Deck 10: Static and Flexible Budgets

Question 1

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

Answer 1

False

Question 2

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

Answer 2

True

Question 3

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

Answer 3

True

Question 4

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

Question 5

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

Question 6

A flexible budget reflects a range of operations.

Question 7

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

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

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

Question 11

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

Question 12

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

Question 13

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

Question 14

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

Question 15

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

Question 16

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

Question 17

Budgeting provides a means for defining managers' decision rights.

Question 18

Favorable variances are positive amounts; unfavorable variances are negative amounts.

Question 19

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

Question 20

Budget variances cannot be calculated from a static budget.

Question 21

Total cash disbursements in August are expected to be

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

Question 22

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

Question 23

Use the following information for the next 2 questions.
Matz 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. Matz 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 24

Use the following information for the next 4 questions.
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:
Purchases for the month of May are expected to be

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

Question 25

Use the following information for the next 4 questions.
Horton Company produces and sells two products: round and square tables. In August 20x0, the budget projected the following for 20x1: The tables are manufactured using the following direct materials: Budgeted data for 20x1 direct materials are: Budgeted data for 20x1 Direct labor and overhead are:
Direct labor:
The cost of purchases for direct material P for 20x1 is

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

Question 26

The cost of ending finished goods inventory of round tables for 20x1 is

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

Question 27

Cash disbursements in July for purchases are expected to be

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

Question 28

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

Question 29

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

Question 30

Use the following information for the next 2 questions.
Ray Company's projected sales budget for the next four months is as follows: 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 31

Use the following information for the next 2 questions.
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:
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 32

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

Question 33

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

Question 34

Use the following information for the next 4 questions.
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:
Cash receipts for the month of May are expected to be

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

Question 35

Use the following information for the next 2 questions.
Ray Company's projected sales budget for the next four months is as follows: 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 36

Use the following information for the next 2 questions.
Matz 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. Matz 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 37

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

Question 38

Direct labor costs for 20x1 are

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

Question 39

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

Question 40

Use the following information for the next 4 questions.
Horton Company produces and sells two products: round and square tables. In August 20x0, the budget projected the following for 20x1: The tables are manufactured using the following direct materials: Budgeted data for 20x1 direct materials are: Budgeted data for 20x1 Direct labor and overhead are:
Direct labor:
Total budgeted production of tables in 20x1 is

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

Question 41

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 42

The actual preparation of a budget usually begins with the

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

Question 43

How much material A must be purchased in quarter 2?

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

Question 44

A firm that manufactures vases has budgeted production for the next four months as follows: 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 45

Use the following information for the next 5 questions.
Kelita, Inc., projects sales for its first three months of operation as follows: 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 46

Use the following information for the next 5 questions.
Kelita, Inc., projects sales for its first three months of operation as follows: 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 47

Use the following information for the next 5 questions.
Kelita, Inc., projects sales for its first three months of operation as follows: 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 are the anticipated cash disbursements for October?

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

Question 48

Cash receipts for April will be

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

Question 49

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 depreciation. 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 50

Use the following information for the next 5 questions.
Kelita, Inc., projects sales for its first three months of operation as follows: 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 are the anticipated cash receipts for November?

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

Question 51

Use the following information for the next 2 questions.
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:
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 52

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 53

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 54

Use the following information for the next 5 questions.
Planning Systems, Inc. has forecast the following unit sales and production for the next year, by quarter: 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 ending finished goods inventory for quarter 2?

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

Question 55

What will be the ending cash balance for January?

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

Question 56

Use the following information for the next 5 questions.
Kelita, Inc., projects sales for its first three months of operation as follows: 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 are the anticipated cash receipts for October?

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

Question 57

What is the ending inventory for material B in quarter 1?

A) 28
B) 32
C) 56
D) 64

Question 58

Use the following information for the next 5 questions.
Planning Systems, Inc. has forecast the following unit sales and production for the next year, by quarter: 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 59

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

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

Question 60

How much material B must be purchased in quarter 1?

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

Question 61

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 62

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 63

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

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

Question 64

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 65

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 66

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 67

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

Question 68

Use the following information for the next 5 questions.
At the end of 20x1, SWP Corporation prepared its master budget for 20x2. Selected amounts from that budget, along with actual results for 20x2, are presented below:
SWP's total budget variance for the data provided is

A) $29,400 favorable
B) $29,400 unfavorable
C) $40,600 favorable
D) $40,600 unfavorable

Question 69

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 70

Use the following information for the next 7 questions.
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:
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 71

The research and development cost variance could be explained by

A) Starting too many projects
B) Cost increases due to new information technologies
C) Efficient cost management
D) Higher salaries

Question 72

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 73

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 74

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 75

Use the following information for the next 7 questions.
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:
TFS' budgeted gross profit for the next fiscal year will be

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

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' 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 78

Which items in the table have unfavorable variances?

A) Marketing expense and cost of goods sold
B) Cost of goods sold and sales
C) Interest revenue and research and development expense
D) Interest revenue and cost of goods sold

Question 79

Use the following information for the next 5 questions.
At the end of 20x1, SWP Corporation prepared its master budget for 20x2. Selected amounts from that budget, along with actual results for 20x2, are presented below:
Which items in the table have favorable variances?

A) Sales and marketing expense
B) Cost of goods sold and sales
C) Sales and research and development expense
D) Sales and interest revenue

Question 80

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