Deck 15: Budgets

Question 1

Responsibility accounting is where an entity is structured into strategic business units and the performance of these units is measured in terms of accounting results.

Answer 1

True

Question 2

A production budget is prepared on the basis of determining the production level needed to satisfy sales demand and ensure that the inventory levels are sufficient for the period. Therefore production is equal to sales plus closing inventory less opening inventory.

Answer 2

False

Question 3

Which of the following is not a reason for implementing a budget?

A) For planning purposes
B) As a form of communication
C) To assist in preparing a balance sheet
D) For coordinating functions

Answer 3

C

Question 4

Well-designed budgets:

A) lead to desired changes in behaviour and minimise any undesired behaviour that results from the measurement process.
B) will ensure greater profitability.
C) are static.
D) will achieve all of the above.

Question 5

Responsibility accounting reports are used:

A) to determine which manager should be blamed if actual results do not comply with budgeted expectations.
B) to evaluate a department manager's effectiveness in generating revenues or controlling expenses.
C) to determine if the actual cost of the product is in line with costs of competitors.
D) only when actual results are below budgeted expectations.

Question 6

Which of the following people are not involved in preparing a budget?

A) The board of directors
B) Shareholders
C) Sales directors
D) Production managers

Question 7

If actual costs were to exceed budgeted costs for a period, the variance would be considered favourable.

Question 8

Planning and random variances can generally be controlled, but operating variances cannot be controlled.

Question 9

For control and planning purposes, an annual budget is normally broken down into quarterly, monthly and weekly periods, which are dependent on the needs of the organisation and the state of the economy.

Question 10

A detailed plan that describes the use of financial and operating resources over a specific period of time in the future is a(n):

A) business plan.
B) budget.
C) statement of comprehensive income.
D) balance sheet.

Question 11

The best way to achieve more accurate and achievable budgets is to:

A) have the budget committee monitor actual results on a frequent basis so that quick punitive action can be taken when actual results do not comply with budgeted expectations.
B) have the budget prepared by top executives only.
C) have all employees participate in the preparation of the budget.
D) let it be known that budget variances will not be tolerated.

Question 12

Which of the following is not an element of a sound budgeting culture?

A) Must expend all the budget before year end
B) Regular budgets
C) Responsibility accounting
D) Continuous review of budgets

Question 13

Which of the following information is not required for preparation of a budget?

A) Credit sales
B) Materials purchased
C) Costs of labour
D) The location of the company's headquarters

Question 14

Positive behaviour flows when :

A) there is no budget to worry about.
B) the goals of the entity and individual are aligned in the budget.
C) the budget is obviously unachievable, but presents a tremendous challenge.
D) budgets contain a maximum of slack.

Question 15

Participative budgeting is where an entity is structured into strategic business units and the performance of these units is measured in terms of accounting results.

Question 16

Operating, random and planning variances are all examples of divergence from actual performance compared to budgeted performance.

Question 17

A reporting system that supports the responsibility accounting approach will communicate relevant information on the comparison between actual and budgeted performance. This report highlights the cause of variances between actual and budgeted performance.

Question 18

Formulating guidelines for overall activity levels and policies on performance criteria, and communicating this information to the preparers of budgets, are all part of the budget process.

Question 19

A situation where the involvement of lower-level managers in the budget process is merely 'window dressing', that is, they appear to be involved but in fact are not, is referred to as 'pseudoparticipation'.

Question 20

'Budgetary slack' can be referred to as dysfunctional behaviour where managers deliberately understate or overstate elements of a budget such as sales or costs in order to achieve budget.

Question 21

The Marginal Manufacturing Company manufactures one product. Sales and production details are as follows: What are the estimated sales revenue of Zebras and the number of units of A that are purchased in the current month?

A) $900 000 and 16 000 units.
B) $450 000 and 20 000 units.
C) $450 000 and 18 000 units.
D) $450 000 and 16 000 units

Question 22

How much total cash did RTU receive in August?

A) $5450
B) $2600
C) $2050
D) $5290

Question 23

A typical non-cash expense would be:

A) depreciation expense.
B) payment of wages accrued in a prior month.
C) payment of materials purchased in a prior month.
D) all of the above are cash expenses.

