Profit planning by Garrison

F 1.The usual starting point in budgeting is to make a forecast of net income.

F 2. A budget committee helps provide consistency in the budgeting process because it prepares all of the budgets for the various segments of the organization.

T 3. A continuous or perpetual budget is one which covers a 12-month period but which is constantly adding a new month on the end as the current month is completed.

F 4. Control involves developing objectives and preparing the various budgets to achieve those objectives.

F 5. A self-imposed budget is one prepared by top management and passed downward through an organization.

F 6. When using the self-imposed budget approach, it is generally best for top management to accept all budget estimates without question in order to minimize adverse behavioral responses from employees.

T 7. Cash collections in a schedule of cash collections typically consist of collections on sales made to customers in prior periods plus collections on sales made in the current budget period.

T 8. In a production budget, if the number of units in finished goods inventory at the end of the period is less than the number of units in finished goods inventory at the beginning of the period, then the expected number of units sold is greater than the number of units to be produced during the period.

T 9. In a merchandising company, the required merchandise purchases for a period are determined by subtracting the units in beginning inventory from the sum of the units to be sold during the period and the desired ending inventory.

F 10. The direct materials to be purchased for a period can be obtained by subtracting the desired ending inventory of direct materials from the total direct materials needed for the period.

F 11. The direct labor budget begins with sales in units from the sales budget.

F 12. The selling and administrative expense budget lists all costs of production other than direct materials and direct labor.

T 13. In the manufacturing overhead budget, the non-cash charges (such as depreciation) are deducted from the total budgeted manufacturing overhead to determine the expected cash disbursements for manufacturing overhead

T 14. The selling and administrative expense budget lists the budgeted expenses for areas other than manufacturing.

F 15. The disbursements section of a cash budget consists of all cash payments for the period except cash payments for dividends.

D 16. Which of the following budgets are prepared before the sales budget?

Budgeted Income Statement

Direct Labor Budget

A) Yes YesB) Yes NoC) No YesD) No No

C 17. The usual starting point for a master budget is:

A) the direct materials purchase budget.

B) the budgeted income statement.

C) the sales forecast or sales budget.

D) the production budget.

A 18. Which of the following budgets are prepared before the cash budget?

Selling and Administrative Expense

BudgetProduction

BudgetA) Yes YesB) Yes NoC) No YesD) No No

D 19. Which of the following benefits could an organization reasonably expect from an effective budget program?

A) Better control of the organization's costs.

B) Better coordination of an organization's activities.

C) Better communication of the organization's objectives.

D) All of the above.

B 20. An organization's budget program should not be used:

A) to motivate employees.

B) to assign blame to managers that do not meet budgetary goals.

C) to help evaluate managers.

D) to allocate resources to the various parts of an organization.

C 21. A basic idea underlying __________________ is that a manager should be held responsible only for those items that the manager can actually control to a significant extent.

A) participative budgeting

B) planning and control

C) responsibility accounting

D) the master budget

B 22. When preparing a merchandise purchases budget, the required purchases in units equals:

A) budgeted unit sales + beginning merchandise inventory + desired merchandise ending inventory.

B) budgeted unit sales - beginning merchandise inventory + desired merchandise ending inventory.

C) budgeted unit sales - beginning merchandise inventory - desired merchandise ending inventory.

D) budgeted unit sales + beginning merchandise inventory - desired merchandise ending inventory.

A 23. When preparing a direct materials budget, the required purchases of raw materials in units equals:

A) raw materials needed to meet the production schedule + desired ending inventory of raw materials - beginning inventory of raw materials.

B) raw materials needed to meet the production schedule - desired ending inventory of raw materials - beginning inventory of raw materials.

C) raw materials needed to meet the production schedule - desired ending inventory of raw materials + beginning inventory of raw materials.

D) raw materials needed to meet the production schedule + desired ending inventory of raw materials + beginning inventory of raw materials.

B 24. Which of the following statements is NOT correct concerning the Manufacturing Overhead Budget?

A) The Manufacturing Overhead Budget provides a schedule of all costs of production other than direct materials and labor costs.

B) The Manufacturing Overhead Budget shows only the variable portion of manufacturing overhead.

C) The Manufacturing Overhead Budget shows the expected cash disbursements for manufacturing overhead.

D) The Manufacturing Overhead Budget is prepared after the Sales Budget.

A 25. Which of the following statements is NOT correct concerning the Cash Budget?

