Budgeting: True/False
Budgeting: True/False
Budgeting: True/False
TRUE/FALSE
8. Operational management should be directly involved with the strategic planning of an organization.
12. The first stage in the budgeting process is the preparation of a sales budget.
13. The first stage in the budgeting process is the preparation of a cash collections budget.
14. In a manufacturing organization, the cash budget is prepared immediately after the sales budget.
16. The amount of raw materials that must be purchased can be computed by the following formula: Beginning inventory
+ Materials required - Ending inventory.
17. The amount of raw materials that must be purchased can be computed by the following formula: Ending inventory +
Materials required - Beginning inventory.
18. In estimating factory overhead, it is necessary to separate costs into their fixed and variable components.
19. In estimating factory overhead, it is necessary to subtract depreciation from total overhead costs.
20. In estimating factory overhead, it is necessary to add depreciation to total overhead costs.
21. The effect of capital expenditures on the master budget is reflected through periodic depreciation charges in the cash
outflow portion.
22. The effect of capital expenditures on the master budget is reflected through cash payments made for acquisition of
capital assets.
23. The cash budget is constructed after all other budgets have been completed.
24. Balances for Accounts Receivable and Sales Discounts are projected before the cash collections schedule is prepared.
25. Balances for Accounts Receivable and Sales Discounts are projected after the cash collections schedule is
prepared.
26. The final step in constructing the master budget is the preparation of pro-forma financial statements for the period.
27. A continuous budget is prepared by adding a new budget month as each month expires.
28. Budgetary slack is an effective motivator for employees, because it reduces employee frustration when goals cannot
be achieved.
ANS: F DIF: Easy OBJ: 8-6
30. A participatory budget is developed by both top management and operating personnel.
31. A budget manual should include pro-forma financial statements for the upcoming period.
32. A budget manual should include a statement of the budgetary purpose and its desired results..
33. A calendar of scheduled budgetary activities helps to coordinate the budgeting process.
34. Top management can reduce slack by using a bonus system to link performance to the budget.
COMPLETION
3. The final document resulting from the budgeting process is referred to as the ______________________.
4. A budget that is expressed in terms of both units and dollars is referred to a an ________________________.
5. A budget that indicates the funds to be generated or consumed during the period is referred to as a
__________________________.
9. In a manufacturing organization, the budgets that are prepared after the production are the _____________________,
_____________________,and __________________ budgets.
10. The budget that focuses on an organization’s long-term needs is referred to as a __________________________.
11. A budget that is prepared by adding a new budget month as each month expires is referred to as a
_________________________________________.
12. A budget that is developed with little input from operating personnel is referred to as a(n)
_____________________________________.
13. A budget that is developed by both top management and operating personnel is referred to as a(n)
_____________________________________.
14. If revenues are intentionally underestimated during the budgeting process, _____________________ has been created.
1. A budget aids in
a. communication.
b. motivation.
c. coordination.
d. all of the above.
ANS: D DIF: Easy OBJ: 8-1
2. Measuring the firm's performance against established objectives is part of which of the following functions?
a. Planning
b. Controlling
c. Organizing
d. Staffing
ANS: B DIF: Easy OBJ: 8-1
5. When actual performance varies from the budgeted performance, managers will be more likely to revise future
budgets if the variances were
a. controllable rather than uncontrollable.
b. uncontrollable rather than controllable.
c. favorable rather than unfavorable.
d. small.
ANS: B DIF: Moderate OBJ: 8-1
6. External factors that cause the achievement of company goals are the
a. annual budget.
b. industry price and cost structure.
c. talents possessed by its managers.
d. board of directors.
ANS: B DIF: Easy OBJ: 8-1
7. A budget is
a. a planning tool.
b. a control tool.
c. a means of communicating goals to the firm's divisions.
d. all of the above.
ANS: D DIF: Easy OBJ: 8-1
9. Strategic planning is
a. planning activities for promoting products for the future.
b. planning for appropriate assignments of resources.
c. setting standards for the use of important but hard-to-find materials.
d. stating and establishing long-term plans.
