ACC 350 Week 7 Quiz – New

ACC 350 Week 7 Quiz – Strayer

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Chapter 6

Master Budget and Responsibility Accounting

1)

Few businesses plan to fail, but many of those that don’t succeed have failed to plan.

2)

The master budget reflects the impact of operating decisions, but not financing decisions.

3)

Budgeted financial statements are also referred to as pro forma statements.

4)

Budgeting includes only the financial aspects of the plan and not any nonfinancial aspects such as the number of physical units manufactured.

5)

Budgeting helps management anticipate and adjust for trouble spots in advance.
Answer:

6)

Budgets can play both planning and control roles for management.

7)

Long-run planning and short-run planning are best performed independently of each other.

8)

Operating decisions deal with how to best use the limited resources of an organization.

9)

Investing decisions deal with how to obtain the funds to acquire resources.

10)

Budgeted financial statements are called pro forma statements.
11)

After a budget is agreed upon and finalized by the management team, the amounts should not be changed for any reason.

12)

Even in the face of changing conditions, attaining the original budget is critical.

13)

Lower-level managers will not actively participate in the budget process if they perceive upper management does not believe in the process.

14)

A four-quarter rolling budget encourages management to be thinking about the next 12 months.

15)

A rolling budget is the same as a continuous budget.

16)

Research has shown that challenging budgets (rather than budgets that can be easily attained) are energizing and improve performance.

17)

The revenue budget and the budgeted income statement are used to prepare the budgeted balance sheet and the budgeted statement of cash flows.

18)

It is best to compare this year’s performance with last year’s actual performance rather than this year’s budget.

19)

When administered wisely, budgets promote communication and coordination among the various subunits of the organization.

20)

Preparation of the budgeted income statement is the final step in preparing the operating budget.

21)

The sales forecast should primarily be based on statistical analysis with secondary input from sales managers and sales representatives.

22)

The usual starting point in budgeting is to forecast net income.

23)

The revenues budget should be based on the production budget.

24)

The operating budget is that part of the master budget that includes the capital expenditures budget, cash budget, budgeted balance sheet, and the budgeted statement of cash flows.

25)

Since fixed manufacturing overhead is fixed, it is not normally included in the operating budget.

26)

The manufacturing labor budget depends on wage rates, production methods, and hiring plans.

27)

The manufacturing labor budget depends on wage rates, production methods, and hiring plans.

28)

If inventoriable costs in the operating budget are going to be in accordance with Generally Accepted Accounting Principles (GAAP), they include only variable manufacturing costs.

29)

Activity-based budgeting provides better decision-making information than budgeting based solely on output-based cost drivers (units produced, units sold, or revenues).

30)

Activity-based costing analysis takes a long-run perspective and treats all activity costs as variable costs.
31)

Activity-based budgeting (ABB) focuses on the budgeting cost of activities necessary to produce and sell products and services.

32)

Activity-based budgeting would permit the use of multiple drivers and multiple cost pools in the budgeting process.

33)

Activity-based budgeting and kaizen budgeting are really equivalent in meaning.

34)

If budgeted amounts change, the kaizen approach can be used to examine changes in the budgeted results.

35)

Computer-based financial planning models are mathematical statements of the interrelationships among operating activities, financial activities, and other factors that affect the budget.

36)

Most computer-based financial planning models have difficulty incorporating sensitivity (what-if) analysis.

37)

Sensitivity analysis is a “what-if” technique that examines how a result will change if the original prediction or assumptions change.

38)

If we increase the selling price of our product, we should probably expect a decline in the number of these products sold.

39)

If we increase the selling price of our product, we can always expect an increase in total revenue.

40)

Sensitivity analysis incorporates continuous improvement into budgeted amounts.
41)

Companies implementing kaizen budgeting believe that employees who actually do the job have the best knowledge of how the job can be done better.

42)

The Japanese use kaizen to mean financing alternatives.

43)

Kaizen budgeting does not make sense for profit centers.

44)

Kaizen budgeting encourages small incremental changes, rather than major improvements.

45)

Kaizen budgeting allows for budgeting of small incremental increases in costs each budgeting period to allow for the effects of normal inflation.

46)

A responsibility center is a part, segment, or subunit of an organization, whose manager is accountable for a specified set of activities.

47)

Each manager, regardless of level, is in charge of a responsibility center.

48)

In a profit center, a manager is responsible for investments, revenues, and costs.

49)

A packaging department is MOST likely a profit center.

50)

Variances between actual and budgeted amounts inform management about performance relative to the budget.

51)

An organization structure is an arrangement of lines of responsibility within the entity.
52)

A responsibility center can be structured to promote better alignment of individual and company goals.

53)

Management will most likely behave the same way if a department is structured as a revenue center or if the same department is structured as a profit center.

54)

Responsibility accounting focuses on control, not on information and knowledge.

55)

The fundamental purpose of responsibility accounting is to fix blame when budgets are not achieved.

56)

Human factors are crucial parts of budgeting.

57)

Budgetary slack provides management with a hedge against unexpected adverse circumstances.

58)

Most costs can be easily controlled because they are under the sole influence of one manager.

59)

Performance reports of responsibility centers may include uncontrollable items to influence behavior that is in alignment with corporate strategy.

60)

When the operating budget is used as a control device, managers are more likely to be motivated to budget higher sales than actually anticipated.

61)

Budgeting slack is most likely to occur when a firm uses the budget only as a planning device and not for control.

62)

If a cost is considered controllable, it indicates that all aspects of the cost are under the control of the manager of the responsibility center to which that cost is assigned.

63)

To create greater commitment to the budget, top-management should create the budget and then share it with lower-level managers.

64)

Budgeting for a multinational company is made more complex due to the possibility of exchange rate fluctuations.

