Deck 22: The Budgeting Process

Question 1

Sales budget is the final product of the budgeting process.

Answer 1

False

Question 2

All operating budgets should contain revenue and expense components.

Answer 2

True

Question 3

Operating budgets are plans used in daily operations.

Answer 3

True

Question 4

The direct labor budget is needed to prepare the production budget.

Question 5

Budgets assign resources and the responsibility to use them wisely to managers who are held accountable for their results.

Question 6

The cost of goods manufactured budget is an operating budget.

Question 7

The budgeting function begins with the preparation of a production budget.

Question 8

One of the limitation of the direct materials purchases budget is that it reflects only the quality of direct materials purchases.

Question 9

A budget can contain only financial information.

Question 10

A sales forecast for a retail organization is based on purchases and cost of goods sold budgets.

Question 11

It is necessary to know the budgeted number of unit sales to prepare production budget.

Question 12

Operating budgets are limited to service organizations.

Question 13

Budgetsare plans of action based on forecasted transactions,activities,and events.

Question 14

Revising the budgets to include all planning decisions will improve the quality of the budgets.

Question 15

Budgeting is the process of identifying,gathering,summarizing,and communicating financial and nonfinancial information about an organization's future activities.

Question 16

A master budget consists of a set of operating budgets and a set of financial budgets for a specific accounting period.

Question 17

The selling and administrative expense budget is typically separated into variable and fixed cost components.

Question 18

The main difference in the master budget process for manufacturing,retail,and service organizations is found in the kinds of operating budgets prepared by the organization.

Question 19

Evaluating the value chain and capacity issues are not part of the budgeting process.

Question 20

Managers do not need to know why a budget is being prepared,as these are prepared by higher authorities.

Question 21

The cash budget is derived exclusively from the sales and production budgets.

Question 22

Participative budgeting results in setting unattainable standards.

Question 23

Only the lowest levels of management can be evaluated using budgets.

Question 24

Budgets identify,gather,summarize,and communicate

A)financial data only.
B)financial and nonfinancial data.
C)nonfinancial data only.
D)None of these answer choice are correct.

Question 25

When making decisions to purchase new equipment,managers look into the capital expenditure budget of an organization

Question 26

In estimating cash receipts and cash payments for the cash budget,many organizations prepare supporting schedules.

Question 27

Which of the following is true of budgets?

A)Every budget must contain both revenues and expenses.
B)Budgets reduce the comparability concept of accounting.
C)The data in budgets are presented in dollars only;nonfinancial data should be excluded.
D)Budgets are synonymous with managing an organization.

Question 28

Participative budgeting involves only personnel at top levels of the organization.

Question 29

Receipt of stock dividends,depreciation,and amortization expense will not be recorded in the cash budget prepared by an organization.

Question 30

Once cash receipts and cash payments have been established,the cash increase or decrease is added to the period's beginning balance to arrive at a projected cash balance at period end.

Question 31

Budgets identify potential constraints before they become problems.

Question 32

Successful budget implementation depends on two factors-clear communication and the support of top management.

Question 33

The budget committee oversees each stage in the preparation of a master budget.

Question 34

Each period's ending cash balance becomes the beginning cash balance for the next period.

Question 35

Responsibility accounting authorizes managers to take control of and be held accountable for the revenues and expenses in their budgets.

Question 36

A continuous budget is a 12-month forward-rolling budget that summarizes budgets for the next 12 months.

Question 37

Budgets facilitate congruence between organizational and personal goals.

Question 38

Zero-based budgeting requires the preparation of budget from scratch.

Question 39

Static budgets are prepared on quarterly basis and require frequent change during the annual budget period.

Question 40

The long-term plan or budget involves every part of the enterprise and is much more detailed than the short-term plan.

Question 41

Which of the following budgets is prepared soon after the preparation of sales budget in a master budget?

A)Cost of goods sold budget
B)Production budget
C)Cash budget
D)Selling and administrative expenses budget

Question 42

Which of the following budgets must managers prepare before they can prepare a direct materials purchases budget?

A)Labor budget
B)Overhead budget
C)Production budget
D)Cost of goods manufactured budget

Question 43

J.J.Johnson has decided to supplement his income by selling beehives.He expects to sell 25,000 hives in 2014.He ended 2013 with 2,500 completed hives in inventory and would like to complete operations in 2014 with at least 2,800 completed hives in inventory.There is no ending work in process inventory.One beehive holds about 250 bees.The bees are purchased for $4.00 per 1,000 bees.The hives sell for $15.00 each. What would be the total of the 2014 sales budget of Johnson?

