Deck 22: Master Budgets

Question 1

An intentional understatement of expected revenues or overstatement of expected expenses by managers in order to have a favorable performance evaluation is known as ________.

A)benchmarking
B)appropriation
C)budgetary slack
D)variance analysis

Answer 1

C

Question 2

An objective of the budgeting process is to communicate a single,unified,comprehensive plan for the business.

Answer 2

True

Question 3

There is no need for managers to have employees participate in developing the budget because the budget is a management tool.

Answer 3

False
Explanation:Managers must have employees participate in developing the budget so that employees feel the goals are realistic and achievable.

Question 4

All organizations use one standardized budgeting process.

Question 5

After comparing budgets with the actual results,the feedback allows managers to determine what,if any,corrective action should be taken.

Question 6

A budget represents the plans that a company has in place to achieve its goals.

Question 7

The budgeting process ________.

A)usually begins about one month before the beginning of the budget period to allow for more current information to be considered
B)does not need input from all levels because it is the role of management to control costs and meet revenue goals
C)requires significant coordination among the company's various business segments
D)is standard among all types of companies

Question 8

Which of the following statements is true of the budgeting process?

A)If a company carefully plans for its future,there will be no need to make modifications during the budget period.
B)It is a continuous process that encourages communication.
C)It shows the actual performance of the business.
D)Managers and employees are motivated to accept the budget's goals because they enjoy having their work monitored and evaluated.

Question 9

The most important part of a budgeting system is getting managers and employees to accept the budget.

Question 10

Budgets provide a benchmark that motivates employees and helps managers evaluate performance.

Question 11

A strategic budget is a long-term financial plan used to coordinate the activities needed to achieve the long-term goals of the company.

Question 12

Which of the following is an example of the benchmarking function of the budgeting process?

A)A budget demands integrated input from different business units and functions.
B)Budgeting requires close cooperation between accountants and operational personnel.
C)Budget figures are used to evaluate the performance of managers.
D)The budget outlines a specific course of action for the coming period.

Question 13

A budget is a financial plan that managers use to coordinate a business's activities.

Question 14

Which of the following is an example of the coordination and communication function of the budgeting process?

A)A budget demands integrated input from different business units and functions.
B)Employees are motivated to achieve the goals set by the budget.
C)Each department acts independently because the department manager will be evaluated on actual departmental results.
D)A budget adjustment in one department will have no effect on other departments.

Question 15

The budget process is a loop that consists of ________.

A)planning,acting,and controlling
B)developing strategies,planning,acting,and controlling
C)developing strategies,planning,and acting
D)developing strategies,acting,and controlling

Question 16

Budgeting requires managers to develop overall business goals and budget for specific actions to achieve the goals.

Question 17

Which of the following is an example of the planning function of the budgeting process?

A)A budget demands integrated input from different business units and functions.
B)Employees are motivated to achieve the goals set by the budget.
C)Budget figures are used to evaluate the performance of managers.
D)The budget outlines a specific course of action for the coming period.

Question 18

Budgetary slack occurs when managers intentionally overstate expected revenues or understate expected expenses.

Question 19

List the four budgeting objectives.Why is this process a loop?

Question 20

Developing a budget reduces coordination and communication at different levels in an organization.

Question 21

Manhattan Enterprises manufactures cookware sets and sells the sets to department stores.Manhattan expects to sell 2,100 cookware sets for $260 each in April and 3,900 cookware sets for $275 each in May.Sales are 10% cash and 90% on account.Compute the total budgeted sales for May.

A)$1,072,500
B)$546,000
C)$107,250
D)$965,250

Question 22

The starting point in developing the master budget is the preparation of the ________.

A)cash budget
B)production budget
C)sales budget
D)budgeted income statement

Question 23

Which of the following is true of the sales budget?

A)It provides sales data that is used to prepare financial statements for external reporting purposes.
B)It captures the variable and fixed expenses of the business.
C)It is used in the production budget.
D)It shows the cost of expected production in a period.

Question 24

Which of the following statements is true of the operating budget?

A)It is a part of the financial budget.
B)It includes the capital expenditures budget.
C)It includes the sales budget.
D)Its final component is the cash budget.

Question 25

A static budget is a financial plan for only one level of sales volume.

Question 26

Components of the master budget are the operating budget,the capital expenditures budget,and the financial budget.

Question 27

A master budget is a financial plan for a specific segment of an organization.

Question 28

A strategic budget will be as detailed as an operational budget.

Question 29

The capital expenditures budget represents the company's plan for purchasing the long-term assets.

Question 30

Budgeted financial statements are financial statements based on budgeted amounts rather than actual amounts.

Question 31

The cash budget and the budgeted financial statements are collectively known as the ________.

A)operating budget
B)master budget
C)financial budget
D)production budget

Question 32

The level of forecasted sales has little effect on other elements of the master budget.