65)

The possibility of exchange rate fluctuations does not influence the budgeting procedures in a multinational corporation.

66)

Because of the possibility of exchange rate fluctuations, managers of multinational corporations should ignore subjective factors in their performance evaluations.

67)

A key use of sensitivity analysis is for cash-flow budgeting.

68)

The self-liquidating cycle is the movement from cash to inventories to receivables and back to cash.

69)

A budget:
A)

is the quantitative expression of a proposed plan of action by management
B)

is an aid to coordinate what needs to be done
C)

generally includes both financial and nonfinancial aspects of the plan
D)

serves as a blueprint for the company to follow in an upcoming period
E)

All of the above are correct.

70)

Examples of nonfinancial budgets include all of the following EXCEPT:
A)

units manufactured
B)

cash collections from customers
C)

units sold
D)

number of new products introduced

71)

Budgeting is used to help companies:
A)

plan to better satisfy customers
B)

anticipate potential problems
C)

focus on opportunities
D)

All of these answers are correct.

72)

A master budget:
A)

includes only financial aspects of a plan and excludes nonfinancial aspects
B)

is an aid to coordinating what needs to be done to implement a plan
C)

includes broad expectations and visionary results
D)

should not be altered after it has been agreed upon

73)

Operating decisions PRIMARILY deal with:
A)

the use of scarce resources
B)

how to obtain funds to acquire resources
C)

acquiring equipment and buildings
D)

satisfying stockholders

74)

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

75)

Budgeting provides all of the following EXCEPT:
A)

a means to communicate the organization’s short-term goals to its members
B)

support for the management functions of planning and coordination
C)

a means to anticipate problems
D)

an ethical framework for decision making

76)

If initial budgets prove unacceptable, planners achieve the MOST benefit from:
A)

planning again in light of feedback and current conditions
B)

deciding not to budget this year
C)

accepting an unbalanced budget
D)

using last year’s budget

77)

Operating budgets and financial budgets:
A)

combined form the master budget
B)

are prepared before the master budget
C)

are prepared after the master budget
D)

have nothing to do with the master budget

78)

A good budgeting system forces managers to examine the business as they plan, so they can:
A)

detect inaccurate historical records
B)

set specific expectations against which actual results can be compared
C)

complete the budgeting task on time
D)

get promoted for doing a good job

79)

A budget can do all of the following EXCEPT:
A)

promote coordination among subunits
B)

determine actual profitability
C)

motivate managers
D)

motivate employees

80)

A budget should/can do all of the following EXCEPT:
A)

be prepared by managers from different functional areas working independently of each other
B)

be adjusted if new opportunities become available during the year
C)

help management allocate limited resources
D)

become the performance standard against which firms can compare the actual results

81)

A limitation of comparing a company’s performance against actual results of last year is that:
A)

it includes adjustments for future conditions
B)

feedback is no longer a possibility
C)

past results can contain inefficiencies of the past year
D)

the budgeting time period is set at one year

82)

Challenging budgets tend to:
A)

decrease line-management participation in attaining corporate goals
B)

increase failure
C)

increase anxiety without motivation
D)

motivate improved performance

83)

Actual results should NOT be compared against past performance because:
A)

past results may contain mistakes and substandard performance
B)

past results will never happen again
C)

past performance is an indicator of future performance
D)

future conditions will be similar to past conditions

84)

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)

no feedback is possible
C)

inefficiencies of the past year can be included
D)

85)

It is advantageous to coordinate budgets with:
A)

suppliers
B)

customers
C)

the marketing and production departments
D)

All of these answers are correct.

86)

A budget can help implement:
A)

strategic planning
B)

long-run planning
C)

short-run planning
D)

All of these answers are correct.

87)

To gain the benefits of budgeting ________ must understand and support the budget.
A)

management at all levels
B)

customers
C)

suppliers
D)

All of these answers are correct.

88)

Participation of line managers in the budgeting process helps to create:
A)

greater commitment
B)

greater anxiety
C)

more fraud
D)

better past performance

89)

Line 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)

be motivated by the budget
C)

spend little time on the budgeting process
D)

convert the budget to a shorter more reasonable time period

90)

The time coverage of a budget should be:
A)

one year
B)

guided by the purpose of the budget
C)

cover design through manufacture and sale of the product
D)

shorter rather than longer

91)

Rolling budgets help management to:
A)

better review the past calendar year
B)

deal with a 5-year time frame
C)

focus on the upcoming budget period
D)

rigidly administer the budget

92)

Budgets should:
A)

be flexible
B)

be administered rigidly
C)

only be developed for short periods of time
D)

include only variable costs

93)

Operating budgets include all of the following EXCEPT:
A)

the revenues budget
B)

the budgeted income statement
C)

the administrative costs budget
D)

the budgeted balance sheet

94)

Operating budgets include the:
A)

budgeted balance sheet
B)

budgeted income statement
C)

capital expenditures budget
D)

budgeted statement of cash flows

95)

The operating budget process generally concludes with the preparation of the:
A)

production budget
B)

distribution budget
C)

research and development budget
D)

budgeted income statement

96)

Which budget is NOT necessary to prepare the budgeted balance sheet?
A)

cash budget
B)

budgeted statement of cash flows
C)

budgeted income statement
D)

revenues budget
97)

Financial budgets include the:
A)

capital expenditures budget
B)

production budget
C)

marketing costs budget
D)

administrative costs budget

98)

________ includes a budgeted statement of cash flows and a budgeted balance sheet.
A)

An annual report
B)

The financial budget
C)

The operating budget
D)

The capital expenditures budget

99)

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.

