Accounting Chapter 21 – Budgeting

The benefits of comparing actual performance of the operations against planned goals include all of the following except:
finding all errors in the actual financial performance.
preventing unplanned expenditures.
providing prompt feedback to employees about their performance relative to the goal.
helping to establish spending priorities.

finding all errors in the actual financial performance. Feedback: Comparing actual results to budget goals can provide prompt feedback to employees about their performance relative to the goal.

The budgetary units of an organization are called
budgetary areas.
managerial departments.
control centers.
responsibility centers.

responsibility centers. Feedback: Each responsibility center is a budgetary unit and is led by a manager who has the authority over and responsibility for the center’s performance

When management seeks to achieve personal departmental objectives that may work to the detriment of the entire company, the manager is experiencing
padding.
cushions.
budgetary slack.
goal conflict.

goal conflict. Feedback: Goal conflict, such as a desire to have a specific department look good as opposed to staying focused on the goals of the company as a whole, can be detrimental to the entire company

A variant of fiscal-year budgeting whereby a twelve-month projection into the future is maintained at all times is termed __________ budgeting.
master
continuous
flexible
zero-based

continuous Feedback: By definition, a continuous budget is one whereby a twelve-month budget is always maintained.

Bailey Manufacturing Co.’s static budget at 10,000 units of production includes $60,000 for direct labor and $6,000 for electric power. Total fixed costs are $20,000. At 14,000 units of production, a flexible budget would show
variable costs of $66,000 and $20,000 of fixed costs.
variable and fixed costs totaling $120,400.
variable costs of $92,400 and $20,000 of fixed costs.
variable costs of $92,400 and $28,000 of fixed costs.

variable costs of $92,400 and $20,000 of fixed costs. Feedback: A flexible budget uses the variable costs per unit, and then the actual units are multiplied by the variable costs per unit

For February, sales revenue is $900,000; sales commissions are 5% of sales; the sales manager’s salary is $96,000; advertising expenses are $80,000; shipping expenses total 2% of sales; and miscellaneous selling expenses are $2,100 plus 1/2 of 1% of sales. Total selling expenses for the month of February are:
$241,100
$227,600
$245,600
$243,500

$245,600 Feedback: Sales commissions $900,000 × 5% $45,000 Sales manager’s salary 96,000 Advertising expenses 80,000 Shipping expenses $900,000 × 2% 18,000 Miscellaneous selling expense $2,100 + ($900,000 ×.5%) 6,600 Total selling expenses $245,600

Developing the annual budget
usually begins on the first day of the fiscal year.
is not necessary.
usually begins on the first day of the prior year.
usually begins several months prior to the end of the current year.

usually begins several months prior to the end of the current year. Feedback: Developing the annual budget usually begins several months prior to the end of the current year.

Which of the following is not a necessary component when developing the budgeted income statement as part of the master budget?
cash budget
factory overhead cost budgets
selling and administrative expenses budget
production budget

cash budget Feedback: The cash budget is a component of the forecasted balance sheet and not the income statement

Which of the following budgets is not part of the production budget?
direct materials purchases budget
factory overhead cost budget
cash budget
direct labor cost budget

cash budget Feedback: The cash budget is part of the budgeted balance sheet.

Which of the following is the first budget that is customarily prepared as part of an entity’s master budget?
cash budget
direct materials purchases
production budget
sales budget

sales budget Feedback: The estimated sales budget begins the budget process

Production and sales estimates for April for the Rachel Co. are as follows:

Estimated inventory (units), April 1 19,300
Desired inventory (units), April 30 25,000
Expected sales volume (units) 28,000
Unit sales price $15

The number of units expected to be manufactured in April is:
53,000
16,300
8,700
33,700

33,700 Feedback: Expected units to be sold 28,000 Plus desired ending inventory, April 30 25,000 Total 53,000 Less estimated beginning inventory, April 1 19,300 Total units to be produced 33,700

Production and sales estimates for March for the Streamline Systems Co. are as follows:

Estimated inventory (units), March 1 17,500
Desired inventory (unit), March 31 20,300
Expected sales volume (units) 35,000
Unit sales price $15

The number of units expected to be manufactured in March is:
37,800
17,500
55,300
72,800

37,800 Feedback: Expected units to be sold 35,000 Plus desired ending inventory, March 31 20,300 Total 55,300 Less estimated beginning inventory, March 1 17,500 Total units to be produced 37,800

The budgeted finished goods inventory and cost of goods sold for a manufacturing company for the year 2017 are as follows: January 1 finished goods, $765,000; December 31 finished goods, $540,000; cost of goods sold for the year, $2,560,000. The budgeted cost of goods manufactured for the year is:
$2,335,000
$3,100,000
$1,255,000
$2,785,000

$2,335,000 Feedback: The formula to calculate cost of goods sold = beginning inventory + cost of goods manufactured – ending inventory. Restating the formula for cost of goods manufactured = cost of goods sold – beginning inventory + ending inventory. Cost of goods sold $2,560,000 Beginning inventory -765,000 Ending inventory +540,000 Cost of goods manufactured $2,335,000

The sales budget might include revisions to prior year’s sales quantities for all of the following except
productive capacity.
unplanned advertising and promotion.
projected pricing changes.
findings of market research studies.

unplanned advertising and promotion. Feedback: The sales budget might include revisions to prior year’s sales quantities for planned advertising and promotion.

