Deck 10: Static and Flexible Budgets

Question 1

When an organization's actual revenues are greater than its budgeted revenues, the difference is referred to as a favourable variance.

Answer 1

True

Question 2

Master budgets are often summarized in a company's short-term operating plans.

Answer 2

False

Question 3

In a production budget, beginning inventory plus budgeted production equals sales plus targeted ending inventory.

Answer 3

True

Question 4

A financial budget is the master budget component that leads to all budgeted financial statements.

Question 5

Favourable variances are positive amounts; unfavourable variances are negative amounts.

Question 6

The cash budget is included in an organization's operating budget.

Question 7

The master budget includes two components: an operating budget and a time budget.

Question 8

The ending inventories budget is typically expressed in terms of costs, while the production budget is typically expressed in units.

Question 9

A formalized financial plan for organizational operations is called a long-term strategy.

Question 10

A flexible budget reflects a range of operations.

Question 11

A master budget is a comprehensive plan for an upcoming financial period.

Question 12

Managers need information from current beginning inventories and required ending inventories to prepare the production budget.

Question 13

Budget variances cannot be calculated from a static budget.

Question 14

Cost-volume-profit analysis is a simplified version of a flexible budget.

Question 15

To prepare a budgeted income statement, managers draw data from the revenue budget, the cost of goods sold budget, and the cash budget.

Question 16

If actual activities do not follow plans, a variance is likely to result.

Question 17

Differences between budgeted amounts and actual amounts are called budget variances.

Question 18

An operating budget is the component of a master budget that contains management's plans for revenues, production, and operating costs.

Question 19

Production and inventory budgets form the basis for developing the revenue budget.

Question 20

Budgeting provides a means for defining managers' decision rights.

Question 21

(Appendix 10A) Taft Corporation collects cash from customers as follows: 60% in the month of sale, 20% in the month after sale, 19% in the second month after sale, and 1% is never collected. Bad debts are written off annually in December. Budgeted sales are all on credit and amount to:
May $600,000
June 700,000
July 500,000
August 600,000
What is the budgeted amount of cash to be collected in July?

A) $560,000
B) $554,000
C) $558,000
D) $551,000

Question 22

Horton Company produces and sells two products: round and square tables. In August 20x4, the budget projected the following for 20x5: Budgeted data for 20x5 Direct labour and overhead are:
Direct labour:
Round 4 hours per unit at $6 per hour
Square 6 hours per unit at $8 per hour
Overhead: $4 per direct labour hour
Direct labour costs for 20x5 are:

A) $312,000
B) $444,000
C) $512,000
D) $565,000

Question 23

Bend Company's projected sales budget for the next four months is as follows: $$\begin{array} { l l } & \text { Units } \\\text { January } & 70,000 \\\text { February } & 90,000 \\\text { March } & 55,000 \\\text { April } & 65,000\end{array}$$ Beginning inventory for the year is 27,000 units. Ending inventory for each month should be 30% of the next month's sales.
How many units need to be available for sale in February?

A) 90,000
B) 106,500
C) 73,500
D) 117,000

Question 24

When evaluating actual results at the end of an accounting period, the static budget provides an appropriate benchmark for actual operations.

Question 25

(Appendix 10A) Conner Company is a medium-sized toy distributor. Experience has shown that 30% of sales are collected within the month of sale, 60% is collected the month after the sale, and 10% is collected two months after the sale. Inventory on hand at the end of a month is to be 70% of the next month's budgeted sales. Cost of goods sold is 50% of the selling price. Payment for purchases is made in the month after purchase. All other costs are paid in the month incurred. Budgeted amounts are as follows: $\begin{array}{ccccccc}&\text { March}&\text { April }&\text { May }&\text { June}&\text { July }&\text { August}\\ \text { Sales } & \$ 10,000 & \$ 20,000 & \$ 30,000 & \$ 30,000 & \$ 50,000 & \$ 40,00 \\ \text {Cost}&&&&&\\ \text { Wages } & & & 1,500 & 2,000 & 2,500 & 1,500 \\ \text { Rent } & & & 500 & 500 & 500 & 500 \\ \text { Other } & & & 400 & 500 & 600 & 500 \\\end{array}$
Cash disbursements in July for purchases are expected to be:

A) $43,000
B) $16,000
C) $22,000
D) $21,000

Question 26

In zero-based budgeting, managers justify budget amounts as if no information about prior budgets exists.

