Master Budget – Ch6 | Test Bank – 17th Ed - Horngrens Cost Accounting 17th Global Edition | Test Bank with Answer Key by Srikant M. Datar, Madhav V. Rajan. DOCX document preview.
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Horngren's Cost Accounting: A Managerial Emphasis, 17e, Global Edition by Datar/Rajan
Chapter 6 Master Budget and Responsibility Accounting
Objective 6.1
1) Which of the following is true of a budget?
A) Budgets are used to express only the operational plans and not the strategic plans of a company.
B) Budgets do not account for nonfinancial aspects of the upcoming period.
C) Budgets are most useful when they are planned independent of the company's strategic plans.
D) Budgets help managers to revise their plans and strategies.
Diff: 1
Objective: 1
AACSB: Analytical thinking
2) Which of the following is a financial budget?
A) pro forma balance sheet
B) cash receivables budget
C) production budget
D) cost of goods sold budget
Diff: 1
Objective: 1
AACSB: Analytical thinking
3) Budgets encompass managements goals and:
A) are a strategic long range plan
B) are both a short range and long range profit plan
C) includes only financial aspects of an operation as those are the only items that can be quantified in a profit plan
D) express management's operating and financial plan for a specified period - usually a fiscal year
Diff: 2
Objective: 1
AACSB: Analytical thinking
4) Which of the following is true of master budgets?
A) They include only financial aspects of a plan and exclude nonfinancial aspects.
B) Includes both financial and nonfinancial information.
C) They aid in quantifying the expectations of all stakeholders.
D) They must be administered rigidly after they are committed to.
Diff: 2
Objective: 1
AACSB: Analytical thinking
5) Operating decisions primarily deal with:
A) the best use of scarce resources
B) how to obtain funds to acquire resources
C) acquiring equipment and buildings
D) satisfying stockholders
Diff: 2
Objective: 1
AACSB: Analytical thinking
6) Financing decisions primarily deal with:
A) the use of scarce resources
B) how to obtain funds to acquire resources
C) acquiring equipment and buildings
D) preparing financial statements for stockholders
Diff: 2
Objective: 1
AACSB: Analytical thinking
7) A master budget:
A) is the initial plan of what the company intends to accomplish in the period and evolves from both the operating and financing decisions
B) is only prepared for manufacturers as they are the only type of company with material purchases and work-in-process accounts
C) improves companies' market capitalization and evolves from both the investing and financing decisions
D) is another name given to the financial budget
Diff: 2
Objective: 1
AACSB: Analytical thinking
8) Which of the following is NOT true of a properly executed budgetary cycle?
A) deviations from plan are only investigated at the conclusion of the fiscal year as actual data can be finally compiled
B) past performance and market feedback are considered in setting budget amounts
C) specific financial and nonfinancial expectations are set
D) during the fiscal year, managers investigate deviations from plans
Diff: 2
Objective: 1
AACSB: Analytical thinking
9) Which of the following statements is true of budgets?
A) Master budgets express management's operating and financial plans.
B) Financial budgets are prepared before the master budget is prepared.
C) Operating budgets are prepared independently of the master budget.
D) The budgeted balance sheet is the first budget prepared as management is very much concerned with projected financial position
Diff: 2
Objective: 1
AACSB: Analytical thinking
10) The preparation of all the budgets in the master budget forces managers to think about their business operations and to formulate plans, while:
A) detecting inaccurate historical records to avoid errors in budgets
B) setting expectations against which actual results can be compared
C) completing the budgeting tasks with minimal cross functional feedback
D) ignoring financial risks and opportunities
Diff: 2
Objective: 1
AACSB: Analytical thinking
11) ________ matches a company's capabilities with opportunities to accomplish its objectives.
A) Budgeting
B) Strategy
C) Policy
D) Planning
Diff: 2
Objective: 1
AACSB: Analytical thinking
12) A budget is the quantitative expression of a proposed plan of action by management for a specified period.
Diff: 1
Objective: 1
AACSB: Analytical thinking
13) A budget generally includes only the financial aspects of management's plan.
Diff: 1
Objective: 1
AACSB: Analytical thinking
14) The benefit of engaging lower level management in the budget preparation process is that it helps to streamline the budget process.
Diff: 1
Objective: 1
AACSB: Analytical thinking
15) A master budget includes a set of pro-forma financial statements.
Diff: 1
Objective: 1
AACSB: Analytical thinking
16) Budgeting includes only the financial aspects of the plan and NOT any nonfinancial aspects such as the number of physical units manufactured or the hours that the direct laborers are expected to work.
Diff: 2
Objective: 1
AACSB: Analytical thinking
17) Operating plans are generally expressed through long-run budgets.
Diff: 1
Objective: 1
AACSB: Analytical thinking
18) A budget is a communication aid, informing staff of expectations and providing information that is essential to coordinating what needs to be done to implement the proposed plan.
Diff: 1
Objective: 1
AACSB: Analytical thinking
19) Budgets are sometimes called targets or commitments by some companies and as such are "set in stone" to provide effective benchmarks for management.
Diff: 2
Objective: 1
AACSB: Analytical thinking
20) Financing decisions deal with how to best use the limited resources of an organization.
Diff: 2
Objective: 1
AACSB: Analytical thinking
21) A budgeting process can facilitate learning in that feedback from budgets can lead to changes in plans and strategies.
Diff: 2
Objective: 1
AACSB: Analytical thinking
22) Budgeted financial statements are called pro forma statements.
Diff: 2
Objective: 1
AACSB: Analytical thinking
23) Describe the benefits of preparing an operating budget to an organization.
A well-prepared operating budget assists management with the allocation of scarce resources. It can help management see trouble spots in advance, and then management can decide where to allocate its limited resources.
A well-prepared operating budget fosters communication and coordination among various segments of the company. The process of preparing a budget requires managers from different functional areas to work together and communicate performance levels they both want and can attain.
A well-prepared operating budget can become the performance standard against which firms can compare the actual results.
Diff: 2
Objective: 1
AACSB: Analytical thinking
24) Bob and Dale have just purchased a small honey manufacturing company that was having financial difficulties. After a brief operating period, they decided that the company's main problem was an improper budgeting function. The company made a good product and market potential was great.
Required:
Describe the usual budgeting cycle that well-managed companies adopt?
1. Before the start of the period, managers and management accountants work together to develop plans for the company as a whole and the performance of its subunits, taking into account the company's past performance, market feedback, and anticipated future changes.
2. At the beginning of the period, managers are provided with a framework that outlines specific financial or nonfinancial expectations against which actual results will be compared.
3. During the course of the year, management accountants and managers investigate any deviations from plans and take corrective action, if necessary.
Diff: 2
Objective: 1
AACSB: Analytical thinking
Objective 6.2
1) Which of the following is true of budgets when they are administered thoughtfully?
A) They eliminate subjectivity in performance evaluation.
B) They can eliminate the uncertainty faced by a company.
C) They promote coordination within the subunits of a company.
D) They are an adequate substitute for the planning and coordination functions of management.
Diff: 2
Objective: 2
AACSB: Analytical thinking
2) Which of the following statements can be considered to be an advantage of a bottom-up budget?
A) Prevents slack being built into budgets.
B) Increases the rigidity and rigor of the process.
C) It is the less expensive of all methods of producing and monitoring a budget.
D) Lower-level managers participation brings more specialized knowledge regarding day-to-day operations.
Diff: 2
Objective: 2
AACSB: Analytical thinking
3) Which of the following is a limitation of using past performance as a basis for judging actual results?
A) It does not account for productivity increases over the periods.
B) It increases the incentive for managers to introduce budgetary slack.
C) It assumes inefficiencies of previous periods without considering possible efficiencies of the budget period.
D) It increases the tendency of senior managers exaggerating changes in future conditions as opposed to changes in current conditions.
Diff: 2
Objective: 2
AACSB: Analytical thinking
4) The practice of developing reasonably challenging budgets tends to help:
A) discourage out-of-the-box and creative thinking as there is very little room for error
B) set unrealistic expectations and are perceived as overly ambitious and unachievable
C) increase anxiety without motivation not meeting them is viewed as a failure
D) motivate improved performance as employees work more intensely to avoid failure
Diff: 2
Objective: 2
AACSB: Analytical thinking
5) A limitation of using past performance as a basis for judging actual results is that:
A) future conditions can be different from past conditions
B) any undervaluation of profits in the past period is likely to continue
C) any subsequent change in accounting treatment will distort performance evaluation
D) they tend to distort results when current and past conditions are similar
Diff: 2
Objective: 2
AACSB: Analytical thinking
6) Which of the following reason(s) should managers consider as to the rigidity of budget administration?
A) Unanticipated events may require managers to deviate for from the budget.
B) Management typically spends significant resources on the budgets and therefore flexibility should be minimal.
C) Successful plans and targets are set after much debate and feedback.
D) Both B and C.
Diff: 2
Objective: 2
AACSB: Analytical thinking
7) Which of the following is a reason why top managers want lower-level managers to participate in the budgeting process?
A) To benefit from their experience with the day-to-day aspects of running the business.
B) To reduce the time and cost expended in the budgeting process.
C) To ensure that they do not introduce any budgetary slack.
D) To ensure that the budgets are administered rigidly given the changing market conditions.
Diff: 2
Objective: 2
AACSB: Analytical thinking
8) The major objectives of a budgeting process should include all of the following EXCEPT:
A) providing coordination among the subunits
B) providing communication among the subunits
C) providing unyielding commitment to targets as a means to achieve a target profit
D) providing a framework for judging performance and facilitating learning
Diff: 2
Objective: 2
AACSB: Analytical thinking
9) Which of the following is referred to as the bottom-up aspect of the budgeting process?
A) lower-level managers setting their individual targets that aggregate to be the company-wide target
B) senior managers consulting middle- and lower-level managers to investigate any deviations from the budget
C) lower-level managers implementing the budgets with senior managers monitoring progress and investigating deviations
D) lower-level managers providing inputs to the budgeting process based on their specialized knowledge and familiarity of the operation
Diff: 3
Objective: 2
AACSB: Analytical thinking
10) Participation of employees in the budgeting process helps:
A) create greater commitment towards the budget
B) create demanding but achievable budget
C) decrease deviations from the budget
D) secure communication of sensitive information
Diff: 1
Objective: 2
AACSB: Analytical thinking
11) Managers who feel that top management does not believe in the budget are most likely to:
A) pick up the slack and participate in the budgeting process
B) to face little interference in the day-to-day aspects of running the business
C) be less engaged participants in the budgeting process and less committed to achieving budgeted targets
D) convert the budget to a shorter more reasonable time period that will help with real time reporting
Diff: 2
Objective: 2
AACSB: Analytical thinking
12) One of the benefits of a well implemented and executed budget is communication. Which of the following best describes communication within the budgetary cycle?
A) meshing and balancing of all aspects of production or service
B) making each manager aware of the plan and allowing each manager to understand the importance of the plan
C) allocation of scarce resources across all functional areas of the company
D) the calculation of deviations from plan
Diff: 2
Objective: 2
AACSB: Analytical thinking
13) Budgets should:
A) not be so rigid that if conditions change, adjustments in spending can be made
B) be administered rigidly
C) only be developed for short periods of time such as quarters
D) include only variable costs
Diff: 1
Objective: 2
AACSB: Analytical thinking
14) The Master budget is sometimes called the:
A) profit plan
B) pro forma financials
C) strategic plan
D) corporate objectives and commitments
Diff: 1
Objective: 2
AACSB: Analytical thinking
15) After a budget is agreed upon and finalized by the management team, the amounts should NOT be changed for any reason.
Diff: 2
Objective: 2
AACSB: Analytical thinking
16) Even in the face of changing conditions, attaining the original budget is critical and is the only true measure of success.
