ACC 418 Chapter 6

The following information pertains to the January operating budget for Murphy Corporation, a retailer: Budgeted sales are $206,000 for January Collections of sales are 50% in the month of sale and 50% the next month Cost of goods sold averages 61% of sales Merchandise purchases total $160,000 in January Marketing costs are $3600 each month Distribution costs are $6000 each month Administrative costs are $10,000 each month For January, budgeted gross margin is: a. $46,000 b. $80,340 c. $103,000 d. $125,660

$80340 $206,000 - (0.61 × $206,000) = $80,340

Antique Brass Company has budgeted sales volume of 120,000 units and budgeted production of 113,000 units, while 21,000 units are in beginning finished goods inventory. How many units are targeted for ending finished goods inventory? a. 28000 units b. 21000 units c. 14000 units d. 7000 units

14000 units 113,000 units (Budgeted production) + 21,000 units (Beginning finished goods inventory) - 120,000 units (Budgeted sales) = 14,000 units (Budgeted ending finished goods inventory)

Orange Corporation has budgeted sales of 17,000 units, targeted ending finished goods inventory of 6000 units, and beginning finished goods inventory of 3000 units. How many units should be produced next year? a. 17000 units b. 20000 units c. 26000 units d. 23000 units

20000 units Number of units to be produced next year = 17,000 units (estimated sales) + 6000 units (budgeted ending inventory) - 3000 units (opening inventory) = 20,000 units.

If an international business unit will experience considerable business and exchange rate risk, which of the following is a reasonable conclusion? a. Budgets may need to be abandoned because senior managers can only evaluate performance. b. Because of the risk of global operations, multinational companies find budgeting to difficult to execute and therefore the costs often outweigh the benefits. c. When conditions are shifting and volatile, budgeting is not useful for planning. d. Risky situations may make budgeting difficult for evaluating performance but managers can use budgets to help them adapt their plans.

Risky situations may make budgeting difficult for evaluating performance but managers can use budgets to help them adapt their plans.

The operating budget process generally concludes with the preparation of the: a. cash flow statement b. budgeted income statement c. balance sheet d. production budget

budgeted income statement

Sensitivity analysis helps managers evaluate risks: a. by identifying inconsistencies in underlying assumptions and actual conditions b. by showing the effects of changes to the original data or an underlying assumption c. by identifying gaps in the production process using information on setups needed to manufacture products d. by removing the effects of foreign currency exposure and other uncontrollable factors

by showing the effects of changes to the original data or an underlying assumption

The Japanese use the term kaizen when referring to: a. the sales forecast b. scarce resources c. pro forma financial statements d. continuous improvement

continuous improvement

Which of the following is NOT true of a properly executed budgetary cycle? a. past performance and market feedback are considered in setting budget amounts b. specific financial and nonfinancial expectations are set c. during the fiscal year, managers investigate deviations from plans d. deviations from plan are only investigated at the conclusion of the fiscal year as actual data can be finally compiled

deviations from plan are only investigated at the conclusion of the fiscal year as actual data can be finally compiled

The number of units in the sales budget and the production budget may differ because of a change in: a. beginning direct material inventory levels b. sales returns and allowances c. ending finished goods inventory levels d. total overhead charges for the year

ending finished goods inventory levels

Tom Magic Company manufactures various kinds of toys for different age groups. The company's flagship product is Rx. The company currently requires 8.50 labor hours to manufacture per unit of Rx. The company believes that because of numerous small improvements in the process, it will require 0.10 labor-hours less and hence will only 8.40 labor-hours in the next quarter. It will require 8.35 and 8.25 labor-hours in third and fourth quarter. The company has adopted: a. kaizen budgeting b. activity based budgeting c. zero-based budgeting d. cost-based budgeting

kaizen budgeting

Which of the following statements can be considered to be an advantage of a bottom-up budget? a. Prevents slack being built into budgets. b. Lower-level managers participation brings more specialized knowledge regarding day-to-day operations. c. Increases the rigidity and rigor of the process. d. It is the less expensive of all methods of producing and monitoring a budget.

Lower-level managers participation brings more specialized knowledge regarding day-to-day operations.

Which of the following is true of budgets when they are administered thoughtfully? a. They are an adequate substitute for the planning and coordination functions of management. b. They promote coordination within the subunits of a company. c. They eliminate subjectivity in performance evaluation. d. They can eliminate the uncertainty faced by a company.

They promote coordination within the subunits of a company

One of the benefits of a well implemented and executed budget is communication. Which of the following best describes communication within the budgetary cycle? a. the calculation of deviations from plan b. making each manager aware of the plan and allowing each manager to understand the importance of the plan c. meshing and balancing of all aspects of production or service d. allocation of scarce resources across all functional areas of the company

making each manager aware of the plan and allowing each manager to understand the importance of the plan

The practice of developing reasonably challenging budgets tends to help: a. increase anxiety without motivation not meeting them is viewed as a failure b. set unrealistic expectations and are perceived as overly ambitious and unachievable c. discourage out-of-the-box and creative thinking as there is very little room for error d. motivate improved performance as employees work more intensely to avoid failure

motivate improved performance as employees work more intensely to avoid failure

The preparation of all the budgets in the master budget forces managers to think about their business operations and to formulate plans, while: a. completing the budgeting tasks with minimal cross functional feedback b. ignoring financial risks and opportunities c. setting expectations against which actual results can be compared d. detecting inaccurate historical records to avoid errors in budgets

setting expectations against which actual results can be compared

Which of the following departments is most likely to be a profit center? a. the sales department of a company whose objective is to maximize the revenues b. the accounting department of a company that also assists in budgeting process c. the research and development department of a company d. the consulting department of a law firm

the consulting department of a law firm

The budgeting process is most strongly influenced by: a. the sales forecast b. the budgeted statement of cash flows c. the production budget d. the capital budget

the sales forecast