Deck 7: Master Budgets and Performance Planning

Question 1

Budgets are long-term financial plans that generally cover more than a one-year period.

Answer 1

False

Question 2

Personnel who will have performance evaluated according to the budget standards should not be consulted and involved in preparing the budget.

Answer 2

False

Question 3

Budget preparation is best determined in a top-down managerial approach.

Answer 3

False

Question 4

Continuous budgeting is the practice of revising the entire set of budgets for the periods remaining and adding new budgets to replace those for the periods that have elapsed.

Question 5

The sequence of the budgets within the master budget are dictated by GAAP.

Question 6

One of the major benefits of formal budgeting is the positive effect it can have on employee attitudes if applied correctly.

Question 7

Budgets are normally more effective when all levels of management are involved in the budgeting process.

Question 8

The number and types of budgets included in a master budget depend on the company's size and complexity.

Question 9

The capital expenditures budget summarizes the effects of investing activities on cash.

Question 10

The task of preparing a budget should be the sole task of the most important department in an organization.

Question 11

The merchandise purchases budget depends on information provided by the sales budget.

Question 12

A budget is a formal statement of future plans, usually expressed in monetary terms.

Question 13

A rolling budget is a specific budget application relevant only to a merchandising company.

Question 14

Larger, more complex organizations usually require a longer time to prepare their budgets than smaller organizations because of the considerable effort to coordinate the different units within the business.

Question 15

The process of evaluating performance can be improved by using budgets.

Question 16

The capital expenditures budget summarizes the effects of financing activities on cash.

Question 17

Managers must ensure that activities of employees and departments, contribute to meeting the company's overall goals.

Question 18

The responsibility for coordinating the preparation of a master budget should be assigned to the Chief Executive Officer.

Question 19

Budgeting is an informal plan for future business activities.

Question 20

A budget can be an effective means of communicating management's plans to the employees of a business.

Question 21

To develop the sales budget, companies must estimate both unit sales and the production cost per unit.

Question 22

The selling expenses budget is normally prepared before the sales budget because selling expenses affect the amount of sales.

Question 23

The merchandise purchases budget is the starting point for preparing the master budget of a merchandiser.

Question 24

The budget process rarely coincides with the accounting period.

Question 25

A master budget refers to a company's sales budget that includes all of its segments or departments.

Question 26

The sales budget is derived from the production budget.

Question 27

Traditional budgeting is generally better than activity-based budgeting when attempting to reduce costs by eliminating non-value-added activities.

Question 28

A manufacturing budget shows dollar amounts estimated to be spent to purchase additional plant assets and amounts expected to be received from plant asset disposals.

Question 29

The production budget cannot be prepared until the direct materials and direct labor budgets are prepared.

Question 30

The sales budget comes from a careful analysis of forecasted economic and market conditions, business capacity, and advertising plans.

Question 31

The budgeted balance sheet is prepared primarily from data contained in the previously prepared components of the master budget.

Question 32

Part of the cash budget is based on information taken from the capital expenditures budget.

Question 33

A capital expenditures budget shows dollar amounts estimated to be spent to purchase additional plant assets and amounts expected to be received from plant asset disposals.

Question 34

If a merchandiser's budgeted beginning inventory is $8,300, budgeted ending inventory is $9,400, and cost of goods sold is expected to be $10,260, then budgeted purchases should be $11,360.

Question 35

The master budget includes individual budgets for sales, production or purchases, various expenses, capital expenditures, and cash.

Question 36

A cash budget shows the expected cash receipts and cash expenditures during the budget period.

Question 37

A capital expenditures budget is prepared before the operating budgets.

Question 38

The production budget is derived from the sales budget and the company's desired inventory levels.

Question 39

Part of the budgeting process is summarizing the financial statement effects on the budgeted income statement and the budgeted balance sheet.

Question 40

Activity-based budgeting is a budget system based on expected activities and their levels for the budget period, which helps management plan for the resources required.

Question 41

Which of the following is a benefit derived from budgeting?

A) Budgeting focuses management's attention on past performance.
B) Budgeting avoids needing industry and economic factors in decision making.
C) Budgeting provides a basis for evaluating performance.
D) Budgeting avoids the need for incentives to improve employee performance.
E) Budgeting eliminates the need for coordination across departments.

Question 42

The usual budget period for most companies is:

A) An annual period of 250 working days.
B) A monthly period separated into daily budgets.
C) A quarterly period separated into weekly budgets.
D) An annual period separated into weekly budgets.
E) An annual period separated into quarterly and monthly budgets.

