Deck 22: Master Budgets

Question 1

Budgets provide a benchmark that motivates employees and helps managers evaluate performance.

Answer 1

True

Question 2

List the four budgeting objectives.Why is this process a loop?

Answer 2

The four budgeting objectives are (1)developing strategies,(2)planning,(3)directing,and (4)controlling.This process is a loop because successful companies use current period results to help make decisions regarding the company's future.The control step is not an end but an input into the develop strategies step.

Question 3

The most important part of a budgeting system is getting managers and employees to accept the budget.

Answer 3

True

Question 4

Which of the following statements is true of the budgeting process?

A)If a company carefully plans for its future,there will be no need to make modifications during the budget period.
B)It is a continuous process that encourages communication.
C)It shows the actual performance of the business.
D)Managers and employees are motivated to accept the budget's goals because they enjoy having their work monitored and evaluated.

Question 5

All organizations use one standardized budgeting process.

Question 6

After comparing budgets with the actual results,the feedback allows managers to determine what,if any,corrective action should be taken.

Question 7

An intentional understatement of expected revenues or overstatement of expected expenses by managers in order to have a favorable performance evaluation is known as ________.

A)benchmarking
B)appropriation
C)budgetary slack
D)variance analysis

Question 8

Which of the following is an example of the benchmarking function of the budgeting process?

A)A budget demands integrated input from different business units and functions.
B)Budgeting requires close cooperation between accountants and operational personnel.
C)Budget numbers are used to evaluate the performance of managers.
D)The budget outlines a specific course of action for the coming period.

Question 9

Which of the following is an example of the planning function of the budgeting process?

A)A budget demands integrated input from different business units and functions.
B)Employees are motivated to achieve the goals set by the budget.
C)Budget figures are used to evaluate the performance of managers.
D)The budget outlines a specific course of action for the coming period.

Question 10

A budget represents the plans that a company has in place to achieve its goals.

Question 11

Which of the following is an example of the coordination and communication function of the budgeting process?

A)A budget demands integrated input from different business units and functions.
B)Employees are motivated to achieve the goals set by the budget.
C)Each department acts independently because the department manager will be evaluated on actual departmental results.
D)A budget adjustment in one department will have no effect on other departments.

Question 12

Developing a budget reduces coordination and communication at different levels in an organization.

Question 13

The budget process is a loop that consists of ________.

A)planning,directing,and controlling
B)developing strategies,planning,directing,and controlling
C)developing strategies,planning,and directing
D)developing strategies,directing,and controlling

Question 14

A budget is a financial plan that managers use to coordinate a business's activities.

Question 15

An objective of the budgeting process is to communicate a single,unified,comprehensive plan for the business.

Question 16

Budgeting requires managers to develop overall business goals and budget for specific actions to achieve the goals.

Question 17

The practice of comparing a company with its prior performance or with best practices from other companies is called ________.

A)benchmarking
B)competitive analysis
C)differentiation analysis
D)budgeting

Question 18

Budgetary slack occurs when managers intentionally overstate expected revenues or understate expected expenses.

Question 19

There is no need for managers to have employees participate in developing the budget because the budget is a management tool.

Question 20

The budgeting process ________.

A)usually begins about one month before the beginning of the budget period to allow for more current information to be considered
B)does not need input from all levels because it is the role of management to control costs and meet revenue goals
C)requires significant coordination among the company's various business segments
D)is standard among all types of companies

Question 21

A static budget is a financial plan for only one level of sales volume.

Question 22

An operational budget is a short-term financial plan that coordinates activities needed to achieve short-term goals.

Question 23

The production budget is the first component of the operating budget.

Question 24

A flexible budget is prepared to represent various levels of sales volume.

Question 25

A budgeting process where individuals who are impacted by a budget are directly involved in its development is called ________.

A)flexible budgeting
B)benefit budgeting
C)participative budgeting
D)cooperative budgeting

Question 26

The starting point in developing the master budget is the preparation of the ________.

A)cash budget
B)production budget
C)sales budget
D)budgeted income statement

Question 27

The cash budget and the budgeted financial statements are collectively known as the ________.

