Deck 9: Budgeting Systems

Question 1

The five primary purposes of a budget are:

A) planning, allocating resources; facilitating communication and coordination; controlling profit and operations; evaluating performance and providing incentives.
B) planning; allocating resources; facilitating communication and coordination; controlling profit and operations; and allocating overhead costs.
C) planning; allocating resources; facilitating communication and coordination; controlling profit and operations; and evaluating competition.
D) planning; allocating resources; controlling profit and operations; providing incentives; evaluating performance; and allocating overhead costs.

Answer 1

A

Question 2

Based on the production budget, the manufacturer develops budgets for

A) direct labour.
B) direct materials.
C) manufacturing overhead.
D) All of the given options

Answer 2

D

Question 3

A company's plan for the acquisition of long-term assets, such as buildings and equipment, is called a

A) capital expenditure budget.
B) master budget.
C) financial budget.
D) profit plan.

Answer 3

A

Question 4

The budget is:

A) a short-term plan.
B) more detailed than a strategic plan.
C) not influenced by strategic decisions.
D) a short-term plan AND more detailed than a strategic plan.

Question 5

For a manufacturing business, a production budget, including budgets for direct material, direct labour and manufacturing overhead are part of the

A) sales budgets.
B) operating budgets.
C) budgeted financial statements.
D) budgeted balance sheets.

Question 6

The typical starting point in the sales forecasting process is

A) the sales level of the preceding year.
B) input from key executives.
C) economic trends.
D) the sales manager's best guess.

Question 7

Which of the following involves decisions about the types of businesses and markets that an organisation operates in, and about how those businesses and activities will be financed?

A) Sales forecasting
B) Strategic planning
C) Financial statement forecasting
D) Financial planning

Question 8

A slightly inaccurate sales forecast, since it comes at the beginning of the budgeting process

A) has an insignificant influence on the other schedules comprising the annual financial budget.
B) should not influence the accuracy of the other schedules comprising the annual financial budget at all.
C) has a distorting effect on the other estimates in the budget.
D) slightly influences the sales figure and the budgeted financial statements and influences no other figures.

Question 9

A manufacturer prepares a production budget. The comparable budget for a retail or wholesale business would be a budget for

A) sales.
B) purchases.
C) direct materials.
D) direct labour.

Question 10

Budgets that cover a particular period of time, longer than a year, are

A) short-range budgets.
B) long-range budgets.
C) rolling budgets.
D) continuous budgets.

Question 11

Budgeted financial statements include:

A) a budgeted profit and loss statement.
B) a budgeted balance sheet.
C) a cash budget.
D) All of the given options

Question 12

A budget that is continually updated by periodically adding a new incremental time period such as a quarter, and dropping the period just completed is a

A) short-range budget.
B) long-range budget.
C) capital budget.
D) rolling budget.

Question 13

Which of the following includes the cash receipts and cash payments and discloses a firm's financial plans?

A) Cash budget
B) Selling and administrative expense budget
C) Budgeted financial statement
D) None of the given answers

Question 14

Which of the following encompasses a detailed plan for using the basic factors of production material, labour and overhead to produce a product or provide a service?

A) Budget financial statement
B) Sales forecast
C) Operating budget
D) Cash budget

Question 15

Which of the following indicate/s the overall financial results of the organisation's planned operations for the budget period?

A) Sales forecast
B) Budgeted financial statements
C) Cash budget
D) None of the given answers

Question 16

Past sales levels and trends, general economic trends, and political and legal events are all used for

A) sales forecasting.
B) resource allocation.
C) financial budgets.
D) resource budgets.

Question 17

Which of the following shows the schedule of cash payments for the materials and services the firm purchased on account, and all cash payments for services that are paid in advance or paid at the time of purchase?

A) Selling and administrative expense budget
B) Cash payments budget
C) Cash receipts budget
D) Overhead budget

Question 18

A cash budget

A) is appropriate for a business in any industry.
B) shows expected cash receipts and planned payments.
C) shows expected sales and planned expenses.
D) is appropriate for a business in any industry AND shows expected cash receipts and planned payments.

Question 19

The purposes of a budget include:

A) planning.
B) facilitating communication and coordination.
C) controlling profit and operations, and evaluating performance and providing incentives.
D) All of the given answers

Question 20

The annual financial budget is also called a

A) capital budget.
B) master budget.
C) long-range budget.
D) None of the given answers

Question 21

When employees throughout an organisation are meaningfully involved in the budget-setting process, this is referred to as

A) budgeting slack.
B) participative budgeting.
C) padding the budget.
D) employee-based budgeting.

