Deck 6: Master Budget and Responsibility Accounting

Question 1

A budget is the quantitative expression of a proposed plan of action by management for a specified period.

Answer 1

True

Question 2

Which of the following statements is true of budgets?

A) Master budgets express management's operating and financial plans.
B) Financial budgets are prepared before the master budget is prepared.
C) Operating budgets are prepared independently of the master budget.
D) The budgeted balance sheet is the first budget prepared as management is very much concerned with projected financial position

Answer 2

Master budgets express management's operating and financial plans.

Question 3

A budgeting process can facilitate learning in that feedback from budgets can lead to changes in plans and strategies.

Answer 3

True

Question 4

Operating decisions primarily deal with ________.

A) the best use of scarce resources
B) how to obtain funds to acquire resources
C) acquiring equipment and buildings
D) satisfying stockholders

Question 5

The benefit of engaging lower level management in the budget preparation process is that it helps to streamline the budget process.

Question 6

Financing decisions deal with how to best use the limited resources of an organization.

Question 7

Budgeted financial statements are called pro forma statements.

Question 8

A budget is a communication aid, informing staff of expectations and providing information that is essential to coordinating what needs to be done to implement the proposed plan.

Question 9

Budgets incorporate managements goals and

A) are a strategic long range plan
B) are both a short range and long range profit plan
C) includes only financial aspects of an operation as those are the only items that can be quantified in a profit plan
D) express management's operating and financial plan for a specified period - usually a fiscal year

Question 10

Financing decisions primarily deal with ________.

A) the use of scarce resources
B) how to obtain funds to acquire resources
C) acquiring equipment and buildings
D) preparing financial statements for stockholders

Question 11

The preparation of all the budgets in the master budget forces managers to think about their business operations and to formulate plans, while:

A) detecting inaccurate historical records to avoid errors in budgets
B) setting expectations against which actual results can be compared
C) completing the budgeting tasks with minimal cross functional feedback
D) ignoring financial risks and opportunities

Question 12

A master budget ________.

A) is the initial plan of what the company intends to accomplish in the period and evolves from both the operating and financing decisions
B) is only prepared for manufacturers as they are the only type of company with material purchases and work-in-process accounts.
C) improves companies' market capitalization and evolves from both the investing and financing decisions
D) is another name given to the financial budget

Question 13

Which of the following is true of master budgets?

A) They include only financial aspects of a plan and exclude nonfinancial aspects.
B) Includes both financial and nonfinancial aspects of management's plans.
C) They aid in quantifying the expectations of all stakeholders.
D) They must be administered rigidly after they are committed to.

Question 14

Which of the following is true of a budget?

A) Budgets are used to express only the operational plans and not the strategic plans of a company.
B) Budgets do not account for nonfinancial aspects of the upcoming period.
C) Budgets are most useful when they are planned independent of the company's strategic plans.
D) Budgets help managers to revise their plans and strategies.

Question 15

A budget generally includes only the financial aspects of management's plan.

Question 16

Budgets are sometimes called targets or commitments by some companies and as such are "set in stone" to provide effective benchmarks for management.

Question 17

Which of the following is a financial budget?

A) budgeted balance sheet
B) cash receivables budget
C) production budget
D) cost of goods sold budget

Question 18

Which of the following is not true of a properly executed budgetary cycle?

A) deviations from plan are only investigated at the conclusion of the fiscal year as actual data can be finally compiled
B) past performance and market feedback are considered in setting budget amounts
C) specific financial and nonfinancial expectations are set
D) during the fiscal year, managers investigate deviations from plans

Question 19

Budgeting includes only the financial aspects of the plan and NOT any nonfinancial aspects such as the number of physical units manufactured or the hours that the direct laborers are expected to work.

Question 20

Operating plans are generally expressed through long-run budgets.

Question 21

A company's actual performance should be compared against budgeted amounts for the same accounting period so that ________.

A) adjustments for future conditions can be included
B) to avoid any feedback from the budgets due to past miscues
C) inefficiencies of the past year can be included
D) a rolling budget can be implemented

Question 22

Creating a little anxiety among managers and staff with challenging budgets helps employee work harder to achieve goals.

