Chapter 12

19) The Sherry Point Light Foundation has budgeted sales of 45,000 units, target ending finished goods inventory of 8,000 units, and beginning finished goods inventory of 3,000 units. Required Compute the number of units that the manager expects to produce next year. A) 25,000 units B) 30,000 units C) 35,000 units D) 45,000 units E) 50,000 units

Answer: E Explanation: E) [(45,000 + 8,000 - 3,000)] = 50,000 units

3) Managers can use computer-based systems, such as enterprise resource planning (ERP), to perform calculations for which of these planning models? A) Cash analysis. B) Master budget. C) Production analysis. D) Sensitivity analysis. E) Financial Planning Models.

E) Financial Planning Models.

1) ________ are mathematical representations of the relationships among operating activities, financing activities, and other factors that affect the master budget. A) Cash budget B) Master budget C) Process budget D) Production analysis E) Financial planning models

E) Financial planning models

6) Which of the following is not a manufacturing overhead cost? A) Supplies. B) Supervision. C) Depreciation. D) Maintenance. E) Forecasted costs.

E) Forecasted costs.

4) Which of the following is not a way that managers use budgeting tools within ERP systems? A) Simplify budgeting. B) Perform calculations. C) Reduce the need to reinput data. D) Reduce the time required to prepare budgets. E) Inability to perform calculations for planning models.

E) Inability to perform calculations for planning models.

2) Which of the following is true about the cash available for needs before financing? A) Beginning cash balance minus receipts equal the total cash available for needs before any financing. B) Cash receipts do not depend on collections of accounts receivable. C) Cash receipts do not depend on cash sales. D) Cash receipts to not depend on reoccurring rent and royalty receipts. E) Information on the expected collectability of accounts receivable is needed for accurate predictions.

E) Information on the expected collectability of accounts receivable is needed for accurate predictions.

5) Which of the following is not true about ERP systems? A) Managers can identify sales quantities for different products. B) Managers can use the software to compute the budgeted manufacturing costs of products. C) Managers can use ERP to help them budget nonmanufacturing costs in the organization. D) Managers can use ERP systems to store vast quantities of information about materials. E) Managers are unable to use ERP systems to compute nonmanufacturing costs.

E) Managers are unable to use ERP systems to compute nonmanufacturing costs.

18) The managerial accountant at the Chesapeake Bay Circuit Manufacturing Company expects to sell 120,000 circuits in 2013 for $12 each. There are 5,000 circuits in beginning finished goods inventory with target ending inventory of $5,000 circuits. The company keeps no work-in-process inventory. Required Compute the amount of sales revenue reported on the 2013 budgeted income statement. A) $1,000,000 B) $1,200,200 C) $1,440,000 D) $1,300,400 E) $1,600,200

Answer: C Explanation: C) [(120,000 × $12)] = $1,440,000

8) ________ is the degree if influence that a specific manager has over costs, revenues, or related items for which he or she is responsible. A) Controllability B) Controllable cost C) Cost center D) Responsibility accounting E) Budgetary slack

A) Controllability

3) Which of the following is not an example of cash? A) Depreciation. B) Direct material purchases. C) Direct-labor and other wage and salary outlays. D) Payroll-related costs paid in the month in which labor occurred. E) Income tax payments as shown in each quarter of the year.

A) Depreciation.

3) ________ explicitly incorporates continuous improvement anticipated during the budget period into the budget numbers. A) Kaizen budget B) Budgetary slack C) Rolling budget D) Contingency budget E) Complementary budget

A) Kaizen budget

1) The schedule of expected cash receipts and disbursements that predicts the effects on the cash position at the given level of operations is ________. A) cash budget B) flexible budget C) operating budget D) unexpected budget E) administrative budget

A) cash budget

4) The manager is accountable for only costs in: A) cost centers. B) profit centers. C) revenue centers. D) responsibility centers. E) organizational centers.

A) cost centers.

