Chapter 8

In a manufacturing company, the _____________ budget is prepared right after the sales budget.

production

In a manufacturing company, the _______________ budget shows the number of units that must be manufactured to satisfy sales needs and provide for the desired ending inventory.

production

Both the production and selling and administrative expense budgets are prepared using information directly from the ____________ budget.

sales

A manager cannot complain that the budget was unrealistic and impossible to meet when a(n) ___________ - _____________ budget, or a participative budget, is in place.

self - imposed

Which of the following budgets are directly based on information from the sales budget? -Direct materials -Selling and administrative expense -Manufacturing overhead -Production

-Selling and administrative expenses -Production

Master budget schedules __________. -may be prepared in any order. -are based on estimates and assumptions. -answer several key questions for a company.

-are based on estimates and assumptions. -answer several key questions for a company.

During May, Davidson Corporation's expected sales equal 12,000 units and expected production is 15,000 units. If each unit requires 1/2 hour of direct labor and the direct labor rate is $12.00 per hour, the expected total direct labor cost for the month of May is $____________.

90,000

Control involves developing goals and preparing various budgets to achieve those goals. (True or False)

False [Reason: Control involves the steps taken by management to increase the likelihood that all parts of the organization are working to achieve the goals set down in the planning stage.]

-They define goals and objectives that can serve as benchmarks for evaluating subsequent performance. -They encourage managers to think about and plan for the future. -The budgeting process can uncover potential bottlenecks before they occur. -They coordinate the activities of the entire organization by integrating the plans of its various parts.

Identify the true statements about budgets: -They provide each department with the same amount of money to spend, so that all departments are treated fairly. -They define goals and objectives that can serve as benchmarks for evaluating subsequent performance. -They encourage managers to think about and plan for the future. -The budgeting process can uncover potential bottlenecks before they occur. -They coordinate the activities of the entire organization by integrating the plans of its various parts.

Many of the schedules in a master budget are based on a variety of management estimates and assumptions. (True or False)

True [Reason: Managers must make a number of estimates and assumptions when preparing a master budget.]

S&P Enterprises has scheduled direct material purchases of $100,000 in January, $130,000 in February and $150,000 in March. The company pays for 75% of its purchases in the month of purchase and 25% the month after the purchase. Calculate the expected cash disbursements for the month of February. a. $122,500 b. $135,000 c. $130,000 d. $107,500

a. $122,500 [Reason: February purchases ($130,000 x 75%) $97,500 + January purchases ($100,000 x 25%) $25,000 = $122,500.]

Given budgeted sales of 10,000 units, desired ending inventory of 5,000 units, and beginning inventory of 2,000 units, required production is __________ units. a. 13,000 b. 15,000 c. 10,000 d. 7,000

a. 13,000 [Reason: 10,000 + 5,000 - 2,000 = 13,000]

S&P Enterprises has scheduled direct material purchases of $120,000 in April, $140,000 in May and $160,000 in June. The company pays for 75% of its purchases in the month of purchase and 25% the month after the purchase. Calculate the expected cash disbursements for the month of May. a. $125,000 b. $135,000 c. $105,000 d. $145,000

b. $135,000 [Reason: May purchases ($140,000 x 75%) $105,000 + April purchases ($120,000 x 25%) $30,000 = $135,000]

The cash budget uses information from several other budgets. Which of the following budgets is NOT used to prepare the cash budget? a. selling and administrative b. production c. sales d. manufacturing cost budget

b. production

Budgets ___________. a. focus on what has happened in the past b. communicate management's plan throughout the organization c. primarily help managers with day-to-day emergencies

b. communicate management's plan throughout the organization [Reason: A budget focuses on what management is expecting to happen in the future. This is not the primary reason a budget is prepared.Without a budget, managers would most likely encounter more day-to-day emergencies.]

The cash budget _________. a. uses information from the budgeted balance sheet and income statement. b. is prepared near the end of the master budget process. c. is the first budget prepared in the master budget process.

b. is prepared near the end of the master budget process. [Reason: The budgeted statements are prepared after the cash budget. The sales budget is the first budget prepared.]

An integrated business plan that formally lays out the company's goals is called the _________ budget. a. profit planning b. master c. sales d. self-imposed

b. master [Reason: A profit planning budget refers to preparing a number of budgets that together form an integrated business plan. A sales budget is a detailed budget showing the expected sales for the budget period. A self-imposed budget is a budget that is prepared with the full cooperation and participation of managers at all levels and could be associated with any type of budget.]

If a budget initiated by top management has targets that are set too high, _________. a. employees will strive to work harder b. motivation will suffer c. nothing will change d. budgetary slack will occur

b. motivation will suffer

More accurate estimates and higher motivation are generally the result of using a(n) _________ budget. a. perpetual b. participative c. imposed d. continuous

b. participative [Reason: A continuous or perpetual budget is a 12-month budget that rolls forward one month (or quarter) as the current month (or quarter) is completed. This budget refers only to a time period and not who was involved in its preparation.]

Developing goals and preparing various budgets to achieve those goals is part of __________. a. the budget period b. planning c. responsibility accounting d. control

b. planning [Reason: The budget period is the period of time that a budget needs to follow. Responsibility accounting is when a manager should be held responsible for only the activities that the manager has direct control over. Control involves the steps taken by management to increase the likelihood that all parts of the organization are working to achieve the goals set down in the planning stage.]

The direct labor budget is based directly on the Blank______ budget. a. manufacturing overhead b. production c. sales d. raw materials

b. production

The direct materials budget directly relies on the __________ budget. a. direct labor b. sales c. production d. merchandise purchases

c. production [Reason: The production budget relies on sales, but direct materials relies on purchases.]

What number does the direct materials budget take directly from the production budget? a. beginning raw materials inventory b. ending inventory of finished goods c. required production d. budgeted sales

c. required production [Reason: Inventory on the production budget is not the same type of inventory as on the direct materials budget. The production budget uses finished goods, while the direct materials budget uses raw materials. Ending inventory of finished goods is on the production budget, but not on the direct materials budget. The direct materials budget uses ending inventory of raw materials. Budgeted sales does not appear on the direct materials budget.]

In companies that do not use a self-imposed budgeting process, profit targets are generally set by ___________. a. lower-level managers b. employees c. top managers d. the board of directors

c. top managers

A number of separate, but interdependent, budgets that formally lay out the company's sales, production, and financial goals are contained in the ____________ budget.

master (or static, planning)