Scott Ch.14 Budgeting Exam Questions

Chapter 14: Budgeting

Test Bank

Type: multiple choice question

Title: Chapter 14 Question 01

1) Which one of the following is not an objective of budgets?

a. Strategy

Heading reference: Budget objectives and the budgeting process

b. Motivation

Heading reference: Budget objectives and the budgeting process

c. Communication

Heading reference: Budget objectives and the budgeting process

d. Responsibility

Heading reference: Budget objectives and the budgeting process

Type: multiple choice question

Title: Chapter 14 Question 02

2) Which one of the following statements does not describe an objective of budgeting?

a. Coordinating the different functions of an entity.

Heading reference: Budget objectives and the budgeting process

b. Translating strategic goals into plans to enable an entity to achieve its objectives.

Heading reference: Budget objectives and the budgeting process

c. Forcing entities to report on the financial outcomes of the past 12 months.

Heading reference: Budget objectives and the budgeting process

d. Forcing entities to look ahead and plan for the future

Heading reference: Budget objectives and the budgeting process

Type: multiple response question

Title: Chapter 14 Question 03

3) One of the objectives of budgeting is to motivate employees to achieve targets set by an organization. Which of the following statements describe the motivational objective of budgeting?

Please select all that apply.

Heading reference: Budget objectives and the budgeting process

a. Delegating responsibility for different parts of the budget.

b. Employees work more effectively if they have a challenging target to aim for.

c. Setting targets against which actual results will be compared.

d. Incentivizing staff to work towards achieving a budgeted target.

Type: true-false

Title: Chapter 14 Question 04

4) Budgeting = delegation

a. True

Heading reference: Budget objectives and the budgeting process

b. False

Heading reference: Budget objectives and the budgeting process

Type: true-false

Title: Chapter 14 Question 05

5) Communication of budgets facilitates coordination and integration of activities.

a. True

Heading reference: Budget objectives and the budgeting process

b. False

Heading reference: Budget objectives and the budgeting process

Type: true-false

Title: Chapter 14 Question 06

6) Breaking down one big task into several smaller tasks helps allocate responsibility for achieving the objectives of an organization.

a. True

Heading reference: Budget objectives and the budgeting process

b. False

Heading reference: Budget objectives and the budgeting process

Type: multiple choice question

Title: Chapter 14 Question 07

7) What is the first step in the budgeting process?

a. Decide on the selling prices for products.

Heading reference: Step 1: setting the strategy and deciding on selling prices

b. Calculate the variable costs for products.

Heading reference: Step 1: setting the strategy and deciding on selling prices

c. Talk to suppliers about price movements over the coming year.

Heading reference: Step 1: setting the strategy and deciding on selling prices

d. Decide on the strategy and objectives of the organization.

Heading reference: Step 1: setting the strategy and deciding on selling prices

Type: multiple choice question

Title: Chapter 14 Question 08

8) Joseph is drawing up his budgets to present to the bank in support of his business loan application for his new business which is starting up on 1 January 2023. Joseph’s capital expenditure budget shows planned expenditure of £45,000 on new plant and machinery in January 2023, £24,000 on a new delivery van in March 2023 and £18,000 on a new computer system in June 2023. Joseph depreciates all his non-current assets on the straight line basis. Computers and computer systems are depreciated over three years with zero estimated residual value, delivery vans over 4 years and plant and machinery over 5 years. Delivery vans and plant and machinery are estimated to have a residual value of 20% of their original cost. What is Joseph’s budgeted depreciation charge in the monthly budgeted statement of profit or loss for May 2023?

a. £1,000

Heading reference:

Depreciation

Residual value and the annual depreciation charge

Step 5: draw up the budgeted monthly statement of profit or loss

b. £1,400

Heading reference:

Depreciation

Residual value and the annual depreciation charge

Step 5: draw up the budgeted monthly statement of profit or loss

c. £1,500

Heading reference:

Depreciation

Residual value and the annual depreciation charge

Step 5: draw up the budgeted monthly statement of profit or loss

d. £1,750

Heading reference:

Depreciation

Residual value and the annual depreciation charge

Step 5: draw up the budgeted monthly statement of profit or loss

Type: multiple choice question

Title: Chapter 14 Question 09

9) Sian makes and sells fencing panels. She is setting her budgets for the coming year. Her budgeted selling price for her fencing panels is £20 and she expects to sell 1,000 panels in June. Her budgeted raw material cost for each fencing panel is £6 and direct labour is £4 per panel. New machinery costing £7,500 is budgeted for purchase in May. The new machinery is expected to last for 5 years and have a resale value of £600 after 5 years. Sian depreciates her property, plant and equipment on the straight line basis. Administration overheads for June are budgeted to be £1,000. What is Sian’s budgeted net profit for June?

