Ch9

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Budget committees include all of the following people except
A) CEO.
B) Research and development manager.
C) Shareholder.
D) Marketing manager.

C

Budgets are used to accomplish all of the following tasks, except
A) planning for the future.
B) controlling operations.
C) recording actual results.
D) directing operations.

C

Strategic planning is beneficial because the organization can
A) establish long-term goals that extend 5-10 years into the future.
B) establish short-term goals that extend one year into the future.
C) establish goals for next month.
D) execute directives from the board of directors.

A

A rolling budget is a budget that
A) extends 5-10 years into the future.
B) is continuously updated, so that the next 12 months of operations are always budgeted.
C) begins with zero for each expense, and then amounts are added in.
D) is executed by upper management.

B

Most companies use ________ when the managers develop budgets each year.
A) a top-down approach
B) zero-based budgets
C) slack-based budgets
D) participative budgeting

D

Which of the following is a potential disadvantage of participative budgeting?
A) Managers are more likely to be motivated by budgets they help create.
B) Managers may build slack into the budget.
C) Managers should acquire knowledge to create realistic budgets.
D) None of the above are true.

B

Managers may intentionally build slack into the budget
A) to gain the resources they need in the event of budget cuts.
B) to make their performance look worse.
C) because they are uncertain about the future.
D) to accomplish all of the above.

A

Managers may intentionally build slack into the budget
A) because they are uncertain about the future.
B) to make their performance appear better.
C) to acquire the resources they need in the event the organization implements a budget cut.
D) because all of the above are true

D

The budget committee
A) rarely has the final say on the budget.
B) usually is made up of the accounting staff.
C) usually is made up of managers from all areas of the value chain.
D) usually is made up of the Board of Directors

C

All of the following are functions of the budget committee except
A) review the budgets it submits for approval in an organization.
B) determine the bonuses the organization awards to employees that achieve the target budget.
C) approve the final budget it expects the organization to implement.
D) remove unwarranted slack in the workplace

B

Which of the following should the organization use to initiate a budget?
A) Last year’s budget
B) Last year’s actual amounts
C) Zero-based budgeting
D) Any of the above

D

Which of the following is an advantage of zero-based budgeting?
A) Zero-based budgeting is time consuming.
B) Zero-based budgeting forces managers to justify each dollar in the budget to ensure that some expenses are lower in a current year compared to what they were in previous years.
C) Zero-based budgeting is labor intensive.
D) All of the above are advantages.

B

The ________ budget is a component in a financial budget.
A) cash
B) sales
C) direct materials
D) operating expense

A

The ________ budget is a component in a financial budget.
A) direct labor
B) capital expenditures
C) budgeted income statement
D) manufacturing overhead

B

The ________ budget is a component in a financial budget.
A) production
B) budgeted income statement
C) budgeted balance sheet
D) sales

C

The ________ budget is a component in an operating budget.
A) capital expenditure
B) budgeted balance sheet
C) production
D) cash

C

Which of the following alternatives reflects the proper order of preparing components of the master budget?

1. Production budget
2. Sales budget
3. Direct materials budget
A) 2, 3, 1
B) 1, 3, 2
C) 3, 1, 2
D) 2, 1, 3

D

Which of the following is an advantage of the budgeting process?
A) Coordinates the activities of the organization
B) Assures that the lowest cost materials will be obtained
C) Assures the company will achieve its objectives
D) Guarantees that a profit will be achieved

A

Regarding the budgeting process, which of the following statements is true?
A) Top corporate management should always design the budget.
B) The company’s external auditors should always approve the budget.
C) The budget should be designed from the bottom up, with input from managers at all levels.
D) All of the listed statements are true statements about the budgeting process.

C

Which of the following is a benefit to an organization that implements a budget?
A) Budgets help managers focus their attention on the future needs in an organization.
B) Budgets help managers improve their decision-making processes in an organization.
C) Budgets help the manager improve the motivation of employees in the workplace.
D) All of the above

D

Which of the following statements about budgeting is not true?
A) Budgeting is an aid to planning and control.
B) The operating budget should be prepared by top management, rather than mid-management personnel, because they have the overall objectives of the company in mind.
C) Budgets help to coordinate the activities of the entire organization.
D) Budgets promote communication and coordination between departments in an organization.

