cost accounting test bank chapter 6

Cost Accounting, 15e (Horngren/Datar/Rajan)

Chapter 6 Master Budget and Responsibility Accounting

Objective 6.1

1) Which of the following is true of a budget?

A) Budgets are used to express only the operational plans and not the strategic plans of a company. B) Budgets do not account for nonfinancial aspects of the upcoming period.

C) Budgets are most useful when they are planned independent of the company's strategic plans. D) Budgets help managers to revise their plans and strategies. Answer: D

Diff: 1

Objective: 1

AACSB: Analytical thinking

2) Which of the following is a financial budget? A) budgeted balance sheet B) cash receivables budget C) production budget

D) cost of goods sold budget Answer: A

Diff: 1

Objective: 1

AACSB: Analytical thinking

3) Budgets are used to ________.

A) increase the book value of its assets

B) communicate with external stakeholders C) calculate the income tax liability D) formulate company strategies Answer: D

Diff: 2

Objective: 1

AACSB: Analytical thinking

4) Which of the following is true of master budgets?

A) They include only financial aspects of a plan and exclude nonfinancial aspects. B) They aid in coordinating what needs to be done to implement a plan. C) They aid in quantifying the expectations of all stakeholders. D) They must be administered rigidly after they are committed to. Answer: B

Diff: 2

Objective: 1

AACSB: Analytical thinking

1

Copyright ? 2015 Pearson Education, Inc.

5) Operating decisions primarily deal with ________. A) the best use of scarce resources

B) how to obtain funds to acquire resources C) acquiring equipment and buildings D) satisfying stockholders Answer: A

Diff: 2

Objective: 1

AACSB: Analytical thinking

6) Financing decisions primarily deal with ________. A) the use of scarce resources

B) how to obtain funds to acquire resources C) acquiring equipment and buildings

D) preparing financial statements for stockholders Answer: B

Diff: 2

Objective: 1

AACSB: Analytical thinking

7) A master budget ________.

A) is the initial plan of what the company intends to accomplish in the period and evolves from both the operating and financing decisions

B) is a substitute for the management functions of planning and coordination

C) improves companies' market capitalization and evolves from both the investing and financing decisions

D) provides an ethical framework for decision making Answer: A

Diff: 2

Objective: 1

AACSB: Analytical thinking

8) Which of the following is generally expressed through a short-run budget? A) operational plans B) expansion plans C) strategic plans D) startup plans Answer: A

Diff: 2

Objective: 1

AACSB: Analytical thinking

2

Copyright ? 2015 Pearson Education, Inc.

9) Which of the following statements is true of budgets?

A) Master budgets express management's operating and financial plans. B) Financial budgets are prepared before the master budget is prepared. C) Operating budgets are prepared independently of the master budget.

D) Financial budgets are working documents at the core of the budgeting process. Answer: A

Diff: 2

Objective: 1

AACSB: Analytical thinking

10) A master budget forces managers to examine the business as they plan, so they can ________. A) detect inaccurate historical records to avoid errors in budgets B) set expectations against which actual results can be compared C) complete the budgeting task on time

D) ensure that only financial risks and opportunities are incorporated Answer: B

Diff: 2

Objective: 1

AACSB: Analytical thinking

11) A budget is the quantitative expression of a proposed plan of action by management for a specified period.

Answer: TRUE

Diff: 1

Objective: 1

AACSB: Analytical thinking

12) A budget generally includes both financial and nonfinancial aspects of the plan. Answer: TRUE

Diff: 1

Objective: 1

AACSB: Analytical thinking

13) An organization's strategy matches its capabilities with the opportunities in the marketplace to accomplish its objectives. Answer: TRUE

Diff: 1

Objective: 1

AACSB: Analytical thinking

14) Budgeting includes only the financial aspects of the plan and NOT any nonfinancial aspects such as the number of physical units manufactured. Answer: FALSE

Explanation: Budgeting includes both financial and nonfinancial aspects of the plan.

Diff: 2

Objective: 1

AACSB: Analytical thinking

3

Copyright ? 2015 Pearson Education, Inc.

15) Operating plans are generally expressed through long-run budgets. Answer: FALSE

Explanation: Operating plans are generally expressed through short-run budgets. Strategic plans are expressed through long-run budgets.

Diff: 1

Objective: 1

AACSB: Analytical thinking

16) A budget aids to coordinate what needs to be done to implement the proposed plan. Answer: TRUE

Diff: 1

Objective: 1

AACSB: Analytical thinking

17) Long-run planning and short-run planning are best performed independently of each other. Answer: FALSE

Explanation: Long-run planning and short-run planning are inter-dependent.

Diff: 2

Objective: 1

AACSB: Analytical thinking

18) Financing decisions deal with how to best use the limited resources of an organization. Answer: FALSE

Explanation: Financing decisions deal with how to obtain funds to acquire resources needed for the organization.