100)

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

101)

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

102)

________ is the usual starting point for budgeting.
A)

The revenues budget
B)

Net income
C)

The production budget
D)

The cash budget

103)

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

104)

The sales forecast is influenced by:
A)

advertising and sales promotions
B)

competition
C)

general economic conditions
D)

All of these answers are correct.

105)

A sales forecast is:
A)

often the outcome of elaborate information gathering and discussions among sales managers
B)

developed primarily to prepare next year’s marketing campaign
C)

solely based on sales of the previous year
D)

a summary of product costs that influence pricing decisions

106)

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

107)

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

108)

Production is primarily based on:
A)

projected inventory levels
B)

the revenues budget
C)

the administrative costs budget
D)

the capital expenditures budget

109)

Budgeted production depends on:
A)

the direct materials usage budget and direct material purchases budget
B)

the direct manufacturing labor budget
C)

budgeted sales and expected changes in inventory levels
D)

the manufacturing overhead costs budget

110)

The direct materials usage budget is based on:
A)

the units to be produced during a period
B)

budgeted sales dollars
C)

the predetermined factory overhead rate
D)

the amount of labor-hours worked

111)

Direct material purchases equal:
A)

production needs
B)

production needs plus target ending inventories
C)

production needs plus beginning inventories
D)

production needs plus target ending inventories less beginning inventories

112)

Individual budgeted amounts included in the manufacturing overhead costs budget are based on input from:
A)

operating personnel
B)

costs incurred in prior years
C)

cost changes expected in the future
D)

All of these answers are correct.

113)

The manufacturing overhead costs budget includes budgeted amounts for:
A)

direct materials
B)

direct manufacturing labor
C)

indirect manufacturing labor
D)

All of these answers are correct.

114)

Budgeted manufacturing overhead costs include all types of factory expenses EXCEPT:
A)

fixed items such as depreciation of manufacturing machinery
B)

variable items such as plant supplies
C)

indirect labor such as the salary of the plant supervisor
D)

direct labor and direct materials

115)

The cost of goods sold budget requires all of the following budgets EXCEPT:
A)

direct material cost budget
B)

manufacturing overhead cost budget
C)

distribution cost budget
D)

direct manufacturing labor cost budget

116)

Schultz Company expects to manufacture and sell 30,000 baskets in 20X4 for $6 each. There are 3,000 baskets in beginning finished goods inventory with target ending inventory of 4,000 baskets. The company keeps no work-in-process inventory. What amount of sales revenue will be reported on the 20X4 budgeted income statement?
A)

$174,000
B)

$180,000
C)

$186,000
D)

$204,000

117)

DeArmond Corporation has budgeted sales of 18,000 units, target ending finished goods inventory of 3,000 units, and beginning finished goods inventory of 900 units. How many units should be produced next year?
A)

21,900 units
B)

20,100 units
C)

15,900 units
D)

18,000 units

118)

For next year, Galliart, Inc., has budgeted sales of 60,000 units, target ending finished goods inventory of 3,000 units, and beginning finished goods inventory of 1,800 units. All other inventories are zero. How many units should be produced next year?
A)

58,800 units
B)

60,000 units
C)

61,200 units
D)

64,800 units

119)

Wilgers Company has budgeted sales volume of 30,000 units and budgeted production of 27,000 units, while 5,000 units are in beginning finished goods inventory. How many units are targeted for ending finished goods inventory?
A)

5,000 units
B)

8,000 units
C)

3,000 units
D)

2,000 units

Answer the following questions using the information below:

Marguerite, Inc., expects to sell 20,000 pool cues for $12.00 each. Direct materials costs are $2.00, direct manufacturing labor is $4.00, and manufacturing overhead is $0.80 per pool cue. The following inventory levels apply to 20X4:

Beginning inventory Ending inventory
Direct materials 24,000 units 24,000 units
Work-in-process inventory 0 units 0 units
Finished goods inventory 2,000 units 2,500 units

120)

On the 20X5 budgeted income statement, what amount will be reported for sales?
A)

$246,000
B)

$240,000
C)

$312,000
D)

$318,000

121)

How many pool cues need to be produced in 20X5?
A)

22,500 cues
B)

22,000 cues
C)

20,500 cues
D)

19,500 cues

122)

On the 20X5 budgeted income statement, what amount will be reported for cost of goods sold?
A)

$139,400
B)

$136,000
C)

$132,600
D)

$153,000

123)

What are the 20X5 budgeted costs for direct materials, direct manufacturing labor, and manufacturing overhead, respectively?
A)

$0; $96,000; $19,200
B)

$39,000; $78,000; $15,600
C)

$80,000; $40,000; $16,000
D)

$41,000; $82,000; $16,400

Answer the following questions using the information below:

Daniel, Inc., expects to sell 6,000 ceramic vases for $20 each. Direct materials costs are $2, direct manufacturing labor is $10, and manufacturing overhead is $3 per vase. The following inventory levels apply to 20X4:

Beginning inventory Ending inventory
Direct materials 1,000 units 1,000 units
Work-in-process inventory 0 units 0 units
Finished goods inventory 400 units 500 units

124)

On the 20X5 budgeted income statement, what amount will be reported for sales?
A)

$122,000
B)

$118,000
C)

$140,000
D)

$120,000

125)

How many ceramic vases need to be produced in 20X5?
A)

5,900 vases
B)

6,100 vases
C)

7,000 vases
D)

6,000 vases

126)

On the 20X5 budgeted income statement, what amount will be reported for cost of goods sold?
A)

$91,500
B)

$105,000
C)

$90,000
D)

$88,500

127)

What are the 20X5 budgeted costs for direct materials, direct manufacturing labor, and manufacturing overhead, respectively?
A)

$12,200; $61,000; $18,300
B)

$12,000; $60,000; $18,000
C)

