Question 1

A top-down approach to budgeting reflects a participative style of management.

Accepted Answer

A) True 
 B)False

Question 2

Which of the following is the sequence involved in which operating budgets link long- and short-term plans?

Accepted Answer

A) Short-term plans; Operational plans; Evaluate; Long-term plans. 
B) Short-term plans; Operations plans; Evaluate; Revise. 
C) Long-term plans; Short-term plans; Operational plans; Revise. 
D) Long-term plans; Operational plans; Evaluate; Revise. 
E) None of the above.

Question 3

The purchasing and production managers coordinate closely to prepare the materials usage budget because it requires both price and quantity estimates.

Accepted Answer

A) True 
 B)False

Question 4

Effective working capital management can save companies money in terms of interest payments on costly short-term loans.

Accepted Answer

A) True 
 B)False

Question 5

In preparing a manufacturing overhead budget, depreciation is included when estimating the cash outflows associated with manufacturing overhead.

Accepted Answer

A) True 
 B)False

Question 6

Which of the following is not a reason why firms use budgets?

Accepted Answer

A) Performance evaluation. 
B) Coordination. 
C) Planning. 
D) Operating leverage. 
E) All of the above are reasons why firms use budgets.

Question 7

In the cash budget, which of the following is not an item of cash outflow for operations?

Accepted Answer

A) Payments for marketing and administrative costs. 
B) Payments to direct labor. 
C) Payments to purchase a machine that will last for several years. 
D) Expenditures on manufacturing overhead. 
E) All of the above are items of cash outflow for operations.

Question 8

A drawback of participative budgeting arises because employees have better information about operating conditions than their managers do.

Accepted Answer

A) True 
 B)False

Question 9

Jackson Company's payment policy is to pay 40 percent of its accounts payable in the quarter purchases are made and 60 percent in the following quarter.Assume Jackson's credit purchases totaled $400,000 in quarter 1, $420,000 in quarter 2, $530,000 in quarter 3 and $580,000 in quarter 4.What will Jackson's cash payments be for quarter 3?

Accepted Answer

A) $482,500 
B) $560,000 
C) $530,000 
D) $464,000 
E) None of the above.

Question 10

Little time is spent in preparing the revenue budget, as its accuracy is not as crucial as budgets involving costs.

Accepted Answer

A) True 
 B)False

Question 11

The budgeted amount of raw materials necessary for a period is computed by:

Accepted Answer

A) Subtracting the beginning inventory of raw materials from the materials necessary to meet the production budget 
B) Subtracting the desired ending inventory of raw materials to the raw materials necessary to meet the production budget and adding that result to the desired ending inventory of raw materials 
C) Adding the desired ending inventory of raw materials to the raw materials necessary to meet the production budget 
D) Adding the desired ending inventory of raw materials to the raw materials necessary to meet the production budget and subtracting the desired ending inventory of raw materials

Question 12

Strategic budgets bridge short-term decisions and long-term plans.

Accepted Answer

A) True 
 B)False

Question 13

In relation to budgeting, which of the following does not depend on management style?

Accepted Answer

A) The quality of information obtained. 
B) The delegation of decision rights. 
C) The cost of budgeting. 
D) The commitment to budgets. 
E) All of the above depend on management style.

Question 14

Which of the following is not a method for companies to manage cash shortfalls?

Accepted Answer

A) Accelerate revenues. 
B) Defer payments. 
C) Alter timing of special cash inflows. 
D) Borrow. 
E) All of the above are methods to manage cash shortfalls.

Question 15

The variable cost of goods manufactured is the sum of several cost items: material, labor, variable overhead, and variable selling and administrative expenses.

Accepted Answer

A) True 
 B)False

Question 16

In preparing a cash budget, from an accounting record-keeping perspective there is no need to adjust the balance of accounts receivable and reported income to reflect the uncollectible debt.

Accepted Answer

A) True 
 B)False

Question 17

Which of the following is not a major component of the cash budget?

Accepted Answer

A) Cash inflow from operations. 
B) Cash outflow for operations. 
C) Non-cash flow from operations. 
D) Cash flows for special items. 
E) All of the above are major components of the cash budget.

Question 18

The first step in preparing a master budget is to prepare the revenue budget.

Accepted Answer

A) True 
 B)False

Question 19

In a centralized decision-making environment, the manager delegates decision making to individuals with relevant experience and knowledge.

Accepted Answer

A) True 
 B)False

Question 20

Under responsibility accounting, managers are held accountable for the revenue and cost items they control.

Accepted Answer

A) True 
 B)False

Exam 7: Operating Budgets: Bridging Planning and Control

A top-down approach to budgeting reflects a participative style of management.

Which of the following is the sequence involved in which operating budgets link long- and short-term plans?

The purchasing and production managers coordinate closely to prepare the materials usage budget because it requires both price and quantity estimates.

Effective working capital management can save companies money in terms of interest payments on costly short-term loans.

In preparing a manufacturing overhead budget, depreciation is included when estimating the cash outflows associated with manufacturing overhead.

Which of the following is not a reason why firms use budgets?

In the cash budget, which of the following is not an item of cash outflow for operations?

A drawback of participative budgeting arises because employees have better information about operating conditions than their managers do.

Little time is spent in preparing the revenue budget, as its accuracy is not as crucial as budgets involving costs.

The budgeted amount of raw materials necessary for a period is computed by:

Strategic budgets bridge short-term decisions and long-term plans.

In relation to budgeting, which of the following does not depend on management style?

Which of the following is not a method for companies to manage cash shortfalls?

The variable cost of goods manufactured is the sum of several cost items: material, labor, variable overhead, and variable selling and administrative expenses.

In preparing a cash budget, from an accounting record-keeping perspective there is no need to adjust the balance of accounts receivable and reported income to reflect the uncollectible debt.

Which of the following is not a major component of the cash budget?

The first step in preparing a master budget is to prepare the revenue budget.

In a centralized decision-making environment, the manager delegates decision making to individuals with relevant experience and knowledge.

Under responsibility accounting, managers are held accountable for the revenue and cost items they control.