a. £8,875

Heading reference:

Depreciation

Residual value and the annual depreciation charge

Step 5: draw up the budgeted monthly statement of profit or loss

b. £8,885

Heading reference:

Depreciation

Residual value and the annual depreciation charge

Step 5: draw up the budgeted monthly statement of profit or loss

c. £9,000

Heading reference:

Depreciation

Residual value and the annual depreciation charge

Step 5: draw up the budgeted monthly statement of profit or loss

d. £9,885

Heading reference:

Depreciation

Residual value and the annual depreciation charge

Step 5: draw up the budgeted monthly statement of profit or loss

Type: multiple choice question

Title: Chapter 14 Question 10

10) Which one of the following statements is not true?

a. Budgeted sales volumes and terms of trade will enable monthly budgeted cash receipts from sales to be calculated.

Heading reference: Step 2: the sales budget

b. The budgeted direct costs of sales depend upon the volume of budgeted sales and production.

Heading reference: Step 2: the sales budget

c. Budgeted fixed costs in the budgeted statement of profit or loss are allocated to each month on the accruals basis, while payments for budgeted fixed costs in the cash budget are allocated to the months in which they are paid.

Heading reference: Step 5: draw up the budgeted monthly statement of profit or loss, Step 8: draw up the monthly cash budget

d. Budgeted net cash flow for the month = the total budgeted monthly cash receipts + the total budgeted monthly cash payments.

Heading reference: Step 8: draw up the monthly cash budget

Type: multiple choice question

Title: Chapter 14 Question 11

11) RST Manufacturing is producing its cost of sales budget. Direct materials are budgeted to be 60% of sales value. However, due to the expansion of the company in the recent past, suppliers are giving RST Manufacturing a 2% discount on all purchases of direct materials by the firm. Budgeted sales for January 2023 are expected to be £200,000 and to rise by £10,000 a month in the budget year up to December 2023. Direct labour is expected to amount to 10% of sales value and variable overhead is budgeted to be 5% of direct labour cost. What is the budgeted cost of sales (direct materials + direct labour + variable overhead) figure that will appear in the budgeted monthly statement of profit or loss for June 2023?

a. £172,000

Heading reference: Step 2: the sales budget

b. £173,250

Heading reference: Step 2: the sales budget

c. £176,250

Heading reference: Step 2: the sales budget

d. £184,500

Heading reference: Step 2: the sales budget

Type: multiple choice question

Title: Chapter 14 Question 12

12) Which budget should entities prepare first?

a. Cash budget

Heading reference:

Step 2: the sales budget

Step 3: calculate the direct costs of budgeted sales

Step 4: set the budget for fixed costs

Step 6: calculating cash receipts from sales

b. Budgeted statement of profit or loss

Heading reference:

Step 2: the sales budget

Step 3: calculate the direct costs of budgeted sales

Step 4: set the budget for fixed costs

c. Variable costs budget

Heading reference:

Step 2: the sales budget

Step 3: calculate the direct costs of budgeted sales

Step 4: set the budget for fixed costs

d. Sales budget

Heading reference:

Step 2: the sales budget

Step 3: calculate the direct costs of budgeted sales

Step 4: set the budget for fixed costs

Type: multiple choice question

Title: Chapter 14 Question 13

13) Fred produces top of the range dolls. He is preparing his budget for the coming year. Budgeted selling price for each doll is £30. Budgeted materials cost for each doll is 50% of selling price while budgeted labour cost is 20% of selling price. Each doll is expected to incur direct expenses of £1 on top of the budgeted materials and labour costs. Equipment depreciation is budgeted to be £9,000 per annum and Fred’s budgeted administration expenses are £1,200 per month. Demand in September is budgeted to be 10,000 dolls with demand rising to 10,500 dolls in October and 11,025 in November. What is Fred’s budgeted gross profit for November?

a. £86,250

Heading reference:

Step 2: the sales budget

Step 3: calculate the direct costs of budgeted sales

Step 4: set the budget for fixed costs

Step 5: draw up the budgeted monthly statement of profit or loss

b. £87,450

Heading reference:

Step 2: the sales budget

Step 3: calculate the direct costs of budgeted sales

Step 4: set the budget for fixed costs

Step 5: draw up the budgeted monthly statement of profit or loss

c. £88,200

Heading reference:

Step 2: the sales budget

Step 3: calculate the direct costs of budgeted sales

Step 4: set the budget for fixed costs

Step 5: draw up the budgeted monthly statement of profit or loss

d. £99,225

Heading reference:

Step 2: the sales budget

Step 3: calculate the direct costs of budgeted sales

Step 4: set the budget for fixed costs

Step 5: draw up the budgeted monthly statement of profit or loss

Type: multiple choice question

Title: Chapter 14 Question 14

14) DD Manufacturing is preparing its budget for next year. Sales are all on credit. The company expects that customers will pay 20% of what is owed in the month sales are made, 45% in the month after sales are made and 35% two months after sales are made. The sales budget shows budgeted sales of £180,000 in January 2023, £160,000 in February 2023 and £200,000 in March 2023. What is the figure for cash receipts from sales that DD Manufacturing should allocate to the March 2023 cash budget?

a. £113,000

Heading reference: Step 6: calculating cash receipts from sales

b. £175,000

Heading reference: Step 6: calculating cash receipts from sales

c. £200,000

Heading reference: Step 6: calculating cash receipts from sales

d. £216,000

Heading reference: Step 6: calculating cash receipts from sales

Type: multiple choice question

Title: Chapter 14 Question 15

15) BC Manufacturing is preparing its budget for next year. 30% of sales are for cash with the remainder on credit. The company expects credit customers to pay 50% of what is owed one month after the credit sales are made, 30% two months after the credit sales are made and 20% three months after the credit sales are made. The sales budget shows budgeted sales of £270,000 in April 2023, £300,000 in May 2023, £320,000 in June 2023 and £340,000 in July 2023. What figure for cash receipts from sales should BC Manufacturing record in its cash budget for the month of July 2023?

a. £212,800

Heading reference: Step 6: calculating cash receipts from sales

b. £304,000

Heading reference: Step 6: calculating cash receipts from sales

c. £314,800

Heading reference: Step 6: calculating cash receipts from sales

d. £392,000

Heading reference: Step 6: calculating cash receipts from sales

Type: multiple choice question

Title: Chapter 14 Question 16

16) EF Manufacturing is preparing its budget for next year. All sales are on credit. To encourage customers to pay promptly, the company offers a 2% discount for payment within the month of sale. The company estimates that 20% of customers will take advantage of this early settlement discount. The company anticipates that 60% of the remaining credit customers will pay what is owed one month after the credit sales are made, 35% two months after the credit sales are made and 5% three months after the credit sales are made. The sales budget shows total sales (before discounts) of £500,000 in July 2023, £450,000 in August 2023, £480,000 in September 2023 and £510,000 in October 2023. What figure for cash receipts from sales should EF Manufacturing record in its cash budget for the month of October 2023?

a. £476,360

Heading reference: Step 6: calculating cash receipts from sales

b. £478,400

Heading reference: Step 6: calculating cash receipts from sales

c. £570,460

Heading reference: Step 6: calculating cash receipts from sales

d. £572,500

Heading reference: Step 6: calculating cash receipts from sales

Type: multiple choice question

Title: Chapter 14 Question 17

17) HO Manufacturing is preparing its budget for next year. The company estimates that it will be making the following raw materials purchases in the last five months of 2023: £200,000 in August, £220,000 in September, £250,000 in October, £280,000 in November and £240,000 in December. The company anticipates that it will pay 55% of what is owed one month after the month of purchase, 30% of what is owed two months after the month of purchase and the remaining 15% three months after the month of purchase. What figure will be presented in the company’s cash budget for payments to suppliers of raw materials for the month of December 2023?

a. £233,500

Heading reference: Step 7: calculating cash payments to direct materials suppliers and direct labour

b. £253,500

Heading reference: Step 7: calculating cash payments to direct materials suppliers and direct labour

c. £262,000

Heading reference: Step 7: calculating cash payments to direct materials suppliers and direct labour

d. £403,500

Heading reference: Step 7: calculating cash payments to direct materials suppliers and direct labour

Type: multiple choice question

Title: Chapter 14 Question 18

18) TZ Manufacturing is preparing its budget for next year. The company buys its raw materials from a variety of different suppliers. All of these suppliers offer a cash discount of 3% to customers who settle their accounts immediately in cash. TZ estimates that it will make total raw materials purchases (before discounts) of £400,000 in April 2023, £420,000 in May 2023, £380,000 in June 2023 and £360,000 in July 2023. The company expects to settle 25% of each month’s total raw materials purchases in cash to qualify for the 3% cash discount. Of the remaining raw materials purchases made on credit, TZ expects to settle 48% in the month after purchase, 35% two months after purchase and 17% three months after purchase. What is TZ Manufacturing’s cash payment figure for raw materials purchases in the cash budget for the month of July 2023?

a. £298,050

Heading reference: Step 7: calculating cash payments to direct materials suppliers and direct labour

b. £385,350

Heading reference: Step 7: calculating cash payments to direct materials suppliers and direct labour

c. £388,050

Heading reference: Step 7: calculating cash payments to direct materials suppliers and direct labour

d. £484,700

Heading reference: Step 7: calculating cash payments to direct materials suppliers and direct labour

