Accounting Ch 21

Front 1

Budgeting facilitates the coordination of activities within the business by correlating the goals of each segment with overall company objectives.

Back 1

True

Front 2

Which one of the following is not a benefit of budgeting?

Back 2

It provides assurance that the company will achieve its objectives.
There is no guarantee or assurance that a company will meet its objectives even when budgets are used for planning and controlling.

Front 3

Which one of the following is a primary benefit of budgeting?

Back 3

It provides definite objectives for evaluating performance.
This is one of the primary benefits of budgeting.

Front 4

Which of the following is not a benefit of budgeting?

Back 4

It enables disciplinary action to be taken at every level of responsibility.
Budgeting does not necessarily enable disciplinary action to be taken at every level of responsibility.

Front 5

A budget

Back 5

is the primary method of communicating agreed-upon objectives throughout an organization.
A budget is the primary method of communicating agreed-upon objectives throughout an organization.

Front 6

Which of the following are correct statements about a budget?

Back 6

It promotes efficiency and serves as a deterrent to waste and inefficiency.

All of these answer choices are correct.

It is a formal written statement of management's plans for a specified future time period.

It becomes an important basis for evaluating performance.

Front 7

The primary benefits of budgeting include all of the following except it

Back 7

requires only top management to plan ahead and formalize goals.

Front 8

The most common budget period is one month.

Back 8

False
The most common budget period is one year.

Front 9

The chief accountant (controller) has responsibility for coordinating the preparation of the budget.

Back 9

False
The budget committee has responsibility for coordinating the preparation of the budget.

Front 10

Which one of the following is necessary if a company expects its budget to be effective?

Back 10

he company must have a sound organizational structure.
In a company with a sound organizational structure, authority and responsibility for all phases of operations are clearly defined.

Front 11

Which of the following is one of the factors that must be present if budgets are to be effective?

Back 11

The company must have a sound organizational structure.
In a company with a sound organizational structure, authority and responsibility for all phases of operations are clearly defined.

Front 12

The essentials of effective budgeting do not include

Back 12

top-down budgeting.
Top-down budgeting is not one of the essentials of effective budgeting.

Front 13

Compared to budgeting, long-range planning generally has the

Back 13

longer time period.
Long-range planning generally encompasses a five year period whereas budgeting usually covers a period of a year.

Front 14

The most common budget period is a

Back 14

Year

Front 15

Coordinating the preparation of the budget is the responsibility of the

Back 15

budget committee
A budget committee has responsibility for coordinating the preparation of the budget.

Front 16

Long-range planning usually encompasses a period of

Back 16

at least five years.

Front 17

The master budget is a set of interrelated budgets that constitutes a plan of action for a specified time period.

Back 17

True

Front 18

The budgeted income statement is the starting point in preparing financial budgets.

Back 18

False
The budgeted income statement is an operating budget, not a financial budget.

Front 19

The production budget is the first budget prepared in the master budget.

Back 19

False
The sales budget is the first budget prepared.

Front 20

The direct materials budget shows both the quantity and cost of direct materials to be purchased.

Back 20

True

Front 21

Which of the following lists includes only financial budgets?

Back 21

Budgeted balance sheet, cash budget, and the capital expenditures budget.

Front 22

A sales budget is

Back 22

management’s best estimate of sales revenue for the year.
This is an accurate description of the sales budget.

Front 23

The formula for the production budget is budgeted sales in units plus

Back 23

desired ending finished goods units less beginning finished goods units.
The formula for the production budget is budgeted sales in units plus desired ending finished goods units less beginning finished goods units.

Front 24

Direct materials inventories are kept in pounds in Byrd Company, and the total pounds of direct materials needed for production is 9,500. If the beginning inventory is 1,000 pounds and the desired ending inventory is 2,200 pounds, the total pounds to be purchased are

Back 24

10,700
Pounds to be purchased = amount needed for production + the desired ending inventory - the beginning inventory = 10,700 (9,500 + 2,200 - 1,000).

Front 25

Operating budgets include all of the following except the

Back 25

capital expenditure budget.
The capital expenditure budget is a financial budget, not an operating budget.

Front 26

Each of the other budgets in the master budget depends on the

Back 26

Sales budget
Each of the other budgets depends on the sales budget.

Front 27

In the direct materials budget, the quantity of direct materials to be purchased is computed by adding direct materials required for production to

Back 27

desired ending direct materials less beginning direct materials.
Direct materials required for production plus desired ending direct materials less beginning direct materials yields the quantity of direct materials to be purchased.

Front 28

The direct labor budget and the manufacturing overhead budget are prepared directly from the

Back 28

production budget
The production budget is the basis for preparing both the direct labor budget and the manufacturing overhead budget.