Question 43

A company's history indicates that 20% of its sales are for cash and the remaining 80% are on credit. Collections on credit sales are 30% in the month of the sale and 70% the following month. Projected sales for January, February, and March are $75,000, $92,000 and $60,000, respectively. The March expected cash receipts are $77,920.

Question 44

The budgeted balance sheet and income statement are normally completed after preparation of operating and capital expenditure budgets.

Question 45

Which of the following is not a result of following a well-designed budgeting process?

A) Improved decision-making processes.
B) Improved performance evaluations.
C) Improved coordination of business activities.
D) Assurance of future profits.
E) Improved communication of management's action plans.

Question 46

The practice of preparing budgets for each of several future periods and revising those budgets as each period is completed, adding a new budget each period so that the budgets always cover the same number of future periods, is called:

A) Participatory budgeting.
B) Capital budgeting.
C) Balanced budgeting.
D) Continuous budgeting.
E) Primary budgeting.

Question 47

All of the following are necessary for budgets to be effective except:

A) Goals should be challenging and attainable.
B) Employees affected by a budget should be consulted when it is prepared.
C) Evaluations should be made carefully with opportunities to explain differences between actual and budgeted amounts.
D) Managers must be aware of potential negative outcomes of budgeting, such as budgetary slack.
E) All budgeted amounts must be spent to ensure that budgets aren't reduced for the next period.

Question 48

Budgets that are periodically revised and have new periods added to replace those that have lapsed are called:

A) Production budgets.
B) Sales budgets.
C) Cash budgets.
D) Rolling budgets.
E) Capital expenditures budgets.

Question 49

The financial statement effects of the budgeting process are summarized on the cash budget and the capital expenditures budget.

Question 50

Production budgets always show both budgeted units of product and total costs for the budgeted units.

Question 51

The most useful budget figures are developed:

A) From the "top-down".
B) From the "bottom-up" following a participatory process.
C) By the budget committee.
D) By the CEO.
E) After the accounting period has begun.

Question 52

Which of the following statements about budgeting is false?

A) Budgeting is an aid to planning and control.
B) Budgets create standards for performance evaluation.
C) Budgets help coordinate the activities of the entire organization.
D) Budgeting forces managers to think ahead and formalize future objectives.
E) The master budget should only be prepared by top management.

Question 53

Assuming a bottom-up process of budget development, which of the following should be initially responsible for developing sales estimates?

A) The budget committee.
B) The accounting department.
C) The sales department.
D) Top management.
E) The marketing department.

Question 54

The manufacturing budgets include the sales budget and the budgeted income statement.

Question 55

The central guidance of the budget process is the responsibility of the:

A) Chief Accounting Officer.
B) Chief Executive Officer (CEO).
C) Chief Financial Officer (CFO).
D) Budget Committee.
E) Board of Directors.

Question 56

In a company that employs continuous budgeting on a quarterly basis and has an accounting period that ends December 31 of each year, what period would the first revision and update to the January through December 2017 budget cover?

A) February 2017-January 2018
B) March 2017-February 2018
C) December 2017-November 2018
D) April 2017-March 2018
E) January 2018-December 2018

Question 57

The process of planning future business actions and expressing them as a formal plan is called:

A) Budgeting.
B) Cost accounting.
C) Managerial accounting.
D) Variance analysis.
E) Standard cost analysis.

Question 58

A budget is best described as:

A) A formal statement of a company's future plans usually expressed in monetary terms.
B) A master control device.
C) An informal statement of company's future plans usually expressed in monetary terms.
D) The most crucial component of a company's evaluation process.
E) The minimum acceptable performance level.

Question 59

A formal statement of future plans, usually expressed in monetary terms, is a:

A) Variance report.
B) Position statement.
C) Budget.
D) Prospectus.
E) Variance analysis.

Question 60

A company's history indicates that 20% of its sales are for cash and the remaining 80% are on credit. Collections on credit sales are 30% in the month of the sale and 70% the following month. Projected sales for January, February, and March are $75,000, $92,000 and $60,000, respectively. The March expected cash receipts are $80,500.

Question 61

A budget system based on expected activities and their levels that enables management to plan for resources required to perform the activities is:

A) Traditional budgeting.
B) Management budgeting.
C) Master budgeting.
D) Activity-based budgeting.
E) Cash budgeting.

Question 62

Operating budgets include all the following budgets except the:

A) Sales budget.
B) Selling expense budget.
C) Cash budget.
D) Production budget.
E) General and administrative expense budget.

Question 63

Aloan Co. provides the following sales forecast for the next three months: The company wants to end each month with ending finished goods inventory equal to 10% of the next month's sales. Finished goods inventory on December 31 is 300 units. The budgeted production units for February are:

A) 5,000 units.
B) 4,200 units.
C) 4,700 units.
D) 4,120 units.
E) 4,280 units.