A)operating budget
B)master budget
C)financial budget
D)production budget

Question 28

Which of the following is true of participative budgeting?

A)Preliminary budgets are developed by top management and flows down to the departmental level.
B)Budgets are developed separately in a company's business segments so coordination is not necessary.
C)Budgets are more achievable because those impacted by the budget helped create it.
D)The budgeting process is quick,usually only requiring one-two weeks to complete.

Question 29

The capital expenditures budget represents the company's plan for purchasing the long-term assets.

Question 30

Which of the following is NOT a benefit of benchmarking?

A)It helps companies determine where they can improve.
B)It does not help management highlight company problems.
C)It can be used to compare a company's budgets to other leading companies through the use of industry averages.
D)It helps companies develop budgets to assist in meeting performance goals.

Question 31

Budgeted financial statements are financial statements based on budgeted amounts rather than actual amounts.

Question 32

Which of the following describes the cash budget?

A)It aids in planning to ensure the company has adequate inventory and cash on hand.
B)It captures the variable and fixed expenses of the business.
C)It depicts the breakdown of sales based on terms of collection.
D)It helps in planning to ensure the business has adequate cash.

Question 33

The ________ details how the business expects to go from the beginning cash balance to the desired ending cash balance.

A)capital expenditures budget
B)budgeted income statement
C)cash flow statement
D)cash budget

Question 34

Which of the following statements is true of the operating budget?

A)It is a part of the financial budget.
B)It includes the capital expenditures budget.
C)It includes the sales budget.
D)Its final component is the cash budget.

Question 35

A master budget is a financial plan for a specific segment of an organization.

Question 36

Components of the master budget are the operating budget,the capital expenditures budget,and the financial budget.

Question 37

A strategic budget is a long-term financial plan used to coordinate the activities needed to achieve the long-term goals of the company.

Question 38

Which of the following statements is true of the capital expenditures budget?

A)It is a part of the financial budget.
B)It must be completed after the budgeted income statement is prepared.
C)It includes the sales budget.
D)It must be completed before the cash budget is prepared.

Question 39

List and describe the three types of budgets that are included in the master budget.

Question 40

A strategic budget will be as detailed as an operational budget.

Question 41

The level of forecasted sales has little effect on other elements of the master budget.

Question 42

The Finished Goods Inventory account must be considered when calculating the amount of direct materials to be purchased.

Question 43

The production manager projects the average direct labor cost per hour.

Question 44

Stratosphere,Inc.has the following budgeted sales for the next quarter.
$$\begin{array} { | l | r | r | r| } \hline \text { Month: } & \mathbf { 1 } & 2 & 3 \\\hline \text { Units } & 10,000 & 11,000 & 12,000 \\\hline\end{array}$$ Inventory of finished goods on hand at the beginning of the quarter is 4,000 units.The company desires to maintain ending inventory equal to beginning inventory plus 1,000 units every month.
Calculate the quantity to be produced during the quarter.

Question 45

The production budget determines the number of units to be produced during the period.

Question 46

The human resources manager projects the number of direct labor hours to be worked by employees.

Question 47

Culinary Enterprises manufactures cookware sets and sells the sets to department stores.Culinary expects to sell 2600 cookware sets for $220 each in April and 3000 cookware sets for $235 each in May.Sales are 25% cash and 75% on account.Compute the total budgeted sales for May.

A)$705,000
B)$572,000
C)$176,250
D)$528,750

Question 48

Why is the forecast of sales revenue considered to be the cornerstone of the master budget?

Question 49

Which of the following describes the production budget?

A)It aids in planning to ensure the company has adequate inventory and cash on hand.
B)It provides the quantity of finished goods to be produced during a budget period.
C)It depicts the breakdown of sales on the basis of terms and conditions of collection of sales revenue.
D)It helps in planning to ensure the business has adequate cash.

Question 50

The forecast of sales revenue is the cornerstone of the master budget.