Type: multiple choice question

Title: Chapter 14 Question 19

19) XO Manufacturing is preparing its budget for next year. All raw materials are purchased on credit. XO Manufacturing’s raw material suppliers offer a 2.5% discount for payment within the month of purchase. XO estimates that it will pay for 25% of raw material purchases within the month of purchase. 60% of the remaining raw material purchases will be paid for one month after the month of purchase while 40% will be paid for two months after the month of purchase. The raw materials budget shows budgeted purchases of £500,000 in January 2023, £504,000 in February 2023, £520,000 in March 2023 and £536,000 in April 2023. What is the cash payment figure for raw materials purchases that XO Manufacturing should present in its cash budget for the month of April 2023?

a. £503,550

Heading reference: Step 7: calculating cash payments to direct materials suppliers and direct labour

b. £515,850

Heading reference: Step 7: calculating cash payments to direct materials suppliers and direct labour

c. £519,200

Heading reference: Step 7: calculating cash payments to direct materials suppliers and direct labour

d. £644,250

Heading reference: Step 7: calculating cash payments to direct materials suppliers and direct labour

Type: true-false

Title: Chapter 14 Question 20

20) The budgeted monthly statement of profit or loss is drawn up on the basis of cash received and cash paid while the month-by-month cash budget is drawn up on the accruals basis.

a. True

Heading reference: Step 5: draw up the budgeted monthly statement of profit or loss,

Heading reference: Step 8: draw up the monthly cash budget

b. False

Heading reference: Step 5: draw up the budgeted monthly statement of profit or loss, Step 8: draw up the monthly cash budget

Type: multiple choice question

Title: Chapter 14 Question 21

21) Renata has the following budgeted business transactions for the month of May 2023: insurance refund received: £500; payments to be made to materials suppliers: £15,000; payments to be made to employees: £4,000; cash expected from customers: £25,000; budgeted depreciation charge on non-current assets: £800; budgeted interest paid to bank: £40; personal drawings: £2,000. At 1 May 2023, Renata is budgeting an overdraft at the bank of £4,000. What is Renata’s budgeted cash position at the end of May 2023?

a. £340 overdrawn

Heading reference: Step 8: draw up the monthly cash budget, The importance of cash flow forecasts

b. £340 cash in the bank

Heading reference: Step 8: draw up the monthly cash budget, The importance of cash flow forecasts

c. £460 cash in the bank

Heading reference: Step 8: draw up the monthly cash budget, The importance of cash flow forecasts

d. £460 overdrawn

Heading reference: Step 8: draw up the monthly cash budget, The importance of cash flow forecasts

Type: multiple choice question

Title: Chapter 14 Question 22

22) Natalie has the following budgeted business transactions for the month of October 2023: budgeted payments to raw materials suppliers: £25,000; payments to be made to employees: £6,000; cash expected from customers: £52,000; budgeted accruals in the statement of profit or loss for electricity: £400; budgeted interest received from the bank: £20; personal drawings: £3,000. At 1 October 2023, Natalie is budgeting for a positive cash balance in the bank of £2,780. What is Natalie’s budgeted cash balance in the bank at the end of October 2023?

a. £20,360

Heading reference: Step 8: draw up the monthly cash budget, The importance of cash flow forecasts

b. £20,400

Heading reference: Step 8: draw up the monthly cash budget, The importance of cash flow forecasts

c. £20,760

Feedback Natalie’s budgeted cash receipts – budgeted cash payments for October 2023 are as follows: + £52,000 (cash from customers) + £20 (interest received) – £25,000 (payments to raw materials suppliers) – £6,000 (payments to employees) – £3,000 (drawings) = £18,020 budgeted net inflow of cash for the month. Adding the budgeted cash at 1 October 2023 of £2,780 gives a positive cash balance in the bank of £20,800. You have correctly excluded the accrual from cash payments but you have treated the interest received from the bank as interest paid to the bank, a payment of cash instead of a cash receipt.

Heading reference: Step 8: draw up the monthly cash budget, The importance of cash flow forecasts

d. £20,800

Heading reference: Step 8: draw up the monthly cash budget, The importance of cash flow forecasts

Type: multiple choice question

Title: Chapter 14 Question 23

23) For April 2023, Charlene has budgeted cash sales of £15,000 and credit sales of £32,000. All credit sales are budgeted to be paid one month after the month in which they were made. Budgeted credit sales for March 2023 are £30,000. Budgeted payments to suppliers are £20,000 while employees will be paid £7,500. New office equipment with a cost of £5,760 and a 4 year useful economic life will be paid for on 1 April 2023. It is Charlene’s policy to charge depreciation on office equipment on a monthly basis starting in the month in which it is acquired. £6,000 rent for the three months to 30 June 2023 will also be paid on 1 April 2023. Two thirds of this rent will be prepaid at 30 April 2023. Charlene’s budget shows a positive cash balance at the bank of £4,560 on 1 April 2023. What is Charlene’s budgeted cash balance at the bank at 30 April 2023?

