Ch6 Test Bank Docx + Planning, The Balanced Scorecard, And

Chapter 6

Planning, the Balanced Scorecard, and Budgeting

MATCHING

1. Match the following terms with the descriptions that follow.

A. Administrative budget

B. Direct labor and manufacturing overhead budget

C. Direct materials purchases budget

D. Marketing and distribution budget

E. Master budget

F. Production budget

G. Sales budget

_____ 1. This budget plans for the firm’s advertising and shipping expenditures

_____ 2. A budget that shows the expected sales for the period in both physical and

financial amounts

_____ 3. A budget contains the cost of the accounting and financing functions of the

firm

_____ 4. A budget that reflects the expected cost of the conversion process

_____ 5. A budget that reflects the expected cost of the materials used in the production

of the product

_____ 6. The compilation of all the budgets prepared in planning the revenue,

expenditure, and conversion process

_____ 7. A budget that plans the company’s desired ending inventory and units to be

produced in the coming time period

2. Match the following terms with the descriptions below.

A. Budgetary slack

B. Budgeting

C. Ideal standard

D. Incremental budgeting

E. Mandated budgeting

F. Normal standard

G. Participatory budgeting

H. Zero-based budgeting

_____ 1. The process of expressing the company’s goals and objective in quantitative

terms

_____ 2. A standard that can be achieved only if operating conditions are almost perfect

_____ 3. A difference between reported budget numbers and realistic budget numbers

_____ 4. A budgeting strategy in which the company considers each budget period a

fresh start

_____ 5. A standard that can be achieved under practical operating conditions

_____ 6. A budget set by upper-level management; a top down approach

_____ 7. Individual who are affected by the budget get input into the process; a bottom-

up approach

_____ 8. Budgeting using last year’s budget as a starting point for this year’s budget

3. Match the following processes with the budgets or schedules listed below.

A. Revenue process planning

B. Conversion process planning

C. Expenditure process planning

_____ 1. Production budget

_____ 2. Sales budget

_____ 3. Cash disbursements schedule

_____ 4. Marketing and distribution budget

_____ 5. Accounts receivable schedule

_____ 6. Direct labor and overhead budget

_____ 7. Direct materials purchases budget

_____ 8. Cash receipts budget

_____ 9. Accounts payable schedule

_____ 10. Administrative budget

5. A plan for the future expressed in quantitative terms is called a:

A) cycle.

B) budget.

C) commentary.

D) mathematical model.

6. Which of the following does not affect the cost of preparing a budget?

A) Time and resource requirement

B) The budgeting activities of competitors

C) Adaptability of departments

D) Motivation and behavior of individuals

7. Budgetary slack is created when:

A) the difference between actual and budgeted amounts are accidental.

B) the difference between actual and budgeted amounts are based on unforeseen events.

C) the difference between actual and budgeted amounts are the result of deliberately introduced bias in the budgetary process.

D) the difference between actual and budgeted amounts are the result of management’s inability to be clairvoyant.

8. The balanced scorecard approach is successful in reducing budgetary slack because:

A) it uses several different measures to assess how successful a department performed.

B) it uses actual results rather than estimated budgeted figures to measure performance.

C) it uses only those measures that balance the budgeted figures with the actual figures.

D) it uses those measures that make the assets balance with the liabilities and owners’ equity.

9. The strategy whereby a company uses the current period’s budget as a starting point in preparing next period’s budget is referred to as:

A) mandated budgeting.

B) zero-based budgeting.

C) incremental budgeting.

D) participative budgeting.

10. Ideal standards used in the budgeting process

A) do not factor in operating inefficiencies in the budgeting process.

B) allows for small deviations from perfection.

C) is based on ideal working conditions but will permit some slack in operations.

D) requires that deviations between actual and budgeted results be minimized.

11. A budgeting system that allows individuals who are affected by the budget to have input into the budgeting process is called:

A) mandated budgeting.

B) zero-based budgeting.

C) incremental budgeting.

D) participative budgeting.

12. A budget based on prior year’s budget as a starting point is a(n):

A) zero-based budget.

B) prior year budget.

C) incremental budget.

D) mandatory budget.

13. An advantage of a participatory budget is that:

A) management can disregard their employee’s input if necessary.

B) employees get a percentage of the budgetary slack introduced into the budget.

C) participatory budgets are typically more accurate than other types of budgets.

D) employees provide a wealth of information to management and are motivated by the process.

14. The question of how many units of product to manufacture would be considered when preparing the:

A) master budget.

B) project budget.

C) strategic budget.

D) operating budget.

15. The final step in a master budget is the preparation of the:

A) cash budget.

B) sales budget.

C) pro forma financial statements.

