MGMT 303 - Chapter 8

Pastorio Enterprises has scheduled raw 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.

$122,500 February purchases ($130,000*0.75) + January purchases ($100,000*0.25) = $122,500

When an organization uses a top-down approach to budgeting:

- top management sets the budget - the budget is imposed on lower-levels of the organization

Which of the following budgets does not rely on the production budget?

Sales budget

Which one of the following budgets is created first? Cash budget Sales budget Production budget Direct materials budget

Sales budget

Which of the following is needed to prepare a sales budget?

The budgeted number of units to be sold.

A(n) ______ translates company objectives into financial terms.

budget

When a manager creates a budget that understates expected revenues or overstates expected expenses ________ ________ occurs.

budgetary slack

The final step in the master budgeting process is to prepare the _____

budgeted balance sheet

On the production budget, what is added to budgeted unit sales on a production budget to obtain the total number of units to be produced?

budgeted ending inventory

The _______ ______ is a future-oriented version of the statement of cash flows.

cash budget

Collections on credit sales made to customers in prior period(s) plus collections on sales made in the current budget period equal:

cash receipts

The three sections of a cash budget are _______, _______, and financing.

collections, disbursements

The _____ budgets are combined into a pro-forma budgeted balance sheet.

financial

The budgeted ______ _______ shows a company's planned profit.

income statement

Which of the following is NOT a way to determine the sales forecast?

long-term objectives for R&D

Long-term objectives are goals:

managers want to achieve in 5-10 years

The _______ budget is a comprehensive set of budgets that covers all phases of planned activities for a specific period.

master

A(n) _______ __________ budget shows the amount of goods for resale to be purchased from suppliers during the period.

merchandise purchases

To calculate the direct labor requirement for each quarter:

multiply the number of direct labor hours required per unit times the number of units to be produced

A(n) _______ budget allows employees throughout the organization to have input into the budget-setting process.

participative

Budgeted expenses for costs related to selling the product and managing the business are shown on the _____ budget.

selling and administrative

Budgeted expenses for costs related to selling the product and managing the business are shown on the ______ budget.

selling and administrative

The budget that shows the budgeted expenses for areas other than manufacturing is the _______ and _______ expense budget.

selling/administrative

Sometimes budgetary _____ can be beneficial as a way to hedge against uncertainty or future events that cannot be anticipated.

slack

Tactics are:

specific actions or mechanism

The starting point of the planning process is management's _______ ________ or vision for the organization.

strategic plan

When it comes to preparing budgets:

the budgets needed depends on the type of the firm

Under _________- ____________ budgeting managers must justify their budget each year by starting from scratch.

zero-based

The entire budget must be created from scratch every period when using:

zero-based budget

S&P's direct material cost is $6.50 per unit. The direct labor rate is $30 per hour and each unit takes 1/2 hour to produce. VOH is $2.75 per unit and total budgeted FOH is $63,000. A sales commission of $5 is paid on each unit. If S&P expect to produce 9,000 units and sell 7,000 units, the total budgeted cost of goods sold for the year is:

$218,750

Madison Corporation's expected beginning cash balance is $35,000. Cash collections are budgeted at $50,000 and cash disbursements are estimated to be $80,000. The minimum required cash balance is $20,000 and the company can borrow as much as needed in increments of $10,000. Calculate the expected ending cash balance for the month.

$25,000

When preparing a raw material purchases budget, which of the following is needed to calculate raw materials to be purchased?

- beginning inventory of raw materials - raw materials per unit

Which of the following are advantages of budgeting?

- budgets force managers to think about and plan for the future - budgets provide benchmarks for evaluating performance - budgets promote coorperation and coordination between different areas within an organization -

The manufacturing overhead budget includes:

- depreciation on production equipment - indirect manufacturing costs

Which of the following budgets are needed to calculate unit product costs?

- direct materials budget - direct labor budget - manufacturing overhead budget

Financial budgets:

- include the cash budget - include the capital expenditures budget - impact the budgeted balance sheet

A continuous or rolling budget:

- keeps managers in continuous planning mode - adds one period to the end of the budget as each period comes to a close - helps avoid games at the end of a budget period

Short-term objectives:

- need to be achieved in one year or less - are an important component of long-term objectives

Carter Production Inc.'s required production for the first six month of the year is as follow: January 50,000 February 70,000 March 85,000 April 105,000 May 110,000 June 120,000 Each unit requires two pounds of material. Given a desired inventory of 20% of next month's production needs, the pounds of material purchased in April is:

212,000 April production needs (105,000 x 2) 210,000 + Ending Inventory (20% of May production needs: 110,000 x 2 x 20%) 44,000 - Beginning Inventory (20% of April) 42,000 = 212,000 pounds

T/F Controlling involves developing goals and preparing various budgets to achieve those goals.

False

T/F The sales budget it based on the production budget.

False

_______ budgets include the sales, productions and purchases budgets

Operating

Edison Corporation's variable overhead rate is $5 per direct labor hour. Budgeted direct labor cost is $20 per hour. Total budgeted fixed overhead is $25,000 per month. Total budgeted direct labor hours for the month of July is 20,000. Total budgeted manufacturing overhead for July is:

Variable overhead ($5x20000) $100,000 + fixed overhead $25,000 = $125,000

To calculate the cash balance before financing on the cash budget:

add the beginning cash balance to the budgeted cash receipts and deduct budgeted cash payments

Budgets that are most likely to motivate employees:

are tight but attainable

A(n) ______ or rolling budget automatically adds another budget period to the budget when one passes.

continuous

Budgeted cost of goods sold is based on:

expected sales

Budgets are used for two distinct purposes: _______ and ________. The first of these purposes relates to developing goals and preparing various budgets, while the second involves comparing actual results to the budget.

planning; controlling

The number of units that must be produced to satisfy sales needs and to provide for the desired ending inventory is shown on the ________ budget.

production

The direct materials budget directly relies on the _____

production budget