IMA EXAM 3 - CH. 6
5) Sensitivity analysis is useful for examining all of the following EXCEPT: A) changes in employee satisfaction B) changes in direct material cost C) changes in sales price D) changes in direct labor cost
A
50) The use of activity-based budgeting is growing because of: A) the increased use of activity-based costing B) the increased use of kaizen costing C) increases in work-in-process inventory D) increases in direct materials inventory
A
6) A company's actual performance should be compared against budgeted amounts for the same accounting period so that: A) adjustments for future conditions can be included B) no feedback is possible C) inefficiencies of the past year can be included D) a rolling budget can be implemented
A
1) A budget can do all of the following EXCEPT: A) promote coordination among subunits B) determine actual profitability C) motivate managers D) motivate employees
B
10) A good budgeting system forces managers to examine the business as they plan, so they can: A) detect inaccurate historical records B) set specific expectations against which actual results can be compared C) complete the budgeting task on time D) get promoted for doing a good job
B
11) The sales forecast should be primarily based on: A) statistical analysis. B) input from sales managers and sales representatives C) production capacity D) input from the board of directors
B
12) The time coverage of a budget should be: A) one year B) guided by the purpose of the budget C) cover design through manufacture and sale of the product D) shorter rather than longer
B
16) Production is primarily based on: A) projected inventory levels B) the revenues budget C) the administrative costs budget D) the capital expenditures budget
B
2) Operating budgets include the: A) budgeted balance sheet B) budgeted income statement C) capital expenditures budget D) budgeted statement of cash flows
B
3) ________ uses a "what-if" technique that examines how results will change if the originally predicted data changes. A) A sales forecast B) A sensitivity analysis C) A pro forma financial statement D) The statement of cash flows
B
4) A master budget: A) includes only financial aspects of a plan and excludes nonfinancial aspects B) is an aid to coordinating what needs to be done to implement a plan C) includes broad expectations and visionary results D) should not be altered after it has been agreed upon
B
4) Which budget is NOT necessary to prepare the budgeted balance sheet? A) cash budget B) budgeted statement of cash flows C) budgeted income statement D) revenues budget
B
5) Financial budgets include the all of the following EXCEPT: A) capital expenditures budget B) budgeted income statement C) budgeted balance sheet D) budgeted statement of cash flows
B
52) Activity-based-costing analysis makes no distinction between: A) direct-materials inventory and work-in-process inventory B) short-run variable costs and short-run fixed costs C) parts of the supply chain D) components of the value chain
B
54) Activity-based budgeting does NOT require: A) knowledge of the organization's activities B) specialized expertise in financial management and control C) knowledge about how activities affect costs D) the ability to see how the organization's different activities fit together
B
6) Financing decisions primarily deal with: A) the use of scarce resources B) how to obtain funds to acquire resources C) acquiring equipment and buildings D) preparing financial statements for stockholders
B
6) ________ includes a budgeted statement of cash flows and a budgeted balance sheet. A) An annual report B) The financial budget C) The operating budget D) The capital expenditures budget
B
8) In which order are the following developed? First to last: A = Production budget B = Direct materials costs budget C = Budgeted income statement D = Revenues budget A) ABDC B) DABC C) DCAB D) CABD
B
7) Budgeting provides all of the following EXCEPT: A) a means to communicate the organization's short-term goals to its members B) support for the management functions of planning and coordination C) a means to anticipate problems D) an ethical framework for decision making
D
8) A budget can help implement: A) strategic planning B) long-run planning C) short-run planning D) All of these answers are correct.
D
9) To gain the benefits of budgeting ________ must understand and support the budget. A) senior management B) middle management C) line employees D) All of these answers are correct.
D
AACSB: Ethical reasoning 7) It is advantageous to coordinate budgets with: A) suppliers B) customers C) the marketing and production departments D) All of these answers are correct.
D
71) Activity-based budgeting would permit the use of multiple drivers and multiple cost pools in the budgeting process.
TRUE
Budgeted financial statements are called pro forma statements.
TRUE
Budgeting helps management anticipate and adjust for trouble spots in advance.
TRUE
Budgets can play both planning and control roles for management.
