Quiz 10: Strategy and the Master Budget

The master budget for a given accounting period has all the following except: A)It consists of a series of operating and financial budgets. B)It is considered the "grand plan of action" for the upcoming period. C)It culminates in a set of pro forma financial statements. D)It is considered an important planning document for many organizations. E)It is based on the actual level of sales activity for the period.

"Budgetary slack" occurs when: A)Employees refuse to adhere to budgeted plans and operations. B)The budget is so difficult to meet that employees slack-off from work. C)An authoritative, or imposed, budgeting process is used. D)In order to "meet" budget objectives, employees ask for resources in excess of what they need. E)Employees ask for fewer resources than they need, in order to continuously improve.

A master budget is typically prepared for: A)A period of one year. B)Top management only. C)Strategic planning purposes only. D)Strategic business units only. E)Operating activities only.

The successful use of a budgeting system generally involves all of the following except which item? A)Acceptance and support by key management people. B)A sense of ownership by those assigned to carry out the budgeting process. C)The budgets are technically correct and reasonably accurate. D)The budgets include "budgetary slack." E)The set of budgets in the master budget articulate with one another.

All of the following are ways of setting the budget, except: A)Negotiation-based budgeting. B)Two-stage budgeting. C)Participative budgeting. D)Authoritative budgeting. E)All of the above are ways of setting the budget.

Revision of a completed and approved budget: A)Should be conducted whenever actual events differ significantly from those envisioned when the budget was prepared. B)Reduces employee commitment to achieve budgeted performance. C)Should be discouraged. D)May discourage diligence in its initial preparation. E)Is never needed under Kaizen budgeting.

The process of planning business actions in the near future and expressing them as formal plans of action is called: A)Budgeting. B)Goal congruence. C)Budgetary slack. D)Resource consumption accounting. E)Financial Accounting.

A plan of dollar amounts to be spent on long-term projects is called a: A)Cash budget. B)Capital budget. C)Rolling budget. D)Sales budget. E)Rolling financial forecast.

A plan that shows the cash balance on hand at the beginning of a budget period, expected cash flow from operations, cash flows from investing activities, cash flows from financing activities, and an ending cash balance is called a(n): A)Capital budget. B)Financial budget. C)Financial flows budget. D)Cash budget. E)Cash receipts budget.

A comprehensive or overall formal plan for a business that includes specific plans for expected sales, the units of product to be produced, the merchandise (or materials) to be purchased, the manufacturing, selling, administrative, and general expense to be incurred, the long-term assets to be purchased, and the amounts of cash to be borrowed or loans to be repaid, as well as a budgeted income statement and balance sheet, is called a: A)Master budget. B)Kaizen budget. C)Capital expenditures budget. D)Continuous budget. E)Operating budget.

A plan that states the units or costs of merchandise to be purchased by a retailer or wholesaler during the budget period is called a: A)Production budget. B)Merchandise purchases budget. C)Accounts payable budget. D)Cash payments budget. E)Cost of goods sold budget.

A plan showing the units of goods expected to be sold and the expected revenue from sales is called the: A)Cash budget. B)Sales receipts budget. C)Selling expense budget. D)Cash receipts budget. E)Sales budget.

The practice of maintaining budgets for the same number of future periods, revising those budgets as each period is completed and adding a new budget each period, is called: A)Master budgeting. B)Cyclical budgeting. C)Zero-based budgeting (ZBB). D)Rolling budgets (or, rolling financial forecasts). E)Kaizen (or continuous-improvement) budgeting.

An accounting statement that presents predicted amounts of the company's assets, liabilities, and stockholders' equity as of the end of the budget period is called a(n): A)Master balance sheet. B)Budgeted income statement. C)Pro forma balance sheet. D)Pro forma cash flow statement. E)Operating balance sheet.

Which of the following budgets is not a financial budget? A)Sales budget. B)Cash receipts budget. C)Budgeted cash-flow statement. D)Budgeted balance sheet.

Which of the following is not a potential benefit of having a sound budgeting process? A)Improved decision-making. B)Improved performance-evaluation process. C)Improved coordination of business activities. D)Improved motivation for company employees. E)Lower acceptance rate for capital budgeting projects.

Which of the following budgets must be completed before preparing a cash budget? A)Cash receipts budget. B)Rolling budget. C)Cash financing budget. D)Pro forma balance sheet. E)Pro forma income statement.

Which of the following statements about budgeting is not true? A)Budgeting is designed to be 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 long-range objectives. E)Budgeting eliminates the need for day-to-day monitoring of operations.

Which of the following factors is least likely to be considered in preparing a sales budget? A)Plant capacity. B)General economic and industry conditions. C)Past sales volume. D)The cash budget. E)Proposed selling expenses.

Sales forecasts are the first step in the budgeting process of a merchandising firm because: A)The revenue data are easiest to generate. B)Sales information is precise in amount. C)Sales personnel have the quickest access to data. D)Sales forecasts are the most objective of all budgeted activities. E)Almost all activities of a firm emanate from (i.e., are linked to) estimated sales demand.

Sales forecasting by its nature is: A)Precise. B)Deterministic in nature. C)Objective. D)Somewhat subjective. E)Mechanical.

Budgeting for production (i.e., units to be produced in an upcoming budget period): A)Is simply an extension of the sales forecast. B)Is prepared after the materials purchases budget is prepared. C)Involves the sales budget and both beginning and ending finished goods inventory amounts. D)Is not needed under a JIT production philosophy. E)Is normally the first major step in the master budgeting process.