$2,000; $10,000; $3,000
D)

$2,000; $0; $18,000

Answer the following questions using the information below:

The following information pertains to the January operating budget for Casey Corporation, a retailer:

Budgeted sales are $200,000 for January
Collections of sales are 50% in the month of sale and 50% the next month
Cost of goods sold averages 70% of sales
Merchandise purchases total $150,000 in January
Marketing costs are $3,000 each month
Distribution costs are $5,000 each month
Administrative costs are $10,000 each month

128)

For January, budgeted gross margin is:
A)

$100,000
B)

$140,000
C)

$60,000
D)

$50,000

129)

For January, the amount budgeted for the nonmanufacturing costs budget is:
A)

$78,000
B)

$10,000
C)

$168,000
D)

$18,000

130)

For January, budgeted net income is:
A)

$42,000
B)

$60,000
C)

$50,000
D)

$52,000

131)

How many uniforms need to be produced in 20X5?
A)

26,000 uniforms
B)

34,000 uniforms
C)

30,000 uniforms
D)

29,000 uniforms

132)

What is the amount budgeted for direct material purchases in 20X5?
A)

$520,000
B)

$600,000
C)

$580,000
D)

$760,000

Answer the following questions using the information below:

Konrade, Inc., expects to sell 30,000 athletic uniforms for $80 each in 20X5. Direct materials costs are $20, direct manufacturing labor is $8, and manufacturing overhead is $6 for each uniform. The following inventory levels apply to 20X4:

Beginning inventory Ending inventory
Direct materials 12,000 units 9,000 units
Work-in-process inventory 0 units 0 units
Finished goods inventory 6,000 units 5,000 units

133)

What is the amount budgeted for cost of goods manufactured in 20X5?
A)

$1,020,000
B)

$986,000
C)

$1,156,000
D)

$1,190,000

134)

What is the amount budgeted for cost of goods sold in 20X5?
A)

$1,156,000
B)

$986,000
C)

$1,020,000
D)

$2,400,000

Answer the following questions using the information below:

Furniture, Inc., estimates the following number of mattress sales for the first four months of 20X5:

Month Sales
January 5,000
February 7,000
March 6,500
April 8,000

Finished goods inventory at the end of December is 1,500 units. Target ending finished goods inventory is 30% of the next month’s sales.

135)

How many mattresses need to be produced in January 20X5?
A)

4,400 mattresses
B)

5,600 mattresses
C)

6,500 mattresses
D)

7,100 mattresses

136)

How many mattresses need to be produced in the first quarter (January, February, March) of 20X5?
A)

18,500 mattresses
B)

19,400 mattresses
C)

20,900 mattresses
D)

22,400 mattresses

Answer the following questions using the information below:

Wallace Company provides the following data for next year:

Month Budgeted Sales
January $120,000
February 108,000
March 132,000
April 144,000

The gross profit rate is 40% of sales. Inventory at the end of December is $21,600 and target ending inventory levels are 30% of next month’s sales, stated at cost.

137)

Purchases budgeted for January total:
A)

$130,800
B)

$72,000
C)

$69,840
D)

$74,160

138)

Purchases budgeted for February total:
A)

$69,120
B)

$60,480
C)

$115,200
D)

$64,800

139)

Shamokin Manufacturing produces two products, Big and Bigger. Shamokin expects to sell 10,000 units of product Bigger and to have an inventory of 2,000 units of Bigger on hand at the end of the period. Currently, Shamokin has 800 units of Bigger on hand. Bigger requires two labor operations, molding and polishing. Each unit of Bigger requires one hour of molding and two hours of polishing. The direct labor rate for molding is $20 per molding hour and the direct labor rate for polishing is $25 per polishing hour. The expected cost of direct labor for Bigger is:
A)

$224,000
B)

$560,000
C)

$616,000
D)

$784,000

140)

Shamokin Manufacturing produces two products, Big and Bigger. Shamokin expects to sell 10,000 units of product Bigger and to have an inventory of 2,000 units of Bigger on hand at the end of the period. Currently, Shamokin has 800 units of Bigger on hand. Bigger requires two labor operations, molding and polishing. Each unit of Bigger requires one hour of molding and two hours of polishing. The direct labor rate for molding is $20 per molding hour and the direct labor rate for polishing is $25 per polishing hour. The expected number of hours of direct labor for Bigger is:
A)

8,800 hours of molding; 17,600 hours of polishing
B)

11,200 hours of molding; 22,400 hours of polishing
C)

17,600 hours of molding; 8,800 hours of polishing
D)

22,400 hours of molding; 11,200 hours of polishing

141)

St. Claire Manufacturing expects to produce and sell 6,000 units of Big, its only product, for $20 each. Direct material cost is $2 per unit, direct labor cost is $8 per unit, and variable manufacturing overhead is $3 per unit. Fixed manufacturing overhead is $24,000 in total. Variable selling and administrative expenses are $1 per unit, and fixed selling and administrative costs are $3,000 in total. According to generally accepted accounting principles, inventoriable cost per unit of Big would be:
A)

$13.00 per unit
B)

$14.00 per unit
C)

$17.00 per unit
D)

$18.50 per unit

142)

Financial planning models:
A)

are not used in the budgeting process
B)

are not useful for sensitivity analysis
C)

are mathematical representations of the relationships affecting the budget process
D)

are used for nonfinancial aspects of budgeting

143)

Financial planning software packages assist management with:
A)

assigning responsibility to various levels of management
B)

identifying the target customer
C)

sensitivity analysis in their planning and budgeting activities
D)

achieving greater commitment from lower management

144)

________ uses a “what-if” technique that examines how results will change if the originally predicted data changes.
A)

A sales forecast
B)

A sensitivity analysis
C)

