Question 1

If the expected level of activity is appreciably above or below the company's present capacity, it may be desirable to adjust fixed costs in the budget.

Accepted Answer

If the expected level of activity is significantly different from the company's current capacity, fixed costs may need to be adjusted in the budget to ensure they align with the company's needs and goals.

Question 2

A production budget is to a manufacturing firm as a merchandise purchases budget is to a merchandising firm.

Accepted Answer

Both budgets are important tools for planning and controlling the costs associated with producing goods or purchasing merchandise for sale. They help managers anticipate expenses and allocate resources effectively.

Question 3

Which of the following is not a benefit of budgeting?

Accepted Answer

Ensuring that accounting records comply with generally accepted accounting principles is not typically considered a direct benefit of budgeting. While a budget may help ensure accuracy and completeness of accounting records, compliance with accounting principles is typically enforced through other means, such as audits or regulatory oversight.

Question 4

When preparing a materials purchase budget, desired ending inventory is deducted from total needs of the period to arrive at materials to be purchased.

Accepted Answer

Desired ending inventory is added to the materials needed for production to ensure sufficient inventory levels, not deducted.

Question 5

Budgets are used for planning rather than for control of operations.

Accepted Answer

Budgets are used for both planning and controlling operations, as they help set financial goals and monitor performance against those goals.

Question 6

In the manufacturing overhead budget, the non-cash charges (such as depreciation) are added to the total budgeted manufacturing overhead to determine the expected cash disbursements for manufacturing overhead.

Accepted Answer

Non-cash charges like depreciation are not added to the total budgeted manufacturing overhead to determine expected cash disbursements for manufacturing overhead as they do not involve cash outflows. Only cash expenses such as utility bills and direct labor costs are considered in determining the expected cash disbursements for manufacturing overhead.

Question 7

In companies that have "no lay-off" policies, the total direct labor cost for a budget period is computed by multiplying the total direct labor hours needed to make the budgeted output of completed units by the direct labor wage rate.

Accepted Answer

In companies with "no lay-off" policies, the total direct labor cost includes not only the labor hours needed for production but also the cost of idle time, as employees are retained even when not actively working on production.

Question 8

A self-imposed budget can be a very effective control device in an organization.

Accepted Answer

A self-imposed budget is created by the individual or department responsible for adhering to it. It can be an effective control device because it requires individuals to plan and prioritize their spending, and to be accountable for staying within the budget. It also provides a benchmark for monitoring performance and identifying areas where adjustments may be needed.

Question 9

The cash budget must be prepared before you can complete the:

Accepted Answer

The budgeted balance sheet requires information from the cash budget to accurately reflect the company's financial position, including cash balances.

Question 10

The beginning cash balance is not included on the cash budget because the cash budget deals exclusively with cash flows rather than with balance sheet amounts.

Accepted Answer

The beginning cash balance is included in the cash budget as it is necessary to determine the total cash available for the period, which is then adjusted by cash inflows and outflows to forecast the ending cash balance.

Question 11

The materials purchase budget:

Accepted Answer

The materials purchase budget must provide for desired ending inventory as well as for production, ensuring that there is enough inventory on hand to support production needs. A is incorrect because the sales budget is typically the first step in the budget process. C is incorrect because a schedule of cash collections would typically be part of the cash budget. D is incorrect because the materials purchase budget would typically be completed before the cash budget.

Question 12

The cash budget is developed from the budgeted income statement.

Accepted Answer

The cash budget is developed from the budgeted balance sheet, as it takes into account the inflows and outflows of cash over a specific period of time. The budgeted income statement only shows the projected revenues and expenses and does not consider the timing of cash flows.

Question 13

The budget or schedule that provides necessary input data for the direct labor budget is the:

Accepted Answer

The production budget provides information on how many units will be produced during a particular period. This information is necessary to calculate the direct labor hours needed, which is a key component of the direct labor budget. The raw materials purchases budget only provides information on the purchases of raw materials required for production and does not provide direct labor information. The schedule of cash collections and cash budget are not directly related to the direct labor budget.

Question 14

In the selling and administrative budget, the non-cash charges (such as depreciation) are deducted from the total budgeted selling and administrative expenses to determine the expected cash disbursements for selling and administrative expenses.

Accepted Answer

Non-cash charges such as depreciation do not involve any cash outflow, so they should be deducted from the budgeted selling and administrative expenses to determine only the expected cash disbursements for these expenses.

Question 15

The master budget process usually begins with the:

Accepted Answer

The master budget process usually begins with the sales budget, which provides information on the expected level of sales and revenues to be generated in the coming period. The other budgets such as production, operating and cash budgets are prepared on the basis of the information provided by the sales budget.

Question 16

The usual starting point in budgeting is to make a forecast of cash receipts and cash disbursements.

Accepted Answer

The usual starting point in budgeting is to make a sales forecast, as it influences other components of the budget.

Question 17

One of the distinct advantages of a budget is that it can help to uncover potential bottlenecks before they occur.

Accepted Answer

A budget involves setting out a detailed plan of income and expenses for a specific period, which can help to identify areas where expenses may exceed available funds or where revenue projections may fall short. By doing so, potential bottlenecks or obstacles can be identified and addressed before they become major issues, allowing for more efficient and effective resource allocation.

Question 18

Self-imposed budgets are those that are prepared by top management and then assigned to other managers within the organization.

Accepted Answer

Self-imposed budgets are prepared by the managers responsible for the budget, allowing them to participate in the budgeting process, rather than being imposed by top management.

Question 19

In the merchandise purchases budget, the required purchases (in units) for a period can be determined by subtracting the beginning merchandise inventory (in units) from the budgeted sales (in units).

Accepted Answer

The required purchases are determined by adding the desired ending inventory to the budgeted sales and then subtracting the beginning inventory.

Question 20

Which of the following budgets are prepared before the sales budget?

Accepted Answer

The answer of Which of the following budgets are prepared...

Quiz 9: Profit Planning