Deck 10: Static and Flexible Budgets

Question 1

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

Answer 1

True

Question 2

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

Answer 2

True

Question 3

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

Answer 3

True

Question 4

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

Question 5

A flexible budget reflects a range of operations.

Question 6

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

Question 7

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

Question 8

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

Question 9

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

Question 10

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

Question 11

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

Question 12

Budget variances cannot be calculated from a static budget.

Question 13

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

Question 14

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

Question 15

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

Question 16

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

Question 17

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

Question 18

Budgeting provides a means for defining managers' decision rights.

Question 19

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

Question 20

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

Question 21

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

Question 22

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 23

(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: March April May June July August
Sales $10,000 $20,000 $30,000 $30,000 $50,000 $40,000
Costs:
Wages 1,500 2,000 2,500 1,500
Rent 500 500 500 500
Other 400 500 600 500
Total cash disbursements in August are expected to be:

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

Question 24

Horton Company produces and sells two products: round and square tables. In August 20x0, the budget projected the following for 20x1: Budgeted Sales Expected Inventories
Units Price Jan. 1, 20x1 Dec. 31, 20x1
Round 5,000 $500 2,000 units 2,500 units
Square 6,000 400 1,000 units 1,500 units
The tables are manufactured using the following direct materials:
Direct Material Round Square
P 2 kgs. 3 kgs.
Q 1 kgs. 2 kgs.
Budgeted data for 20x1 direct materials are:
Direct Purchase Expected Inventories
Material Price Jan. 1, 20x1 Dec. 31, 20x1
P $85 per kg. 2,000 kgs. 2,500 kgs.
Q 55 per kg. 1,000 kgs. 1,500 kgs.
Budgeted data for 20x1 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 20x1 is:

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

Question 25

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

Question 26

Horton Company produces and sells two products: round and square tables. In August 20x0, the budget projected the following for 20x1: Budgeted Sales Expected Inventories
Units Price Jan. 1, 20x1 Dec. 31, 20x1
Round 5,000 $500 2,000 units 2,500 units
Square 6,000 400 1,000 units 1,500 units
The tables are manufactured using the following direct materials:
Direct Material Round Square
P 2 kgs. 3 kgs.
Q 1 kgs. 2 kgs.
Budgeted data for 20x1 direct materials are:
Direct Purchase Expected Inventories
Material Price Jan. 1, 20x1 Dec. 31, 20x1
P $85 per kg. 2,000 kgs. 2,500 kgs.
Q 55 per kg. 1,000 kgs. 1,500 kgs.
Budgeted data for 20x1 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 20x1 is:

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

Question 27

Horton Company produces and sells two products: round and square tables. In August 20x0, the budget projected the following for 20x1: Budgeted Sales Expected Inventories
Units Price Jan. 1, 20x1 Dec. 31, 20x1
Round 5,000 $500 2,000 units 2,500 units
Square 6,000 400 1,000 units 1,500 units
The tables are manufactured using the following direct materials:
Direct Material Round Square
P 2 kgs. 3 kgs.
Q 1 kgs. 2 kgs.
Budgeted data for 20x1 direct materials are:
Direct Purchase Expected Inventories
Material Price Jan. 1, 20x1 Dec. 31, 20x1
P $85 per kg. 2,000 kgs. 2,500 kgs.
Q 55 per kg. 1,000 kgs. 1,500 kgs.
Budgeted data for 20x1 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 20x1 is:

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

Question 28

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

Question 29

Ray Company's projected sales budget for the next four months is as follows: Units
January 70,000
February 90,000
March 55,000
April 65,000
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 30

Ray Company's projected sales budget for the next four months is as follows: Units
January 70,000
February 90,000
March 55,000
April 65,000
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 31

Horton Company produces and sells two products: round and square tables. In August 20x0, the budget projected the following for 20x1: Budgeted Sales Expected Inventories
Units Price Jan. 1, 20x1 Dec. 31, 20x1
Round 5,000 $500 2,000 units 2,500 units
Square 6,000 400 1,000 units 1,500 units
The tables are manufactured using the following direct materials:
Direct Material Round Square
P 2 kgs. 3 kgs.
Q 1 kgs. 2 kgs.
Budgeted data for 20x1 direct materials are:
Direct Purchase Expected Inventories
Material Price Jan. 1, 20x1 Dec. 31, 20x1
P $85 per kg. 2,000 kgs. 2,500 kgs.
Q 55 per kg. 1,000 kgs. 1,500 kgs.
Budgeted data for 20x1 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 20x1 are:

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

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: March April May June July August
Sales $10,000 $20,000 $30,000 $30,000 $50,000 $40,000
Costs:
Wages 1,500 2,000 2,500 1,500
Rent 500 500 500 500
Other 400 500 600 500
Cash disbursements in July for purchases are expected to be:

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

Question 33

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

Question 34

(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 35

(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: March April May June July August
Sales $10,000 $20,000 $30,000 $30,000 $50,000 $40,000
Costs:
Wages 1,500 2,000 2,500 1,500
Rent 500 500 500 500
Other 400 500 600 500
Cash receipts for the month of May are expected to be:

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

Question 36

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

Question 37

(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: March April May June July August
Sales $10,000 $20,000 $30,000 $30,000 $50,000 $40,000
Costs:
Wages 1,500 2,000 2,500 1,500
Rent 500 500 500 500
Other 400 500 600 500
Purchases for the month of May are expected to be:

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

Question 38

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 39

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

Question 40

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

Question 41

Planning Systems, Inc. has forecast the following unit sales and production for the next year, by quarter: 1^st 2^nd 3^rd 4^th
Production 150 160 140 100
Sales 120 140 150 120
The firm has beginning inventories as follows:
Finished goods 50 units
Direct material A 100
Direct material B 100
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 42

Kelita, Inc., projects sales for its first three months of operation as follows: October November December
Credit sales $100,000 $150,000 $200,000
Cash sales 40,000 60,000 50,000
Total Sales $140,000 $210,000 $250,000
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 43

The Phillips 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 44

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 45

Planning Systems, Inc. has forecast the following unit sales and production for the next year, by quarter: 1^st 2^nd 3^rd 4^th
Production 150 160 140 100
Sales 120 140 150 120
The firm has beginning inventories as follows:
Finished goods 50 units
Direct material A 100
Direct material B 100
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 46

Planning Systems, Inc. has forecast the following unit sales and production for the next year, by quarter: 1^st 2^nd 3^rd 4^th
Production 150 160 140 100
Sales 120 140 150 120
The firm has beginning inventories as follows:
Finished goods 50 units
Direct material A 100
Direct material B 100
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 47

Kelita, Inc., projects sales for its first three months of operation as follows: October November December
Credit sales $100,000 $150,000 $200,000
Cash sales 40,000 60,000 50,000
Total Sales $140,000 $210,000 $250,000
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 48

Kelita, Inc., projects sales for its first three months of operation as follows: October November December
Credit sales $100,000 $150,000 $200,000
Cash sales 40,000 60,000 50,000
Total Sales $140,000 $210,000 $250,000
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 49

(Appendix 10A)Gold Company has the following balances at December 31, 20x0: 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: January $ 50,000
February 90,000
March 60,000
April 100,000
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 50

Planning Systems, Inc. has forecast the following unit sales and production for the next year, by quarter: 1^st 2^nd 3^rd 4^th
Production 150 160 140 100
Sales 120 140 150 120
The firm has beginning inventories as follows:
Finished goods 50 units
Direct material A 100
Direct material B 100
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 B in quarter 1?

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

Question 51

Kelita, Inc., projects sales for its first three months of operation as follows: October November December
Credit sales $100,000 $150,000 $200,000
Cash sales 40,000 60,000 50,000
Total Sales $140,000 $210,000 $250,000
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 52

(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 accounts receivable at the end of August?

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

Question 53

A firm that manufactures vases has budgeted production for the next four months as follows: Units Produced
October 40,000
November 50,000
December 30,000
January 40,000
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 54

(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 55

Kelita, Inc., projects sales for its first three months of operation as follows: October November December
Credit sales $100,000 $150,000 $200,000
Cash sales 40,000 60,000 50,000
Total Sales $140,000 $210,000 $250,000
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 56

(Appendix 10A)Gold Company has the following balances at December 31, 20x0: 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: January $ 50,000
February 90,000
March 60,000
April 100,000
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 57

(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 58

(Appendix 10A)Gold Company has the following balances at December 31, 20x0: 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: January $ 50,000
February 90,000
March 60,000
April 100,000
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 59

(Appendix 10A)Gold Company has the following balances at December 31, 20x0: 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: January $ 50,000
February 90,000
March 60,000
April 100,000
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 60

Planning Systems, Inc. has forecast the following unit sales and production for the next year, by quarter: 1^st 2^nd 3^rd 4^th
Production 150 160 140 100
Sales 120 140 150 120
The firm has beginning inventories as follows:
Finished goods 50 units
Direct material A 100
Direct material B 100
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 61

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: Beginning inventory $ 10,000
Budgeted purchases 25,000
Expected revenue 150,000
Inflows of cash 120,000
Support departments costs 30,000
Total cash outflows 80,000
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 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: Beginning inventory $ 10,000
Budgeted purchases 25,000
Expected revenue 150,000
Inflows of cash 120,000
Support departments costs 30,000
Total cash outflows 80,000
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 63

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: Beginning inventory $ 10,000
Budgeted purchases 25,000
Expected revenue 150,000
Inflows of cash 120,000
Support departments costs 30,000
Total cash outflows 80,000
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 64

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 65

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: Budgeted Actual
Sales $180,000 $210,000
Research and development cost 25,000 20,000
Interest revenue 7,600 7,000
Cost of goods sold 60,000 65,000
Marketing costs 45,000 45,000
SWP's total budget variance for the data provided is:

A)$29,400 favourable
B)$29,400 unfavourable
C)$40,600 favourable
D)$40,600 unfavourable

Question 66

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: Beginning inventory $ 10,000
Budgeted purchases 25,000
Expected revenue 150,000
Inflows of cash 120,000
Support departments costs 30,000
Total cash outflows 80,000
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 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: Beginning inventory $ 10,000
Budgeted purchases 25,000
Expected revenue 150,000
Inflows of cash 120,000
Support departments costs 30,000
Total cash outflows 80,000
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

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 69

The actual preparation of a budget usually begins with the:

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

Question 70

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 71

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 72

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 73

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: Beginning inventory $ 10,000
Budgeted purchases 25,000
Expected revenue 150,000
Inflows of cash 120,000
Support departments costs 30,000
Total cash outflows 80,000
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 74

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: Beginning inventory $ 10,000
Budgeted purchases 25,000
Expected revenue 150,000
Inflows of cash 120,000
Support departments costs 30,000
Total cash outflows 80,000
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 75

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 76

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 77

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 78

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 79

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 80

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