A pro forma financial statement
D)

The statement of cash flows

145)

When performing a sensitivity analysis, if the selling price per unit is increased, then the:
A)

per unit fixed administrative costs will increase
B)

per unit direct materials purchase price will increase
C)

total volume of sales will increase
D)

total costs for sales commissions and other nonmanufacturing variable costs will increase

146)

Sensitivity analysis is useful for examining all of the following EXCEPT:
A)

changes in employee satisfaction
B)

changes in direct material cost
C)

changes in sales price
D)

changes in direct labor cost

Answer the following questions using the information below:

Ossmann Enterprises reports year-end information from 20X4 as follows:

Sales (80,000 units) $480,000
Cost of goods sold 320,000

Gross margin 160,000
Operating expenses 130,000

Operating income $ 30,000

Ossmann is developing the 20X5 budget. In 20X5 the company would like to increase selling prices by 8%, and as a result expects a decrease in sales volume of 10%. All other operating expenses are expected to remain constant. Assume that COGS is a variable cost and that operating expenses are a fixed cost.

147)

What is budgeted sales for 20X5?
A)

$518,400
B)

$533,333
C)

$466,560
D)

$432,000

148)

What is budgeted cost of goods sold for 20X5?
A)

$311,040
B)

$288,000
C)

$345,600
D)

$320,000

149)

Should Ossmann increase the selling price in 20X5?
A)

Yes, because operating income is increased for 20X5.
B)

Yes, because sales revenue is increased for 20X5.
C)

No, because sales volume decreases for 20X5.
D)

No, because gross margin decreases for 20X5.

Answer the following questions using the information below:

Katie Enterprises reports the year-end information from 20X4 as follows:

Sales (70,000 units) $560,000
Cost of goods sold 210,000

Gross margin 350,000
Operating expenses 200,000

Operating income $ 150,000

Katie is developing the 20X5 budget. In 20X5 the company would like to increase selling prices by 4%, and as a result expects a decrease in sales volume of 10%. All other operating expenses are expected to remain constant. Assume that COGS is a variable cost and that operating expenses are a fixed cost.

150)

What is budgeted sales for 20X5?
A)

$582,400
B)

$524,160
C)

$504,000
D)

$560,000

151)

What is budgeted cost of goods sold for 20X5?
A)

$189,000
B)

$196,560
C)

$218,400
D)

$210,000

152)

Should Katie increase the selling price in 20X5?
A)

Yes, because sales revenue is increased for 20X5.
B)

Yes, because operating income is increased for 20X5.
C)

No, because sales volume decreases for 20X5.
D)

No, because gross margin decreases for 20X5.

153)

The Japanese use the term kaizen when referring to:
A)

scarce resources
B)

pro forma financial statements
C)

continuous improvement
D)

the sales forecast

154)

Kaizen refers to incorporating cost reductions:
A)

in each successive budgeting period
B)

in each successive sales forecast
C)

in all customer service centers
D)

All of these answers are correct.

155)

All of the following are encouraged with kaizen budgeting EXCEPT:
A)

better interactions with suppliers
B)

large discontinuous improvements
C)

cost reductions during manufacturing
D)

systematic monthly cost reductions

156)

Kaizen budgeting involves:
A)

large cost reductions
B)

management directed improvements
C)

continual small cost reductions
D)

continual small revenue increases

157)

Kaizen budgeting is driven by:
A)

management
B)

employees
C)

stockholders
D)

creditors

Answer the following questions using the information below:

Dan and Donna Enterprises are using the kaizen approach to budgeting for 20X5. The budgeted income statement for January 20X5 is as follows:

Sales (84,000 units) $500,000
Less: Cost of goods sold 300,000

Gross margin 200,000
Operating expenses (includes $50,000 of fixed costs) 150,000

Operating income $ 50,000

Under the kaizen approach, cost of goods sold and variable operating expenses are budgeted to decline by 1% per month.

158)

What is budgeted cost of goods sold for March 20X5?
A)

$294,030
B)

$294,000
C)

$300,000
D)

$297,000

159)

What is budgeted gross margin for March 20X5?
A)

$196,020
B)

$198,000
C)

$204,020
D)

$205,970

160)

The use of activity-based budgeting is growing because of:
A)

the increased use of activity-based costing
B)

the increased use of kaizen costing
C)

increases in work-in-process inventory
D)

increases in direct materials inventory

161)

Activity-based budgeting would separately estimate:
A)

the cost of overhead for a department
B)

a plant-wide cost-driver rate
C)

the cost of a setup activity
D)

All of these answers are correct.

162)

Activity-based-costing analysis makes no distinction between:
A)

direct-materials inventory and work-in-process inventory
B)

short-run variable costs and short-run fixed costs
C)

parts of the supply chain
D)

components of the value chain

163)

Activity-based budgeting makes it easier to:
A)

determine a rolling budget
B)

prepare pro forma financial statements
C)

determine how to reduce costs
D)

execute a financial budget

164)

Activity-based budgeting does NOT require:
A)

knowledge of the organization’s activities
B)

specialized expertise in financial management and control
C)

knowledge about how activities affect costs
D)

the ability to see how the organization’s different activities fit together

165)

Activity-based budgeting:
A)

uses one cost driver such as direct labor-hours
B)

uses only output-based cost drivers such as units sold
C)

focuses on activities necessary to produce and sell products and services
D)

classifies costs by functional area within the value chain

166)

Activity-based budgeting includes all the following steps EXCEPT:
A)

determining demands for activities from sales and production targets
B)

computing the cost of performing activities
C)

determining a separate cost-driver rate for each department
D)

describing the budget as costs of activities rather than costs of functions

167)

Responsibility accounting:
A)

is a system that measures the plans, budgets, actions, and actual results of a responsibility center
B)

is an arrangement of lines of responsibility within the organization
C)

explicitly incorporates continuous improvement anticipated during the budget period
D)

examines how a result will change if the original plan is not achieved

168)

Responsibility centers include all of the following EXCEPT:
A)

cost
B)

revenue
C)

customers
D)

investment

169)

Variances between actual and budgeted amounts can be used to:
A)

alert managers to potential problems and available opportunities
B)

inform managers about how well the company has implemented its strategies
C)

signal that company strategies are ineffective
D)

All of these answers are correct.