20) The sales manager for the Tool Box, a fine and large tool and machinery outlet, wants to increase the company's operating profit margin from 20% to 30%. The operating income of the company is $180,000. Required Compute the amount of sales revenue needed to achieve the goal? A) $600,000 B) $485,000 C) $525,000 D) $613,000 E) $500,000

Answer: A Explanation: A) [($180,000 / 0.30)] = $600,000

17) Mountain Express, a clothing boutique chain has an operating income of $240,000. The sales revenue of the company was calculated to be $960,000. Required Compute the operating profit margin. A) 32% B) 25% C) 17% D) 46% E) 12%

Answer: B Explanation: B) [($240,000 / $960,000)]=0.25 or 25% profit margin

22) An equipment supply manager at a large outlet needs to prepare a Production Budget. The budgeted unit sales amount to 5,200 units. The ending finished goods inventory shows 700 units, and the beginning finished goods inventory shows 1,000 units. Required Compute the value of the beginning inventory on the Production Budget. A) 6,500 units B) 5,500 units C) 7,200 units D) 4,800 units E) 5,200 units

Answer: B Explanation: B) [((5,200 - 700) + 1,000)] = 5,500 units

21) Prime Time Home Furniture, a warehouse store specializing in bedroom furnishing sets is assembling the revenue budget for the next fiscal year. Sales of the current year indicate that they sold 64,000 units from their Super-Savings line and 12,000 units from their Specialty line. The average price of each Super-Savings unit is $800, while the average price of each Specialty unit is $1,450. Required Compute the total revenues? Next, determine which line provides the most revenue. A) $17,400,000; The Specialty line. B) $58,600,000; The Super-Savings line. C) $68,600,000; The Super-Savings line. D) $23,500,000; The Specialty line. E) $32,300,000; The Specialty line.

Answer: C Explanation: C) [((64,000 × $800) + (12,000 × $1,450))] = $68,600,000 [(64,000 × $800)] = $51,200,000 > [(12,000 × $1,450)] = $17,400,000

5) A major rationale for stretch targets is ________ motivation. A) motor B) physical C) psychological D) physiological E) comprehensive

C) psychological

6) When a company uses borrowed money to acquire resources that it uses to produce and sell finished goods, and then uses the proceeds from sales to repay the loan, the loan is: A) adjustable. B) assumable. C) self-liquidating. D) a long-term bank loan. E) government secured.

C) self-liquidating.

1) ________ is the practice of underestimating budgeted revenues, or overestimating budgeted costs, to make budgeted targets more easily to achieve. A) Kaizen budgeting B) Budgetary slack C) Rolling budget D) Contingent budget E) Contingency budget

B) Budgetary slack

3) Which of the following is used to describe a part of the master budget made up of the capital expenditures budget, the cash budget, the budgeted balance sheet, and the budgeted statement of cash flows? A) Kaizen budget. B) Financial budget. C) Sensitivity analysis. D) Operating budget. E) Activity-based budget (ABB).

B) Financial budget.

6) Which of the following is true about ethics related to stretch targets? A) All managers regard budgets in a positive manner. B) Many managers regard budgets in a negative manner. C) Top managers convince their subordinates that the budget is not a tool designed to help them set and reach goals. D) Budgets are used to notify managers of layoffs, strikes, and upcoming organization downsizing. E) There are no benefits to budgets.

B) Many managers regard budgets in a negative manner.

2) ________ is a part, segment, or subunit of an organization whose manager is accountable for a specified set of activities. A) Revenue center B) Responsibility center C) Responsibility accounting D) Organization structure E) Cost center

B) Responsibility center

2) ________ specifies how an organization matches its own capabilities with the opportunities in the marketplace to accomplish its objectives. A) Budget B) Strategy C) Coordination D) Communication E) Pro forma statements

B) Strategy

9) A ________ is any cost that is primarily subject to the influence of a given responsibility center manager for a given period. A) controllability B) controllable cost C) cost center D) responsibility accounting E) budgetary slack

B) controllable cost

5) The manager is accountable for revenues and costs in: A) cost centers. B) profit centers. C) revenue centers. D) responsibility centers. E) organizational centers.

B) profit centers.

6) Differences between actual results and budgeted amounts are: A) budgets. B) variances. C) differences. D) similarities. E) accounting.

B) variances.

3) ________ is a system that measures the plans, budgets, actions, and actual results of each responsibility center. A) Revenue center B) Responsibility center C) Responsibility accounting D) Organization structure E) Cost center

C) Responsibility accounting

3) Which of the following is not a question a manager considers in developing successful strategies? A) What are our objectives? B) What organizational and financial structures serve us best? C) Who are our competitors? D) How do we create value for our customers while distinguishing ourselves from our competitors? E) Are the markets for our products local, regional, national, or global?

C) Who are our competitors?

