ACC-240 Chapter 14: Cost Planning
Identify the items that would be included in a cash budget.
- Collection of sales - Sale of common stock - Payment of dividends
In the context of a time-frame perspective, identify the costs that fixed costs are classified into.
- Committed costs - Discretionary costs
Identify the budgets that must be complete before the preparation of a budgeted income statement. Select all that apply.
- Cost of goods sold budget - Sales forecast - Operating expense data
Identify the characteristics of the budgeting process.
- Creates a financial plan for the organization. - Uses managerial accounting concepts. - Uses financial accounting concepts. - Provides a benchmark in order to compare actual performance results.
In addition to developing the standard cost for a unit of product, organizations may determine standards for other activities. Identify the appropriate activities that can be expressed as standards.
- Customer service response times - Quality control measures - Machine usage and performance
From the following list, identify the costs that would be classified as committed fixed costs.
- Depreciation - Real estate taxes - Executive management compensation
Identify the expense items that would be included in the operating expense budget.
- Depreciation of office equipment - Delivery expense - Sales commissions - Advertising expense
The cost of goods sold budget summarizes changes in the Finished Goods Inventory account for a manufacturing firm as indicated by which results?
- Ending inventory levels - Purchases/production budget - Sales budget
Identify the true statements about the cost of goods sold budget.
- For a manufacturing firm, the cost of goods sold budget is dependent on the raw materials budget, the direct labor budget, and the manufacturing overhead budget. - For a merchandising firm, the cost of goods sold budget is dependent on the purchases budget.
Identify the true statements about fixed overhead.
- It is expressed as a total cost per accounting period for planning and control purposes. - Its per unit rate is used only to allocate fixed overhead to individual products for product costing.
Which statements regarding a sales or revenue forecast are true?
- It is the forecast of "activity" that is expected during the budget period. - It is the key to the overall operating budget. - It is developed using an estimate of the physical quantity of goods or services to be sold, multiplied by the expected selling price per unit.
Which management needs does a cash budget specifically support?
- Know when temporary excess cash is available to invest. - Anticipate need for short-term borrowing.
Identify the true statements about budgeting techniques.
- Law firms and public accounting firms often budget their workers' time, including the billable hours of their professional staff members. - The service sector uses these techniques for nonfinancial measures, such as the utilization of productive capacity.
Which budgets must be completed before the budgeted balance sheet can be prepared?
- Production and purchases budget - Cash budget - Operating expense budget
Which of these are elements of product cost for which individual standard costs are developed?
- Raw materials - Direct labor - Manufacturing overhead
Which of the following are important factors to consider when preparing a sales forecast?
- Seasonal demand variations - New competitors in the market - The state of the economy
From the following list, identify the costs that would be classified as discretionary fixed costs.
- Staff development funds - Student internship program - Charitable contributions
Identify the key factors that will lead to an accurate cash receipt forecast.
- The accuracy of the sales forecast - The accuracy of the estimated collection patterns for sales
Identify the keys to estimating an accurate amount of cash to be disbursed from the raw material purchases.
- The accuracy of the sales forecast - The accuracy of the estimated payment patterns for purchases
Regarding the development of the standard cost for each unit of input, which of these statements are true?
- The human resources department will be involved in establishing standard labor rates. - The purchasing agent will provide input for raw material costs. - The production and purchasing departments will provide data for estimating the various overhead costs.
Identify the elements used to prepare a production budget.
- The inventory policy - The sales budget - The quantity of beginning inventory - The quantity of ending inventory
Identify the true statements about standards.
- They can be developed and used for qualitative goals in both manufacturing and service organizations. - They can be developed and used for planning and control of both product costs and period costs.
Which statements are true of fixed costs?
- They do not change as the volume of activity changes. - They include costs such as property taxes, executive salaries, and plant depreciation. - They can change from year to year, sometimes due to managerial decisions.
Arrange the cash budget elements and mathematical operations in the correct order as used in the preparation of a cash budget. Place the first item at the top.
1. Beginning cash balance 2. (plus) 3. Cash receipts 4. (minus) 5. Cash disbursements 6. (equals) Ending cash balance
Identify the correct order of production budget elements and mathematical operations as used in the cost of goods sold model for preparing a production budget.
1. Beginning inventory 2. (plus) 3. Units produced 4. (minus) 5. Ending inventory 6. (equals) Units sold
In regard to using a model to calculate the quantity of merchandise to be purchased or manufactured, place the steps in order, with the first step at the top.
1. Enter the beginning and ending inventory quantities based on the firm's inventory management policies. 2. Enter the quantity of goods sold from the sales forecast. 3. Calculate the goods available for sale amount in units by working from the bottom up. The ending inventory is added to quantity of goods sold. 4. Subtract the beginning inventory from goods available for sale to get the purchase or production quantity.
Identify the logical sequence flow of management activities in the management planning and control cycle concept. Place the first step at the top.
