Deck 23: Budgeting for Planning and Control

Question 1

Which of the following are benefits of budgeting?
I) Budgeting ensures future events will never catch management by surprise
II) Budgeting establishes organisational goals
III) Budgeting is a means of coordination
IV) Budgeting provides useful work for accounting staff

A) I and II only
B) II and III only
C) II and IV only
D) I, II, III and IV

Answer 1

B

Question 2

The primary purpose of a budget is to:

A) identify who should be promoted.
B) show how resources will be acquired and used.
C) find the cheapest source of supplies and expenses.
D) identify those employees that are working efficiently and those that are working inefficiently

Answer 2

B

Question 3

Which of the following is part of the operating set of budgets of a service organisation?

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

Answer 3

B

Question 4

Which of the following statements concerning responsibility accounting is incorrect?

A) Responsibilities must be clearly defined for budgeting to be successful.
B) A manager is held responsible for the activities of his/her department.
C) The choice of responsibility centres in an organisation depends on its characteristics.
D) Responsibility centres are usually determined by differences in the product the firm produces.

Question 5

Which of the following factors need not be present for budgeting to work efficiently?

A) Management participation.
B) A flat management structure.
C) An efficient accounting and reporting system.
D) An organisational structure in which responsibility is clearly defined.

Question 6

Which of the following statements relating to a master budget is incorrect?

A) It is a set of interrelated budgets.
B) It is normally overseen by a budget committee.
C) Budget targets are fixed and not subject to revision.
D) It is typically prepared for a one-year period that coincides with the entity's financial year.

Question 7

Which of the following is not a financial budget?

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

Question 8

Which of the following statements best describes 'goal congruence'?

A) All segments working towards the overall goals set by the organisation.
B) Instructing lower levels of management what to do and how to do it.
C) All the business in an industry working together to solve problems.
D) Rewarding managers who reach their performance targets.

Question 9

Which of the following statements is incorrect?

A) An improperly prepared budget can have a negative effect on motivation.
B) Managers should be given sole responsibility for setting their own budget targets so that they are motivated to achieve these targets.
C) The budgeted level of performance should be attainable with a reasonably efficient amount of effort.
D) A properly prepared budget is a motivating device.

Question 10

Which of the following is not a benefit of budgeting?

A) Motivation
B) Coordination
C) Liquidity management
D) It saves work for management.

Question 11

Who should participate in the budgeting process?

A) Supervisors within a department
B) Division heads
C) Senior management
D) All levels of management

Question 12

The first and last steps respectively in the development of a master budget are:

A) forecasting sales and estimating expenses.
B) identifying goals and preparation of the cash budget.
C) identifying goals and preparation of a set of budgeted financial statements.
D) preparation of the sales budget and preparation of the capital expenditure budget.

Question 13

The behavioural aspect of budgeting is:

A) unimportant.
B) very important.
C) generally important.
D) only important for some firms.

Question 14

For many companies in Australia the average profit margin could be as low as:

A) 5%.
B) 10%.
C) 15%.
D) 20%.

Question 15

Which statement relating to the provision of motivation as a benefit of budgeting is not true?

A) An improperly prepared budget may have an adverse effect on motivation.
B) To increase the chances of acceptance the budget is best approached from the bottom up.
C) When all levels of management participate in preparing the budget it has a better chance of acceptance.
D) The budgeted level of performance should be beyond that attainable with a reasonably amount of effort, to provide employees with a challenge.

Question 16

Which of the following statements concerning budgeting is correct?

A) All budgets must be prepared in dollar values.
B) Performance evaluation and budgeting are not closely related.
C) A budget is an essential step in managing a business efficiently.
D) A budget prepared by an individual is more detailed than one used by a business.

Question 17

Budgeting for a retailer requires a purchases budget to be prepared. When budgeting for a manufacturer the purchases budget is replaced by a:

A) Budgeted income statement
B) Budgeted cost of sales
C) Production budget
D) Expense budget

Question 18

For a budget to be most effective it is best prepared from a:

A) bottom up approach.
B) top down approach.
C) middle up approach.
D) middle down approach.

Question 19

Which of the following statements is not true?

A) A budget is a detailed plan.
B) A budget is a management tool.
C) A budget is prepared on an historical basis.
D) A budget provides many of the performance targets used in responsibility accounting.

Question 20

is the term used when the personal and corporate goals of the managers of an entity are consistent with the goals of the organisation.

A) Co-ordination
B) Master budgeting
C) Goal congruence
D) A balanced scorecard

Question 21

Which of the following methods would not be used to forecast sales?

A) extrapolation of past sales.
B) predictions by senior management.
C) statistical or mathematical techniques.
D) working out the maximum production that can be achieved.

Question 22

The Magnolia Company has budgeted for sales of 150 000 units of its product for the year. Expected unit costs, based on past experience, should be $18 for direct materials, $15 for direct labour and $20 for manufacturing overhead. Assume no beginning and ending work in process inventories. The Magnolia Company begins the year with 30 000 finished units on hand and budgets the ending finished goods inventory at 20 000 units. Compute the budgeted production in units and dollars.

