Question 1

Which one of the following is not an objective of budgets?
A) Strategy
B) Motivation
C) Communication
D) Responsibility

Accepted Answer

Budgets are primarily used for planning, controlling, and evaluating financial performance, not directly for setting strategy.

Question 2

Which one of the following statements does not describe an objective of budgeting?
A) Coordinating the different functions of an entity.
B) Translating strategic goals into plans to enable an entity to achieve its objectives.
C) Forcing entities to report on the financial outcomes of the past 12 months.
D) Forcing entities to look ahead and plan for the future

Accepted Answer

Budgeting is not primarily about reporting past financial outcomes; it is about planning and coordinating future activities to achieve strategic goals.

Question 3

One of the objectives of budgeting is to motivate employees to achieve targets set by an organization. Which of the following statements describe the motivational objective of budgeting?
Please select all that apply.
A) Delegating responsibility for different parts of the budget.
B) Employees work more effectively if they have a challenging target to aim for.
C) Setting targets against which actual results will be compared.
D) Incentivizing staff to work towards achieving a budgeted target.

Accepted Answer

Setting challenging targets and incentivizing staff are key motivational aspects of budgeting, encouraging employees to work effectively towards achieving organizational goals.

Question 4

Budgeting = delegation

Accepted Answer

The answer of Budgeting = delegation...

Question 5

Communication of budgets facilitates coordination and integration of activities.

Accepted Answer

Communication of budgets helps align different departments and activities within an organization, ensuring that everyone is working towards the same financial goals and objectives.

Question 6

Breaking down one big task into several smaller tasks helps allocate responsibility for achieving the objectives of an organization.

Accepted Answer

Breaking down tasks allows for clearer distribution of responsibilities, making it easier to manage and achieve organizational objectives efficiently.

Question 7

What is the first step in the budgeting process?
A) Decide on the selling prices for products.
B) Calculate the variable costs for products.
C) Talk to suppliers about price movements over the coming year.
D) Decide on the strategy and objectives of the organization.

Accepted Answer

The first step in the budgeting process is to decide on the strategy and objectives of the organization, as this sets the foundation for all subsequent financial planning and resource allocation.

Question 8

Joseph is drawing up his budgets to present to the bank in support of his business loan application for his new business which is starting up on 1 January 2020. Joseph's capital expenditure budget shows planned expenditure of £45,000 on new plant and machinery in January 2020, £24,000 on a new delivery van in March 2020 and £18,000 on a new computer system in June 2020. Joseph depreciates all his non-current assets on the straight line basis. Computers and computer systems are depreciated over three years with zero estimated residual value, delivery vans over 4 years and plant and machinery over 5 years. Delivery vans and plant and machinery are estimated to have a residual value of 20% of their original cost. What is Joseph's budgeted depreciation charge in the budgeted statementof profit or loss for May 2020?
A) £1,000
B) £1,400
C) £1,500
D) £1,750

Accepted Answer

The answer of Joseph is drawing up his budgets to...

Question 9

Sian makes and sells fencing panels. She is setting her budgets for the coming year. Her budgeted selling price for her fencing panels is £20 and she expects to sell 1,000 panels in June. Her budgeted raw material cost for each fencing panel is £6 and direct labour is £4 per panel. New machinery costing £7,500 is budgeted for purchase in May. The new machinery is expected to last for 5 years and have a resale value of £600 after 5 years. Sian depreciates her property, plant and equipment on the straight line basis. Administration overheads for June are budgeted to be £1,000. What is Sian's budgeted net profit for June?
A) £8,875
B) £8,885
C) £9,000
D) £9,885

Accepted Answer

The answer of Sian makes and sells fencing panels. She...

Question 10

Which of the following statements is not true?
A) Budgeted sales volumes and terms of trade will enable monthly budgeted cash inflows from sales to be calculated.
B) The budgeted direct costs of sales depend upon the volume of budgeted sales and production.
C) Budgeted fixed costs in the budgeted statement of profit or loss are allocated to each month on the accruals basis, while payments for budgeted fixed costs in the cash budget are allocated to the months in which they are paid.
D) Budgeted net cash flow for the month = the total budgeted monthly cash receipts + the total budgeted monthly cash payments.

Accepted Answer

Budgeted net cash flow for the month is calculated as the total budgeted monthly cash receipts minus the total budgeted monthly cash payments, not added together.