TRUE
) If initial budgets prove UNACCEPTABLE, planners achieve the most benefit from: A) planning again in light of feedback and current conditions B) deciding not to budget this year C) accepting an unbalanced budget D) using last year's budget
A
10) Participation of employees in the budgeting process helps to create: A) greater commitment B) greater anxiety C) less commitment D) better past performance
A
10) ________ is the usual starting point for budgeting. A) The revenues budget B) Net income C) The production budget D) The cash budget
A
13) A sales forecast is: A) often the outcome of elaborate information gathering and discussions among sales managers B) developed primarily to prepare next year's marketing campaign C) solely based on sales of the previous year D) a summary of product costs that influence pricing decisions
A
14) Budgets should: A) be flexible B) be administered rigidly C) only be developed for short periods of time D) include only variable costs
A
15) The number of units in the sales budget and the production budget may differ because of a change in: A) finished goods inventory levels B) overhead charges C) direct material inventory levels D) sales returns and allowances
A
18) The direct materials usage budget is based on: A) the units to be produced during a period B) budgeted sales dollars C) the predetermined factory overhead rate D) the amount of labor-hours worked
A
2) A budget should/can do all of the following EXCEPT: A) be prepared by managers from different functional areas working independently of each other B) be adjusted if new opportunities become available during the year C) help management allocate limited resources D) become the performance standard against which firms can compare the actual results
A
5) Actual results should NOT be compared against past performance because: A) past results may contain mistakes and substandard performance B) past results will never happen again C) past performance is an indicator of future performance D) future conditions will be similar to past conditions
A
5) Operating decisions primarily deal with: A) the use of scarce resources B) how to obtain funds to acquire resources C) acquiring equipment and buildings D) satisfying stockholders
A
7) The order to follow when preparing the operating budget is: A) revenues budget, production budget, and direct manufacturing labor costs budget B) costs of goods sold budget, production budget, and cash budget C) revenues budget, manufacturing overhead costs budget, and production budget D) cash expenditures budget, revenues budget, and production budget.
A
9) Operating budgets and financial budgets: A) combined form the master budget B) are prepared before the master budget C) are prepared after the master budget D) have nothing to do with the master budget
A
Describe the benefits to an organization of preparing an operating budget.
A well-prepared operating budget should serve as a guide for a company to follow during the budgeted period. It is not "set in stone." If new information or opportunities arise, the budget should be adjusted. A well-prepared operating budget assists management with the allocation of scarce resources. It can help management see trouble spots in advance, and then management can decide where to allocate its limited resources. A well-prepared operating budget fosters communication and coordination among various segments of the company. The process of preparing a budget requires managers from different functional areas to work together and communicate performance levels they both want and can attain. A well-prepared operating budget can become the performance standard against which firms can compare the actual results.
81) Discuss the importance of the sales forecast and items that influence its accuracy.
All other budgets are based on information from the sales forecast. The sales forecast is a challenge to predict because its accuracy depends on the ability to forecast the state of the general economy, changes in the industry, actions of the competition, and developments in technology. Each of these items affects individual products or product lines and are quantified and aggregated to obtain the sales forecast.
25) Basile Corporation has budgeted sales of 36,000 units, target ending finished goods inventory of 6,000 units, and beginning finished goods inventory of 1,800 units. How many units should be produced next year? A) 43,800 units B) 40,200 units C) 31,800 units D) 36,000 units
B 36,000 + 6,000 - 1,800 = 40,200 units
24) Grandma's Baskets Company expects to manufacture and sell 50,000 baskets in 2011 for $5 each. There are 4,000 baskets in beginning finished goods inventory with target ending inventory of 4,000 baskets. The company keeps no work-in-process inventory. What amount of sales revenue will be reported on the 2011 budgeted income statement? A) $246,000 B) $250,000 C) $254,000 D) $258,000
B 50,000 × $5 = $250,000
1) Financial planning models: A) are not used in the budgeting process B) are not useful for sensitivity analysis C) are mathematical representations of the relationships affecting the budget process D) are used for nonfinancial aspects of budgeting
C
11) Line managers who feel that top management does NOT believe in the budget are most likely to: A) pick up the slack and participate in the budgeting process B) be motivated by the budget C) spend little time on the budgeting process D) convert the budget to a shorter more reasonable time period
C
13) Rolling budgets help management to: A) better review the past calendar year B) deal with a 5-year time frame C) focus on the upcoming budget period D) rigidly administer the budget
C
14) The revenues budget identifies: A) expected cash flows for each product B) actual sales from last year for each product C) the expected level of sales for the company D) the variance of sales from actual for each product
C
17) Budgeted production equals: A) beginning finished goods inventory + budgeted unit sales - targeted ending finished goods inventory B) targeted ending finished goods inventory + beginning finished goods inventory - budgeted unit sales C) budgeted unit sales + targeted ending finished goods inventory - beginning finished goods inventory D) budgeted unit sales + targeted ending finished goods inventory + beginning finished goods inventory
C
2) Financial planning software packages assist management with: A) assigning responsibility to various levels of management B) identifying the target customer C) sensitivity analysis in their planning and budgeting activities D) achieving greater commitment from lower management
C
23) The cost of goods sold budget requires all of the following budgets EXCEPT: A) direct material cost budget B) manufacturing overhead cost budget C) distribution cost budget D) direct manufacturing labor cost budget
C
3) A limitation of comparing a company's performance against actual results of last year is that: A) it includes adjustments for future conditions B) feedback is no longer a possibility C) past results can contain inefficiencies of the past year D) the budgeting time period is set at one year
C
51) Activity-based budgeting would separately estimate: A) the cost of overhead for a department B) a plant-wide cost-driver rate C) the cost of a setup activity D) All of these answers are correct.