170)

A maintenance manager is MOST likely responsible for a(n):
A)

revenue center
B)

investment center
C)

cost center
D)

profit center

171)

The regional sales office manager of a national firm is MOST likely responsible for a(n):
A)

revenue center
B)

investment center
C)

cost center
D)

profit center

172)

A regional manager of a restaurant chain in charge of finding additional locations for expansion is MOST likely responsible for a(n):
A)

revenue center
B)

investment center
C)

cost center
D)

profit center

173)

The manager of a hobby store that is part of a chain of stores is MOST likely responsible for a(n):
A)

revenue center
B)

investment center
C)

cost center
D)

profit center

174)

A manager of a revenue center is responsible for all of the following EXCEPT:
A)

service quality and units sold
B)

the acquisition cost of the product or service sold
C)

price, product mix, and promotional activities
D)

investments of excess cash

175)

A manager of a profit center is responsible for all of the following EXCEPT:
A)

sales revenue
B)

the cost of merchandise purchased for resale
C)

expanding into new geographic areas
D)

selling and marketing costs

176)

A controllable cost is any cost that can be ________ by a responsibility center manager for a period of time.
A)

controlled
B)

influenced
C)

segregated
D)

excluded

177)

A responsibility accounting system could:
A)

exclude all uncontrollable costs
B)

exclude controllable costs
C)

segregate uncontrollable costs from controllable costs
D)

Both A and C are correct.

178)

Which statement about controllability is NOT true:
A)

few costs are clearly under the sole influence of one manager
B)

holds managers responsible for uncontrollable costs
C)

with a long enough time span, all costs will come under somebody’s control
D)

describes the degree of influence that managers have over a particular item

179)

Controllability may be difficult to pinpoint because of all the following EXCEPT:
A)

some costs depend on market conditions
B)

current managers may have inherited inefficiencies of a previous manager
C)

the current use of stretch or challenge targets
D)

few costs are under the sole influence of one manager

180)

Responsibility accounting:
A)

emphasizes controllability
B)

focuses on whom should be asked about the information
C)

attempts to assign blame for problems to a specific manager
D)

All of these answers are correct.

181)

A PRIMARY consideration in assigning a cost to a responsibility center is:
A)

whether the cost is fixed or variable
B)

whether the cost is direct or indirect
C)

who can best explain the change in that cost
D)

where in the organizational structure the cost was incurred

182)

Building in budgetary slack includes:
A)

overestimating budgeted revenues
B)

underestimating budgeted costs
C)

making budgeted targets more easily achievable
D)

All of these answers are correct.

183)

To reduce budgetary slack management may:
A)

incorporate stretch or challenge targets
B)

use external benchmark performance measures
C)

award bonuses for achieving budgeted amounts
D)

reduce projected cost targets by 10% across all areas

184)

A stretch budget is a budget that:
A)

crosses more than one responsibility center
B)

represents a challenging, but achievable level of performance
C)

is impossible to implement in a cost center
D)

is designed to include the effects of exchange rate fluctuations

185)

Multinational budgeting is more complex than budgeting in a domestic environment due to the possibility of:
A)

exchange rate fluctuations
B)

sophisticated techniques used by multinationals such as forward, future, and options contracts
C)

different political, legal, and economic environments faced by multinationals
D)

All of these answers are correct.

186)

Multinational budgeting is useful for everything EXCEPT:
A)

comparing actual to budget in volatile conditions
B)

helping managers learn and adapt to changing conditions
C)

determining the impact of currency fluctuations
D)

determining how well managers adapt to uncertain environments

187)

To prepare the cash budget, all of the following budgets are required EXCEPT:
A)

capital expenditures budget
B)

cost of goods sold budget
C)

budgeted balance sheet
D)

revenue budget

188)

Financial analysts use the projected cash flow statement to do all of the following EXCEPT:
A)

plan for when excess cash is generated
B)

plan for short-term cash investments
C)

project cash shortages and plan a strategy to deal with the shortages
D)

project depreciation expense

189)

The cash flow statement does NOT include:
A)

cash inflows from the collection of receivables
B)

cash outflows paid toward raw material purchases
C)

all sales revenues
D)

interest paid and received

190)

The cash budget is a schedule of expected cash receipts and disbursements that:
A)

requires an aging of accounts receivable and accounts payable
B)

is a self-liquidating cycle
C)

is prepared immediately after the sales forecast
D)

predicts the effect on the cash position at given levels of operations

Answer the following questions using the information below:

The following information pertains to Tiffany Company:

Month Sales Purchases
January $30,000 $16,000
February $40,000 $20,000
March $50,000 $28,000

∙ Cash is collected from customers in the following manner:
Month of sale 30%
Month following the sale 70%
∙ 40% of purchases are paid for in cash in the month of purchase, and the balance is paid the following month.
∙ Labor costs are 20% of sales. Other operating costs are $15,000 per month (including $4,000 of depreciation). Both of these are paid in the month incurred.
∙ The cash balance on March 1 is $4,000. A minimum cash balance of $3,000 is required at the end of the month. Money can be borrowed in multiples of $1,000.

