Chap 12

Sales Budget

Budgeted sales = expected unit sales x unit sales price

In a cash budget, the budgeted level of cash receipts depends on all of the following except: Choose one of the following answers. a) The sales forecast b) The credit terms offered to customers c) The credit terms offered by suppliers a) Experience in collecting receivables

C: Cash Receipts Not Included

Cash Budget

Example of a cash budget statement. Steps: 1) Calculate cash collections from customers per month 2) Calculate expected payments for direct materials per month 3) Split cash budget into 3 different sections: 0) Beginning cash receipts 1) Add Receipts (Collections from customers) (Exclude financing activities) 2) Less Payments (Exclude loan principle repayment and interest repayment) 3) List borrowing and repayments

A budget is a plan of action that reflects historical transactions, activities, and events in financial terms. Answer: True False

Faksei

Flexible budget Example

Flex activity level = actual activity level

Flexible budget

Labled favourable when actual revenue is greater than budgeted rev F: Actual cost < Budgeted cost U: Opposite

Direct labour budget

Lists worker hours and cost required to satisfy production requirements.

Manufacturing overhead budget

Manufacturing Overhead Budget Lists all product costs other than direct materials and direct labour. Distinguish between fixed and variable cost.

Selling and administrative budget

Projects anticipated operating expenses. Distinguish between fixed and variable cost.

Criticisms of ROI

R

Participative budgeting is a process in which personnel at all levels of an organization actively engage in making decisions about the budget. Answer: True False

T

1. Which of the following statements about budgeting is incorrect? Choose one of the following answers. a) Budgeting is an accounting function and does not need involvement of operations personnel. b) Budgeting is an aid to planning and control. c) Budgets help to coordinate the activities of the entire organization. d) Budgets promote communication and coordination between departments.

The correct answer is A. Budgeting coordinate the activities of the entire organization by integrating the plans of its various parts. Management plans are communicated throughout the organization via approved budgets.

Given the following information for the budget: Month 1 2 3 Sales in units 15,000 20,000 18,000 Production in units 16,000 22,000 15,000 One pound of material is required for each finished unit. The inventory of materials at the end of each month must be 20% of the following month's production needs. At the beginning of Month 1, 3,200 pound of materials were on hand. Purchases of raw materials for Month 2 would be (in pounds) Choose one of the following answers. a) $25,000 b) $23,400 c) $20,600 d) $22,000

C: Production + End -Beg = Materials to buy The correct answer is C. {Workings: 22,000 + (15,000 x 0.20) - (22,000 x 0.20) = 20,600}

Armstrong, Inc. uses a flexible budget. Armstrong produced 16,000 units in May incurring direct materials cost of $20,480. Its master budget for the year projected direct materials cost of $362,500, at a production volume of 290,000 units. A flexible budget for May should reflect direct materials cost of: Choose one of the following answers. a) $20,480 b) $20,000 c) $21,000 d) $19,750

b

The company's CEO must decide which of the three factories to expand in order to increase productive capacity. She should be most interested in the: Choose one of the following answers. a) Sales of each factory. b) Contribution margin at each factory. c) Fixed costs traceable to each factory. d) Responsibility margins of each factory.

d

As a strategic issue, "budget slack" could represent a: Choose one of the following answers. A. Very minor issue in most firms. B.Self-correcting problem over several operating periods. C.Problem only in a decentralized management environment. D.Lower overall level of expected performance than is achievable.

D

A flexible budget is used to evaluate: Choose one of the following answers. a) Costs that should have been incurred for a level of output achieved. b) Costs that should have been incurred for a level of output considered to be normal. c) How variable unit costs change as output changes. d) How flexible management was at adapting to changes in business conditions.

a

The primary difference between profit centers and cost centers is that: Choose one of the following answers. a) Profit centers generate revenue. b) Cost centers incur costs. c) Profit centers are evaluated using return on investment criteria. d) Profit centers provide services to other centers in the organization.

a

Responsibility margin is equal to: Choose one of the following answers. a) Revenue, less contribution margin and traceable fixed costs. b) Revenue, less variable costs. c) Revenue, less variable costs and traceable fixed costs. d) Revenue, less variable fixed costs, traceable fixed costs, and common costs.

c

Shirt division, part of the Emporium Company, has a net operating income of $60,000 and average operating assets of $300,000. The required rate of return for Emporium is 15%. What is the division's residual income? Choose one of the following answers. a) $240,000 b) $45,000 c) $15,000 d) $51,000

c

A continuous (or rolling) budget offers a business the advantage(s) of Choose one of the following answers. a) Constantly adding updated new information. b) A longer strategic perspective for managers. c) Having more up-to-date budgets. d) Answers A, B and C are all correct

d

Shirt division, part of the Emporium Company, has a net operating income of $60,000 and average operating assets of $300,000. The required rate of return for Emporium is 15%. What is the division's ROI? Choose one of the following answers. a) 25% b) 5% c) 15%. d) 20%

d

3. All of the following costs are traceable to specific sales departments in Takashima store except: Choose one of the following answers. a) Cost of goods sold. b) Depreciation of equipment and fixtures used in a particular department. c) Advertising a special sale in a particular department. d) The salary of the store manager.

d-- The salary of the store manager is a common cost