Question 33

The forecast of sales revenue is the cornerstone of the master budget.

Question 34

An operational budget is a short-term financial plan that coordinates activities needed to achieve short-term goals.

Question 35

A flexible budget is prepared to represent various levels of sales volume.

Question 36

Which of the following describes the cash budget?

A)It aids in planning to ensure the company has adequate inventory and cash on hand.
B)It captures the variable and fixed expenses of the business.
C)It depicts the breakdown of sales based on terms of collection.
D)It helps in planning to ensure the business has adequate cash.

Question 37

The ________ details how the business expects to go from the beginning cash balance to the desired ending cash balance.

A)capital expenditures budget
B)budgeted income statement
C)cash flow statement
D)cash budget

Question 38

Which of the following statements is true of the capital expenditures budget?

A)It is a part of the financial budget.
B)It must be completed after the budgeted income statement is prepared.
C)It includes the sales budget.
D)It must be completed before the cash budget is prepared.

Question 39

List and describe the three types of budgets that are included in the master budget.

Question 40

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

Question 41

Norton Manufacturing expects to produce 2,800 units in January and 3,900 units in February.Norton budgets $45 per unit for direct materials.Indirect materials are insignificant and not considered for budgeting purposes.The balance in the Raw Materials Inventory account (all direct materials)on January 1 is $37,950.Norton desires the ending balance in Raw Materials Inventory to be 60% of the next month's direct materials needed for production.Desired ending balance for February is $51,000.What is the cost of budgeted purchases of direct materials needed for January?

A)$126,000
B)$231,300
C)$193,350
D)$163,650

Question 42

The direct materials budget is prepared using information from the ________ budget.

A)cash
B)master
C)capital expenditure
D)production

Question 43

Which of the following describes the production budget?

A)It aids in planning to ensure the company has adequate inventory and cash on hand.
B)It provides the quantity of finished goods to be produced during a budget period.
C)It depicts the breakdown of sales on the basis of terms and conditions of collection of sales revenue.
D)It helps in planning to ensure the business has adequate cash.

Question 44

Why is the forecast of sales revenue considered to be the cornerstone of the master budget?

Question 45

The budgeted production of Taurus,Inc.is 14,000 units per month.Each unit requires 40 minutes of direct labor to complete.The direct labor rate is $90 per hour.Calculate the budgeted cost of direct labor for the month.(Round any intermediate calculations to the nearest cent and your final answer to the nearest dollar. )

A)$840,000
B)$373,333
C)$1,260,000
D)$31,500

Question 46

To calculate budgeted direct labor costs,multiply the number of units to be produced by the number of projected direct labor hours.Next,multiply that total by the average direct cost per hour.

Question 47

Fly GenX,Inc.has the following budgeted sales for the next quarter.

Inventory of finished goods on hand at the beginning of the quarter is 4,000 units.The company desires to maintain ending inventory equal to beginning inventory plus 1,000 units every month.
Calculate the quantity to be produced during the quarter.

Question 48

The manufacturing overhead budget calculates the budgeted overhead cost for the year and also the predetermined overhead allocation rate for the year.

Question 49

If the cost of indirect materials needed for production is insignificant,it should not be included in the budgeting process.

Question 50

Caplico Company has prepared the following sales budget:

Cost of goods sold is budgeted at 60% of sales,and the inventory at the end of February was $35,000.Desired inventory levels at the end of each month are 20% of the next month's cost of goods sold.What is the desired beginning inventory on June 1?

A)$46,400
B)$26,400
C)$130,200
D)$27,840

Question 51

The production budget determines the number of units to be produced during the period.

Question 52

To calculate budgeted direct labor costs,multiply the number of units to be produced by the number of projected direct labor hours.Next,multiply that total by the actual direct labor cost per hour.

Question 53

The Finished Goods Inventory account must be considered when calculating the amount of materials to be purchased.

Question 54

The Raw Materials Inventory account is must be considered when calculating the amount of materials to be purchased.

Question 55

Budgeted purchases of direct materials is determined by adding direct materials needed for production to the desired direct materials in ending inventory.

Question 56

The production manager projects direct labor costs.

Question 57

The personnel manager projects direct labor costs.

Question 58

When preparing the direct labor budget,________.

A)the production manager projects the average direct labor costs
B)direct labor hours needed for production are multiplied by the direct labor cost per hour
C)the actual direct labor cost per hour must be known
D)budgeted units to be produced are multiplied by direct labor cost per hour to determine budgeted direct labor cost

Question 59

Magnolia,Inc.has budgeted sales for the first quarter of the next year to be 40,000 units.The inventory on hand at the beginning of quarter is 10,000 units.The desired ending inventory is 4,000 units.Calculate the budgeted production for the first quarter.

A)4,000 units
B)34,000 units
C)30,000 units
D)44,000 units

Question 60

List the budgets that are affected by the budgeted number of units to be produced.