Maintaining a constant production level in a firm has the advantage of: A)Minimizing the amount of inventory held. B)Allowing a stable employment level. C)Meeting customers' changing expectations in terms of demand volume. D)Supporting the organization's move to JIT (just-in-time). E)Allowing the firm to compete successfully as a differentiator.

The budgeted income statement and budgeted balance sheet benefit a business primarily in terms of the ability of the organization to: A)Meet stockholder requests for planning information from the organization. B)Narrow the range of budgeted estimates to a manageable subset. C)Deal with uncertainty inherent in the budgeting process. D)Summarize the impact of the firm's financial and operating activities for an upcoming period. E)Satisfy the disclosure requirements of generally accepted accounting principles (GAAP).

The focal point in budgeting for a service organization is likely to be: A)Capital assets acquisition. B)Raw material utilization. C)Human resource (i.e., personnel) planning. D)Cost minimization. E)The process of mission development and goal specification.

Which of the following is not an alternative approach to traditional budgeting practices? A)Kaizen budgeting. B)Zero-based budgeting (ZBB) C)Activity-based budgeting (ABB) D)Time-driven activity based budgeting (TDABB) E)Operations budgeting

Zero-base budgeting (ZBB) differs from traditional budgeting in terms of its requirement to: A)Justify budgeted operations and associated spending. B)Consider the time-value of money in the budgeting process. C)Start the budgeting process from the lowest level of the organization, the "zero base." D)Incorporate continuous-improvement standards in the set of financial and operating budgets. E)Maximize the existence of "budgetary slack."

A "participative" budget is a(n): A)Good two-way communication device. B)Relatively inexpensive and efficient approach to budget preparation. C)"Top down" approach. D)"Zero-based" approach. E)Alternative budgeting approach to traditional budgeting.

Unless properly controlled, a "bottom-up" budgeting process can lead to: A)Excessively tight (i.e., difficult-to-achieve) budgets. B)Easy budget targets. C)Excessive downward communication. D)Reduced incentives for participation. E)Reduced levels of "budgetary slack."

Budgeting provides all of the following except: A)A means to communicate the organization's short-term goals to its employees. B)Support for management functions of planning and coordinating activities of the organization. C)A means to anticipate problems. D)An ethical framework for decision-making. E)A basis for motivating employee behavior.

Financial budgets include the: A)Pro forma balance sheet. B)Projected income statement. C)Budgeted selling and administrative expenses. D)Sales budget. E)Budgeted retained earnings statement.

The effect of increasing the targeted (i.e., desired) ending inventory for a given budget period has the following effect on the production budget for the period: A)Increases the required production for the budget period. B)Has no effect on the required production for the budget period. C)Has an indeterminate effect (i.e., additional information is required). D)None of the above.

The authorization function of budgets is especially important for government and not-for-profit (NFP) entities, where budgeted amounts often serve both as approvals of planned activities (or programs) and as: A)Measures of quality. B)Indicators of performance. C)Certification of actions. D)Ceilings for expenditures. E)The basis for contract negotiations.

Which one of the following is a plan that will allow a manufacturing firm to satisfy its sales goals and have on hand the desired amount of inventory at the end of the budget period? A)Direct materials usage budget. B)Sales budget. C)Selling and administrative expense budget. D)Production budget. E)Sales forecast.

Which one of the following shows the direct materials required for production and their budgeted cost? A)Direct materials usage budget. B)Budgeted cost of goods sold. C)Direct materials purchases budget. D)Production budget. E)Direct materials cost budget.

Which of the following is not an advantage of using a "highly achievable target" when constructing budgets? A)Increasing managers' commitment to achieving budget targets. B)Increasing the risk that managers will engage in "earnings management" behavior. C)Improving predictability of earnings or operating results. D)Decreasing the cost of achieving organizational control. E)Enhancing the usefulness of a budget as a planning and coordinating tool.

A negotiated budgeting process is: A)Less effective than an authoritative budget. B)An alternative way to express a "bottom-up" approach to budget preparation. C)A combination of "top-down" and "bottom-up" approaches to budget preparation. D)Less costly to implement than an imposed (i.e., authoritative) budget. E)Is generally completed after one round of negotiation.

The cash budget does not include: A)Cash inflows from the collection of receivables. B)Cash outflows for purchases of direct materials. C)Cash outflows for acquisition of fixed (long-term) assets. D)All sales revenues. E)Interest paid and interest received.

Which one of the following is a budgeting process that requires managers to prepare budgets based on in-depth reviews of all budget items? A)Flexible budgeting. B)Continuous budgeting. C)Activity-based budgeting (ABB). D)Kaizen budgeting. E)Zero-base budgeting (ZBB).

Which one of the following is a budgeting approach that explicitly demands continuous improvement and that incorporates expected improvements in the resultant budget? A)Flexible budgeting. B)Time-driven activity-based budgeting (TDABB). C)Activity-based budgeting (ABB). D)Kaizen budgeting. E)Zero-base budgeting (ZBB).

Consistency between goals of the firm and the goals of its employees is referred to as: A)Goal optimization. B)Goal conformance. C)Goal congruence. D)Goal internalization. E)Goal compensation.

A significant advantage of using either an activity-based budgeting (ABB) or a time-driven activity-based budgeting (TDABB) system is: A)Reduction in the cost of developing budget amounts. B)Estimation of the cost of unused capacity, as a by-product of the budgeting process. C)Increased levels of budgetary slack, which has a positive influence on motivation. D)Elimination of the need to generate a sales forecast for the upcoming period. E)The incorporation of continuous-improvement standards within the budgets.

Budgets can serve as the standard against which actual performance is measured.When compensation is based on this comparison, the organization is said to use: A)Fixed performance contracts. B)Rolling financial forecasts. C)Continuous-improvement budgets. D)Variable compensation contracts. E)A linear compensation plan.