Diff: 2
Objective: 2
AACSB: Analytical thinking
17) Research shows that the performance of employees falls when they are asked to adhere to challenging budgets.
Diff: 2
Objective: 2
AACSB: Analytical thinking
18) Creating a little anxiety among managers and staff with challenging budgets helps employee work harder to achieve goals.
Diff: 2
Objective: 2
AACSB: Analytical thinking
19) Bottom-up budgets entrusts senior managers to prepare budgets and lower-level managers to execute them.
Diff: 2
Objective: 2
AACSB: Analytical thinking
20) It is best to compare this year's performance with last year's actual performance rather than this year's budget.
Diff: 2
Objective: 2
AACSB: Analytical thinking
21) When administered wisely, budgets promote communication and coordination among the various subunits of the organization.
Diff: 2
Objective: 2
AACSB: Analytical thinking
22) Managers take into account the company's past performance, market feedback, and anticipated future events to prepare the budget.
Diff: 1
Objective: 2
AACSB: Analytical thinking
23) Capacity problems can be discovered by working through the budgeting process before those problems occur.
Diff: 2
Objective: 2
AACSB: Analytical thinking
Objective 6.3
1) Which of the following is the most frequently used budget periods used in business?
A) a basic budget period of 1 year often subdivided into semi-annual periods
B) a basic budget period of 2 years often subdivided into quarters and semi-annual periods
C) a basic budget period of 2 years subdivided into monthly periods
D) a basic budget period of 1 year often subdivided into quarters and months
Diff: 2
Objective: 3
AACSB: Analytical thinking
2) Which of the following is a component of operating budgets?
A) production budget
B) budgeted statement of cash flows
C) capital expenditures budget
D) budgeted balance sheet
Diff: 1
Objective: 3
AACSB: Analytical thinking
3) The operating budget process generally concludes with the preparation of the:
A) production budget
B) cash flow statement
C) balance sheet
D) budgeted income statement
Diff: 1
Objective: 3
AACSB: Analytical thinking
4) Which of the following best describes a rolling budget?
A) It is a budget that continually outlines the amount required to roll over debt in a future period.
B) It is created continually by adding a month, quarter, or year to the period just ended.
C) It is a budget that outlines budgeted expenses while utilizing a moving average.
D) It is a budget that is submitted to a bank at the beginning of every month as per a loan covenant.
Diff: 2
Objective: 3
AACSB: Analytical thinking
5) The ________ is a component of financial budgets.
A) cost of goods sold budget
B) budgeted income statement
C) direct materials budget
D) budgeted statement of cash flows
Diff: 2
Objective: 3
AACSB: Analytical thinking
6) ________ include a budgeted statement of cash flows and a budgeted balance sheet.
A) Revenue budgets
B) Financial budgets
C) Operating budgets
D) Production budgets
Diff: 1
Objective: 3
AACSB: Analytical thinking
7) The order to follow when preparing the operating budget is:
A) revenues budget, production budget, direct manufacturing labor costs budget , and cost of goods sold
B) revenues costs of goods sold budget, production budget, and cash budget
C) revenues budget, manufacturing overhead costs budget, and production budget
D) cash expenditures budget, revenues budget, and production budget
Diff: 2
Objective: 3
AACSB: Analytical thinking
8) In which order are the following developed? First to last:
A = Production budget
B = Direct materials costs budget
C = Budgeted income statement
D = Revenues budget
A) ABDC
B) DABC
C) DCAB
D) CABD
Diff: 2
Objective: 3
AACSB: Analytical thinking
9) The budgeting process is most strongly influenced by:
A) the capital budget
B) the budgeted statement of cash flows
C) the sales forecast
D) the production budget
Diff: 2
Objective: 3
AACSB: Analytical thinking
10) ________ is the usual starting point for budgeting.
A) The revenues budget
B) The estimated net income
C) The production budget
D) The cash budget
Diff: 1
Objective: 3
AACSB: Analytical thinking
11) The sales forecast should be primarily based on:
A) statistical analysis
B) input from sales managers and sales representatives
C) production capacity
D) input from the board of directors
Diff: 2
Objective: 3
AACSB: Analytical thinking
12) Costs such as supervision, plant and equipment (production) depreciation, maintenance, supplies, and power are included in the:
A) capital expenditures budget
B) distribution costs budget
C) revenues budget
D) manufacturing overhead budget
Diff: 2
Objective: 3
AACSB: Analytical thinking
13) In general, which of the following budgets is prepared first?
A) sales budget
B) production budget
C) direct labor budget
D) overhead budget
Diff: 2
Objective: 3
AACSB: Analytical thinking
14) The revenues budget reveals:
A) expected cash flows for each product
B) actual unit sales from last year multiplied by the budget period's expected selling prices for each product
C) the expected level of unit sales multiplied by expected unit selling prices for company products
D) the variance of sales from actual for each product
Diff: 1
Objective: 3
AACSB: Analytical thinking
15) The number of units in the sales budget and the production budget may differ because of a change in:
A) ending finished goods inventory levels
B) total overhead charges for the year
C) beginning direct material inventory levels
D) sales returns and allowances
Diff: 3
Objective: 3
AACSB: Analytical thinking
16) Which of the following is the basic formula of the direct materials usage budget?
A) Ending inventory of direct materials + direct materials purchased and used during the period = direct materials to be used this period
B) Beginning inventory of direct materials + direct materials purchased and used during the period = direct materials to be used this period
C) units used in production + target ending inventory - beginning inventory = purchases to be made for the budget period
D) units used in production + target beginning inventory - ending inventory = purchases to be made for the budget period
Diff: 2
Objective: 3
AACSB: Analytical thinking
17) Budgeted production equals:
A) beginning finished goods inventory + budgeted unit sales - targeted ending finished goods inventory
B) targeted ending finished goods inventory + beginning finished goods inventory - budgeted unit sales
C) budgeted unit sales + targeted ending finished goods inventory - beginning finished goods inventory
D) budgeted unit sales + targeted ending finished goods inventory + beginning finished goods inventory
Diff: 2
Objective: 3
AACSB: Analytical thinking
18) Best Products, an Atlanta based company, is in the midst of its budgeting process. It has already prepared its direct materials usage budget and is now in the process of preparing its direct material purchase budget. In addition to the details gathered to prepare the direct materials usage budget, Best also must know:
A) the target direct materials ending inventory
B) the ratio of direct materials to cost of goods sold
C) the beginning direct materials inventory level
D) the quantity of direct materials to be purchased
Diff: 2
Objective: 3
AACSB: Analytical thinking
19) To prepare the direct materials labor costs budget, which of the following budget must be prepared first?
A) direct material purchase budget
B) production budget
C) direct material usage budget
D) budgeted manufacturing overhead
Diff: 1
Objective: 3
AACSB: Analytical thinking
20) Which of the following is most likely to be a cost driver for the variable portion of marketing costs?
A) percentage of markup on cost
B) number of units produced
C) increase in revenues attributable to such marketing
D) number of units sold
Diff: 2
Objective: 3
AACSB: Analytical thinking
21) Which of the following is required to arrive at the budgeted units to be produced in a year?
A) estimated direct materials inventory required at the end of the year
B) estimated finished goods inventory required at the end of the year
C) amount of direct materials to be used during the year
D) amount of manufacturing overhead to be incurred
Diff: 2
Objective: 3
AACSB: Analytical thinking
22) Which of the following best describes a bill of materials?
A) It is a document that is prepared by a vendor to invoice a manufacturer for a purchase of materials.
B) It is a document that is used to order materials.
C) It is a document that requests materials be removed from the warehouse and put into production.
D) It is a document that identifies how each product is manufactured, specifying materials and components and the quantities of materials in each finished good.
Diff: 2
Objective: 3
AACSB: Analytical thinking
23) Which of the following information is required by a company's manager while preparing a manufacturing overhead costs budget?
A) estimated incentives to be paid to marketing personnel
B) estimated expense for office supplies
C) estimated expense for maintenance of factory building
D) rent expense for lease of office building
Diff: 2
Objective: 3
AACSB: Analytical thinking
24) In which order are the following developed for a manufacturer? First to last:
A = Budgeted Balance Sheet
B = Budgeted Income Statement
C = Budgeted Cost of Goods Sold
D = Budgeted Statement of Cash Flows
A) ABDC
B) DABC
C) CABD
D) DCAB
Diff: 2
Objective: 3
AACSB: Analytical thinking
25) Mary's Baskets Company expects to manufacture and sell 24,000 baskets in 2020 for $5 each. There are 2,000 baskets in beginning finished goods inventory with target ending inventory of 2,000 baskets. The company keeps no work-in-process inventory. What amount of sales revenue will be reported on the 2020 budgeted income statement?
A) $130,000
B) $120,000
C) $110,000
D) $70,000
Diff: 2
Objective: 3
AACSB: Application of knowledge
26) Orange Corporation has budgeted sales of 17,000 units, targeted ending finished goods inventory of 6,000 units, and beginning finished goods inventory of 3,000 units. How many units should be produced next year?
A) 26,000 units
B) 23,000 units
C) 20,000 units
D) 17,000 units
Diff: 2
Objective: 3
AACSB: Application of knowledge
27) For next year, Roberts, Inc., has budgeted sales of 19,000 units, targeted ending finished goods inventory of 1,750 units, and beginning finished goods inventory of 1,250 units. All other inventories are zero. How many units should be produced next year?
A) 18,500 units
B) 19,000 units
C) 19,500 units
D) 22,000 units
Diff: 2
Objective: 3
AACSB: Application of knowledge
28) Antique Brass Company has budgeted sales volume of 120,000 units and budgeted production of 113,000 units, while 21,000 units are in beginning finished goods inventory. How many units are targeted for ending finished goods inventory?
A) 21,000 units
B) 28,000 units
C) 7,000 units
D) 14,000 units
Diff: 2
Objective: 3
AACSB: Application of knowledge
29) First Class, Inc., expects to sell 30,000 pool cues for $14 each. Direct materials costs are $4, direct manufacturing labor is $5, and manufacturing overhead is $0.89 per pool cue. The following inventory levels apply to 2020:
Beginning inventory Ending inventory
Direct materials 28,000 units 28,000 units
Work-in-process inventory 0 units 0 units
Finished goods inventory 1,600 units 2,700 units
On the 2020 budgeted income statement, what amount will be reported for sales?
A) $435,400
B) $420,000
C) $392,000
D) $407,400
Diff: 2
Objective: 3
AACSB: Analytical thinking
30) First Class, Inc., expects to sell 21,000 pool cues for $14 each. Direct materials costs are $4, direct manufacturing labor is $4, and manufacturing overhead is $0.83 per pool cue. The following inventory levels apply to 2020:
Beginning inventory Ending inventory
Direct materials 24,000 units 24,000 units
Work-in-process inventory 0 units 0 units
Finished goods inventory 1,700 units 3,100 units
How many pool cues need to be produced in 2020?
A) 24,100 cues
B) 22,700 cues
C) 22,400 cues
D) 19,600 cues
Diff: 2
Objective: 3
AACSB: Application of knowledge
31) First Class, Inc., expects to sell 25,000 pool cues for $12 each. Direct materials costs are $4, direct manufacturing labor is $6, and manufacturing overhead is $0.88 per pool cue. The following inventory levels apply to 2020:
Beginning inventory Ending inventory
Direct materials 29,000 units 29,000 units
Work-in-process inventory 0 units 0 units
Finished goods inventory 1,700 units 3,300 units
On the 2020 budgeted income statement, what amount will be reported for cost of goods sold?