Question 27

One disadvantage of participative budgeting is employees' tendency to set targets too high to impress management with their motivation.

Question 28

Participative budgeting involves customers and managers at all levels in the organization.

Question 29

When managers intentionally set budgeted costs too low and budgeted revenues too high, they are creating budgetary slack.

Question 30

Ritz Company expects to sell 24,000 units of finished goods over the next 6-month period. The company has 10,000 units on hand and its managers want to have 14,000 units on hand at the end of the period. To produce one unit of finished product, two units of direct materials are needed. Ritz has 100,000 units of direct material on hand and has budgeted for an ending inventory of 110,000 units.
What is the amount of direct material to be purchased (in units)?

A) 38,000
B) 46,000
C) 66,000
D) 18,000

Question 31

The principles of activity-based costing can be applied to the budgeting process.

Question 32

(Appendix 10A) Conner Company is a medium-sized toy distributor. Experience has shown that 30% of sales are collected within the month of sale, 60% is collected the month after the sale, and 10% is collected two months after the sale. Inventory on hand at the end of a month is to be 70% of the next month's budgeted sales. Cost of goods sold is 50% of the selling price. Payment for purchases is made in the month after purchase. All other costs are paid in the month incurred. Budgeted amounts are as follows: $\begin{array}{ccccccc}&\text { March}&\text { April }&\text { May }&\text { June}&\text { July }&\text { August}\\ \text { Sales } & \$ 10,000 & \$ 20,000 & \$ 30,000 & \$ 30,000 & \$ 50,000 & \$ 40,00 \\ \text {Cost}&&&&&\\ \text { Wages } & & & 1,500 & 2,000 & 2,500 & 1,500 \\ \text { Rent } & & & 500 & 500 & 500 & 500 \\ \text { Other } & & & 400 & 500 & 600 & 500 \\\end{array}$
Total cash disbursements in August are expected to be:

A) $24,000
B) $45,500
C) $21,500
D) $31,000

Question 33

Horton Company produces and sells two products: round and square tables. In August 20x4, the budget projected the following for 20x5: Budgeted data for 20x5 direct labour and overhead are:
Direct labour:
Round 4 hours per unit at $6 per hour
Square 6 hours per unit at $8 per hour
Overhead: $4 per direct labour hour
Total budgeted production of tables in 20x5 is:

A) 12,000 units
B) 10,000 units
C) 6,500 units
D) 14,000 units

Question 34

(Appendix 10A) Conner Company is a medium-sized toy distributor. Experience has shown that 30% of sales are collected within the month of sale, 60% is collected the month after the sale, and 10% is collected two months after the sale. Inventory on hand at the end of a month is to be 70% of the next month's budgeted sales. Cost of goods sold is 50% of the selling price. Payment for purchases is made in the month after purchase. All other costs are paid in the month incurred. Budgeted amounts are as follows: $\begin{array}{ccccccc}&\text { March}&\text { April }&\text { May }&\text { June}&\text { July }&\text { August}\\ \text { Sales } & \$ 10,000 & \$ 20,000 & \$ 30,000 & \$ 30,000 & \$ 50,000 & \$ 40,00 \\ \text {Cost}&&&&&\\ \text { Wages } & & & 1,500 & 2,000 & 2,500 & 1,500 \\ \text { Rent } & & & 500 & 500 & 500 & 500 \\ \text { Other } & & & 400 & 500 & 600 & 500 \\\end{array}$
Purchases for the month of May are expected to be:

A) $21,000
B) $15,000
C) $30,000
D) $10,500

Question 35

Kaizen budgeting is designed to improve quality and reduce cost over time.