Question 22

People create budgetary slack because

A) their performance will look better if they beat the budget.
B) it helps them cope with uncertainty.
C) they believe their budget requests will be cut.
D) All of the given answers

Question 23

A budget that includes sales revenue, cost of goods sold, operating expenses and net profit is a

A) budgeted profit and loss statement.
B) budgeted balance sheet.
C) budgeted statement of changes in financial position.
D) budgeted statement of cash flows.

Question 24

The difference between the revenue or cost projection that a person provides and a realistic estimate of the revenue or cost is called

A) passing the buck.
B) budgetary slack.
C) participative budgeting.
D) resource allocation processing.

Question 25

Vebco manufactures a product requiring 0.5 grams of platinum per unit. The cost of platinum is approximately $360 per gram. Vebco maintains an ending inventory of platinum equal to 10 per cent of the following month's production. The following data were taken from the most recent quarterly production budget.
Determine the cost of platinum purchased in August.

A) $195 840
B) $200 160
C) $391 680
D) $400 320

Question 26

BeActive Sporting Goods sells tandem bicycles. The following data was taken from the most recent quarterly sales forecast.
BeActive's cost for one bicycle is $125. What dollar amount should the company budget for June purchases?

A) $153 125
B) $154 750
C) $204 625
D) $207 875

Question 27

The Grainger Company's Budgeted Profit and Loss Statement reflects the following amounts:
Sales are collected 50 per cent in the month of sale, 30 per cent in the month following sale, 19 per cent in the second month following sale and 1 per cent is uncollectible. The uncollectible accounts are expensed at the end of the year.
Grainger pays for purchases by the fifth of the month following purchase, to take advantage of the 3 per cent discount allowed.
On January 1, Grainger had a cash balance of $88 000 and an accounts receivable balance of $58 000; $35 000 on account will be collected in January with the remaining balance to be collected in February. Grainger had an accounts payable balance of $72 000 on January 1. Invoices are recorded at their gross amount.
The monthly expense figures include $5000 in monthly depreciation. The expenses are paid for in the month incurred.
What is Grainger's expected cash balance at the end of January?

A) $92 000
B) $94 160
C) $87 000
D) $89 160

Question 28

Lee's Appliances forecasts the following sales figures for the next four months.
Cash sales average 10 per cent of total sales and credit sales are collected 50 per cent in the month of sale and 50 per cent in the month following sale. What are the estimated cash collections in May?

A) $215 000
B) $207 500
C) $195 000
D) $82 500

Question 29

On January 1, Bandy Manufacturing plans to introduce a product called Handy Dandy. The company plans to sell each unit of Handy Dandy for $25.00. Management has forecast the following in sales units for the first three months.
Each unit of Handy Dandy requires 2 kg of Dingaling and 1 hour of direct labour. Management wants to end each month with a Handy Dandy inventory level equal to 10 per cent of the following month's sales, and a Dingaling inventory equal to 5 per cent of the following month's production. Dingaling can be purchased for $3 per kg and direct labour costs are estimated to be $5.00 per hour. What amount should be budgeted for direct labour in February?

A) $160 000
B) $146 000
C) $140 000
D) $134 000

Question 30

Lee's Appliances forecasts the following sales figures for the next four months.
Cash sales average 10 per cent of total sales and credit sales are collected 50 per cent in the month of sale and 50 per cent in the month following sale. What is Lee's estimated accounts receivable balance on July 31?

A) $150 000
B) $135 000
C) $75 000
D) $67 500

Question 31

To communicate budget procedures and deadlines to employees throughout the organisation, the manager responsible for managing the budget often develops and disseminates a

A) budget manual.
B) sales forecast.
C) memorandum.
D) budget schedule.

Question 32

Consider the following statements about budget administration.
I) Regardless of size, the budgeting process in all organisations must be a formal process.
Ii) The budget manual is prepared to communicate budget procedures and deadlines to employees throughout the organisation.
Iii) Good internal control procedures require that the manager responsible for managing the budget process be an individual other than the chief accountant.
Which statement/s is/are true?

