Chapter 8

If desired ending inventory is 25% of next month's sales, the number of units to be produced in March is

March sales 16,000 + End. inv. (25% of April sales) 5,000 - Beg. inv. (25% of March sales) 4,000 = 17,000 units

S&P Enterprises has scheduled direct material purchases of $120,000 in April, $140,000 in May and $160,000 in June. 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 May.

May purchases ($140,000 x 75%) $105,000 + April purchases ($120,000 x 25%) $30,000 = $135,000

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

The budgeted number of units to be sold

True or false: Many of the schedules in a master budget are based on a variety of management estimates and assumptions.

True

The receipts section of the cash budget lists ______.

all cash inflows, except from financing

Select all that apply Master budget schedules ______.

are based on estimates and assumptions. answer several key questions for a company

The annual master budget file includes the ______ from last year because it is needed for the schedule of expected cash collections.

balance sheet

In a manufacturing company, the (1) (2) budget details the raw materials that must be purchased to fulfill the production budget and to provide for adequate inventories. (Enter only one word per blank.)

1. direct 2. materials

The section on the cash budget that summarizes all cash payments that are planned for the budget period is the cash (1) section. (Enter only one word per blank.)

1. disbursements

A company's planned net profit that serves as a benchmark against which subsequent company performance can be measured is shown on the budgeted (1) (2). (Enter only one word per blank.)

1. income 2. statement

All costs of production other than direct materials and direct labor are shown on the (1) (2) budget. (Enter only one word per blank.)

1. manufacturing 2. overhead

The amount of goods for resale to be acquired from suppliers during the period is shown on the (1) (2) budget. (Enter only one word per blank.)

1. merchandise 2. purchases

The first step in the budgeting process is the preparation of the (1) budget. (Enter only one word per blank.)

1. sales

Which of the following budgets shows the company's planned profit and serves as a benchmark against which subsequent company performance can be measured?

Budgeted income statement

Which of the following is not found in the financing section of the cash budget?

Cash deficiency

True or false: For most companies a single, annual cash budget is sufficient.

False

To prepare a budgeted balance sheet as of December 31, 2020, data is needed from the ______ December 31, 2019.

balance sheet as of

A budgeted balance sheet is developed using data from the ______ of the budget period and data contained in the various schedules.

beginning

When a manager creates a budget that is too easy to attain, ______ occurs.

budgetary slack

The receipts, disbursements, excess or deficiency, and financing section are all parts of the ______ budget.

cash

Budgets ______.

communicate management's plan throughout the organization

Gathering feedback to ensure that the plan is being followed is referred to as

control

The ending finished goods inventory budget computes the ______ units.

cost of unsold

When creating an Excel budget and performing what-if analysis, it is generally easiest to ______.

create the budget with a budgeting assumption tab

Working hours required to satisfy the production budget are shown on the ______ budget.

direct labor

In a manufacturing company, the ______ budget details the raw materials that must be purchased to fulfill the production budget and provide for adequate inventories

direct materials

The cost of unsold units is computed on the ______ budget.

ending finished goods inventory

Risks of not knowing in advance how much labor time will be needed throughout the budget period includes

erratic layoffs low employee morale labor shortages

Using budgeting assumptions when preparing the master budget, ______.

makes it easier to answer "what-if" questions

All costs of production other than direct materials and direct labor are shown on the ______ budget.

manufacturing overhead

Developing goals and preparing various budgets to achieve those goals is part of ______,

planning

The first line of the direct labor budget consists of the budgeted units expected to be ______ during the period.

produced

In a manufacturing company, the ______ budget shows the number of units that must be manufactured to satisfy sales needs and provide for the desired ending inventory.

production

The direct labor budget is based directly on the ______ budget.

production

The budgeted income statement does NOT rely on information from the

production budget

Because all other parts of the budget depend on it, if the ______ budget is inaccurate, the rest of the budget will be inaccurate.

sales

The first step in the budgeting process is preparing the ______ budget.

sales

Both the production and selling and administrative expense budgets are prepared using information directly from the

sales budget

To calculate total sales on the sales budget, multiply budgeted sales in units by ______.

sales price per unit

Budgeted expenses for areas other than manufacturing are shown on the ______ budget.

selling and administrative

In large organizations, many smaller individual budgets submitted by department heads and other responsible people comprise the ______ budget.

selling and administrative

Select all that apply Limitations of self-imposed budgeting include ______.

suboptimal budget recommendations budgetary slack

A company can consider making investments or repay outstanding principal and interest when ______.

the cash excess is greater than the minimum required cash balance

Select all that apply Borrowing money is required whenever ______.

the cash excess is less than the minimum required cash balance there is a cash deficiency

Budgetary slack occurs when a manager submits a budget that is ______.

too easy to attain

The ending finished goods inventory budget computes the cost of

unsold units

The cash budget ______.

is prepared near the end of the master budget process

A number of separate, but interdependent, budgets that formally lay out the company's sales, production, and financial goals are contained in the (1) budget. (Enter only one word per blank.)

master

An integrated business plan that formally lays out the company's goals is called the ______ budget.