Front 29

At the beginning of the year, Goldenrod had beginning inventory of 2,000 scooters. Goldenrod estimates it will sell 5,000 units during the first quarter of the current year, with a 10% increase in sales each quarter. It is Goldenrod’s policy to maintain an ending inventory equal to 20% of the next quarter’s budgeted sales. Each scooter costs $100 to produce and sold for $150. How much is the budgeted sales revenue for the third quarter of the current year?

Back 29

$907,500.
Estimated first quarter sales (5,000 units) + (5,000 units x 10%) = Estimated second quarter sales in units (5,500 units). Estimated second quarter sales (5,500 units) + (5,500 units x 10%) = Estimated third quarter sales in units (6,050 units) x selling price per unit ($150) = $907,500 Budgeted Sales for Third Quarter.

Front 30

Microtech plans to sell 2,000 computers in April; 1,900 in May; and 2,000 in June. The company keeps 15% of the next month’s sales as ending inventory. How many units should Microtech produce in May?

Back 30

1,915.
Budgeted Sales Units-May (1,900) + Desired Ending Inventory-May (.15 x 2,000) - Beginning Inventory-May (.15 x 1,900) = Required Production Units (Note: Beginning Inventory- May = Ending Inventory-April = .15 x 1,900).

Front 31

Tomy Toys is planning to sell 200 action figures and to produce 190 action figures in July. Each action figure requires 100 grams of plastic and a half hour of direct labor. The cost of the plastic used in each action figure is $5 per 100 grams. Employees of the company are paid at a rate of $15.00 per hour. Manufacturing overhead is applied at a rate of 120% of direct labor costs. Tomy Toys has 90,000 grams of plastic in its beginning inventory and wants to have 80,000 grams in its ending inventory. What is the amount of budgeted direct labor cost for the month of July?

Back 31

$1,425.
Units to be Produced (190) x Direct Labor per Unit (.5 hours) x Direct Labor Cost per Hour ($15) = Total Direct Labor Cost ($1,425).

Front 32

The formula for computing the direct labor budget is to multiply the direct labor cost per hour by the

Back 32

total required direct labor hours.
Direct labor cost x total required direct labor hours is the formula for computing the direct labor budget.

Front 33

Windathon, Inc. expects sales volume totaling $500,000 for June. Data for the month follows:

Sales commissions
4% of sales
Sales manager's salary
$30,000 per month
Advertising expense
$25,000 per month
Shipping expense.
1% of sales
Miscellaneous selling expenses
$2,100 per month plus 3/4% of sales

How much is Windathon’s selling expense budget for June?

Back 33

$85,850.
Variable cost: (4% + 1% + 3/4%) x $500,000 = $28,750; Fixed cost: $30,000 + $25,000 + $2,100 = $57,100; Total cost: $28,750 + $57,100 = $85,850.

Front 34

Sales revenue $115,000
Cost of goods sold:
Beginning inventory $13,600
Purchases 75,300
Less ending inventory (11,300) 77,600
Gross profit 37,400
Operating expenses 31,000
Income before taxes 6,400
Income taxes expense (30%*$6,400) 1,920
Net income $4,480

Heaters, Inc. provided the following budgeted information for March through July:

March April May June July
Projected sales $104,600 $123,000 $115,000 $132,000 $141,400
Projected merchandise purchases $82,000 $92,400 $75,300 $66,600 $73,000
Inventory at end of month $12,000 $13,600 $11,300 $12,400 $14,300

· Heaters estimates that it will collect 30% of its sales in the month of sale and 70% in the month after the sale.
· General operating expenses are budgeted to be $31,000 per month of which depreciation is $3,000 of this amount. Heater pays operating expenses in the month incurred.
· The income tax rate is 30%.

How much is budgeted net income for M

Back 34

$4,480.
Net income is comprised of revenues less expenses as follows:

Front 35

Each of the following budgets is used in preparing the budgeted income statement except the

Back 35

capital expenditure budget.
The capital expenditure budget is not used in preparing the budgeted income statement.

Front 36

The budgeted income statement is

Back 36

the end-product of the operating budgets.
he budgeted income statement is the end-product of the operating budgets.

Front 37

The important end-product of the operating budgets is the

Back 37

budgeted income statement.
The budgeted income statement is the important end-product of the operating budgets.

Front 38

The financing section of a cash budget shows expected borrowings and the repayment of borrowed funds plus interest.

Back 38

True

Front 39

The budgeted balance sheet is developed from the budgeted balance sheet for the preceding year and the budgets for the current year.

Back 39

True

Front 40

Which one of the following budgets is considered to be the most important financial budget?

Back 40

Cash budget.
Because cash is so vital, the cash budget is considered to be the most important financial budget.

Front 41

Drew Enterprises reports all its sales on credit, and pays operating costs in the month incurred. Estimated amounts for the months of June through October are:

June July August September October
Budgeted sales $310,000 $330,000 $300,000 $280,000 $260,000
Budgeted purchases $144,000 $120,000 $128,000 $132,000 $90,000

· Customer amounts on account are collected 60% in the month of sale and 40% in the following month.
· Cost of goods sold is 45% of sales.
· Drew purchases and pays for merchandise 30% in the month of acquisition and 70% in the following month.