A) $289,408
B) $272,000
C) $254,592
D) $307,904
Diff: 3
Objective: 3
AACSB: Application of knowledge
32) First Class, Inc., expects to sell 27,000 pool cues for $13 each. Direct materials costs are $3, direct manufacturing labor is $6, and manufacturing overhead is $0.87 per pool cue. The following inventory levels apply to 2020:
Beginning inventory Ending inventory
Direct materials 29,000 units 29,000 units
Work-in-process inventory 0 units 0 units
Finished goods inventory 1,900 units 2,500 units
What are the 2020 budgeted costs for direct materials, direct manufacturing labor, and manufacturing overhead, respectively?
A) $87,000; $174,000; $25,230
B) $86,700; $173,400; $25,143
C) $82,800; $165,600; $24,012
D) $81,000; $162,000; $23,490
Diff: 3
Objective: 3
AACSB: Application of knowledge
33) Bradford, Inc., expects to sell 10,000 ceramic vases for $20 each. Direct materials costs are $3, direct manufacturing labor is $11, and manufacturing overhead is $4 per vase. The following inventory levels apply to 2020:
Beginning inventory Ending inventory
Direct materials 4,000 units 4,000 units
Work-in-process inventory 0 units 0 units
Finished goods inventory 200 units 700 units
On the 2020 budgeted income statement, what amount will be reported for sales?
A) $210,000
B) $190,000
C) $280,000
D) $200,000
Diff: 3
Objective: 3
AACSB: Application of knowledge
34) Bradford, Inc., expects to sell 15,000 ceramic vases for $20 each. Direct materials costs are $4, direct manufacturing labor is $11, and manufacturing overhead is $4 per vase. The following inventory levels apply to 2020:
Beginning inventory Ending inventory
Direct materials 6,000 units 6,000 units
Work-in-process inventory 0 units 0 units
Finished goods inventory 300 units 500 units
How many ceramic vases should be produced in 2020?
A) 14,800 vases
B) 15,200 vases
C) 21,000 vases
D) 15,000 vases
Diff: 3
Objective: 3
AACSB: Application of knowledge
35) Bradford, Inc., expects to sell 12,000 ceramic vases for $20 each. Direct materials costs are $3, direct manufacturing labor is $12, and manufacturing overhead is $3 per vase. The following inventory levels apply to 2020:
Beginning inventory Ending inventory
Direct materials 2,000 units 2,000 units
Work-in-process inventory 0 units 0 units
Finished goods inventory 100 units 700 units
On the 2020 budgeted income statement, what amount will be reported for cost of goods sold?
A) $252,000
B) $226,800
C) $216,000
D) $205,200
Diff: 3
Objective: 3
AACSB: Application of knowledge
36) Bradford, Inc., expects to sell 16,000 ceramic vases for $21 each. Direct materials costs are $2, direct manufacturing labor is $11, and manufacturing overhead is $3 per vase. The following inventory levels apply to 2020:
Beginning inventory Ending inventory
Direct materials 4,000 units 4,000 units
Work-in-process inventory 0 units 0 units
Finished goods inventory 200 units 700 units
What are the 2020 budgeted production costs for direct materials, direct manufacturing labor, and manufacturing overhead, respectively?
A) $33,000; $181,500; $49,500
B) $32,000; $176,000; $48,000
C) $8,000; $44,000; $12,000
D) $8,000; $0; $14,100
Diff: 3
Objective: 3
AACSB: Application of knowledge
37) The following information pertains to the January operating budget for Murphy Corporation, a retailer:
Budgeted sales are $206,000 for January
Collections of sales are 50% in the month of sale and 50% the next month
Cost of goods sold averages 61% of sales
Merchandise purchases total $160,000 in January
Marketing costs are $3,600 each month
Distribution costs are $6,000 each month
Administrative costs are $10,000 each month
For January, budgeted gross margin is:
A) $103,000
B) $125,660
C) $80,340
D) $46,000
Diff: 3
Objective: 3
AACSB: Application of knowledge
38) The following information pertains to the January operating budget for Murphy Corporation, a retailer:
Budgeted sales are $203,000 for January
Collections of sales are 50% in the month of sale and 50% the next month
Cost of goods sold averages 66% of sales
Merchandise purchases total $152,000 in January
Marketing costs are $3,200 each month
Distribution costs are $5,000 each month
Administrative costs are $10,200 each month
For January, the amount budgeted for the nonmanufacturing costs budget is:
A) $87,420
B) $10,200
C) $170,400
D) $18,400
Diff: 2
Objective: 3
AACSB: Application of knowledge
39) Tiger Pride produces two product lines: T-shirts and Sweatshirts. Product profitability is analyzed as follows:
T-SHIRTS SWEATSHIRTS
Production and sales volume 64,000 units 29,000 units
Selling price $16.00 $29.00
Direct material $2.00 $ 5.00
Direct labor $ 4.50 $8.20
Manufacturing overhead $ 2.00 $ 3.00
Gross profit $7.50 $12.80
Selling and administrative $ 4.00 $ 7.00
Operating profit $3.50 $5.80
What is the projected decline in operating income if the direct materials costs of T-Shirts increase to $3.50 per unit and direct labor costs of Sweatshirts increase to $14.00 per unit?
A) $264,200
B) $96,000
C) $168,200
D) $630,000
Diff: 1
Objective: 3
AACSB: Application of knowledge
40) Nantucket Industries manufactures and sells two models of watches, Prime and Luxuria. It expects to sell 4,000 units of Prime and 1,700 units of Luxuria in 2020.The following estimates are given for 2020:
Prime Luxuria
Selling price $200 $500
Direct materials 40 50
Direct labor 60 190
Manufacturing overhead 50 120
Nantucket had an inventory of 220 units of Prime and 115 units of Luxuria at the end of 2019. It has decided that as a measure to counter stock outages it will maintain ending inventory of 390 units of Prime and 220 units of Luxuria.
Each Luxuria watch requires one unit of Crimpson and has to be imported at a cost of $10. There were 140 units of Crimpson in stock at the end of 2019.The management does not want to have any stock of Crimpson at the end of 2020.
How many units of Prime watches must be produced in 2020?
A) 4,390 units
B) 4,170 units
C) 4,000 units
D) 3,780 units
Diff: 3
Objective: 3
AACSB: Application of knowledge
41) Nantucket Industries manufactures and sells two models of watches, Prime and Luxuria. It expects to sell 3,500 units of Prime and 1,300 units of Luxuria in 2020.The following estimates are given for 2020:
Prime Luxuria
Selling price $200 $500
Direct materials 30 70
Direct labor 50 190
Manufacturing overhead 60 130
Nantucket had an inventory of 200 units of Prime and 105 units of Luxuria at the end of 2019. It has decided that as a measure to counter stock outages it will maintain ending inventory of 390 units of Prime and 250 units of Luxuria.
Each Luxuria watch requires one unit of Crimpson and has to be imported at a cost of $14. There were 140 units of Crimpson in stock at the end of 2019.The management does not want to have any stock of Crimpson at the end of 2020.
What is the amount budgeted for purchase of Crimpson in 2020?
A) $51,660
B) $18,270
C) $20,230
D) $18,200
Diff: 3
Objective: 3
AACSB: Application of knowledge
42) Nantucket Industries manufactures and sells two models of watches, Prime and Luxuria. It expects to sell 3,000 units of Prime and 1,400 units of Luxuria in 2020.The following estimates are given for 2020:
Prime Luxuria
Selling price $200 $500
Direct materials 20 100
Direct labor 60 190
Manufacturing overhead 60 140
Nantucket had an inventory of 230 units of Prime and 85 units of Luxuria at the end of 2019. It has decided that as a measure to counter stock outages it will maintain ending inventory of 380 units of Prime and 240 units of Luxuria.
Each Luxuria watch requires one unit of Crimpson and has to be imported at a cost of $12. There were 130 units of Crimpson in stock at the end of 2019. The management does not want to have any stock of Crimpson at the end of 2020.
What is the total budgeted cost of goods sold for Nantucket Industries in 2020?
A) $1,482,000
B) $1,022,000
C) $1,038,800
D) $1,254,000
Diff: 3
Objective: 3
AACSB: Application of knowledge
43) Nantucket Industries manufactures and sells two models of watches, Prime and Luxuria. It expects to sell 3,700 units of Prime and 1,400 units of Luxuria in 2020.The following estimates are given for 2020:
Prime Luxuria
Selling price $200 $500
Direct materials 30 90
Direct labor 90 200
Manufacturing overhead 60 150
Nantucket had an inventory of 220 units of Prime and 75 units of Luxuria at the end of 2019. It has decided that as a measure to counter stock outages it will maintain ending inventory of 400 units of Prime and 250 units of Luxuria.
Each Luxuria watch requires one unit of Crimpson and has to be imported at a cost of $13. There were 140 units of Crimpson in stock at the end of 2019. The management does not want to have any stock of Crimpson at the end of 2020.
What is the total budgeted cost of goods manufactured in 2020?
A) $1,282,000
B) $1,172,600
C) $1,391,400
D) $1,392,600
Diff: 3
Objective: 3
AACSB: Application of knowledge
44) Furniture, Inc., estimates the following number of mattress sales for the first four months of 2020:
Month Sales
January 31,000
February 34,800
March 31,600
April 37,200
Finished goods inventory at the end of December is 6,800 units. Target ending finished goods inventory is 20% of the next month's sales.
How many mattresses need to be produced in January 2020?
A) 30,400 mattresses
B) 31,160 mattresses
C) 44,000 mattresses
D) 44,760 mattresses
Diff: 2
Objective: 3
AACSB: Application of knowledge
45) Furniture, Inc., estimates the following number of mattress sales for the first four months of 2020:
Month Sales
January 26,000
February 35,800
March 29,600
April 44,200
Finished goods inventory at the end of December is 7,100 units. Target ending finished goods inventory is 10% of the next month's sales.
How many mattresses should be produced in the first quarter of 2020?
A) 93,140 mattresses
B) 88,720 mattresses
C) 66,240 mattresses
D) 57,660 mattresses
Diff: 3
Objective: 3
AACSB: Application of knowledge
46) Wallace Company provides the following data for next year:
Month Budgeted Sales
January $127,000
February 117,000
March 139,000
April 148,000
The gross profit rate is 25% of sales. Inventory at the end of December is $28,600 and target ending inventory levels are 10% of next month's sales, stated at cost.
What is the amount of purchases budgeted for January?
A) $86,475
B) $75,425
C) $95,250
D) $104,025
Diff: 3
Objective: 3
AACSB: Application of knowledge
47) Wallace Company provides the following data for next year:
Month Budgeted Sales
January $129,000
February 112,000
March 134,000
April 147,000
The gross profit rate is 25% of sales. Inventory at the end of December is $23,600 and target ending inventory levels are 10% of next month's sales, stated at cost.
What is the amount of purchases budgeted for February?
A) $30,150
B) $84,000
C) $85,650
D) $106,800
Diff: 3
Objective: 3
AACSB: Application of knowledge
48) Three Bears Manufacturing produces an auto-quartz watch movement called OM362. Three Bears expects to sell 10,000 units of OM362 and to have an ending finished inventory of 3,000 units. Currently, it has a beginning finished inventory of 1,200 units. Each unit of OM362 requires two labor operations, one labor hour(s) of assembling and three labor hour(s) of polishing. The direct labor rate for assembling is $11 per assembling hour and the direct labor rate for polishing is $15.50 per polishing hour.
The expected number of hours of direct labor for OM362 is:
A) 8,200 hours of assembling; 24,600 hours of polishing
B) 11,800 hours of assembling; 35,400 hours of polishing
C) 24,600 hours of assembling; 8,200 hours of polishing
D) 35,400 hours of assembling; 11,800 hours of polishing
Diff: 3
Objective: 3
AACSB: Application of knowledge
49) Three Bears Manufacturing produces an auto-quartz watch movement called OM362. Three Bears expects to sell 10,000 units of OM362 and to have an ending finished inventory of 7,000 units. Currently, it has a beginning finished inventory of 1,200 units. Each unit of OM362 requires two labor operations, one labor hour(s) of assembling and one labor hour(s) of polishing. The direct labor rate for assembling is $13 per assembling hour and the direct labor rate for polishing is $16.50 per polishing hour.