Diff: 2

Objective: 1

AACSB: Analytical thinking

19) The feedback from budgets can lead to changes in plans and strategies. Answer: TRUE

Diff: 2

Objective: 1

AACSB: Analytical thinking

20) Budgeted financial statements are called pro forma statements. Answer: TRUE

Diff: 2

Objective: 1

AACSB: Analytical thinking

4

Copyright ? 2015 Pearson Education, Inc.

21) Describe the benefits of preparing an operating budget to an organization.

Answer: A well-prepared operating budget should serve as a guide for a company to follow during the budgeted period. It is not \adjusted.

A well-prepared operating budget assists management with the allocation of scarce resources. It can help management see trouble spots in advance, and then management can decide where to allocate its limited resources.

A well-prepared operating budget fosters communication and coordination among various segments of the company. The process of preparing a budget requires managers from different functional areas to work together and communicate performance levels they both want and can attain.

A well-prepared operating budget can become the performance standard against which firms can compare the actual results.

Diff: 2

Objective: 1

AACSB: Analytical thinking

22) Bob and Dale have just purchased a small honey manufacturing company that was having financial difficulties. After a brief operating period, they decided that the company's main problem was an improper budgeting function. The company made a good product and market potential was great.

Required:

Describe the usual budgeting cycle that well-managed companies adopt?

Answer: The usual budgeting cycle that well-managed companies adopt consists of the following three steps:

1. Before the start of the period, managers and management accountants work together to develop plans for the company as a whole and the performance of its subunits, taking into account the company's past performance, market feedback, and anticipated future changes.

2. At the beginning of the period, managers are provided with a framework that outlines specific financial or nonfinancial expectations against which actual results will be compared.

3. During the course of the year, management accountants and managers investigate any deviations from plans and take corrective action, if necessary.

Diff: 2

Objective: 1

AACSB: Analytical thinking

5

Copyright ? 2015 Pearson Education, Inc.

Objective 6.2

1) Which of the following is true of budgets when they are administered thoughtfully? A) They eliminate subjectivity in performance evaluation. B) They can eliminate the uncertainty faced by a company.

C) They promote coordination within the subunits of a company.

D) They are a substitute the planning and coordination functions of management. Answer: C

Diff: 2

Objective: 2

AACSB: Analytical thinking

2) A budget is an end product of negotiations among senior and subordinate mangers because ________. A) budgeting is their mutual responsibility

B) senior managers alone cannot spare the time required for the budgeting process

C) senior managers are responsible for providing information on competitors performance and subordinate managers are responsible for information on external market conditions D) senior managers want stiffer targets and subordinates want relatively easy targets Answer: D

Diff: 2

Objective: 2

AACSB: Analytical thinking

3) Which of the following is a limitation of using past performance as a basis for judging actual results? A) It does not account for productivity increases over the periods.

B) It increases the incentive for managers to introduce budgetary slack. C) It does consider inefficiencies of previous periods.

D) It increases the tendency of senior managers exaggerating changes in future conditions as opposed to changes in current conditions. Answer: C

Diff: 2

Objective: 2

AACSB: Analytical thinking

4) Challenging budgets tend to ________.

A) discourage out-of-the-box and creative thinking as there is very little room for error B) set unrealistic expectations and are perceived as overly ambitious and unachievable C) increase anxiety without motivation not meeting them is viewed as a failure

D) motivate improved performance as employees work more intensely to avoid failure Answer: D

Diff: 2

Objective: 2

AACSB: Analytical thinking

6

Copyright ? 2015 Pearson Education, Inc.

5) A limitation of using past performance as a basis for judging actual results is that ________. A) future conditions can be different from the past

B) any undervaluation of profits in the past period is likely to continue

C) any subsequent change in accounting treatment will distort performance evaluation D) they tend to distort results when current and past conditions are similar Answer: A

Diff: 2

Objective: 2

AACSB: Analytical thinking

6) A company's actual performance should be compared against budgeted amounts for the same accounting period so that ________.

A) adjustments for future conditions can be included

B) to avoid any feedback from the budgets due to past miscues C) inefficiencies of the past year can be included D) a rolling budget can be implemented Answer: A

Diff: 2

Objective: 2

AACSB: Analytical thinking

7) Which of the following is a reason why top managers want lower-level managers to participate in the budgeting process?

A) To benefit from their experience with the day-to-day aspects of running the business. B) To reduce the time and cost expended in the budgeting process. C) To ensure that they do not introduce any budgetary slack.

D) To ensure that the budgets are administered rigidly given the changing market conditions. Answer: A

Diff: 2

Objective: 2

AACSB: Analytical thinking

8) Demanding but achievable targets tend to ________.

A) be set by subordinate managers to create intrinsic reasons to achieve targets B) create unnecessary anxiety that de-motivates employees

C) improve performance of employees when they are closer to the target D) be perceived as ambitious with little chance of success in achieving targets Answer: C

Diff: 2

Objective: 2

AACSB: Analytical thinking

7

Copyright ? 2015 Pearson Education, Inc.