A)$378,000
B)$375,000
C)$379,500
D)$376,500

Question 44

The process of developing a master budget differs among manufacturing,retail,and service organizations in terms of preparation of

A)cash budget.
B)capital expenditures budget.
C)income statement.
D)operating budgets.

Question 45

Which of the following statements is true?

A)The direct materials purchases budget is determined from the direct labor budget.
B)The sales budget is the only budget based on an estimate of customer demand.
C)The capital expenditures budget are prepared from the production budget.
D)The selling and administrative expense budget is input into the forecasted cost of goods sold.

Question 46

Which of the following budgets is a financial budget?

A)Sales budget
B)Cash budget
C)Overhead budget
D)Cost of goods manufactured budget

Question 47

Emerald Corporation's overhead budget for 2013 was as follows: 750,000 units were produced in 2013.
Direct labor cost is $42,000,000.
For both 2013 and 2014,each unit required 4 direct labor hours at $14 per hour.
In 2014,property taxes,insurance,and depreciation are expected to stay at 2013 levels.
Utilities costs vary proportionally with units produced.
Factory supervision increases by increments of $45,000 for every 300,000 increase in direct labor hours.
The 2014 expected production is 1,200,000 units.
If the expected 2014 expense for factory supervision and for utilities costs is $600,000 and $150,000,respectively,then the total for the 2014 overhead budget of Emerald is

A)$930,000.
B)$880,000.
C)$780,000.
D)$750,000.

Question 48

Purchases of buildings and equipment are formally planned in the

A)depreciation budget.
B)budgeted balance sheet.
C)selling and administrative expense budget.
D)capital expenditures budget.

Question 49

A combined set of operational budgets and a set of financial budgets for the entire organization is known as a

A)master budget.
B)flexible budget.
C)month-to-month budget.
D)constant budget.

Question 50

Which of the following is not true of the direct materials purchases budget?

A)It is determined by the anticipated change in the direct materials inventory level and the production budget.
B)It does not affect the forecasted balance sheet.
C)It is expressed in units and dollars.
D)It affects the budgeted income statement.

Question 51

Which of the following budgets should be prepared before the others listed?

A)Cost of goods manufactured budget
B)Cash budget
C)Production budget
D)Overhead budget

Question 52

Emerald Corporation's overhead budget for 2013 was as follows: 750,000 units were produced in 2013.
Direct labor cost is $42,000,000.
For both 2013 and 2014,each unit required 4 direct labor hours at $14 per hour.
In 2014,property taxes,insurance,and depreciation are expected to stay at 2013 levels.
Utilities costs vary proportionally with units produced.
Factory supervision increases by increments of $45,000 for every 300,000 increase in direct labor hours.
The 2014 expected production is 1,200,000 units.
What will be the value for utilities of Emerald in the 2014 overhead budget?

A)$450,000
B)$250,000
C)$400,000
D)$650,000

Question 53

Which of the following budgets would be prepared immediately after the preparation of the overhead budget?

A)Cash budget
B)Production budget
C)Cost of goods sold budget
D)Cost of goods manufactured budget

Question 54

Which of the following forms the base of all operating budgets?

A)Direct materials purchases in units
B)Production budget (units)
C)Capital expenditures budget
D)Unit sales forecast

Question 55

Emerald Corporation's overhead budget for 2013 was as follows: 750,000 units were produced in 2013.
Direct labor cost is $42,000,000.
For both 2013 and 2014,each unit required 4 direct labor hours at $14 per hour.
In 2014,property taxes,insurance,and depreciation are expected to stay at 2013 levels.
Utilities costs vary proportionally with units produced.
Factory supervision increases by increments of $45,000 for every 300,000 increase in direct labor hours.
The 2014 expected production is 1,200,000 units.
What will be the value for factory supervision of Emerald in the 2014 overhead budget?

A)$720,000
B)$270,000
C)$450,000
D)$990,000

Question 56

Which of the following budgets is prepared before the preparation of production budget?

A)Sales budget
B)Cash budget
C)Direct labor budget
D)Capital expenditure budget

Question 57

Which of the following is not a guideline for budget preparation?

A)Revise budget to include planning decisions
B)Know the sources of budget information
C)Limit the use of a budget to one user group
D)Establish the format of the budget

Question 58

J.J.Johnson has decided to supplement his income by selling beehives.He expects to sell 25,000 hives in 2014.He ended 2013 with 2,500 completed hives in inventory and would like to complete operations in 2014 with at least 2,800 completed hives in inventory.There is no ending work in process inventory.One beehive holds about 250 bees.The bees are purchased for $4.00 per 1,000 bees.The hives sell for $15.00 each. How many beehives would the 2014 production budget,of Johnson,identify as needing to be produced?

