ch 9

A budget serves as a benchmark against which: A. actual results can be compared. B. allocated results can be compared. C. actual results become inconsequential. D. allocated results become inconsequential. E. cash balances can be compared to expense totals.

a. actual results can be compared

Northwest manufactures a product requiring 0.5 ounces of platinum per unit. The cost of platinum is approximately $360 per ounce; the company maintains an ending platinum inventory equal to 10% of the following month's production usage. The following data were taken from the most recent quarterly production budget: July August September Planned production in units 1,000 1,100 980 1. The cost of platinum to be purchased to support August production is: A. $195,840. B. $198,000. C. $200,160. D. $391,680. E. Some other amount. Answer: A LO: 4 Type: A 2.If it takes two direct labor hours to produce each unit and Northwest's cost per labor hour is $15, direct labor cost for August would be budgeted at: A. $16,500. B. $31,200. C. $33,000. D. $34,800. E. Some other amount

1. a (195,840) 2.c (33,000)

Nguyen plans to sell 40,000 units of product no. 75 in June, and each of these units requires five square feet of raw material. Pertinent data follow. Product No. 75 Raw Material Actual June 1 inventory 5,500 18,000 square feet Estimated June 30 inventory 4,300 ? square feet If the company purchases 201,000 square feet of raw material during the month, the estimated raw-material inventory on June 30 would be: A. 11,000 square feet. B. 13,000 square feet. C. 23,000 square feet. D. 25,000 square feet. E. some other amount.

25,000

York Corporation plans to sell 41,000 units of its single product in March. The company has 2,800 units in its March 1 finished-goods inventory and anticipates having 2,400 completed units in inventory on March 31. On the basis of this information, how many units does York plan to produce during March? A. 40,600. B. 41,400. C. 43,800. D. 46,200. E. Some other amount.

a. 40,600

May Production Company, which uses activity-based budgeting, is in the process of preparing a manufacturing overhead budget. Which of the following would likely appear on that budget? A. Batch-level costs: Production setup. B. Unit-level costs: Depreciation. C. Unit-level costs: Maintenance. D. Product-level costs: Insurance and property taxes. E. Facility and general operations-level costs: Indirect material.

a. bat-level costs

The budgeted income statement, budgeted balance sheet, and budgeted statement of cash flows comprise: A. the final portion of the master budget. B. the depiction of an organization's overall actual financial results. C. the first step of the master budget. D. the portion of the master budget prepared after the sales forecast and before the remainder of the operational budgets. E. the second step of the master budget.

a. final portion of the master budget

Generally speaking, budgets are not used to: A. identify a company's most profitable products. B. evaluate performance. C. create a plan of action. D. assist in the control of profit and operations. E. facilitate communication and coordinate activities.

a. identify a company most profitable products

FastTec, which sells electronics in retail outlets and on the Internet, uses activity-based budgeting in the preparation of its selling, general, and administrative expense budget. Which of the following costs would the company likely classify as a unit-level expense on its budget? A. Media advertising. B. Retail outlet sales commissions. C. Salaries of web-site maintenance personnel. D. Administrative salaries. E. Salary of sales manager employed at store no. 23.

b. retail outlet sails commission

Wilson Corporation is budgeting its equipment needs on an on-going basis, with a new quarter being added to the budget as the current quarter is completed. This type of budget is most commonly known as a: A. capital budget. B. rolling budget. C. revised budget. D. pro-forma budget. E. financial budget.

b. rolling budget

Brooklyn makes all purchases on account, subject to the following payment pattern: Paid in the month of purchase: 30% Paid in the first month following purchase: 65% Paid in the second month following purchase: 5% If purchases for April, May, and June were $200,000, $160,000, and $250,000, respectively, what was the firm's budgeted payables balance on June 30? A. $175,000. B. $179,000. C. $183,000. D. $189,000. E. Some other amount.

c. 183,000

Tidewater plans to sell 85,000 units of product no. 794 in May, and each of these units requires three units of raw material. Pertinent data follow. Product No. 794 Raw Material Actual May 1 inventory 11,000 units 29,000 units Desired May 31 inventory 17,000 units 20,000 units On the basis of the information presented, how many units of raw material should Tidewater purchase for use in May production? A. 228,000. B. 246,000. C. 264,000. D. 282,000. E. Some other amount

c. 264,000

Swanson plans to sell 10,000 units of a particular product during July, and expects sales to increase at the rate of 10% per month during the remainder of the year. The June 30 and September 30 ending inventories are anticipated to be 1,100 units and 950 units, respectively. On the basis of this information, how many units should Swanson purchase for the quarter ended September 30? A. 31,850. B. 32,150. C. 32,950. D. 33,250. E. Some other amount.