1. Planning 2. Managing 3. Controlling
A firm's budgeted sales for the month of September is 10,000 units, for the month of October is 12,000 units, and for the month of November is 14,000 units. The budgeted ending inventory must equal 25 percent of the next month's sales. Based on the given information, the production budget for the month of October is ______ units.
12,500 Reason: Production = Ending inventory + Quantity sold - Beginning inventory (14,000 units × 0.25) + 12,000 units - (12,000 units x 0.25) 3,500 units + 12,000 units - 3,000 units = 12,500 units
A firm's budgeted production for the month of May is 6,000 units and for the month of June is 10,000 units. Each unit produced requires 5 pounds of raw material. The budgeted ending inventory must equal 30 percent of next month's budgeted production. If the raw materials purchases budgeted for the month of May is 25,000 pounds, the beginning inventory for the month of May is ______ units.
4,000 Reason: Beginning inventory = Production + Ending inventory - Purchases (in units) 6,000units + (10,000 units × 0.30) - (25,000 pounds / 5 pounds) 6,000 units + 3,000 units - 5,000units = 4,000 units
ABC Company has identified the following information related to its cash budget for October: Beginning cash balance = $20,000; Cash receipts from sales = $100,000; Cash payments for purchases = $50,000; Proceeds from borrowings = $25,000; Payments for other manufacturing expenses = $40,000; Payments for operating expenses = $35,000; Dividend payment = $10,000; Ending cash balance = $______.
Blank 1: 10,000 or 10000
ABC Company's production standards for Product Z indicate that each unit requires 6 hours of direct labor time. Union labor wage rates are currently $24 per hour. ABC's production manager earns a salary of $1,000 per week overseeing all units produced. The standard direct labor cost for Product Z is $______ per unit.
Blank 1: 144
ABC Company's budgeted production is as follows: January = 5,000 units; February = 8,000 units. Each unit produced requires 3 pounds of raw material. January beginning inventory = 3,000 pounds. Budgeted ending inventory must equal 20 percent of next month's production. Raw material purchases budgeted for January would equal ______ pounds.
Blank 1: 16,800 OR 16800
ABC Company's budgeted sales are as follows: July = 3,000 units; August = 2,500 units. June ending inventory = 1,200 units. Budgeted ending inventory must equal 40 percent of next month's budgeted sales. Production budgeted for July would equal ______ units.
Blank 1: 2,800 OR 2800
ABC Company collects sales as follows: 30 percent in the month of sale, 60 percent in the next month, and 8 percent in the second month after the sale; 2 percent is uncollectable. Budgeted sales are as follows: March = $22,000; April = $19,000; May = $23,000. Budgeted cash collections for May are $______.
Blank 1: 20,060 or 20060
ABC Company pays for raw material purchases as follows: 75 percent in the month of purchase; 25 percent in the subsequent month. Budgeted purchases are as follows: June = $56,000; July = $60,000. Cash disbursement forecast for the purchases budgeted for the month of June will be anticipated as follows: June = $______. July = $______.
Blank 1: 42,000 or 42000 Blank 2: 14,000 or 14000
ABC Company currently pays $5 per gallon for raw material X and $3 per pound for raw material Y. Product Z production standard requires 5 gallons of raw material X and 10 pounds of raw material Y. The standard raw material cost for Product Z is $______ per unit.
Blank 1: 55
ABC Company pays for raw material purchases as follows: 75 percent in the month of purchase; 25 percent in the subsequent month. Budgeted purchases are as follows: June = $56,000; July = $60,000. Budgeted cash payment to be made in the month of July is $______.
Blank 1: 59,000 or 59000
ABC Company collects sales as follows: 30 percent in the month of sale, 60 percent in the next month, and 8 percent in the second month after the sale; 2 percent is uncollectable. Budgeted sales are as follows: March = $22,000; April = $19,000; May = $23,000. Budgeted cash collections for March sales will be anticipated as follows: March = $______. April = $______. May = $______.
Blank 1: 6,600 or 6600 Blank 2: 13,200 or 13200 Blank 3: 1,760 or 1760
A standard cost or production standard that is achievable under actual operating conditions is known as an ______ (ideal/attainable/average) standard.
Blank 1: attainable
A ______ (single-period/continuous) budget is generally more expensive to maintain than a ______ (single-period/continuous) budget because more time and effort is required in its preparation.
Blank 1: continuous Blank 2: single-period
Budgeting is the process of ______ planning.
Blank 1: financial
A standard cost or a production standard that assumes maximum operating condition efficiency at all times is known as an ______ (ideal/attainable/average) standard.
Blank 1: ideal
As budgeted activity increases, a variable cost will increase ______ ______ (in total/per unit) but will remain constant ______ ______ (in total/per unit).
Blank 1: in Blank 2: total Blank 3: per Blank 4: unit
Standard costs are comprised of two elements, the quantity of ______ (input/output) and the cost per unit of ______ (input/output).
Blank 1: input Blank 2: input
When a certain amount of cost is expected to be incurred regardless of the budgeted level of activity, but the cost will also change as activity changes, this type of cost behavior is known as ______ (variable/fixed/mixed).