A) It is not necessary to prepare any other budgets before preparing the Cash Budget.

B) The Cash Budget should be prepared before the Budgeted Income Statement.

C) The Cash Budget should be prepared before the Budgeted Balance Sheet.

D) The Cash Budget builds on earlier budgets and schedules as well as additional data.

T 1. Continuous budgeting is the practice of preparing a new budget each period to replace the one that has elapsed, so that the company always has a budget for the same number of future periods.

T 2. Consulting the persons affected by a budget when it is prepared can provide an effective means of motivation.

T 3. A budget can be an effective means of communicating management's plans to the

employees of a business.

T 4. Budgets are normally more effective when all levels of management are involved in the budgeting process.

T 5. One of the major benefits of formal budgeting is the effect it may have on employee attitudes.

F 6. Past performance is the best overall basis for evaluating performance.

T 7. The process of evaluating performance can be improved by using budgets.

F 8. Budgeting is an informal plan for future business activities.

F 9. A rolling budget is a specific budget application relevant to the transportation industry.

T 10. The budget process is a continuous activity of planning, revising, and evaluating business activities.

T 11. A budget is a formal statement of future plans, usually expressed in monetary terms.

T 12. Budgeting is the process of planning future business actions and expressing them as formal plans.

F 13. The financial budget process includes the cash budget and all the general financial statements.

T 14. The budgets within the master budget must be prepared in a definite sequence.

T 15. The operating and financial budgets depend on information provided by the sales budget.

F 16. The responsibility for coordinating the preparation of a master budget should be assigned to the Chief Executive Officer.

F 17. The master budget is a small component of the comprehensive budget.

F 18. The production budget is the starting point for preparing the master budget.

F 19. The sales budget is derived from the production budget.

F 20. Budget preparation is best determined in a top-down approach.

T 21. A cash budget is a plan that describes the expected cash receipts and expenditures during each of the periods that it covers.

T 22. The master budget consists of three major groups of budget components.

F 23. Because selling expenses affect the amount of sales, the selling expense budget is normally prepared before the sales budget.

F 24. A master budget is a company's sales budget that includes all of its segments or departments.

F 25. A manufacturing budget should include a list of equipment to be scrapped and additional equipment to be purchased if the proposed production budget is carried out.

F 26. If budgeted beginning inventory is $8,300, budgeted ending inventory is $9,400, and cost of goods sold is expected to be $10,260, then budgeted purchases should be $9,160.

F 27. A company's history indicates that 20% of its sales are for cash and the rest are on credit. Collections on credit sales are 20% in the month of the sale, 50% in the next month, and 30% the following month. Projected sales for January, February, and March are $75,000, $92,000 and $60,000, respectively. Expected cash receipts from credit customers in March equal $80,500.

F 28. A capital expenditure budget is prepared before the operating budgets.

T 29. The financial budgets of a business include the cash budget, the budgeted income statement, and the budgeted balance sheet.

T 30. Part of the cash budget is based on information contained in the capital expenditures

budget.

T 31. The budgeted balance sheet is prepared with data contained in the previously prepared components of the master budget.

T 32. Financial budgets are normally completed after preparation of operating and capital expenditure budgets.

F 33. Zero-based budgeting presumes there are zero changes in the budgeting period.

T 34. Zero-based budgeting assumes that the budget process begins without any previous history.

Multiple ChoiceC 35. A formal statement of future plans, usually expressed in monetary terms, is a(n):A) Annual report.B) Position statement.C) Budget.D) Prospectus.E) Statement of changes in financial position.

A 36. The process of planning future business actions and expressing them as formal plans is called:A) Budgeting.B) Cost accounting.C) Managerial accounting.D) Auditing.E) Accounting.

D 37. For budgets to be effective:A) Objectives should be attainable.B) There should be management approval.C) They should be developed from the bottom up.D) Objectives should be attainable and there should be management approval.E) All of these answers are correct.

E 38. Which of the following is not a benefit of following a well-designed budgeting process?A) Improved decision-making processes.B) Improved performance evaluations.C) Improved coordination of business activities.D) Improved motivation for company employees.E) All of these are benefits of budgeting.

E 39. Which of the following is a benefit derived from budgeting?A) Budgeting focuses management's attention on the future.B) Budgeting provides coordination of departments.C) Budgeting provides a basis for evaluating performance.D) Budgeting provides motivation for managers and employees.E) All of these answers are correct.