C
53) Activity-based budgeting makes it easier to: A) determine a rolling budget B) prepare pro forma financial statements C) determine how to reduce costs D) execute a financial budget
C
55) Activity-based budgeting: A) uses one cost driver such as direct labor-hours B) uses only output-based cost drivers such as units sold C) focuses on activities necessary to produce and sell products and services D) classifies costs by functional area within the value chain
C
56) Activity-based budgeting includes all the following steps EXCEPT: A) determining demands for activities from sales and production targets B) computing the cost of performing activities C) determining a separate cost-driver rate for each department D) describing the budget as costs of activities rather than costs of functions
C
9) The budgeting process is most strongly influenced by: A) the capital budget B) the budgeted statement of cash flows C) the sales forecast D) the production budget
C
26) For next year, Manzo, Inc., has budgeted sales of 30,000 units, target ending finished goods inventory of 1,500 units, and beginning finished goods inventory of 900 units. All other inventories are zero. How many units should be produced next year? A) 29,400 units B) 30,000 units C) 30,600 units D) 32,400 units
C 30,000 + 1,500 - 900 = 30,600 units
) When performing a sensitivity analysis, if the selling price per unit is increased, then the: A) per unit fixed administrative costs will increase B) per unit direct materials purchase price will increase C) total volume of sales will increase D) total costs for sales commissions and other nonmanufacturing variable costs will increase
D
1) A budget: A) is the quantitative expression of a proposed plan of action by management B) is an aid to coordinate what needs to be done C) generally includes both financial and nonfinancial aspects of the plan D) All of the above are correct
D
1) Operating budgets include all of the following EXCEPT: A) the revenues budget B) the budgeted income statement C) the administrative costs budget D) the budgeted balance sheet
D
12) The sales forecast is influenced by: A) advertising and sales promotions B) competition C) general economic conditions D) All of these answers are correct.
D
19) Direct material purchases equal: A) production needs B) production needs plus target ending inventories C) production needs plus beginning inventories D) production needs plus target ending inventories less beginning inventories
D
2) A budget A) is the quantitative expression of a proposed plan of action. B) aids in coordinating what needs to be done. C) includes both financial and nonfinancial aspects. D) All of these answers are correct.
D
20) Individual budgeted amounts included in the manufacturing overhead costs budget are based on input from: A) operating personnel B) costs incurred in prior years C) cost changes expected in the future D) All of these answers are correct.
D
21) The manufacturing overhead costs budget includes budgeted amounts for: A) indirect materials B) indirect manufacturing labor C) depreciation on factory equipment D) All of these answers are correct.
D
22) Budgeted manufacturing overhead costs include all types of factory expenses EXCEPT: A) fixed items such as depreciation of manufacturing machinery B) variable items such as plant supplies C) indirect labor such as the salary of the plant supervisor D) direct labor and direct materials
D
3) Budgeting is used to help companies: A) plan to better satisfy customers B) anticipate potential problems C) focus on opportunities D) All of these answers are correct.
D
3) The operating budget process generally concludes with the preparation of the: A) production budget B) distribution budget C) research and development budget D) budgeted income statement
D
4) Challenging budgets tend to: A) decrease line-management participation in attaining corporate goals B) increase failure C) increase anxiety without motivation D) motivate improved performance
D
27) Wilcox Company has budgeted sales volume of 60,000 units and budgeted production of 54,000 units, while 10,000 units are in beginning finished goods inventory. How many units are targeted for ending finished goods inventory? A) 10,000 units B) 16,000 units C) 6,000 units D) 4,000 units
D 10,000 + 54,000 - 60,000 =4,000
Operating decisions deal with how to obtain the funds to acquire resources.
FALSE : Financing decisions deal with obtaining funds.