9) Which of the following is referred to as the bottom-up aspect of the budgeting process?

A) lower-level managers setting their individual targets that aggregate to be the company-wide target B) senior managers consulting middle- and lower-level managers to investigate any deviations from the budget

C) lower-level managers implementing the budgets with senior managers monitoring progress and investigating deviations

D) lower-level managers providing inputs to the budgeting process based on their specialized knowledge Answer: D

Diff: 3

Objective: 2

AACSB: Analytical thinking

10) Participation of employees in the budgeting process helps ________. A) create greater commitment towards the budget B) create demanding but achievable budget C) decrease deviations from the budget

D) secure communication of sensitive information Answer: A

Diff: 1

Objective: 2

AACSB: Analytical thinking

11) Managers who feel that top management does not believe in the budget are most likely to ________. A) pick up the slack and participate in the budgeting process

B) to face little interference in the day-to-day aspects of running the business C) be inactive participants in the budgeting process

D) convert the budget to a shorter more reasonable time period Answer: C

Diff: 2

Objective: 2

AACSB: Analytical thinking

12) Which of the following is a benefit of budgeting? A) It helps investors to value stocks.

B) It helps managers gather information for improving future performance. C) It helps managers to take marketing decisions.

D) It helps in increasing market capitalization of the company. Answer: B

Diff: 2

Objective: 2

AACSB: Analytical thinking

8

Copyright ? 2015 Pearson Education, Inc.

13) Rolling budgets help management to ________. A) better review the past calendar year B) deal with a 5-year time frame

C) focus on the upcoming budget period D) rigidly administer the budget Answer: C

Diff: 2

Objective: 2

AACSB: Analytical thinking

14) Budgets should ________. A) be flexible

B) be administered rigidly

C) only be developed for short periods of time D) include only variable costs Answer: A

Diff: 1

Objective: 2

AACSB: Analytical thinking

15) After a budget is agreed upon and finalized by the management team, the amounts should NOT be changed for any reason. Answer: FALSE

Explanation: Budgets should not be administered rigidly, but rather should be adjusted for changing conditions.

Diff: 2

Objective: 2

AACSB: Analytical thinking

16) Even in the face of changing conditions, attaining the original budget is critical. Answer: FALSE

Explanation: Changing conditions usually call for a change in plans. Attaining the budget should not be an end in itself.

Diff: 2

Objective: 2

AACSB: Analytical thinking

17) Lower-level managers will not actively participate in the budget process if they perceive upper management does not believe in the process. Answer: TRUE

Diff: 2

Objective: 2

AACSB: Analytical thinking

9

Copyright ? 2015 Pearson Education, Inc.

18) Budgeting helps managers gather information for improving only the budgeted period's performance. Answer: FALSE

Explanation: Budgeting helps managers gather information which help in improving performance for the budget period and also for the future.

Diff: 2

Objective: 2

AACSB: Analytical thinking

19) Bottom-up budgets entrusts senior managers to prepare budgets and lower-level managers to execute them. Answer: FALSE

Explanation: Bottom-up budgets encourage lower-level managers to participate in the budgeting process and hence it is not limited to senior managers alone.

Diff: 2

Objective: 2

AACSB: Analytical thinking

20) It is best to compare this year's performance with last year's actual performance rather than this year's budget.

Answer: FALSE

Explanation: It is best to compare this year's performance with this year's budget because inefficiencies and different conditions may be reflected in last year's actual performance amounts.

Diff: 2

Objective: 2

AACSB: Analytical thinking

21) When administered wisely, budgets promote communication and coordination among the various subunits of the organization. Answer: TRUE

Diff: 2

Objective: 2

AACSB: Analytical thinking

10

Copyright ? 2015 Pearson Education, Inc.

Objective 6.3

1) Which of the following is a factor while choosing the period of a budget? A) the frequency of interim financial statements

B) the estimated period required to achieve budget targets C) the general economic trend

D) the motive for creating the budget Answer: D

Diff: 2

Objective: 3

AACSB: Analytical thinking

2) Which of the following is a component of operating budgets? A) sales budget

B) budgeted statement of cash flows C) capital expenditures budget D) budgeted balance sheet Answer: A

Diff: 1

Objective: 3

AACSB: Analytical thinking

3) The operating budget process generally concludes with the preparation of the ________. A) production budget B) cash flow statement

C) research and development budget D) budgeted income statement Answer: D

Diff: 1

Objective: 3

AACSB: Analytical thinking

4) Which of the following best describes a rolling budget?

A) It is a budget that outlines the amount required to roll over debt in a future period. B) It is a budget that is always available for a specified future time period. C) It is a budget that outlines budgeted expenses.

D) It is a budget that is submitted to a bank at the beginning of every month as per a loan covenant. Answer: B

Diff: 2

Objective: 3

AACSB: Analytical thinking

11

Copyright ? 2015 Pearson Education, Inc.