c. 32,950

35. Uno makes all sales on account, subject to the following collection pattern: 30% are collected in the month of sale; 60% are collected in the first month after sale; and 10% are collected in the second month after sale. If sales for October, November, and December were $70,000, $80,000, and $60,000, respectively, what were the firm's budgeted collections for December? A. $18,000. B. $66,000. C. $73,000. D. $74,000. E. Some other amount.

c. 73,000

Santa Fe Corporation has a highly automated production facility. Which of the following correctly shows the two factors that would likely have the most direct influence on the company's manufacturing overhead budget? A. Sales volume and labor hours. B. Contribution margin and cash payments. C. Production volume and management judgment. D. Labor hours and management judgment. E. Management judgment and indirect labor cost.

c. production volume

Which of the following would depict the logical order for preparing (1) a production budget, (2) a cash budget, (3) a sales budget, and (4) a direct-labor budget? A. 1-3-4-2. B. 2-3-1-4. C. 2-1-3-4. D. 3-1-4-2. E. 3-1-2-4.

d (sales first and cash last)

Activity-based budgeting: A. begins with a forecast of products and services to be produced, and customers served. B. ends with a forecast of products and services to be produced, and customers served. C. parallels the flow of analysis that is associated with activity-based costing. D. reverses the flow of analysis that is associated with activity-based costing. E. is best described by choices "A" and "D" above.

e. both a and d

47. Which of the following statements concerning the budget director is false? A. The budget director is often the organization's controller. B. The budget director has the responsibility of specifying the process by which budget data will be gathered. C. The budget director collects information and participates in preparing the master budget. D. The budget director communicates budget procedures and deadlines to employees throughout the organization. E. The budget director usually has the authority to give final approval to the master budget.

e. budget director has authority to give final approval

A company's plan for the acquisition of long-lived assets, such as buildings and equipment, is commonly called a: A. pro-forma budget. B. master budget. C. financial budget. D. profit plan. E. capital budget.

e. capital budget

Consider the following statements about companies that are involved with international operations: I. Budgeting for these firms is often very involved because of fluctuating values in foreign currencies. II. Multinational firms may encounter hyperinflationary economies. III. Such organizations often face changing laws and political climates that affect business activity. Which of the above statements is (are) true? A. I only. B. III only. C. I and II. D. II and III. E. I, II, and III.

e. i,ii,iii

The Grainger Company's budgeted income statement reflects the following amounts: Sales Purchases Expenses January $120,000 $78,000 $24,000 February 110,000 66,000 24,200 March 125,000 81,250 27,000 April 130,000 84,500 28,600 Sales are collected 50% in the month of sale, 30% in the month following sale, and 19% in the second month following sale. One percent of sales is uncollectible and expensed at the end of the year. Grainger pays for all purchases in the month following purchase and takes advantage of a 3% discount. The following balances are as of January 1: Cash $88,000 Accounts receivable* 58,000 Accounts payable 72,000 *Of this balance, $35,000 will be collected in January and the remaining amount will be collected in February. The monthly expense figures include $5,000 of depreciation. The expenses are paid in the month incurred. 41. Grainger's expected cash balance at the end of January is: A. $87,000. B. $89,160. C. $92,000. D. $94,160. E. $113,160. Answer: D LO: 4 Type: A 42. Grainger's budgeted cash receipts in February are: A. $91,000. B. $95,000. C. $113,090. D. $113,640. E. $114,000. Answer: E LO: 4 Type: A 43. Grainger's budgeted cash payments in February are: A. $75,660. B. $94,860. C. $97,200. D. $99,860. E. $102,200.

1. d 2.e 3.b

An examination of Short Corporation's inventory accounts revealed the following information: Raw materials, June 1: 46,000 units Raw materials, June 30: 51,000 units Purchases of raw materials during June: 185,000 units Short's finished product requires four units of raw materials. On the basis of this information, how many finished products were manufactured during June? A. 45,000. B. 47,500. C. 57,750. D. 70,500. E. Some other amount.

45,000

Vern's makes all sales on account, subject to the following collection pattern: 20% are collected in the month of sale; 70% are collected in the first month after sale; and 10% are collected in the second month after sale. If sales for October, November, and December were $70,000, $60,000, and $50,000, respectively, what was the budgeted receivables balance on December 31? A. $40,000. B. $46,000. C. $49,000. D. $59,000. E. Some other amount.