B

Which of the following budgets is a major part of the master budget and it focuses on the income statement and its supporting schedules?
A) cash
B) operating
C) capital expenditures
D) financial

B

Which of the following budgets is the cornerstone of the master budget?
A) sales
B) cash
C) budgeted balance sheet
D) operating expense

A

Which of the following terms is useful because it compares "actual" revenues and expenses against "budgeted" revenues and expenses?
A) Responsibility center
B) Capital budget
C) Performance report
D) Sensitivity analysis

C

"The comprehensive budget" is best described by which of the following terms?
A) Operating budget
B) Sensitivity analysis
C) Responsibility center
D) Master budget

D

On the production budget, the number of units to be produced is computed as
A) unit sales + desired end inventory + beginning inventory.
B) unit sales + desired end inventory – beginning inventory.
C) unit sales – desired end inventory – beginning inventory.
D) unit sales – desired end inventory + beginning inventory

B

On the direct labor budget, the total quantity of direct labor hours needed is computed as
A) units to be produced × direct labor hour per unit.
B) quantity needed for production + indirect labor hours – direct labor hours.
C) units to be produced – indirect labor hours × cost per labor hour.
D) estimated direct labor hours needed × cost per hour.

A

On the direct materials budget, the total quantity of direct materials needed is computed as
A) quantity needed for production + desired end inventory of DM – beginning inventory of DM.
B) units to be produced + desired end inventory of DM – beginning inventory of DM.
C) units to be produced – desired end inventory of DM + beginning inventory of DM.
D) quantity needed for production – desired end inventory of DM + beginning inventory DM.

A

The ________ budget is the only budget stated only in units, not dollars.
A) production
B) sales
C) direct materials
D) manufacturing overhead

A

The ________ budget starts with the number of units to be produced.
A) production
B) operating expense
C) direct labor
D) All of these choices start with the number of units to be produced.

A

The ________ budget begins with the number of units to be sold.
A) manufacturing overhead
B) direct materials
C) sales
D) capital expenditures

C

Which of the following budgets usually shows separate sections for fixed and variable costs?
A) Direct materials and manufacturing overhead budget
B) Manufacturing overhead budget and production budget
C) Production budget and manufacturing overhead budget
D) Operating expenses budget and manufacturing overhead budget

D

Which of the following budgets or financial statements is part of the operating budget?
A) Sales budget
B) Budgeted balance sheet
C) Capital expenditures budget
D) Cash budget

A

The ________ is a plan that shows the units to be sold and the projected selling price and is also the starting point in the budgeting process.
A) cash budget
B) budgeted statement of cash flows
C) budgeted income statement
D) sales budget

D

Which of the following is not part of the operating budget?
A) Inventory, purchases and cost of goods sold budget
B) Cash budget
C) Sales budget
D) Budgeted income statement

B

Which of the following is not included in the operating budget?
A) Budgeted income statement
B) Sales budget
C) Inventory budget
D) Budgeted balance sheet

D

In preparing the operating budget, the first step is preparing the
A) cash budget.
B) sales budget.
C) budgeted income statement.
D) purchases budget.

B

Desired ending inventory is 20% of next month’s sales. If cost of goods sold is $300,000 and next month’s sales are $900,000, which of the following statements is true regarding purchases?
A) Purchases will be more than cost of goods sold.
B) Purchases cannot be predicted from the information given.
C) Purchases will be less than cost of goods sold.
D) Purchases will equal cost of goods sold.

B

Desired ending inventory is 25% more than beginning inventory. If purchases total $160,000, which of the following statements is true regarding cost of goods sold (COGS)?
A) COGS will exceed cost of goods available for sale.
B) COGS will be less than purchases.
C) COGS will exceed purchases.
D) COGS will equal $55,000.