5) The ________ is a component of financial budgets. A) cost of goods sold budget B) marketing costs budget C) distribution costs budget D) cash budget Answer: D

Diff: 1

Objective: 3

AACSB: Analytical thinking

6) ________ include a budgeted statement of cash flows and a budgeted balance sheet. A) Revenue budgets B) Financial budgets C) Operating budgets D) Production budgets Answer: B

Diff: 1

Objective: 3

AACSB: Analytical thinking

7) The order to follow when preparing the operating budget is ________.

A) revenues budget, production budget, and direct manufacturing labor costs budget B) costs of goods sold budget, production budget, and cash budget

C) revenues budget, manufacturing overhead costs budget, and production budget D) cash expenditures budget, revenues budget, and production budget Answer: A

Diff: 2

Objective: 3

AACSB: Analytical thinking

8) In which order are the following developed? First to last: A = Production budget B = Direct materials costs budget C = Budgeted income statement D = Revenues budget

A) ABDC B) DABC C) DCAB D) CABD Answer: B

Diff: 2

Objective: 3

AACSB: Analytical thinking

12

Copyright ? 2015 Pearson Education, Inc.

9) The budgeting process is most strongly influenced by ________. A) the capital budget

B) the budgeted statement of cash flows C) the sales forecast

D) the production budget Answer: C

Diff: 2

Objective: 3

AACSB: Analytical thinking

10) ________ is the usual starting point for budgeting. A) The revenues budget B) The estimated net income C) The production budget D) The cash budget Answer: A

Diff: 1

Objective: 3

AACSB: Analytical thinking

11) The sales forecast should be primarily based on ________. A) statistical analysis

B) input from sales managers and sales representatives C) production capacity

D) input from the board of directors Answer: B

Diff: 2

Objective: 3

AACSB: Analytical thinking

12) Costs such as supervision, depreciation, maintenance, supplies, and power. are included in the ________.

A) capital expenditures budget B) distribution costs budget C) revenues budget

D) manufacturing overhead budget Answer: D

Diff: 2

Objective: 3

AACSB: Analytical thinking

13) High inventory levels increase the ________.

A) cost of carrying inventory, the costs of quality, and shrinkage costs B) revenues and expected profits

C) cost of equity, cost of debt, and cost of short-term funds

D) cost of materials, the costs of overhead, and opportunity costs Answer: A

Diff: 2

Objective: 3

AACSB: Analytical thinking

13

Copyright ? 2015 Pearson Education, Inc.

14) The revenues budget identifies ________. A) expected cash flows for each product

B) actual sales from last year for each product C) the expected level of sales for the company

D) the variance of sales from actual for each product Answer: C

Diff: 1

Objective: 3

AACSB: Analytical thinking

15) The number of units in the sales budget and the production budget may differ because of a change in ________.

A) finished goods inventory levels B) overhead charges

C) direct material inventory levels D) sales returns and allowances Answer: A

Diff: 3

Objective: 3

AACSB: Analytical thinking

16) Which of the following is a benefit of keeping inventory levels low? A) It reduces setup costs. B) It reduces shrinkage costs.

C) It reduces the loss from lost sales. D) It reduces inventory turnover. Answer: B

Diff: 2

Objective: 3

AACSB: Analytical thinking

17) Budgeted production equals ________.

A) beginning finished goods inventory + budgeted unit sales - targeted ending finished goods inventory B) targeted ending finished goods inventory + beginning finished goods inventory - budgeted unit sales C) budgeted unit sales + targeted ending finished goods inventory - beginning finished goods inventory D) budgeted unit sales + targeted ending finished goods inventory + beginning finished goods inventory Answer: C

Diff: 2

Objective: 3

AACSB: Analytical thinking

14

Copyright ? 2015 Pearson Education, Inc.

18) Best products, an Atlanta based company, is in the midst of its budgeting process. It has already prepared its direct materials usage budget and is now in the process of preparing its direct material purchase budget. In addition to the details gathered to prepare the direct materials usage budget, Best also must know ________.

A) the level of direct material inventory to be maintained B) the ratio of direct materials to cost of goods sold C) the beginning direct materials inventory level D) the quantity of direct materials to be purchased Answer: A

Diff: 2

Objective: 3

AACSB: Analytical thinking

19) Total finished units to be produced is based on the ________. A) direct material purchase budget B) budgeted sales units

C) direct material usage budget

D) budgeted manufacturing overhead Answer: B

Diff: 1

Objective: 3

AACSB: Analytical thinking

20) Which of the following is most likely to be a cost driver for the variable portion of marketing costs? A) percentage of markup on cost B) number of units produced

C) increase in revenues attributable to such marketing D) number of units units sold Answer: D

Diff: 2

Objective: 3

AACSB: Analytical thinking

21) Which of the following is required to arrive at the budgeted units to be produced in a year? A) estimated direct materials inventory required at the end of the year B) estimated finished goods inventory required at the end of the year C) amount of direct materials to be used during the year D) amount of manufacturing overhead to be incurred Answer: B

Diff: 2

Objective: 3

AACSB: Analytical thinking

15

Copyright ? 2015 Pearson Education, Inc.