a. £10,180

Heading reference: Step 8: draw up the monthly cash budget, The importance of cash flow forecasts

b. £10,300

Heading reference: Step 8: draw up the monthly cash budget, The importance of cash flow forecasts

c. £12,300

Feedback Budgeted cash receipts during April 2023 are £15,000 (cash sales) + £30,000 (receipts from credit sales in March paid one month after the month of sale) = £45,000. Budgeted cash payments during April 2023 are £20,000 (payments to suppliers) + £7,500 (paid to employees) + £5,760 (actual cash paid to acquire new office equipment) + £6,000 (rent paid) = £39,260. Net cash inflow for the month is £5,740 (budgeted cash receipts of £45,000 – budgeted cash payments of £39,260). The budgeted cash balance at the bank at 30 April 2023 = £4,560 balance at the start of the month + £5,740 net cash inflow for April 2023 = £10,300. You have added the credit sales for April as a cash inflow in April, when cash from these sales will not be received until May 2023. £30,000 cash from credit sales in March will be received in April, one month after the month of sale.

Heading reference: Step 8: draw up the monthly cash budget, The importance of cash flow forecasts

d. £14,300

Heading reference: Step 8: draw up the monthly cash budget, The importance of cash flow forecasts

Type: multiple choice question

Title: Chapter 14 Question 24

24) Omar sells fruit and vegetables from his market stall for cash. His budgeted sales for February, March and April are £45,000, £50,000 and £55,000 respectively. His suppliers allow him one month’s credit in which to pay for the fruit and vegetables that he sells. His purchases cost is budgeted to be 80% of the sales value of his produce. Omar rents his market stall at a cost of £1,000 per month, payable on the first day of each month. Electricity costs for his market stall amount to £200 per month and he pays for these quarterly in March, June, September and December. Omar withdraws £2,000 a month from his business for his own personal expenses. What is Omar’s net cash inflow for March?

a. £6,400

Heading reference: Step 8: draw up the monthly cash budget, The importance of cash flow forecasts

b. £6,800

Heading reference: Step 8: draw up the monthly cash budget, The importance of cash flow forecasts

c. £10,400

Feedback Omar has budgeted cash receipts in March of £50,000, his cash sales for the month. He is budgeting to pay his suppliers one month after he has been supplied with fruit and vegetables. Therefore, his cash payment to his suppliers in March will be £36,000 (£45,000 sales in February x 80% budgeted cost of goods purchased). In March, Omar will also pay his rent of £1,000, his electricity bill of £600 (£200 per month x 3 months, January, February and March) and draw £2,000 from the bank for his own personal expenses. His total budgeted cash payments are therefore £36,000 (paid to suppliers) + £1,000 (rent) + £600 (electricity) + £2,000 (drawings) = £39,600. His net cash inflow for March is thus £50,000 cash receipts – £39,600 cash payments = £10,400.

Heading reference: Step 8: draw up the monthly cash budget, The importance of cash flow forecasts

d. £10,800

Heading reference: Step 8: draw up the monthly cash budget, The importance of cash flow forecasts

Type: multiple choice question

Title: Chapter 14 Question 25

25) XRT Limited makes cash and credit sales to customers. The sales budget shows total budgeted sales for September, October, November and December 2023 of £210,000, £230,000, £250,000 and £300,000 respectively. 30% of total budgeted sales will be for cash. The other 70% of budgeted sales will be on credit. Of the credit sales, 45% are budgeted to be paid one after the month of sale, 30% are budgeted to be paid two months after the month of sale and 25% are budgeted to be paid three months after the month of sale. What is the figure for trade receivables that should appear in XRT Limited’s budgeted statement of financial position at 31 December 2023?

a. £253,800

Heading reference: Step 6: calculating cash receipts from sales, Step 9: draw up the budgeted statement of financial position

b. £306,250

Heading reference: Step 6: calculating cash receipts from sales, Step 9: draw up the budgeted statement of financial position

c. £346,500

Heading reference: Step 6: calculating cash receipts from sales, Step 9: draw up the budgeted statement of financial position

d. £495,000

Heading reference: Step 6: calculating cash receipts from sales, Step 9: draw up the budgeted statement of financial position

Type: multiple choice question

Title: Chapter 14 Question 26

26) Zeinep Limited makes cash and credit sales to customers. The sales budget shows total budgeted sales for April, May, June and July 2023 of £100,000, £125,000, £140,000 and £150,000 respectively. 20% of budgeted sales in each month will be for cash. The other 80% of budgeted sales will be on credit. Of the credit sales, 50% are budgeted to be paid in the month after the month of sale, 35% are budgeted to be paid two months after the month of sale and 15% are budgeted to be paid three months after the month of sale. What is the figure for trade receivables that should appear in Zeinep Limited’s budgeted statement of financial position at 31 July 2023?

