Chapter 6 test bank PDF

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horngren' cost accounting 16th edition chapter 6 - test bank with answers and descriptions...

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1) Which of the following is true of a budget? A) Budgets are used to express only the operational plans and not the strategic plans of a company. B) Budgets do not account for nonfinancial aspects of the upcoming period. C) Budgets are most useful when they are planned independent of the company's strategic plans. D) Budgets help managers to revise their plans and strategies. Objective 6.1 D) Budgets help managers to revise their plans and strategies. 2) Which of the following is a financial budget? A) budgeted balance sheet B) cash receivables budget C) production budget D) cost of goods sold budget Objective 6.1 A) budgeted balance sheet 3) Budgets are used to ________. A) increase the book value of its assets B) communicate with external stakeholders C) calculate the income tax liability D) formulate company strategies Objective 6.1 D) formulate company strategies 4) Which of the following is true of master budgets? A) They include only financial aspects of a plan and exclude nonfinancial aspects. B) They aid in coordinating what needs to be done to implement a plan. C) They aid in quantifying the expectations of all stakeholders. D) They must be administered rigidly after they are committed to. Objective 6.1 B) They aid in coordinating what needs to be done to implement a plan. 5) Operating decisions primarily deal with ________. A) the best use of scarce resources B) how to obtain funds to acquire resources C) acquiring equipment and buildings D) satisfying stockholders Objective 6.1 A) the best use of scarce resources 6) Financing decisions primarily deal with ________. A) the use of scarce resources B) how to obtain funds to acquire resources C) acquiring equipment and buildings D) preparing financial statements for stockholders Objective 6.1 B) how to obtain funds to acquire resources 7) A master budget ________. A) is the initial plan of what the company intends to accomplish in the period and

evolves from both the operating and financing decisions B) is a substitute for the management functions of planning and coordination C) improves companies' market capitalization and evolves from both the investing and financing decisions D) provides an ethical framework for decision making Objective 6.1 A) is the initial plan of what the company intends to accomplish in the period and evolves from both the operating and financing decisions 8) Which of the following is generally expressed through a short-run budget? A) operational plans B) expansion plans C) strategic plans D) startup plans Objective 6.1 A) operational plans 9) Which of the following statements is true of budgets? A) Master budgets express management's operating and financial plans. B) Financial budgets are prepared before the master budget is prepared. C) Operating budgets are prepared independently of the master budget. D) Financial budgets are working documents at the core of the budgeting process. Objective 6.1 A) Master budgets express management's operating and financial plans. 10) A master budget forces managers to examine the business as they plan so they can ________. A) detect inaccurate historical records to avoid errors in budgets B) set expectations against which actual results can be compared C) complete the budgeting task on time D) ensure that only financial risks and opportunities are incorporated Objective 6.1 B) set expectations against which actual results can be compared 11) TRUE or FALSE: A budget is the quantitative expression of a proposed plan of action by management for a specified period. Objective 6.1 TRUE 12) TRUE or FALSE: A budget generally includes both financial and nonfinancial aspects of the plan. Objective 6.1 TRUE 13) TRUE or FALSE: An organization's strategy matches its capabilities with the opportunities in the marketplace to accomplish its objectives. Objective 6.1 TRUE

14) Budgeting includes only the financial aspects of the plan and NOT any nonfinancial aspects such as the number of physical units manufactured. Objective 6.1 FALSE Explanation: Budgeting includes both financial and nonfinancial aspects of the plan. 15) TRUE or FALSE: Operating plans are generally expressed through long-run budgets. Objective 6.1 FALSE Explanation: Operating plans are generally expressed through short-run budgets. Strategic plans are expressed through long-run budgets. 16) TRUE or FALSE: A budget aids to coordinate what needs to be done to implement the proposed plan. Objective 6.1 TRUE 17) TRUE or FALSE: Long-run planning and short-run planning are best performed independently of each other. Objective 6.1 FALSE Explanation: Long-run planning and short-run planning are inter-dependent. 18) TRUE or FALSE: Financing decisions deal with how to best use the limited resources of an organization. Objective 6.1 FALSE Explanation: Financing decisions deal with how to obtain funds to acquire resources needed for the organization. 19) TRUE or FALSE: The feedback from budgets can lead to changes in plans and strategies. Objective 6.1 TRUE 20) TRUE or FALSE: Budgeted financial statements are called pro forma statements. Objective 6.1 TRUE 21) Describe the benefits of preparing an operating budget to an organization. Objective 6.1 - A well-prepared operating budget should serve as a guide for a company to follow during the budgeted period. It is not "set in stone." If new information or opportunities arise the budget should be adjusted. - A well-prepared operating budget assists management with the allocation of scarce resources. It can help management see trouble spots in advance, and then management can decide where to allocate its limited resources. - A well-prepared operating budget fosters communication and coordination among various segments of the company. The process of preparing a budget requires