Question 23

Which of the following is true of budgets when they are administered thoughtfully?

A) They eliminate subjectivity in performance evaluation.
B) They can eliminate the uncertainty faced by a company.
C) They promote coordination within the subunits of a company.
D) They are a substitute the planning and coordination functions of management.

Question 24

A budget is an end product of negotiations among senior and subordinate mangers because ________.

A) budgeting is their mutual responsibility
B) senior managers alone cannot spare the time required for the budgeting process
C) senior managers are responsible for providing information on competitors performance and subordinate managers are responsible for information on external market conditions
D) senior managers want very challenging targets, while subordinates may want targets that are relatively easier to achieve.

Question 25

The major objectives of a budgeting process should include all of the following EXCEPT:

A) providing coordination among the subunits
B) providing communication among the subunits
C) providing unyielding commitment to targets as a means to achieve a target profit
D) providing a framework for judging performance and facilitating learning

Question 26

Research shows that the performance of employees falls when they are asked to adhere to challenging budgets.

Question 27

Which of the following is a reason why top managers want lower-level managers to participate in the budgeting process?

A) To benefit from their experience with the day-to-day aspects of running the business.
B) To reduce the time and cost expended in the budgeting process.
C) To ensure that they do not introduce any budgetary slack.
D) To ensure that the budgets are administered rigidly given the changing market conditions.

Question 28

Bottom-up budgets entrusts senior managers to prepare budgets and lower-level managers to execute them.

Question 29

After a budget is agreed upon and finalized by the management team, the amounts should NOT be changed for any reason.

Question 30

Bob and Dale have just purchased a small honey manufacturing company that was having financial difficulties. After a brief operating period, they decided that the company's main problem was an improper budgeting function. The company made a good product and market potential was great.
Required:
Describe the usual budgeting cycle that well-managed companies adopt?

Question 31

Even in the face of changing conditions, attaining the original budget is critical and is the only true measure of success.

Question 32

One of the benefits of a well implemented and executed budget is communication. Which of the following best describes communication within the budgetary cycle?

A) meshing and balancing of all aspects of production or service
B) making each manager aware of the plan and allowing each manager to understand the importance of the plan
C) allocation of scarce resources across all functional areas of the company
D) the calculation of deviations from plan

Question 33

The practice of developing reasonably challenging budgets tend to help:

A) discourage out-of-the-box and creative thinking as there is very little room for error
B) set unrealistic expectations and are perceived as overly ambitious and unachievable
C) increase anxiety without motivation not meeting them is viewed as a failure
D) motivate improved performance as employees work more intensely to avoid failure

Question 34

Participation of employees in the budgeting process helps ________.

A) create greater commitment towards the budget
B) create demanding but achievable budget
C) decrease deviations from the budget
D) secure communication of sensitive information

Question 35

Describe the benefits of preparing an operating budget to an organization.

Question 36

A limitation of using past performance as a basis for judging actual results is that ________.

A) future conditions can be different from the past
B) any undervaluation of profits in the past period is likely to continue
C) any subsequent change in accounting treatment will distort performance evaluation
D) they tend to distort results when current and past conditions are similar

Question 37

Managers who feel that top management does not believe in the budget are most likely to ________.

A) pick up the slack and participate in the budgeting process
B) to face little interference in the day-to-day aspects of running the business
C) be less engaged participants in the budgeting process and less committed to achieving budgeted targets
D) convert the budget to a shorter more reasonable time period that will help with real time reporting

Question 38

Which of the following is a limitation of using past performance as a basis for judging actual results?

A) It does not account for productivity increases over the periods.
B) It increases the incentive for managers to introduce budgetary slack.
C) It assumes inefficiencies of previous periods without considering possible efficiencies of the budget period.
D) It increases the tendency of senior managers exaggerating changes in future conditions as opposed to changes in current conditions.

Question 39

Which of the following is referred to as the bottom-up aspect of the budgeting process?