Question 64

Operating budgets include all the following except the:

A) Sales budget.
B) Budgeted balance sheet.
C) Production budget.
D) Selling expense budget.
E) General and administrative expense budget.

Question 65

A plan that lists dollar amounts to be received from disposing of plant assets and dollar amounts to be spent on purchasing additional plant assets is called a:

A) Cash budget.
B) Capital expenditures budget.
C) Rolling budget.
D) Sales budget.
E) Production budget.

Question 66

The master budget of a merchandising company includes a:

A) Production budget.
B) Direct labor budget.
C) Factory overhead budget.
D) Direct materials budget.
E) Purchases budget.

Question 67

Cameroon Corp. manufactures and sells electric staplers for $16 each. If 10,000 units were sold in December, and management forecasts 4% growth in sales each month, the dollar amount of electric stapler sales budgeted for February should be:

A) $187,177
B) $166,400
C) $179,978
D) $173,056
E) $160,000

Question 68

The usual starting point for preparing a master budget is forecasting or estimating:

A) Expenditures.
B) Sales.
C) Production.
D) Income.
E) Cash payments.

Question 69

Bengal Co. provides the following sales forecast for the next three months: The company wants to end each month with ending finished goods inventory equal to 25% of the next month's sales. Finished goods inventory on June 30 is 1,250 units. The budgeted production units for July are:

A) 6,250 units.
B) 3,750 units.
C) 6,425 units.
D) 2,500 units.
E) 5,175 units.

Question 70

Flack Corporation, a merchandiser, provides the following information for its December budgeting process: The November 30 inventory was 1,800 units.
Budgeted sales for December are 4,000 units.
Desired December 31 inventory is 2,840 units.
Budgeted purchases are:

A) 5,040 units.
B) 1,240 units.
C) 6,840 units.
D) 4,000 units.
E) 5,800 units.

Question 71

Which of the following budgets is not an operating budget?

A) Sales budget.
B) Cash budget.
C) General and administrative expense budget.
D) Selling expenses budget.
E) Production budget.

Question 72

A July sales forecast projects that 6,000 units are going to be sold at a price of $10.50 per unit. The management forecasts 2% growth in sales each month. Total July sales are anticipated to be:

A) $63,000.
B) $67,500.
C) $61,250.
D) $64,260.
E) $60,000.

Question 73

Cameroon Corp. manufactures and sells electric staplers for $16 each. If 10,000 units were sold in December, and management forecasts 4% growth in sales each month, the number of electric stapler sales budgeted for February should be:

A) 10,000
B) 11,249
C) 10,400
D) 10,816
E) 11,000

Question 74

A plan that lists the types and amounts of operating expenses expected that are not included in the selling expenses budget is a:

A) General and administrative expense budget.
B) Sales budget.
C) Cash payments budget.
D) Overhead budget.
E) Selling expense budget.

Question 75

Aloan Co. provides the following sales forecast for the next three months: The company wants to end each month with ending finished goods inventory equal to 10% of the next month's sales. Finished goods inventory on December 31 is 300 units. The budgeted production units for January are:

A) 3,000 units.
B) 3,420 units.
C) 3,720 units.
D) 3,120 units.
E) 2,880 units.

Question 76

Bengal Co. provides the following sales forecast for the next three months: The company wants to end each month with ending finished goods inventory equal to 25% of the next month's sales. Finished goods inventory on June 30 is 1,250 units. The budgeted production units for August are:

A) 6,950 units.
B) 4,310 units.
C) 7,090 units.
D) 5,665 units.
E) 4,135 units.

Question 77

Cameroon Corp. manufactures and sells electric staplers for $16 each. If 10,000 units were sold in December, and management forecasts 4% growth in sales each month, the number of electric stapler sales budgeted for March should be:

A) 10,000
B) 11,249
C) 10,400
D) 10,816
E) 11,000

Question 78

The master budgeting process typically begins with the sales budget and ends with a cash budget and:

A) Budgeted financial statements.
B) Forecast budget.
C) Capital expenditures budget.
D) Rolling budget.
E) Production budget.

Question 79

A July sales forecast projects that 6,000 units are going to be sold at a price of $10.50 per unit. The management forecasts 2% growth in sales each month. Total August sales are anticipated to be:

A) $63,000.
B) $67,500.
C) $61,250.
D) $64,260.
E) $60,000.

Question 80

The master budget process usually ends with:

A) The production budget.
B) The sales budget.
C) The selling expense budget.
D) The budgeted balance sheet.
E) The overhead budget.