The expected cost of direct labor for OM362 is:
A) $295,000
B) $330,400
C) $466,100
D) $501,500
Diff: 2
Objective: 3
AACSB: Application of knowledge
50) J & S Manufacturing expects to produce and sell 14,000 units of Big, its only product, for $20 each. Direct material cost is $7 per unit, direct labor cost is $10 per unit, and variable manufacturing overhead is $10 per unit. Fixed manufacturing overhead is $28,000 in total. Variable selling and administrative expenses are $3 per unit, and fixed selling and administrative costs are $3,000 in total. According to generally accepted accounting principles, inventoriable cost per unit of Big would be:
A) $17.00 per unit
B) $20.00 per unit
C) $29.00 per unit
D) $27.00 per unit
Diff: 2
Objective: 3
AACSB: Application of knowledge
51) JJ Esscence Inc. always has a 12-month budget in place. This is called a:
A) rolling budget
B) zero based budget
C) activity based budget
D) kaizen budget
Diff: 1
Objective: 3
AACSB: Analytical thinking
52) JJ Essence Inc.'s management prepares a type of budget that causes them to continuously think dynamically about the forthcoming 12 months, regardless of the time of year or the quarter at hand. This is called a:
A) rolling budget
B) kaizen budget
C) activity based budget
D) zero based budget
Diff: 1
Objective: 3
AACSB: Analytical thinking
53) The use of activity-based budgeting is growing because of:
A) the increased use of activity-based costing
B) the increased use of kaizen costing
C) increases in work-in-process inventory
D) increases in direct materials inventory
Diff: 1
Objective: 3
AACSB: Analytical thinking
54) Activity-based budgeting would separately estimate:
A) the cost of overhead for a department
B) a plant-wide cost-driver rate
C) the cost of a setup activity
D) All of these answers are correct.
Diff: 2
Objective: 3
AACSB: Analytical thinking
55) Activity-based-costing analysis makes no distinction between:
A) direct-materials inventory and work-in-process inventory
B) short-run variable costs and short-run fixed costs
C) parts of the supply chain
D) components of the value chain
Diff: 3
Objective: 3
AACSB: Analytical thinking
56) Activity-based budgeting makes it easier to:
A) determine a rolling budget
B) prepare pro forma financial statements
C) determine how to reduce costs
D) execute a financial budget
Diff: 3
Objective: 3
AACSB: Analytical thinking
57) Which of the following statements is true about activity-based budgeting?
A) activity-based budgeting estimates total costs more accurately than cost-based budgeting
B) activity-based budgeting provides more detailed information than cost-based budgeting
C) activity-based budgeting is cheaper than cost-based budgeting
D) activity-based budgeting is simpler to implement than cost-based budgeting
Diff: 3
Objective: 3
AACSB: Analytical thinking
58) Activity-based budgeting:
A) uses one cost driver such as direct labor-hours
B) uses only output-based cost drivers such as units sold
C) focuses on activities necessary to produce and sell products and services
D) classifies costs by functional area within the value chain
Diff: 1
Objective: 3
AACSB: Analytical thinking
59) Which one of the following budgets would be prepared using activity based budgeting techniques?
A) direct materials purchase budget
B) revenues budget
C) manufacturing overhead cost budget
D) production budget
Diff: 2
Objective: 3
AACSB: Analytical thinking
60) A rolling budget is the same as a continuous budget.
Diff: 2
Objective: 3
AACSB: Analytical thinking
61) Cost of goods sold budget is calculated as follows: beginning finished-goods inventory +cost of goods manufactured - ending finished-goods inventory
Diff: 2
Objective: 3
AACSB: Analytical thinking
62) Preparation of the budgeted balance sheet is the final step in preparing the operating budget.
Diff: 1
Objective: 3
AACSB: Analytical thinking
63) A company usually prepares a budget for nonmanufacturing costs after preparing all operating budgets.
Diff: 2
Objective: 3
AACSB: Analytical thinking
64) The cost of goods sold budget is calculated by deducting beginning finished-goods from cost of goods available for sale.
Diff: 2
Objective: 3
AACSB: Analytical thinking
65) Data from the revenues budget is utilized in the production budget.
Diff: 2
Objective: 3
AACSB: Analytical thinking
66) Cost-based budgeting is a budgeting method that focuses on the budgeted cost of the activities necessary to produce and sell products and services.
Diff: 2
Objective: 3
AACSB: Analytical thinking
67) The production cost budget identifies how each product is manufactured and specifies all the materials, the quantity of materials in each finished product, and the work centers where the operations will be performed.
Diff: 2
Objective: 3
AACSB: Analytical thinking
68) The manufacturing labor budget depends on wage rates, production methods, and hiring plans.
Diff: 2
Objective: 3
AACSB: Analytical thinking
69) The revenues budget is prepared after all other operating budgets are prepared as it is at that point that the amount of projected expenses are known and so a target revenue can be calculated to cover those expenses and provide a target profit.
Diff: 3
Objective: 3
AACSB: Analytical thinking
70) Activity-based budgeting, with its focus on cost drivers and the cost of activities, provides better decision-making information than budgeting based solely on output-based cost drivers (units produced, units sold, or revenues).
Diff: 2
Objective: 3
AACSB: Analytical thinking
71) Activity-based costing analysis takes a long-run perspective and treats all activity costs as variable costs.
Diff: 3
Objective: 3
AACSB: Analytical thinking
72) As budgeting is not a cross-functional activity, it tends to be accurate and reliable with regard to forecasts.
Diff: 1
Objective: 3
AACSB: Analytical thinking
73) Activity-based budgeting would permit the use of multiple drivers and multiple cost pools in the budgeting process.
Diff: 2
Objective: 3
AACSB: Analytical thinking
74) Listed below are elements of the master budget. Determine whether each budget is an operating budget or a financial budget. Place an O for operating budget or F for a financial budget.
1. Capital expenditures budget
2. Cost of goods sold budget
3. Revenues budget
4. Budgeted statement of cash flows
5. Distribution costs budget
6. Marketing costs budget
7. Cash budget
8. Direct materials cost budget
9. Budgeted balance sheet
10. Budgeted income statement
1. F 6. O
2. O 7. F
3. O 8. O
4. F 9. F
5. O 10. O
Diff: 3
Objective: 3
AACSB: Analytical thinking
75) Prescher Company sells three products with the following seasonal sales pattern:
Products
Quarter A B C
1 40% 30% 10%
2 30% 20% 30%
3 20% 20% 50%
4 10% 30% 10%
The annual sales budget shows forecasts for the different products and their expected selling price per unit to be as follows:
Product Units Selling Price
A 50,000 $ 16
B 125,000 40
C 62,500 24
Required:
Prepare a sales budget, in units and dollars, by quarters for the company for the coming year.
Quarter Quarter Quarter Quarter Total
Product A
Sales (in units) 20,000 15,000 10,000 5,000 50,000
× Price per unit $16 $16 $16 $16 $16
Sales (in dollars) $320,000 $240,000 $160,000 $80,000 $800,000
Product B
Sales (in units) 37,500 25,000 25,000 37,500 125,000
× Price per unit $40 $40 $40 $40 $40
Sales (in dollars) $1,500,000 $1,000,000 $1,000,000 $1,500,000 $5,000,000
Product C
Sales (in units) 6,250 18,750 31,250 6,250 62,500
× Price per unit $24 $24 $24 $24 $24
Sales (in dollars) $150,000 $450,000 $750,000 $150,000 $1,500,000
Total sales $1,970,000 $1,690,000 $1,910,000 $1,730,000 $7,300,000
Diff: 2
Objective: 3
AACSB: Application of knowledge
76) Lubriderm Corporation has the following budgeted unit sales for the next six-month period:
Month Unit Sales
June 90,000
July 120,000
August 210,000
September 150,000
October 180,000
November 120,000
There were 30,000 units of finished goods in inventory at the beginning of June. Plans are to have an inventory of finished products that equal 20% of the unit sales for the next month.
Five pounds of materials are required for each unit produced. Each pound of material costs $8. Inventory levels for materials are equal to 30% of the needs for the next month. Materials inventory on June 1 was 15,000 pounds.
Required:
a. Prepare production budgets in units for July, August, and September.
b. Prepare a purchases budget in pounds for July, August, and September, and give total purchases in both pounds and dollars for each month.
a. July August September
Budgeted sales 120,000 210,000 150,000
Add: Required ending inventory 42,000 30,000 36,000
Total inventory requirements 162,000 240,000 186,000
Less: Beginning inventory 24,000 42,000 30,000
Budgeted production 138,000 198,000 156,000
b. July August September
Production in units 138,000 198,000 156,000
Targeted ending inventory in lbs.* 297,000 234,000 **252,000
Production needs in lbs.*** 690,000 990,000 780,000
Total requirements in lbs. 987,000 1,224,000 1,032,000
Less: Beginning inventory in lbs. ****207,000 297,000 234,000
Purchases needed in lbs. 780,000 927,000 798,000
Cost ($8 per lb.) × $8 × $8 × $8
Total material purchases $6,240,000 $7,416,000 $6,384,000
* 0.3 times next month's needs
** (180,000 + 24,000 - 36,000) times 5 lbs. × 0.3
*** 5 lbs. times units to be produced, across row
**** (690,000 × .3) = 207,000 lbs., etc. row across
Diff: 3
Objective: 3
AACSB: Application of knowledge
77) Perry Company has provided the following information:
Month Budgeted Sales
March $200,000
April 212,000
May 204,000
June 218,000
July 210,000
In addition, the gross profit rate is 40% and the desired inventory level is 30% of next month's cost of sales.
Required:
Prepare a purchases budget for April through June.
Desired ending inventory $36,720 $39,240 $37,800 $113,760
Add: Cost of goods sold 127,200 122,400 130,800 380,400
Total needed 163,920 161,640 168,600 494,160
Less: Opening inventory 38,160 36,720 39,240 114,120
Total purchases budget $125,760 $124,920 $129,360 $380,040
Diff: 2
Objective: 3
AACSB: Application of knowledge
78) Favata Company has the following information:
Month Budgeted Sales
June $60,000
July 51,000
August 40,000
September 70,000
October 72,000
In addition, the cost of goods sold rate is 70% and the desired inventory level is 30% of next month's cost of sales.
Required:
Prepare a purchases budget for July through September.
Desired ending inventory $ 8,400 $14,700 $15,120 $15,120
Plus: COGS 35,700 28,000 49,000 112,700
Total needed 44,100 42,700 64,120 127,820
Less beginning inventory 10,710 8,400 14,700 10,710
Total purchases $33,390 $34,300 $49,420 $117,110
Diff: 2
Objective: 3
AACSB: Application of knowledge
79) Picture Pretty manufactures picture frames. Sales for August are expected to be 10,000 units of various sizes. Historically, the average frame requires four feet of framing, one square foot of glass, and two square feet of backing. Beginning inventory includes 1,500 feet of framing, 500 square feet of glass, and 500 square feet of backing. Current prices are $0.90 per foot of framing, $8.00 per square foot of glass, and $4 per square foot of backing. Ending inventory of materials should be 150% of beginning inventory. Purchases are paid for in the month acquired.