A) lower-level managers setting their individual targets that aggregate to be the company-wide target
B) senior managers consulting middle- and lower-level managers to investigate any deviations from the budget
C) lower-level managers implementing the budgets with senior managers monitoring progress and investigating deviations
D) lower-level managers providing inputs to the budgeting process based on their specialized knowledge and familiarity of the operation

Question 40

Budgets should ________.

A) not be so rigid that if conditions change, adjustments in spending can be made
B) be administered rigidly
C) only be developed for short periods of time such as quarters
D) include only variable costs

Question 41

The sales forecast should be primarily based on ________.

A) statistical analysis
B) input from sales managers and sales representatives
C) production capacity
D) input from the board of directors

Question 42

Best products, an Atlanta based company, is in the midst of its budgeting process. It has already prepared its direct materials usage budget and is now in the process of preparing its direct material purchase budget. In addition to the details gathered to prepare the direct materials usage budget, Best also must know ________.

A) the target direct materials ending inventory
B) the ratio of direct materials to cost of goods sold
C) the beginning direct materials inventory level
D) the quantity of direct materials to be purchased

Question 43

________ include a budgeted statement of cash flows and a budgeted balance sheet.

A) Revenue budgets
B) Financial budgets
C) Operating budgets
D) Production budgets

Question 44

Which of the following is the basic formula of the direct materials usage budget?

A) Ending inventory of direct materials + direct materials purchased and used during the period = direct materials to be used this period
B) Beginning inventory of direct materials + direct materials purchased and used during the period = direct materials to be used this period
C) units used in production + target ending inventory - beginning inventory = purchases to be made for the budget period
D) units used in production + target beginning inventory - ending inventory = purchases to be made for the budget period

Question 45

The budgeting process is most strongly influenced by ________.

A) the capital budget
B) the budgeted statement of cash flows
C) the sales forecast
D) the production budget

Question 46

The ________ is a component of financial budgets.

A) cost of goods sold budget
B) budgeted income statement
C) direct materials budget
D) budgeted statement of cash flows

Question 47

The number of units in the sales budget and the production budget may differ because of a change in ________.

A) ending finished goods inventory levels
B) total overhead charges for the year
C) beginning direct material inventory levels
D) sales returns and allowances

Question 48

When administered wisely, budgets promote communication and coordination among the various subunits of the organization.

Question 49

The operating budget process generally concludes with the preparation of the ________.

A) production budget
B) cash flow statement
C) balance sheet
D) budgeted income statement

Question 50

________ is the usual starting point for budgeting.

A) The revenues budget
B) The estimated net income
C) The production budget
D) The cash budget

Question 51

Budgeted production equals ________.

A) beginning finished goods inventory + budgeted unit sales - targeted ending finished goods inventory
B) targeted ending finished goods inventory + beginning finished goods inventory - budgeted unit sales
C) budgeted unit sales + targeted ending finished goods inventory - beginning finished goods inventory
D) budgeted unit sales + targeted ending finished goods inventory + beginning finished goods inventory

Question 52

The revenues budget reveals

A) expected cash flows for each product
B) actual unit sales from last year multiplied by the budget period's expected selling prices for each product
C) the expected level of unit sales multiplied by expected unit selling prices for company products
D) the variance of sales from actual for each product

Question 53

Which of the following best describes a rolling budget?

A) It is a budget that continually outlines the amount required to roll over debt in a future period.
B) It is created continually by adding a month, quarter, or year to the period just ended
C) It is a budget that outlines budgeted expenses while utilizing a moving average
D) It is a budget that is submitted to a bank at the beginning of every month as per a loan covenant.

Question 54

It is best to compare this year's performance with last year's actual performance rather than this year's budget.

Question 55

The order to follow when preparing the operating budget is ________.

A) revenues budget, production budget, direct manufacturing labor costs budget , and cost of goods sold
B) revenues costs of goods sold budget, production budget, and cash budget
C) revenues budget, manufacturing overhead costs budget, and production budget
D) cash expenditures budget, revenues budget, and production budget

Question 56

In general, which of the following budgets is prepared first?

A) sales budget
B) production budget
C) direct labor budget
D) overhead budget

Question 57

Which of the following is the most frequently used budget periods used in business?