managers from different functional areas to work together and communicate performance levels they both want and can attain. - A well-prepared operating budget can become the performance standard against which firms can compare the actual results. 22) Bob and Dale have just purchased a small honey manufacturing company that was having financial difficulties. After a brief operating period, they decided that the company's main problem was an improper budgeting function. The company made a good product and market potential was great. Required: Describe the usual budgeting cycle that well-managed companies adopt?* Objective 6.1 The usual budgeting cycle that well-managed companies adopt consists of the following three steps: 1. Before the start of the period managers and management accountants work together to develop plans for the company as a whole and the performance of its subunits, taking into account the company's past performance, market feedback, and anticipated future changes. 2. At the beginning of the period, managers are provided with a framework that outlines specific financial or nonfinancial expectations against which actual results will be compared. 3. During the course of the year, management accountants and managers investigate any deviations from plans and take corrective action, if necessary. 1) Which of the following is true of budgets when they are administered thoughtfully? A) They eliminate subjectivity in performance evaluation. B) They can eliminate the uncertainty faced by a company. C) They promote coordination within the subunits of a company. D) They are a substitute the planning and coordination functions of management. Objective 6.2 C) They promote coordination within the subunits of a company. 2) A budget is an end product of negotiations among senior and subordinate mangers because ________. A) budgeting is their mutual responsibility B) senior managers alone cannot spare the time required for the budgeting process C) senior managers are responsible for providing information on competitors performance and subordinate managers are responsible for information on external market conditions D) senior managers want stiffer targets and subordinates want relatively easy targets Objective 6.2 D) senior managers want stiffer targets and subordinates want relatively easy targets 3) Which of the following is a limitation of using past performance as a basis for judging actual results? A) It does not account for productivity increases over the periods. B) It increases the incentive for managers to introduce budgetary slack.

C) It does consider inefficiencies of previous periods. D) It increases the tendency of senior managers exaggerating changes in future conditions as opposed to changes in current conditions. Objective 6.2 C) It does consider inefficiencies of previous periods. 4) Challenging budgets tend to ________. A) discourage out-of-the-box and creative thinking as there is very little room for error B) set unrealistic expectations and are perceived as overly ambitious and unachievable C) increase anxiety without motivation not meeting them is viewed as a failure D) motivate improved performance as employees work more intensely to avoid failure Objective 6.2 D) motivate improved performance as employees work more intensely to avoid failure 5) A limitation of using past performance as a basis for judging actual results is that ________. A) future conditions can be different from the past B) any undervaluation of profits in the past period is likely to continue C) any subsequent change in accounting treatment will distort performance evaluation D) they tend to distort results when current and past conditions are similar Objective 6.2 A) future conditions can be different from the past 6) A company's actual performance should be compared against budgeted amounts for the same accounting period so that ________. A) adjustments for future conditions can be included B) to avoid any feedback from the budgets due to past miscues C) inefficiencies of the past year can be included D) a rolling budget can be implemented Objective 6.2 A) adjustments for future conditions can be included 7) Which of the following is a reason why top managers want lower-level managers to participate in the budgeting process? A) To benefit from their experience with the day-to-day aspects of running the business. B) To reduce the time and cost expended in the budgeting process. C) To ensure that they do not introduce any budgetary slack. D) To ensure that the budgets are administered rigidly given the changing market conditions. Objective 6.2 A) To benefit from their experience with the day-to-day aspects of running the business. 8) Demanding but achievable targets tend to ________. A) be set by subordinate managers to create intrinsic reasons to achieve targets B) create unnecessary anxiety that de-motivates employees C) improve performance of employees when they are closer to the target D) be perceived as ambitious with little chance of success in achieving targets Objective 6.2 C) improve performance of employees when they are closer to the target 9) Which of the following is referred to as the bottom-up aspect of the budgeting process?