Required:
a. Determine the quantity of framing, glass, and backing that is to be purchased during August.
b. Determine the total costs of direct materials for August purchases.
a. Framing Glass Backing
Desired ending inventory* 2,250 750 750
Production needs (10,000 units)** 40,000 10,000 20,000
Total needs 42,250 10,750 20,750
Less: Beginning inventory 1,500 500 500
Purchases planned 40,750 10,250 20,250
b. Cost of direct materials:
Framing (40,750 × $0.90) $36,675.00
Glass (10,250 × $8.00) 82,000.00
Backing (20,250 × $4) 81,000.00
Total $199,675.00
* 1,500 × 1.5 = 2,250 framing
500 × 1.5 = 750 glass
500 × 1.5 = 750 backing
** 10,000 × 4 feet of framing = 40,000 feet of framing
10,000 × 1 square foot of glass = 10,000 square feet of glass
10,000 × 2 square feet of backing = 20,000 square feet of backing
Diff: 2
Objective: 3
AACSB: Application of knowledge
80) Christy Enterprises reports the year-end information from 2020 as follows:
Sales (100,000 units) $500,000
Cost of goods sold 300,000
Gross profit 200,000
Operating expenses (includes $20,000 of Depreciation) 120,000
Net income $ 80,000
Christy is developing the 2020 budget. In 2020 the company would like to increase selling prices by 10%, and as a result expects a decrease in sales volume of 5%. Cost of goods sold as a percentage of sales is expected to increase to 62%. Other than depreciation, all operating costs are variable.
Required:
Prepare a budgeted income statement for 2020.
Budgeted Income Statement
For the Year 2020
Sales (95,000 × $5.50) $522,500
Cost of goods sold (2020 sales × 62%) 323,950
Gross profit 198,550
Less: Operating expenses [($1.00 × 95,000] + $20,000) 115,000
Net income $ 83,550
Diff: 2
Objective: 3
AACSB: Application of knowledge
81) Describe operating and financial budgets and give at least two examples of each discussed in the textbook.
Examples of operating budgets include the revenues budget, production budget, direct materials costs budget, direct manufacturing labor costs budget, manufacturing overhead budget, and budgets for R&D, marketing, distribution, customer service, and administrative activities.
Financial budgets are used to evaluate the financial consequences of a proposed decision.
Examples of financial budgets include the capital expenditures budget, cash budget, budgeted balance sheet, and the budgeted statement of cash flows.
Diff: 2
Objective: 3
AACSB: Analytical thinking
82) Discuss the importance of the sales forecast and items that influence its accuracy.
The sales forecast is a challenge to predict because its accuracy depends on the ability to forecast the state of the general economy, changes in the industry, actions of the competition, and developments in technology. Each of these items affects individual products or product lines and are quantified and aggregated to obtain the sales forecast.
Diff: 2
Objective: 3
AACSB: Analytical thinking
83) Rolling budgets help management to:
A) better review the most recent calendar year
B) deal with a long-term view such as 5-year planning frame
C) think dynamically about the forthcoming 12 months
D) rigidly administer the budget
Diff: 2
Objective: 3
AACSB: Analytical thinking
Objective 6.4
1) Financial planning models:
A) are primarily used to evaluate the differences between actual and planned volume
B) are not part of sensitivity analysis
C) are mathematical representations of the relationships among factors such as operating and financing activities that affect the budget
D) allow for analysis of changes in predicted data but not the other underlying assumptions of the budget
Diff: 2
Objective: 4
AACSB: Analytical thinking
2) Financial planning software packages assist management with:
A) assigning responsibility to various levels of management
B) identifying the target customer
C) sensitivity analysis in their planning and budgeting activities
D) achieving greater commitment from lower management
Diff: 2
Objective: 4
AACSB: Analytical thinking
3) ERP systems store vast quantities of information about the materials, machines and equipment, labor, power, maintenance, and setups needed to manufacture different products. This helps simplify the budgeting process as ERP systems:
A) can quickly calculate the manufacturing and nonmanufacturing costs based on a given sales quantity
B) automatically identify and record changes in processes involved in producing products
C) identify which underlying assumptions are likely to change
D) always use a rolling budget ensuring that a budget is always available for a specified future period
Diff: 1
Objective: 4
AACSB: Analytical thinking
4) When performing a sensitivity analysis, if the selling price per unit is increased, then the:
A) per unit fixed administrative costs will increase
B) per unit direct materials purchase price will increase
C) total volume of sales will increase
D) total costs for sales commissions and other nonmanufacturing variable costs will increase
Diff: 3
Objective: 4
AACSB: Analytical thinking
5) Sensitivity analysis helps managers evaluate risks:
A) by showing the effects of changes to the original data or an underlying assumption
B) by identifying inconsistencies in underlying assumptions and actual conditions
C) by removing the effects of foreign currency exposure and other uncontrollable factors
D) by identifying gaps in the production process using information on setups needed to manufacture products
Diff: 3
Objective: 4
AACSB: Analytical thinking
6) Advanced Enterprises reports year-end information from 2019 as follows:
Sales (161,250 units) $964,000
Cost of goods sold (645,000)
Gross margin 319,000
Operating expenses (267,000)
Operating income $52,000
Advanced is developing the 2020 budget. In 2020 the company would like to increase selling prices by 13.5%, and as a result expects a decrease in sales volume of 9%. All other operating expenses are expected to remain constant. Assume that cost of goods sold is a variable cost and that operating expenses are a fixed cost.
The budgeted sales for 2020 is:
A) $1,094,140
B) $964,000
C) $995,667
D) $877,240
Diff: 3
Objective: 4
AACSB: Application of knowledge
7) Advanced Enterprises reports year-end information from 2019 as follows:
Sales (160,250 units) $969,000
Cost of goods sold (641,000)
Gross margin 328,000
Operating expenses (268,000)
Operating income $60,000
Advanced is developing the 2020 budget. In 2020 the company would like to increase selling prices by 13.5%, and as a result expects a decrease in sales volume of 10%. All other operating expenses are expected to remain constant. Assume that cost of goods sold is a variable cost and that operating expenses are a fixed cost.
What is budgeted cost of goods sold for 2020?
A) $727,535
B) $576,900
C) $705,100
D) $641,000
Diff: 3
Objective: 4
AACSB: Application of knowledge
8) Advanced Enterprises reports year-end information from 2019 as follows:
Sales (161,250 units) $967,000
Cost of goods sold (645,000)
Gross margin 322,000
Operating expenses (264,000)
Operating income $58,000
Advanced is developing the 2020 budget. In 2020 the company would like to increase selling prices by 12.5%, and as a result expects a decrease in sales volume of 9%. All other operating expenses are expected to remain constant. Assume that cost of goods sold is a variable cost and that operating expenses are a fixed cost.
Should Advanced increase the selling price in 2020?
A) Yes, because operating income increases for 2020.
B) Yes, because sales revenue increases for 2020.
C) No, because sales volume decreases for 2020.
D) No, because gross margin decreases for 2020.
Diff: 3
Objective: 4
AACSB: Application of knowledge
9) Violet Sales Corp, reports the year-end information from 2020 as follows:
Sales (35,375 units) $283,000
Cost of goods sold (111,000)
Gross margin $172,000
Operating expenses (160,000)
Operating income $12,000
Violet is developing the 2020 budget. In 2020 the company would like to increase selling prices by 4.5%, and as a result expects a decrease in sales volume of 13%. All other operating expenses are expected to remain constant. Assume that cost of goods sold is a variable cost and that operating expenses are a fixed cost.
What is budgeted sales for 2020? (Round interim calculations to the nearest cent and the final answer to the nearest dollar.)
A) $295,735
B) $257,289
C) $334,181
D) $283,001
Diff: 3
Objective: 4
AACSB: Application of knowledge
10) Violet Sales Corp, reports the year-end information from 2020 as follows:
Sales (35,000 units) $280,000
Cost of goods sold (105,000)
Gross margin $175,000
Operating expenses (155,000)
Operating income $20,000
Violet is developing the 2020 budget. In 2020 the company would like to increase selling prices by 5.5%, and as a result expects a decrease in sales volume of 15%. All other operating expenses are expected to remain constant. Assume that cost of goods sold is a variable cost and that operating expenses are a fixed cost.
What is budgeted cost of goods sold for 2020?
A) $89,250
B) $110,775
C) $15,750
D) $251,090
Diff: 3
Objective: 4
AACSB: Application of knowledge
11) Violet Sales Corp, reports the year-end information from 2019 as follows:
Sales (35,500 units) $284,000
Cost of goods sold 106,000
Gross margin 178,000
Operating expenses 151,000
Operating income $27,000
Violet is developing the 2020 budget. In 2020 the company would like to increase selling prices by 5.5%, and as a result expects a decrease in sales volume of 15%. All other operating expenses are expected to remain constant. Assume that cost of goods sold is a variable cost and that operating expenses are a fixed cost.
Should Violet increase the selling price in 2020?
A) Yes, because sales revenue increases for 2020.
B) Yes, because gross margin increases for 2020.
C) No, because sales volume decreases for 2020.
D) No, because operating income decreases for 2020.
Diff: 3
Objective: 4
AACSB: Application of knowledge
12) Computer-based systems, like ERP, help managers budget for all manufacturing costs but lack the ability to help managers budget for non-manufacturing costs.
Diff: 2
Objective: 4
AACSB: Analytical thinking
13) Rolling budgets are constantly updated to reflect the latest cost and revenue information.
Diff: 1
Objective: 4
AACSB: Analytical thinking
14) Most computer-based financial planning models have difficulty incorporating sensitivity (what-if) analysis.
Diff: 2
Objective: 4
AACSB: Analytical thinking
15) Sensitivity analysis is a useful tool that helps managers evaluate risks.
Diff: 2
Objective: 4
AACSB: Analytical thinking
16) Computer-based systems, such as ERP systems, cannot perform calculations for financial planning models.
Diff: 2
Objective: 4
AACSB: Analytical thinking
17) To determine the predicted results, such as the change in budgeted operating income if there was a decrease in the selling price of a product by 5% and an increase in material costs of 3%.
Diff: 2
Objective: 4
AACSB: Analytical thinking
18) Sensitivity analysis is more likely to be used for sales forecasts and their impact on the operating budget rather than for fixed overhead costs and its impact on the marketing budget.
Diff: 2
Objective: 4
AACSB: Analytical thinking
19) Explain what is meant by sensitivity analysis in budgeting, and discuss how managers might use sensitivity analysis in practice.
It is possible, using these models, to examine the financial impact of one or more parameters that influence a master budget, for example selling price and material cost. Management could consider three levels of each of these two parameters, resulting in nine scenarios of different selling prices and material costs. The financial model could then present a master budget based on each of these changes, and demonstrate the financial impact on the original data given changes in selling prices and/or material costs. Management could use these predictions to make contingency plans, change their strategies, or simply update the budgets as environmental conditions change.
Diff: 2
Objective: 4
AACSB: Analytical thinking
20) Explain how if you were building a financial planning model in MS Excel how the sales forecast would impact the purchases budget, marketing budget, and the cash budget and why Excel would be perfect for sensitivity analysis.
Diff: 2
Objective: 4
AACSB: Analytical thinking
Objective 6.5
1) Which of the following is true of responsibility accounting?
A) It is a system that measures the plans, budgets, actions, and actual results of a responsibility center.
B) It is an arrangement of lines of responsibility and authority within a responsibility center.
C) It explicitly incorporates continuous improvement and changes due to learning curve.
D) It examines how a result will change if the original plan is not achieved.
Diff: 2
Objective: 5
AACSB: Analytical thinking
2) Which of the following departments is most likely to be a cost center?
A) sales department of a company selling industrial tools
B) call center of a company that serves customers and cross-sells other products
C) maintenance department of a luxury resort
D) research department of a company providing consultancy services
Diff: 2
Objective: 5
AACSB: Analytical thinking
3) Which of the following departments is most likely to be a profit center?