191)

How much cash will be collected from customers in March?
A)

$47,000
B)

$43,000
C)

$50,000
D)

None of these answers are correct.

192)

How much cash will be paid to suppliers in March?
A)

$23,200
B)

$28,000
C)

$44,000
D)

None of these answers are correct.

193)

How much cash will be disbursed in total in March?
A)

$21,000
B)

$25,000
C)

$44,200
D)

$48,200

194)

What is the ending cash balance for March?
A)

($25,000)
B)

$3,000
C)

$3,200
D)

$3,800

Answer the following questions using the information below:

Fiscal Company has the following sales budget for the last six months of 20X5:

July $100,000 October $ 90,000
August 80,000 November 100,000
September 110,000 December 94,000

Historically, the cash collection of sales has been as follows:
65% of sales collected in the month of sale,
25% of sales collected in the month following the sale,
8% of sales collected in the second month following the sale, and
2% of sales are uncollectible.

195)

Cash collections for September are:
A)

$71,500
B)

$86,700
C)

$99,500
D)

$102,000

196)

What is the ending balance of accounts receivable for September, assuming uncollectible balances are written off during the second month following the sale?
A)

$99,500
B)

$48,500
C)

$44,900
D)

$46,500

197)

Cash collections for October are:
A)

$58,500
B)

$92,400
C)

$99,500
D)

$88,200

Answer the following questions using the information below:

Bear Company has the following information:

Month Budgeted Purchases
January $26,800
February 29,000
March 30,520
April 29,480
May 27,680

Purchases are paid for in the following manner:
10% of the purchase amount in the month of purchase
50% of the purchase amount in the month after purchase
40% of the purchase amount in the month after purchase

198)

What is the expected balance in Accounts Payable as of March 31?
A)

$39,068
B)

$18,312
C)

$2,900
D)

$30,520

199)

What is the expected balance in Accounts Payable as of April 30?
A)

$26,532
B)

$38,740
C)

$12,208
D)

$17,688

200)

What is the expected Accounts Payable balance as of May 31?
A)

$11,792
B)

$24,912
C)

$36,704
D)

$2,948

Answer the following questions using the information below:

The following information pertains to the January operating budget for Casey Corporation.

∙ Budgeted sales for January $100,000 and February $200,000.
∙ Collections for sales are 60% in the month of sale and 40% the next month.
∙ Gross margin is 30% of sales.
∙ Administrative costs are $10,000 each month
∙ Beginning accounts receivable is $20,000.
∙ Beginning inventory is $14,000.
∙ Beginning accounts payable is $60,000. (All from inventory purchases.)
∙ Purchases are paid in full the following month.
∙ Desired ending inventory is 20% of next month’s cost of goods sold (COGS).

201)

For January, budgeted cash collections are:
A)

$20,000
B)

$60,000
C)

$80,000
D)

None of these answers are correct.

202)

At the end of January, budgeted accounts receivable is:
A)

$20,000
B)

$40,000
C)

$60,000
D)

None of these answers are correct.

203)

For January, budgeted cost of goods sold is:
A)

$20,000
B)

$30,000
C)

$40,000
D)

None of these answers are correct.

204)

For January, budgeted net income is:
A)

$20,000
B)

$30,000
C)

$40,000
D)

None of these answers are correct.

205)

For January, budgeted cash payments for purchases are:
A)

$14,000
B)

$70,000
C)

$60,000
D)

None of these answers are correct.

206)

At the end of January, budgeted ending inventory is:
A)

$20,000
B)

$28,000
C)

$40,000
D)

None of these answers are correct.

207)

Listed below are elements of the master budget. Determine whether each budget is an operating budget or a financial budget. Place an O for operating budget or F for a financial budget.

1. Capital expenditures budget
2. Cost of goods sold budget
3. Revenues budget
4. Budgeted statement of cash flows
5. Distribution costs budget
6. Marketing costs budget
7. Cash budget
8. Direct materials cost budget
9. Budgeted balance sheet
10. Budgeted income statement

208)

Spirit Company sells three products with the following seasonal sales pattern:

Products
Quarter A B C
1 40% 30% 10%
2 30% 20% 40%
3 20% 20% 40%
4 10% 30% 10%

The annual sales budget shows forecasts for the different products and their expected selling price per unit as follows:

Product Units Selling Price
A 50,000 $ 4
B 125,000 10
C 62,500 6

Required:

Prepare a sales budget, in units and dollars, by quarters for the company for the coming year.

209)

Lubriderm Corporation has the following budgeted sales for the next six-month period:

Month Unit Sales
June 90,000
July 120,000
August 210,000
September 150,000
October 180,000
November 120,000

There were 30,000 units of finished goods in inventory at the beginning of June. Plans are to have an inventory of finished products that equal 20% of the unit sales for the next month.

Five pounds of materials are required for each unit produced. Each pound of material costs $8. Inventory levels for materials are equal to 30% of the needs for the next month. Materials inventory on June 1 was 15,000 pounds.

Required:
a. Prepare production budgets in units for July, August, and September.
b. Prepare a purchases budget in pounds for July, August, and September, and give total purchases in both pounds and dollars for each month.

210)

Gerdie Company has the following information:

Month Budgeted Sales
March $50,000
April 53,000
May 51,000
June 54,500
July 52,500

In addition, the gross profit rate is 40% and the desired inventory level is 30% of next month’s cost of sales.

Required:
Prepare a purchases budget for April through June.

211)

Favata Company has the following information:

Month Budgeted Sales
June $60,000
July 51,000
August 40,000
September 70,000
October 72,000

In addition, the cost of goods sold rate is 70% and the desired inventory level is 30% of next month’s cost of sales.

Required:
Prepare a purchases budget for July through September.