Critics (e.g., The Beyond Budgeting Roundtable) of traditional budgeting assert that the budgeting process: A)Reflects too much of a "bottom-up" process, which is costly and inefficient. B)Puts too much pressure on individuals to attain the budget, at whatever cost. C)Makes too much use of so-called linear compensation plans. D)Unnecessarily incorporates excessive detail.

Zero-base budgeting (ZBB): A)Involves the review of changes made to an organization's original budget. B)Does not provide a projection of annual expenditures. C)Has as the primary objective to reduce budget expenditures to zero. D)Involves rigorous review of each cost item before inclusion in the budget. E)Emphasizes zero increase in expenditures.

Wild West Fashion expects the total costs of goods sold to be $30,000 in November and $60,000 in December for one of its young adult suits.Management also wants to have on hand at the end of each month 10 percent of the expected total cost of sales for the following month.What dollar amount of suits should be purchased in November?1.Required Purchases = Budgeted Sales + Desired Ending Inventory - Beginning Inventory 2.Therefore, Required Purchases = $30,000 + ($60,000 × 0.1) - ($30,000 × 0.1) = $33,000 A)$26,000. B)$27,000. C)$33,000. D)$36,000. E)$60,000.

ACEM Hardware purchased 5,000 gallons of paint in March.The store had 1,500 gallons on hand at the beginning of March, and expects to have 1,000 gallons on hand at the end of March.What is the budgeted number of gallons to be sold during March? A)3,500. B)4,500. C)5,000. D)5,500. E)7,500.

Joe's Mart policy is to have 20% of the next month's sales on hand at the end of the current month.Projected sales for August, September, and October are 25,000 units, 20,000 units, and 30,000 units, respectively.How many units must be purchased in September? A)16,000. B)17,000. C)22,000. D)26,000. E)28,000.

Cripe Corporation maintains ending inventory for each month at 5% of the following month's sales.It predicted the following sales (in units) for the first four months of the coming year: How many units should be produced in March? A)2,810. B)2,850. C)2,970. D)2,990. E)4,250.

LeMinton Company expects the following credit sales for the first five months of the year: January, $25,000; February, $40,000; March, $30,000; April, $36,000, May $40,000.Experience has shown that payment for the credit sales is received as follows: 60% in the month of sale, 25% in the first month after sale, 12% in the second month after sale, and the remainder is uncollectible.How much cash can LeMinton Company expect to collect in March as a result of credit sales? A)$18,000. B)$28,600. C)$30,000. D)$31,000. E)$32,040.

The Johann's Professional Service Company expects 70% of sales for cash and 30% on credit.The company collects 80% of its credit sales in the month following sale, 15% in the second month following sale, and 5% are not collected.Expected sales for June, July, and August are $48,000, $54,000, and $44,000, respectively.What are the company's expected total cash receipts in August? A)$45,920. B)$61,400. C)$87,600. D)$50,400 E)$15,120

Blake Company has $15,000 cash at the beginning of June and anticipates $50,000 in cash receipts and $34,500 in cash disbursements.The company requires a minimum cash balance of $20,000.Any excess cash over the minimum desired balance is used to pay down debts.Blake has an agreement with its bank to borrow as needed or to repay loans as funds become available.As of May 31, the company owes $15,000 to the bank.The balance of the loan on June 30 will be: A)$4,500. B)$9,500. C)$15,000. D)$19,500. E)$25,500.

The budgeted production (in units) for Gorberchev Food Processing for April should be: A)112,000. B)120,000. C)127,200. D)128,000. E)142,000.

The budgeted production (in units) for Gorberchev Food Processing for May should be: A)112,000. B)134,000. C)140,000. D)142,000. E)146,000.

Doanne's budgeted purchases for raw materials (in pounds) during April should be: A)224,000. B)360,000. C)363,000. D)399,000. E)435,000.

Doanne's budgeted purchases (in pounds) for raw materials during June should be: A)414,000. B)420,000. C)426,000. D)456,000. E)498,000.

Oracle Supply Co.supply forecasts purchases of 15,000 widgets in June.It sells the widget at $12.00 per unit.The company has 1,000 units on hand on June 1.The desired ending inventory of widgets on June 30 is to be 20% lower than the beginning inventory.Total June sales for widgets are anticipated to be (in dollars): A)$177,600. B)$180,000. C)$182,400. D)$189,600. E)$192,000.

Salich Manufacturing Corporation has provided the following sales budget information: Cash sales are normally 40% of total sales and the credit sales are expected to be collected in their entirety in the month following the month of sale.The amount of cash expected to be received from customers in September is: A)$24.000. B)$55,000. C)$57,000. D)$58,000. E)$60,000.

Worton Distributing expects its September sales to be 25% higher than its August sales of $150,000.Purchases were $100,000 in August and are expected to be $120,000 in September.All sales are on credit and are expected to be collected as follows: 30% in the month of the sale and 70% in the following month.Purchases are paid 25% in the month of purchase and 75% in the following month.The beginning cash balance on September 1 is $10,000.The ending cash balance on September 30 would be: A)$56,250. B)$56,500. C)$65,250. D)$66,250. E)$76,250.

Tony's Fashions forecasts sales of $300,000 for the quarter ended December 31.Its gross profit rate is 20% of sales, and its September 30 inventory is $100,000.If the December 31 inventory is targeted at $40,000, budgeted purchases for the quarter should be: A)$140,000. B)$160,000. C)$180,000. D)$200,000. E)$240,000.

What are Boone Co.'s budgeted cash receipts for January? A)$74,200. B)$85,000. C)$87,000. D)$94,200. E)$99,000.