A) a basic budget period of 1 year often subdivided into semi-annual periods
B) a basic budget period of 2 years often subdivided into quarters and semi-annual periods
C) A basic budget period of 2 years subdivided into monthly periods
D) a basic budget period of 1 year often subdivided into quarters and months

Question 58

Which of the following is a component of operating budgets?

A) production budget
B) budgeted statement of cash flows
C) capital expenditures budget
D) budgeted balance sheet

Question 59

In which order are the following developed? First to last:
A = Production budget
B = Direct materials costs budget
C = Budgeted income statement
D = Revenues budget

A) ABDC
B) DABC
C) DCAB
D) CABD

Question 60

Costs such as supervision, plant and equipment (production) depreciation, maintenance, supplies, and power. are included in the ________.

A) capital expenditures budget
B) distribution costs budget
C) revenues budget
D) manufacturing overhead budget

Question 61

Bradford, Inc., expects to sell 9,000 ceramic vases for $21 each. Direct materials costs are $3, direct manufacturing labor is $12, and manufacturing overhead is $3 per vase. The following inventory levels apply to 2019:

What are the 2019 budgeted production costs for direct materials, direct manufacturing labor, and manufacturing overhead, respectively?

A) $27,600; $110,400; $27,600
B) $27,000; $108,000; $27,000
C) $9,000; $36,000; $9,000
D) $9,000; $0; $10,500

Question 62

Bradford, Inc., expects to sell 6,000 ceramic vases for $21 each. Direct materials costs are $3, direct manufacturing labor is $10, and manufacturing overhead is $3 per vase. The following inventory levels apply to 2019:

How many ceramic vases should be produced in 2019?

A) 5,800 vases
B) 6,200 vases
C) 11,000 vases
D) 6,000 vases

Question 63

For next year, Roberts, Inc., has budgeted sales of 20,000 units, targeted ending finished goods inventory of 1,650 units, and beginning finished goods inventory of 750 units. All other inventories are zero. How many units should be produced next year?

A) 19,100 units
B) 20,000 units
C) 20,900 units
D) 22,400 units

Question 64

Bradford, Inc., expects to sell 11,000 ceramic vases for $21 each. Direct materials costs are $3, direct manufacturing labor is $11, and manufacturing overhead is $5 per vase. The following inventory levels apply to 2019:

On the 2019 budgeted income statement, what amount will be reported for sales?

A) $241,500
B) $220,500
C) $252,000
D) $231,000

Question 65

Which of the following information is required by a company's manager while preparing a manufacturing overhead costs budget?

A) estimated incentives to be paid to marketing personnel
B) estimated expense for office supplies
C) estimated expense for maintenance of factory building
D) rent expense for lease of office building

Question 66

First Class, Inc., expects to sell 28,000 pool cues for $14 each. Direct materials costs are $3, direct manufacturing labor is $5, and manufacturing overhead is $0.82 per pool cue. The following inventory levels apply to 2019:

How many pool cues need to be produced in 2019?

A) 30,800 cues
B) 29,300 cues
C) 29,500 cues
D) 26,500 cues

Question 67

Antique Brass Company has budgeted sales volume of 122,000 units and budgeted production of 114,000 units, while 24,000 units are in beginning finished goods inventory. How many units are targeted for ending finished goods inventory?

A) 24,000 units
B) 32,000 units
C) 8,000 units
D) 16,000 units

Question 68

Bradford, Inc., expects to sell 8,000 ceramic vases for $21 each. Direct materials costs are $4, direct manufacturing labor is $10, and manufacturing overhead is $4 per vase. The following inventory levels apply to 2019:

On the 2019 budgeted income statement, what amount will be reported for cost of goods sold?

A) $198,000
B) $151,200
C) $144,000
D) $136,800

Question 69

First Class, Inc., expects to sell 26,000 pool cues for $14 each. Direct materials costs are $2, direct manufacturing labor is $4, and manufacturing overhead is $0.89 per pool cue. The following inventory levels apply to 2019:

On the 2019 budgeted income statement, what amount will be reported for cost of goods sold?