A) 140 000 units @ $33 = $4 620 000
B) 140 000 units @ $53 = $7 420 000
C) 150 000 units @ $33 = $4 950 000
D) 150 000 units @ $53 = $7 950 000

Question 23

Which of the following statements is incorrect?

A) A service provider only prepares financial budgets, not operating budgets.
B) A retailer prepares a budget for purchases and then a cost of sales budget.
C) Both retailers and manufacturers prepare income, expense, capital expenditure and cash budgets.
D) A manufacturer prepares a production budget, direct materials, direct labour and factory overhead budgets and then a cost of sales budget.

Question 24

In relation to cash budgets, it is true that:

A) they are based on preparing a projected bank reconciliation.
B) they are prepared by entities that sell entirely on credit.
C) they are the last budget to be prepared.
D) they include depreciation.

Question 25

What is the name given to the set of budgets that give details of the income and costs of projected activities needed to achieve satisfactory profit results?

A) Master budgets.
B) Cash budgets.
C) Operating budgets.
D) Financial budgets.

Question 26

Cash receipts information would come from the:

A) sales budget.
B) direct materials budget.
C) capital expenditure budget.
D) direct labour budget.

Question 27

Which expense varies directly with production?

A) Depreciation of equipment
B) Managers salary
C) Direct materials
D) Insurance

Question 28

An example of a fixed factory overhead cost is:

A) direct labour.
B) light and power.
C) council rates and taxes.
D) indirect materials.

Question 29

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

A) Cash budget
B) Sales budget
C) Expense budget
D) Production budget

Question 30

All of the following factors can influence the reliability of the sales forecast except:

A) proposed advertising.
B) action of competitors.
C) a rise in general interest rates.
D) a slow-down in the collection of cash from debtors.

Question 31

The budget that sets out the proposed acquisition of machinery and equipment planned for the period is the:

A) purchases budget.
B) budgeted balance sheet.
C) budgeted income statement.
D) capital expenditure budget.

Question 32

Which of the following is a typical example of a variable cost?

A) Rent
B) Depreciation
C) Cleaning
D) Sales commission

Question 33

Which of the following statements is correct?

A) GST can be ignored when preparing budgets.
B) Most firms prepare cash budgets for periods of 5 years or more.
C) The bank figure in the budgeted balance sheet comes from the cash budget.
D) Budgeted retained profits is calculated as opening balance plus budgeted profit plus budgeted dividends.

Question 34

Which of the following statements is not true?

A) GST estimates need to be included in a cash budget.
B) A service business does not need to prepare a cash budget.
C) Preparing operating budgets for service businesses is normally simpler than preparing them for retailers or manufacturers.
D) The emphasis in budgeting for not-for-profit organisations tends to be on cash flows and the final cash position rather than on profits, income and expenditure.

Question 35

Virtually every phase of a manufacturer's master budget is dependent on:

A) the sales forecast.
B) the wastage rate.
C) the production forecast.
D) the capital expenditure forecast.

Question 36

Purchases of buildings are formally planned for in the:

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

Question 37

The unit purchasing requirements for a retail entity are calculated as:

A) forecast sales in units - desired ending inventory in units + beginning inventory in units.
B) forecast sales in units - desired ending inventory in units - beginning inventory in units.
C) forecast sales in units + desired ending inventory in units + beginning inventory in units.
D) forecast sales in units + desired ending inventory in units - beginning inventory in units.

Question 38

Place the following budgets in the normal sequence of budget preparation for a manufacturing entity.
I) budgeted balance sheet
II) budgeted income statement
III) production budget
IV) sales budget
V) cash budget
VI) cost of sales budget

A) IV, V, VI, II, III, I.
B) IV, III, VI, II, V, I.
C) IV, VI, II, III, V, I.
D) V, II, IV, VI, III, I.

Question 39

Which of the following budgets is prepared after the cash budget?

A) Sales Budget
B) Budgeted balance sheet
C) Capital expenditure budget
D) Budgeted income statement

Question 40

Which of these methods is least likely to be used to forecast sales?

A) Field studies by market research staff
B) Predictions by production employees
C) Predictions by sales staff
D) Extrapolation of past sales

Question 41

Predetermined overhead rates are generally useful for all of the following purposes, except:

A) estimating production levels.
B) product costing.
C) price determination.
D) inventory valuation.

Question 42

From the list below, which budget should be prepared before the others?
I) Cash budget
II) Manufacturing overhead budget
III) Cost of goods manufactured budget
IV) Production budget

A) I
B) II
C) III
D) IV

Question 43

Budgeted direct materials purchases in units equals:

A) budgeted direct materials usage less beginning direct materials plus desired ending direct materials.
B) budgeted direct materials usage plus beginning direct materials less desired ending direct materials.
C) budgeted direct materials in stock plus beginning direct materials inventory less desired ending direct materials.
D) budgeted direct materials in stock less beginning direct materials inventory plus desired ending direct materials.

Question 44

In the control phase of budgeting it is not necessary to:

A) investigate all variances.
B) decide on management action.
C) provide timely information to management.
D) compare actual performance with budget estimates.

Question 45

A budget performance report is being prepared and will be sent to the appropriate segment manager. Which term best describes the type of costs and income that should be included in this report?