22) When direct material and direct labor is the limiting factor, revenue budgets are usually based on ________.

A) expected demand of the company's products B) the capital in the budget period

C) the supply of indirect material and labor in the market D) maximum units that can be manufactured Answer: D

Diff: 2

Objective: 3

AACSB: Analytical thinking

23) Which of the following information is required by a company's manager while preparing a manufacturing overhead costs budget?

A) estimated incentives to be paid to marketing personnel B) estimated expense for office supplies

C) estimated expense for maintenance of factory building D) rent expense for lease of office building Answer: C

Diff: 2

Objective: 3

AACSB: Analytical thinking

24) Esther Baskets Company expects to manufacture and sell 20,000 baskets in 2016 for $5 each. There are 4,000 baskets in beginning finished goods inventory with target ending inventory of 5,000 baskets. The company keeps no work-in-process inventory. What amount of sales revenue will be reported on the 2016 budgeted income statement? A) $105,000 B) $100,000 C) $95,000 D) $55,000 Answer: B

Explanation: B) Sales revenue = 20,000 baskets × $5 = $100,000

Diff: 2

Objective: 3

AACSB: Application of knowledge

25) Orange Corporation has budgeted sales of 16,000 units, targeted ending finished goods inventory of 4,000 units, and beginning finished goods inventory of 2,000 units. How many units should be produced next year?

A) 22,000 units B) 20,000 units C) 18,000 units D) 16,000 units Answer: C

Explanation: C) Number of units to be produced next year = 16,000 units (estimated sales) + 4,000 units (budgeted ending inventory) - 2,000 units (opening inventory) = 18,000 units.

Diff: 2

Objective: 3

AACSB: Application of knowledge

16

Copyright ? 2015 Pearson Education, Inc.

26) For next year, Roberto, Inc., has budgeted sales of 15,000 units, targeted ending finished goods

inventory of 750 units, and beginning finished goods inventory of 450 units. All other inventories are zero. How many units should be produced next year? A) 14,700 units B) 15,000 units C) 15,300 units D) 16,200 units Answer: C

Explanation: C) Units to be produced next year = 15,000 units (estimated sales) + 750 units (budgeted ending inventory) – 450 units (opening inventory) = 15,300 units

Diff: 2

Objective: 3

AACSB: Application of knowledge

27) Antique Brass Company has budgeted sales volume of 120,000 units and budgeted production of

108,000 units, while 20,000 units are in beginning finished goods inventory. How many units are targeted for ending finished goods inventory? A) 20,000 units B) 32,000 units C) 12,000 units D) 8,000 units Answer: D

Explanation: D) 108,000 units (Budgeted production) + 20,000 units (Beginning finished goods inventory) - 120,000 units (Budgeted sales) = 8,000 units (Budgeted ending finished goods inventory)

Diff: 2

Objective: 3

AACSB: Application of knowledge

Answer the following questions using the information below:

Kason, Inc., expects to sell 20,000 pool cues for $12.00 each. Direct materials costs are $2.00, direct

manufacturing labor is $4.00, and manufacturing overhead is $0.80 per pool cue. The following inventory levels apply to 2016: Beginning inventory Ending inventory Direct materials 24,000 units 24,000 units Work-in-process inventory 0 units 0 units Finished goods inventory 2,000 units 2,500 units

28) On the 2016 budgeted income statement, what amount will be reported for sales? A) $246,000 B) $240,000 C) $312,000 D) $318,000 Answer: B

Explanation: B) 20,000 units sold × $12 per pool cue = $240,000

Diff: 2

Objective: 3

AACSB: Analytical thinking

17

Copyright ? 2015 Pearson Education, Inc.

29) How many pool cues need to be produced in 2016? A) 22,500 cues B) 22,000 cues C) 20,500 cues D) 19,500 cues Answer: C

Explanation: C) 20,000 units (Budgeted sales) + 2,500 (Budgeted ending inventory) - 2,000 (Beginning inventory) = 20,500 cues

Diff: 2

Objective: 3

AACSB: Application of knowledge

30) On the 2016 budgeted income statement, what amount will be reported for cost of goods sold? A) $139,800 B) $136,000 C) $132,600 D) $153,000 Answer: B

Explanation: B) The cost per unit is $6.80 ($2 + $4 + $0.80). Therefore, the total cost of goods sold is $136,000 ($6.80 × 20,000).

Diff: 3

Objective: 3

AACSB: Application of knowledge

31) What are the 2016 budgeted costs for direct materials, direct manufacturing labor, and manufacturing overhead, respectively? A) $48,000; $96,000; $19,200 B) $44,000; $88,000; $17,600 C) $41,000; $82,000; $16,400 D) $40,000; $80,000; $16,000 Answer: C

Explanation: C) Direct materials = 20,500 × $2.00 = $41,000; Direct manufacturing labor = 20,500 × $4.00 = $82,000; Manufacturing overhead = 20,500 × $0.80 = $16,400

Diff: 3

Objective: 3

AACSB: Application of knowledge

18

Copyright ? 2015 Pearson Education, Inc.