A) the accounting department of a company that also assists in budgeting process
B) the research and development department of a company
C) the sales department of a company whose objective is to maximize the revenues
D) the consulting department of a law firm
Diff: 2
Objective: 5
AACSB: Analytical thinking
4) A quality control manager of a golf ball maker is most likely to be responsible for a(n):
A) revenue center
B) investment center
C) cost center
D) profit center
Diff: 1
Objective: 5
AACSB: Analytical thinking
5) The district director of 5 mortgage origination offices staffed by bank associates who could call potential customers in an attempt to gain home mortgage and home equity loan business is most likely responsible for a(n):
A) revenue center
B) investment center
C) cost center
D) profit center
Diff: 1
Objective: 5
AACSB: Analytical thinking
6) A regional manager of a restaurant chain in charge of finding additional locations for expansion is most likely responsible for a(n):
A) revenue center
B) investment center
C) cost center
D) profit center
Diff: 1
Objective: 5
AACSB: Analytical thinking
7) Annette has been recently promoted to head of her department. She is responsible for activities that influence revenues and is responsible for controlling the expenses of her department. She is held responsible for maximizing the profits of the department and to ensure that the earnings are ploughed back into the business. Annette is most likely to head a (n):
A) revenue center
B) investment center
C) cost center
D) profit center
Diff: 1
Objective: 5
AACSB: Analytical thinking
8) A manager of a revenue center is responsible:
A) for only the profits of his center
B) for investments, revenues, and costs
C) for only the sales and fees generated by his center
D) for the revenues, costs, and profits of his center
Diff: 2
Objective: 5
AACSB: Analytical thinking
9) A controllable cost is any cost that can be ________ by a responsibility center manager for a period of time.
A) controlled
B) influenced
C) segregated
D) excluded
Diff: 2
Objective: 5
AACSB: Analytical thinking
10) Which of the following statements is true about responsibility accounting statements?
A) Responsibility accounting excludes controllable costs.
B) Responsibility accounting segregates fixed costs and variable costs.
C) Responsibility accounting excludes fixed costs and variable costs.
D) Responsibility accounting segregates uncontrollable costs from controllable costs.
Diff: 2
Objective: 5
AACSB: Analytical thinking
11) Which of the following is the fundamental purpose of responsibility accounting?
A) to penalize managers for inefficiency
B) to gather information that will enable future improvement
C) to create an efficient and centralized organization
D) to evaluate the performance of managers
Diff: 2
Objective: 5
AACSB: Analytical thinking
12) A company using responsibility accounting system decides to exclude all uncontrollable costs from a manager's performance report. Jenson is the machine supervisor. Which of the following costs will impact Jenson's performance report?
A) rent and taxes paid on by the company
B) cost of materials used in manufacture
C) direct labor cost
D) cost of power consumed by the plant
Diff: 2
Objective: 5
AACSB: Analytical thinking
13) Responsibility accounting:
A) emphasizes controllability
B) focuses on who should be asked about the information
C) attempts to assign blame for problems to a specific manager
D) attempts to create a decentralized organization
Diff: 3
Objective: 5
AACSB: Analytical thinking
14) A primary consideration in assigning a cost to a responsibility center is:
A) whether the cost is fixed or variable
B) whether the cost is direct or indirect
C) who can best control the change in that cost
D) where in the organizational structure the cost was incurred
Diff: 3
Objective: 5
AACSB: Analytical thinking
15) The major objectives of a master budget is to:
A) define responsibility centers, provide a basis for performance evaluation, and promote communication and coordination among organization units.
B) define responsibility centers and place blame for budget variances.
C) encourage managers to devise operating plans, provide a basis for performance evaluation, and promote communication and coordination among organization units.
D) encourage managers to devise operating plans, place of blame for missed budget targets, and increase the odds of goal congruence between superiors and subordinates.
Diff: 3
Objective: 5
AACSB: Analytical thinking
16) A responsibility center is a part, segment, or subunit of an organization, whose manager is accountable for a specified set of activities that impact revenues, costs, or profits and in the case of an investment center, profits.
Diff: 1
Objective: 5
AACSB: Analytical thinking
17) Decentralized operations organized by brand or product line might result in some inefficiencies as support functions may be duplicated.
Diff: 2
Objective: 5
AACSB: Analytical thinking
18) In a revenue center, a manager is responsible for investments, revenues, and costs.
Diff: 1
Objective: 5
AACSB: Analytical thinking
19) A packaging department is most likely a profit center.
Diff: 2
Objective: 5
AACSB: Analytical thinking
20) Variances between actual and budgeted amounts inform management about performance relative to the budget.
Diff: 1
Objective: 5
AACSB: Analytical thinking
21) Variances that are calculated frequently and in a timely manner can provide early warnings to management so corrective action can be taken.
Diff: 1
Objective: 5
AACSB: Analytical thinking
22) A responsibility center is a part, segment, or subunit of an organization whose manager is accountable for a specified set of activities.
Diff: 2
Objective: 5
AACSB: Analytical thinking
23) Management will most likely behave the same way if a department is structured as a cost center or if the same department is structured as a profit center.
Diff: 2
Objective: 5
AACSB: Analytical thinking
24) Responsibility accounting focuses on control, NOT on information and knowledge.
Diff: 2
Objective: 5
AACSB: Analytical thinking
25) The sales department in any organization is usually a profit center.
Diff: 2
Objective: 5
AACSB: Analytical thinking
26) Distinguish between controllable and uncontrollable aspects of revenue and costs. Can a manager totally control all revenue and costs? Why or why not?
Diff: 2
Objective: 5
AACSB: Analytical thinking
Objective 6.6
1) The Japanese use the term kaizen when referring to:
A) scarce resources
B) pro forma financial statements
C) continuous improvement
D) the sales forecast
Diff: 1
Objective: 6
AACSB: Analytical thinking
2) Kaizen refers to incorporating cost reductions:
A) in each successive budgeting period
B) in each successive sales forecast
C) in all customer service centers
D) in all areas of the organization
Diff: 2
Objective: 6
AACSB: Analytical thinking
3) Tom Magic Company manufactures various kinds of toys for different age groups. The company's flagship product is Rx. The company currently requires 8.50 labor hours to manufacture per unit of Rx. The company believes that because of numerous small improvements in the process, it will require 0.10 labor-hours less and hence will only 8.40 labor-hours in the next quarter. It will require 8.35 and 8.25 labor-hours in third and fourth quarter. The company has adopted:
A) activity based budgeting
B) kaizen budgeting
C) zero-based budgeting
D) cost-based budgeting
Diff: 3
Objective: 6
AACSB: Analytical thinking
4) Kaizen budgeting involves:
A) large cost reductions
B) management directed improvements
C) continual small cost reductions
D) continual small revenue increases
Diff: 3
Objective: 6
AACSB: Analytical thinking
5) Kaizen budgeting is driven by:
A) management
B) employees
C) stockholders
D) creditors
Diff: 3
Objective: 6
AACSB: Analytical thinking
6) Sherry and John Enterprises are using the kaizen approach to budgeting for 2020. The budgeted income statement for January 2020 is as follows:
Sales (168,000 units) $1,090,000
Cost of goods sold (610,000)
Gross margin $480,000
Operating expenses (390,000)
(includes $50,000 of fixed costs)
Operating income $90,000
Under the kaizen approach, cost of goods sold and variable operating expenses are budgeted to decline by 1% per month.
What is budgeted cost of goods sold for March 2020?
A) $597,861
B) $616,100
C) $610,000
D) $603,900
Diff: 3
Objective: 6
AACSB: Application of knowledge
7) Sherry and John Enterprises are using the kaizen approach to budgeting for 2020. The budgeted income statement for January 2020 is as follows:
Sales (168,000 units) $1,050,000
Cost of goods sold (690,000)
Gross margin $360,000
Operating expenses (320,000)
(includes $53,000 of fixed costs)
Operating income $40,000
Under the kaizen approach, cost of goods sold and variable operating expenses are budgeted to decline by 3% per month.
What is budgeted gross margin for March 2020?
A) $338,724
B) $349,200
C) $381,924
D) $400,779
Diff: 3
Objective: 6
AACSB: Application of knowledge
8) Sherry and John Enterprises are using the kaizen approach to budgeting for 2020. The budgeted income statement for January 2020 is as follows:
Sales (168,000 units) $1,020,000
Cost of goods sold (630,000)
Gross margin $390,000
Operating expenses (360,000)
(includes $50,000 of fixed costs)
Operating income $30,000
Under the kaizen approach, cost of goods sold and variable operating expenses are budgeted to decline by 2% per month.
What is the budgeted operating income for March 2020?
A) $92,600
B) $353,800
C) $67,224
D) $617,400
Diff: 2
Objective: 6
AACSB: Application of knowledge
9) To reduce budgetary slack management may:
A) incorporate stretch or challenge targets
B) use external benchmark performance measures
C) award bonuses for achieving budgeted amounts
D) reduce projected cost targets by 10% across all areas
Diff: 3
Objective: 6
AACSB: Analytical thinking
10) Which of the following would NOT be an effective budgeting practice?
A) Allowing managers to build "hedges" into their budgets to guard against adverse circumstances.
B) Prepare budgets for uses that are mostly planning related and to a lesser extent, performance evaluation related.
C) Use a rolling budget.
D) Where ever possible, take into consideration external benchmarks.
Diff: 2
Objective: 6
AACSB: Analytical thinking
11) A stretch budget is a budget that:
A) crosses more than one responsibility center
B) represents a challenging, but achievable level of performance
C) is impossible to implement in a cost center
D) is designed to include the effects of exchange rate fluctuations
Diff: 2
Objective: 6
AACSB: Analytical thinking
12) Rolling budgets help in reducing budgetary slack.
Diff: 2
Objective: 6
AACSB: Analytical thinking
13) Budgetary slack is the practice of underestimating costs so as to project an optimistic future outlook.
Diff: 1
Objective: 6
AACSB: Analytical thinking
14) Companies implementing kaizen budgeting believe that employees who actually do the job have the best knowledge of how the job can be done better.
Diff: 1
Objective: 6
AACSB: Analytical thinking
15) The Japanese use kaizen to mean financing alternatives.
Diff: 1
Objective: 6
AACSB: Analytical thinking
16) Kaizen budgeting does NOT make sense for cost centers.
Diff: 2
Objective: 6
AACSB: Analytical thinking
17) Kaizen budgeting encourages dramatic improvements and substantial reduction in costs.
Diff: 1
Objective: 6
AACSB: Analytical thinking
18) Kaizen budgeting allows for budgeting of small incremental increases in costs each budgeting period to allow for the effects of normal inflation.
Diff: 2
Objective: 6
AACSB: Analytical thinking
19) Budgeting is a mechanical tool because the budgeting techniques are free of emotions.
Diff: 2
Objective: 6
AACSB: Analytical thinking
20) Budgetary slack results because management sets challenging but achievable levels of expected performance.
Diff: 2
Objective: 6
AACSB: Analytical thinking
21) Most ethical issues related to budgetary decisions are clear cut because at no point should pressure for performance influence budgetary decisions.
Diff: 2
Objective: 6
AACSB: Ethical understanding and reasoning
22) Kaizen budgeting can be applied to activities such as setups with the goal of reducing setup time and setup costs.
Diff: 2
Objective: 6
AACSB: Analytical thinking
23) Kaizen budgeting techniques, with suggestions put forth by management, are utilized in companies to generate "quantum improvement leaps."
Diff: 2
Objective: 6
AACSB: Analytical thinking
24) When the operating budget is used as a control device, managers are less likely to be motivated to budget higher sales than actually anticipated.
Diff: 3
Objective: 6
AACSB: Analytical thinking
25) Budgeting based on cost for specific activities is a key building block of the master budget for companies that use the Kaizen approach.