Long-run planning and short-run planning are best performed independently of each other.
FALSE : Long-run planning and short-run planning are best performed as a part of an overall strategic planning process since they influence each other.
14) Budgeting includes only the financial aspects of the plan and NOT any nonfinancial aspects such as the number of physical units manufactured.
FALSE Budgeting includes both financial and nonfinancial aspects of the plan.
15) After a budget is agreed upon and finalized by the management team, the amounts should NOT be changed for any reason.
FALSE Budgets should not be administered rigidly, but rather should be adjusted for changing conditions.
16) Even in the face of changing conditions, attaining the original budget is critical.
FALSE Changing conditions usually call for a change in plans. Attaining the budget should not be an end in itself.
Financing decisions deal with how to best use the limited resources of an organization.
FALSE Financing decisions deal with how to obtain the funds to acquire those resources.
64) Since fixed manufacturing overhead is fixed, it is NOT normally included in the operating budget.
FALSE Fixed manufacturing is normally included in the operating budget.
67) If inventoriable costs in the operating budget are going to be in accordance with Generally Accepted Accounting Principles (GAAP), they include only variable manufacturing costs.
FALSE If inventoriable costs in the operating budget are going to be in accordance with Generally Accepted Accounting Principles (GAAP), they include variable and fixed manufacturing costs.
20) It is best to compare this year's performance with last year's actual performance rather than this year's budget
FALSE It is best to compare this year's performance with this year's budget because inefficiencies and different conditions may be reflected in last year's actual performance amounts.
The revenues budget should be based on the production budget.
FALSE The production budget should be based on the revenues budget.
The usual starting point in budgeting is to forecast net income
FALSE The usual starting point in budgeting is to forecast sales demand and revenues.
59) Preparation of the budgeted statement of cash flows is the final step in preparing the operating budget.
FALSE Preparation of the budgeted income statement is the final step in preparing the operating budget.
60) The sales forecast should primarily be based on statistical analysis with secondary input from sales managers and sales representatives.
FALSE The sales forecast should be primarily based on input from sales managers and sales representatives with secondary input from statistical analysis
) Describe operating and financial budgets and give at least two examples of each discussed in the textbook.
Operating budgets specify the expected outcomes of any selling, manufacturing, purchasing, labor management, R&D, marketing, distribution, customer service, and administrative activities during the planning period. Operations personnel use these plans to guide and coordinate activities during the planning period. Examples of operating budgets include the revenues budget, production budget, direct materials costs budget, direct manufacturing labor costs budget, manufacturing overhead budget, and budgets for R&D, marketing, distribution, customer service, and administrative activities. Financial budgets are used to evaluate the financial consequences of a proposed decision. Examples of financial budgets include the capital expenditures budget, cash budget, budgeted balance sheet, and the budgeted statement of cash flows.
11) A budget is the quantitative expression of a proposed plan of action by management for a specified period.
TRUE
12) A budget generally includes both financial and nonfinancial aspects of the plan.
TRUE
12) If budgeted amounts change, sensitivity analysis can be used to examine changes in the budgeted results.
TRUE
13) Budgeted financial statements are also referred to as pro forma statements.
TRUE
13) Computer-based financial planning models are mathematical statements of the interrelationships among operating activities, financial activities, and other factors that affect the budget.
TRUE
17) Lower-level managers will not actively participate in the budget process if they perceive upper management does NOT believe in the process.
TRUE
18) Coordination 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.
TRUE
19) Research shows that challenging budgets improve employee performance because employees view falling short of budgeted numbers as a failure.
TRUE
21) When administered wisely, budgets promote communication and coordination among the various subunits of the organization.
TRUE
57) A rolling budget is the same as a continuous budget.
TRUE
58) The cash budget and the budgeted income statement are necessary to prepare the budgeted balance sheet and budgeted statement of cash flows.
TRUE
63) The financial budget is that part of the master budget that includes the capital expenditures budget, cash budget, budgeted balance sheet, and the budgeted statement of cash flows.
TRUE
65) The manufacturing labor budget depends on wage rates, production methods, and hiring plans.
TRUE
66) The manufacturing labor budget depends on wage rates, production methods, and hiring plans.
TRUE
68) Activity-based budgeting provides better decision-making information than budgeting based solely on output-based cost drivers (units produced, units sold, or revenues
TRUE
69) Activity-based costing analysis takes a long-run perspective and treats all activity costs as variable costs.
TRUE
70) Activity-based budgeting (ABB) focuses on the budgeting cost of activities necessary to produce and sell products and services.
TRUE