______________ process monitors the performance of the entity in achieving budget targets.

Question 64

Under the ___________________ style of budgeting,unit managers have no influence over the targets and budgets that are set.