Diff: 3
Objective: 6
AACSB: Analytical thinking
26) Administration of budgets is free of emotions as budgets are mechanical tools.
Diff: 2
Objective: 6
AACSB: Analytical thinking
27) Omitting basic maintenance expenditures out of a budget could be considered unethical if the risks of a breakdown and loss are substantial.
Diff: 2
Objective: 6
AACSB: Ethical understanding and reasoning
28) Alcott Company is developing its budgets for 2020 and, for the first time, will use the kaizen approach. The initial 2020 income statement, based on static data from 2019, is as follows:
Sales (140,000 units) $420,000
Cost of goods sold (280,000)
Gross margin 140,000
Operating expenses (includes $28,000 of depreciation) (112,000)
Net income $28,000
Selling prices for 2020 are expected to increase by 8%, and sales volume in units will decrease by 10%. The cost of goods sold as estimated by the kaizen approach will decline by 10% per unit. Other than depreciation, all other operating costs are expected to decline by 5%.
Required:
Prepare a kaizen-based budgeted income statement for 2020.
COGS (126,000 × $1.80) (226,800)
Gross margin 181,440
Operating expenses ($28,000 + $79,800) 107,800
Net income $ 73,640
Diff: 2
Objective: 6
AACSB: Application of knowledge
29) Steve Corporation is using the kaizen approach to budgeting for 2020. The budgeted income statement for January 2020 is as follows:
Sales (240,000 units) $360,000
Cost of goods sold (240,000)
Gross margin 120,000
Operating expenses (includes $32,000 of fixed costs) (96,000)
Net income $ 24,000
Under the kaizen approach, cost of goods sold and variable operating expenses are budgeted to decline by 1% per month.
Required:
Prepare a kaizen-based budgeted income statement for March of 2020.
Sales $360,000
Less: Cost of goods sold ($240,000 × 0.99 × 0.99) 235,224
Gross margin 124,776
Operating expenses [($64,000 × 0.99 × 0.99) + $32,000] 94,726
Net income $ 30,050
Diff: 2
Objective: 6
AACSB: Analytical thinking
30) Describe the concept of kaizen budgeting.
Diff: 2
Objective: 6
AACSB: Analytical thinking
31) Describe some of the drawbacks, including unethical behaviors, of using the operating budget as a control device.
The major problem with the budget performance report is not the report itself, but rather the way it is used. In general, managers are rewarded for favorable variances, and disciplined for unfavorable variances. This encourages managers to set lax standards for both sales and costs so favorable variances result. It can also lead to "budget games." Sometimes the "pressures" or stresses of trying to achieve budgeted objectives can lead to unethical behaviors that make managers look better on performance evaluations and obtain bonuses. Unethical actions such as biasing information during participative budgeting activities or otherwise carrying out activities to "game" the realization of budgets including questionable earnings management practices and improper arrangements with customers and suppliers.
Another drawback is that once the budget is established, if there is any variance between budget and actual, it is assumed to be because of actual. However, as we know, the budget will never be totally accurate due to the uncertainties of predicting the future.
If used properly, however, the operating budget can be a tremendous benefit to any company.
Diff: 2
Objective: 6
AACSB: Analytical thinking
32) What is budgetary slack? What are the pros and cons of building slack into the budget from the point of view of (a) an employee and (b) a senior manager?
Employee's point of view: There are two benefits from this point of view. First, the subordinate may be able to obtain excess resources to achieve desired goals. This may take a lot of pressure off the subordinate and reduce job anxiety. Second, the subordinate may be able to convince senior management to lower their work expectations of him or her. This may also lead to lower pressure on the subordinate to perform. Both of these types of slack building are designed to reduce job stress for the subordinate. However, if incentives are graduated in such a way that achieving higher and higher goals provides the subordinate with more and more compensation in the form of bonuses, then the subordinate may lose income by selecting lower goals.
Senior management's point of view: When subordinates build in slack, they are either using unnecessary resources to achieve a goal that they should have been able to achieve with fewer resources, or they are understating their performance capabilities. Thus, the organization is either not running as efficiently as it can, or is losing potential productivity from employees who are not working as hard as they can. In some cases, senior management may believe that subordinates build in slack to relieve job pressure. If burnout of employees has been happening in the organization, then perhaps senior management may be more forgiving and view some slack building as necessary to keep their employees from quitting.
Diff: 2
Objective: 6
AACSB: Analytical thinking
33) How is budgeting for a multinational corporation different than budgeting for a corporation that is strictly domestic?
Multinational corporations need to understand many different business environments with significant political, legal, and economic environments.
Multinational companies earn their revenues and incur their expenses in many different currencies, and must report their results a single currency. Additionally, management accountants in different countries need to budget for foreign exchange rates and anticipate changes that might take place during the year in the face of constantly fluctuating exchange rates.
Diff: 2
Objective: 6
AACSB: Analytical thinking
Objective 6.7
1) Which of the following is a reason why budgets in multinational companies are not used to evaluate the firm's performance relative to its budgets?
A) Evaluations based on budgets can be meaningless due to factors such as exchange rate risk and other volatility.
B) Evaluations based on budgets are not possible because of cultural differences in the budgeting approach.
C) Evaluations based on relative regional performance are considered more meaningful as compared to evaluations against budgets.
D) Evaluations based on budgets are harder when managers use sophisticated techniques to minimize foreign currency exposure.
Diff: 1
Objective: 7
AACSB: Analytical thinking
2) Which of the following statements is true in the case of budgeting for multinational companies?
A) While budgeting for multinational companies, managers consider difference in tax statutes as an uncontrollable factor.
B) While budgeting for multinational companies, managers do not account for foreign exchange fluctuations as the operating profits are reported in different currencies.
C) While budgeting for multinational companies, managers must be aware that budgets will not be used for evaluating performance.
D) While budgeting for multinational companies, managers are not concerned about the domestic factors of the different countries in which they operate.
Diff: 2
Objective: 7
AACSB: Analytical thinking
3) If an international business unit will experience considerable business and exchange rate risk, which of the following is a reasonable conclusion?
A) Because of the risk of global operations, multinational companies find budgeting to difficult to execute and therefore the costs often outweigh the benefits.
B) When conditions are shifting and volatile, budgeting is not useful for planning.
C) Risky situations may make budgeting difficult for evaluating performance but managers can use budgets to help them adapt their plans.
D) Budgets may need to be abandoned because senior managers can only evaluate performance.
Diff: 2
Objective: 7
AACSB: Analytical thinking
4) Some companies are budgeting annual carbon emissions of their operations after considering an annual global emissions budget, a share for individual sectors of the economy, and what a reasonable annual allocation would be for the company.
Diff: 2
Objective: 7
AACSB: Analytical thinking
5) The possibility of exchange rate fluctuations does NOT influence the budgeting procedures in a multinational corporation.
Diff: 2
Objective: 7
AACSB: Analytical thinking
6) In a multinational company, budgeting is primarily done to evaluate the firm's performance relative to its budgets.
Diff: 2
Objective: 7
AACSB: Analytical thinking
7) When conditions are volatile and rapidly shifting, senior managers may have to evaluate performance more subjectively rather than base evaluation on variances.
Diff: 2
Objective: 7
AACSB: Analytical thinking
Objective 6.A
1) The ________ is required to prepare the cash budget of an organization.
A) statement of shareholders' equity
B) budgeted balance sheet
C) capital expenditures budget
D) budgeted statement of cash flow
Diff: 2
Objective: A
AACSB: Analytical thinking
2) In the cash budget, the total cash available for needs is calculated using which of the following formulas?
A) ending cash + receipts
B) beginning cash + receipts
C) beginning cash + receipts - disbursements
D) beginning cash + projected depreciation expense
Diff: 2
Objective: A
AACSB: Analytical thinking
3) In the cash budget, the cash excess (surplus) or deficiency (deficit) is calculated using which of the following formulas?
A) beginning cash + receipts - disbursements
B) beginning cash + receipts - disbursements - minimum cash balance + loan proceeds
C) beginning cash + receipts - disbursements - minimum cash balance
D) total cash needed - cash disbursements
Diff: 2
Objective: A
AACSB: Analytical thinking
4) The cash budget is a schedule of expected cash receipts and disbursements that:
A) requires an aging of accounts receivable and accounts payable
B) is a self-liquidating cycle
C) is prepared immediately after the sales forecast
D) predicts the effect on the cash position at given levels of operations
Diff: 1
Objective: A
AACSB: Analytical thinking
5) The following information pertains to Monroe Company:
Month Sales Purchases
January $61,000 $35,000
February $80,000 $43,000
March $106,000 $66,000
∙ Cash is collected from customers in the following manner:
Month of sale 35%
Month following the sale 65%
∙ 50% of purchases are paid for in cash in the month of purchase, and the balance is paid the following month.
∙ Labor costs are 20% of sales. Other operating costs are $30,000 per month (including $10,000 of depreciation). Both of these are paid in the month incurred.
∙ The cash balance on March 1 is $8,000. A minimum cash balance of $6,000 is required at the end of the month. Money can be borrowed in multiples of $1,000.
How much cash will be collected from customers in March?
A) $96,900
B) $89,100
C) $106,000
D) $117,100
Diff: 2
Objective: A
AACSB: Analytical thinking
6) The following information pertains to Monroe Company:
Month Sales Purchases
January $62,000 $36,000
February $88,000 $40,000
March $102,000 $60,000
∙ Cash is collected from customers in the following manner:
Month of sale 35%
Month following the sale 65%
∙ 40% of purchases are paid for in cash in the month of purchase, and the balance is paid the following month.
∙ Labor costs are 30% of sales. Other operating costs are $40,000 per month (including $8,000 of depreciation). Both of these are paid in the month incurred.
∙ The cash balance on March 1 is $8,000. A minimum cash balance of $6,000 is required at the end of the month. Money can be borrowed in multiples of $1,000.
How much cash will be paid to suppliers in March?
A) $48,000
B) $60,000
C) $96,000
D) $100,000
Diff: 2
Objective: A
AACSB: Analytical thinking
7) The following information pertains to Monroe Company:
Month Sales Purchases
January $62,000 $38,000
February $85,000 $48,000
March $101,000 $63,000
∙ Cash is collected from customers in the following manner:
Month of sale 30%
Month following the sale 70%
∙ 45% of purchases are paid for in cash in the month of purchase, and the balance is paid the following month.
∙ Labor costs are 25% of sales. Other operating costs are $38,000 per month (including $9,000 of depreciation). Both of these are paid in the month incurred.
∙ The cash balance on March 1 is $8,000. A minimum cash balance of $6,000 is required at the end of the month. Money can be borrowed in multiples of $1,000.
How much cash will be disbursed in total in March?
A) $54,250
B) $63,250
C) $109,000
D) $118,000
Diff: 2
Objective: A
AACSB: Analytical thinking
8) The following information pertains to Monroe Company:
Month Sales Purchases
January $65,000 $35,000
February $81,000 $45,000
March $104,000 $59,000
∙ Cash is collected from customers in the following manner:
Month of sale 40%
Month following the sale 60%
∙ 45% of purchases are paid for in cash in the month of purchase, and the balance is paid the following month.
∙ Labor costs are 30% of sales. Other operating costs are $30,000 per month (including $8,000 of depreciation). Both of these are paid in the month incurred.
∙ The cash balance on March 1 is $19,300. A minimum cash balance of $6,000 is required at the end of the month. Money can be borrowed in multiples of $1,000.
What is the ending cash balance for March?
A) $19,300
B) $10,100
C) $5,000
D) $6,000
Diff: 2
Objective: A
AACSB: Analytical thinking
9) Freemore Company has the following sales budget for the last six months of 2020:
July $201,000 October $188,000
August 163,000 November 200,000
September 203,000 December 181,000
Sales are immediately due, however the cash collection of sales, historically, has been as follows:
55% of sales collected in the month of sale,
35% of sales collected in the month following the sale,
7% of sales collected in the second month following the sale, and
3% of sales are uncollectible.