Question 36

(Appendix 10A) Conner Company is a medium-sized toy distributor. Experience has shown that 30% of sales are collected within the month of sale, 60% is collected the month after the sale, and 10% is collected two months after the sale. Inventory on hand at the end of a month is to be 70% of the next month's budgeted sales. Cost of goods sold is 50% of the selling price. Payment for purchases is made in the month after purchase. All other costs are paid in the month incurred. Budgeted amounts are as follows: $\begin{array}{ccccccc}&\text { March}&\text { April }&\text { May }&\text { June}&\text { July }&\text { August}\\ \text { Sales } & \$ 10,000 & \$ 20,000 & \$ 30,000 & \$ 30,000 & \$ 50,000 & \$ 40,00 \\ \text {Cost}&&&&&\\ \text { Wages } & & & 1,500 & 2,000 & 2,500 & 1,500 \\ \text { Rent } & & & 500 & 500 & 500 & 500 \\ \text { Other } & & & 400 & 500 & 600 & 500 \\\end{array}$ Cash receipts for the month of May are expected to be:

A) $30,000
B) $21,000
C) $29,000
D) $22,000

Question 37

Horton Company produces and sells two products: round and square tables. In August 20x4, the budget projected the following for 20x5: Budgeted data for 20x5 Direct labour and overhead are:
Direct labour:
Round 4 hours per unit at $6 per hour
Square 6 hours per unit at $8 per hour
Overhead: $4 per direct labour hour
The cost of ending finished goods inventory of round tables for 20x5 is:

A) $662,500
B) $622,500
C) $562,500
D) $530,000

Question 38

Bend Company's projected sales budget for the next four months is as follows: $$\begin{array} { l l } & \text { Units } \\\text { January } & 70,000 \\\text { February } & 90,000 \\\text { March } & 55,000 \\\text { April } & 65,000\end{array}$$ Beginning inventory for the year is 27,000 units. Ending inventory for each month should be 30% of the next month's sales.
How many units should the company produce in January?

A) 106,000
B) 90,000
C) 70,000
D) 78,000

Question 39

Horton Company produces and sells two products: round and square tables. In August 20x4, the budget projected the following for 20x5: Budgeted data for 20x5 Direct labour and overhead are:
Direct labour:
Round 4 hours per unit at $6 per hour
Square 6 hours per unit at $8 per hour
Overhead: $4 per direct labour hour
The cost of purchases for direct material P for 20x5 is:

A) $2,805,000
B) $2,720,000
C) $2,635,000
D) $2,550,000

Question 40

Ritz Company expects to sell 24,000 units of finished goods over the next 6-month period. The company has 10,000 units on hand and its managers want to have 14,000 units on hand at the end of the period. To produce one unit of finished product, two units of direct materials are needed. Ritz has 100,000 units of direct material on hand and has budgeted for an ending inventory of 110,000 units.
What is the number of finished units to be produced?

A) 38,000
B) 28,000
C) 20,000
D) 24,000

Question 41

(Appendix 10A) Gold Company has the following balances at December 31, 20x4: Cash $6,000; accounts receivable $34,000 ($10,000 from November and $24,000 from December); merchandise inventory $40,000; and accounts payable $20,000 (for merchandise purchases only). Budgeted sales follow: $$\begin{array} { l r } \text { January } & \$ 50,000 \\\text { February } & 90,000 \\\text { March } & 60,000 \\\text { April } & 100,000\end{array}$$ Other data:
*Sales are 40% cash, 50% collected during the following month, and 10% collected during the second month after sale. A 3% cash discount is given on cash sales.
*Cost of goods sold is 40% of sales.
*Ending inventory must be 140% of the next month's cost of sales.
*Purchases are paid 70% in month of purchase and 30% in the following month.
*The selling and administrative cost function is: $6,000 + $0.2 × sales. This includes $1,000 for amortization.
*All costs are paid in the month incurred.
*Minimum cash balance requirement is $6,000.
The cash disbursements for purchases in March are:

A) $46,400
B) $32,480
C) $38,240
D) $48,720

Question 42

Planning Systems, Inc. has forecast the following unit sales and production for the next year, by quarter: $$\begin{array}{l}\begin{array} { l l l l l } & 1 ^ { \text {st } } & 2 ^ { \text {nd } } & 3 ^ { \text {rd } } & 4 ^ { \text {th } } \\\text { Production } & 150 & 160 & 140 & 100 \\\text { Sales } & 120 & 140 & 150 & 120\end{array}\\\text { The firm has beginning inventories as follows: }\\\begin{array} { l l } \text { Finished goods } & 50 \text { units } \\\text { Direct material A } & 100 \\\text { Direct material B } & 100\end{array}\end{array}$$ A finished unit requires one unit of material A and two units of material B. There should be enough material on hand at the end of each quarter to meet 20% of the next quarter's production needs. There are no work-in-process inventories.
How much material A must be purchased in quarter 2?