Answer the following questions using the information below:

Elton, Inc., expects to sell 6,000 ceramic vases for $20 each. Direct materials costs are $2, direct

manufacturing labor is $10, and manufacturing overhead is $3 per vase. The following inventory levels apply to 2016: Beginning inventory Ending inventory Direct materials 1,000 units 1,000 units Work-in-process inventory 0 units 0 units Finished goods inventory 400 units 500 units

32) On the 2016 budgeted income statement, what amount will be reported for sales? A) $122,000 B) $118,000 C) $140,000 D) $120,000 Answer: D

Explanation: D) Total sales = 6,000 units × $20 = $120,000.

Diff: 3

Objective: 3

AACSB: Application of knowledge

33) How many ceramic vases should be produced in 2016? A) 5,900 vases B) 6,100 vases C) 7,000 vases D) 6,000 vases Answer: B

Explanation: B) Number of vases to be produced = 6,000 units (Estimated sales) + 500 units (Budgeted ending inventory) – 400 units (Opening inventory) = 6,100 units.

Diff: 3

Objective: 3

AACSB: Application of knowledge

34) On the 2016 budgeted income statement, what amount will be reported for cost of goods sold? A) $105,000 B) $91,500 C) $90,000 D) $88,500 Answer: C

Explanation: C) Cost of goods sold is $90,000 [6,000 × ($2 + $10 + $3)].

Diff: 3

Objective: 3

AACSB: Application of knowledge

19

Copyright ? 2015 Pearson Education, Inc.

35) What are the 2016 budgeted production costs for direct materials, direct manufacturing labor, and manufacturing overhead, respectively? A) $12,200; $61,000; $18,300 B) $12,000; $60,000; $18,000 C) $2,000; $10,000; $3,000 D) $2,000; $0; $4,500 Answer: A

Explanation: A) Budgeted cost for direct materials = $12,200 [6,100 units × $2]. Budgeted cost for direct manufacturing labor = $61,000 [6,100 units × $10]. Budgeted manufacturing overhead = $18,300 [6,100 × $3].

Diff: 3

Objective: 3

AACSB: Application of knowledge

Answer the following questions using the information below:

The following information pertains to the January operating budget for Casey Corporation, a retailer: Budgeted sales are $200,000 for January Collections of sales are 50% in the month of sale and 50% the next month Cost of goods sold averages 70% of sales Merchandise purchases total $150,000 in January Marketing costs are $3,000 each month Distribution costs are $5,000 each month Administrative costs are $10,000 each month

36) For January, budgeted gross margin is ________. A) $100,000 B) $140,000 C) $60,000 D) $50,000 Answer: C

Explanation: C) $200,000 - (.70 × $200,000) = $60,000

Diff: 3

Objective: 3

AACSB: Application of knowledge

37) For January, the amount budgeted for the nonmanufacturing costs budget is ________. A) $78,000 B) $10,000 C) $168,000 D) $18,000 Answer: D

Explanation: D) $3,000 + $5,000 + $10,000 = $18,000

Diff: 2

Objective: 3

AACSB: Application of knowledge

20

Copyright ? 2015 Pearson Education, Inc.

38) Tiger Pride produces two product lines: T-shirts and Sweatshirts. Product profitability is analyzed as follows: T-SHIRTS SWEATSHIRTS Production and sales volume 60,000 units 35,000 units Selling price $16.00 $29.00 Direct material $ 2.00 $ 5.00 Direct labor $ 4.50 $ 7.20 Manufacturing overhead $ 2.00 $ 3.00 Gross profit $ 7.50 $13.80 Selling and administrative $ 4.00 $ 7.00 Operating profit $ 3.50 $ 6.80

What is the projected decline in operating income if the direct materials costs of T-Shirts increase to $3.50 per unit and direct labor costs of Sweatshirts increase to $13.00 per unit? A) $293,000 B) $90,000 C) $203,000 D) $473,000 Answer: A

Explanation: A) (60,000 × $1.50) + (35,000 × $5.80) = $293,000

Diff: 1

Objective: 3

AACSB: Application of knowledge

21

Copyright ? 2015 Pearson Education, Inc.

Answer the following questions using the information below:

Meridian Industries manufactures and sells two models of watches, Prime and Luxuria. It expects to sell 3,000 units of Prime and 1,000 units of Luxuria in 2016.The following estimates are given for 2016: Prime Luxuria Selling price $200 $500 Direct materials 20 50 Direct labor 40 150 Manufacturing overhead 40 100

Meridian had an inventory of 200 units of Prime and 75 units of Luxuria at the end of 2015. It has decided that as a measure to counter stock outages it will maintain ending inventory of 350 units of Prime and 200 units of Luxuria.