ANS: D DIF: Easy OBJ: 8-2
17. Which of the following is usually perceived as being the master budget's greatest advantage to management?
a. performance analysis
b. increased communication
c. increased coordination
d. required planning
ANS: D DIF: Easy OBJ: 8-3
18. Chronologically, the first part of the master budget to be prepared would be the
a. sales budget.
b. production budget.
c. cash budget.
d. pro forma financial statements.
ANS: A DIF: Easy OBJ: 8-3
21. It is least likely that a production budget revision would cause a revision in the
a. capital budget.
b. cash budget.
c. purchases budget.
d. pro forma balance sheet.
ANS: A DIF: Easy OBJ: 8-4
23. Chronologically, in what order are the sales, purchases, and production budgets prepared?
a. sales, purchases, production
b. sales, production, purchases
c. production, sales, purchases
d. purchases, sales, production
ANS: B DIF: Easy OBJ: 8-4
24. The material purchases budget tells a manager all of the following except the
a. quantity of material to be purchased each period.
b. quantity of material to be consumed each period.
c. cost of material to be purchased each period.
d. cash payment for material each period.
ANS: D DIF: Easy OBJ: 8-4
25. Of the following budgets, which one is least likely to be determined by the dictates of top management?
a. sales
b. material usage
c. revenues
d. general and administrative
ANS: B DIF: Easy OBJ: 8-4
26. The amount of raw material purchased in a period may be different than the amount of material used that period
because
a. the number of units sold may be different from the number of units produced.
b. finished goods inventory may fluctuate during the period.
c. the raw material inventory may increase/decrease during the period.
d. companies often pay for material in the period after it is purchased.
ANS: C DIF: Moderate OBJ: 8-4
(BI = beginning inventory, EI = ending inventory desired, CGS = budgeted cost of goods sold, P = budgeted
purchases)
a. P = CGS + BI - EI
b. P = CGS + BI
c. P = CGS + EI + BI
d. P = CGS + EI - BI
ANS: D DIF: Easy OBJ: 8-4
29. Both the budgeted quantity of material to be purchased and the budgeted quantity of material to be consumed can be
found in the
a. material purchases budget.
b. production budget.
c. pro forma income statement.
d. cash budget.
ANS: A DIF: Easy OBJ: 8-4
30. A company that maintains a raw material inventory, which is based on the following month's production needs, will
purchase less material than it uses in a month where
a. sales exceed production.
b. production exceeds sales.
c. planned production exceeds the next month's planned production.
d. planned production is less than the next month's planned production.
ANS: C DIF: Moderate OBJ: 8-4
31. If a company has a policy of maintaining an inventory of finished goods at a specified percentage of the next month's
budgeted sales, budgeted production for January will exceed budgeted sales for January when budgeted
a. February sales exceed budgeted January sales.
b. January sales exceed budgeted December sales.
c. January sales exceed budgeted February sales.
d. December sales exceed budgeted January sales.
ANS: A DIF: Moderate OBJ: 8-4
32. Depreciation on the production equipment would appear in which of the following budgets?
a. cash budget
b. production budget
c. selling and administrative expense budget
d. manufacturing overhead budget
ANS: D DIF: Easy OBJ: 8-4
33. The selling, general, and administrative expense budget is based on the _______________ budget.
a. production
b. sales
c. cash
d. purchases
ANS: B DIF: Easy OBJ: 8-4
34. The budgeted amount of selling and administrative expense for a period can be found in the
a. sales budget.
b. cash budget.
c. pro forma income statement.
d. pro forma balance sheet.
ANS: C DIF: Easy OBJ: 8-4
35. Which of the following represents a proper sequencing in which the budgets below are prepared?
a. Direct Material Purchases, Cash, Sales
b. Production, Sales, Income Statement
c. Sales, Balance Sheet, Direct Labor
d. Sales, Production, Manufacturing Overhead
ANS: D DIF: Easy OBJ: 8-4
36. The detailed plan for the acquisition and replacement of major portions of property, plant, and equipment is known as
the
a. capital budget.
b. purchases budget.
c. commitments budget.
d. treasury budget.