46,000

A manufacturing firm would begin preparation of its master budget by constructing a: A. sales budget. B. production budget. C. cash budget. D. capital budget. E. set of pro-forma financial statements.

a. sales budget

Atlanta Sporting Goods sells bicycles throughout the southeastern United States. The following data were taken from the most recent quarterly sales forecast: End-of-Month Expected Sales Target Inventory April 1,700 units 200 units May 1,850 units 270 units June 2,000 units 310 units On the basis of the information presented, how many bicycles should the company purchase in May? A. 1,780. B. 1,920. C. 2,050. D. 2,120. E. Some other amount.

b. 1920

Wolfe, Inc., began operations on January 1 of the current year with a $12,000 cash balance. Forty percent of sales are collected in the month of sale; 60% are collected in the month following sale. Similarly, 20% of purchases are paid in the month of purchase, and 80% are paid in the month following purchase. The following data apply to January and February: January February Sales $35,000 $55,000 Purchases 30,000 40,000 Operating expenses 7,000 9,000 If operating expenses are paid in the month incurred and include monthly depreciation charges of $2,500, determine the change in Wolfe's cash balance during February. A. $2,000 increase. B. $4,500 increase. C. $5,000 increase. D. $7,500 increase. E. Some other amount.

b. 4,500 increase

Coleman, Inc., anticipates sales of 50,000 units, 48,000 units, and 51,000 units in July, August, and September, respectively. Company policy is to maintain an ending finished-goods inventory equal to 40% of the following month's sales. On the basis of this information, how many units would the company plan to produce in August? A. 46,800. B. 49,200. C. 49,800. D. 52,200. E. Some other amount.

b. 49200

Drago makes all sales on account, subject to the following collection pattern: 30% are collected in the month of sale; 60% are collected in the first month after sale; and 10% are collected in the second month after sale. If sales for June July, and August were $120,000, $160,000, and $220,000, respectively, what were the firm's budgeted collections for August and the company's budgeted receivables balance on August 31? August Collections August 31 Receivables Balance A. $162,000 $182,000 B. $174,000 $170,000 C. $190,000 $154,000 D. $262,000 $ 82,000 E. Some other combination of figures not listed above.

b. august: 174k aug 31: 170k

The difference between the revenue or cost projection that a person provides, and a realistic estimate of the revenue or cost, is called: A. passing the buck. B. budgetary slack. C. false budgeting. D. participative budgeting. E. resource allocation processing.

b. budgetary slack

A company that uses activity-based budgeting performs the following: 1—Plans activities for the budget period. 2—Forecasts the demand for products and services as well as the customers to be served. 3—Budgets the resources necessary to carry out activities. Which of the following denotes the proper order of the preceding activities? A. 1-2-3. B. 2-1-3. C. 2-3-1. D. 3-1-2. E. 3-2-1

b. forecast, plan, budget

Consider the following statements about budget administration: I. Regardless of size, the budgeting process is a very formal process in all organizations. II. The budget manual is prepared to communicate budget procedures and deadlines to employees throughout an organization. III. Effective internal control procedures require that the budget director be an individual other than the controller. Which of the above statements is (are) true? A. I only. B. II only. C. III only. D. I and II. E. I and III.

b. ii only (budget manual is prepared)

When an organization involves its many employees in the budgeting process in a meaningful way, the organization is said to be using: A. budgetary slack. B. participative budgeting. C. budget padding. D. imposed budgeting. E. employee-based budgeting.

b. precipitative bugeting

12. Which of the following budgets is prepared at the end of the budget-construction cycle? A. Sales budget. B. Production budget. C. Budgeted financial statements. D. Cash budget. E. Overhead budget

c. budgeted financial statements

55 The following events took place when Managers A, B, and C were preparing budgets for the upcoming period: I. Manager A increased property tax expenditures by 2% when she was informed of a recent rate hike by local authorities. II. Manager B reduced sales revenues by 4% when informed of recent aggressive actions by a new competitor. III. Manager C, who supervises employees with widely varying skill levels, used the highest wage rate in the department when preparing the labor budget. Assuming that the percentage amounts given are reasonable, which of the preceding cases is (are) an example of building slack in budgets? A. I only. B. II only. C. III only. D. I and II. E. II and III.

c. iii only

The comprehensive set of budgets that serves as a company's overall financial plan is commonly known as: A. an integrated budget. B. a pro-forma budget. C. a master budget. D. a financial budget. E. a rolling budget

c. master budget

Company A uses a heavily participative budgeting approach whereas at Company B, top management develops all budgets and imposes them on lower-level personnel. Which of the following statements is false? A. A's employees will likely be more motivated to achieve budgetary goals than the employees of Company B. B. B's employees may be somewhat disenchanted because although they will be evaluated against a budget, they really had little say in budget development. C. Budget padding will likely be a greater problem at Company B. D. Budget preparation time will likely be longer at Company A. E. Ethical issues are more likely to arise at Company A, especially when the budget is used as a basis for performance appraisal.

c. padding in B

29. Telcer & Company had 3,000 units in finished-goods inventory on December 31. The following data are available for the upcoming year: January February Units to be produced 9,400 10,200 Desired ending finished-goods inventory 2,500 2,100 The number of units the company expects to sell in January is: A. 6,900. B. 8,900. C. 9,400. D. 9,900. E. 11,900.