A) i
B) ii
C) iii
D) i and iii

Question 33

On January 1, Bandy Manufacturing plans to introduce a product called Handy Dandy. The company plans to sell each unit of Handy Dandy for $25.00. Management has forecast the following in sales units for the first three months.
Each unit of Handy Dandy requires 2 kg of Dingaling and 1 hour of direct labour. Management wants to end each month with a Handy Dandy inventory level equal to 10 per cent of the following month's sales, and a Dingaling inventory equal to 5 per cent of the following month's production. Dingaling can be purchased for $3 per kg and direct labour costs are estimated to be $5.00 per hour. What are Bandy Manufacturing's budgeted prime costs in January?

A) $235 560
B) $294 000
C) $385 000
D) None of the given answers

Question 34

Telcer & Company had 3000 units in finished goods inventory on December 31. Following is a partial production budget for January to March.
How many units does the company expect to sell in January?

A) 6900
B) 8900
C) 9400
D) 9900

Question 35

In preparing and using any budget, it is important that managers keep in mind the

A) assumptions and predictions upon which the budget is based.
B) present value of future cash flow.
C) budgeted profit and loss statement.
D) 'bottom line'.

Question 36

On January 1, Bandy Manufacturing plans to introduce a product called Handy Dandy. The company plans to sell each unit of Handy Dandy for $25.00. Management has forecast the following in sales units for the first three months.
Each unit of Handy Dandy requires 2 kg of Dingaling and 1 hour of direct labour. Management wants to end each month with a Handy Dandy inventory level equal to 10 per cent of the following month's sales and a Dingaling inventory equal to 5 per cent of the following month's production. Dingaling can be purchased for $3 per kg and direct labour costs are estimated to be $5.00 per hour. How many units should Bandy Manufacturing produce in February?

A) 32 000
B) 27 300
C) 28 000
D) 29 200

Question 37

The person responsible for managing the budget process

A) is responsible for specifying the process by which budget data will be gathered.
B) collects information and prepares the annual financial budget.
C) communicates budget procedures and deadlines to employees throughout the organisation.
D) All of the given answers

Question 38

BeActive Sporting Goods sells tandem bicycles. The following data was taken from the most recent quarterly sales forecast.
BeActive's cost for one bicycle is $125. How many units should the company purchase in May?

A) 1478
B) 1672
C) 1575
D) 1562

Question 39

On January 1, Bandy Manufacturing plans to introduce a product called Handy Dandy. The company plans to sell each unit of Handy Dandy for $25.00. Management has forecast the following in sales units for the first three months.
Each unit of Handy Dandy requires 2 kg of Dingaling and 1 hour of direct labour. Management wants to end each month with a Handy Dandy inventory level equal to 10 per cent of the following month's sales, and a Dingaling inventory equal to 5 per cent of the following month's production. Dingaling can be purchased for $3 per kg and direct labour costs are estimated to be $5.00 per hour. How many kilograms of Dingaling should be purchased in January? Bandy plans to have no inventory of Dingaling on January 1:

A) 78 520
B) 72 800
C) 72 680
D) 78 400

Question 40

A budget that includes indirect materials, indirect labour and other indirect manufacturing costs is

A) an overhead budget.
B) a cash budget.
C) an administrative expense budget.
D) a summary budget.

Question 41

Program budgeting

A) is similar to line item budgeting.
B) relates budget performance to the achievement of objectives.
C) develops qualitative performance criteria rather than quantitative criteria.
D) focuses on inputs rather than outputs.

Question 42

Which of the following are unlikely to influence the sales forecast?

A) Past sales levels
B) Past production levels
C) Economic trends
D) The pricing policy of the company

Question 43

Which of the following is not typically a responsibility centre for a manufacturing firm?

A) Cost centre
B) Profit centre
C) Investment centre
D) Inventory centre

Question 44

Budgeted sales for ABC Company are as follows:
All stock is marked up to sell at its invoice cost plus 25 per cent. On average 60 per cent of credit sales are collected in the month of sale, 35 per cent in the month following sale and the remainder is uncollectable. The budgeted cost of goods sold for the month of October is:

A) $1 360 000
B) $1 425 000
C) $1 520 000
D) None of the given answers

Question 45

Suppose that the departmental manager deliberately underestimates the level of sales activity by 10 000 units. What is this practice called?

A) Budgetary participation
B) Appropriate caution
C) Budgetary slack
D) Allowance for uncertainty

Question 46

Which of the following statements are true if optimum benefit is to be derived from the budget process?

A) Employees participate in the development of the budget.
B) Targets should include slack to enable easy achievement.
C) Rewards are not required.
D) Employees participate in the development of the budget AND rewards are not required.

