Budgeting-mas - mgt advisory services quizzer PDF

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BUDGETARY PLANNING TRUE-FALSE STATEMENTS 1.

Budgets represent management’s plans in financial terms.

2.

Budgets promote efficiency and serve as a deterrent to waste.

3.

A budget can be a means of communicating a company's objectives to external parties.

4.

A budget facilitates coordination of activities within the business but is a poor tool for evaluating performance.

5.

A budget is more beneficial if accepted by lower level management.

6.

The budget itself and the administration of the budget are the responsibility of management.

7.

The most common budget period is one year.

8.

The flow of input data for budgeting should be from the lowest levels of responsibility to the highest level.

9.

Budgets, by their very nature, create a negative effect on human behavior within companies because they imply that management is trying to control.

10.

A budget committee coordinates the budget activities of a company.

11.

The shorter the budget period, the more reliable the estimates of future outcomes.

12.

Upper level managers are responsible for preparing the entire budget.

13.

The last step in the budgeting process is developing a sales forecast.

14.

Budgeting and long-range planning differ in the emphasis and the time period involved.

15.

Long-range plans are used primarily as an evaluation of specific results to be achieved.

16.

Long-range plans reflect management's long-term plans encompassing five years or more.

17.

The master budget consists of a plan of action for a specified time period.

18.

Operating budgets must be completed before the financial budgets can be prepared.

19.

The production budget must be completed before the materials purchases budget because the number of units to be produced must be known to determine how much material to buy.

20.

The number of direct labor hours needed for production is obtained from the direct labor budget.

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21.

Companies can use either a predetermined overhead rate or a manufacturing overhead budget. The manufacturing overhead budget generally has separate sections for variable and fixed costs.

22. 23.

A sales budget should be prepared before the production budget.

24.

The direct materials budget contains only quantity data so the purchasing department knows how much materials should be purchased.

25.

The budgeted income statement indicates the expected amount of cash expected to be acquired from operations.

26.

Companies that do not prepare cash budgets have significant cash deficiencies.

27.

In preparing the budgeted balance sheet, management should not be concerned if it does not balance since it does not reflect actual results.

28.

The first budget prepared should be the sales budget.

29.

A merchandiser has a merchandise purchases budget, and a manufacturer has a materials purchases budget.

30.

A service company has no purchases budget.

Answers to True-False Statements Item 1. 2. 3. 4. 5.

Ans. T T F F T

Item 6. 7. 8. 9. 10.

Ans. T T T F T

Item 11. 12. 13. 14. 15.

Ans. T F F T F

Item 16. 17. 18. 19. 20.

Ans. T T T T T

Item 21. 22. 23. 24. 25.

Ans. F T T F F

Item 26. 27. 28. 29. 30.

Ans. F F T T T

MULTIPLE CHOICE QUESTIONS 31.

At January 1, 2004, Barry, Inc. has beginning inventory of 4,000 widgets. Barry estimates it will sell 35,000 units during the first quarter of 2004 with a 10% increase in sales each quarter. Barry’s policy is to maintain an ending inventory equal to 25% of the next quarter’s sales. Each widget costs $1 and is sold for $1.50. How much is budgeted sales revenue for the third quarter of 2004? a. $57,525 b. $63,000 c. $63,525 d. $42,350

32.

Waco’s Widgets plans to sell 22,000 widgets during May, 19,000 units in June, and 20,000 during July. Waco keeps 10% of the next month’s sales as ending inventory. How many units should Waco produce during June?

Budgetary Planning

a. b. c. d. 33.

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18,900 21,000 19,100 19,000

Gottberg Mugs is planning to sell 2,000 mugs and produce 2,200 mugs during April. Each mug requires 2 pounds of resin and one-half hour of direct labor. Resin costs $1 per pound and employees of the company are paid $12.50 per hour. Manufacturing overhead is applied at a rate of 120% of direct labor costs. Gottberg has 2,000 pounds of resin in beginning inventory and wants to have 2,400 pounds in ending inventory. How much is the total amount of budgeted direct labor for April? a. $12,500 b. $13,750 c. $25,000 d. $27,500

34.