A) Unfavourable
B) Administrative
C) Controllable
D) Fixed

Question 46

Large favourable variances between actual and planned performance may indicate:

A) that the firm must be operating efficiently.
B) that actual expenses were higher than budgeted expenses.
C) budget income targets may need to be revised upwards in the future.
D) that actual income was too high and should be revised downwards in the future.

Question 47

The following information relates to the 2019 budgets:
$$\begin{array} { l r } \text { Sales } & \$ 450000 \\\text { Direct materials purchases } & 93000 \\\text { Direct labour } & 65000 \\\text { Manufacturing overhead } & 37000 \\\text { Capital expenditures } & 40000 \\\underline{ \text { Finished goods inventory } }& \\\text { Start of year }& \$ 28000 \\\text { End of year } & \$ 42000\end{array}$$
Projected cost of sales for 2019 is:

A) $181 000.
B) $195 000.
C) $221 000.
D) $235 000.

Question 48

Specials R Us expects to begin the coming year with 60 units of Product F in finished goods inventory. It expects to sell 585 units of this product during the year and anticipates the ending finished goods inventory for the product will be 80 units. Each item of Product F requires 6kgs of Material AB. The company expects to have 800 kg of Material AB on hand at the beginning of the coming year and wishes to end the year with 1000 kg in inventory. How many kilograms of Material AB must the company purchase during the year?

A) 3 190 kg
B) 3 510 kg
C) 1 480 kg
D) 3 830 kg

Question 49

Identify the unfavourable variance.

A) Budgeted expenses $8 000; actual expenses $8 500
B) Budgeted loss $13 800; actual loss $8 500
C) Budgeted income $10 000; actual income $15 000
D) Budgeted expenses $13 000; actual expenses $11 000

Question 50

Which of the following is not part of the control phase of budgeting?

A) Comparing actual performance with budget estimates.
B) Deciding what action should be taken.
C) Identifying any significant variances.
D) Setting goals.

Question 51

Which of the following account balances is not reported on the balance sheet?

A) Cost of sales
B) Finished goods inventory
C) Work in progress inventory
D) Materials inventory

Question 52

If estimated direct raw materials and direct labour costs are $42 000 in total, what is the direct cost per unit if forecast production is 6000 units?

A) $7
B) $8
C) $14
D) $18

Question 53

It is estimated that direct materials, direct labour and factory overhead for the period will total $60 000. If work in process at the start is $12 000 and estimated work in process at the end is $15 000, the cost of goods manufactured is:

A) $45 000
B) $57 000
C) $72 000
D) $75 000

Question 54

If the cost object is the product, which of the following labour costs would be most likely to be classified as direct labour?

A) General manager's salary
B) Machine operator's wages
C) Accounting staff's salaries
D) Maintenance staff's wages

Question 55

analysis is the technique in which budget variables are altered and the effect of the changes on the income statement and the balance sheet are recorded.

A) Profit
B) What-if
C) Variable
D) Spreadsheet

Question 56

The sales budget for Jim's Tents for the first three months of the year is expected to be $150 000, $140 000 and $160 000 with 20% of each month's sales being on credit. Collections of accounts receivable are scheduled at 50% during the month of sale, 45% during the month following the sale with 5% uncollectable. The total budgeted cash receipts from sales for the second month will be:

A) $128 000
B) $139 500
C) $140 000
D) $143 000

Question 57

Textiles Company plans to produce 50 000 units per month during 2019. Sales are projected at 40 000 for January and will increase 2% per month thereafter. There are 15000 units on hand at 1 January 2019. How many units will be on hand at 28 February 2019?

A) 50 000
B) 40 000
C) 35 000
D) 34 200

Question 58

Information for Deep Sea Fishing Product's cash budget is as follows.
$$\begin{array} { | l | c | c | c | c | } \hline \text { Quarter } & 1 & 2 & 3 & 4 \\\hline \text { Estirrated sales (uritis) } & 100 & 200 & 300 & 200 \\\hline\end{array}$$
Each unit sells for $50 and 80% of sales are on credit. Credit sales are collected as follows: 25% in the quarter of the sale and the balance in the following quarter. How many dollars of 3rd quarter sales will be collected in cash in the 4th quarter?

A) $15 000
B) $9 000
C) $12 000
D) $11 250

Question 59

If budgeted sales revenue is $220 000 and actual sales revenue is $200 000, and budgeted expenses are $115 000 and actual expenses are $135 000, the profit variance for the period is:

A) $20 000 F.
B) $20 000 U.
C) $40 000 F.
D) $40 000 U.

Question 60

Southside Manufacturing is preparing its purchases budget for the 3rd quarter of the year. The following information is given in units.
$$\begin{array} { l r } \text { Beginning inventory } & 550 \\\text { Ending inventory } & 780 \\\text { Sales forecast for second quarter } & 1390\end{array}$$
How many units should be purchased in the second quarter?

A) 1160
B) 1390
C) 1620
D) unable to calculate from information provided.

Question 61

The direct labour budget is developed from the:

A) sales budget.
B) cash budget.
C) production budget.
D) materials budget.