D) selling and administrative costs budget.

16. Conversion cycle planning consists of all the following except:

A) scheduling labor.

B) scheduling production.

C) purchasing merchandise.

D) planning manufacturing overhead.

17. Conversion cycle planning consists of all the following except

A) scheduling labor.

B) scheduling production.

C) planning manufacturing overhead.

D) All the above are part of the conversion cycle planning process.

18. Which of the following is not part of revenue process planning?

A) Sales budget

B) Cash receipts budget

C) Production budget

D) Marketing and Distribution Budget

19. Which of the following is not part of expenditure process planning?

A) Direct labor and overhead budget

B) Direct materials purchases budget

C) Cash disbursements schedule

D) Production budget

20. Which of the following is part of the revenue planning process?

A) Cash receipts budget

B) Direct materials purchasing budget

C) Production budget

D) Cash disbursement budget

21. Which of the following is part of conversion process planning?

A) Production budget

B) Cash receipts schedule

C) Direct materials purchase budget

D) Direct labor and overhead budget

22. The sales budget and the desired level of ending finished goods inventory are primary inputs into the preparation of the:

A) cash budget.

B) production budget.

C) manufacturing overhead budget.

D) selling and administrative costs budget.

23. Which of the following drives all other operating budgets?

A) Marketing and distribution budget

B) Production budget

C) Sales budget

D) Purchases budget

24. The desired ending finished goods inventory would most likely be shown on the:

A) cash budget.

B) sales budget.

C) production budget.

D) direct materials purchases budget.

25. Indirect labor would most likely be shown on the:

A) sales budget.

B) direct labor budget.

C) production budget.

D) manufacturing overhead budget.

26. Sales commissions would most likely be shown in the:

A) sales budget.

B) direct labor budget.

C) manufacturing overhead budget.

D) Marketing and distribution budget.

27. Weasel Corporation’s sales for January 2010 were $1,350,000. Weasel projects a 10 percent increase in sales every month through December. The sales for March 2010 are estimated at:

A) $1,633,500.

B) $1,796,850.

C) $1,620,000.

D) $1,755,000.

28. Klocke Corporation’s sales for January 2010 were $1,350,000. Klocke projects a 10 percent increase in monthly sales every 6 months. The sales for December 2010 are estimated at:

A) $1,633,500.

B) $1,485,000.

C) $1,620,000.

D) $1,796,850.

29. Bergstrom Industries sold 460,000 trash barrels at $12 each during the first quarter of 2010. Unit sales are projected to increase 5 percent each quarter, whereas the selling price will be reduced by $0.50 each quarter. The estimated sales revenue for the fourth quarter of 2010 is:

A) $5,520,000.

B) $5,554,500.

C) $5,591,334.

D) $5,819,000.

30. Lichti Industries sold 50,000 ice chests at $20 each during April of 2010. Unit sales are projected to increase 10 percent in May and June, whereas the selling price will be increased by $1.00 for May and another $1 in June. The estimated sales revenue for June of 2010 is:

A) $1,331,000.

B) $1,210,000.

C) $1,270,500.

D) $1,155,000.

31. Lyle Industries sold 80,000 ice chests at $30 each during April of 2010. Unit sales are projected to increase 5 percent in May and June while the selling price will be increased by $2.00 for May and another $1 in June. The estimated sales revenue for June of 2010 is:

A) $2,772,000.

B) $2,910,600.

C) $2,822,400.

D) $2,640,000.

32. Clyde, Inc. sells two products, X and Y. Clyde sells twice as much X as Y, and projects the sale of 57,000 units of X during the coming year. Product Y sells for three times as much as product X, which sells for $2.75 per unit. The estimated sales revenue for Clyde for the coming year is:

A) $182,970.

B) $340,005.

C) $391,875.

D) $548,625.

33. Roo Corporation budgeted sales of its product during the next fiscal year at 255,000 units, with a selling price of $30 each. Sales commissions run 5 percent of sales and other variable selling and administrative costs are 10 percent of sales. Fixed selling and administrative costs are estimated at $950,000. The budgeted selling and administrative costs for the next fiscal year are:

A) $2,097,500.

B) $1,147,500.

C) $3,000,000.

D) $1,064,750.

34. Farmer Corporation budgeted sales of its product during the next fiscal year at 225,000 units, with a selling price of $17.50 per unit. Sales commissions are 6 percent of sales and other variable selling and administrative costs are 15 percent of sales. Fixed selling and administrative costs are estimated at $430,000. The budgeted selling and administrative costs for the next fiscal year are:

A) $ 477,250.

B) $1,020,625.

C) $1,192,375.

D) $1,256,875.