During December, the capital budget indicates a $280,000 purchase of equipment. The ending November cash balance is budgeted to be $40,000. Cash receipts are $840,000, and cash disbursements are $610,000 during December. The company wants to maintain a minimum cash balance of $20,000. What is the minimum cash loan that must be planned to be borrowed from the Bank during December? a. $30,000 b. $10,000 c. $50,000 d. $0

35.

Lewis Hats is planning to sell 600 straw hats. Each hat requires ½ pound of straw and ¼ hour of direct labor. Straw costs $0.20 per pound and employees of the company are paid $22 per hour. Lewis has 80 pounds of straw and 40 hats in beginning inventory and wants to have 50 pounds of straw and 60 hats in ending inventory. How many units should Lewis Hats produce in April? a. 600 b. 620 c. 580 d. 630

36.

Looker Hats is planning to sell 600 felt hats, and 700 will be produced during June. Each hat requires ½ yard of felt and ¼ hour of direct labor. Felt costs $3.00 per yard and employees of the company are paid $20 per hour. How much is the total amount of budgeted direct labor for June? a. $3,000 b. $48,000 c. $3,500 d. $2,400

37.

Weaver, Inc. has budgeted direct materials purchases of $150,000 in March and $240,000 in April. Past experience indicates that the company pays for 70% of its purchases in the month of purchase and the remaining 30% in the next month. Other costs are all paid during the month incurred. During April, the following items were budgeted: Wages expense Purchase of office equipment Selling and administrative expenses

$75,000 36,000 24,000

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Depreciation expense

18,000

How much is budgeted cash disbursements for April? a. $324,000 b. $213,000 c. $348,000 d. $366,000 Use the following information for questions 38, 39, and 40. Livanos, Inc.reports all its sales on credit, and pays operating costs in the month incurred. Amounts for 2005 are:

Budgeted sales Budgeted purchases • • • • •

March $300,000 $144,000

April $290,000 $120,000

May $320,000 $128,000

June July $280,000 $210,000 $132,000 $90,000

Customer amounts on account are collected 70% in the month of sale and 30% in the following month. Cost of goods sold is 60% of sales. Livanos purchases and pays for merchandise 40% in the month of acquisition and 60% in the following month. Operating expenses are: Salaries, $50,000; Depreciation, $12,000; Rent, $15,000; and Utilities, $14,000; Accounts payable is used only for inventory acquisitions.

38.

How much cash will Livanos receive during May from customers? a. $308,000 b. $311,000 c. $224,000 d. $299,000

39.

How much is Livanos’ May 30, 2005 budgeted Accounts Receivable? a. $320,000 b. $96,000 c. $224,000 d. $311,000

40. How much is Livanos’ budgeted balance for Accounts Payable at May 30, 2005? a. $124,800 b. $72,000 c. $51,200 d. $76,800 41.

Orr Corporation’s manufacturing costs for August when production was 800 units appears below: Direct material $10 per unit Direct labor $4,800 Variable overhead 4,000 Factory depreciation 3,000 Factory supervisory salaries 2,000 Other fixed factory costs 1,000 How much is the budgeted manufacturing cost for a month when 900 units are produced?

Budgetary Planning

a. b. c. d.

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$23,800 $18,900 $24,900 $25,650

42.

Lewis Production is planning to sell 220 boxes of bricks and produce 200 boxes of bricks during May. Each box of bricks requires 20 pounds of brick mix and a half hour of direct labor. Brick mix costs $5 per 100 pounds and employees of the company are paid $12.00 per hour. Manufacturing overhead is applied at a rate of 120% of direct labor costs. Lewis Production has 600 pounds of brick mix in beginning inventory and wants to have 800 pounds of brick mix in ending inventory. What is the total amount to be budgeted for manufacturing overhead for the month? a. $1,440 b. $2,880 c. $2,400 d. $1,200

43.