A) 138
B) 142
C) 156
D) 162

Question 43

Korn Inc., projects sales for its first three months of operation as follows: $\begin{array}{lccc}&\text { October}&\text { November }&\text { December }\\\text {Credit sales } & \$ 100,000 & \$ 150,000 & \$ 200,000 \\ \text { Cash sales } & 40,000 & 60,000 & 50,000 \\ \text { Tota } & \$ 140,000 & \$ 210,000 & \$250,000\\\end{array}$

Inventory on October 1 is $40,000. Subsequent beginning inventories should be 40% of that month's cost of goods sold. Goods are priced at 140% of their cost. 50% of purchases are paid for in the month of purchase; the balance is paid in the following month. It is expected that 50% of credit sales will be collected in the month following sale, 30% in the second month following the sale, and the balance the third month. A 5% discount is given if payment is received in the month following sale.
(Appendix 10A) What are the anticipated cash disbursements for October?

A) $120,000
B) $180,000
C) $140,000
D) $60,000

Question 44

(Appendix 10A) Gold Company has the following balances at December 31, 20x4: Cash $6,000; accounts receivable $34,000 ($10,000 from November and $24,000 from December); merchandise inventory $40,000; and accounts payable $20,000 (for merchandise purchases only). Budgeted sales follow: $$\begin{array} { l r } \text { January } & \$ 50,000 \\\text { February } & 90,000 \\\text { March } & 60,000 \\\text { April } & 100,000\end{array}$$ Other data:
*Sales are 40% cash, 50% collected during the following month, and 10% collected during the second month after sale. A 3% cash discount is given on cash sales.
*Cost of goods sold is 40% of sales.
*Ending inventory must be 140% of the next month's cost of sales.
*Purchases are paid 70% in month of purchase and 30% in the following month.
*The selling and administrative cost function is: $6,000 + $0.2 × sales. This includes $1,000 for amortization.
*All costs are paid in the month incurred.
*Minimum cash balance requirement is $6,000.
What is the budgeted cost of purchases for February?

A) $19,200
B) $30,400
C) $15,000
D) $52,800

Question 45

(Appendix 10A) A firm expects credit sales for the week to amount to $3,000, accounts receivable to increase by $200, and accounts payable to decrease by $500. Given this information, what will be the effect on cash?

A) $2,700 increase
B) $2,300 increase
C) $1,700 increase
D) $1,300 increase

Question 46

(Appendix 10A) Allen, Inc. has the following disbursements:
*Variable manufacturing costs are $3 per unit. They are paid 40% in the month of purchase and 60% in the following month. Purchases are made in the month of production.
*Fixed overhead is $2,000, including $500 amortization. Overhead costs are paid as incurred.
*Selling costs are $1,500 per month plus $1 per unit sold and are paid in the month incurred.
*Production for January, February, and March was 3,000, 2,000, and 1,200 units, respectively.
*Sales for the 3 months were 1,000, 2,500, and 1,000 units, respectively.
What is the amount of cash disbursements for February?

A) $13,300
B) $12,300
C) $12,800
D) $ 7,400

Question 47

(Appendix 10A) Taft Corporation collects cash from customers as follows: 60% in the month of sale, 20% in the month after sale, 19% in the second month after sale, and 1% is never collected. Bad debts are written off annually in December. Budgeted sales are all on credit and amount to: $$\begin{array} { l r } \text { May } & \$ 600,000 \\\text { June } & 700,000 \\\text { July } & 500,000 \\\text { August } & 600,000\end{array}$$ What is the budgeted amount of accounts receivable at the end of August?

A) $353,000
B) $340,000
C) $329,000
D) $377,000

Question 48

Planning Systems, Inc. has forecast the following unit sales and production for the next year, by quarter: $$\begin{array}{l}\begin{array} { l l l l l } & 1 ^ { \text {st } } & 2 ^ { \text {nd } } & 3 ^ { \text {rd } } & 4 ^ { \text {th } } \\\text { Production } & 150 & 160 & 140 & 100 \\\text { Sales } & 120 & 140 & 150 & 120\end{array}\\\text { The firm has beginning inventories as follows: }\\\begin{array} { l l } \text { Finished goods } & 50 \text { units } \\\text { Direct material A } & 100 \\\text { Direct material B } & 100\end{array}\end{array}$$ A finished unit requires one unit of material A and two units of material B. There should be enough material on hand at the end of each quarter to meet 20% of the next quarter's production needs. There are no work-in-process inventories.
What is the ending inventory for material A for quarter 2?