Each Luxuria watch requires one unit of Crimpson and has to be imported at a cost of $10. There were 100 units of Crimpson in stock at the end of 2015.The management does not want to have any stock of Crimpson at the end of 2016.

39) How many units of Prime watches must be produced in 2016? A) 3,350 units B) 3,150 units C) 3,000 units D) 2,800 units Answer: B

Explanation: B) Number of units of Prime to be produced = [3,000 units (Estimated sales) + 350 units (Budgeted ending inventory) - 200 units (Opening inventory)] = 3,150 units.

Diff: 3

Objective: 3

AACSB: Application of knowledge

40) What is the amount budgeted for purchase of Crimpson in 2016? A) $31,500 B) $10,250 C) $30,500 D) $10,000 Answer: B

Explanation: B) Budgeted amount for purchase of Crimpson = [$10 × (1,125 units (Luxuria units produced) – 100 units (Units in hand)] = $10,250; Number of units of Luxuria to be produced = [1,000 units (Estimated sales) + 200 units (Budgeted ending inventory) – 75 units (Opening inventory)] = 1,125 units.

Diff: 3

Objective: 3

AACSB: Application of knowledge

22

Copyright ? 2015 Pearson Education, Inc.

41) What is the total budgeted cost of sold for Meridian Industries in 2016? A) $500,000 B) $600,000 C) $700,000 D) $800,000 Answer: B

Explanation: B) Budgeted cost of goods sold for Prime = [3,000 units (Estimated sales) × $100 (Cost per unit)] = $300,000. Budgeted cost of goods sold for Luxuria = [1,000 units (Estimated sales) × $300 (Cost per unit)] = $300,000. Total cost of goods sold = $300,000 + $300,000 =$600,000.

Diff: 3

Objective: 3

AACSB: Application of knowledge

42) What is the total budgeted cost of goods manufactured in 2016? A) $600,000 B) $625,500 C) $652,500 D) $667,500 Answer: C

Explanation: C) Budgeted cost of goods manufactured for Prime = [3,150 units (Estimated units to be manufactured) × $100 (Cost per unit)] = $315,000. Budgeted cost of goods manufactured for Luxuria = [1,125 units (Estimated units to be manufactured) × $300 (Cost per unit)] = $337,500. Total cost of goods sold = $315,00 + $337,500 =$652,500

Diff: 3

Objective: 3

AACSB: Application of knowledge

23

Copyright ? 2015 Pearson Education, Inc.

Answer the following questions using the information below:

Furniture, Inc., estimates the following number of mattress sales for the first four months of 2016: Month Sales January 22,000 February 30,800 March 28,600 April 35,200

Finished goods inventory at the end of December is 6,600 units. Target ending finished goods inventory is 20% of the next month's sales.

43) How many mattresses need to be produced in January 2016? A) 15,400 mattresses B) 21,560 mattresses C) 28,460 mattresses D) 34,160 mattresses Answer: B

Explanation: B) Number of mattresses to be produced in January = [22,000 units (Estimated sales) + 6,160 units (Budgeted ending inventory for January × 20%) – 6,600 units (Beginning inventory)] = 21,560 mattresses.

Diff: 2

Objective: 3

AACSB: Application of knowledge

44) How many mattresses should be produced in the first quarter of 2016? A) 88,880 mattresses B) 81,840 mattresses C) 60,280 mattresses D) 51,920 mattresses Answer: B

Explanation: B) January February March Total (For the quarter) Estimated sales 22,000 30,800 28,600 81,400 Less: Opening inventory 6,600 6,160 5,720 6,600 15,400 24,640 22,880 74,800 Add: Closing inventory 6,160 5,720 7,040 7,040 (20% of next month's sales) Budgeted production 21,560 30,360 29,920 81,840 Diff: 3

Objective: 3

AACSB: Application of knowledge

24

Copyright ? 2015 Pearson Education, Inc.

Answer the following questions using the information below:

Wallace Company provides the following data for next year: Month Budgeted Sales January $120,000 February 108,000 March 132,000 April 144,000

The gross profit rate is 35% of sales. Inventory at the end of December is $21,600 and target ending inventory levels are 20% of next month's sales, stated at cost.

45) What is the amount of purchases budgeted for January? A) $63,960 B) $70,440 C) $78,000 D) $92,040 Answer: B

Explanation: B) Budgeted purchases for January = $70,440 ($78,000* ? $21,600 + $14,040**) *$120,000 × (100% ? 35%) = $78,000

**$108,000 × (100% ? 35%) × 20% = $14,040

Diff: 3

Objective: 3

AACSB: Application of knowledge

46) What is the amount of purchases budgeted for February? A) $32,214 B) $70,200 C) $73,320 D) $95,160 Answer: C

Explanation: C) Budgeted purchases for February = $73,320 ($70,200* ? $14,040 + $17,160**) *$108,000 × (100% ? 35%) = $70,200

**$132,000 × (100% ? 35%) × 20% = $17,160

Diff: 3

Objective: 3

AACSB: Application of knowledge

25

Copyright ? 2015 Pearson Education, Inc.

