Accounting 2: Chapter 8 (exam 3)

what budgets are based on information from the sales budget?

- production - selling & admin

The system of accountability in which managers are held responsible for those items of revenue and costs—and only those items—over which they can exert significant control is referred to as ________. a) budgeting b) control c) responsibility accounting d) self-imposed accounting

answer: c) responsibility accounting

sales budget is calculated by...

budgeted unit sales * selling price per unit

"As a practical matter planning and control mean exactly the same thing." Do you agree? No. Planning and control are different, although related, concepts. Planning involves developing goals and developing _______ to achieve those goals. Control, by contrast, involves the means by which management attempts to ______ that the goals set down at the planning stage are __________.

budgets; ensure; attained

What is a budget? A budget is a detailed plan for the use of ____ and other resources over a given time period. what is budgetary control? using budgets to increase the likelihood that all parts of an organization are working ______ to achieve the goals set down in the _____ stage.

financial together; planning

•Advantages -Define goals and objectives -Think about and plan for the _________ -Means of ______ Resources -Coordinate activities -Communicate plans

future; allocating

How can budgeting assist a company in planning its workforce staffing levels? The direct labor budget and other budgets can be used to forecast workforce staffing ______. Careful planning can help a company avoid erratic hiring and _____ ____ of employees.

needs; laying off

1) Self-imposed budgets should be reviewed by higher levels of management to prevent __ __ - Most companies issue broad guidelines in terms of overall profits or sales. Lower level managers are directed to prepare budgets that meet those targets.

1) "budgetary slack."

The cash budget is divided into four sections: 1. ___ ___ section lists all cash inflows excluding cash received from financing; 2. ___ _____ section consists of all cash payments excluding repayments of principal and interest; 3. Cash ___ or ____ section determines if the company will need to borrow money or if it will be able to repay funds previously borrowed; and 4. ____ section details the borrowings and repayments projected to take place during the budget period.

1) Cash receipts 2) Cash disbursements 3) excess; deficiency 4. Financing

•A budget is a detailed quantitative plan for acquiring and using financial and other resources over a specified forthcoming time period. 1. The act of preparing a budget is called _____. 2. The use of budgets to control an organization's activities is known as budgetary ____.

1) budgeting 2) control

Human Factors in Budgeting The success of a budget program depends on three important factors: 1. Top management must be enthusiastic and ____ to the budget process. 2. Top management must not use the budget to pressure employees or ___ them when something goes wrong. 3.Highly achievable budget targets are usually preferred when managers are rewarded based on meeting budget targets.

1) committed 2) blame

1) Operating budgets ordinarily cover a one-year period corresponding to a company's _____ year. Many companies divide their annual budget into four quarters. •A continuous budget is a 12-month budget that rolls forward one month (or quarter) as the current month (or quarter) is completed.

1) fiscal

1) Planning - involves developing ____ and preparing various budgets to achieve those objectives. 2) Control - involves the steps taken by management to increase the likelihood that the objectives set down while planning are ___ and that all parts of the organization are working together toward that goal.

1) objectives or goals 2) attained

Responsibility Accounting 1) Managers should be held responsible for those items - and ____ those items - that they can actually control to a significant extent. - Responsibility accounting enables organizations to react quickly to deviations from their plans and to learn from feedback.

1) only

discuss major benefits from budgeting? 1) Budgets communicate management's _____ throughout the organization. 2) Budgets force managers to think about and plan for the ____. In the absence of the necessity to prepare a budget, many managers would spend all of their time dealing with day-to-day emergencies. 3) The budgeting process provides a means of _____ resources to those parts of the organization where they can be used most ______. 4) The budgeting process can uncover potential _____ before they occur. 5) Budgets coordinate the activities of the entire organization by integrating the plans of its various parts. Budgeting helps to ensure that everyone in the organization is pulling in the same _____. 6) Budgets define goals and objectives that can serve as _____ for evaluating subsequent performance.

1) plans / goals 2) future 3) allocating; effectively 4) bottlenecks 5) direction 6) benchmarks

Advantages of Self-Imposed Budgets 1. Individuals at all levels of the organization are viewed as members of the team whose judgments are ________ by top management. 2. Budget estimates prepared by front-line managers are often more _____ than estimates prepared by top managers. 3. Motivation is generally higher when individuals participate in setting their own goals than when the goals are imposed from ______. 4. A manager who is not able to meet a budget imposed from above can claim that it was unrealistic. Self-imposed budgets _____ this excuse.

1) valued 2) accurate 3) above 4) eliminate

•A self-imposed budget or participative budget is a budget that is prepared with the full cooperation and participation of managers at...

all levels.

William Corporation has a contract with the labor union which guarantees its workers pay for at least 40,000 hours every quarter. Based on its direct labor budget for the current year, the company estimated it will need 39,000 direct labor-hours during the fourth quarter to produce 13,000 units of finished goods. Each unit requires 3 direct labor-hours (DLHs) and the cost of direct labor per hour is $12 per hour. What is the total direct labor cost for the fourth quarter? a) $432,000 b) $468,000 c) $480,000 d) $540,000

answer: c) $480,000

Pro Clean Company, a manufacturer of hand sanitizers, intends to produce 40,000 units in the third quarter and 35,000 units in the fourth quarter. Each unit requires 0.50 direct labor-hours (DLHs) and the cost of direct labor per hour is $18. What would be the total direct labor cost for the fourth quarter? a) $355,000 b) $360,000 c) $300,000 d) $315,000