ANS: A DIF: Easy OBJ: 8-4
37. The budgeted payment for labor cost each period would be found in the
a. labor budget.
b. pro forma income statement.
c. selling, general, and administrative expense budget.
d. cash budget.
ANS: D DIF: Easy OBJ: 8-4
39. Which of the following items would not be found in the financing section of the cash budget?
a. cash payments for debt retirement
b. cash payments for interest
c. dividend payments
d. payment of accounts payable
ANS: D DIF: Easy OBJ: 8-5
40. The primary reason that managers impose a minimum cash balance in the cash budget is
a. because management needs discretionary cash for unforeseen business opportunities.
b. managers lack discipline to control their spending.
c. that it protects the organization from the uncertainty of the budgeting process.
d. that it makes the financial statements look more appealing to creditors.
ANS: C DIF: Easy OBJ: 8-5
41. Chronologically, the last part of the master budget to be prepared would be the
a. pro forma financial statements.
b. cash budget.
c. capital budget
d. production budget.
ANS: A DIF: Easy OBJ: 8-4
45. The budgeted cost of products to be sold in a future period would be found in the
a. production budget.
b. sales budget.
c. purchases budget.
d. pro forma income statement.
ANS: D DIF: Easy OBJ: 8-4
46. A budget that includes a 12-month planning period at all times is called a ____________ budget.
a. pro forma
b. flexible
c. master
d. continuous
ANS: D DIF: Easy OBJ: 8-6
47. The method of budgeting that adds one month's budget to the end of the plan when the current month's budget is
dropped from the plan is called ____________ budgeting.
a. long-term
b. operations
c. incremental
d. continuous
ANS: D DIF: Easy OBJ: 8-6
4. For better management acceptance, the flow of data to be used for budgeting should begin with
a. Accounting department c. Lower levels of management
b. Top management d. Budget committee
11. A budget that includes a 12-month planning period at all times is called a __________ budget.
a. pro forma b. flexible c. master d. continuous
14. The procedure for setting profit objectives in which management specifies a given rate of return that it
seeks to realize in the long run by means of planning toward that end is the:
A. a priori method D. theoretical method
B. ad hoc method E. a posteriori method
C. pragmatic method
15. This budgeting system places the burden of proof on the manager to justify authority to spend any
money whether or not there was spending in the previous period. Different ways of performing the same
activity and different levels of effort for the activity is evaluated. This system is called
a. Scenario budgeting. c. Budgeting by alternatives.
b. Zero-based budgeting. d. Budgeting by responsibility and authority.
17. A budget that is expressed in units of materials, number of employees, or number of man-hours or
service units rather than in pesos is known as
a. Planning budget b. Progressive budget c. Physical budget d. Traditional budget
18. Which of these statements are advantages of profit planning?
1. Develops profit-mindedness, encourages cost consciousness and resources utilization throughout the
company.
2. Provides vehicle to communicate objectives, gain support for the plan, of what is expected, thereby
developing a sense of commitment to achieve established goals.
3. Provides yardstick to evaluate actual performance; encouraging efficiency, increasing output and
reducing cost.
4. Provides a sense of direction for the company and enhances coordination of business activity.
5. Eliminates or takes over the role of administration by providing detailed information that allows
executives to operate toward achievement of the organization’s objectives.
a. Statements 3, 4, and 5 only. c. Statements 1, 3, and 4 only.
b. All five statements. d. Statements 1, 2, 3, and 4 only.
19. For a company that does not have resource limitations in what sequence would the budgets be prepared?
1. cash budget 4. production budgets
2. sales budget 5. purchase budgets
3. inventory budgets
a. sequence 2, 3, 4, 5 and 1 c. sequence 2, 4, 3, 5 and 1
b. sequence 2, 3, 4,1 and 5 d. sequence 4, 3, 2, 1 and 5
20. A budget that identifies revenues and costs with an individual controlling their incurrence is
a. Master budget c. Responsibility budget
b. Product budget d. None of the above
21. If a company has a policy of maintaining an inventory of finished goods at a specified percentage of the
next month's budgeted sales, budgeted production for January will exceed budgeted sales for January
when budgeted
a. February sales exceed budgeted January sales.
b. January sales exceed budgeted December sales.
c. January sales exceed budgeted February sales.
d. December sales exceed budgeted January sales.