35. Xenon Corporation budgeted sales of its product during the next fiscal year at 200,000 units, with a selling price of $20 per unit. Sales commissions are 6 percent of sales and other variable selling and administrative costs are 15 percent of sales. Fixed selling and administrative costs are estimated at $630,000. The budgeted selling and administrative costs for the next fiscal year are:

A) $840,000.

B) $1,230,000.

C) $860,000.

D) $1,470,000.

36. Gove Company has an accounts receivable balance of $357,000 at the beginning of the year. Credit sales for the year are projected at $975,000. Management estimates that 95 percent of the beginning accounts receivable plus 75 percent of the credit sales will be collected during the period. What is the projected balance of the ending accounts receivable?

A) $1,332,000

B) $261,600

C) $1,070,400

D) $243,750

37. The Piante Company has an accounts receivable balance of $256,000 at the beginning of the year. Credit sales for the year are projected at $923,000. Management estimates that 98 percent of the beginning accounts receivable plus 82 percent of the credit sales will be collected during the period. The projected balance of accounts receivable at year-end equal to:

A) $161,020.

B) $166,140.

C) $171,260.

D) $256,000.

38. Cash collections during June are estimated at:

A) $376,000.

B) $384,000.

C) $491,500.

D) $550,000.

39. Cash collections during August are estimated at:

A) $360,000.

B) $373,500.

C) $462,000.

D) $517,000.

40. What is the balance in Accounts Receivable at the beginning of June before June sales

are recorded?

A) $189,000

B) $420,000

C) $573,000

D) $231,000

Use the following to answer questions 41–42:

Ness Company’s sales were budgeted for the first six months of its fiscal year as follows:

Sales are 40 percent cash and 60 percent credit. Management estimates that two-thirds of credit sales will be collected in the month of sale with the balance collected the following month.

41. Cash collections during March are estimated at:

A) $608,000.

B) $524,260.

C) $550,000.

D) $692,000.

43. The unit production requirements for February are:

A) 245,500.

B) 295,000.

C) 300,250.

D) 344,500.

44. The unit production requirements for May are:

A) 280,000.

B) 289,750.

C) 331,750.

D) 373,750.

45. The production requirements for May are:

A) 295,000.

B) 315,000.

C) 271,800.

D) 291,400.

46. The production requirements for June are:

A) 248,000.

B) 225,000.

C) 223,000.

D) 205,000.

47. The direct materials purchases budget for May is:

A) 603,300.

B) 615,000.

C) 677,100.

D) 750,900.

48. The direct materials purchases budget for June is:

A) 517,500.

B) 537,300.

C) 599,400.

D) 661,500.

49. What are Hepburn Corporation’s expected cash collections for April?

A) $2,725,000

B) $1,350,000

C) $1,560,000

D) $1,330,200

50. How many units should Hepburn produce during April?

A) 57,800

B) 52,300

C) 52,000

D) 51,700

51. Each finished unit requires 5 units of raw material and raw material can be purchased at $3 per unit. Hepburn wants to have 15 percent of the next month’s needs in ending raw materials inventory. The March 31, raw materials inventory is 40,000 units and Hepburn estimates May production at 58,000 units. What amount should Hepburn budget for raw material purchases for April?

A) $912,750

B) $855,000

C) $790,500

D) $784,500

52. Each finished unit requires two direct labor hours. The average direct labor rate is $14 per hour. What amount should Hepburn budget for direct labor for April?

A) $1,596,000

B) $1,464,400

C) $ 732,200

D) $ 104,600

53. Hepburn applies overhead at the rate of $10 for each machine hour. Each unit of finished goods requires 0.5 machine hours. What amount should Hepburn budget for overhead for April?

A) $2,615,000

B) $ 523,000

C) $ 366,100

D) $ 261,500

54. Hepburn pays for direct labor and overhead as incurred. It pays for 80 percent of raw material purchases during the month of purchase and the remainder during the next month. Accounts payable on March 31 was $400,000. What amount should Hepburn budget for cash payments for production costs during April?

A) $2,760,100

B) $2,600,100

C) $2,360,100

D) $1,725,900

55. Hepburn’s SG&A expenses, paid as incurred, are $100,000 per month plus 5 percent of sales. What amount should Hepburn budget for SG&A for April?

A) $230,000

B) $178,000

C) $160,000

D) $102,600

56. Takai Corporation has a sales price of $20 per unit. Unit sales information is presented below:

Management estimates that 4 percent of credit sales (in dollars) are uncollectible. Of the remaining credit sales, 60 percent are collected in the month of sale and the remainder in the following month. What are Takai’s estimated cash collections and sales revenue for January?