A) 24
B) 28
C) 30
D) 100

Question 49

Steve Company uses the following flexible budget formula for monthly repair cost: total cost = $700 + $0.40 per machine hour. The annual operating budget calls for 35,000 hours of planned machine time. Budgeted repair cost is:

A) $14,000
B) $14,700
C) $22,400
D) $22,000

Question 50

Korn Inc., projects sales for its first three months of operation as follows: $\begin{array}{lccc}&\text { October}&\text { November }&\text { December }\\\text {Credit sales } & \$ 100,000 & \$ 150,000 & \$ 200,000 \\ \text { Cash sales } & 40,000 & 60,000 & 50,000 \\ \text { Tota } & \$ 140,000 & \$ 210,000 & \$250,000\\\end{array}$

Inventory on October 1 is $40,000. Subsequent beginning inventories should be 40% of that month's cost of goods sold. Goods are priced at 140% of their cost. 50% of purchases are paid for in the month of purchase; the balance is paid in the following month. It is expected that 50% of credit sales will be collected in the month following sale, 30% in the second month following the sale, and the balance the third month. A 5% discount is given if payment is received in the month following sale.
(Appendix 10A) What are the anticipated cash receipts for October?

A) $-0-
B) $40,000
C) $47,500
D) $66,500

Question 51

(Appendix 10A) Gold Company has the following balances at December 31, 20x4: Cash $6,000; accounts receivable $34,000 ($10,000 from November and $24,000 from December); merchandise inventory $40,000; and accounts payable $20,000 (for merchandise purchases only). Budgeted sales follow: $$\begin{array} { l r } \text { January } & \$ 50,000 \\\text { February } & 90,000 \\\text { March } & 60,000 \\\text { April } & 100,000\end{array}$$ Other data:
*Sales are 40% cash, 50% collected during the following month, and 10% collected during the second month after sale. A 3% cash discount is given on cash sales.
*Cost of goods sold is 40% of sales.
*Ending inventory must be 140% of the next month's cost of sales.
*Purchases are paid 70% in month of purchase and 30% in the following month.
*The selling and administrative cost function is: $6,000 + $0.2 × sales. This includes $1,000 for amortization.
*All costs are paid in the month incurred
*Minimum cash balance requirement is $6,000
What will be the ending cash balance for January?

A) $(280)
B) $13,720
C) $19,720
D) $6,000

Question 52

The Mzarek Company's budgeted annual indirect labour cost is: $7,200 + $0.75 per direct labour hour. Operating budgets for the current month are based on 30,000 hours of budgeted direct labour hours. Budgeted indirect labour cost is:

A) $22,500
B) $29,700
C) $22,000
D) $23,100

Question 53

Korn, Inc., projects sales for its first three months of operation as follows: $\begin{array}{lccc}&\text { October}&\text { November }&\text { December }\\\text {Credit sales } & \$ 100,000 & \$ 150,000 & \$ 200,000 \\ \text { Cash sales } & 40,000 & 60,000 & 50,000 \\ \text { Tota } & \$ 140,000 & \$ 210,000 & \$250,000\\\end{array}$

Inventory on October 1 is $40,000. Subsequent beginning inventories should be 40% of that month's cost of goods sold. Goods are priced at 140% of their cost. 50% of purchases are paid for in the month of purchase; the balance is paid in the following month. It is expected that 50% of credit sales will be collected in the month following sale, 30% in the second month following the sale, and the balance the third month. A 5% discount is given if payment is received in the month following sale.
What is the projected cost of purchases for October?