B

Loyal Pet Company expects to sell 5,000 beefy dog treats in January and 9,000 in February for $3 each. What will be the total sales revenue reflected in the sales budget for those months?
A) January $15,000; February $27,000
B) January $1,667; February $3,000
C) January $3,000; February $1,667
D) January $27,000; February $15,000

A January 5000 × $3 = $15,000; February 9000 × $3 = $27,000

CatNap Company has two products: Kittyz and Katz. A March sales forecast projects 20,000 units of Kittyz and 15,000 units of Katz are going to be sold at prices of $15 and $12, respectively. The desired ending inventory of Kittyz is 20% higher than the beginning inventory, which was 2,000 units. How much are total March sales for Kittyz anticipated to be?
A) $100,000
B) $180,000
C) $300,000
D) $240,000

C) 20,000 × $15 = $300,000

Kotrick Company has beginning inventory of 15,000 units and expected sales of 23,000 units. If the desired ending inventory is 18,000 units, how many units should be produced?
A) 20,000
B) 56,500
C) 10,000
D) 26,000

D) Sales 23,000 Less: BI 15,000 = Need to produce 8,000 + desired EI 18,000 = Total Production 26,000

Crafty Carpentry Company produces and sells a shelf for $25 each. The beginning inventory is 2,000 shelves, and the desired ending inventory is 2,200 shelves. If budgeted production is 12,500 shelves, what is the forecasted sales revenue from the shelves?
A) $417,500
B) $307,500
C) $317,500
D) $207,500

B) Production 12,500 + BI 2,000 Total Produced 14,500 Less: EI 2,200 Unit Sales 12,300 × $25 = $307,500

SportSupplies Corporation has budgeted purchases of inventory for December of $140,000. Expected beginning inventory on December 1 and ending inventory on December 31 are $90,000 and $120,000, respectively. If cost of goods sold averages 88% of sales, what are budgeted sales for December?
A) $125,000
B) $96,800
C) $193,182
D) $397,727

A) BI $90,000 + Purchases 140,000 = Goods Available 230,000 Less: EI 120,000 = Cost of Goods Sold $110,000 Now 88% × (Sales) = $110,000 Sales = $125,000

Thomas Corporation recorded sales of $200,000 during March. Management expects sales to increase 5% in April, another 2% in May, and another 10% in June. Cost of goods sold is expected to be 80% of sales. What is the budgeted gross profit for June?
A) $47,124
B) $43,697
C) $235,620
D) $42,840

A) $200,000 × 1.05% = 210,000 × 1.02% = 214,200 × 1.10% = $235,620 Now Sales × 80% = Cost of Goods Sold – 188,496 = Gross Profit $47,124

Fosnight Enterprises prepared the following sales budget:

Month Budgeted Sales
March $6,000
April $13,000
May $12,000
June $14,000

The expected gross profit rate is 30% and the inventory at the end of February was $10,000. Desired inventory levels at the end of the month are 20% of the next month’s cost of goods sold.

What is the desired beginning inventory on June 1?
A) $840
B) $1,680
C) $1,960
D) $9,800

C) Sales = 100% – 30% Gross Profit = 70% Cost of Goods Sold (CGS) Now: June Sales $14,000 × 70% = 9,800 (CGS) × 20% = $1,960

Sander Enterprises prepared the following sales budget:

Month Budgeted Sales
March $8,000
April $13,000
May $12,000
June $14,000

The expected gross profit rate is 40% and the inventory at the end of February was $10,000. Desired inventory levels at the end of the month are 20% of the next month’s cost of goods sold.

What are the total purchases budgeted for May?
A) $8,640
B) $7,680
C) $6,960
D) $7,440

D) May Beginning Inventory = $12,000 × 60% = 7,200 × 20% = $1,440 May Ending Inventory = $14,000 × 60% = 8,400 × 20% = $1,680 May Cost of Goods Sold = $12,000 × 60% = $7,200 Now $7,200 + 1,680 – 1,440 = $7,440

A company sells goods and offers credit terms of "net 30 days." What does this reveal to the company that sold the goods?
A) It does not have to ship the goods for 30 days.
B) It cannot recognize the sales credit for 30 days.
C) It offers a 30% discount for customers that use credit cards.
D) The customer has up to 30 days to pay back the seller for the goods purchased without penalty.