What are Boone Co.'s budgeted cash receipts for February? A)$85,400. B)$95,000. C)$106,600. D)$109,400. E)$112,900.

How many units of Zbox are to be manufactured by Adel Co.during September? A)150,000. B)189,000. C)200,000. D)201,000. E)202,000.

How many pounds of aluminum powder does Ardel Co.need to purchase during September if Ardel plans to manufacture 150,000 units of Zbox in September? A)143,000 pounds. B)157,000 pounds. C)286,000 pounds. D)293,000 pounds. E)300,000 pounds.

How many pounds of steel powder does Ardel Co.need to purchase during September if Ardel plans to manufacture 150,000 units of Zbox in September? A)725,000 pounds. B)745,000 pounds. C)750,000 pounds. D)755,000 pounds. E)775,000 pounds.

Total budgeted cash collections for Yekstop Corp.in December are: A)$556,512. B)$375,216. C)$495,080. D)$502,568. E)$506,780.

Total budgeted cash collections in January by Yekstop Corp.are: A)$556,512. B)$375,216. C)$421,728. D)$464,006. E)$502,568.

Total budgeted inventory purchases in November by Yekstop Corp.are: A)$258,750. B)$316,350. C)$384,000. D)$489,150. E)$527,250.

Total budgeted inventory purchases in December by Yekstop Corp.are: A)$86,250. B)$140,400. C)$226,650. D)$258,750. E)$345,000.

Budgeted December cash payments by Yekstop Corp.for December inventory purchases are: A)$67,995. B)$103,500. C)$158,655. D)$241,500. E)$289,440.

Budgeted cash payments in November for November inventory purchases by Yekstop Corp.are: A)$76,625. B)$94,905. C)$115,200. D)$161,280. E)$221,445.

Budgeted cash payments in December for November inventory purchases by Yekstop Corp.are: A)$76,625. B)$94,905. C)$115,200. D)$161,280. E)$221,445.

Budgeted January cash payments for December inventory purchases by Yekstop Corp.are: A)$67,995. B)$103,500. C)$158,655. D)$241,500. E)$289,440.

The estimated total cash collections by Fresplanade Co.during December from accounts receivable is: A)$113,160. B)$101,400. C)$143,640. D)$125,640. E)$102,420.

The estimated total cash collections by Fresplanade Co.during November from collection of accounts receivable is: A)$113,160. B)$101,400. C)$143,640. D)$125,640. E)$102,420.

The estimated total cash collections by Fresplanade Co.during October from accounts receivable is: A)$113,160. B)$101,400. C)$143,640. D)$125,640. E)$102,420.

The estimated cash collection by Fresplanade Co.during September from credit sales in July, August, and September is: A)$83,160. B)$79,380. C)$87,840. D)$54,000. E)$71,640.

The estimated cash collection by Fresplanade Co.during August from July and August credit sales is: A)$83,160. B)$79,380. C)$87,840. D)$54,000. E)$71,640.

The estimated cash collections during July from credit sales made in July by Fresplanade Co.is: A)$83,160. B)$79,380. C)$87,840. D)$54,000. E)$71,640.

Brownsville's budgeted cost of goods sold (CGS) in May is: A)$120,000. B)$180,000. C)$198,000. D)$252,000. E)$240,000.

Brownsville's budgeted cost of inventory purchased in May is: A)$120,000. B)$180,000. C)$198,000. D)$252,000. E)$240,000.

Brownsville's budgeted gross profit in May is: A)$120,000. B)$180,000. C)$198,000. D)$252,000. E)$240,000.

Brownsville's budgeted bad debts expense for May is: A)$7,200. B)$10,800. C)$7,560. D)$5,400. E)$14,400.

Brownsville's budgeted operating income for May is: A)$72,000. B)$66,000. C)$55,200. D)$61,200. E)$43,200.

What would be Graham's budgeted direct materials purchases in the first quarter? A)17,500 pounds. B)34,600 pounds. C)37,750 pounds. D)67,100 pounds. E)84,600 pounds.

What would be Graham's budgeted direct materials purchases in the second quarter? A)53,850 pounds. B)55,200 pounds. C)57,000 pounds. D)58,800 pounds. E)72,300 pounds.

What would be Graham's budgeted direct materials purchases in the third quarter? A)19,100 pounds. B)44,700 pounds. C)51,000 pounds. D)57,300 pounds. E)72,600 pounds.

General Manufacturing's budgeted purchases of raw materials during July (in lbs.) should be: A)48,000 lbs. B)200,000 lbs. C)208,000 lbs. D)248,000 lbs. E)296,000 lbs.

General Manufacturing's budgeted purchases of materials during September should be: A)60,000 lbs. B)228,000 lbs. C)248,000 lbs. D)284,000 lbs. E)300,000 lbs.

Which of the following best describes the process of sales forecasting? A)Multiple sales forecasting tools are available. B)Trend analysis cannot be used for sales forecasting. C)Econometric models cannot be used for sales forecasting because of their inherent complexity. D)Sales forecasting works best with a simple visual plotting of past data on a graph. E)Generally speaking, the level of unfilled back order and credit policies of the company in question can be ignored since these represent competitive responses.

_________ is a process of varying key estimates to identify those variables that are most critical to a decision (or a model, such as a budget): A)A demand forecast B)Sensitivity analysis C)Regression analysis D)Pareto analysis E)Linear optimization analysis

Assume only the specified parameters change in a sensitivity analysis.If the contribution margin increases by $2 per unit, then operating profits will: A)Also increase by $2 per unit. B)Increase by less than $2 per unit. C)Decrease by $2 per unit. D)Increases, but by an indeterminate amount.