4) A budgeting method that focuses of the budgeted cost of the activities necessary to produce and sell products and services is called a(n) ________. A) financial budget B) operating budget C) activity-based budget (ABB) D) budgetary slack E) continuous budget

C) activity-based budget (ABB)

1) A ________ is the quantitative expression of a proposed plan of action by management for a specified period and helps managers coordinate the activities that need to be done to implement the plan. A) pro forma statements B) strategy C) budget D) coordination E) communication

C) budget

5) A key use of sensitivity analysis is to ________ cash flow. A) use B) spend C) budget D) prepare E) eliminate

C) budget

6) Microsoft refers to goals as ________ and distributes firm-level goals across the company, connecting them to organizational, team, and individual commitments. A) constraint B) confinements C) commitments D) apprehensions E) accommodation

C) commitments

4) A ________ expresses management's operating and financial plans for a specified period. A) strategy B) coordination C) master budget D) communication E) pro forma statement

C) master budget

4) Estimates suggest that senior managers spend about ________ of their time on budgeting; and, finance planning departments spend as much as ________ on budgeting. A) 0% - 5%; 5% B) 5% - 10%; 10% C) 8% - 15%; 30% D) 10% - 20%; 50% E) 15% - 25%; 75%

D) 10% - 20%; 50%

1) ________ is meshing and balancing all aspects of production or service and all departments in a company in the best way for the company to meet its goals. A) Budget B) Strategy C) Operations D) Coordination E) Communication

D) Coordination

3) Which of the following is not true about the challenges related to the budget process? A) The budgeting process only involves senior managers. B) Top managers do not want lower-level managers to participate in the budgeting process. C) Managers use short periods of time to implement the budgeting process. D) Lower-level managers who feel that top management does not "believe" in budgets are likely to be active participants in the budget process. E) Lower-level managers who feel that top management does not "believe" in budgets are unlikely to be active participants in the budget process.

D) Lower-level managers who feel that top management does not "believe" in budgets are likely to be active participants in the budget process.

2) Which of the following terms is used to describe an income statement and its supporting budget schedules? A) Budgetary slack. B) Financial budget. C) Financial planning analysis. D) Operating budget. E) Activity-based budget (ABB).

D) Operating budget.

1) ________ is an arrangement of lines of responsibility within an organization. A) Revenue center B) Responsibility center C) Responsibility accounting D) Organization structure E) Cost center

D) Organization structure

2) ________ is a "what-if" technique that examines how a result will change if the original predicted data are not achieved or if an underlying assumption changes. A) Cash analysis B) Master budget C) Production analysis D) Sensitivity analysis E) Financial Planning Model

D) Sensitivity analysis

5) Which of the following is true about the budgeting process? A) Managers do not use budgets to compel strategic analysis. B) Managers do not use budgets to promote communication in the workplace. C) Managers do not use budgets to promote communication across subunits in the workplace. D) To be useful, managers must support the budget and be flexible if economic conditions change. E) To be useful, managers do not support the budget and be flexible if economic conditions change.

D) To be useful, managers must support the budget and be flexible if economic conditions change.

4) Managers in multinational companies find budgeting to be a helpful tool in each of the following conditions except: A) known fluctuations in currencies. B) uncertain expected environments. C) familiar political environments. D) comparing actual to budgets in volatile conditions. E) the comparison of budgets to actual to economic environments.

D) comparing actual to budgets in volatile conditions.

5) In the direct manufacturing labor cost budget, labor standards are known as: A) labor losses. B) employee relations. C) accommodated interest. D) consistent methods of revenue. E) the time allotted per unit of output.

D) consistent methods of revenue.

1) Rolling budgets are the same as: A) Kaizen budgets. B) operating budgets. C) activity-based budgets. D) rolling forecasts. E) financial budgets.

D) rolling forecasts.

1) Which of the following is not true about budgeting in multinational companies? A) Managers reduce the possible negative impact on performance caused by unfavorable exchange rate movements. B) Managers need to understand the political, legal, and economic movements in the different countries that engage in corporate operations. C) Countries that have high annual inflation rates have sharp declines in the value of the currency. D) The purpose of budgeting in multinational companies is E) Managers do not need to consider differences in tax regimes because the company transfers goods and services across the many countries in which it operates.

E) Managers do not need to consider differences in tax regimes because the company transfers goods and services across the many countries in which it operates.

7) Which of the following is not true about activity-based costing systems? A) Managers estimate various line items of overhead costs that constitute manufacturing operations overhead. B) Managers identify opportunities for process and efficiency improvements. C) Managers determine the resources that they will need from two support departments. D) The costs of support departments are allocated as part of manufacturing operations overhead. E) Managers use current data, not historical data, to estimate the cost of supplies per direct labor hour.

