Question 1

The master budget of a small manufacturer would normally include all component budgets that impact the financial statements.

Accepted Answer

The master budget includes all individual budgets such as the sales budget, production budget, purchase budget, cash budget, and others that affect the overall financial statements of the company.

Question 2

In preparing flexible budgets, the first step is to identify the fixed and variable components of the various costs and expenses being budgeted.

Accepted Answer

This statement is correct. In order to prepare a flexible budget, it is important to differentiate between fixed and variable costs and expenses as they will react differently to changes in activity levels.

Question 3

The master budget of a small manufacturer would normally include all necessary component budgets except the capital expenditures budget.

Accepted Answer

The capital expenditures budget would be included in the master budget of a small manufacturer.

Question 4

The budget procedure that requires all levels of management to start from zero in estimating sales, production, and other operating data is called zero-based budgeting.

Accepted Answer

Zero-based budgeting is a budgeting procedure that requires all levels of management to start from a zero base and estimate sales, production, and other operating data. It does not allow for automatic carryover of existing budgets or assumptions. Each activity or program is evaluated thoroughly, and its budget is built from scratch, based on its actual needs and costs.

Question 5

When budget goals are set too tight, the budget becomes less effective for planning and controlling operations.

Accepted Answer

When budget goals are set too tightly, it can lead to unrealistic expectations and lack of flexibility, making it difficult to effectively plan and control operations.

Question 6

A budget procedure that provides for the maintenance at all times of a twelve-month projection into the future is called continuous budgeting.

Accepted Answer

Continuous budgeting involves maintaining a twelve-month projection into the future at all times, making it a continuous process.

Question 7

Budgets are normally used by both profit-making businesses and nonprofit organizations.

Accepted Answer

Budgets are commonly used by both profit-making businesses and nonprofit organizations to plan and manage their finances.

Question 8

The first budget to be prepared is usually the sales budget.

Accepted Answer

The sales budget is the first budget to be prepared because it provides the basis for all other budgets. The sales budget is based on sales projections and is used to determine the required production levels, inventory levels, and selling expenses.

Question 9

Employees view budgeting more positively when goals are established for them by senior management.

Accepted Answer

The answer of Employees view budgeting more positively when goals...

Question 10

The budgeted volume of production is based on the sum of (1) the expected sales volume and (2) the desired ending inventory, less (3) the estimated beginning inventory.

Accepted Answer

This statement is true. The budgeted volume of production takes into account the expected sales volume as well as the desired ending inventory, while subtracting the estimated beginning inventory to determine the necessary production volume.

Question 11

Goal conflict can be avoided if budget goals are carefully designed for consistency across all areas of the organization.

Accepted Answer

Consistency in budget goals ensures that all areas of the organization are aligned towards a common objective, reducing the chances of goal conflict.

Question 12

If Division Inc. expects to sell 300,000 units in 2012, desires ending inventory of 22,000 units, and has 24,000 units on hand as of the beginning of the year, the budgeted volume of production for 2012 is 298,000 units.

Accepted Answer

The budgeted volume of production for 2012 can be calculated as follows:

Budgeted volume of production = Expected sales + Ending inventory - Beginning inventory
Budgeted volume of production = 300,000 + 22,000 - 24,000
Budgeted volume of production = 298,000

Therefore, the correct answer is A (True).

Question 13

The budgeted direct materials purchases are based on the sum of (1) the materials needed for production and (2) the desired ending materials inventory, less (3) the estimated beginning materials inventory.

Accepted Answer

This is the correct formula for calculating budgeted direct materials purchases.

Question 14

The first budget to be prepared is usually the production budget.

Accepted Answer

The answer of The first budget to be prepared is...

Question 15

If Division Inc. expects to sell 200,000 units in 2012, desires ending inventory of 24,000 units, and has 22,000 units on hand as of the beginning of the year, the budgeted volume of production for 2012 is 198,000 units.

Accepted Answer

The budgeted volume of production for 2012 can be calculated using the following formula:

Budgeted Production = Expected Sales + Desired Ending Inventory - Beginning Inventory

Substituting the given values, we get:

Budgeted Production = 200,000 + 24,000 - 22,000
Budgeted Production = 202,000 units

Therefore, the statement given in the question is false. The budgeted volume of production for 2012 is 202,000 units, not 198,000 units.

Question 16

Flexible budgeting builds the effect of changes in level of activity into the budget system.

Accepted Answer

Flexible budgeting is designed to account for the fluctuations in activity levels and adjust the budget accordingly. This allows for more accurate budgeting and forecasting, as well as better decision-making based on the actual level of activity experienced by the business.

Question 17

Once a static budget has been determined, it is changed regularly as the underlying activity changes.

Accepted Answer

Once a static budget is set, it does not change unless a significant event occurs, such as a major shift in the company's sales or expenses. A flexible budget may be used to adjust for changes in activity levels.

Question 18

A formal written statement of management's plans for the future, expressed in financial terms, is called a budget.

Accepted Answer

This is the correct definition of a budget.

Question 19

The budgeted volume of production is normally computed as the sum of (1) the expected sales volume and (2) the desired ending inventory.

Accepted Answer

The answer of The budgeted volume of production is normally...

Question 20

Budgetary slack can be avoided if lower and mid-level managers are requested to support all of their spending requirements with specific operational plans.

Accepted Answer

Requiring managers to justify their spending with specific operational plans helps to prevent them from inflating their budgets with unnecessary slack.

Quiz 13: Budgeting and Standard Cost Systems