Accounting chapter 14 SM
A budgeting approach that implies little or no input from lower levels of management describes the management philosophy of top-down budgeting.
top-down
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 $ 144 per unit.
$144
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 $ 55per unit.
$55
Organizations require a minimum cash balance in the cash budget in order to:
provide a cushion that can absorb forecast errors
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 $
.30(23,000)+.60(19,000)+.08(22,000)
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 $
.75(60000)+.25(56000) 59,000
As budgeted activity increases, a variable cost will increase (in total/per unit) but will remain constant (in total/per unit).
1. In total 2. Per unit
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.
12000-12000(.25)+14000(.25)= 12,500
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.
3000-1200=1800 and need 1000 more for next month because.4(2500)=1000 so total = 2800
ABC Company requires a minimum cash balance of $15,000 at the end of each month and has identified the following information related to its cash budget for October: Beginning cash balance = $20,000; Cash receipts = $125,000; Cash disbursements = $135,000; Required short-term borrowing = $. Ending cash balance = $
5,000 15,000
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 = $ 6,600 April = $ 13,200 May = $ 1,760
6,600 13,200 1,760
When is the cash budget prepared?
After the budgeted income statement
A standard cost or production standard that is achievable under actual operating conditions is known as an (ideal/attainable/average) standard. Which management needs does a cash budget specifically support?
Attainable
Standard costs are used in which phases of the management process?
Controlling Planning
Managers have the option to reduce committed fixed costs during the annual budget planning process.
False
A standard cost or a production standard that assumes maximum operating condition efficiency at all times is known as an (ideal/attainable/average) standard.
Idea standard
A production standard that assumes maximum operating conditions and 100 percent efficiency at all times is called a(n):
Ideal standard
Identify the true statements about fixed overhead.
Its per unit rate is used only to allocate fixed overhead to individual products for product costing. It is expressed as a total cost per accounting period for planning and control purposes.
Standard costs are comprised of two elements, the quantity of (input/output) and the cost per unit of (input/output).
Input Input
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.
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 = $42,000 July = $14,000
June = $42,000 July = $14,000
A budget that expresses an organization's operating plan in financial terms and comprises a number of detailed budgets is called the______ budget.
Master budget
Depreciation of delivery trucks, which are used to deliver the final product to the customers, appears in the ______ budget.
Operating expenses
The management process of identifying and quantifying the goals of the organization is known as:
Planning
A raw materials purchases budget is completed immediately after preparing the ______ budget.
Production
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
What type of budget is also known as multiperiod or continuous?
Rolling
What type of budget involves planning for segments of a year on a repetitive basis, such as every quarter?
Rolling budget
The development of the budgeted income statement is possible when:
The operating expense budget is complete
Identify the true statements about budgeting techniques.
The service sector uses these techniques for nonfinancial measures, such as the utilization of productive capacity.
An authoritarian approach describes the management philosophy of______ budgeting.
Top-down
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
The cash budget is especially important to an organization in order to:
anticipate a need to secure a short-term bank loan
In comparison to ideal standards, attainable standards______.
are more likely to motivate employees
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.
◎ Beginning cash balance ◎ (plus) ◎ Cash receipts (minus) ◎ Cash disoursemenis ◎ (equals Ending cash balance
Identify the items that would be included in a cash budget.
◎ Collection of sales ◎ Payment of dividends ◎ Sale of common stock
Identify the expense items that would be included in the operating expense budget.
◎ Depreciation of office equipment ◎ Sales commissions ◎ Advertising expense ◎ Delivery 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 ◎ Sales budget ◎ Purchases/production budget
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.
◎ Enter the beginning and ending inventory quantities based on the firm's inventory management policies. ◎ Enter the quantity of goods sold from the sales forecast. ◎ 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. ◎ Subtract the beginning inventory from goods available for sale to get the purchase or production quantity.
From the following list, identify the costs that would be classified as committed fixed costs.
◎ Executive management compensation ◎ Depreciation ◎ Real estate taxes
Identify the true statements about the cost of goods sold budget.
◎ For a merchandising firm, the cost of goods sold budget is dependent on the purchases 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.
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.
◎ Manufacturing firms can develop these techniques to meet the needs of other functional areas, such as the research and development departments. ◎ The service sector uses these techniques for nonfinancial measures, such as the utilization of productive capacity.
Identify the budgets that must be complete before the preparation of a budgeted income statement. Select all that apply.
◎ Operating expense data ◎ Sales forecast ◎ Cost of goods sold budget
Identify the logical sequence flow of management activities in the management planning and control cycle concept. Place the first step at the top.
◎ Planning ◎ Managing ◎ Controlling
Which budgets must be completed before the budgeted balance sheet can be prepared?
◎ Production and purchases budget ◎ Cash budget ◎ Operating expense budget
After the development of the sales budget, list the remaining detailed budgets in the correct master budget development sequence. Place the first one at the top.
◎ Purchases budget ◎ Cost of good sold budget ◎ Operating expenses budget ◎ Income statement budget ◎ Cash budget ◎ Balance sheet budget
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.
◎ Quality control measures ◎ Machine usage and performance ◎ Customer service response times
Identify the elements used to prepare a production budget.
◎ The sales budget ◎ The quantity of beginning inventory ◎ The quantity of ending inventory ◎ The inventory policy
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.
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.
◎ beginning inventory ◎ (plus) ◎ Units produced ◎ (minus) ◎ ending inventory ◎ (Equal) units sold