Assume that only the specified parameters change in a sensitivity analysis.The contribution margin ratio increases when: A)Total short-term fixed costs increase. B)Total short-term fixed costs decrease. C)Variable cost per unit increases. D)Variable cost per unit decreases.

The process of examining how a change in a single item in a budget (e.g., sales volume) affects one or more items in the budget (e.g., budgeted sales revenue and budgeted operating income) is generally referred to as: A)Flexible budgeting. B)Linear programming. C)Uncertainty programming. D)What-if analysis. E)Activity-based budgeting (ABB).

Which of the following are alternatives to traditional budgeting approaches? A)Volume-based budgeting and zero-base budgeting (ZBB). B)Activity-based budgeting (ABB) and volume-based budgeting. C)Kaizen budgeting and volume-based budgeting. D)Activity-based budgeting (ABB), kaizen budgeting, and zero-base budgeting (ZBB). E)Activity-based budgeting (ABB), kaizen budgeting, and volume-based budgeting.

What is Capital One's current break-even point in terms of number of units for the month? A)1,500 units. B)2,250 units. C)3,330 units. D)4,000 units.

Suppose that Capital One's management believes that a $1,600 increase in the monthly promotion costs will provide a boost to sales.By what amount must sales increase during the month to justify the contemplated expenditure? Round answer up to the nearest whole number. A)200 units. B)334 units. C)400 units. D)668 units. E)None of the above.

Capital One's management believes that a 10% reduction in the selling price will increase sales volume by 10%.If this plan is implemented, then: A)Profit should increase by approximately $8,000 per month. B)Profit should remain approximately the same. C)Profit should decrease by approximately $8,000 per month. D)Profit should decrease by approximately $16,000 per month. E)Profit should increase by approximately $16,000 per month.

A budgeting system that has, in effect, a budget for a set number of periods (i.e., a constant planning horizon) at all times is called a(n): A)Financial budget B)Operating budget C)Rolling financial forecast D)Capital budget E)Master budget

All of the following represent alternative approaches to the traditional budget-preparation process except which one? A)Master budgeting. B)Kaizen budgeting. C)Continuous-improvement budgeting. D)Activity-based budgeting (ABB) E)Time-driven activity based budgeting (TDABB)

Which one of the following is not a way to deal with uncertainty in the budget-preparation process? A)Linear programming. B)What-if analysis. C)Monte Carlo Simulation (MCS). D)Scenario analysis. E)Sensitivity analysis.

The proper treatment of the cost of unused capacity, as identified through the use of an activity-based budgeting (ABB) system, is: A)To charge the amount to customers whose uneven orders caused the unused capacity. B)To charge the amount to a "deferred asset" account on the balance sheet. C)To change the amount to a "deferred credit" account on the balance sheet. D)To charge the amount to all products produced during the area (via overhead application rates). E)To charge the amount to the product line, department, or a given manager within the organization where the decision to acquire the capacity was made.

The type of compensation plan that focuses on the difference between actual performance (sales, operating income, etc.) and budgeted performance is refers to: A)The use of flexible budgets for performance evaluation. B)The use of the master budget for performance evaluation. C)The use of "rolling financial forecasts." D)The use of a fixed-performance contract. E)The use of a Kaizen forecast.

The act of encouraging non-value-adding actions on the part of management in order to improve indicated performance is referred to as: A)Goal congruency. B)Gaming the performance indicator. C)The use of fixed-performance contract. D)Linear optimization analysis. E)The use of a relative-performance contract.

The practice of managers knowingly including a higher amount of expenditures (or lower amount of revenue) in the budget than they actually believe will occur is called: A)Goal congruency. B)Resource capacity planning. C)Participative budgeting. D)Budgetary slack. E)Kaizen budgeting.

Which of the following is NOT true regarding the use of linear compensation plans? A)Such plans encourage "gaming" behavior on the part of managers. B)Such plans strongly link managerial compensation to the agreed-upon budget. C)Under such plans, managerial reward is independent of budgetary targets. D)Under such plans, managerial reward is based principally on actual performance. E)Under such plans, managerial reward is based on what managers actually do, not what they do relative to what they say they can do.

Which of the following is NOT a characteristic of Kaizen Budgeting? A)These budgets reflect continuous-improvement standards. B)These budgets adjust required resource demands based on targeted efficiency and productivity gains. C)This approach to budgeting can be used in conjunction with both traditional and activity-based budgeting. D)The approach can be used internally, but not for external purposes (e.g., in budgeting supplier costs). E)Cost decreases in the budget are the result of performing the activities more efficiently and with higher quality.

Explain benefits of implementing a master budgeting system.

Contrast operating budgets and financial budgets.How do these budgets relate to the master budget for a period? What is the culmination of the master budgeting process?

In both activity-based and time-driven activity-based systems we calculate cost-driver rates for support activities (e.g., the cost to ship an item or the cost to process a customer order) and it is asserted that these rates are best determined by dividing budgeted resource costs (for a given cost pool) by the practical capacity of resources supplied. Required: 1.What is the primary advantage of using practical capacity as the volume level for determining cost allocation rates in an ABC or TDABC system? 2.What is the appropriate accounting treatment for unused capacity costs for a given accounting period?

Uncertainty and the Budgeting Process: As indicated in the text, the validity of pro-forma financial statements that are produced as part of the master budgeting process is affected by the accuracy of the forecasted data going into the component budgets.Such data are subject to various levels of uncertainty.For this reason, accountants need to understand ways of dealing with uncertainty in the budgeting process. Required: Define and distinguish among the following ways of handling uncertainty in the budgeting process: 1.What-if analysis (give at least one concrete example) 2.Sensitivity analysis 3.Scenario analysis.