master

A company with adequate cash balances at the beginning and end of the year, ______.

may still have cash deficiency issues during the year

The amount of goods to be acquired from suppliers during the period is shown on the _______ budget.

merchandise purchases

Facing labor shortages or having to hire or lay off workers at awkward times are consequences of

neglecting to budget the amount of labor time that will be needed

More accurate estimates and higher motivation are generally the result of using a(n) ______ budget.

participative

Budgets are used for two distinct purposes: ______ and ______.

planning; control

The direct materials budget directly relies on the

production budget

Recognizing individuals at all levels of the organization as team members whose views and judgments are valued by top management is an advantage of ______.

self-imposed budgeting

The final schedule of the master budget is the

budgeted balance sheet

Select all that apply Budgets ______.

1. and the budgeting process can uncover potential bottlenecks before they occur 2. define goals and objectives that can serve as benchmarks for evaluating subsequent performance 3. coordinate the activities of the entire organization by integrating the plans of its various parts 4. force managers to think about and plan for the future

Because it is needed for the schedule of expected cash collections, the annual master budget file includes the (1) (2) from last year. (Enter only one word per blank.)

1. balance 2. sheet

A detailed plan for the future that is usually expressed in formal quantitative terms is a(n) (1). (Enter only one word per blank)

1. budget

In a manufacturing company, the budgets for manufacturing costs, including the direct materials budget, the direct labor budget, and the manufacturing overhead budget are all based on the

Production

In a manufacturing company, which budget is used as the basis for creating the direct materials budget, the direct labor budget, and the manufacturing overhead budget?

Production

The cash budget uses information from several other budgets. Which of the following budgets is NOT used to prepare the cash budget?

Production

Which of the following budgets are directly based on information from the sales budget?

Production budget Selling and administrative expense budget Direct materials budget Reason: The direct materials budget is based on the number of units to be produced, not sold. Direct labor budget Reason: The direct labor budget is based on the number of units to be produced, not sold.

Which of the following is needed to calculate raw materials to be purchased on the direct materials budget?

Raw materials required per unit Beginning inventory of raw materials

What number does the direct materials budget take directly from the production budget?

Required production

The calculation of unit product cost requires information from the

manufacturing overhead budget cash The calculation of unit product cost requires information about direct materials, direct labor, and manufacturing overhead. ending finished goods inventory The calculation of unit product cost requires information about direct materials, direct labor, and manufacturing overhead. selling and administrative The calculation of unit product cost requires information about direct materials, direct labor, and manufacturing overhead.

The number of working hours required to satisfy the production budget is shown on the (1) (2) budget. (Enter only one word per blank.)

1. direct 2. labor

Developing goals and preparing various budgets to achieve those goals is part of the (1) process. (Enter only one word per blank.)

1. planning

In a manufacturing company, the (1) budget is prepared right after the sales budget. (Enter only one word per blank.)

1. production

In a manufacturing company, the (1) budget is used to determine the budgets for manufacturing costs, including the direct materials budget, the direct labor budget, and the manufacturing overhead budget. (Enter only one word per blank.)

1. production

In a manufacturing company, the (1) budget shows the number of units that must be manufactured to satisfy sales needs and provide for the desired ending inventory. (Enter only one word per blank.)

1. production

A manager cannot complain that the budget was unrealistic and impossible to meet when a(n) (1)-(2) budget is in place. (Enter only one word per blank)

1. self 2. imposed

Given budgeted sales of 10,000 units, desired ending inventory of 5,000 units, and beginning inventory of 2,000 units, required production is

10,000 + 5,000 - 2,000 = 13,000

If a cash budget is prepared by quarter, the beginning cash balance for the year is the same as the beginning cash balance for the _____ quarter and the ending cash balance for the year is the same as the ending cash for the ____ quarter.

1st 4th

On the cash budget, what is subtracted from total cash available to find the cash excess or deficiency?

Cash disbursements Cash inflows are added and should already be included in the total cash available. Noncash items do not appear in the cash budget. Selling and administrative expenses are a part of the cash disbursement section.

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

Direct labor Manufacturing overhead Direct materials

True or false: Control involves developing goals and preparing various budgets to achieve those goals.

False

A budget is a detailed plan for the future that is usually expressed in formal qualitative terms.

False A budget is usually expressed in formal quantitative terms.

The amounts under the Year column in the cash budget always equal the sum of the amounts for the months or quarters of the budget.

False Reason: Beginning cash for the year equals beginning cash of the first month or quarter and ending cash for the year equals ending cash of the last month or quarter.

S&P Enterprises has scheduled direct 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.

February purchases ($130,000 x 75%) $97,500 + January purchases ($100,000 x 25%) $25,000 = $122,500.

What is usually the major source of receipts in the receipts section of the cash budget?

Sales Gains Gains may be a source of cash receipts, but would not be the major source. Interest received Interest may be a source of cash receipts, but would not be the major source. Insurance proceeds Insurance proceeds may be a source of cash receipts, but would not be the major source.

A detailed plan for the future that is usually expressed in formal quantitative terms is ______.

a budget