A) lower-level managers setting their individual targets that aggregate to be the company-wide target B) senior managers consulting middle- and lower-level managers to investigate any deviations from the budget C) lower-level managers implementing the budgets with senior managers monitoring progress and investigating deviations D) lower-level managers providing inputs to the budgeting process based on their specialized knowledge Objective 6.2 D) lower-level managers providing inputs to the budgeting process based on their specialized knowledge 10) Participation of employees in the budgeting process helps ________. A) create greater commitment towards the budget B) create demanding but achievable budget C) decrease deviations from the budget D) secure communication of sensitive information Objective 6.2 A) create greater commitment towards the budget 11) Managers who feel that top management does not believe in the budget are most likely to ________. A) pick up the slack and participate in the budgeting process B) to face little interference in the day-to-day aspects of running the business C) be inactive participants in the budgeting process D) convert the budget to a shorter more reasonable time period Objective 6.2 C) be inactive participants in the budgeting process 12) Which of the following is a benefit of budgeting? A) It helps investors to value stocks. B) It helps managers gather information for improving future performance. C) It helps managers to take marketing decisions. D) It helps in increasing market capitalization of the company. Objective 6.2 B) It helps managers gather information for improving future performance. 13) Budgets should ________. A) be flexible B) be administered rigidly C) only be developed for short periods of time D) include only variable costs Objective 6.2 A) be flexible 14) TRUE or FALSE: After a budget is agreed upon and finalized by the management team the amounts should NOT be changed for any reason. Objective 6.2 FALSE Explanation: Budgets should not be administered rigidly but rather should be adjusted for changing conditions.

15) TRUE or FALSE: Even in the face of changing conditions, attaining the original budget is critical. Objective 6.2 FALSE Explanation: Changing conditions usually call for a change in plans. Attaining the budget should not be an end in itself. 16) TRUE or FALSE: Lower-level managers will not actively participate in the budget process if they perceive upper management does not believe in the process. Objective 6.2 TRUE 17) TRUE or FALSE: Budgeting helps managers gather information for improving only the budgeted period's performance. Objective 6.2 FALSE Explanation: Budgeting helps managers gather information which help in improving performance for the budget period and also for the future. 18) TRUE or FALSE: Bottom-up budgets entrusts senior managers to prepare budgets and lower-level managers to execute them. Objective 6.2 FALSE Explanation: Bottom-up budgets encourage lower-level managers to participate in the budgeting process and hence it is not limited to senior managers alone. 19) TRUE or FALSE: It is best to compare this year's performance with last year's actual performance rather than this year's budget. Objective 6.2 FALSE Explanation: It is best to compare this year's performance with this year's budget because inefficiencies and different conditions may be reflected in last year's actual performance amounts. 20) TRUE or FALSE: When administered wisely budgets promote communication and coordination among the various subunits of the organization. Objective 6.2 TRUE 1) Which of the following is a factor while choosing the period of a budget? A) the frequency of interim financial statements B) the estimated period required to achieve budget targets C) the general economic trend D) the motive for creating the budget Objective 6.3 D) the motive for creating the budget 2) Which of the following is a component of operating budgets? A) sales budget B) budgeted statement of cash flows C) capital expenditures budget