List factors that should be considered in developing a sales forecast for an upcoming budget period.

What is zero-base budgeting (ZBB) and how does this approach to budgeting compare to what can be considered "traditional budgeting"? How is ZBB implemented in practice?

What is the focus of activity-based budgeting (ABB)? What is the principal advantage of ABB?

Contrast the budgeting unit (or focus) under a traditional budgeting system and under an activity-based budgeting (ABB) system.

Flowers Inc.has budgeted cost of goods sold for August of $1,000 for plastic flowers.Management also wants to have $500 in inventory at the end of the month to prepare for the fall season.Beginning inventory in August was $400.What dollar amount of plastic flowers should be purchased to meet the above objectives?

Lighting Inc.'s sales budget showed the following projections for the coming year: Inventory on December 31 of the current year is expected to be 20,000 units.The quantity of finished goods inventory at the end of each quarter was to equal seven percent of the next quarter's budgeted units to be sold. Required: Calculate the units to be produced during the third quarter.

Lovely Pet Store has budgeted cost of goods sold for May of $6,000 for flea collars.Management also wants to have $300 in inventory at the end of the month to prepare for the summer season.Beginning inventory in May was $200. Required: What dollar amount of flea collars should be purchased to meet the above objectives?

Allmakes Software budgeted August purchases of new software at $140,000.The store had software costing $6,000 on hand at the beginning of August, and to cover part of anticipated back-to-school sales in September they expect to have $15,000 of software on hand at the end of August. Required: What was the budgeted cost of goods sold for August?

Helen Auger has seen the Centicle Group, a not-for-profit, in-home health care organization, grow during the past ten years to a $500 million revenue, multi-state organization.Helen was promoted to her controller position six months ago, after serving capably in several financial accounting positions at the Centicle Group. At a Budget Review Committee meeting last Friday, several committee members expressed frustration with the pace of the budget development.They described the newly introduced "bottom up" system of participative budgeting as "unwieldy," "slow-paced," and "repetitive." Helen's objective in introducing the participative approach was to involve to a much greater extent lower level supervisors and employees.Helen is meeting with the Budget Review Committee again tomorrow when she plans to explain the advantages of "bottom up" versus "top down" approaches to the budgeting process. Required: Helen has asked you to help her prepare for tomorrow's meeting by preparing the following: 1.A 40 -50 word description of participative budgeting, including some basic advantages of this approach to budgeting. 2.A brief, one-paragraph explanation of the concept of "budget ownership," one of the values that participative ("bottom up") budgeting is said to have.

A business develops a budget for many reasons beyond wanting to know what future profits will be.Comment on the role of a firm's strategic goals in both the master budget and the capital budget.

Kurt Helfter graduated with a B.S.degree in Mechanical Engineering and joined Andrew Consulting, a firm specializing in HVAC (heating, ventilation, and air conditioning) for small to medium-size business structures.Kurt is knowledgeable in the use of CAD (computer-assisted design) and was pleased during his initial employment to find Andrew Consulting a leader in the use of CAD software.During Kurt's third year at Andrew, he felt a sense of unease with the firm's slow pace in updating computer hardware and software.Although not directly involved in budgeting for the firm, Kurt has been satisfied with the resources that Andrew provided for his use.Kurt felt the need to detail his concerns in a memo to his superior, in which he requested significant investment in computer resources to "allow us to respond to clients' needs, both in quantity and quality." Kurt was surprised and hurt when he received his superior's response, which suggested that resource allocation in the firm is decided at a higher administrative level."But all I wanted to do was help keep our firm competitive," Kurt responded to his boss when visiting him about the rejection memo."Sorry, Kurt," his boss said, "That's how things get done in this firm." Kurt now feels lost, wondering if it's time to look for another job.Does this situation suggest what type of budgeting process the company is using? Is there a problem with individual and company goal congruence in Andrew Consulting? If so, how might Kurt's supervisor have prevented the problem? Answer may vary Feedback: Kurt believed the company would maintain its competitive edge by updating computer hardware and software.His personal goal is now in conflict with what he sees as the company's failure to achieve one of its goals, whether stated or not.Communication seems poor in this situation, and the failure of Andrew Consulting management to include all employees in the budgeting process has made this particular situation worse.One significant advantage of participative (bottom up) budgeting is the high level of communication it requires between administrative levels.Kurt's boss has obviously adjusted to the existing budgeting process, which appears to be a "top down" traditional system.He should have let Kurt know how the existing budgeting system operated, and then have served as a conduit for Kurt's suggestions.

Discuss the components of each of the following manufacturing cost budgets: 1.Production budget 2.Direct materials purchases budget 3.Direct labor budget 4.Factory overhead budget 5.Cost of goods manufactured budget 6.Cost of goods sold budget.

Ardan Company's sales budget showed the following projections for the coming year: Inventory on December 31 of the current year is expected to be 3,000 units.The quantity of finished goods inventory at the end of each quarter was to equal five percent of the next quarter's budgeted units to be sold. Required: Calculate the units to be produced during the second quarter.

Information pertaining to Yeks Company's budgeted sales revenue for the first quarter of the year is presented below. Management estimated that four percent of credit sales would be uncollectible.Of the collectible credit sales, 60% would be collected in the month of sale and the remainder in the month following the sale. Required: Calculate total budgeted cash collections in February.