Planning for capital expenditures is necessary for all of the following reasons except
to meet increased demand through expansion and purchase of additional fixed assets.
to evaluate fixed assets that have fallen below minimum standards of efficiency or have become obsolete.
acquiring additional machinery and other fixed assets to replace those that wear out.
to evaluate amounts spent for office equipment that may be immaterial.

to evaluate amounts spent for office equipment that may be immaterial. Feedback: Capital expenditures are necessary as machinery and other fixed assets wear out or become obsolete.

Speedster Bicycles, Inc. collects 25% of its sales on account in the month of the sale and 75% in the month following the sale. If sales are budgeted to be $250,000 for March and $280,000 for April, what are the budgeted cash receipts from sales on account for April?
$250,000
$280,000
$272,500
$257,500

$257,500 Feedback: $280,000 represents 100% of the sales in April

As of January 1 of the current year, the Edwards Company had accounts receivable of $50,000. The sales for January, February, and March were as follows: $100,000, $150,000, and $180,000. 20% of each month’s sales are for cash. Of the remaining 80% (the credit sales), 70% are collected in the month of sale, with the remaining 30% collected in the following month. What is the total cash collected (both from accounts receivable and for cash sales) in the month of March?
$144,800
$115,200
$172,800
$127,200

Feedback: March cash sales ($180,000 × 20%) $36,000 March account receivable collections ($180,000 × 80% × 70%) 100,800 February accounts receivable collections ($150,000 × 80% × 30%) 36,000 Cash collections for March $172,800

The cash budget is
integrated with various operating budgets.
All of these choices are correct.
considered an investing activity budget.
not affected by the capital expenditures budget

All of these choices are correct. Feedback: The cash budget is considered a financing activity budget, is integrated with various operating budgets, and is affected by the capital expenditures budget

The budget process involves doing all the following except
not giving raises to all managers who fail to achieve operational goals specified in the budget.
establishing specific goals.
periodically comparing actual results with the goals.
executing plans to achieve the goals.

not giving raises to all managers who fail to achieve operational goals specified in the budget. Feedback: This is not a part of the budgeting process. This type of decision would ignore other possible contributing factors.

Which of the following is not a benefit of using a computerized budgeting system?
Such systems make revisions easier with faster results.
Such systems speed up and reduce the cost of preparing the budget.
Such systems can streamline the budgeting process.
Such systems require more employees to be involved in the process.

Such systems require more employees to be involved in the process. Feedback: Computerized systems do not require more people to be involved, but they often do make it easier for diverse input to be aggregated and summarized.

A ________ budget shows the expected results of a responsibility center for only one level of activity.
direct labor cost
static
master
flexible

static Feedback: A static budget shows the expected results of a responsibility center for only one level of activity.

Which of the following is not a necessary component when developing the budgeted income statement as part of the master budget?
factory overhead cost budget
selling and administrative expenses budget
production budget
capital expenditures budget

capital expenditures budget Feedback: Various operating budgets comprise the budgeted income statement including the factory overhead cost budget, which estimates the cost for each item of factory overhead needed to support budgeted production.

The budgeted finished goods inventory and cost of goods sold for a manufacturing company for Year 1 are as follows: January 1 finished goods, $980,000; December 31 finished goods, $470,000; cost of goods sold for the year, $2,560,000. The budgeted costs of goods manufactured for the year is:
$2,050,000
$2,090,000
$3,050,000
$3,070,000

$2,050,000 Feedback: The formula to calculate cost of goods sold = beginning inventory + cost of goods manufactured – ending inventory.

Sleep Master, Inc. manufactures bedding sets. The budgeted production is for 57,000 comforters in 2017. Each comforter requires 6 yards of material. The estimated January 1, 2017, beginning inventory is 31,000 yards. The desired ending balance is 27,000 yards of material. If the material costs $1.50 per yard, determine the materials budget for 2017.
$507,000
$519,000
$426,000
$513,000

$507,000 Feedback: Materials required for production plus desired ending materials inventory less estimated beginning materials inventory results in direct materials to be purchased.