How much cash is budgeted to be received during August?

Back 41

$312,000
Amounts collected during August include August sales plus amounts collected for July sales. Collection of August sales: $300,000 x 60% = $180,000; Collection of July sales: $330,000 x 40% = $132,000; Total = $180,000 + $132,000 = $312,000.

Front 42

Scan Design provided the following budgeted information for April through July:

April May June July
Projected sales $104,000 $123,000 $115,000 $132,000
Projected merchandise purchases $82,000 $92,000 $78,000 $66,000

· The cash balance on June 1 is $12,000. The company pays 40% of merchandise purchases in the month purchased and 60% in the following month.
· General operating expenses are budgeted to be $31,000 per month of which depreciation is $3,000 of this amount. Management pays operating expenses in the month incurred.
· The company makes loan payments of $4,000 per month of which $600 is interest and the remainder is principal.

How much are budgeted cash disbursements for June?

Back 42

118,400
Payment is made for merchandise purchased during the current month and for the portion of merchandise acquired during the previous month that has not been paid. Disbursements include payments for all amounts in addition to merchandise purchases.

Budgeted cash disbursements for purchases:
Cash paid for June purchases ($78,000 x 40%) $ 31,200
Cash paid for May purchases ($92,000 x 60%) 55,200
Budgeted cash paid for purchases 86,400
Budgeted cash payments for operating expenses ($31,000 - $3,000) 28,000
Budgeted cash payment for loan ($4,000 - $600) 3,400
Budgeted cash payment for interest 600
Total budgeted cash disbursements for June

Front 43

The budgeted balance sheet is

Back 43

developed from the budgeted balance sheet for the preceding year and the budgets for the current year.
he budgeted balance sheet is developed from the budgeted balance sheet for the preceding year and the budgets for the current year.

Front 44

The format of a cash budget is

Back 44

Beginning cash balance + Cash receipts – Cash disbursements +/– Financing = Ending cash balance.

Front 45

Expected direct materials purchases in Read Company are $70,000 in the first quarter and $90,000 in the second quarter. Forty percent of the purchases are paid in cash as incurred, and the balance is paid in the following quarter. The budgeted cash payments for purchases in the second quarter are

Back 45

$78,000.
Budgeted cash payments for the second quarter = purchases for the first quarter, or $42,000 ($70,000 X 60%) + 40% of the purchases for the second quarter, or $36,000 ($90,000 X 40%). The total is $78,000 ($36,000 + $42,000).

Front 46

Financial budgets consist of all of the following except the

Back 46

budgeted income statement.
The budgeted income statement is an operating budget, not a financial budget.

Front 47

The budget that is often considered to be the most important financial budget is the

Back 47

cash budget.

Front 48

The cash budget contains sections for each of the following except

Back 48

capital expenditures

Front 49

At the beginning of the year, Opal Company has a cash balance of $23,000. During the year, the company expects cash disbursements of $160,000, and cash receipts of $140,000. If Opal Company requires an ending cash balance of $20,000, how much must the company borrow?

Back 49

17,000.
Beginning Cash Balance ($23,000) + Cash Receipts ($140,000) = Total Available Cash ($163,000) – Cash Disbursements ($160,000) = Excess of Available Cash Over Cash Disbursements ($3,000). Desired Ending Cash Balance ($20,000) - Excess of Available Cash Over Cash Disbursements ($3,000) = Borrowings ($17,000).

Front 50

A merchandiser uses a merchandise purchases budget in addition to a production budget.

Back 50

False
merchandiser uses a merchandise purchases budget instead of a production budget.

Front 51

Which one of the following is an input that is needed in order to budget a service company?

Back 51

Determining expected billing time for each staff member.

Front 52

Which one of the following budgets would not be prepared for a merchandising company?

Back 52

Production budget.
A merchandiser buys inventory ready to sell and does not produce it. Only manufacturers produce goods.

Front 53

The budget for a merchandiser differs from a budget for a manufacturer because

Back 53

a merchandise purchases budget replaces the production budget.

Front 54

In most cases, not-for-profit entities

Back 54

begin the budgeting process by budgeting expenditures rather than receipts.
In most cases, not-for-profit entities begin the budgeting process by budgeting expenditures rather than receipts.

Front 55

Budgets are used by which of the following organizations?

Back 55

all of these answer choices are correct.

not-for-profit organizations.

service enterprises.

merchandisers.

Front 56

In the merchandise purchases budget, required merchandise purchases are computed by adding

Back 56

budgeted cost of goods sold and desired ending merchandise inventory together and deducting beginning merchandise inventory.
Budgeted cost of goods sold + desired ending merchandise inventory - beginning merchandise inventory = required merchandise purchases.