Accounting Chapter 9

National Telephone company has been forced by competition to put much more emphasis on planning and controlling its costs. Accordingly, the company's controller has suggested initiating a formal budgeting process. Which of the following steps will NOT help the company gain maximum acceptance by employees of the proposed budgeting system? A. Implementing the change quickly. B. Including in departmental responsibility reports only those items that are under the department manager's control. C. Demonstrating top management support for the budgeting program. D. Ensuring that favorable deviations of actual results from the budget, as well as unfavorable deviations, are discussed with the responsible managers.

A. Implementing the change quickly.

Desired ending inventory is​ 25% more than beginning inventory. If purchases total​ $160,000, which of the following statements is true regarding cost of goods sold​ (COGS)? A. COGS will be less than purchases. B. COGS will exceed purchases. C. COGS will exceed cost of goods available for sale. D. COGS will equal​ $55,000.

A. COGS will be less than purchases.

Which of the following items is the last scheduled to be prepared in the normal budget preparation process? A. Cash budget. B. Cost of goods sold budget. C. Manufacturing overhead budget. D. Selling expense budget.

A. Cash budget.

Which of the following is not a benefit of budgeting? A. It reduces the need for tracking actual cost activity. B. It sets benchmarks for evaluation performance. C. It uncovers potential bottlenecks. D. It formalizes a manager's planning efforts.

A. It reduces the need for tracking actual cost activity.

When sales volume is seasonal in nature, certain items in the budget must be coordinated. The three most significant items to coordinate in budgeting seasonal sales volume are: A. Production volume, finished goods inventory and sales volume. B. Direct labor hours, work-in-process inventory and sales volume. C. Raw materials inventory, direct labor hours and manufacturing overhead costs. D. Raw material inventory, work-in-process inventory and production volume.

A. Production volume, finished goods inventory and sales volume.

Desired ending inventory is​ 20% of next​ month's sales. If cost of goods sold is​ $300,000 and next​ month's sales are​ $900,000, which of the following statements is true regarding​ purchases? A. Purchases cannot be predicted from the information given. B. Purchases will be less than cost of goods sold. C. Purchases will equal cost of goods sold. D. Purchases will be more than cost of goods sold.

A. Purchases cannot be predicted from the information given.

Which of the following is not correct regarding the manufacturing overhead budget? A. Total budgeted cash disbursements for manufacturing overhead is equal to the total of budgeted variable and fixed manufacturing overhead. B. Manufacturing overhead costs should be broken down by cost behavior. C. The manufacturing overhead budget should provide a schedule of all costs of production other than direct materials and direct labor. D. A schedule showing budgeted cash disbursements for manufacturing overhead should be prepared for use in developing the cash budget.

A. Total budgeted cash disbursements for manufacturing overhead is equal to the total of budgeted variable and fixed manufacturing overhead.

Budgeted production needs are determined by: A. adding budgeted sales in units to the desired ending inventory in units and deducting the beginning inventory in units from this total. B. adding budgeted sales in units to the beginning inventory in units and deducting the desired ending inventory in units from this total. C. adding budgeted sales in units to the desired ending inventory in units. D . deducting the beginning inventory in units from budgeted sales in units.

A. adding budgeted sales in units to the desired ending inventory in units and deducting the beginning inventory in units from this total.

The format of the​ "cost of goods​ sold, inventory, and​ purchases" budget is as​ follows: A. cost of goods sold​ + desired ending inventory - beginning inventory. B. cost of goods sold - desired ending inventory​ + beginning inventory. C. desired ending inventory - beginning inventory - cost of goods sold. D. desired ending inventory​ + beginning inventory minus cost of goods sold.

A. cost of goods sold​ + desired ending inventory - beginning inventory.

On the direct materials​ budget, the total quantity of direct materials to purchase is computed as: A. quantity needed for production​ + desired end inventory of DM - beginning inventory of DM. B. units to be produced - desired end inventory of DM​ + beginning inventory of DM. C. units to be produced​ + desired end inventory of DM - beginning inventory of DM. D. quantity needed for production - desired end inventory of DM​ + beginning inventory DM.

A. quantity needed for production​ + desired end inventory of DM - beginning inventory of DM.

In preparing the operating​ budget, the first step is preparing the: A. sales budget. B. purchases budget. C. cash budget. D. budgeted income statement.

A. sales budget.

On the production​ budget, the number of units to be produced is computed as: A. unit sales​ + desired end inventory - beginning inventory. B. unit sales​ + desired end inventory​ + beginning inventory. C. unit sales - desired end inventory​ + beginning inventory. D. unit sales - desired end inventory - beginning inventory.

A. unit sales​ + desired end inventory - beginning inventory.

Which of the following represents the normal sequence in which the indicated budgets are prepared? A. Direct Materials, Cash, Sales B. Production, Cash, Income Statement C. Sales, Balance Sheet, Direct Labor D. Production, Manufacturing Overhead, Sales

B. Production, Cash, Income Statement

Budgetary slack can best be described as: A. The elimination of certain expenses to enhance budgeted income. B. The planned overestimation of budgeted expenses. C. A plug number used to achieve a preset level of operating income. D. The planned underestimation of budgeted expenses.