a. £133,000

Heading reference: Step 6: calculating cash receipts from sales, Step 9: draw up the budgeted statement of financial position

b. £191,000

Heading reference: Step 6: calculating cash receipts from sales, Step 9: draw up the budgeted statement of financial position

c. £221,000

Heading reference: Step 6: calculating cash receipts from sales, Step 9: draw up the budgeted statement of financial position

d. £238,750

Heading reference: Step 6: calculating cash receipts from sales, Step 9: draw up the budgeted statement of financial position

Type: multiple choice question

Title: Chapter 14 Question 27

27) Marco Limited sells on credit to all its customers. The sales budget shows total budgeted sales for January, February, March and April of £225,000, £240,000, £250,000 and £275,000 respectively. 40% of customers are budgeted to pay what is owed in the month after the month of sale, 45% are budgeted to pay two months after the month of sale and 12% are budgeted to pay three months after the month of sale. 3% of each month’s sales are budgeted to become irrecoverable debts which will not be recovered by the company. What is the figure for trade receivables that should appear in Marco Limited’s budgeted statement of financial position at 30 April?

a. £438,050

Heading reference: Step 6: calculating cash receipts from sales, Step 9: draw up the budgeted statement of financial position

b. £444,800

Heading reference: Step 6: calculating cash receipts from sales, Step 9: draw up the budgeted statement of financial position

c. £461,000

Heading reference: Step 6: calculating cash receipts from sales, Step 9: draw up the budgeted statement of financial position

d. £522,250

Heading reference: Step 6: calculating cash receipts from sales, Step 9: draw up the budgeted statement of financial position

Type: multiple choice question

Title: Chapter 14 Question 28

28) At 1 January 2023, Daniele Limited held plant and equipment at a cost of £400,000 on which £220,000 depreciation had been charged up to that date. The directors of the company are planning to purchase new plant and equipment on 1 April 2023 costing £50,000 and new machinery costing £60,000 on 1 August 2023. The company depreciates plant and equipment on the straight line basis over 4 years. Depreciation is calculated on a monthly basis. All plant and equipment is expected to have a residual value of £nil. There are no disposals of plant and equipment planned for the year to 31 December 2023. What is the carrying amount of plant and equipment that will appear in Daniele Limited’s budgeted statement of financial position at 31 December 2023?

a. £94,375

Heading reference:

Depreciation

Residual value and the annual depreciation charge

Step 4: set the budget for fixed costs

Step 5: draw up the budgeted monthly statement of profit or loss

Step 9: draw up the budgeted statement of financial position

b. £115,625

Heading reference:

Depreciation

Residual value and the annual depreciation charge

Step 4: set the budget for fixed costs

Step 5: draw up the budgeted monthly statement of profit or loss

Step 9: draw up the budgeted statement of financial position

c. £174,375

Heading reference:

Depreciation

Residual value and the annual depreciation charge

Step 4: set the budget for fixed costs

Step 5: draw up the budgeted monthly statement of profit or loss

Step 9: draw up the budgeted statement of financial position

d. £229,375

Heading reference:

Depreciation

Residual value and the annual depreciation charge

Step 4: set the budget for fixed costs

Step 5: draw up the budgeted monthly statement of profit or loss

Step 9: draw up the budgeted statement of financial position

Type: multiple choice question

Title: Chapter 14 Question 29

29) Which of the following control activities would not be undertaken on a monthly basis?

a. Comparing actual and budgeted results.

Heading reference: Budgetary control: statement of profit or loss

b. Sensitivity analysis of budgets.

Heading reference: Sensitivity analysis

c. Identifying variances in cash receipts and payments.

Heading reference: Budgetary control: statement of profit or loss

d. Taking corrective action on negative variances.

Heading reference: Budgetary control: statement of profit or loss

Type: true-false

Title: Chapter 14 Question 30

30) Monthly comparisons of actual results and budgeted results are an example of relevant financial information.

a. True

Heading reference: What qualities should accounting information possess?, Budgetary control: statement of profit or loss

b. False

Heading reference: What qualities should accounting information possess?, Budgetary control: statement of profit or loss

Type: multiple choice question

Title: Chapter 14 Question 31

31) Which one of the following statements most accurately describes sensitivity analysis?

a. Assesses the effect on profits and cash flows of actual outcomes in comparison to budgeted outcomes.

Heading reference:

Budgetary control: statement of profit or loss

Budgetary control: cash budget

Sensitivity analysis

b. Assesses the effect on budgeted profits and budgeted cash flows of a % increase or decrease in sales volumes and selling prices.