Question 47

The usual order of steps in preparing a budget is

A) production budget, sales budget, budgeted income statement.
B) sales budget, production budget, budgeted income statement.
C) budgeted income statement, production budget, sales budget.
D) budgeted income statement, sales budget, production budget.

Question 48

Which of the following items would not be taken into account when preparing a firm's cash budget?

A) Depreciation on motor vehicles
B) Provision for doubtful debts
C) Discount allowed
D) Depreciation on motor vehicles AND provision for doubtful debts

Question 49

XYZ has budgeted to sell 100 000 units of P for February 2008. It has an opening inventory of 20 000 units of P and would like a closing inventory of 30 000 units. Each unit of P requires 2 kg of raw material Y. Inventory of Y at the beginning of the month is 5000 kg. Assuming the sales budget is met and the desired closing inventory of P is achieved, how many kilograms of Y need to be purchased during February, in order to have a closing balance of 8000 kg?

A) 113 000
B) 117 000
C) 223 000
D) 183 000

Question 50

Sales of 50 000 finished products are budgeted for Tracey Company. Four kilograms of direct material are required for each finished unit. Actual beginning and desired ending inventories of direct material and finished goods are as follows.
All products are finished at the end of the period, so there is no work in process at the beginning and end of the period. How many kilograms of direct material is the company planning to purchase?

A) 218 000
B) 214 000
C) 186 000
D) 184 000

Question 51

A production budget

A) is based on projected purchases as disclosed by the purchases budget.
B) does not make provision for production planning by determining what products will be made.
C) contributes to scheduling labour requirements.
D) is not used to review available production capacity.

Question 52

Consider the following statements about zero-base budgeting.
I) The budget for virtually every activity in an organisation is initially set to the level that existed during the previous year.
Ii) The budget helps identify areas of waste and redundant activities.
Iii) The budget must be justified in terms of its continued usefulness.
Which statement/s is/are true?

A) i, ii and iii
B) i and ii
C) ii and iii
D) iii

Question 53

Which of the following does budget preparation require to achieve optimum outcomes?
I) Top-down budgeting
Ii) Bottom-up budgeting
Iii) Participative budgeting

A) i
B) ii and iii
C) i and iii
D) i, ii and iii

Question 54

The Z Company has prepared a sales budget for 40 000 units for a three-month period. The company desires a closing finished goods inventory of 12 000 units, and closing direct material inventory of 14 000 units at the end of the quarter. There is no beginning finished goods inventory, but beginning inventory of direct materials is 2000 units. It takes two units of direct material to make one unit of finished product. The number of units of direct material to be purchased during the quarter is

A) 52 000.
B) 104 000.
C) 118 000.
D) 116 000.

Question 55

Which of the following items should be taken into account when setting budgets?

A) Positive behaviour of employees is more likely to result if the budgetary process is participative.
B) The budget goals should not be so tight that they are unachievable.
C) The goals of the individual sections' budget should be aligned with the firm's goals.
D) All of the given answers

Question 56

The following is the forecast level of inventory (in units) for Aardvark Ltd.
If the company plans to sell 320 000 units, how many will they need to produce during the period?

A) 330 000
B) 315 000
C) 305 000
D) 320 000

Question 57

Carter Manufacturers have budgeted sales for the coming months as follows.
The firm has decided that to avoid losing customers because of production hold-ups it will in future maintain a finished goods inventory on hand equal to one-fifth of the following month's budgeted sales. At 31 December, the company had in finished goods stock 10 000 units. What is budgeted production for the quarter January-March?

A) 530 000 units
B) 830 000 units
C) 670 000 units
D) 680 000 units

Question 58

The position where the firm's goals and employees' aims coincide is called

A) participative budgeting.
B) goal achievement.
C) goal congruence.
D) budgetary achievement.

Question 59

Assume for a firm that budgeted production for July and August is 180 000 and 200 000 units respectively. It takes half a kilogram of direct material to make one unit of finished product. Materials inventory is maintained at 10 per cent of the next month's budgeted production needs. If the 30 June inventory of materials was 5000 kg, how many kilograms of direct material should be purchased during July?

A) 105 000 kg
B) 195 000 kg
C) 90 000 kg
D) 95 000 kg

Question 60

Budgeted sales for ABC Company are as follows:
All stock is marked up to sell at its invoice cost plus 25 per cent. On average 60 per cent of credit sales are collected in the month of sale, 35 per cent in the month following sale and the remainder is uncollectible. Budgeted total cash receipts for November are:

A) $1 675 000
B) $1 875 000
C) $1 280 000
D) None of the given answers

Question 61

Zero-based budgeting refers to

A) a budgeting system that has very uncertain assumptions.
B) a new budgeting system for a company that has not had a budget before.
C) a budgeting system where all activity costs are based on estimates only.
D) a budgeting system where all activities are initially set to zero and will not be continued unless they are clearly justified.