A) $80,000
B) $93,333
C) $120,000
D) $180,000

Question 54

Korn Inc., projects sales for its first three months of operation as follows: $\begin{array}{lccc}&\text { October}&\text { November }&\text { December }\\\text {Credit sales } & \$ 100,000 & \$ 150,000 & \$ 200,000 \\ \text { Cash sales } & 40,000 & 60,000 & 50,000 \\ \text { Tota } & \$ 140,000 & \$ 210,000 & \$250,000\\\end{array}$
Inventory on October 1 is $40,000. Subsequent beginning inventories should be 40% of that month's cost of goods sold. Goods are priced at 140% of their cost. 50% of purchases are paid for in the month of purchase; the balance is paid in the following month. It is expected that 50% of credit sales will be collected in the month following sale, 30% in the second month following the sale, and the balance the third month. A 5% discount is given if payment is received in the month following sale.
What is the projected cost of goods sold for October?

A) $140,000
B) $220,000
C) $257,000
D) $100,000

Question 55

(Appendix 10A) Gold Company has the following balances at December 31, 20x4: Cash $6,000; accounts receivable $34,000 ($10,000 from November and $24,000 from December); merchandise inventory $40,000; and accounts payable $20,000 (for merchandise purchases only). Budgeted sales follow: $$\begin{array} { l r } \text { January } & \$ 50,000 \\\text { February } & 90,000 \\\text { March } & 60,000 \\\text { April } & 100,000\end{array}$$ Other data:
*Sales are 40% cash, 50% collected during the following month, and 10% collected during the second month after sale. A 3% cash discount is given on cash sales.
*Cost of goods sold is 40% of sales.
*Ending inventory must be 140% of the next month's cost of sales.
*Purchases are paid 70% in month of purchase and 30% in the following month.
*The selling and administrative cost function is: $6,000 + $0.2 × sales. This includes $1,000 for amortization.
*All costs are paid in the month incurred.
*Minimum cash balance requirement is $6,000.
Cash receipts for April will be:

A) $38,800
B) $77,800
C) $100,000
D) $68,800

Question 56

Planning Systems, Inc. has forecast the following unit sales and production for the next year, by quarter: $$\begin{array} { l l l l l } & 1 ^ { \text {st } } & 2 ^ { \text {nd } } & 3 ^ { \text {rd } } & 4 ^ { \text {th } } \\\text { Production } & 150 & 160 & 140 & 100 \\\text { Sales } & 120 & 140 & 150 & 120\end{array}$$ The firm has beginning inventories as follows: $$\begin{array} { l l } \text { Finished goods } & 50 \text { units } \\\text { Direct material A } & 100 \\\text { Direct material B } & 100\end{array}$$
A finished unit requires one unit of material A and two units of material B. There should be enough material on hand at the end of each quarter to meet 20% of the next quarter's production needs. There are no work-in-process inventories.
What is the ending finished goods inventory for quarter 2?

A) 50
B) 70
C) 80
D) 100

Question 57

A firm that manufactures vases has budgeted production for the next four months as follows: $$\begin{array} { l r } & \text { Units Produced } \\\text { October } & 40,000 \\\text { November } & 50,000 \\\text { December } & 30,000 \\\text { January } & 40,000\end{array}$$ Each vase requires 30 grams of silica. The managers desire an ending inventory sufficient to meet 25% of the next month's production. There is no beginning inventory of raw material in October.
Budgeted purchases of silica in grams for November would be:

A) 450,000
B) 1,650,000
C) 1,350,000
D) 900,000

Question 58

Planning Systems, Inc. has forecast the following unit sales and production for the next year, by quarter: $$\begin{array}{l}\begin{array} { l l l l l } & 1 ^ { \text {st } } & 2 ^ { \text {nd } } & 3 ^ { \text {rd } } & 4 ^ { \text {th } } \\\text { Production } & 150 & 160 & 140 & 100 \\\text { Sales } & 120 & 140 & 150 & 120\end{array}\\\text { The firm has beginning inventories as follows: }\\\begin{array} { l l } \text { Finished goods } & 50 \text { units } \\\text { Direct material A } & 100 \\\text { Direct material B } & 100\end{array}\end{array}$$ A finished unit requires one unit of material A and two units of material B. There should be enough material on hand at the end of each quarter to meet 20% of the next quarter's production needs. There are no work-in-process inventories.
How much material B must be purchased in quarter 1?