answer: d) $315,000

The value of the ending inventory is calculated by multiplying the number of units in ending inventory by the ________. a) unit product cost b) variable overhead cost per unit c) total overhead cost per unit d) the sum of the direct materials and direct labor cost per unit

answer: a) unit product cost

In a direct materials budget, the desired ending raw materials inventory for the year is equal to the ________. a) beginning balance of accounts payable b) desired ending raw materials inventory for the last period c) total merchandise purchased during the year d) value of raw material used during the year

answer: b) desired ending raw materials inventory for the last period

The purpose of preparing a direct materials budget is to ________. a) allocate the cost of raw materials to production departments b) estimate the manufacturing overhead c) estimate the quantity of raw materials to be purchased d) estimate the unit cost of direct materials to be purchased

answer: c) estimate the quantity of raw materials to be purchased

Companies prepare direct labor budgets to ________. a) avoid labor shortages b) determine the direct labor-hours per unit c) ensure timely supply of raw materials d) reduce inventories

answer: a) avoid labor shortages

Which of the following is deducted from the total selling and administrative expense budget to determine the cash disbursements for selling and administrative expense budget? a) Advertising expense b) Depreciation expense c) Selling commissions d) Utilities expense

answer: b) Depreciation expense

Which of the following explains why operating budgets generally span a period of one year? a) Accounting regulations mandate that all operating budgets be prepared for one year. b) Operating budgets, by definition, are prepared for one-year periods. c) Companies choose a span of one year to correspond to their fiscal years. d) Operating budgets need to correspond with the calendar year.

answer: c) Companies choose a span of one year to correspond to their fiscal years.

Which of the following is true of self-imposed (participative) budgets? a) Self-imposed budgets give managers at all levels of an organization an opportunity to provide input into the budgeting process. b) Self-imposed budgets are prepared without consulting lower-level managers. c) The estimates used in self-imposed budgets rely primarily on the inputs and insights of top managers. d) Managers who create self-imposed budgets do not have an opportunity to embed budgetary slack within their estimates.

answer: a) Self-imposed budgets give managers at all levels of an organization an opportunity to provide input into the budgeting process.

Vineyard Corporation, a manufacturer of fine wines, began the year with 20,000 bottles in inventory. The company estimated the budgeted sales for the four quarters of the current yearterm-24 to be 200,000 bottles, 150,000 bottles, 250,000 bottles, and 400,000 bottles, respectively. The management feels that an ending inventory of 10% of the subsequent quarter's sales is appropriate. What is the desired ending inventory for the second quarter? a) 15,000 bottles b) 20,000 bottles c) 25,000 bottles d) 40,000 bottles

answer: c) 25,000 bottles

Which of the following is not a benefit of self-imposed budgets? (prepared with managers at all levels, all views are valued) a) A manager who is not able to meet a budget that has been imposed from above can always say that the budget was unrealistic and impossible to meet. b) Budget estimates prepared by front-line managers are often more accurate and reliable. c) Lower-level managers are encouraged to create budgetary slack since they are more knowledgeable of day-to-day operations. d) Motivation is generally higher.

answer: c) Lower-level managers are encouraged to create budgetary slack since they are more knowledgeable of day-to-day operations.

Which of the following is a major factor that should be taken into consideration while planning the desired level of inventories? a) Costs of carrying inventory. b) General administrative policy of the company. c) Selling price of the finished product. d) Statutory requirements.

answer: a) Costs of carrying inventory.

Which of the following is not a benefit of budgeting? a) The budgeting process enables managers to uncover bottlenecks as they occur. b) Budgets communicate management's plans throughout the organization. c) Budgets define goals and objectives that can serve as benchmarks for evaluating subsequent performance.

answer: a) The budgeting process enables managers to uncover bottlenecks as they occur

Vineyard Corporation, a manufacturer of fine wines, began the year with 20,000 bottles in inventory. The company estimated the budgeted sales for the four quarters of the current year to be 200,000 bottles, 150,000 bottles, 250,000 bottles, and 400,000 bottles, respectively. The management feels that an ending inventory of 10% of the subsequent quarter's sales is appropriate. What are the production needs for the first quarter? a) 160,000 bottles b) 175,000 bottles c) 195,000 bottles d) 215,000 bottles

answer: c) 195,000 bottles

The budgeting process begins with the preparation of the ______ budget. a) cash b) direct materials c) production d) sales

answer: d) sales

For a production budget, the ______ is the beginning inventory for the year. a) beginning inventory for the first quarter b) beginning inventory for the last quarter c) ending inventory for the last quarter d) sum of beginning inventories for the four quarters

answer: a) beginning inventory for the first quarter

the ending finished goods inventory budget computes the:

cost of unsold units

what is a master budget? briefly describe its contents. 1) A master budget represents a summary of all of management's plans and _____ for the future, and outlines the way in which these plans are to be ____ - The master budget is composed of a number of smaller, specific budgets encompassing sales, production, raw materials, direct labor, manufacturing overhead, selling and administrative expenses, and inventories. The master budget usually also contains a budgeted income statement, budgeted balance sheet, and cash budget.

goals; accomplished.

"The principle purpose of the cash budget is to see how much cash the company will have in the bank at the end of the year." Do you agree? The principal purpose of the cash budget is NOT to see how much cash the company will have in the bank at the end of the year. Although this is one of the purposes of the cash budget, the principal purpose is to provide information on probable cash ______ during the budget period, so that bank _______ and other sources of financing can be anticipated and arranged well in advance.

needs; loans