Question 24

The first step in the master budgeting process is to prepare:

A) the sales budget.
B) the production budget.
C) a cash budget.
D) a pro forma balance sheet.

Question 25

Hamilton Manufacturing Company has furnished the following information: Note: The Accounts Payable account is used only for direct materials.
What was the balance in Hamilton's Accounts Payable account at the beginning of the 1st quarter?

A) $2000
B) $10 000
C) $22 000
D) $28 000

Question 26

Bowden Company forecasts sales for the third quarter at 10 000 units. The desired ending inventory for the second quarter is 2000 units and for the third quarter 3000 units. How many units must be produced in the third quarter?

A) 9000 units
B) 11 000 units
C) 12 000 units
D) 13 000 units

Question 27

Which of the following describes responsibility accounting?

A) It assigns departmental performance goals to department managers.
B) It requires performance evaluation based on factors a manager can control.
C) It periodically produces reports that assist in evaluating managers' performance.
D) All of the above.

Question 28

The Bowden Company has furnished the following information: What are Bowden Company's forecast total cash collections for the second quarter?

A) $212 500
B) $237 500
C) $238 750
D) $250 000

Question 29

Four months into the new budget it is learned that there will be a major increase in the cost of raw materials. The most appropriate action is to:

A) leave the master budget intact.
B) revise the master budget to incorporate the cost increase in raw materials.
C) hold the purchasing department responsible for not anticipating the cost increase.
D) no action is necessary.

Question 30

A collection of individual functional budgets is known as a:

A) pro forma financial statement.
B) flexible budget.
C) static budget.
D) master budget.

Question 31

Which of the following information is not shown by a cash budget?

A) Cash inflow
B) When cash is likely to be received
C) When cash will be deposited into banks
D) Cash outflow

Question 32

Budgets are developed in RKH Corporation by soliciting input from responsible employees once a year. This technique is best described as:

A) perpetual budgeting.
B) participative budgeting.
C) responsibility accounting.
D) committee budgeting.

Question 33

Hamilton has budgeted total manufacturing overhead costs for the year as $125 000, based on 20 000 direct labour hours. The ratio of variable manufacturing overhead costs to fixed manufacturing overhead costs is 2:1. In a given month, 2000 direct labour hours are budgeted for production. How much overhead is budgeted?

A) $6250
B) $12 500
C) $18 750
D) $25 000

Question 34

The Marginal Manufacturing Company manufactures a product called Saver. Each unit of Saver requires 10 kilos of a material called Lostit. The budget calls for production of 7500 units of Saver for the month of July. The ending inventory of Lostit is forecast at 3500 kilos for the month of July and 4000 kilos for the month of June. If the cost of Lostit is $2 per kilo, what is the cost of purchases in monetary terms during the month of July?

A) $15 000
B) $75 000
C) $149 000
D) $151 000

Question 35

The master budget normally consists of a budgeted:

A) statement of comprehensive income and statement of cash flows.
B) statement of cash flows and balance sheet.
C) balance sheet, statement of comprehensive income and statement of cash flows.
D) balance sheet and statement of comprehensive income.

Question 36

On comparing actual performance with the budget, the Light Globe Company determined that there was a favourable variance in sales and an unfavourable variance in the cost of goods sold. This means that both actual sales and costs were higher than expected.

Question 37

A cash budget is one in which:

A) credit sales and cash sales are recorded.
B) cash sales and cash expenses are recorded.
C) cash sales and all expenses are recorded.
D) credit sales and all expenses are recorded.

Question 38

The production budget is equal to:

A) expected sales in units plus beginning inventory minus desired ending inventory.
B) beginning inventory plus net purchases minus ending inventory.
C) net purchases plus desired ending inventory.
D) expected sales in units plus desired ending inventory minus beginning inventory.

Question 39

All customers took the maximum allowed time to pay. All credit customers paid the amounts owing by the due date. How much cash did RTU receive in September?

A) $260
B) $2340
C) $4500
D) $4760

Question 40

All credit customers paid the amounts owing by the due date. How much credit sales did RTU Ltd have for July?