212)

Picture Pretty manufactures picture frames. Sales for August are expected to be 10,000 units of various sizes. Historically, the average frame requires four feet of framing, one square foot of glass, and two square feet of backing. Beginning inventory includes 1,500 feet of framing, 500 square feet of glass, and 500 square feet of backing. Current prices are $0.30 per foot of framing, $6.00 per square foot of glass, and $2.25 per square foot of backing. Ending inventory should be 150% of beginning inventory. Purchases are paid for in the month acquired.

Required:

a. Determine the quantity of framing, glass, and backing that is to be purchased during August.
b. Determine the total costs of direct materials for August purchases.

213)

Michelle Enterprises reports the year-end information from 20X5 as follows:

Sales (100,000 units) $250,000
Less: Cost of goods sold 150,000
Gross profit 100,000
Operating expenses (includes $10,000 of Depreciation) 60,000
Net income $ 40,000

Michelle is developing the 20X6 budget. In 20X6 the company would like to increase selling prices by 10%, and as a result expects a decrease in sales volume of 5%. Cost of goods sold as a percentage of sales is expected to increase to 62%. Other than depreciation, all operating costs are variable.

Required:

Prepare a budgeted income statement for 20X6.

214)

Brad Corporation is using the kaizen approach to budgeting for 20X5. The budgeted income statement for January 20X5 is as follows:

Sales (240,000 units) $720,000
Less: Cost of goods sold 480,000

Gross margin 240,000
Operating expenses (includes $64,000 of fixed costs) 192,000

Net income $ 48,000

Under the kaizen approach, cost of goods sold and variable operating expenses are budgeted to decline by 1% per month.

Required:

Prepare a kaizen-based budgeted income statement for March of 20X5.

215)

Allscott Company is developing its budgets for 20X5 and, for the first time, will use the kaizen approach. The initial 20X5 income statement, based on static data from 20X4, is as follows:

Sales (140,000 units) $420,000
Less: Cost of goods sold 280,000

Gross margin 140,000
Operating expenses (includes $28,000 of depreciation) 112,000

Net income $28,000

Selling prices for 20X5 are expected to increase by 8%, and sales volume in units will decrease by 10%. The cost of goods sold as estimated by the kaizen approach will decline by 10% per unit. Other than depreciation, all other operating costs are expected to decline by 5%.

Required:

Prepare a kaizen-based budgeted income statement for 20X5.

216)

Russell Company has the following projected account balances for June 30, 20X5:

Accounts payable $40,000 Sales $800,000
Accounts receivable 100,000 Capital stock 400,000
Depreciation, factory 24,000 Retained earnings ?
Inventories (5/31 & 6/30) 180,000 Cash 56,000
Direct materials used 200,000 Equipment, net 240,000
Office salaries 80,000 Buildings, net 400,000
Insurance, factory 4,000 Utilities, factory 16,000
Plant wages 140,000 Selling expenses 60,000
Bonds payable 160,000 Maintenance, factory 28,000

Required:
a. Prepare a budgeted income statement for June 20X5.
b. Prepare a budgeted balance sheet as of June 30, 20X5.

217)

Shamokin Manufacturing produces two products, Big and Bigger. Shamokin expects to sell 20,000 units of Big and 10,000 units of Bigger. Shamokin plans on having an ending inventory of 4,000 units of Big and 2,000 units of Bigger. Currently, Shamokin has 1,000 units of Big in its inventory and 800 units of Bigger. Each product requires two labor operations: molding and polishing. Product Big requires one hour of molding time and one hour of polishing time. Product Bigger requires one hour of molding time and two hours of polishing time. The direct labor rate for molders is $20 per molding hour, and the direct labor rate for polishers is $25 per polishing hour.

Required:

Prepare a direct labor budget in hours and dollars for each product.

218)

Duffy Corporation has prepared the following sales budget:

Month Cash Sales Credit Sales
May $16,000 $68,000
June 20,000 80,000
July 18,000 74,000
August 24,000 92,000
September 22,000 76,000

Collections are 40% in the month of sale, 45% in the month following the sale, and 10% two months following the sale. The remaining 5% is expected to be uncollectible.

Required:

Prepare a schedule of cash collections for July through September.

219)

The following information pertains to Amigo Corporation:

Month Sales Purchases
July $30,000 $10,000
August 34,000 12,000
September 38,000 14,000
October 42,000 16,000
November 48,000 18,000
December 60,000 20,000

∙ Cash is collected from customers in the following manner:
Month of sale (2% cash discount) 30%
Month following sale 50%
Two months following sale 15%
Amount uncollectible 5%
∙ 40% of purchases are paid for in cash in the month of purchase, and the balance is paid the following month.

Required:

a. Prepare a summary of cash collections for the 4th quarter.
b. Prepare a summary of cash disbursements for the 4th quarter.

220)

Describe the benefits to an organization of preparing an operating budget.

221)

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 the lack of any financial planning. The company made a good product and market potential was great.

Required:

Explain why a company needs a good budgeting plan. Specifically address the need for a master budget.

222)

Describe operating and financial budgets and give at least two examples of each discussed in the textbook.

223)

Discuss the importance of the sales forecast and items that influence its accuracy.

224)

Explain what is meant by sensitivity analysis in budgeting, and discuss how managers might use sensitivity analysis in practice.

225)

Describe the concept of kaizen budgeting.

226)

Distinguish between controllable and uncontrollable aspects of revenue and costs. Can a manager totally control all revenue and costs? Why or why not?

227)

Describe some of the drawbacks of using the operating budget as a control device.

228)

What is budget slack? What are the pros and cons of building slack into the budget from the point of view of (a) an employee and (b) a senior manager?

229)

How is budgeting for a multinational corporation different than budgeting for a corporation that is strictly domestic?