Blank 1: mixed
An interactive, collaborative approach in which lower-level managers provide significant input describes ______ (top-down/participative) budgeting.
Blank 1: participative
The ______ (sales/production) budget depends on the ______ (sales/production) budget, and the raw materials budget depends on the ______ (sales/production) budget.
Blank 1: production Blank 2: sales Blank 3: production
When managers submit budget requests that include allowances for contingencies that are higher than what costs are really expected to be, the intent is to create budget ______.
Blank 1: slack
True or false: A cash receipts analysis of customer payment patterns will always reflect the collection of 100 percent of the sales dollars identified in the sales forecast.
False
True or false: Managers have the option to reduce committed fixed costs during the annual budget planning process.
False
Which costs remain constant in total as the budgeted volume of activity changes, but they could change as a result of the managerial decision-making process?
Fixed costs
Identify a true statement about variable overhead.
It is expressed in terms of physical measure, such as machine hour, that reflects the causes of overhead expenditures.
Identify a true statement about a past experience standard.
It is not likely to provide much incentive for improvement.
As the budgeted volume of activity changes, what type of cost will behave with both fixed and variable elements?
Mixed cost
Which of these is the correct equation used to calculate the quantity of merchandise to be purchased or manufactured?
Purchases or production = Ending inventory + Quantity sold - Beginning inventory
Which of these is the correct equation used to calculate the quantity of merchandise to be purchased or manufactured?
Purchases or production = Ending inventory + Quantity sold - Beginning inventory
Another term used to describe a rolling budget time frame is a ______ budget.
continuous
Operating expense budgets are organized by:
cost behavior patterns
A fixed cost that can be raised or lowered in the short-run planning of an organization is known as a:
discretionary cost
According to a time-frame perspective, costs that are classified into committed costs and discretionary costs are ______ costs.
fixed
A production standard that assumes maximum operating conditions and 100 percent efficiency at all times is called a(n):
ideal standard
A budgeting process that starts with analyzing the actual performance for the current period and making adjustments to the amounts for the changes that are expected to occur in the next period is called ______ budgeting.
incremental
A budget that expresses an organization's operating plan in financial terms and comprises a number of detailed budgets is called the ______ budget.
master
Depreciation of delivery trucks, which are used to deliver the final product to the customers, appears in the ______ budget.
operating expense Reason: Delivery trucks that are used to deliver the final product to the customers are not related to manufacturing; hence, their depreciation does not come under the manufacturing overhead budget.
A budgeting process that involves the input and negotiation of several layers of management describes the management philosophy of ______ budgeting.
participative
The management process of identifying and quantifying the goals of the organization is known as:
planning.
Organizations require a minimum cash balance in the cash budget in order to:
provide a cushion that can absorb forecast errors
The key information necessary for developing an organization's operating budget is found in the:
sales forecast
When a budget is prepared only once prior to the budget period, it is called a ______ budget.
single-period
While preparing a budget, there are some estimates that must be made more than a year in advance. This particular aspect is not considered while preparing a ______ budget.
single-period
The development of the budgeted income statement is possible when:
the operating expense budget is complete
A budgeting approach that implies little or no input from lower levels of management describes the management philosophy of ______ budgeting.
top-down
An authoritarian approach describes the management philosophy of ______ budgeting.
top-down
A budgeting process that starts with a clean slate and involves justifying resource requirements based on an analysis and prioritization of organizational objectives is called ______ budgeting.
zero-based
In comparison to ideal standards, attainable standards ______.
are more likely to motivate employees
The cash budget is especially important to an organization in order to:
anticipate a need to secure a short-term bank loan
What type of budget involves planning for segments of a year on a repetitive basis, such as every quarter?
Rolling
What type of budget is also known as multiperiod or continuous?
Rolling
Which of the following lists the budgets of a manufacturing firm in the correct sequence based on the budget dependencies?
Sales budget, production budget, raw materials budget
What is the key budgeting element on which the entire operating budget is based?
Sales/revenue forecast
Why is a cash disbursement forecast affected by the sales forecast?
The sales forecast affects the finished goods budget and the raw materials purchases budget. Reason: A cash disbursement forecast is impacted by the sales forecast because the sales forecast impacts the finished goods budget and the raw materials purchases budget.
Identify a true statement about standard costs.
They are used in the planning and control processes of service firms that perform repetitive operations in the performance of services.
True or false: "Padding the budget" is another phrase used to describe the practice of creating budget slack.
True
True or false: In addition to manufacturing companies, budgeting techniques can be very useful to many other types of organizations.
True
What type of costs increase or decrease in total with the budgeted volume of activity but remain constant when expressed on a per unit basis?
Variable costs
At what point is the development of the budgeted balance sheet possible?
When the cash budget is complete
A standard cost best describes:
a budget for a single unit component of a product or service
Developing a standard cost to be used for planning and control purposes is like developing:
a budget for a single unit of production
A standard that is based on historical data and includes all the inefficiencies that have crept into the operation over time is known as:
a past experience standard