22. A company that maintains a raw material inventory, which is based on the following month's production
needs, will purchase less material than it uses in a month where
a. sales exceed production.
b. production exceeds sales.
c. planned production exceeds the next month's planned production.
d. planned production is less than the next month's planned production.
23. A company has prepared a cash budget for January through June of 20x3. Which of the following,
discovered in February 20x3, is LEAST likely to require revising the cash budget?
a. February sales are lower than budgeted.
b. The interest rate on short-term borrowing is higher than budgeted.
c. The company increased from 10% to 20% the down payment it requires from customers.
d. The company changed inventory methods from LIFO to FIFO.
25. By the end of this year you expect to have a cash balance of P500,000. Which of these
transactions/indicators (not considered in your estimate) will reduce this balance?
a. A modification on credit terms to customers will reduce credit sales.
b. A dialogue with key suppliers will allow discounts on extended payment terms.
c. A new machine will be bought with proceeds from a bank loan that will carry a 17% interest per
annum and monthly payments over 2 years.
d. The ratio of current trade receivables to total receivables will decrease.
26. Information not shown in the cash budget but needed in the preparation of the statement of operations
for the period
a. Sales b. Dividends c. Inventory levels d. Tax Payments
27. Which of the following is LEAST likely to be affected if unit sales for this month are lower than
budgeted?
a. Production for this month. c. Cash receipts for next month.
b. Production for next month. d. Inventory at the end of this month.
28. The cash budget for 20x2 would be affected in some way by all of the following EXCEPT
a. A cash dividend declared in 20x1 for payment in 20x2.
b. A cash dividend declared in 20x2 for payment in 20x3.
c. Interest expense on loans taken out and repaid during 20x2.
d. The sales forecast for the first month in 20x3.
29. Net cash inflow is given too much emphasis by managers today, for they know that cash is the common
cause of business failures. Net cash inflow is equal to
a. Cash balance at the beginning + cash receipts – cash disbursements
b. Cash balance at the end of last month + cash from all sources of revenue – revenue payments
c. Cash received during the period minus cash disbursements during the period
d. Cash sales and collections of accounts receivable minus revenue and capital expenditures
31. Which of the following statements about budgeted financial statements is incorrect?
a. Cost of goods sold is determined by multiplying the budgeted unit sales by the budgeted total unit
production cost.
b. The budgeted income statement is developed from the budgeted for the current year.
c. The budgeted balance sheet is developed entirely from the budgets for the current year.
d. Once established, the budgeted income statement provides the basis for evaluating company
performance.
32. Which of the following is most likely to result if X’s managers decide to reduce inventory to alleviate a
cash deficiency shown in its initial cash budget?
a. A decrease in X’s cost-of-sales percentage.
b. A decrease in X’s budgeted purchases.
c. A lowering of X’s credit rating.
d. A longer collection period for X’s credit sales.
33. If cash receipts from customers are greater than sales, which of the following is most likely to be true?
a. Accounts receivable will decrease. c. Cash balance will increase.
b. Outstanding debt will decrease. d. The company will show a profit.
34. Considering budgeting concepts and principles, which of the following statements is not applicable?
a. The only difference between a flexible budget and a static budget is that a flexible budget does not
contain fixed costs.
b. A flexible budget is geared toward a range of activity rather than toward a single level of activity.
c. Although it is effective in measuring production control, a static budget is not effective in measuring
cost control.
d. The flexible budget is often used as a basis for preparing the pre-determined overhead rate.
Theory
1. D 16. B 31. C
2. C 17. C 32. B
3. A 18. D 33. A
4. C 19. A 34. A
5. D 20. C
6. D 21. A
7. C 22. C
8. B 23. D
9. A 24. C
10. A 25. C
11. D 26. C
12. A 27. A
13. B 28. B
14. A 29. C
15. B 30. A