A) $189,475
B) $179,140
C) $168,805
D) $201,877

Question 70

The following information pertains to the January operating budget for Murphy Corporation, a retailer:
Budgeted sales are $210,000 for January
Collections of sales are 40% in the month of sale and 60% the next month
Cost of goods sold averages 66% of sales
Merchandise purchases total $159,000 in January
Marketing costs are $3,600 each month
Distribution costs are $5,300 each month
Administrative costs are $10,100 each month
For January, the amount budgeted for the nonmanufacturing costs budget is ________.

A) $90,400
B) $10,100
C) $178,000
D) $19,000

Question 71

The following information pertains to the January operating budget for Murphy Corporation, a retailer:
Budgeted sales are $208,000 for January
Collections of sales are 60% in the month of sale and 40% the next month
Cost of goods sold averages 64% of sales
Merchandise purchases total $154,000 in January
Marketing costs are $3,600 each month
Distribution costs are $5,000 each month
Administrative costs are $10,500 each month
For January, budgeted gross margin is ________.

A) $124,800
B) $133,120
C) $74,880
D) $54,000

Question 72

First Class, Inc., expects to sell 29,000 pool cues for $13 each. Direct materials costs are $3, direct manufacturing labor is $5, and manufacturing overhead is $0.83 per pool cue. The following inventory levels apply to 2019:

What are the 2019 budgeted costs for direct materials, direct manufacturing labor, and manufacturing overhead, respectively?

A) $72,000; $120,000; $19,920
B) $90,600; $151,000; $25,066
C) $91,800; $153,000; $25,398
D) $87,000; $145,000; $24,070

Question 73

Which of the following is most likely to be a cost driver for the variable portion of marketing costs?

A) percentage of markup on cost
B) number of units produced
C) increase in revenues attributable to such marketing
D) number of units units sold

Question 74

First Class, Inc., expects to sell 22,000 pool cues for $12 each. Direct materials costs are $3, direct manufacturing labor is $4, and manufacturing overhead is $0.84 per pool cue. The following inventory levels apply to 2019:

On the 2019 budgeted income statement, what amount will be reported for sales?

A) $277,200
B) $264,000
C) $396,000
D) $409,200

Question 75

Which of the following best describes a bill of materials?

A) It is a document that is prepared by a vendor to invoice a manufacturer for a purchase of materials
B) It is a document that is used to order materials
C) It is a document that requests materials be removed from the warehouse and put into production
D) It is a document that identifies how each product is manufactured, specifying materials and components and the quantities of materials in each finished good

Question 76

Tiger Pride produces two product lines: T-shirts and Sweatshirts. Product profitability is analyzed as follows:

What is the projected decline in operating income if the direct materials costs of T-Shirts increase to $3.50 per unit and direct labor costs of Sweatshirts increase to $14.00 per unit?

A) $216,500
B) $100,500
C) $116,000
D) $514,500

Question 77

Mary's Baskets Company expects to manufacture and sell 30,000 baskets in 2019 for $5 each. There are 4,000 baskets in beginning finished goods inventory with target ending inventory of 9,000 baskets. The company keeps no work-in-process inventory. What amount of sales revenue will be reported on the 2019 budgeted income statement?

A) $175,000
B) $150,000
C) $125,000
D) $85,000

Question 78

Which of the following is required to arrive at the budgeted units to be produced in a year?

A) estimated direct materials inventory required at the end of the year
B) estimated finished goods inventory required at the end of the year
C) amount of direct materials to be used during the year
D) amount of manufacturing overhead to be incurred

Question 79

Orange Corporation has budgeted sales of 23,000 units, targeted ending finished goods inventory of 9,000 units, and beginning finished goods inventory of 6,000 units. How many units should be produced next year?

A) 38,000 units
B) 32,000 units
C) 26,000 units
D) 23,000 units

Question 80

To prepare the direct materials labor costs budget, which of the following budget must be prepared first?

A) direct material purchase budget
B) production budget
C) direct material usage budget
D) budgeted manufacturing overhead