Heading reference: Sensitivity analysis

c. Assesses the effect on budgeted profits and budgeted cash flows of a % increase or decrease in the variable costs of production.

Heading reference: Sensitivity analysis

d. Assesses the effect on budgeted profits and budgeted cash flows if certain expectations and assumptions in the budget are changed.

Heading reference: Sensitivity analysis

Type: true-false

Title: Chapter 14 Question 32

32) A critical factor in sensitivity analysis is determining the effect that changes in budgeted fixed costs will have on budgeted cash receipts and payments and budgeted profits.

a. True

Heading reference: Sensitivity analysis

b. False

Heading reference: Sensitivity analysis

Type: true-false

Title: Chapter 14 Question 33

33) When conducting sensitivity analysis on budgeted information, an increase in the budgeted number of products sold will have no effect on the budgeted cost of raw materials.

a. True

Heading reference: Direct costs, variable costs and marginal costs, Sensitivity analysis

b. False

Heading reference: Direct costs, variable costs and marginal costs, Sensitivity analysis

Type: true-false

Title: Chapter 14 Question 34

34) When conducting sensitivity analysis, a decrease in the budgeted selling price of products or services will leave the budgeted variable costs of producing each product or providing each unit of service unchanged.

a. True

Heading reference: Direct costs, variable costs and marginal costs, Sensitivity analysis

b. False

Heading reference: Direct costs, variable costs and marginal costs, Sensitivity analysis

Type: multiple choice question

Title: Chapter 14 Question 35

35) Which one of the following budget items will appear in the cash budget but not in the budgeted statement of financial position of a manufacturing company?

a. Budgeted payments to acquire new plant and machinery.

Heading reference:

Step 5: draw up the budgeted monthly statement of profit or loss,

Step 8: draw up the monthly cash budget

The importance of cash flow forecasts

Step 9: draw up the budgeted statement of financial position

b. Budgeted payments on administration salaries.

Heading reference:

Step 5: draw up the budgeted monthly statement of profit or loss,

Step 8: draw up the monthly cash budget

The importance of cash flow forecasts

Step 9: draw up the budgeted statement of financial position

c. Budgeted payments torepay loans.

Heading reference:

Step 5: draw up the budgeted monthly statement of profit or loss,

Step 8: draw up the monthly cash budget

The importance of cash flow forecasts

Step 9: draw up the budgeted statement of financial position

d. Budgeted receipt of cash from a new loan.

Heading reference:

Step 5: draw up the budgeted monthly statement of profit or loss,

Step 8: draw up the monthly cash budget

The importance of cash flow forecasts

Step 9: draw up the budgeted statement of financial position

Type: multiple choice question

Title: Chapter 14 Question 36

36) Which one of the following budget items will appear in the cash budget but not in the budgeted statement of profit or loss of a manufacturing company?

a. Budgeted income from sales.

Heading reference:

Step 5: draw up the budgeted monthly statement of profit or loss

Step 8: draw up the monthly cash budget

The importance of cash flow forecasts

b. Budgeted income from bank interest received.

Heading reference:

Step 5: draw up the budgeted monthly statement of profit or loss

Step 8: draw up the monthly cash budget

The importance of cash flow forecasts

c. Budgeted expenditure on repairs to plant and machinery.

Heading reference:

Step 5: draw up the budgeted monthly statement of profit or loss

Step 8: draw up the monthly cash budget

The importance of cash flow forecasts

d. Budgeted expenditure on the acquisition of plant and machinery.

Heading reference:

Step 5: draw up the budgeted monthly statement of profit or loss

Step 8: draw up the monthly cash budget

The importance of cash flow forecasts

Type: multiple choice question

Title: Chapter 14 Question 37

37) Which one of the following budgeted costs will appear in both the budgeted statement of profit or loss and the budgeted statement of financial position but not in the cash budget of a manufacturing company?

a. Repairs to plant and machinery.

Heading reference:

Step 5: draw up the budgeted monthly statement of profit or loss,

Step 8: draw up the monthly cash budget

The importance of cash flow forecasts

Step 9: draw up the budgeted statement of financial position

b. Administration expenses.

Heading reference:

Step 5: draw up the budgeted monthly statement of profit or loss,

Step 8: draw up the monthly cash budget

The importance of cash flow forecasts

Step 9: draw up the budgeted statement of financial position

c. Depreciation.

Heading reference:

Depreciation

Residual value and the annual depreciation charge

Step 5: draw up the budgeted monthly statement of profit or loss,

Step 8: draw up the monthly cash budget

The importance of cash flow forecasts

Step 9: draw up the budgeted statement of financial position

d. Legal expenses.

