kupdf com operational budgeting test bank

C Is based upon the manufacturing cost budget, that is, upon the level of funds available for manufacturing costs.. In a cash budget, the budgeted level of cash receipts depends on all o

21 The preparation of a budgeted balance sheet requires consideration of the budgeted capital

expenditures and budgeted net income

26 The benefits of budgeting include all of the following except:

A) Enabling the company to produce more for less cost

B) Assigning responsibility for situations that require corrective action

C) Coordinating activities between departments within the organization

D) Creating standards for evaluating performance

Answer: A

27 A master budget usually includes all of the following except:

A) A sales forecast

B) A cash budget

C) A projected tax return

D) Projected financial statements

Answer: C

28 A master budget can be used as a(n):

A) Aid to planning

B) Evaluation tool

C) Means to coordinate activities

D) All of the above

Answer: D

31 Which of the following is not a benefit of a careful and thorough budgeting process?

A) Budgeting increases management's awareness of the company's external economic environment B) Budgeted net income assures the company of operating profitably

C) The budget may provide advance warning of pending problems

D) Budgets provide a yardstick for evaluating future performance

Answer: B

35 When budgeted amounts are set at reasonable and achievable levels:

A) They reflect a "total quality management" philosophy of management

B) A highly efficient department should fall slightly short of budget standards

C) Meeting the budgeted amounts ensures a maximum level of profitability

D) Failure to stay within the budget is viewed as an unacceptable level of performance

37 Which of the following is not considered an operating budget?

A) Manufacturing cost budget

39 Which of the following is a major component of a master budget?

A) A production throughput schedule

B) A machinery maintenance schedule

C) A manufacturing cost budget

D) An employee training budget

Answer: C

40 Which of the following is considered an operating budget estimate?

A) The prepayments budget

B) The debt service budget

C) The manufacturing cost budget

D) The capital expenditures budget

Answer: C

41 The sales forecast directly affects many elements of the master budget Which of the following would be least affected by short-term fluctuations in the sales forecasts?

A) The production schedule

B) The budgeted income statement

C) The capital expenditures budget

42 The production schedule in units:

A) Cannot be prepared until the budgeted income statement is completed

B) Is dependent upon the sales forecast for the period

C) Is based upon the manufacturing cost budget, that is, upon the level of funds available for manufacturing costs

D) Is the starting point in the preparation of the master budget

Answer: B

43 Preparation of a budgeted income statement does not require:

A) Estimates of cost of goods sold

B) Estimates of the timing of cash receipts and payments

C) Preparation of a sales forecast

D) Anticipation of operating expenses

Answer: B

44 Which of the following is considered a financial budget estimate?

A) The manufacturing cost budget

B) The cost of goods sold budget

C) The operating expense budget

D) The prepayments budget

Answer: D

45 Which element of a master budget would normally be prepared last?

A) A cash budget

B) A budgeted balance sheet

C) A budgeted income statement

D) A production budget

Answer: B

46 A cash budget is affected directly by each of the following except:

A) A capital expenditures budget

B) A sales forecast

C) A manufacturing cost budget

D) A budgeted income statement

Answer: D

47 In a cash budget, the budgeted level of cash receipts depends on all of the following except:

A) The sales forecast

B) The credit terms offered to customers

C) The credit terms offered by suppliers

D) Experience in collecting receivables

Answer: C

Use the following for questions 55-56

The following information is from the manufacturing budget and budgeted financial statements of Taylor Corp.:

55 Refer to the information above For the year, budgeted purchases of direct materials amounted to: A) $342,000

58 Dolphin has budgeted sales for the upcoming quarter as follows:

The desired ending finished goods inventory for each month is one-half of next month's budgeted sales Three pounds of direct material are required for each unit produced If direct material costs $4 per pound, and must be paid for in the month of purchase, the budgeted direct materials purchases (in dollars) for April are:

Use the following to answer 59-60

On March 1, Grant Corporation plans to borrow $450,000 from the Ireland State Bank by signing a 12%, 15-year note payable The note calls for 180 monthly payments of $5,000, which includes both interest and principal components

59 Refer to the information above Grant 's budgeted interest expense for March is:

Use the following to answer 61-62

Morrow Corporation makes all sales on account The June 30th balance sheet balance in its accounts receivable is $400,000, of which $240,000 pertain to sales that were made during June Budgeted sales for July are