Question 61

When preparing the cost of goods sold budget,________.

A)ignore balances in Finished Goods Inventory
B)start by calculating the projected cost to produce each unit
C)ignore the inventory costing method
D)multiply units produced by the total projected cost per unit

Question 62

From the following details provided by NutShell,Inc. ,prepare the manufacturing overhead budget for the year.Also,calculate the predetermined overhead allocation rate,using direct labor hours as the allocation base.

Question 63

Kapital,Inc.has prepared the operating budget for the first quarter of the year.The company forecast sales of $50,000 in January,$60,000 in February,and $70,000 in March.Variable and fixed selling and administrative expenses are as follows:
Variable Expenses: Power cost (30% of sales)
Miscellaneous expenses: (10% of sales)
Fixed Expenses: Salary expense: $6,000 per month
Salaries expense: $4,000 per month
Depreciation expense: $1,400 per month
Power cost/fixed portion: $800 per month
Miscellaneous expenses/fixed portion: $1,000 per month
Calculate total selling and administrative expenses for the month of January.

A)$33,200
B)$41,200
C)$20,000
D)$37,200

Question 64

The capital expenditures budget is completed before the preparation of the cash budget.

Question 65

Projected manufacturing cost per unit of product sold does not include ________ cost per unit.

A)sales commission
B)direct materials
C)variable manufacturing overhead
D)direct labor

Question 66

The manufacturing overhead budget calculates the budgeted overhead cost for the year,but not the predetermined overhead allocation rate for the year.

Question 67

Cost behavior is considered in developing the selling and administrative expense budget as costs are designated as variable or fixed.

Question 68

The cost accountant works with the office and sales managers to develop the selling and administrative expense budget.

Question 69

From the following details provided by Barry,Inc. ,prepare the cost of goods sold budget for the year.



Barry,Inc.expects no inventory units at the end of the second,third and fourth quarters.

Question 70

The cost accountant works directly with the corporate president to develop the selling and administrative expense budget.

Question 71

Which of the following statements regarding capital expenditures is incorrect?

A)Capital expenditures are purchases of long-term assets.
B)The decision to purchase long-term assets is part of a strategic plan.
C)Capital expenditures include delivery trucks,computer systems,and manufacturing equipment.
D)Installment payments related to the purchase of long-term assets are included in the capital expenditures budget.

Question 72

Which of the following describes the selling and administrative expenses budget?

A)It aids in planning to ensure the company has adequate inventory on hand.
B)It captures the variable and fixed components of selling and administrative expenses of the business.
C)It depicts the breakdown of sales based on terms of collection.
D)It shows the cash flows related to the selling and administrative expenses and helps in planning to ensure the business has adequate cash.

Question 73

In preparing the master budget,the manufacturing overhead is the last period cost to consider.

Question 74

Which of the following statements regarding the manufacturing overhead budget is incorrect?

A)Both fixed and variable manufacturing overhead costs are budgeted.
B)The manufacturing overhead budget calculates the budgeted overhead costs for the year and also the predetermined overhead allocation rate for the year.
C)The cost accountant and the production manager work together to project variable and fixed manufacturing costs.
D)Depreciation on manufacturing equipment is not included because the production manager has no control over that cost allocation.

Question 75

When preparing the operating budgets for a manufacturing company,the manufacturing overhead budget ________.

A)represents the last period cost to be considered
B)only includes variable manufacturing overhead
C)only computes the budgeted overhead cost for the year
D)includes costs that are projected by the cost accountant and the production manager

Question 76

Which of the following statements regarding the capital expenditures budget is correct?

A)Installment payments related to the purchase of long-term assets are included in the capital expenditures budget.
B)Capital expenditures are purchases of long-term assets,such as office supplies.
C)The decision to purchase long-term assets is part of a strategic plan.
D)Capital expenditures are inexpensive assets.

Question 77

Scotch,Inc.has prepared the operating budget for the first quarter of the year.The company forecast sales of $45,000 in January,$55,000 in February,and $65,000 in March.Variable and fixed expenses are as follows:
Variable Expenses:
Power cost (40% of sales)
Miscellaneous expenses: (15% of sales)
Fixed Expenses:
Salaries expense: $10,000 per month
Rent expense: $5,000 per month
Depreciation expense: $1,200 per month
Power cost/fixed portion: $800 per month
Miscellaneous expenses/fixed portion: $1,200 per month
Using the information above,calculate the amount of selling and administrative expenses for the month of February.

A)$42,950
B)$53,950
C)$30,250
D)$48,450

Question 78

The inventory costing method affects the process of preparing the cost of goods sold budget.

Question 79

For manufacturing companies,the primary source of cash is from its customers.

Question 80

To develop the cost of goods sold budget,it is necessary to start by calculating the projected cost to produce each unit.