Production and sales estimates for March for the Streamline Systems Co. are as follows:

Estimated inventory (units), March 1 17,500
Desired inventory (unit), March 31 20,300
Expected sales volume (units) 35,000
Unit sales price $15

The number of units expected to be manufactured in March is:
17,500
55,300
72,800
37,800

37,800 Feedback: This amount does not include the beginning inventory.

Planning for capital expenditures is necessary for all of the following reasons except
to evaluate fixed assets that have fallen below minimum standards of efficiency or have become obsolete.
acquiring additional machinery and other fixed assets to replace those that wear out.
to evaluate amounts spent for office equipment that may be immaterial.
to meet increased demand through expansion and purchase of additional fixed assets.

to evaluate amounts spent for office equipment that may be immaterial. Feedback: Capital expenditures are necessary as machinery and other fixed assets wear out or become obsolete.

Budgeting supports the planning process by encouraging all of the following activities except
requiring all organizational units to establish their goals for the upcoming period.
increasing the motivation of managers and employees by providing agreed-upon expectations.
directing the day-to-day activities of the company.
improving overall decision making by considering all viewpoints, options, and cost reduction possibilities.

directing the day-to-day activities of the company. Feedback: Directing day-to-day activities is not part of the budgeting process.

Coleman Manufacturing Co.’s static budget at 10,000 units of production includes $40,000 for direct labor and $6,000 for electric power. Total fixed costs are $20,000. At 12,000 units of production, a flexible budget would show
variable costs of $55,200 and $20,000 of fixed costs.
variable costs of $46,000 and $20,000 of fixed costs.
variable costs of $55,200 and $24,000 of fixed costs.
variable and fixed costs totaling $79,200.

variable costs of $55,200 and $20,000 of fixed costs. Feedback: A flexible budget uses the variable cost per unit, and then the actual units are multiplied by this variable cost per unit

An integrated set of operating, investing, and financing budgets for a period of time is called a __________ budget.
flexible
master
zero-based
continuous

master Feedback: A master budget is an integrated set of operating, investing, and financing budgets for a period of time.

The cost of goods sold budget is prepared by integrating all of the following budgets except for
sales budget.
direct materials purchase budget.
direct labor cost budget.
factory overhead cost budget

sales budget. Feedback: The sales budget uses estimated sales quantities to determine expected sales revenues.

Rugged Bicycles, Inc. collects 25% of its sales on account in the month of the sale and 75% in the month following the sale. If sales are budgeted to be $400,000 for March and $450,000 for April, what are the budgeted cash receipts from sales on account for April?
$437,500
$112,500
$300,000
$412,500

$412,500 Feedback: $300,000 represents the collections from the March sales

As of January 1 of the current year, the Phyllis Company had accounts receivables of $50,000. The sales for January, February, and March were as follows: $120,000, $140,000 and $160,000. 20% of each month’s sales are for cash. Of the remaining 80% (the credit sales), 60% are collected in the month of sale, with the remaining 40% collected in the following month. What is the total cash collected (both from accounts receivable and for cash sales) in the month of March?
$142,800
$146,800
$138,000
$153,600

$153,600 Feedback: March cash sales ($160,000 × 20%) $32,000 March account receivable collections ($160,000 × 80% × 60%) 76,800 February accounts receivable collections ($140,000 × 80% × 40%) 44,800 Cash collections for March $153,600

The balance sheet budgets primarily reflect
financing and operating activities.
financing and investing activities.
operating and investing activities.
selling and administrative activities.

financing and investing activities. Feedback: The income statement budgets reflect the operating activities of the company.

The guidelines for setting goals for a budget that will motivate employees and managers include
setting minimal goals so that people do not feel bad if they are not reached.
developing goals without employee input.
setting goals as high as possible.
setting reasonable and attainable goals.

setting reasonable and attainable goals Feedback: Reasonable, attainable goals are more likely to motivate employees and managers.

The budget process involves doing all the following except
executing plans to achieve the goals.
periodically comparing actual results with the goals.
establishing specific goals.
not giving raises to all managers who fail to achieve operational goals specified in the budget.

not giving raises to all managers who fail to achieve operational goals specified in the budget. Feedback: This is not a part of the budgeting process. This type of decision would ignore other possible contributing factors

Soft and Silky, Inc. manufactures bedding sets. The budgeted production is for 53,000 comforters in 2017. Each comforter requires 6 yards of material. The estimated January 1, 2017, beginning inventory is 31,000 yards. The desired ending balance is 30,000 yards of material. If the material costs $1.50 per yard, determine the materials budget for 2017.
$478,500
$477,000
$475,500
$385,500

$475,500 Feedback: Materials required for production plus desired ending materials inventory less estimated beginning materials inventory results in direct materials to be purchased.