The budget committee for Amacom Company, with the help of the district sales manager, projects sales of 80,000 units of its primary product next year.The budget committee and key executives have decided that finished goods inventory should be decreased from the 10,000 units expected at the end of the current year, to 7,000 units at the end of next year.Each unit of finished product requires three units of material MPS15 and six units of material NAV23.At the end of the current year, the inventory of material MPS15 is expected to be 10,000 units and material NAV23 is expected to be 20,000 units.The budget committee believes that these material inventories can be reduced by 80% during the coming year because of the newly installed supply chain system. Required 1.Calculate the number of units Amacom expects to produce during the next year. 2.Compute the number of units that should be purchased of each of the raw materials in order to produce the budgeted units and comply with inventory policy.

Willard Company anticipates that its fixed manufacturing overhead costs will be $50,000 during the next period.Its variable manufacturing overhead is expected to be $8 per unit produced. Required 1.What amount of overhead should be budgeted if the production budget shows that 40,000 units are to be produced? 2.What amount of overhead should be budgeted if the production budget shows that 50,000 units are to be produced? 3.Compute the total overhead cost per unit for requirements 1 and 2.

Uecker Enterprise expects sales of 20,000 units of T1 in September.T1is its most popular high performance desktop model.The sales manager is confident that, between October and December, the total sales will have a 50% growth rate each month from the month before.Each unit requires 40 sets of the Alpha-5 chip.The firm has a policy to maintain inventory at the end of each month equal to 1% of the following month's estimated sales.The same policy applies also to the chips and components required to assemble the finished product. 1.What is the budgeted production (in units) for each of the months September, October, and November? 2.How many sets of Alpha-5 does the company plan to purchase in September and in October?

Enterprise Tax Services (ETS) provides tax planning.The company billed 5,000 hours at $100 per hour for the year just completed.ETS, in planning next year's operations, is focusing on increasing the company's share of the market.It proposes to do that by hiring more tax specialists and by lowering its billing rate by 20% for work done by these new specialists.ETS estimates that revenues generated from existing staff would increase in total by 40% as a result of the new billing policy and that the additional specialists will provide additional billings of 3,000 hours (at the reduced rate) during the coming year. Required: Compute the budgeted revenue amount for next year based on ETS's plans and projections.

Transcript Company is preparing a cash budget for February.The company has $150,000 cash at the beginning of February and anticipates total sales of $800,000, consisting of 25% cash sales and 75% credit card sales.The bank charges 3 percent for credit card transactions.The company sets its selling price at 160 percent of the cost of purchases and pays for each month's purchases at the end of the month.Other cash disbursements are $20,000 per month plus 4% of total sales.In addition, a $600,000 note will be due in February for equipment purchased last August.Transcript Company has an agreement with its bank to maintain a cash balance of $100,000. Required: What amount, if any, must the company borrow during February?

West Company budgeted the following credit sales during the current year: September, $75,000; October, $108,000; November, $90,000; December, $96,000.Experience has shown that cash from the credit sales is received as follows: 10% in the month of sale, 50% in the first month after sale, 35% in the second month after sale, and 5% is uncollectible.All collections in the month of sale are subject to 2 percent cash discount. Required: How much total cash can West Company expect to collect in November?

In preparing a budget for the first three months of the year starting in October, Dubya Company is planning the number of units of merchandise to order each month.The company's policy is to have 40% of the next month's sales on hand at the end of the current month.Projected sales for October, November, and December are 40,000 units, 50,000 units, and 100,000 units, respectively. Required: How many units must be ordered in November?

The Shoecraft Company's budgeted sales for January, February, and March of $80,000, $60,000, and $50,000, respectively.Seventy percent of sales are on credit.The company collects 60% of its credit sales in the month following sale, 35% in the second month following sale, and 5% is not collected.Shoecraft mailed all statements to credit customers at the end of the month with a term of 1/30, n/60.What are Shoecraft's expected cash receipts for March?

Papa Joe, Inc., is preparing its budget for the second quarter of the calendar year.The following unit sales data have been forecasted: Desired ending inventory each month: 30% of next month's estimated sales (in units) Required: 1.How many units should be budgeted for production in June? 2.How many units should be budgeted for production in the second quarter?

Dockille, Inc., is preparing its budget for the second quarter of the calendar year.The following sales data (in units) have been forecasted: Additional information: Desired ending inventory each month--Finished goods: 30% of next month's sales Desired ending inventory each month--Raw materials: 25% of next month's production needs Number of raw material units required per finished unit: 4 Required: How many units of raw materials should be purchased in the 2^ndquarter?

Olde Corporation is preparing a cash budget for the first two months of the coming year.The following data have been forecasted: Additional data: (1) Sales are 40% cash and 60% credit.The term of credit sales is 2/10, n/30.The collection pattern for credit sales is 80% in the month following the month of sale (of which 75% are collected within 10 days), and 20% in the month thereafter.Total sales in December of the prior year were $1,000,000. (2) Purchases are all on credit, with 40% paid in the month of purchase and the balance the following month. (3) Operating expenses are paid in the month incurred. (4) The firm desires to maintain its cash balance at $150,000 at the end of each month. (5) Loans are used to maintain the minimum cash balance.At the end of each month, interest of 1% per month is paid on the outstanding loan balance as of the beginning of the month.Repayments are made (at the end of the month) whenever the cash balance exceeds $150,000. Required: Prepare the cash budget, in the form of a statement of cash flow, for February.What is the amount of the loan balance at the end of the month (after loan repayments, if any)?

Grey Company is considering replacing its existing cutting machine with a new machine that, according to the manufacturer, is more efficient in terms of energy consumption-a variable cost of production.In this regard, it would like to do some financial planning, including "what-if" analysis.Budgeted information regarding the two machines is as follows: Required: 1.Determine the sales volume at which the costs are the same for both machines. 2.What amount of sales, in dollars, for the new machine would produce a 10% profit margin (i.e.ratio of operating profit to sales = 10%)?