A) 264
B) 196
C) 204
D) 256

Question 59

Sales of $250,000 are forecast for the third quarter. Gross profit is 60% of sales, and beginning inventory is $165,000. If ending inventory is budgeted as $183,000, what are the budgeted purchases?

A) $118,000
B) $132,000
C) $168,000
D) $82,000

Question 60

Korn Inc., projects sales for its first three months of operation as follows: $\begin{array}{lccc}&\text { October}&\text { November }&\text { December }\\\text {Credit sales } & \$ 100,000 & \$ 150,000 & \$ 200,000 \\ \text { Cash sales } & 40,000 & 60,000 & 50,000 \\ \text { Tota } & \$ 140,000 & \$ 210,000 & \$250,000\\\end{array}$

Inventory on October 1 is $40,000. Subsequent beginning inventories should be 40% of that month's cost of goods sold. Goods are priced at 140% of their cost. 50% of purchases are paid for in the month of purchase; the balance is paid in the following month. It is expected that 50% of credit sales will be collected in the month following sale, 30% in the second month following the sale, and the balance the third month. A 5% discount is given if payment is received in the month following sale.
(Appendix 10A) What are the anticipated cash receipts for November?

A) $107,500
B) $105,000
C) $110,000
D) $160,000

Question 61

An advantage of a flexible budget is that it:

A) Allows comparisons of the actual costs with those that should have been incurred
B) Considers only variable costs
C) Allows management freedom in meeting goals
D) Allows comparison of actual costs to master budget costs

Question 62

TFS Corporation, a retail company selling hotel furniture, has just completed its master budget for the next fiscal year. Ending inventory is budgeted at 20% of cost of goods available for sale. Selected data from that process appear in the table below: $\begin{array}{lr}\text { Beginning inventory } & \$ 10,000 \\\text { Budgeted purchases } & 25,000 \\\text { Expected revenue } & 150,000 \\\text { Inflows of cash } & 120,000 \\\text { Support departments costs } & 30,000 \\\text { Total cash outflows } & 80,000\end{array}$ TFS' actual income for the next fiscal year will be:

A) Greater than the budgeted income
B) Less than the budgeted income
C) Equal to the budgeted income
D) Undeterminable from the information given

Question 63

Zero-based budgeting:

A) Requires justification for any new increases in requested amounts
B) Means that managers will have little or no work to prepare their budget requests
C) Requires managers to justify all funds requested
D) Is used as a means of reducing the paperwork involved with the budget process

Question 64

Budgets provide a mechanism for defining which of the following for individual managers?
I) Decision rights
II) Behaviours
III) Forecasts

A) I only
B) I and II only
C) I and III only
D) I, II, and III

Question 65

The actual preparation of a budget usually begins with the:

A) Production budget
B) Cash budget
C) Sales budget
D) Direct materials budget

Question 66

Which of the following is not required to develop a budgeted income statement?

A) Sales forecast
B) Cash budget
C) Production budget
D) Marketing budget

Question 67

TFS Corporation, a retail company selling hotel furniture, has just completed its master budget for the next fiscal year. Ending inventory is budgeted at 20% of cost of goods available for sale. Selected data from that process appear in the table below: $\begin{array}{lr}\text { Beginning inventory } & \$ 10,000 \\\text { Budgeted purchases } & 25,000 \\\text { Expected revenue } & 150,000 \\\text { Inflows of cash } & 120,000 \\\text { Support departments costs } & 30,000 \\\text { Total cash outflows } & 80,000\end{array}$ TFS' budgeted gross profit for the next fiscal year will be:

A) $136,000
B) $106,000
C) $125,000
D) $122,000

Question 68

Intentionally understating revenues and / or overstating costs during a budgeting process is called:

A) Budgetary slack
B) Zero-based budgeting
C) Fraudulent financial reporting
D) Participative budgeting

Question 69

A formalized financial plan for organizational operations in the coming year is best described as a:

A) Long-term strategy
B) Short-term operating plan
C) Budget
D) Decision right

Question 70

TFS Corporation, a retail company selling hotel furniture, has just completed its master budget for the next fiscal year. Ending inventory is budgeted at 20% of cost of goods available for sale. Selected data from that process appear in the table below: $\begin{array}{lr}\text { Beginning inventory } & \$ 10,000 \\\text { Budgeted purchases } & 25,000 \\\text { Expected revenue } & 150,000 \\\text { Inflows of cash } & 120,000 \\\text { Support departments costs } & 30,000 \\\text { Total cash outflows } & 80,000\end{array}$ Which of the following amounts will be subtracted from gross profit on TFS' budgeted income statement?