Question 51

Beridze Manufacturing expects to produce 2400 units in January and 3700 units in February.Beridze budgets $45 per unit for direct materials.The amount of indirect materials needed for production has been determined to be insignificant and will therefore not be considered in the calculation.The balance in the Raw Materials Inventory account (all direct materials)on January 1 is $37,250.Beridze desires the ending balance in Raw Materials Inventory to be 70% of the next month's direct materials needed for production.Desired ending balance for February is $51,800.What is the cost of budgeted purchases of direct materials needed for January?

A)$108,000
B)$224,550
C)$187,300
D)$146,350

Question 52

Which of the following is true of the sales budget?

A)It provides sales data that is used to prepare financial statements for external reporting purposes.
B)It captures the variable and fixed expenses of the business.
C)It is used in the production budget.
D)It shows the cost of expected production in a period.

Question 53

The Raw Materials Inventory account must be considered when calculating the amount of direct materials to be purchased.

Question 54

Bulldog,Inc.has budgeted sales for the first quarter of the next year to be 40,000 units.The inventory on hand at the beginning of quarter is 10,000 units.The desired ending inventory is 1000 units.Calculate the budgeted production for the first quarter.

A)1000 units
B)31,000 units
C)30,000 units
D)41,000 units

Question 55

A type of operational budget that involves adding one additional month to the budget as each month goes by is called a ________.

A)monthly replacement budget
B)long-term goal budget
C)static budget
D)continuous budget

Question 56

Budgeted purchases of direct materials is determined by adding direct materials needed for production to the desired direct materials in ending inventory.

Question 57

List the budgets that are affected by the budgeted number of units to be produced.

Question 58

If the amount of indirect materials needed for production is deemed to be insignificant,it should not be included in the direct materials budget.

Question 59

The direct materials budget is prepared using information from the ________ budget.

A)cash
B)master
C)capital expenditure
D)production

Question 60

A budgeting technique that requires managers to justify all revenue and expenses for each new period is called ________.

A)zero-based budgeting
B)justification budgeting
C)flexible budgeting
D)defensive budgeting

Question 61

When preparing the cost of goods sold budget,________.

A)ignore balances in Finished Goods Inventory
B)start by calculating the projected cost to produce each unit
C)ignore the inventory costing method
D)multiply units produced by the total projected cost per unit

Question 62

The cost accountant works with the office and sales managers to develop the selling and administrative expense budget.

Question 63

In preparing the master budget,the manufacturing overhead is the last period cost to consider.

Question 64

Pearl,Inc.has prepared the operating budget for the first quarter of the year.The company forecast sales of $40,000 in January,$50,000 in February,and $60,000 in March.Variable and fixed selling and administrative expenses are as follows: Variable Expenses:
Power cost (30% of sales)
Miscellaneous expenses: (5% of sales)
Fixed Expenses:
Salaries expense: $8000 per month
Rent expense: $5000 per month
Depreciation expense: $1400 per month
Power cost/fixed portion: $800 per month
Miscellaneous expenses/fixed portion: $1200 per month
Calculate total budgeted selling and administrative expenses for the month of January.

A)$30,400
B)$37,400
C)$14,000
D)$33,900

Question 65

Which of the following statements regarding the manufacturing overhead budget is incorrect?

A)Both fixed and variable manufacturing overhead costs are budgeted.
B)The manufacturing overhead budget calculates the budgeted overhead costs for the year and also the predetermined overhead allocation rate for the year.
C)The cost accountant and the production manager work together to project variable and fixed manufacturing costs.
D)Depreciation on manufacturing equipment is not included because the production manager has no control over that cost allocation.

Question 66

The manufacturing overhead budget calculates the budgeted overhead cost for the year,but not the predetermined overhead allocation rate for the year.

Question 67

From the following details provided by Segura,Inc.,prepare the cost of goods sold budget for the year.
$\begin{array}{ll}\text { Direct materials per unit } & \$ 65 \\\text { Direct labor hours per unit } & 2 \text { hours } \\\text { Direct labor rate per hour } & \$ 50 \\\text { Manufacturing overhead cost per direct labor hour } & \$ 20 \\\text { Beginning inventory units } & 1,000 \\\text { Sales price per unit } & \$ 250\end{array}$
$$\begin{array} { r r r r } &\begin{array} { r } \text { First } \\\text { Quarter }\end{array} & \begin{array} { r } \text { Second } \\\text { Quarter }\end{array} & \begin{array} { r } \text { Third } \\\text { Quarter }\end{array} & \begin{array} { r } \text { Fourth } \\\text { Quarter }\end{array} \\\hline\text { Units expected to be sold: }& 15,000 & 18,000 & 21,000 & 24,000\end{array}$$
Segura, Inc. expects no inventory units at the end of the second, third and fourth quarters.