A)25,300
B)25,000
C)30,300
D)24,700

Question 59

Financial budgets include

A)pro forma financial statements,a sales budget,and a cost of goods manufactured budget.
B)a budgeted income statement and budgeted balance sheet only.
C)a budgeted income statement,budgeted balance sheet,and cash budget.
D)pro forma financial statements,a capital expenditures budget,and a cash budget.

Question 60

After management has set short-term goals,the budgeting process typically starts with

A)a clearly defined timetable of events.
B)input only from the accounting personnel.
C)the naming of an efficient coordinator or director.
D)a set of procedures or instructions.

Question 61

Operating budgets for the DiP Company reveal the following information: net sales,$400,000;beginning materials inventory,$23,000;materials purchased,$185,000;beginning work in process inventory,$64,700;beginning finished goods inventory,$21,600;direct labor costs,$34,000;overhead applied,$67,000;ending work in process inventory,$61,200;ending materials inventory,$18,700;and ending finished goods inventory,$16,300.Compute DiP Company's budgeted gross margin.

A)$299,800
B)$293,800
C)$150,900
D)$100,900

Question 62

Richard Inc.expects to sell 28,000 units.Each unit requires 4 pounds of direct materials at $15 per pound and 3 direct labor hours at $12 per direct labor hour.The overhead rate is $9 per direct labor hour.The beginning inventories are as follows: direct materials,2,500 pounds;finished goods,3,100 units.The planned ending inventories are as follows: direct materials,4,000 pounds;finished goods,3,200 units. What is the planned production of Richard?

A)21,700
B)28,100
C)27,900
D)34,300

Question 63

A company pays for 25 percent of its purchases by credit terms n/60,40 percent of its purchases by credit terms n/30,and the remaining 35 percent by a two-month advance payment.The sources for June's cash payments schedule for direct materials would not include which of the following?

A)June's schedule of expected cash payments for direct materials
B)August's schedule of expected cash payments for direct materials
C)May's schedule of expected cash payments for direct materials
D)April's schedule of expected cash payments for direct materials

Question 64

If the cash budget of a company shows a cash shortage,the company would most likely

A)arrange to take out a short-term loan.
B)cut salaries of employees.
C)sign up for fewer orders so that it could control costs.
D)lay off employees for that period.

Question 65

Tough and Strong Inc.expects to sell 51,000 units of its product in the coming year.Each unit sells for $45.Sales brochures and supplies for the year are expected to cost $7,000.Three sales representatives cover the Northeast region.Each one's base salary is $25,000,and each earns a sales commission of 5 percent of the selling price of the units he or she sells.The sales representatives use their own transportation;they are reimbursed for travel at a rate of $0.40 per mile.The company estimates that the sales representatives will drive a total of 75,000 miles next year.From the information provided,calculate the company's budgeted selling expenses for the coming year.

A)$226,750
B)$176,750
C)$151,750
D)$114,750

Question 66

Which of the following do not serve as a source of data while preparing a cash budget?

A)A sales budget
B)Collection records
C)A budgeted balance sheet
D)A budgeted income statement

Question 67

Green Garden Inc.bills and pays selling and administrative expenses the month after they occur.Selling and administrative expenses have both a fixed and a variable component.The fixed component is a constant $47,000 a month.The variable component equals 15 percent of revenues.Given revenues of $800,000 for March,$950,000 for April,and $925,000 for May,what would be the budgeted selling and administrative expenses that would be paid in April?

A)$167,000
B)$142,500
C)$189,500
D)$185,750

Question 68

Which of the following is true of the cash budget?

A)It is prepared first in the master budget.
B)It is also called budgeted balance sheet.
C)It consists of cash receipts and cash payments.
D)It is the base for the preparation of the sales budget.

Question 69

Fantastic Futons manufactures futons.The estimated number of futon sales for the first three months of 2014 are as follows: Finished goods inventory at the end of 2013 was 10,000 units.On average,25 percent of the futons to be sold in the next month are produced and kept as ending balance in finished goods inventory.The planned selling price is $150 per unit.
How many futons are budgeted to be produced in January by Fantastic Futons?

A)44,500
B)28,000
C)42,500
D)52,500

Question 70

A cash budget

A)is an optional feature of a master budget.
B)requires input from all parts of the organization.
C)involves nonmonetary information.
D)can only be prepared at year end.

Question 71

Hang12 manufactures surfboards.During the upcoming quarter,it expects to sell 4,100 surfboards,after which it plans to have 500 surfboards remaining in inventory.If it currently has 200 surfboards on hand,how many surfboards will Hang12 have to produce for the upcoming quarter?

A)4,400
B)3,800
C)4,100
D)3,400

Question 72

Assume that the forecasted cost of goods sold is $800,000,budgeted selling and administrative expenses are $320,000,planned capital expenditures are $320,000,and the tax rate is 40 percent.What is the forecasted net income if 15,000 units are expected to be sold at $150 per unit?