A) $30,000
B) $80,000
C) $14,000
D) $110,000

Question 71

TFS Corporation, a retail company selling hotel furniture, has just completed its master budget for the next fiscal year. Ending inventory is budgeted at 20% of cost of goods available for sale. Selected data from that process appear in the table below: $\begin{array}{lr}\text { Beginning inventory } & \$ 10,000 \\\text { Budgeted purchases } & 25,000 \\\text { Expected revenue } & 150,000 \\\text { Inflows of cash } & 120,000 \\\text { Support departments costs } & 30,000 \\\text { Total cash outflows } & 80,000\end{array}$ Which of the following amounts is irrelevant in the preparation of TFS' budgeted income statement?

A) Beginning inventory of $10,000
B) Expected revenue of $150,000
C) Expected inflows of cash of $120,000
D) Budgeted support department costs of $30,000

Question 72

TFS Corporation, a retail company selling hotel furniture, has just completed its master budget for the next fiscal year. Ending inventory is budgeted at 20% of cost of goods available for sale. Selected data from that process appear in the table below: $\begin{array}{lr}\text { Beginning inventory } & \$ 10,000 \\\text { Budgeted purchases } & 25,000 \\\text { Expected revenue } & 150,000 \\\text { Inflows of cash } & 120,000 \\\text { Support departments costs } & 30,000 \\\text { Total cash outflows } & 80,000\end{array}$ TFS' budgeted profit before taxes for the next fiscal year will be:

A) $106,000
B) $40,000
C) $66,000
D) $92,000

Question 73

BNN Corporation expects to operate at a profit in its next fiscal year. Which of the following statements about its budgeted income statement is true?

A) Operating expenses are expected to be greater than gross profit.
B) Operating income is expected to be greater than net income.
C) Net income is expected to be greater than operating income.
D) Gross profit minus operating expenses will equal net income.

Question 74

Which of the following must managers develop prior to preparing a budgeted income statement?

A) Cash budget
B) Budgeted balance sheet
C) Support department budgets
D) Support department cost allocations

Question 75

Under which of the following types of budgeting must managers justify their budget requests each year as if prior information did not exist?

A) Activity-based
B) Participative
C) Zero-based
D) Flexible

Question 76

To overcome possible problems with budgets that are developed only by top level managers, an alternative is to use:

A) Mandatory budgets
B) Authoritative budgets
C) Flexible budgets
D) Participative budgets

Question 77

TFS Corporation, a retail company selling hotel furniture, has just completed its master budget for the next fiscal year. Ending inventory is budgeted at 20% of cost of goods available for sale. Selected data from that process appear in the table below: $$\begin{array} { l r } \text { January } & \$ 50,000 \\\text { February } & 90,000 \\\text { March } & 60,000 \\\text { April } & 100,000\end{array}$$ TFS' budgeted cost of goods sold for the next fiscal year will be:

A) $25,000
B) $35,000
C) $21,000
D) $28,000

Question 78

On a budgeted income statement, the gross margin is determined by:

A) Revenue + cost of goods sold
B) Cost of goods sold + operating costs
C) Revenue - operating costs
D) Revenue - cost of goods sold

Question 79

One objective of budgeting is motivating managers to:

A) Eliminate variances
B) Use resources efficiently
C) Lessen the need for communication
D) Establish prices for external sales of goods and services

Question 80

TFS Corporation, a retail company selling hotel furniture, has just completed its master budget for the next fiscal year. Ending inventory is budgeted at 20% of cost of goods available for sale. Selected data from that process appear in the table below: $\begin{array}{lr}\text { Beginning inventory } & \$ 10,000 \\\text { Budgeted purchases } & 25,000 \\\text { Expected revenue } & 150,000 \\\text { Inflows of cash } & 120,000 \\\text { Support departments costs } & 30,000 \\\text { Total cash outflows } & 80,000\end{array}$ TFS' budgeted cost of goods available for sale for the next fiscal year will be:

A) $10,000
B) $25,000
C) $15,000
D) $35,000