Question 62

Which of the following is/are likely to lead to budget acceptance?
I Targets are developed with employee inputs.
Ii Employees are held responsible for activities that they can control.
Iii Budget is cascaded down from corporate level to the various responsibility centres.

A) i only
B) i and ii
C) i and iii
D) ii and iii

Question 63

Managers can window dress their performance by creating budgetary slack. Explain why a manager would do this and support your answer with three examples.

Question 64

Insurance Plus provides their sales staff with a base salary and commissions. When the various departments' actual performance exceeds the budgeted sales figures an additional bonus is paid. This is an example of

A) facilitating communication and coordination.
B) controlling profit and operations.
C) evaluating performance and providing incentives.
D) allocating resources.

Question 65

Strawman Ltd runs tutoring classes for high school students. The maximum number of students a weekly tutorial class can take is 15. Each tutor, who is paid a per semester salary of $20 000 including on-costs, can manage up to 5 classes per week per semester. Assuming that this semester there are 350 students enrolled. What is the budgeted salary for tutors this semester?

A) $100 000
B) $93 333
C) $20 000
D) $6428

Question 66

Briefly describe the five primary purposes of the budgeting process.

Question 67

As the starting point in the budgeting process, managers need to understand the strategy of the organisation, to enable them to formulate a budget that supports the organisation's

A) mission statement.
B) strategic plan.
C) forecasts.
D) vision.

Question 68

Which of the following benefits is not provided by the budgeting process?

A) Benchmarks
B) Performance evaluation
C) Competitive strategy
D) Facilitates communication

Question 69

Which of the following budgets is usually prepared at the start of the budgeting process?

A) Production budget
B) Annual budget
C) Operating budget
D) Sales budget

Question 70

Christina Wadat is a sales manager at Walter Booksellers. She believes that the sales revenue will most likely to be $500 000 this coming year. However, she decides to build in budget slack of 10 per cent. The amount of sales revenue she inputs into the company's sales budget is

A) $450 000.
B) $500 000.
C) $550 000.
D) 600 000.

Question 71

Which of the following external factors would not be considered when forecasting sales for a furniture manufacturer?

A) General economic trends
B) Rising Australian dollar
C) Increasing foreign aid
D) Consumer's disposable income

Question 72

EasySleep Inn is a chain of medium-priced hotels. Each year during the budgeting process, the manager of each hotel in the chain has to submit a capital expenditure request, justifying the amounts of expenditure they request. Top management then makes a decision on whether to fund each capital expenditure request. This is an example of which purpose of budgeting?

A) Controlling profit
B) Allocating resources
C) Empowering employees
D) Evaluating performance and providing incentives

Question 73

A 'Rolling Budget' is also known as a

A) revised budget.
B) reformed budget.
C) current budget.
D) continuous budget.

Question 74

Which of the following is an example of padding the budget?

A) Overestimating sales
B) Underestimating labour costs
C) Overestimating direct material costs
D) Underestimating capital expenditure

Question 75

Jasmine Coy is a barista at Tosa Cafe, which is known for its quality coffee. Her manager has set a very difficult cost target. As a result, Jasmine uses lower quality coffee beans which results in poor quality coffee. This is an example of

A) Budget slack.
B) Goal incongruence.
C) Lack of employee empowerment.
D) Short range budgeting.

Question 76

Discuss how benchmarks are applied to measure performance in responsibility accounting.

Question 77

Top-down budgeting refers to

A) a budgeting system that begins with sales forecasts and works downwards to the raw materials budget.
B) a budgeting systems that begins with budgeting the facility-level costs.
C) a budgeting system where senior managers impose budget targets on junior managers.
D) a budgeting system where there are frequent communications between top and bottom managers.

Question 78

Discuss how participative budgeting can achieve acceptance of the budget from staff.

Question 79

Zero-based budgeting is too introspective. Discuss this statement.

Question 80

Which of the following statements is false?

A) A top-down budgeting system is more efficient than a bottom-up budgeting system.
B) A top-down budgeting system is more likely to result in unrealistically difficult budget targets.
C) A bottom-up budgeting system is less likely to result in budget padding.
D) A bottom-up budgeting systems is more likely to result in employee empowerment.