D) budgeted balance sheet Objective 6.3 A) sales budget 3) The operating budget process generally concludes with the preparation of the ________. A) production budget B) cash flow statement C) research and development budget D) budgeted income statement Objective 6.3 D) budgeted income statement 4) Which of the following best describes a rolling budget? A) It is a budget that outlines the amount required to roll over debt in a future period. B) It is a budget that is always available for a specified future time period. C) It is a budget that outlines budgeted expenses. D) It is a budget that is submitted to a bank at the beginning of every month as per a loan covenant. Objective 6.3 B) It is a budget that is always available for a specified future time period. 5) The ________ is a component of financial budgets. A) cost of goods sold budget B) marketing costs budget C) distribution costs budget D) cash budget Objective 6.3 D) cash budget 6) ________ include a budgeted statement of cash flows and a budgeted balance sheet. A) Revenue budgets B) Financial budgets C) Operating budgets D) Production budgets Objective 6.3 B) Financial budgets 7) The order to follow when preparing the operating budget is ________. A) revenues budget production budget, and direct manufacturing labor costs budget B) costs of goods sold budget, production budget, and cash budget C) revenues budget, manufacturing overhead costs budget, and production budget D) cash expenditures budget, revenues budget, and production budget Objective 6.3 A) revenues budget production budget, and direct manufacturing labor costs budget 8) In which order are the following developed? First to last: A = Production budget B = Direct materials costs budget C = Budgeted income statement D = Revenues budget

A) ABDC B) DABC C) DCAB D) CABD Objective 6.3 B) DABC 9) The budgeting process is most strongly influenced by ________. A) the capital budget B) the budgeted statement of cash flows C) the sales forecast D) the production budget Objective 6.3 C) the sales forecast 10) ________ is the usual starting point for budgeting. A) The revenues budget B) The estimated net income C) The production budget D) The cash budget Objective 6.3 A) The revenues budget 11) The sales forecast should be primarily based on ________. A) statistical analysis B) input from sales managers and sales representatives C) production capacity D) input from the board of directors Objective 6.3 B) input from sales managers and sales representatives 12) Costs such as supervision depreciation, maintenance, supplies, and power. are included in the ________. A) capital expenditures budget B) distribution costs budget C) revenues budget D) manufacturing overhead budget Objective 6.3 D) manufacturing overhead budget 13) High inventory levels increase the ________. A) cost of carrying inventory the costs of quality, and shrinkage costs B) revenues and expected profits C) cost of equity, cost of debt, and cost of short-term funds D) cost of materials, the costs of overhead, and opportunity costs Objective 6.3 A) cost of carrying inventory the costs of quality, and shrinkage costs 14) The revenues budget identifies ________. A) expected cash flows for each product B) actual sales from last year for each product

C) the expected level of sales for the company D) the variance of sales from actual for each product Objective 6.3 C) the expected level of sales for the company 15) The number of units in the sales budget and the production budget may differ because of a change in ________. A) finished goods inventory levels B) overhead charges C) direct material inventory levels D) sales returns and allowances Objective 6.3 A) finished goods inventory levels 16) Which of the following is a benefit of keeping inventory levels low? A) It reduces setup costs. B) It reduces shrinkage costs. C) It reduces the loss from lost sales. D) It reduces inventory turnover. Objective 6.3 B) It reduces shrinkage costs. 17) Budgeted production equals ________. A) beginning finished goods inventory + budgeted unit sales - targeted ending finished goods inventory B) targeted ending finished goods inventory + beginning finished goods inventory budgeted unit sales C) budgeted unit sales + targeted ending finished goods inventory - beginning finished goods inventory D) budgeted unit sales + targeted ending finished goods inventory + beginning finished goods inventory Objective 6.3 C) budgeted unit sales + targeted ending finished goods inventory - beginning finished goods inventory 18) Best products an Atlanta based company, is in the midst of its budgeting process. It has already prepared its direct materials usage budget and is now in the process of preparing its direct material purchase budget. In addition to the details gathered to prepare the direct materials usage budget, Best also must know ________. A) the level of direct material inventory to be maintained B) the ratio of direct materials to cost of goods sold C) the beginning direct materials inventory level D) the quantity of direct materials to be purchased Objective 6.3 A) the level of direct material inventory to be maintained 19) Total finished units to be produced is based on the ________. A) direct material purchase budget B) budgeted ...