$1,250,000 Morrow collects 70% of sales in the month of sale; 20% in the following month; and the final 10% in the second month after the sale

61 Refer to the information above What are Morrow 's budgeted collections for July?

Use the following to answer 63-65

On October 1 of the current year, Jackson Corporation prepared a cash budget for October, November, and December All of Jackson‘s sales are made on account The following information was used in preparing estimated cash collections:

Approximately 60% of all sales are collected in the month of the sale, 30% is collected in the following month, and 10% is collected in the month thereafter

63 Refer to the information above Budgeted collections from customers in October total:

73 Steps in the budgeting process

Listed below are eight operating budget estimates In the space provided, list which of these estimates is typically made first, second, third, etc

(a) Operating expense budget

(b) Budgeted income statement

(c) Ending finished goods forecast

(d) Production schedule (in units)

(e) Manufacturing cost estimates

(f) Cost of goods sold budget

(g) Sales forecast

(h) Manufacturing cost budget

Answer: (a) 7 (or 6) (b) 8 (c) 5 (d) 2 (e) 3 (f) 6 (or 7) (g) 1 (h) 4

74 Budgeted material purchases and payments to suppliers

On January 1 of the current period, Matson Corporation has direct materials on hand of $80,000 Of this amount, Matson owes suppliers $49,000 on account The company has prepared the following budget estimates for January:

(a) Purchases of direct materials budgeted in January amount to: $ _

(b) Cash payments to suppliers budgeted in January amount to: $ _

Computations

Answer:

(a) $315,000 (b) $304,000

Computations:

75 Production and purchases budgets

Stewart Furniture, Inc manufactures a variety of desks, chairs, tables, and shelf units which are sold to public school systems throughout the Midwest The controller of the company's School Desk Division is currently preparing a budget for the second quarter of 2008 The following sales forecast has been developed by the division's sales manager:

The inventory of finished desk and chair sets at the end of each month must be equal to 30% of the budgeted sales for the next month On April 1, there will be 2,500 units of desk and chair sets on hand Work-in-process inventories are negligible and can be safely ignored

Each desk and chair set requires 10 board feet of pine planks Pine planks cost $0.70 per board foot, and the division ends each month with enough pine to cover 20% of the next month's production

requirements This requirement will be met on April 1 of 2008

Required Prepare a production budget and a materials purchases budget for April, May, and June and in total for the three-month period

Answer:

76 Budgeted debt service costs

On April 1, Crawford Corporation borrowed $400,000 from its bank by signing a 9%, 5-year note

payable The note calls for 60 monthly payments of $6,150, which includes both interest and principal components

(a) Interest expense budgeted for April amounts to: $ _

(b) The carrying value of the note to be reported in the company's budgeted balance sheet as of April 30 is: $ _

(c) Interest expense budgeted for May amounts to (round to nearest whole dollar): $ _(d) The carrying value of the note to be reported in the company's budgeted balance sheet as of May 31 is (round to nearest whole dollar): $ _

Computations

Answer:

(a) $3,000 (b) $396,850 (c) $2,976.38 (d) $393,676.38

77 Cash receipts budget

The director of budgeting for Ward Products is beginning the process of preparing a cash budget for each month of the coming year The sales forecast for the month of January is as follows:

In the past, the accounts receivable originating from credit sales have been collected in the following pattern:

Credit sales in the last two months of the current year, some of which remain uncollected at year-end, were as follows:

Compute the amount of cash expected to be collected from customers in January of the coming year

$ _

Computations

Cash expected to be collected in January:

From November credit sales $

Answer:

$728,500

Computations

78 Preparation of cash budget

Use the following information to prepare a cash budget for Dalton Corporation for the month of June 2008

In May, 30-day credit sales were $150,000; 80% of this amount is estimated to be collectible in June.June sales are estimated to be $450,000; cash sales are usually 25% of total sales Only 10% of credit sales are collected in the month in which the sale is made

Total fixed expenses are $50,000 per month, including $24,000 depreciation Variable expenses are 55%

of sales All expenses requiring payment are paid in cash when incurred

A $50,000 note payable must be paid on June 30

As of May 31, the cash balance is $84,000

(3) Fixed manufacturing overhead: $ _

(b) Assume that a revised performance report is prepared for the 6,500-unit level of production using a flexible budget approach Compute the cost variances for each of the following Indicate whether each variance is favorable (F) or unfavorable (U)