d, 9,900

Diego makes all purchases on account, subject to the following payment pattern: Paid in the month of purchase: 30% Paid in the first month following purchase: 60% Paid in the second month following purchase: 10% If purchases for January, February, and March were $200,000, $180,000, and $230,000, respectively, what were the firm's budgeted payments in March? A. $69,000. B. $138,000. C. $177,000. D. $197,000. E. Some other amount.

d. 197,000

10. Which of the following budgets is based on many other master-budget components? A. Direct labor budget. B. Overhead budget. C. Sales budget. D. Cash budget. E. Selling and administrative expense budget.

d. cash budget

Consider the following statements about zero-base budgeting: I. The budget for virtually every activity in an organization is initially set to the level that existed during the previous year. II. The budget forces management to rethink each phase of an organization's operations before resources are allocated. III. To receive funding for the upcoming period, individual activities must be justified in terms of continued usefulness to the organization. Which of the above statements is (are) true? A. II only. B. III only. C. I and II. D. II and III. E. I, II, and III.

d. forces management, justified

Which of the following statements about financial planning models (FPMs) is (are) false? A. FPMs express a company's financial and operating relationships in mathematical terms. B. FPMs allow a user to explore the impact of changes in variables. C. FPMs are commonly known as "what-if" models. D. FPMs have become less popular in recent years because of computers and spreadsheets. E. Statements "C" and "D" are both false.

d. they have become less popular in the recent years

A company's sales forecast would likely consider all of the following factors except: A. political and legal events. B. advertising and pricing policies. C. general economic and industry trends. D. top management's attitude toward decentralized operating structures. E. competition.

d. top managements attitude

Which of the following outcomes is (are) sometimes associated with participative budgeting? A. Employees make little effort to achieve budgetary goals. B. Budget preparation time can be somewhat lengthy. C. The problem of budget padding may arise. D. Financial modeling becomes much more difficult to undertake. E. Budget preparation time can be somewhat lengthy and budget padding may arise.

e. AND

A formal budget program will almost always result in: A. higher sales. B. more cash inflows than cash outflows. C. decreased expenses. D. improved profits. E. a detailed plan against which actual results can be compared

e. a detailed plan against which actual results can be compared

Which of the following organizations is not likely to use budgets? A. Manufacturing firms. B. Merchandising firms. C. Firms in service industries. D. Nonprofit organizations. E. None of the above, as all are likely to use budgets.

e. all are likely to use budgets

An organization's budgets will often be prepared to cover: A. one month. B. one quarter. C. one year. D. periods longer than one year. E. all of the above

e. all of the above

Consider the following statements about budgetary slack: I. Managers build slack into a budget so that they stand a greater chance of receiving favorable performance evaluations. II. Budgetary slack is used by managers to guard against uncertainty and unforeseen events. III. Budgetary slack is used by managers to guard against dollar cuts by top management in the resource allocation process. Which of the above statements is (are) true? A. I only. B. II only. C. I and II. D. II and III. E. I, II, and III.

e. all of the above

E-budgeting: A. often uses specialized software to streamline the budgeting process. B. is an Internet-based budgeting procedure. C. requires significant network security provisions. D. is becoming more commonplace as businesses expand their operations throughout the world. E. possesses all of the above attributes.

e. all of the above

Which of the following would have no effect, either direct or indirect, on an organization's cash budget? A. Sales revenues. B. Outlays for professional labor. C. Advertising expenditures. D. Raw material purchases. E. None of the above, as all of these items would have some influence.

e. all of these would have some influence

Consider the following statements about budgeting and a product's life cycle: I. Budgets should focus on costs that are incurred only after a product has been introduced to the marketplace. II. Life-cycle costs would include those related to product planning, preliminary design, detailed design and testing, production, and distribution and customer service. III. When a life cycle is short, companies must make certain that before a commitment is made to a product, the product's life-cycle costs are covered. Which of the above statements is (are) true? A. I only. B. II only. C. I and II. D. II and III. E. I, II, and III

e. ii and iii

The budgeting technique that focuses on different phases of a product such as planning and concept design, testing, manufacturing, and distribution and customer service is known as: A. cash-flow budgeting. B. zero-base budgeting. C. base budgeting. D. comprehensive budgeting. E. life-cycle budgeting.

e. life cycle budgeting

The master budget contains the following components, among others: (1) direct-material budget, (2) budgeted balance sheet, (3) production budget, and (4) cash budget. Which of these components would be prepared first and which would be prepared last? First Last A. 1 4 B. 1 2 C. 3 4 D. 3 2 E. 4 1

first: production// last: budgeted