Cash collections for September are:
A) $123,060
B) $168,700
C) $182,770
D) $194,180
Diff: 2
Objective: A
AACSB: Application of knowledge
10) Freemore Company has the following sales budget for the last six months of 2020:
July $209,000 October $186,000
August 165,000 November 206,000
September 203,000 December 190,000
Sales are immediately due, however the cash collection of sales, historically, has been as follows:
65% of sales collected in the month of sale,
25% of sales collected in the month following the sale,
8% of sales collected in the second month following the sale, and
2% of sales are uncollectible.
What is the ending balance of accounts receivable for the end of September, assuming uncollectible balances are written off at the end of the second month following the sale?
A) $201,950
B) $101,630
C) $91,355
D) $87,550
Diff: 2
Objective: A
AACSB: Application of knowledge
11) Freemore Company has the following sales budget for the last six months of 2020:
July $203,000 October $185,000
August 170,000 November 200,000
September 200,000 December 185,000
Sales are immediately due, however the cash collection of sales, historically, has been as follows:
60% of sales collected in the month of sale,
30% of sales collected in the month following the sale,
9% of sales collected in the second month following the sale, and
1% of sales are uncollectible.
Cash collections for October are:
A) $111,000
B) $186,300
C) $201,500
D) $183,150
Diff: 2
Objective: A
AACSB: Application of knowledge
12) Estate Corp., has the following information:
Month Budgeted Purchases
January $27,200
February 29,800
March 29,100
April 30,080
May 27,580
Purchases are paid for in the following manner:
10% of the purchase amount in the month of purchase
50% of the purchase amount in the month after purchase
40% of the purchase amount in the second month after purchase
What is the expected balance in Accounts Payable as of March 31?
A) $38,110
B) $14,550
C) $2,980
D) $26,190
Diff: 2
Objective: A
AACSB: Application of knowledge
13) Estate Corp., has the following information:
Month Budgeted Purchases
January $27,600
February 29,600
March 28,900
April 29,780
May 27,480
Purchases are paid for in the following manner:
10% of the purchase amount in the month of purchase
50% of the purchase amount in the month after purchase
40% of the purchase amount in the second month after purchase
What is the expected balance in Accounts Payable as of April 30?
A) $37,850
B) $38,362
C) $28,900
D) $17,868
Diff: 2
Objective: A
AACSB: Application of knowledge
14) Estate Corp., has the following information:
Month Budgeted Purchases
January $27,000
February 29,400
March 29,400
April 29,880
May 27,480
Purchases are paid for in the following manner:
5% of the purchase amount in the month of purchase
40% of the purchase amount in the month after purchase
55% of the purchase amount in the second month after purchase
What is the expected Accounts Payable balance as of May 31?
A) $38,058
B) $37,866
C) $42,540
D) $1,494
Diff: 2
Objective: A
AACSB: Application of knowledge
15) The following information pertains to the January operating budget for Casey Corporation.
∙ Budgeted sales for January $210,000 and February $110,000.
∙ Collections for sales are 40% in the month of sale and 60% the next month.
∙ Gross margin is 25% of sales.
∙ Administrative costs are $13,000 each month.
∙ Beginning accounts receivable is $30,000.
∙ Beginning inventory is $20,000.
∙ Beginning accounts payable is $75,000. (All from inventory purchases.)
∙ Purchases are paid in full the following month.
∙ Desired ending inventory is 20% of next month's cost of goods sold (COGS).
For January, budgeted cash collections are:
A) $210,000
B) $114,000
C) $84,000
D) $30,000
Diff: 3
Objective: A
AACSB: Application of knowledge
16) The following information pertains to the January operating budget for Casey Corporation.
∙ Budgeted sales for January $207,000 and February $100,000.
∙ Collections for sales are 60% in the month of sale and 40% the next month.
∙ Gross margin is 35% of sales.
∙ Administrative costs are $10,000 each month.
∙ Beginning accounts receivable is $29,000.
∙ Beginning inventory is $16,000.
∙ Beginning accounts payable is $67,000. (All from inventory purchases.)
∙ Purchases are paid in full the following month.
∙ Desired ending inventory is 30% of next month's cost of goods sold (COGS).
At the end of January, budgeted accounts receivable from January sales is:
A) $40,000
B) $82,800
C) $124,200
D) $155,200
Diff: 2
Objective: A
AACSB: Application of knowledge
17) The following information pertains to the January operating budget for Casey Corporation.
∙ Budgeted sales for January $202,000 and February $101,000.
∙ Collections for sales are 60% in the month of sale and 40% the next month.
∙ Gross margin is 30% of sales.
∙ Administrative costs are $15,000 each month.
∙ Beginning accounts receivable is $29,000.
∙ Beginning inventory is $17,000.
∙ Beginning accounts payable is $65,000. (All from inventory purchases.)
∙ Purchases are paid in full the following month.
∙ Desired ending inventory is 25% of next month's cost of goods sold (COGS).
For January, budgeted cost of goods sold is:
A) $202,000
B) $141,400
C) $124,400
D) $106,960
Diff: 3
Objective: A
AACSB: Application of knowledge
18) The following information pertains to the January operating budget for Casey Corporation.
∙ Budgeted sales for January $207,000 and February $100,000.
∙ Collections for sales are 40% in the month of sale and 60% the next month.
∙ Gross margin is 30% of sales.
∙ Administrative costs are $16,000 each month.
∙ Beginning accounts receivable is $25,000.
∙ Beginning inventory is $19,000.
∙ Beginning accounts payable is $68,000. (All from inventory purchases.)
∙ Purchases are paid in full the following month.
∙ Desired ending inventory is 25% of next month's cost of goods sold (COGS).
For January, budgeted net income is:
A) $62,100
B) $46,100
C) $66,800
D) $108,200
Diff: 3
Objective: A
AACSB: Application of knowledge
19) The following information pertains to the January operating budget for Casey Corporation.
∙ Budgeted sales for January $201,000 and February $105,000.
∙ Collections for sales are 40% in the month of sale and 60% the next month.
∙ Gross margin is 30% of sales.
∙ Administrative costs are $11,000 each month.
∙ Beginning accounts receivable is $26,000.
∙ Beginning inventory is $17,000.
∙ Beginning accounts payable is $75,000. (All from inventory purchases.)
∙ Purchases are paid in full the following month.
∙ Desired ending inventory is 25% of next month's cost of goods sold (COGS).
For January, budgeted cash payments for purchases are:
A) $105,000
B) $73,500
C) $75,000
D) $49,300
Diff: 2
Objective: A
AACSB: Application of knowledge
20) The following information pertains to the January operating budget for Casey Corporation.
∙ Budgeted sales for January $210,000 and February $103,000.
∙ Collections for sales are 60% in the month of sale and 40% the next month.
∙ Gross margin is 25% of sales.
∙ Administrative costs are $17,000 each month.
∙ Beginning accounts receivable is $30,000.
∙ Beginning inventory is $15,000.
∙ Beginning accounts payable is $71,000. (All from inventory purchases.)
∙ Purchases are paid in full the following month.
∙ Desired ending inventory is 25% of next month's cost of goods sold (COGS).
At the end of January, budgeted ending inventory is:
A) $6,438
B) $19,313
C) $25,750
D) $34,313
Diff: 3
Objective: A
AACSB: Application of knowledge
21) The cash budget is a schedule of expected cash receipts, disbursements, and financing.
Diff: 1
Objective: A
AACSB: Analytical thinking
22) A key type of sensitivity analysis for managers is to play "what-if" with the cash budget so as to anticipate outcomes and take steps to minimize the effects of shortfalls in cash balances.
Diff: 1
Objective: A
AACSB: Analytical thinking
23) The financial budget includes the purchases budget, capital expenditures budget, the budgeted balance sheet, and the budgeted statement of cash flows.
Diff: 1
Objective: A
AACSB: Analytical thinking
24) Russell Company has the following projected account balances for June 30, 2020:
Accounts payable $80,000 Sales $1,600,000
Accounts receivable 200,000 Capital stock 800,000
Depreciation, factory 48,000 Retained earnings ?
Inventories (5/31 & 6/30) 360,000 Cash 112,000
Direct materials used 400,000 Equipment, net 480,000
Office salaries 160,000 Buildings, net 800,000
Insurance, factory 8,000 Utilities, factory 32,000
Plant wages 280,000 Selling expenses 120,000
Bonds payable 320,000 Maintenance, factory 56,000
Required:
a. Prepare a budgeted income statement for June 2020
b. Prepare a budgeted balance sheet as of June 30, 2020.
a. Russell Company
Budgeted Income Statement
For the Month of June 2020
Sales $1,600,000
Cost of goods sold:
Materials used $400,000
Wages 280,000
Depreciation 48,000
Insurance 8,000
Maintenance 56,000
Utilities 32,000 824,000
Gross profit 776,000
Operating expenses:
Selling expenses $120,000
Office salaries 160,000 280,000
Net income $496,000
b. Russell Company
Budgeted Balance Sheet
June 30, 2020
Assets: Liabilities and Owners' Equity:
Cash $ 112,000 Accounts payable $ 80,000
Accounts receivable 200,000 Bonds payable 320,000
Inventories 360,000 Capital stock 800,000
Equipment, net 480,000 Retained earnings* 752,000
Buildings, net 800,000
Total $1,952,000 Total $1,952,000
*$1,952,000 - ($80,000 + $320,000 + $800,000) = $752,000
Diff: 2
Objective: A
AACSB: Application of knowledge
25) Duffy Corporation has prepared the following sales budget:
Month Cash Sales Credit Sales
May $16,000 $68,000
June 20,000 80,000
July 18,000 74,000
August 24,000 92,000
September 22,000 76,000
Collections are 40% in the month of sale, 45% in the month following the sale, and 10% two months following the sale. The remaining 5% is expected to be uncollectible.
Required:
Prepare a schedule of cash collections for July through September.
Cash sales $18,000 $24,000 $22,000 $64,000
Collections of credit sales from:
Current month 29,600 36,800 30,400 96,800
Previous month 36,000 33,300 41,400 110,700
Two months ago 6,800 8,000 7,400 22,200
Total collections $90,400 $102,100 $101,200 $293,700
Diff: 2
Objective: A
AACSB: Application of knowledge
26) The following information pertains to Amigo Corporation:
Month Sales Purchases
July $30,000 $10,000
August 34,000 12,000
September 38,000 14,000
October 42,000 16,000
November 48,000 18,000
December 60,000 20,000
∙ Cash is collected from customers in the following manner:
Month of sale (2% cash discount) 30%
Month following sale 50%
Two months following sale 15%
Amount uncollectible 5%
∙ 40% of purchases are paid for in cash in the month of purchase, and the balance is paid the following month.
Required:
a. Prepare a summary of cash collections for the 4th quarter.
b. Prepare a summary of cash disbursements for the 4th quarter.
a. Cash collections Oct $36,448 + Nov $40,812 + Dec $47,940 = $125,200
October November December
August $ 5,100
September 19,000 5,700
October 12,348 21,000 6,300
November 14,112 24,000
December 17,640
-------- --------- --------
$36,448 $40,812 $47,940
b. Cash disbursements Oct $14,800 + Nov $16,800 + Dec $18,800 = $50,400
October November December
September 8,400
October 6,400 9,600
November 7,200 10,800
December 8,000
-------- --------- --------
$14,800 $16,800 $18,800
Diff: 2
Objective: A
AACSB: Application of knowledge
Document Information
Connected Book
Horngrens Cost Accounting 17th Global Edition | Test Bank with Answer Key
By Srikant M. Datar, Madhav V. Rajan
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