Hargrow, Inc. makes and sells a single product, buckets. It takes 30 ounces of plastic to make one bucket. Budgeted production of buckets for the next three months is as follows: August 90,000 units, September 75,000 units, October 65,000 buckets. The company wants to maintain monthly ending inventories of plastic equal to 10% of the following month's production needs. On August 31st, 195,000 ounces of plastic were on hand. The cost of plastic is $0.03 per ounce. How much is the ending inventory of plastic to be reported on the company’s balance sheet at September 30? a. $195,000 b. $5,850 c. $6,750 d. $7,500

44.

Razmataz Company makes and sells umbrellas. The company is in the process of preparing its Selling and Administrative Expense Budget for the last half of the year. The following budget data are available: Item Sales commissions Shipping Advertising Depreciation on office equipment Other operating expenses

Variable Cost Per Unit Sold $0.60 $1.20 $0.30 $0.35

Monthly Fixed Cost $3,000

$4,000 $34,000

Expenses are paid in the month incurred. If the company has budgeted to sell 2,000 umbrellas in October, how much is the total budgeted variable selling and administrative expenses for October? a. $41,000 b. $4,600 c. $45,900 d. $4,900 45.

Leak Company sells only on credit. It reported the following information for 2006: Budgeted sales

September $900,000

October $800,000

November $850,000

December $960,000

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46.

Customer amounts on account are collected 45% in the month of sale and 55% in the following month. How much is the November 30, 2006 budgeted Accounts Receivable? a. $467,500 b. $382,500 c. $827,500 d. $528,000 At January 1, 2006, Jake, Inc. has beginning inventory of 3,000 surfboards. Jake estimates it will sell 14,000 units during the first quarter of 2006 with a 10% increase in sales each quarter. Jake’s policy is to maintain an ending inventory equal to 20% of the next quarter’s sales. Each surfboard costs $140 and is sold for $200. How many units should Jake produce during the first quarter of 2006? a. 14,080 b. 14,000 c. 16,800 d. 14,200

47.

At January 1, 2006, Jake, Inc. has beginning inventory of 3,000 surfboards. Jake estimates it will sell 14,000 units during the first quarter of 2006 with a 10% increase in sales each quarter. Jake’s policy is to maintain an ending inventory equal to 20% of the next quarter’s sales. Each surfboard costs $140 and is sold for $200. How much is budgeted sales revenue for the third quarter of 2006? a. $16,940 b. $3,388,000 c. $3,360,000 d. $3,080,000

48.

Items from Sap Company’s budget for March in which 2,100 units were produced and sold appear below: Direct materials Indirect materials - variable Supervisor salaries Depreciation on factory equipment Direct labor Property taxes on factory Total

$12,000 2,000 10,000 8,000 7,000 3,000 $42,000

At 2,200 units, how much are budgeted variable manufacturing costs? a. $22,000 b. $43,000 c. $21,000 d. $19,905 49.

Nunnally Manufacturing Company has furnished the following information which occurred during May: Accounts Payable balance at April 30 Purchases on account during May Cash payments for materials purchased in April Cash payments for materials purchased in May

$ 29,000 150,000 82,000 76,000

The accounts payable account is used only for direct materials. How much will Nunnally report as accounts payable on the balance sheet at the end of May? a. $21,000 b. $103,000 c. $8,000

Budgetary Planning

d. 50.

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$15,000 Harrah Company provided the following information for the month of October: Beginning cash balance Cash receipts Cash disbursements

$ 35,000 460,000 485,000

Harrah’s policy is to keep a minimum end of the month cash balance of $30,000. How much will Harrah’s need to borrow during August? a. $20,000 b. $25,000 c. $10,000 d. $0 51.

Each production worker can produce 4 wooden chairs per hour. During the month of June, Chairs, Inc. has forecasted sales of 100,000 chairs. The beginning inventory was 1,000 chairs, and desired ending inventory is 2,500 chairs. How many hours of direct labor must be budgeted to meet production needs? a. 25,375 b. 25,000 c. 26,500 d. 24,625

52.

Jelly Box, Inc. budgeted the following manufacturing costs for 25,000 calculators: Fixed manufacturing costs Variable manufacturing costs

$12,000 per month $16.00 per unit

Jelly Box produced 20,000 calculators during March. How much is budgeted total manufacturing costs in March? a. $320,000 b. $412,000 c. $400,000 d. $332,000 53.