A) $2050
B) $5000
C) $2950
D) $6540

Question 41

In preparing the sales budget, the preparer should consider:

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

Question 42

A typical production budget consists of:

A) a direct materials budget, a direct labour budget, and a manufacturing overhead budget.
B) a direct materials budget, a direct labour budget, manufacturing overhead budget, and an administrative expense budget.
C) a direct materials budget and a direct labour budget.
D) a manufacturing overhead budget.

Question 43

Why do entities budget?

Question 44

Each of Pallet, Inc.'s production workers can produce four wooden pallets per hour. During the month of June, Pallets, Inc. has forecast sales of 100 000 pallets. The beginning inventory was 10 000 pallets, and desired ending inventory is 25 000 pallets. How many hours of direct labour must be budgeted to meet production needs?

A) 25 000
B) 21 250
C) 33 750
D) 28 750

Question 45

What are the typical types of budgets of a manufacturing company?

Question 46

Mr Sparks is the CEO of a large manufacturing company. He believes strongly that he is the keeper of all the knowledge of what is best for the company. Mr Sparks has traditionally prepared all of the budget estimates himself and then communicated the results to his department managers. In the past several years, however, he has begun to notice that the department managers rarely manage to stay within their budgets and have many excuses for their failures. Mr Sparks has also noticed an increase in his employee turnover, particularly at the managerial level.
Required:

Question 47

What is a sales budget, and how is it generated?

Question 48

Southern Mills is a textile manufacturing company in eastern Tennessee. Every year the company prepares a complete set of budgets. The budgeting process begins with information supplied by the Sales and Marketing department.
Variable manufacturing costs, for which direct labour hours is the cost driver, are expected to be $2 120 800. Fixed manufacturing overhead is expected to be $2 400 000 for the quarter. The fixed expenses include monthly depreciation expense of $100 000.
Budgeted direct labour hours are as follows:
Required:

Question 49

The Sutcliff Manufacturing Company manufactures a product called Zyklon. Each unit of Zyklon requires 2 kg of Zinses. The budget calls for production of 8000 units of Zyklon during the third quarter. The ending inventory of Zinses is forecasted at 3000 kg for the second quarter and 2000 kg for the third quarter. How many kilograms of Zinses must be purchased during the third quarter?

A) 8000 kg
B) 14 000 kg
C) 15 000 kg
D) 16 000 kg

Question 50

Southern Mills is a textile manufacturing company in eastern Tennessee. Every year the company prepares a complete set of budgets. The budgeting process begins with information supplied by the Sales and Marketing department.
The balance in Accounts Receivable at the beginning of the year was $900 000. The marketing department has predicted unit sales to be as follows:
Selling price for the fabric is $2.00 per square yard. Cash sales account for 25% of sales. Collections on account (non-cash sales charged to accounts receivable) are received 60% in the month of the sale and 40% in the following month.
Required:

Question 51

Southern Mills is a textile manufacturing company in eastern Tennessee. Every year the company prepares a complete set of budgets. The budgeting process begins with information supplied by the Sales and Marketing department.
The balance in inventory at the beginning of the year was 500 000 square yards of fabric. The company plans to have inventory at the end of the month equal to 50% of the following month's sales. The marketing department has predicted unit sales (in square yards of fabric) to be as follows:
Required:

Question 52

What is the manufacturing company's production budget, and how is it generated?

Question 53

The production of each TV set requires 1.5 direct labour hours. The average cost of each direct labour hour is $10.50. If scheduled production for May is 2000 TVs, what will be the total budgeted cost of direct labour?

A) $3000
B) $21 000
C) $31 500
D) none of the above are correct

Question 54

What is 'responsibility accounting' and how does it contribute to positive budgeting culture?

Question 55

The direct materials-purchased budget:

A) identifies the quantity of direct materials that will be used to meet production needs during the specified time period.
B) identifies the quantity of direct materials that must be purchased to meet production needs during the specified time period.
C) uses this formula: beginning inventory plus net purchases minus ending inventory.
D) is equal to direct materials needed for production plus beginning inventory minus desired ending inventory.