Question 68

The budgeted production of Capricorn,Inc.is 10,000 units per month.Each unit requires 20 minutes of direct labor to complete.The direct labor rate is $100 per hour.Calculate the budgeted cost of direct labor for the month.(Round any intermediate calculations to the nearest cent and your final answer to the nearest dollar.)

A)$333,333
B)$66,667
C)$1,000,000
D)$50,000

Question 69

The cost accountant works directly with the corporate president to develop the selling and administrative expense budget.

Question 70

To calculate budgeted direct labor costs,multiply the number of units to be produced by the number of projected direct labor hours.Next,multiply that total by the average direct cost per hour.

Question 71

Cost behavior is considered in developing the selling and administrative expense budget as costs are designated as variable or fixed.

Question 72

When preparing the direct labor budget,________.

A)the production manager projects the average direct labor costs
B)direct labor hours needed for production are multiplied by the direct labor cost per hour
C)the actual direct labor cost per hour must be known
D)budgeted units to be produced are multiplied by direct labor cost per hour to determine budgeted direct labor cost

Question 73

Which of the following describes the selling and administrative expenses budget?

A)It aids in planning to ensure the company has adequate inventory on hand.
B)It captures the variable and fixed components of selling and administrative expenses of the business.
C)It depicts the breakdown of sales based on terms of collection.
D)It shows the cash flows related to the selling and administrative expenses and helps in planning to ensure the business has adequate cash.

Question 74

To develop the cost of goods sold budget,it is necessary to start by calculating the projected cost to produce each unit.

Question 75

The inventory costing method affects the process of preparing the cost of goods sold budget.

Question 76

When preparing the operating budgets for a manufacturing company,the manufacturing overhead budget ________.

A)represents the last period cost to be considered
B)only includes variable manufacturing overhead
C)only computes the budgeted overhead cost for the year
D)includes costs that are projected by the cost accountant and the production manager

Question 77

The manufacturing overhead budget calculates the budgeted overhead cost for the year and also the predetermined overhead allocation rate for the year.

Question 78

In the cost of goods sold budget,projected manufacturing cost per unit of product sold does NOT include ________ cost per unit.

A)sales commission
B)direct materials
C)variable manufacturing overhead
D)direct labor

Question 79

From the following details provided by Chestnut,Inc.,prepare the manufacturing overhead budget for the year.Also,calculate the predetermined overhead allocation rate,using direct labor hours as the allocation base.
$$\begin{array} { | l | r | r | r | r | } \hline & \begin{array} { c } \text { First } \\\text { Quarter }\end{array} & \begin{array} { c } \text { Second } \\\text { Quarter }\end{array} & \begin{array} { c } \text { Third } \\\text { Quarter }\end{array} & \begin{array} { c } \text { Fourth } \\\text { Quarter }\end{array} \\\hline \text { Budgeted production units } & 15,000 & 18,000 & 21,000 & 24,000 \\\hline \text { Variable overhead cost per unit } & \$ 45 & \$ 45 & \$ 45 & \$ 45 \\\hline \text { Fixed overhead costs: } & & & & \\\hline \text { Depreciation } & \$ 3,000 & \$ 3,000 & \$ 3,000 & \$ 3,000 \\\hline \text { Rent } & \$ 5,000 & \$ 5,750 & \$ 6,250 & \$ 7,250 \\\hline \text { Direct Labor Hours } & 12,500 & 14,500 & 17,200 & 12,800 \\\hline\end{array}$$

Question 80

To calculate budgeted direct labor costs,multiply the number of units to be produced by the number of projected direct labor hours.Next,multiply that total by the actual direct labor cost per hour.