ACC 222 Chapter 9

Assume that a company has the following accounts receivable collection pattern: Month of sale 40% Month following sale 60% All sales are on credit. If credit sales for January and February are $100,000 and $200,000, respectively, the cash collections for February are a. $140,000. b. $300,000. c. $120,000. d. $160,000. e. $80,000.

a

The percentage of accounts receivable that are uncollectible can be ignored for cash budgeting because a. no cash is received from an account that defaults. b. it is included in cash sales. c. it appears on the budgeted income statement. d. for most companies, it is not a material amount. e. None of these choices are correct.

a

Which of the following is not an advantage of participative budgeting? a. It encourages budgetary slack. b. It tends to lead to a higher level of performance. c. It fosters a sense of responsibility. d. It encourages greater goal congruence. e. It fosters a sense of creativity in managers.

a

Which of the following is not part of the operating budget? a. The capital budget b. The facilities budget c. The advertising budget d. The direct labor budget e. The sales budget

a

sales budget

a budget that describes expected sales in units and dollars for the coming period

participative budgeting

an approach to budgeting that allows managers who will be held accountable for budgetary performance to participate in the budget's development

An ideal budgetary system is one that a. encourages dysfunctional behavior. b. encourages goal-congruent behavior. c. encourages myopic behavior. d. encourages subversion of an organization's goals. e. None of these choices are correct.

b

Select the one budget below that is not an operating budget. a. Cost of goods sold budget b. Cash budget c. Production budget d. Overhead budget e. All of these choices are operating budgets.

b

The first step in preparing the sales budget is to a. review the production budget carefully. b. prepare a sales forecast. c. talk with past customers. d. increase sales beyond the forecast level. e. estimate sales commissions.

b

Which of the following is needed to prepare a budgeted income statement? a. The production budget b. Budgeted selling and administrative expenses c. The budgeted balance sheet d. The capital expenditures budget e. Last year's income statement

b

Which of the following is needed to prepare the production budget? a. Production manager's salary expense b. Expected unit sales c. Cost of direct labor needed for production d. Cost of direct materials needed for production e. None of these choices are correct.

b

cash available

beginning cash balance + expected cash receipts

myopic behavior

behavior that occurs when a manager takes actions that improve budgetary performance in the short run but bring long-run harm to the firm

operating budgets

budgets associated with the income-producing activities of an organization

A company requires 100 pounds of plastic to meet the production needs of a small toy. It currently has 10 pounds of plastic inventory. The desired ending inventory of plastic is 30 pounds. How many pounds of plastic should be budgeted for purchasing during the coming period? a. 130 pounds b. 110 pounds c. 120 pounds d. 80 pounds e. None of these choices are correct.

c

Which of the following is not an advantage of budgeting? a. It forces managers to plan. b. It provides information for decision making. c. It guarantees an improvement in organizational efficiency. d. It provides a standard for performance evaluation. e. It improves communication and coordination.

c

units to be produced

expected unit sales + units in desired ending inventory - units in beginning inventory

dysfunctional behavior

individual behavior that conflicts with the goals of the organization

budgets

plans of action expressed in financial terms

goal congruence

the alignment of a manager's personal goals with those of the organization

master budget

the collection of all area and activity budgets representing a firm's comprehensive plan of action

cogs budget

the estimated costs for the units sold

budget director

the individual responsible for coordination and directing the overall budgeting process

strategic plan

the long-term plan for future activities and operations, usually involving at least five years

incentives

the positive or negative measures taken by an organization to induce a manager to exert effort toward achieving the organization's goals

budgetary slack

the process of padding the budget by overestimating costs and underestimating revenues

control

the process of setting standards, receiving feedback on actual performance, and taking corrective action whenever actual performance deviates significantly from planned performance

monetary incentives

the use of economic rewards to motivate managers

nonmonetary incentives

the use of psychological and social rewards to motivate managers

direct labor budget

a budget showing the total direct labor hours needed and the associated costs for the number of units in the production budget

ending finished goods inventory budget

a budget that describes planned ending inventory of finished goods in units and dollars

selling and administrative expenses budget

a budget that outlines planned expenditures for non manufacturing activities

direct materials purchases budget

a budget that outlines the expected usage of materials production and purchases of the direct materials required

overhead budget

a budget that reveals the planned expenditures for all indirect manufacturing items

production budget

a budget that shows how many units must be produced to meet sales needs and satisfy ending inventory requirements

pseudoparticipation

a budgetary system in which top management solicits inputs from lower-level managers and then ignores those inputs. Thus, in reality, budgets are dictated from above

budget committee

a committee responsible for setting budgetary policies and goals reviewing and approaching the budget, and resolving any difference that may arise in the budgetary process

cash budget

a detailed plan that outlines all sources and uses of cash

continuous budget

a moving 12-month budget with a future month added as the current month expires

ending cash balance

cash available - expected cash disbursement

controllable costs

costs that managers have the power to influence

A moving, 12-month budget that is updated monthly is a. not used by manufacturing firms. b. a waste of time and effort. c. a master budget. d. a continuous budget. e. always used by firms that prepare a master budget.

d

The cash budget serves which of the following purposes? a. Documents the need for liberal inventory policies. b. Reveals the amount of depreciation expense. c. Reveals the amount lost due to uncollectible accounts. d. Provides information about the ability to repay loans. e. None of these choices are correct.

d

financial budgets

detail the inflows and outflows of cash and the overall financial position

purchases

direct materials needed for production + direct materials in desired ending inventory - direct materials in beginning inventory

A budget a. is used to communicate financial information to the company's external stakeholders. b. includes expenses and administrative cost items, but excludes sales and revenue items. c. covers at least 2 years. d. is used primarily in manufacturing businesses as a tool for controlling costs. e. is a short-term financial plan.

e

A company plans to sell 220 units. The selling price per unit is $24. There are 50 units in beginning inventory, and the company would like to have 20 units in ending inventory. How many units should be produced for the coming period? a. 250 b. 200 c. 230 d. 220 e. None of these choices are correct.

e

Before a direct materials purchases budget can be prepared, you should first a. prepare a sales budget. b. prepare a production budget. c. decide on the desired ending inventory of materials. d. obtain the expected price of each type of material. e. All of these choices are correct.

e

Some key budgetary features that tend to promote positive managerial behavior are a. frequent feedback on performance. b. participative budgeting. c. realistic standards. d. well-designed monetary and nonmonetary incentives. e. All of these choices are correct.

e

The budget committee a. reviews the budget. b. resolves differences that arise as the budget is prepared. c. approves the final budget. d. is directed (typically) by the controller. e. All of these choices are correct.

e

Which of the following is part of the control process? a. Monitoring of actual activity b. Comparison of actual with planned activity c. Investigating d. Taking corrective action e. All of these choices are correct.

e

Which of the following items is a possible example of myopic behavior? a. Failure to promote deserving employees b. Reducing expenditures on preventive maintenance c. Cutting back on new product development d. Buying cheaper, lower-quality materials so that the company does not exceed the materials purchases budget e. All of these choices are correct.

e