E 40. Which of the following statements about budgeting is not true?A) Budgeting is an aid to planning and control.B) Budgets create standards for performance evaluation.C) Budgets help coordinate the activities of the entire organization.D) Budgeting forces managers to think ahead and formalize long-range objectives.E) The master budget should be prepared by top management because they have the "big picture" of the entire organization.

A 41. The budget is best described as:A) A formal statement of company future plans.B) A master control device.C) An informal statement of company future plans.D) A major component of a company evaluation process.E) The minimum acceptable performance level.

B 42. A budget is a formal statement of:A) Present plans.B) Future plans.C) Previous plans.D) Present and future plans.E) Present ad previous plans.

C 43. Preparing a master budget is usually the responsibility of:A) The company CEO.B) The marketing department.C) The budget committee.D) The chief financial officer.E) Both the company CEO and the marketing department.

B 44. The most useful budget figures are developed:A) From the top down.B) From the bottom up.C) Solely by the budget committee.D) By the CEO.E) All of these answers are correct.

D 45. The overall coordinating activity of the budget process is the responsibility of the:A) Chief Accounting Officer.B) Chief Executive Officer (CEO).C) Chief Financial Officer (CFO).D) Budget Committee.E) Board of Directors.

D 46. The set of periodic budgets that are prepared and periodically revised in the practice of continuous budgeting is called:A) Production budgets.B) Sales budgets.C) Cash budgets.D) Rolling budgets.E) Capital expenditures budgets.

D 47. The practice of preparing budgets for each of several future periods and revising those budgets as each period is completed, adding a new budget each period so that the budgets always cover the same number of future periods, is called:A) General budgeting.B) Capital budgeting.C) Balanced budgeting.D) Continuous budgeting.E) Primary budgeting.

B 48. Which of the following make up a master budget?A) Production budget, manufacturing budget, sales budgetB) Operating budget, capital expenditures budget, financial budgetsC) Historical financial statements, budgeted financial statements, production budgetD) Operating budget, sales budget, cash budgetE) Production budget, operating budget, manufacturing budget

B 49. Long-term and short-term plans are knows respectively as:A) Strategic and zero-based.B) Strategic and operational.C) Operational and strategic.D) Operational and zero-based.E) All plans are zero-based.

C 50. Operating budgets include all the following budgets except the:A) Sales budget.B) Selling expense budget.C) Cash receipts budget.D) Merchandise purchases budget.E) All of these are operating budgets.

A 51. Financial budgets include all the following except the:A) Sales budget.B) Budgeted balance sheet.C) Budgeted income statement.D) Cash budget.E) All of these are financial budgets.

A 52. A plan that lists the types and amounts of general and administrative expenses expected during the budget period is referred to as a:A) General and administrative expense budget.B) Sales budget.C) Cash budget.D) Production budget.E) Selling expense budget.

D 53. The master budget includes:A) Operating budgets.B) A capital expenditures budget.C) A budgeted income statement.D) All of these answers are correct.E) Operating budgets and a capital expenditures budget.

B 54. The starting point for preparing a master budget is forecasting:A) Expenditures.B) Sales.C) Production.D) Cash receipts.E) Cash needs.

D 55. A plan that shows the expected cash inflows and outflows during the budget period, including receipts from loans needed to maintain a minimum cash balance and repayments of such loans, is called a(n):A) Capital expenditures budget.B) Operating budget.C) Rolling budget.D) Cash budget.E) Production budget.

B 56. A plan that states the units or costs of merchandise to be purchased by a merchandising company during the budget period is called a:A) Production budget.B) Merchandise purchases budget.C) Sales budget.D) Cash budget.E) Manufacturing budget.

E 57. A plan showing the units of goods to be sold and the revenue to be derived from sales, which is the starting point in the budgeting process, is called the:A) Operating budget.B) Manufacturing budget.C) Production budget.D) Merchandise purchases budget.E) Sales budget.

E 58. A plan that shows the predicted costs for materials, direct labour, and overhead to be incurred in manufacturing the units in the production budget is called the:A) Sales budget.B) Merchandise purchases budget.C) Production budget.D) Rolling budget.E) Manufacturing budget.

C 59. A plan that states the number of units to be manufactured during each future period covered by the budget, based on the budgeted sales for the period and the levels of inventory needed to support future sales, is provided by the:A) Sales budget.B) Merchandise purchases budget.C) Production budget.D) Cash budget.

E) Manufacturing budget.