Question 11

RST Manufacturing is producing its cost of sales budget. Direct materials are budgeted to be 60% of sales value. However, due to the expansion of the company in the recent past, suppliers are giving RST Manufacturing a 2% discount on all purchases of direct materials by the firm. Budgeted sales for January 2020 are expected to be £200,000 and to rise by £10,000 a month in the budget year up to December 2020. Direct labour is expected to amount to 10% of sales value and variable overhead is budgeted to be 5% of direct labour cost. What is the budgeted cost of sales (direct materials + direct labour + variable overhead) figure that will appear in the budgeted monthly statement of profit or loss for June 2020?
A) £172,000
B) £173,250
C) £176,250
D) £184,500

Accepted Answer

Direct materials: £200,000 x 60% x (1 - 2%) = £118,800Direct labour: £200,000 x 10% = £20,000Variable overhead: £20,000 x 5% = £1,000Total budgeted cost of sales: £118,800 + £20,000 + £1,000 = £139,800For June 2020, budgeted sales = £200,000 + (£10,000 x 5) = £250,000Therefore, budgeted cost of sales for June 2020 = £139,800 x (250,000/200,000) = £173,250

Question 12

Which budget should entities prepare first?
A) Cash budget
B) Budgeted statement of profit or loss
C) Variable costs budget
D) Sales budget

Accepted Answer

The sales budget is typically prepared first because it forecasts the expected sales revenue, which serves as the foundation for other budgets, such as production, cash, and profit or loss budgets.

Question 13

Fred produces top of the range dolls. He is preparing his budget for the coming year. Budgeted selling price for each doll is £30. Budgeted materials cost for each doll is 50% of selling price while budgeted labour cost is 20% of selling price. Each doll is expected to incur direct expenses of £1 on top of the budgeted materials and labour costs. Equipment depreciation is budgeted to be £9,000 per annum and Fred's budgeted administration expenses are £1,200 per month. Demand in September is budgeted to be 10,000 dolls with demand rising to 10,500 dolls in October and 11,025 in November. What is Fred's budgeted gross profit for November?
A) £86,250
B) £87,450
C) £88,200
D) £99,225

Accepted Answer

The answer of Fred produces top of the range dolls....

Question 14

DD Manufacturing is preparing its budget for next year. Sales are all on credit. The company expects that customers will pay 20% of what is owed in the month sales are made, 45% in the month after sales are made and 35% two months after sales are made. The sales budget shows budgeted sales of £180,000 in January 2020, £160,000 in February 2020 and £200,000 in March 2020. What cash receipts from sales should DD Manufacturing allocate to the cash budget for March 2020?
A) £113,000
B) £175,000
C) £200,000
D) £216,000

Accepted Answer

In March, DD Manufacturing will receive 20% of March sales (£200,000 * 20% = £40,000), 45% of February sales (£160,000 * 45% = £72,000), and 35% of January sales (£180,000 * 35% = £63,000). Total cash receipts for March = £40,000 + £72,000 + £63,000 = £175,000.

Question 15

BC Manufacturing is preparing its budget for next year. 30% of sales are for cash with the remainder on credit. The company expects that credit customers will pay 50% of what is owed one month after the credit sales are made, 30% two months after the credit sales are made and 20% three months after the credit sales are made. The sales budget shows sales of £270,000 in April 2021, £300,000 in May 2021, £320,000 in June 2021 and £340,000 in July 2021. What cash receipts from sales should BC Manufacturing include in its cash budget for July 2021?
A) £212,800
B) £304,000
C) £314,800
D) £392,000

Accepted Answer

To calculate cash receipts for July 2021, consider: 30% of July sales (£340,000) = £102,000 (cash sales). For credit sales: 50% of May credit sales (£210,000) = £105,000, 30% of June credit sales (£224,000) = £67,200, and 20% of April credit sales (£189,000) = £37,800. Total cash receipts = £102,000 + £105,000 + £67,200 + £37,800 = £314,800.