E) Managers use current data, not historical data, to estimate the cost of supplies per direct labor hour.

8) Which of the following is not true about the administration of budgets? A) Requires education. B) Requires participation. C) Requires persuasion. D) Requires intelligent interpretation. E) Requires managers to discourage accountability.

E) Requires managers to discourage accountability.

2) Which of the following is true about budgetary slack? A) Budgeting is most effective when lower-level managers actively participate and meaningfully engage in the budgeting process. B) Subordinates never "play games" and build in budgetary slack. C) Budgetary slack fails to provide managers with a hedge against unexpected adverse circumstances. D) One approach to dealing with budgetary slack is to avoid benchmark data when setting the budget. E) Rolling budgets is another approach to reduce budgetary slack.

E) Rolling budgets is another approach to reduce budgetary slack.

2) Which of the following is not a consideration to managers at multinational companies? A) Currency issues. B) Legal environment. C) Political environment. D) Economic environment. E) Similarities in tax regimes.

E) Similarities in tax regimes.

7) Which of the following is not a step related to ongoing-budget related processes that managers cycle through during the course of the fiscal year? A) Managers take into account past performance, market feedback, and anticipated future changes to initiate plans for the next period. B) Managers and management work together to develop plans for the company as a whole and the performance of its subunits, such as departments or divisions. C) At the beginning of the year, senior managers give subordinate managers a frame of reference, a set of specific financial or nonfinancial expectations to compare actual results. D) During the course of the year, management accountants help managers investigate variations from plans, such as unexpected decline in sales. E) The use of information technology resulted in less ongoing-budget related processes and managers no longer take into account past performances, market feedback, or anticipated changes in the ongoing-budget related processes.

E) The use of information technology resulted in less ongoing-budget related processes and managers no longer take into account past performances, market feedback, or anticipated changes in the ongoing-budget related processes.

7) Which of the following is not true about Kaizen budgeting? A) Much of the cost reduction associated with Kaizen budgeting arises from many small improvements rather than "quantum leaps." B) Improvements come from employee suggestions as a result of managers creating a culture that values, recognizes, and rewards employee suggestions. C) Managers that implement Kaizen budgeting have cost reduction as a strategic focus. D) Managers use Kaizen budgeting for specific activities when they develop the master budget. E) Top management should discourage managers at all levels to also seek larger, discontinuous reduction in costs by changing operating processes and supply-chain relationships.

E) Top management should discourage managers at all levels to also seek larger, discontinuous reduction in costs by changing operating processes and supply-chain relationships.

3) Which of the following is not a way that managers at multinational companies reduce the negative impact on performance caused by unfavorable exchange rate movements? A) Option contracts. B) Future contracts. C) Forward contracts. D) Sophisticated techniques. E) Unsophisticated techniques.

E) Unsophisticated techniques.

2) Which of the following is not true about the framework for judging performance? A) Budgets enable a company's managers to measure actual performance against predicted performance. B) A limitation of past results often incorporates past mistakes and substandard performance. C) Future conditions can be expected to differ from the past. D) The budget is not the only benchmark companies use to evaluate past performance. E) Using only the budget fails to create an incentive for subordinates to set targets that are relatively easy to achieve.

E) Using only the budget fails to create an incentive for subordinates to set targets that are relatively easy to achieve.

7) Which of the following is not true about variances? A) Variances alert managers to events not easily or immediately evident. B) Variances permit managers can take corrective actions or exploit available opportunities. C) Variances prompt managers to probe how well the company has performed in implementing its strategies. D) Variances sometimes signal managers that their strategies are ineffective. E) Variances never provide a signal to managers that their strategies are ineffective.

E) Variances never provide a signal to managers that their strategies are ineffective.

4) When badly managed, budgeting can lead to: A) better employee commitment. B) better employee accountability. C) better communication. D) increased honesty at the firm. E) game-playing and budgetary slack.

E) game-playing and budgetary slack.

5) Budgeted financial statements are sometimes called: A) cost centers. B) profit centers. C) investment centers. D) responsibility centers. E) pro forma statements.

E) pro forma statements.

4) After a manager determines the sales budget, a management accountant prepares a ________ that serves as an input for the preparation of the cash budget. A) sales budget B) cash budget C) operating budget D) schedule of cash payments E) schedule of cash collections

E) schedule of cash collections