B 60. The sales budgeting process is particularly useful as a(n):A) Evaluation tool.B) "What if" tool.C) Break-even tool.D) Measurement tool.E) All of these answers are correct.

C 61. To determine a production budget for a given time period, consideration is given to the:A) Budgeted ending inventory.B) Budgeted beginning inventory.C) Budgeted beginning and ending inventories.D) Cash balance.E) Budgeted overhead.

C 62. When preparing the cash budget, all the following should be considered except:A) Cash receipts from customers.B) Payments for merchandise.C) Amortization expense.D) Payments for income taxes.E) Payments for capital expenditures.

A 63. A comprehensive or overall formal plan for a business that includes specific plans for expected sales, the units of product to be produced, the merchandise (or materials) to be purchased, the expense to be incurred, the long-term assets to be purchased, and the amounts of cash to be borrowed or loans to be repaid, as well as a budgeted income statement and balance sheet, is called a:A) Master budget.B) Cash budget.C) Capital expenditures budget.D) Rolling budget.E) Production budget.

D 64. Usually the master budget process ends with:A) The production budget.B) The sales budget.C) The cash budget.D) The budgeted balance sheet.E) The budgeted income statement.

B 65. Which of the following budgets is not an operating budget?A) Sales budget.

B) Cash budget.C) General and administrative expense budget.D) Production budget.E 66. Which of the following budgets must be completed before a cash budget can be prepared?A) Capital expenditures budget.B) Sales budget.C) Merchandise purchases budget.D) General and administrative expense budget.E) All of these answers are correct.

B 67. The amount budgeted for interest expense on short-term debt depends most directly on:A) The amount of outstanding receivables.B) The cash budget.C) The budgeted income statement.D) The budgeted balance sheet.E) The opinions of management.

D 68. Which of the following factors is least likely to be considered in preparing a sales budget?A) Plant capacity.B) General economic and industry conditions.C) Past sales volume.D) The cash budget.E) Proposed selling expenses, such as advertising.

C 69. Which of the following would not be used in preparing a cash budget for October?A) Beginning cash balance on October 1.B) Budgeted sales and collections for October.C) Estimated amortization expense for October.D) Budgeted salaries expense for October.E) Budgeted capital equipment purchases for October.------------------------------------------------------------------------------------------FALSE 1. The production budget is typically prepared prior to the sales budget.

TRUE 2. One benefit of budgeting is that it coordinates the activities of the entire organization.

TRUE 3. Both planning and control are needed for an effective budgeting system.

FALSE 4. One difficulty with self-imposed budgets is that they are not subject to any type of review.

TRUE 5. The master budget is a network consisting of many separate budgets that are interdependent.

FALSE 6. Planning and control are essentially the same thing.

FALSE 7. Sales forecasts are drawn up after the cash budget has been completed because only then are the funds available for marketing known.

TRUE 8. A sales budget is a detailed schedule showing the expected sales for the budget period; typically, it is expressed in both dollars and units of product.TRUEE 9. Both variable and fixed manufacturing overhead costs are included in the manufacturing overhead budget.

FALSE 10. In the selling and administrative budget, the non-cash charges (such as depreciation) are added to the total budgeted selling and administrative expenses to determine the expected cash disbursements for selling and administrative expenses.

11. Which of the following represents the normal sequence in which the indicated budgets are prepared?A. Direct Materials, Cash, SalesB. Production, Cash, Income StatementC. Sales, Balance Sheet, Direct LaborD. Production, Manufacturing Overhead, Sales

12. 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.

13. Self-imposed budgets typically are:A. not subject to review by higher levels of management since to do so would contradict the participative aspect of the budgeting processing.B. not subject to review by higher levels of management except in specific cases where the input of higher management is required.C. subject to review by higher levels of management in order to prevent the budgets from becoming too loose.D. not critical to the success of a budgeting program.

14. Which of the following represents the correct order in which the indicated budget documents for a manufacturing company would beprepared?A. Sales budget, cash budget, direct materials budget, direct labor budgetB. Production budget, sales budget, direct materials budget, direct labor budgetC. Sales budget, cash budget, production budget, direct materials budget

D. Selling and administrative expense budget, cash budget, budgeted income statement, budgeted balance sheet

15. 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 thecompany 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 responsiblemanagers.

16. 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.

17. 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 madeto customers in prior periods before projecting sales for the current period.

18. 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.

19. 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 thebeginning 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 desiredending inventory of raw materials.

20. 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 manufacturingoverhead.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.