Deck 22: Budgeting

Question 1

Once a static budget has been determined, it is changed regularly as the underlying activity changes.

Answer 1

False

Question 2

Employees view budgeting more positively when goals are established for them by senior management.

Answer 2

False

Question 3

Flexible budgeting requires all levels of management to start from zero and estimate sales, production, and other operating data as though operations were being started for the first time.

Answer 3

False

Question 4

A budget procedure that provides for the maintenance at all times of a twelve-month projection into the future is called master budgeting.

Question 5

Flexible budgeting builds the effect of changes in level of activity into the budget system.

Question 6

The budgeting process is used to effectively communicate planned expectations regarding profits and expenses to the entire organization.

Question 7

The objectives of budgeting are (1) establishing specific goals for future operations, (2) executing plans to achieve the goals, and (3) periodically comparing actual results with these goals.

Question 8

Budgets are prepared in the Accounting Department and monitored by various department managers.

Question 9

Budgetary slack can be avoided if lower and mid-level managers are requested to support all of their spending requirements with specific operational plans.

Question 10

When budget goals are set too tight, the budget becomes less effective as a tool for planning and controlling operations.

Question 11

A budget procedure that provides for the maintenance at all times of a twelve-month projection into the future is called continuous budgeting.

Question 12

Budgets are normally used only by profit-making businesses.

Question 13

Goal conflict can be avoided if budget goals are carefully designed for consistency across all areas of the organization.

Question 14

The flexible budget is, in effect, a series of static budgets for different levels of activity.

Question 15

In preparing flexible budgets, the first step is to identify the fixed and variable components of the various costs and expenses being budgeted.

Question 16

The budget procedure that requires all levels of management to start from zero in estimating sales, production, and other operating data is called zero-based budgeting.

Question 17

The budget procedures used by a large manufacturer of automobiles would probably not differ from those used by a small manufacturer of paper products.

Question 18

The budget procedure that requires all levels of management to start from zero in estimating sales, production, and other operating data is called continuous budgeting.

Question 19

A formal written statement of management's plans for the future, expressed in financial terms, is called a budget.

Question 20

A process whereby the effect of fluctuations in the level of activity is built into the budgeting system is referred to as flexible budgeting.

Question 21

The master budget of a small manufacturer would normally include all necessary component budgets except the capital expenditures budget.

Question 22

After the sales budget is prepared, the production budget is normally prepared next.

Question 23

If Division Inc. expects to sell 200,000 units in 2012, desires ending inventory of 24,000 units, and has 22,000 units on hand as of the beginning of the year, the budgeted volume of production for 2012 is 198,000 units.

Question 24

After the sales budget is prepared, the capital expenditures budget is normally prepared next.

Question 25

The production budget is the starting point for preparation of the direct labor cost budget.

Question 26

The first budget to be prepared is usually the cash budget.

Question 27

The master budget of a small manufacturer would normally include all component budgets that impact on the financial statements.

Question 28

Supervisor salaries and indirect factory wages would normally appear in the direct labor cost budget.

Question 29

Supervisor salaries, maintenance, and indirect factory wages would normally appear in the operating expenses budget.

Question 30

The first budget to be prepared is usually the sales budget.

Question 31

The master budget of a small manufacturer would normally include all necessary component budgets except the budgeted balance sheet.

Question 32

The budgeted direct materials purchases is based on the sum of (1) the materials needed for production and (2) the desired ending materials inventory, less (3) the estimated beginning materials inventory.

Question 33

The sales budget is the starting point for preparation of the direct labor cost budget.

Question 34

The budgeted direct materials purchases is normally computed as the sum of (1) the materials for production and (2) the desired ending inventory.

Question 35

The budgeted volume of production is normally computed as the sum of (1) the expected sales volume and (2) the desired ending inventory.

Question 36

The budgeted volume of production is based on the sum of (1) the expected sales volume and (2) the desired ending inventory, less (3) the estimated beginning inventory.

Question 37

Supervisor salaries, maintenance, and indirect factory wages would normally appear in the factory overhead cost budget.

Question 38

The first budget to be prepared is usually the production budget.

Question 39

Detailed supplemental schedules based on department responsibility are often prepared for major items in the operating expenses budget.