B. The planned overestimation of budgeted expenses.

A continuous (or perpetual) budget: A. is prepared for a range of activity so that the budget can be adjusted for changes in activity. B. is a plan that is updated monthly or quarterly, dropping one period and adding another. C. is a strategic plan that does not change. D. is used in companies that experience no change in sales.

B. is a plan that is updated monthly or quarterly, dropping one period and adding another.

Which of the following is normally last? A. Direct materials budget. B. Selling expense budget. C. Budgeted balance sheet. D. Sales budget.

C. Budgeted balance sheet.

The process of creating a formal plan and translating goals into a quantitative format is: A. Process costing B. Activity-based costing C. Budgeting D. Variance analysis

C. Budgeting

The major objectives of any budget system are to: A. Define responsibility centers, provide a framework for performance evaluation, and promote communication and coordination among organizations segments. B. Define responsibility centers, facilitate the fixing of blame for missed budget predictions, and ensure goal congruence between superiors and subordinates. C. Foster the planning of operations, provide a framework for performance evaluation, and promote communication and coordination among organization segments. D. Foster the planning of operations, facilitate the fixing of blame for missed budget predictions, and ensure goal congruence between superiors and subordinates

C. Foster the planning of operations, provide a framework for performance evaluation, and promote communication and coordination among organization segments.

Which one of the following best describes the role of top management in the budgeting process? Top management: A. Should be involved only in the approval process B. Lacks the detailed knowledge of the daily operations and should limit its involvement C. Needs to be involved, including using the budget process to communicate goals D. Needs to separate the budgeting process and the business planning process into two separate processes

C. Needs to be involved, including using the budget process to communicate goals

Pro forma financial statements are part of the budgeting process. Normally, the last pro forma statement prepared is the: A. Income statement. B. Statement of cost of goods sold. C. Statement of cash flows. D. Statement of manufacturing costs

C. Statement of cash flows.

The budgeted amount of raw materials to be purchased is determined by: A. adding the desired ending inventory of raw materials to the raw materials needed to meet the production schedule. B. subtracting the beginning inventory of raw materials from the raw materials needed to meet the production schedule. C. adding the desired ending inventory of raw materials to the raw materials needed to meet the production schedule and subtracting the beginning inventory of raw materials. D. adding the beginning inventory of raw materials to the raw materials needed to meet the production schedule and subtracting the desired ending inventory of raw materials.

C. adding the desired ending inventory of raw materials to the raw materials needed to meet the production schedule and subtracting the beginning inventory of raw materials.

All of the following are considered operating budgets except the: A. Cash budget. B. Materials budget. C. Production budget. D. Capital budget.

D. Capital budget.

Various budgets are included in the master budget cycle. One of these budgets is the production budget. Which of the following most inclusively describes the production budget? A. It includes required direct labor hours. B. It includes required material purchases. C. It aggregates the monetary details of the operating budget. D. It is calculated from the desired ending inventory and the sales forecast.

D. It is calculated from the desired ending inventory and the sales forecast.

Which of the following budgets usually shows separate sections for fixed and variable​ costs? A. Production budget and manufacturing overhead budget B. Manufacturing overhead budget and production budget C. Direct materials and manufacturing overhead budget D. Operating expenses budget and manufacturing overhead budget

D. Operating expenses budget and manufacturing overhead budget

Which of the following statements is not correct? A. The sales budget is the starting point in preparing the master budget. B. The sales budget is constructed by multiplying the expected sales in units by the sales price. C. The sales budget generally is accompanied by a computation of expected cash receipts for the forthcoming budget period. D. The cash budget must be prepared prior to the sales budget because managers want to know the expected cash collections on sales made to customers in prior periods before projecting sales for the current period.

D. The cash budget must be prepared prior to the sales budget because managers want to know the expected cash collections on sales made to customers in prior periods before projecting sales for the current period.

The​ ________ budget begins with the number of units to be sold. A. direct materials B. capital expenditures C. manufacturing overhead D. sales

D. sales

On the direct labor budget, the total quantity of direct labor hours needed is computed as: A. estimated direct labor hours needed x cost per hour. B. units to be produced - indirect labor hours x cost per labor hour. C. quantity needed for production​ + indirect labor hours - direct labor hours. D. units to be produced x direct labor hour per unit.

D. units to be produced x direct labor hour per unit.

Sales budget

Number of units sold x sales price per unit = Total Sales Revenue

Direct materials budget

Quantity of DM needed for production + desired ending inventory = total quantity of DM needed - DM beginning inventory = quantity of DM to purchase

Production budget

Units needed for sales + desired ending inventory = total units needed - units in beginning inventory = units to produce

Direct labor budget

Units to be produced x DL hours per unit = total DL hours required x DL cost per hour = total direct labor cost