D

Which of the following items is a component of a cash payments budget?
A) Bad debt expense
B) Depreciation expense
C) Cash dividends
D) Gains on sales of equipment

C

Which of the following types of cash outlays contains its own budget?
A) Capital expenditures
B) Dividends
C) Income taxes
D) All of the above

A

A combined cash budget includes all of the following except
A) projected cash balance at the end of the month.
B) projected cash collections and cash payments.
C) projected borrowings and repayments.
D) All of the above are shown on the combined cash budget

D

A company should ________ when projecting cash receipts for a given month.
A) include only cash collections from sales made in that month
B) only list COD sales made in that month
C) only list credit sales made in that month
D) include cash to be collected in that month regardless of when the sale was made

D

"Financial budget" is best described by which of the following?
A) A company’s plan to purchase property, plant and equipment, and other long-term assets
B) A budget that projects cash inflows, cash outflows, and the end of period budgeted balance sheet
C) A budget that shows projected sales, purchases, and operating expenses
D) A system for evaluating the performance of each responsibility center and its manager

B

"Capital expenditures budget" is best described by which of the following concepts?
A) Details that reveal how the company expects to move out of the beginning cash balance and into the desired ending cash balance
B) A system to evaluate the performance of each responsibility center and its manager
C) A company’s plan to purchase property, plant and equipment, and other long-term assets
D) A budget that projects cash inflows, cash outflows, and the end of period budgeted balance sheet

C

________ is a what-if technique that asks what a result will be if a predicted amount is not achieved or if an underlying assumption changes.
A) Sensitivity analysis
B) Ratio analysis
C) Risk analysis
D) Strategic analysis

A

Combined cash budget" is best defined by which of the following?
A) A company’s plan to purchase of property, plant and equipment, and other long-term assets
B) Details about how the company expects to move out of the beginning cash balance and into the desired ending cash balance
C) A system to evaluate the performance and manager of each responsibility center
D) A budget that projects assets, liabilities, and stockholders’ equity at the end of a period

B

Which of the following budgets project cash inflows, cash outflows, and the budgeted balance sheet?
A) Purchases budget
B) Capital expenditures budget
C) Financial budget
D) Cash budget

C

Which of the following is an example of a financial budget?
A) Budgeted balance sheet
B) Sales budget
C) Budgeted income statement
D) Operating expenses budget

A

A manager considers all of the following when he or she prepares the cash budget except
A) payments for inventory.
B) cash receipts from customers.
C) depreciation expense.
D) cash payments to suppliers.

C

The final step in the preparation of the financial budget is the preparation of which of the following?
A) Master budget
B) Cash budget
C) Operating budgets
D) Budgeted balance sheet

D

In which of the following company types would the manager use a direct materials budget?
A) Manufacturing
B) Merchandising
C) Service
D) All of the above

A

In which of the following company types would the manager combine cost of goods sold, inventory, and purchases into one budget?
A) Manufacturing
B) Merchandising
C) Service
D) All of the above

A

In which of the following company types does a manager use a sales budget?
A) Manufacturing
B) Merchandising
C) Service
D) All of the above

D

In which of the following company types does a manager use an operating expenses budget?
A) Manufacturing
B) Merchandising
C) Service
D) All of the above

D

In which of the following company types does the manager use a "cost of goods sold, inventory, and purchases" budget?
A) Merchandising
B) Manufacturing
C) Service
D) All of the above

A

In which of the following company types does the manager use a capital expenditures budget?
A) Manufacturing
B) Merchandising
C) Service
D) All of the above

D

The format of the "cost of goods sold, inventory, and purchases" budget is as follows:
A) desired ending inventory + beginning inventory – cost of goods sold.
B) cost of goods sold + desired ending inventory – beginning inventory.
C) cost of goods sold – desired ending inventory + beginning inventory.
D) desired ending inventory – beginning inventory – cost of goods sold.

B

Merchandising companies prepare which of the following budgets?
A) Sales
B) Cash
C) Operating expense
D) All of the above

D

All of the following budgets are prepared by service companies except
A) cost of goods sold, inventory and purchases.
B) cash.
C) operating expense.
D) sales.

A

All of the following budgets are prepared by merchandising companies except
A) sales.
B) operating expense.
C) direct materials.
D) cost of goods sold, inventory and purchases.

C

All of the following budgets are prepared by merchandising companies except
A) manufacturing overhead.
B) capital expenditures.
C) budgeted income statement.
D) cash.

A

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