A)

B)

C)

D)

57. Which of the following is not one of the benefits of budgeting?

A) Understanding of the interaction among different parts of the firm

B) Ensures that resources are allocated to value-added activities

C) Aids management in identifying areas requiring correction

D) Eliminates mistakes

58. Which of the following budgets is completed last?

A) Raw materials purchases

B) Cash payments

C) Production

D) Sales

59. Which of the following budgets is completed first?

A) Raw materials purchases

B) Cash payments

C) Production

D) Ser: D Difficulty: Medium

60. Budgets are prepared by the top-level executives of Phififfer Company. This is an example of which type of budgeting?

A) Participative

B) Zero-based

C) Mandated

D) Ideal

61. Which of the following must be estimated before a production budget can be completed?

A) Unit sales

B) Fixed factory overhead

C) Cash collection pattern

D) Raw materials purchases

62. Define the term “budgeting.” Describe the benefits and costs of implementing a budgeting process.

63. What information must a firm have to prepare a sales budget? How does it get this information?

64. Describe how the sales budget is related to the production budget.

65. Describe the relationship between the production budget used in conversion process planning and in the direct materials purchase budget and the direct labor and overhead budget used in the expenditure planning process.

66. In the budgeting process, a company can use either an ideal for normal standard. What is the difference between an ideal standard and a normal standard? What impact do you think each would have on employee morale?

67. Greenleaf Company’s actual sales for April through June, and budgeted sales for July through September of the current year are as follows:

All sales are on credit. Management estimates that 10 percent will be collected in the month of sale, 55 percent will be collected in the month following the sale, and the balance will be collected the second month following the sale. Prepare a cash receipts schedule for Greenleaf Company for the period July through September.

68. Valentine Company’s actual sales for January through March, and budgeted sales for April through June of the current year are as follows:

Ten percent of sales are cash and the rest are credit sales. Management estimates that 20 percent of credit sales will be collected in the month of sale, 78 percent will be collected in the month following the sale, and the balance will not be collected. Prepare a cash receipts schedule for Valentine Company for the period April through June.

69. Logan Enterprises’ unit production is budgeted for the first six months of its upcoming fiscal year as follows:

Each unit of product requires 20 pounds of raw material that Logan purchases for $3.50 per pound. The company began the month of March with 13,160 pounds of raw material but wants its ending inventory of raw material to be 2 percent of the next month’s production requirements beginning with the end of March.

Logan pays for 20 percent of its purchases in the month of purchase, with the remainder paid the following month. Determine the amount of planned cash disbursements for purchases of raw materials for April, May and June.

70. The Ellis Company is preparing its sales and production budget for 2011. Ellis sells its

product for $37 and thinks it sales in January 2011 will be 230,000 units and this will increase by 10 percent in February and March and then by 20 percent for April and May. Ellis has a beginning inventory of 23,000 units and wants to reduce its ending inventory to 1 percent of the next month’s units sales. Create a sales budget (in both units and dollars) and the production budget for the first quarter of the year.

71. The Hoxie Corporation budgeted production for the first three months of 2011 is listed below. Each unit produced requires 3 pounds of direct material that cost $9 per pound. Hoxie wants to have 10 percent on next month’s production in ending inventory each month. Hoxie receives a 3 percent discount on all purchases paid made during the month and pays 90 percent of its materials bill during the month.

Accounts Payable Balance $210,000 on January 1, 2011

Raw materials inventory 28,500 pounds at $9 = $256,500

Required:

(A) How many pounds and what is the price of the direct material Hoxie plans to purchase in February?

(B) How much cash does Hoxie plan to pay for materials in February?

(C) How much will the ending balance of accounts payable be February?

72. The Olpe Corporation budgeted production for the first three months of 2011 is listed below. Each unit produced requires 5 pounds of direct material that cost $8 per pound. Hoxie wants to have 5 percent on next month’s production in ending inventory each month. Hoxie receives a 2 percent discount on all purchases paid made during the month and pays 80 percent of its materials bill during the month.

Accounts Payable Balance $110,000 on January 1, 2011

Raw materials inventory 30,000 pounds at $8 = $240,000

Required:

(A) How many pounds and what is the price of the direct material Hoxie plans to purchase in February?

(B) How much cash does Hoxie plan to pay for materials in February?

(C) How much will the ending balance of accounts payable be February?

73. Onaga Corporation has the production budget described below. Each unit requires 4 hours of direct labor time at $15 per hour. Unit-related overhead is $20 per machine hour and each unit requires one-quarter of an hour. Batch-related overhead is $2,000 per batch with a batch-size of 500 units. Facility overhead, including depreciation of $150,000 is $820,000 per month.

Required: Prepare Onaga’s direct labor and manufacturing overhead budget for February.