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Financial ManagementOperating and Financial Budgeting Which of the following statements is correct? a. Budgets ensure goal congruence between superiors and subordinates b. Budgets define responsibilities centers and promote communication and coordination among organization segments c. Budgets foster...

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Financial Management Operating and Financial Budgeting

1.

Which of the following statements is correct? a. Budgets ensure goal congruence between superiors and subordinates b. Budgets define responsibilities centers and promote communication and coordination among organization segments c. Budgets foster the planning of operations and facilitates the fixing of blame for missed budget predictions d. Budgets foster the planning of operations, provide a framework for performance evaluation, and promote communication and coordination among organization segments

2.

Which of the following statements regarding budgeting is incorrect? a. Planning and control are the essential features of the budgeting process b. Capital expenditure budget shows the availability of idle cash for investment c. Budgeting provides a measuring devise to which subsequent performances are compared and evaluated d. Budget preparation is not the sole responsibility of any one organizational segment and is prepared by combining the efforts of many individuals

3.

Which of the following is not a primary purpose of preparing a budget? a. To communicate the company’s plans throughout the entire business organization b. To provide a basis for comparison of actual performance c. To control revenues and expenses during a given period d. To make sure that the company expands its operation

4.

Which of the following is not considered to be a benefit of participative budgeting? a. Participative budgeting results in greater support of the organization because individuals at all levels of the organization are recognized as being part of the team b. Participative budgeting involves those most directly affected c. Top management need not be concerned with the overall profitability of the current operations because lower level managers set the final target of the budget d. Participative budgeting improves accountability because managers are held responsible for reaching their goals, such that they cannot shift their responsibility by blaming the unrealistic goals demanded by the budget

5.

A budget is a control technique that, among other things, establishes a performance standard. However, a natural reaction of a manager whose efforts are to be evaluated is to incorporate slack into the budget. Which of the following about budgetary slack is incorrect? a. Budgetary slack can best be described as the planned overestimation of budgetary expenses b. The use of budgetary slack prohibits the use of the budget to control subordinate performance c. From the perspective of corporate management, the use of budgetary slack increases the likelihood of inefficient resource allocation d. Budgetary slack eliminates the likelihood that a manager will receive the personal rewards that follow from meeting the expectations of superiors

6.

The budget element(s) included in the financial budget process are the following, except the: a. Budgeted balance sheet c. Cash budget and budgeted cash flows b. Capital budget d. Budget variance

7.

In the budgeting process, top management should: a. Limit their involvement because they lack the detailed knowledge of the daily operations b. Be involved only in the approval process c. Separate the budgeting process and the business planning process into two separate process d. Be involved, including using the budget process to communicate goals

8.

When developing a budget, an external factor to consider in the planning process is: a. The activities of competitors b. Development of a new product c. The implementation of employee’s retirement plan d. A change in management

9.

A budget can be many tools in one. It can be used for planning, communications, motivation, and control. For the budgetary process to serve effectively as a control tool,: a. The organization must have a budget director b. A budget committee must be organized c. Forecasting procedures must be developed d. The budgeting and accounting system must be integrated or synchronized with the organizational structure

10. One component of the financial budget is the cash budget. It is prepared periodically to facilitate cash planning and control. Its purpose is to anticipate cash needs while minimizing the amount of idle cash. The cash receipts section of the budget includes all sources of cash, among which is: a. Depreciation c. Extinguishment of debt b. Factory supplies d. Loan proceeds 11. 2B Corporation is preparing its Master Budget for 200B. Budget information are as follows: Sales Production Cost Operating Expenses 200B: First quarter P280,000 P192,000 P64,000 Second quarter 320,000 200,000 68,000 Third quarter 360,000 224,000 72,000 Fourth quarter 352,000 200,000 76,000 200C: First quarter 320,000 224,000 72,000 The budgeted finished goods inventories are: 200B: March 31 P56,000 June 30 52,000 September 31 60,000 December 31 48,000 The company uses the JIT system on its purchase of materials. It buys materials on cash basis. Included in production cost each quarter is P44,000 in depreciation. The operating expenses include depreciation of P12,000 per quarter. All production costs and operating expenses, with the exemption of depreciation are to be paid during the quarter of incurrence. Collections on sales are planned at 60% during the quarter of sales, the balance during the quarter following the sale. Dividends of P20,000 is to be paid in June and again in December if covered by sufficient profit. No dividends will be paid if the net profit is less than P120,000. Income tax is equal to 32% of the quarter’s income before tax and is paid in the following quarter. The company’s balance sheet as of December 31, 200A is as follows:

CORPORATIONS BALANCE SHEET December 31, 200A

Assets Cash Accounts receivable, net Inventory Plant and equipment, net Total assets

P 76,000 120,000 44,000 580,000 P820,000

Liab. and Equities Income tax payable Equities Capital stock Retained earnings Total liab. and equities

P 12,000 640,000 168,000 P820,000

How much was the actual sales during the last quarter of 200A? a. 120,000 c. 300,000 b. 200,000 d. 48,000 12. Based on No. 11, what is the total budgeted cost of goods sold of the year 200B? a. 816,000 c. 636,000 b. 812,000 d. 640,000 Solution: 192,000+200,000+224,000+200,000 = 816,000 13. Based on no. 11, how much dividends will be paid in 200B? a. 0 c. 40,000 b. 20,000 d. 80,000 14. Based on no. 11, what is the total budgeted cash disbursements for production costs and operating expenses for the year 200B? a. 1,096,000 c. 640,000 b. 1,040,000 d. 872,000 Solution: 200,000+212,000+240,000+220,000 = 872,000 15. Based on no. 11, what is the budgeted cash balance on December 31, 200B? a. 76,000 c. 169,280 b. 393,280 d. 455,200 16. Based on no. 11, what is the expected balance of accounts receivable as of December 31, 200B? a. 120,000 c. 448,000 b. 140,800 d. 221,200 17. Based on no. 11, what is the budgeted balance of raw materials inventory as of December 21, 200B? a. 44,000 c. 152,000 b. 48,000 d. 0 18. Based on no. 11, what is the expected balance of income tax payable as of December 31, 200B? a. 12,000 c. 20,480 b. 70,400 d. 0 19. Based on no. 11, what is the budgeted balance of retained earnings as of December 31, 200B? a. 168,000 c. 277,600 b. 317,600 d. 640,000 20. Based on no. 11, what is the expected balance of the plant and equipment account as of December 31, 200B? a. 580,000 c. 804,000 b. 356,000 d. 224,000...