(1) Direct materials: $ _

(2) Direct labor: $ _

(3) Fixed manufacturing overhead: $ _

Answer:

80 Elements of the master budget

Describe briefly the purpose of a master budget and discuss its elements

Answer:

A master budget is a group of related budgets and forecasts which, together, summarize and coordinate all planned activities of a business The master budget usually consists of a sales forecast, a production schedule, a manufacturing costs budget, an operating expense budget, a capital expenditures budget, and projected financial statements The number and type of individual budgets and schedules which make up the master budget depend upon the size and the characteristics of the business

83 Bisset Company expected sales to be 50,000 units in February, 45,000 in March and 55,000 units in April Each unit sells for $16.00 each The following costs pertain to each unit:

Bisset is considering an advertising campaign which will cost $10,000 per month from January to March and is expected to increase sales by 8% a month At the same time Bisset will reduce sales prices to

$15.00 per unit while keeping costs steady

Required:

(A.) What will operating income be in each of the three months before the advertising campaign?

(B.) If Bisset goes ahead with the advertising campaign, how much would operating income increase or decrease each month? Would you advise them to go ahead with the campaign?

Total operating income for the three months decreases at all sales levels There is no financial advantage

to have the advertising campaign

NAME #

10-MINUTE QUIZ A SECTION

Indicate the best answer for each question in the space provided

1 Which of the following is not normally a characteristic of a profit rich, cash poor company?

a Low inventory turnover

b High accounts receivable turnover.

c High operating income, but low cash flow from operations

d A long operating cycle.

2 Which of the following is not considered a benefit from budgeting?

a Limited managerial perspectives

b Advance warning of problems.

c Better coordination among activities

d A measure of performance evaluation.

3 Which of the following is a characteristic of the behavioral approach to setting budget

targets?

a Complete elimination of inefficiency

b Complete elimination of non-value-adding activities.

c Constant need for improvement

d Achievable performance expectations.

4 Which of the following is not normally considered an element of a master budget?

a The production schedule

b The employee turnover budget.

c The operating expense budget

d The cash budget.

5 Which budget typically serves as a starting point in developing a master budget?

a The sales budget

b The cost of goods sold budget.

c The employee turnover budget

d The manufacturing cost budget.

NAME #

10-MINUTE QUIZ B SECTION

Use the following data for questions 1 through 3.

The following budget for the 80,000-unit product level was prepared for the Production Department for September:

Budgeted (80,000 Units)

Total manufacturing costs $192,000

During September, the Production Department actually produced 90,000 units at a total manufacturing cost of $202,000

1 Refer to the above data Which of the following is not an accurate amount to be included

in a flexible budget prepared for the 90,000-unit level of production?

a Total overhead cost, $104,250.

b Total manufacturing costs, $208,750.

c Direct materials, $47,250

d Direct labor, $56,250.

2 Refer to the above data A performance report prepared for September operations under a

flexible budget approach would show:

a Actual costs under budget by $5,750.

b Total costs per flexible budget of $205,000.

c Actual costs under budget by $8,000

d Actual costs over budget by $10,000.

3 Refer to the above data The cost-volume relationship used to prepare the flexible budget

for this department includes:

a Manufacturing overhead cost of $1.00 per unit.

b Fixed cost of $0.83 per unit.

c Total cost of $2.40 per unit

d Variable costs of $1.58 per unit.

4 The Company’s actual manufacturing costs for the month of May totaled $72,000, while

the budgeted manufacturing costs were $80,000 Comparison of the budgeted costs with actual amounts:

a Is not significant unless the budgeted and actual figures are based upon the same level

of production

b Demonstrates that the Manufacturing Department operated very efficiently during May.

c Indicates that production cost per unit was 10% below budgeted cost per unit

d Indicates that the Company produced only 90% of the number of units budgeted for

production in May

5 A flexible budget is used to evaluate:

a Costs that should have been incurred for a level of output achieved.

b Costs that should have been incurred for a level of output considered to be normal.

c How variable unit costs change as output changes

d How flexible management was at adapting to changes in business conditions.