A)$678,000
B)$452,000
C)$805,000
D)$483,000

Question 73

J.J.Johnson has decided to supplement his income by selling beehives.He expects to sell 25,000 hives in 2014.He ended 2013 with 2,500 completed hives in inventory and would like to complete operations in 2014 with at least 2,800 completed hives in inventory.There is no ending work in process inventory.One beehive holds about 250 bees.The bees are purchased for $4.00 per 1,000 bees.The hives sell for $15.00 each. What would be the yearly total on the direct materials purchases budget for bee purchases of Johnson? (Assume for this question that 40,000 beehives will be produced. )

A)$44,000
B)$16,000
C)$64,000
D)$40,000

Question 74

Fantastic Futons manufactures futons.The estimated number of futon sales for the first three months of 2014 are as follows: Finished goods inventory at the end of 2013 was 10,000 units.On average,25 percent of the futons to be sold in the next month are produced and kept as ending balance in finished goods inventory.The planned selling price is $150 per unit.
How many futons are budgeted to be produced in February by Fantastic Futons?

A)37,500
B)65,000
C)52,500
D)55,000

Question 75

Wean Corporation's budgeted balance sheet for the coming year shows total assets of $5,000,000 and total liabilities of $2,000,000.Common stock and retained earnings make up the entire stockholders' equity section of the balance sheet.Common stock remains at its beginning balance of $1,500,000.The projected net income for the year is $333,000.The company pays no dividends.What is the balance of retained earnings at the beginning of the budget period?

A)$1,067,000
B)$1,167,000
C)$1,833,000
D)$1,500,000

Question 76

Fantastic Futons manufactures futons.The estimated number of futon sales for the first three months of 2014 are as follows: Finished goods inventory at the end of 2013 was 10,000 units.On average,25 percent of the futons to be sold in the next month are produced and kept as ending balance in finished goods inventory.The planned selling price is $150 per unit.
What would be the sales budget for March of Fantastic Futons?

A)$7,200,000
B)$8,000,000
C)$6,750,000
D)$9,000,000

Question 77

Fantastic Futons manufactures futons.The estimated number of futon sales for the first three months of 2014 are as follows: Finished goods inventory at the end of 2013 was 10,000 units.On average,25 percent of the futons to be sold in the next month are produced and kept as ending balance in finished goods inventory.The planned selling price is $150 per unit.
Fantastic Futons buys direct materials for the futons in cloth rolls priced at $80 each.Each roll provides direct material for 40 futons.There was one roll in the direct materials inventory at the beginning of January,and the company expects to have four rolls in inventory at the end of the month.Assuming the production budget calls for 60,000 units to be produced in January,what would be the amount of the cloth rolls direct materials purchases budget for that month?

A)$119,760
B)$114,000
C)$120,000
D)$120,240

Question 78

Richard Inc.expects to sell 28,000 units.Each unit requires 4 pounds of direct materials at $15 per pound and 3 direct labor hours at $12 per direct labor hour.The overhead rate is $9 per direct labor hour.The beginning inventories are as follows: direct materials,2,500 pounds;finished goods,3,100 units.The planned ending inventories are as follows: direct materials,4,000 pounds;finished goods,3,200 units. Given a planned production of 5,000 units,what are the planned direct materials purchases of Richard?

A)$300,000
B)$258,000
C)$240,000
D)$322,500

Question 79

Great Lake Corporation wishes to prepare a cash budget for November 2014.Sales,purchases,and expenses for October (actual)and November and December (estimated)are as follows: Sales: All sales are on credit,and the company's experience shows that,on an average,80 percent of sales are collected in the month of sale and the balance in the following month.A 2 percent discount is allowed on all collections in the month of sale.
Purchases: The company pays 60 percent of purchases in the month of purchase and the balance in the following month.The company is allowed an average discount of 1 percent on payments made in the month of purchase.
Expenses: The monthly expenses for November include charges for depreciation amounting to $1,000 and $100 of prepaid expenses,which will expire.All other expenses are paid as incurred.
Other: On September 1,2014,a new machine was purchased for $5,000.A down payment of $500 was made,and it was agreed that the balance would be paid in equal installments in the following three months.
The cash receipts in November for October sales of Great Lake are expected to be

A)$8,000.
B)$9,600.
C)$9,408.
D)$7,840.

Question 80

The cost of goods manufactured of a company is $850,000.The beginning and ending finished goods inventory are $360,000 and 250,000,respectively.Determine the cost of goods sold.

A)$960,000
B)$740,000
C)$610,000
D)$600,000