Question 40

If Division Inc. expects to sell 200,000 units in 2012, desires ending inventory of 24,000 units, and has 22,000 units on hand as of the beginning of the year, the budgeted volume of production for 2012 is 202,000 units.

Question 41

The budgeted balance sheet assumes that all operating and financing plans are met.

Question 42

The budget process involves doing all the following except:

A) establishing specific goals
B) executing plans to achieve the goals
C) periodically comparing actual results with the goals
D) dismissing all managers who fail to achieve operational goals specified in the budget

Question 43

A formal written statement of management's plans for the future, expressed in financial terms, is a:

A) gross profit report
B) responsibility report
C) budget
D) performance report

Question 44

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

Question 45

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

Question 46

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

Question 47

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

Question 48

The cash budget summarizes future plans for acquisition of fixed assets.

Question 49

The cash budget is affected by the sales budget, the various budgets for manufacturing costs and operating expenses, and the capital expenditures budget.

Question 50

The budgetary unit of an organization which is led by a manager who has both the authority over and responsibility for the unit's performance is known as a:

A) control center
B) budgetary area
C) responsibility center
D) managerial department

Question 51

The responsibility for coordinating the preparation of a master budget should be assigned to the CEO of a firm.

Question 52

The cash budget presents the expected inflow and outflow of cash for a specified period of time.

Question 53

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

Question 54

The capital expenditures budget is part of the planned investing activities of a company.

Question 55

A capital expenditures budget is prepared before the operating budgets.

Question 56

The capital expenditures budget summarizes future plans for acquisition of fixed assets.

Question 57

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

Question 58

The master budget is an integrated set of budgets that tie together a company's operating, financing and investing activities into an integrated plan for the coming year.

Question 59

The sales budget is derived from the production budget.

Question 60

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

Question 61

Tanya Inc.'s static budget for 10,000 units of production includes $60,000 for direct materials, $44,000 for direct labor, fixed utilities costs of $5,000, and supervisor salaries of $20,000. A flexible budget for 12,000 units of production would show:

A) the same cost structure in total
B) direct materials of $72,000, direct labor of $52,800, utilities of $5,000, and supervisor salaries of $20,000
C) total variable costs of $154,800
D) direct materials of $60,000, direct labor of $52,800, utilities of $6,000, and supervisor salaries of $20,000

Question 62

The process of developing budget estimates by requiring all levels of management to estimate sales, production, and other operating data as though operations were being initiated for the first time is referred to as:

A) flexible budgeting
B) continuous budgeting
C) zero-based budgeting
D) master budgeting

Question 63

Budgets need to be fair and attainable for employees to consider the budget important in their normal daily activities. Which of the following is not considered a human behavior problem?

A) Setting goals among managers that conflict with one another.
B) Setting goals too tightly making it difficult to meet performance expectation.
C) Allowing employees the opportunity to be a part of the budget process.
D) Allowing goals to be so low that employees develop a "spend it or lose it" attitude.

Question 64

At the beginning of the period, the Cutting Department budgeted direct labor of $155,000, direct material of $165,000 and fixed factory overhead of $15,000 for 9,000 hours of production. The department actually completed 10,000 hours of production. What is the appropriate total budget for the department, assuming it uses flexible budgeting?

A) $416,000
B) $370,556
C) $368,889
D) $335,000

Question 65

For March, sales revenue is $1,000,000; sales commissions are 5% of sales; the sales manager's salary is $80,000; advertising expenses are $75,000; shipping expenses total 1% of sales; and miscellaneous selling expenses are $2,100 plus 1% of sales. Total selling expenses for the month of March are:

A) $227,100
B) $215,000
C) $217,100
D) $152,100

Question 66

Cameron Manufacturing Co.'s static budget at 5,000 units of production includes $40,000 for direct labor and $5,000 for variable electric power. Total fixed costs are $20,000. At 8,000 units of production, a flexible budget would show:

A) variable costs of $64,000 and $25,000 of fixed costs
B) variable costs of $64,000 and $20,000 of fixed costs
C) variable costs of $72,000 and $20,000 of fixed costs
D) variable and fixed costs totaling $104,000

Question 67

Budgeting supports the planning process by encouraging all of the following activities except:

A) requiring all organizational units to establish their goals for the upcoming period
B) increasing the motivation of managers and employees by providing agreed-upon expectations
C) directing and coordinating operations during the period
D) improving overall decision making by considering all viewpoints, options, and cost reduction possibilities

Question 68

A variant of fiscal-year budgeting whereby a twelve-month projection into the future is maintained at all times is termed:

A) flexible budgeting
B) continuous budgeting
C) zero-based budgeting
D) master budgeting

Question 69

Scott Manufacturing Co.'s static budget at 10,000 units of production includes $40,000 for direct labor and $4,000 for electric power. Total fixed costs are $25,000. At 12,000 units of production, a flexible budget would show:

A) variable costs of $52,800 and $30,000 of fixed costs
B) variable costs of $44,000 and $25,000 of fixed costs
C) variable costs of $52,800 and $25,000 of fixed costs
D) variable and fixed costs totaling $69,000

Question 70

For February, sales revenue is $700,000; sales commissions are 5% of sales; the sales manager's salary is $96,000; advertising expenses are $80,000; shipping expenses total 2% of sales; and miscellaneous selling expenses are $2,500 plus 1/2 of 1% of sales. Total selling expenses for the month of February are:

A) $151,000
B) $227,500
C) $225,000
D) $231,000

Question 71

A series of budgets for varying rates of activity is termed a(n):

A) flexible budget
B) variable budget
C) master budget
D) activity budget

Question 72

When management seeks to achieve personal departmental objectives that may work to the detriment of the entire company, the manager is experiencing:

A) budgetary slack
B) padding
C) goal conflict
D) cushions

Question 73

For January, sales revenue is $700,000; sales commissions are 5% of sales; the sales manager's salary is $96,000; advertising expenses are $90,000; shipping expenses total 2% of sales; and miscellaneous selling expenses are $2,100 plus 1/2 of 1% of sales. Total selling expenses for the month of January are:

A) $157,100
B) $240,600
C) $183,750
D) $182,100

Question 74

Bob and Sons' static budget for 10,000 units of production includes $50,000 for direct materials, $44,000 for direct labor, variable utilities of $5,000, and supervisor salaries of $25,000. A flexible budget for 12,000 units of production would show:

A) the same cost structure in total
B) direct materials of $60,000, direct labor of $52,800, utilities of $6,000, and supervisor salaries of $30,000
C) total variable costs of $148,000
D) direct materials of $60,000, direct labor of $52,800, utilities of $6,000, and supervisor salaries of $25,000

Question 75

The primary difference between a static budget and a flexible budget is that a static budget

A) is suitable in volatile demand situation while flexible budget is suitable in a stable demand situation.
B) is concerned only with future acquisitions of fixed assets, whereas a flexible budget is concerned with expenses that vary with sales.
C) includes only fixed costs, whereas a flexible budget includes only variable costs.
D) is a plan for a single level of production, whereas a flexible budget can be converted to any level of production.

Question 76

The benefits of comparing actual performance of the operations against planned goals include all of the following except:

A) providing prompt feedback to employees about their performance relative to the goal
B) preventing unplanned expenditures
C) helping to establish spending priorities
D) determining how managers are performing against prior years' actual operating results

Question 77

Which of the following budgets allow for adjustments in activity levels?

A) Static Budget
B) Continuous Budget
C) Zero-Based Budget
D) Flexible Budget

Question 78

A disadvantage of static budgets is that they:

A) are dependent on previous year's actual results
B) cannot be used by service companies
C) do not show possible changes in underlying activity levels
D) show the expected results of a responsibility center for several levels of activity

Question 79

At the beginning of the period, the Assembly Department budgeted direct labor of $110,000, direct material of $170,000 and fixed factory overhead of $28,000 for 8,000 hours of production. The department actually completed 10,000 hours of production. What is the appropriate total budget for the department, assuming it uses flexible budgeting.

A) $288,000
B) $305,000
C) $350,000
D) $378,000

Question 80

The budgeting process does not involve which of the following activities:

A) Specific goals are established
B) Periodic comparison of actual results to goals
C) Execution of plans to achieve goals
D) Increase in sales by increasing marketing efforts.