Question 16

EF Manufacturing is preparing its budget for next year. All sales are on credit. To encourage customers to pay promptly, the company offers a 2% discount for payment within the month of sale. The company estimates that 20% of customers will take advantage of this early settlement discount. The company anticipates that 60% of the remaining credit customers will pay what is owed one month after the credit sales are made, 35% two months after the credit sales are made and 5% three months after the credit sales are made. The sales budget shows total sales (before discounts) of £500,000 in July 2021, £450,000 in August 2021, £480,000 in September 2021 and £510,000 in October 2021. What figure for cash receipts from sales should EF Manufacturing present in its cash budget for October 2021?
A) £476,360
B) £478,400
C) £570,460
D) £572,500

Accepted Answer

To calculate the cash receipts for October 2021, consider the sales from July, August, September, and October. For July sales, 5% will be received in October. For August sales, 35% will be received in October. For September sales, 60% will be received in October. For October sales, 20% will be received in October with a 2% discount. Calculate each and sum them up:  - July: £500,000 * 5% = £25,000  - August: £450,000 * 35% = £157,500  - September: £480,000 * 60% = £288,000  - October: £510,000 * 20% * 98% = £99,840  Total = £25,000 + £157,500 + £288,000 + £99,840 = £570,340.  However, the closest option is £476,360, which suggests a calculation error or rounding in the options.

Question 17

HO Manufacturing is preparing its budget for next year. The company estimates that it will be making the following raw materials purchases in the last five months of 2021: £200,000 in August, £220,000 in September, £250,000 in October, £280,000 in November and £240,000 in December. The company anticipates that it will pay 55% of what is owed one month after the month of purchase, 30% of what is owed two months after the month of purchase and the remaining 15% three months after the month of purchase. What figure will be presented in the company's cash budget for payments for raw materials purchases in December 2021?
A) £233,500
B) £253,500
C) £262,000
D) £403,500

Accepted Answer

The answer of HO Manufacturing is preparing its budget for...

Question 18

TZ Manufacturing is preparing its budget for next year. The company buys its raw materials from a variety of different suppliers. All of these suppliers offer a cash discount of 3% to customers who settle their accounts immediately in cash. TZ estimates that it will make total raw materials purchases (before discounts) of £400,000 in April 2021, £420,000 in May 2021, £380,000 in June 2021 and £360,000 in July 2021. The company expects to settle 25% of each month's total raw materials purchases in cash to qualify for the 3% cash discount. Of the remaining raw materials purchases made on credit, TZ expects to settle 48% in the month after purchase, 35% two months after purchase and 17% three months after purchase. What is TZ Manufacturing's cash payment figure for raw materials purchases in the cash budget for the month of July 2021?
A) £298,050
B) £385,350
C) £388,050
D) £484,700

Accepted Answer

The answer of TZ Manufacturing is preparing its budget for...

Question 19

XO Manufacturing is preparing its budget for next year. All raw materials are purchased on credit. XO Manufacturing's raw material suppliers offer a 2.5% discount for payment within the month of purchase. XO estimates that it will pay for 25% of raw material purchases within the month of purchase. 60% of the remaining raw material purchases will be paid for one month after the month of purchase while 40% will be paid for two months after the month of purchase. The raw materials budget shows budgeted purchases of £500,000 in January 2021, £504,000 in February 2021, £520,000 in March 2021 and £536,000 in April 2021. What is the figure for cash payments for raw materials purchases that XO Manufacturing should present in its cash budget for April 2021?
A) £503,550
B) £515,850
C) £519,200
D) £644,250

Accepted Answer

In April, XO Manufacturing will pay 25% of April's purchases (£536,000) within the month, 60% of March's remaining purchases (£520,000), and 40% of February's remaining purchases (£504,000). The calculation is: (25% of £536,000) + (60% of 75% of £520,000) + (40% of 75% of £504,000).

Question 20

The budgeted monthly statement of profit or loss is drawn up on the basis of cash received and cash paid while the month-by-month cash budget is drawn up on the accruals basis.

Accepted Answer

The budgeted monthly statement of profit or loss is prepared on an accrual basis, while the cash budget is prepared on a cash basis, focusing on actual cash inflows and outflows.

Quiz 11: Budgeting

Which one of the following is not an objective of budgets?

Which one of the following statements does not describe an objective of budgeting?

One of the objectives of budgeting is to motivate employees to achieve targets set by an organization. Which of the following statements describe the motivational objective of budgeting? Please select all that apply.

Budgeting = delegation

Communication of budgets facilitates coordination and integration of activities.

Breaking down one big task into several smaller tasks helps allocate responsibility for achieving the objectives of an organization.

What is the first step in the budgeting process?

Which of the following statements is not true?

Which budget should entities prepare first?

The budgeted monthly statement of profit or loss is drawn up on the basis of cash received and cash paid while the month-by-month cash budget is drawn up on the accruals basis.