As indicated in the text, sensitivity analysis is an important tool for dealing with uncertainty in the budget preparation process.Which estimates, out of all that management has to deal with, do you think are the most critical in terms of developing the master budget for the typical profit-seeking organization?

One of the behavioral considerations in implementing a budgeting system has to do with the issue of budgetary slack.What are the positive and negative aspects of building slack into budgets from top management's point of view, and the employee's point of view (i.e., the individual responsible for building slack into the budget)?

Omni, Inc.manages a medical-expense reimbursement program for colleges and universities throughout the United States.University employees submit claims for reimbursement of medical expenses from reimbursement accounts established each year by the employees.Omni then processes reimbursement requests, verifies the legitimacy of each request, computes the deductible and co-payment required, determines whether the employee's expense reimbursement account has adequate funds available, and, if applicable, issues a reimbursement check to the eligible employee. Omni employs three different types of clerks who manage these reimbursement accounts: managers, clerical staff-1, and clerical staff-2.The managers are each paid $50,000 per year, clerical staff-1 employees are paid $40,000 per year, while clerical staff-2 employees are paid $35,000 per year.Based on prior experience, for every 150,000 claims processed per year, Omni needs to budget for one manager's position, two clerical staff-1 positions, and six clerical staff-2 positions. Last year, Omni processed 2 million reimbursement claims, and employed 14 managers, 30 clerical staff-1 employees, and 83 clerical staff-2 employees. Required 1.Based on the data provided, calculate the cost savings or excess staffing costs for Omni during the most recent year.(Assume that the policy of the company is to hire only full-time employees.) 2.What managerial insights are suggested on the basis of your analysis? If you were attempting to judge the processing efficiency of Omni's staff, what additional information might you want to have?

The Bambola Doll Company produces a single product: an inexpensive plastic toy doll.This item sells for $4.00 per unit, and has variable costs (manufacturing plus marketing) of $2.50 per unit.Monthly fixed costs amount to approximately $60,000.Last month, sales reached 100,000 units.Management would like to do some financial planning, the end result of which would-it is hoped-be even better future financial performance.As a management accountant you have been asked to construct a planning model and to conduct "what-if" analyses with the model you develop. Management has told you to consider the following options, all of which have the potential to increase the profitability of the company: A) Increase monthly promotional and advertising costs. B) Increase raw material quality and increase the product selling price. C) Increase the product selling price, with no increase in the raw material costs. Required: 1.The sales manager of the company is fairly confident that a well-done marketing campaign could increase sales volume substantially, perhaps as much as doubling sales from the current position.The president of the company would like to increase operating profits by 50% over those of the most recent month.You are asked to determine how much the company could afford to spend on an intensive marketing campaign, in order to achieve the projected doubling of sales volume? 2.As an alternative to 1 above, assume that the company increases the quality of its raw materials going into the manufacturing of its product.This increase would result in a new variable cost per unit of $3.00.What is the required increase in selling price per unit that would be needed to maintain the same break-even volume as currently exists? 3.As a final alternative, assume that the company has decided to increase the selling price of its product by $1 per unit, with no accompanying marketing and promotion campaign.What is the unit sales volume needed, with the new selling price, for the company to make the same amount of profit as it did last month?

Over the years, alternative approaches to traditional budgeting practices have been proposed to facilitate budget preparation and usefulness.First, define what is meant by the term "traditional budgeting." Next, compare and contrast the following alternative budgeting approaches to a traditional budgeting process: Zero Base Budgeting (ZBB); Activity-Based Budgeting (ABB); Time-Driven ABB; and, kaizen budgeting.

Compare and contrast traditional budgeting and activity-based budgeting (ABB) along the following dimensions: budgeting unit; primary focus; time orientation; roles of suppliers and customers; and, control objective.

As indicated in the text, one of the behavioral issues associated with budgeting deals with the linkage of employee compensation to budgeted performance.In this regard, distinguishbetween so-called fixed performance contracts the use of relative performance (relative improvement) contracts along with "rolling financial forecasts." With respect to the use of fixed performance contracts, define what is meant by the term "gaming the performance indicator." With respect to the use of relative performance contracts, define what is meant by the term "rolling financial forecasts."

One of the behavioral considerations associated with the budgeting process relates to the difficulty level embodied in the budget (i.e., how difficult or easy it is to achieve budgeted results). 1.Explain the negative consequences of budgetary targets that are too easy or too difficult to achieve. 2.What is meant by the term "highly achievable (budget) target"? 3.What are the primary advantages of using "highly achievable targets" in terms of budgetary expectations?

Transcript Company is preparing a cash budget for February. • The company has $150,000 cash at the beginning of February and anticipates total sales of $800,000, consisting of 25% cash sales and 75% bank credit-card sales. • The bank charges 3 percent for credit-card deposits. • The firm sets its selling price at 160 percent of the cost of purchases and pays the cost of each month's sales at the end of the month. • Operating expenses are $45,000 per month, of which $25,000 is depreciation expense.Selling expenses (commissions) amount to 4 percent of total sales dollars. • In addition, a $600,000 note will be due in February for equipment purchased last August.In addition to the principal amount, interest for one month (at 12% per annum) will be paid in February. • Transcript Company has an agreement with its bank to maintain a minimum cash balance of $100,000. Required: Prepare in good form a cash budget that shows the amount, if any, that the company must borrow during February.Separate your budget, at a minimum, into the following categories: Beginning Cash Balance Operating Cash Flows (Both Inflows and Outflows) Cash Balance before Financing Effects Financing Activity Ending Cash Balance