Heading reference:

Step 5: draw up the budgeted monthly statement of profit or loss,

Step 8: draw up the monthly cash budget

The importance of cash flow forecasts

Step 9: draw up the budgeted statement of financial position

Type: multiple choice question

Title: Chapter 14 Question 38

38) Which one of the following budgeted expenditures will appear in both the budgeted statement of profit or loss and the budgeted statement of financial position but not in the cash budget of an organization?

a. Expenditure on new non-current assets.

Heading reference:

Step 5: draw up the budgeted monthly statement of profit or loss,

Step 8: draw up the monthly cash budget

The importance of cash flow forecasts

Step 9: draw up the budgeted statement of financial position

b. Prepaid expenditure.

Heading reference:

Step 5: draw up the budgeted monthly statement of profit or loss,

Step 8: draw up the monthly cash budget

The importance of cash flow forecasts

Step 9: draw up the budgeted statement of financial position

c. Expenditure on administrators’ wages and salaries.

Heading reference:

Step 5: draw up the budgeted monthly statement of profit or loss,

Step 8: draw up the monthly cash budget

The importance of cash flow forecasts

Step 9: draw up the budgeted statement of financial position

d. Accrued expenditure.

Heading reference:

Step 5: draw up the budgeted monthly statement of profit or loss,

Step 8: draw up the monthly cash budget

The importance of cash flow forecasts

Step 9: draw up the budgeted statement of financial position

Type: multiple choice question

Title: Chapter 14 Question 39

39) Aaron is drawing up his budgets for the financial year to 31 December 2023. In December 2023, he is planning to purchase raw materials for his business which will cost him £55,000. The terms of trade with his supplier allow Aaron 40 days in which to pay for raw materials purchased. To which budgeted statements will Aaron allocate the £55,000 raw material cost?

a. Budgeted statement of profit or loss, cash budget.

Heading reference:

The accruals basis of accounting

Prepayments and accruals: recording transactions in the statement of profit or loss and statement of financial position

Step 5: draw up the budgeted monthly statement of profit or loss,

Step 8: draw up the monthly cash budget

The importance of cash flow forecasts

Step 9: draw up the budgeted statement of financial position

b. Budgeted statement of profit or loss, budgeted statement of financial position.

Heading reference:

The accruals basis of accounting

Prepayments and accruals: recording transactions in the statement of profit or loss and statement of financial position

Step 5: draw up the budgeted monthly statement of profit or loss,

Step 8: draw up the monthly cash budget

The importance of cash flow forecasts

Step 9: draw up the budgeted statement of financial position

c. Budgeted statement of financial position, cash budget.

Heading reference:

The accruals basis of accounting

Prepayments and accruals: recording transactions in the statement of profit or loss and statement of financial position

Step 5: draw up the budgeted monthly statement of profit or loss,

Step 8: draw up the monthly cash budget

The importance of cash flow forecasts

Step 9: draw up the budgeted statement of financial position

d. Budgeted statement of profit or loss, budgeted statement of financial position, cash budget.

Heading reference:

The accruals basis of accounting

Prepayments and accruals: recording transactions in the statement of profit or loss and statement of financial position

Step 5: draw up the budgeted monthly statement of profit or loss,

Step 8: draw up the monthly cash budget

The importance of cash flow forecasts

Step 9: draw up the budgeted statement of financial position

Type: multiple choice question

Title: Chapter 14 Question 40

40) Clare is drawing up her budgets for the financial year to 31 December 2023. In January 2023, she is expecting her trade receivables to pay her the £85,000 that they are expected to owe at 31 December 2022. To which budgeted statements will Clare allocate the budgeted £85,000 receipt of cash from her trade receivables?

a. Budgeted statement of profit or loss, cash budget.

Heading reference: Determining the amount of income or expense

Step 5: draw up the budgeted monthly statement of profit or loss,

Step 8: draw up the monthly cash budget

The importance of cash flow forecasts

Step 9: draw up the budgeted statement of financial position

b. Budgeted statement of profit or loss, budgeted statement of financial position.

Heading reference: Determining the amount of income or expense

Step 5: draw up the budgeted monthly statement of profit or loss,

Step 8: draw up the monthly cash budget

The importance of cash flow forecasts

Step 9: draw up the budgeted statement of financial position

c. Budgeted statement of financial position, cash budget.

Heading reference: Determining the amount of income or expense

Step 5: draw up the budgeted monthly statement of profit or loss,

Step 8: draw up the monthly cash budget

The importance of cash flow forecasts

Step 9: draw up the budgeted statement of financial position

d. Budgeted statement of profit or loss, budgeted statement of financial position, cash budget.

Heading reference: Determining the amount of income or expense

Step 5: draw up the budgeted monthly statement of profit or loss,

Step 8: draw up the monthly cash budget

The importance of cash flow forecasts

Step 9: draw up the budgeted statement of financial position