Which one of the following is correct concerning a budget? a. It can focus as a substitute for management. b. It is a written statement of managements’ plans for a specified future time period. c. It is required for all business operations. d. It is used only by manufacturing companies.

54.

For which one of the following budgeting aspects does the budget committee generally have the responsibility? a. Enforcing the budget b. Expressing the budget in financial terms c. Setting company goals d. Serves as a review board where managers can defend budget goals and requests

55.

Which one of the following is not a benefit of budgeting? a. It facilitates the coordination of activities. b. It provides definite objectives for evaluating performance. c. It provides assurance that the company will achieve its objectives. d. It requires all levels of management to plan ahead on a recurring basis.

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56.

With which management function is budgeting most closely related? a. Motivating b. Controlling c. Planning d. Directing

57.

Which of the following is not a benefit of budgeting? a. It promotes efficiency. b. It deters waste. c. It is a basis for performance evaluation. d. It assures the company that management will perform at a particular operational level.

58.

Where do most companies start in the budgeting process? a. They estimate expected profits. b. They look at past performance. c. They look at competitors’ future plans. d. They estimate how many units the production department is able to produce.

59.

Which one of the following is one of the factors that must be present if budgets are to be effective? a. All upper level managers should verify the validity of the amounts in the budgets. b. Research and analysis should occur in order to set realistic goals. c. The company must have the stockholders' approval of the budget. d. The budget committee must prepare the budget.

60.

Which one of the following is necessary if a company expects its budget to be effective? a. The company must be operating at less than capacity. b. The budget period must cover more than one year. c. The company’s organizational structure must be sound. d. The company must have sufficient cash for operations.

61.

Which of the following individuals should accept the company’s budgets in order for the budgets to be most effective? a. Division managers and customers b. Department heads and division managers c. Supervisors and clerks d. Department heads and creditors

62.

Which of the following approvals will make the most effective environment for budget acceptance? a. The budget is prepared by top management. b. The budget preparation contains input from all levels of management. c. The budget is prepared by the department heads. d. Acceptance has nothing to do with who prepares budgets.

63.

The performance report of the Canadian Division of Sidmund, Inc. showed a difference between the budget and the actual results for the year. Management determines this difference was controllable by the manager in charge. Should the division manager be held responsible? a. No, since budget differences fluctuate over time. b. Yes, because managers are responsible for controllable costs for their departments.

Budgetary Planning

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c. Only if the difference is favorable. d. Yes, managers are responsible for all costs in their division. 64.

Which one of the following would most likely cause an unrealistic budget to result? a. All levels of management contributed to its development. b. The budget has been developed in a participative approach. c. The budget was developed after considerable planning. d. The budget has been developed in a top down fashion.

65.

Under what situation might a budget be most effective? a. As a tool to assess blame when costs are too high b. When used to evaluate a manager's performance c. Budgets are equally effective in all situations. d. When it is created by top management

66.

In many companies, who is assigned the responsibility for coordinating the preparation of the budget? a. A budget committee b. The sales managers since the sales budget is the backbone of the master budget c. The company's board of directors since they approve major corporate changes d. The company's independent certified public accountants

67.

Which one of the factors below is not a major influence of the length of budget periods? a. The nature of the organization b. The type of budget c. Prevailing business conditions d. The profitability of the company

68.

Which one of the following is an advantage of using participative budgeting? a. It is updated daily to reflect current activity. b. It assures the company is operating at the activity level of the master budget. c. It allows companies to compare the current with the previous year. d. Lower level managers are more likely to perceive budgets as fair.

69.

Which time period is the most common for budget periods? a. One month b. Five years c. One year d. There is no common time period since companies use any period desired.

70.

Crown, Inc. administered its budget. What did the company do? a. It prepared the budget one year in advance. b. Management used the budget as an aid in achieving projected goals. c. The company allowed each level of management to participate in creating the budget. d. Management estimated its sales for the budget period.

71.
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