Answer the following questions using the information below:

Shamokin Manufacturing produces a Tourbillon watch movement called OM362. Shamokin expects to sell 10,000 units of OM362 and to have an ending finished inventory of 2,000 units. Currently, it has a beginning finished inventory of 800 units. Each unit of OM362 requires two labor operations, one labor hour of assembling and two labor hours of polishing. The direct labor rate for assembling is $10 per assembling hour and the direct labor rate for polishing is $12.50 per polishing hour.

47) The expected number of hours of direct labor for OM362 Bigger is ________. A) 8,800 hours of assembling; 17,600 hours of polishing B) 11,200 hours of assembling; 22,400 hours of polishing C) 17,600 hours of assembling; 8,800 hours of polishing D) 22,400 hours of assembling; 11,200 hours of polishing Answer: B

Explanation: B) 10,000 + 2,000 - 800 = 11,200

(11,200 × 1) = 11,200 hours of assembling; (11,200 × 2) = 22,400 hours of polishing

Diff: 3

Objective: 3

AACSB: Application of knowledge

48) The expected cost of direct labor for OM362 is ________. A) $350,000 B) $378,000 C) $392,000 D) $420,000 Answer: C

Explanation: C) Expected cost of direct labor for OM362 = 11,200 units (Estimated units to be manufactured) × [($10 (assembling) + ($12.50 × 2) (polishing)] = $392,000.

Diff: 2

Objective: 3

AACSB: Application of knowledge

49) Juan Sugita Manufacturing expects to produce and sell 12,000 units of Big, its only product, for $20 each. Direct material cost is $3 per unit, direct labor cost is $10 per unit, and variable manufacturing overhead is $6 per unit. Fixed manufacturing overhead is $24,000 in total. Variable selling and

administrative expenses are $1 per unit, and fixed selling and administrative costs are $3,000 in total. According to generally accepted accounting principles, inventoriable cost per unit of Big would be ________.

A) $13.00 per unit B) $14.00 per unit C) $21.00 per unit D) $18.50 per unit Answer: C

Explanation: C) The inventoriable cost as per GAAP is $21 ($3 + $10 + $6 + ($24,000 / 12,000 units)). As per GAAP, variable and fixed selling and administrative overhead costs are not inventoriable.

Diff: 2

Objective: 3

AACSB: Application of knowledge

26

Copyright ? 2015 Pearson Education, Inc.

50) The use of activity-based budgeting is growing because of ________. A) the increased use of activity-based costing B) the increased use of kaizen costing C) increases in work-in-process inventory D) increases in direct materials inventory Answer: A

Diff: 1

Objective: 3

AACSB: Analytical thinking

51) Activity-based budgeting would separately estimate ________. A) the cost of overhead for a department B) a plant-wide cost-driver rate C) the cost of a setup activity

D) All of these answers are correct. Answer: C

Diff: 2

Objective: 3

AACSB: Analytical thinking

52) Activity-based-costing analysis makes no distinction between ________. A) direct-materials inventory and work-in-process inventory B) short-run variable costs and short-run fixed costs C) parts of the supply chain

D) components of the value chain Answer: B

Diff: 3

Objective: 3

AACSB: Analytical thinking

53) Activity-based budgeting makes it easier to ________. A) determine a rolling budget

B) prepare pro forma financial statements C) determine how to reduce costs D) execute a financial budget Answer: C

Diff: 3

Objective: 3

AACSB: Analytical thinking

54) Which of the following statements is true about activity-based budgeting?

A) activity-based budgeting estimates total costs more accurately than cost-based budgeting B) activity-based budgeting provides more detailed information than cost-based budgeting C) activity-based budgeting is cheaper than cost-based budgeting

D) activity-based budgeting is simpler to implement than cost-based budgeting Answer: B

Diff: 3

Objective: 3

AACSB: Analytical thinking

27

Copyright ? 2015 Pearson Education, Inc.

55) Activity-based budgeting ________.

A) uses one cost driver such as direct labor-hours

B) uses only output-based cost drivers such as units sold

C) focuses on activities necessary to produce and sell products and services D) classifies costs by functional area within the value chain Answer: C

Diff: 1

Objective: 3

AACSB: Analytical thinking

56) Which one of the following is a benefit of activity-based budgeting? A) It uses a single cost driver for batch-level activities or higher.

B) It is the most convenient method of budgeting as it requires minimal effort. C) It provides detailed information that improves decision making.

D) It is the most efficient method to budget direct costs and trace them to individual cost objects. Answer: C

Diff: 2

Objective: 3

AACSB: Analytical thinking

57) A rolling budget is the same as a continuous budget. Answer: TRUE

Diff: 2

Objective: 3

AACSB: Analytical thinking

58) Cost of goods sold budget takes inputs from both, ending inventories budget and nonmanufacturing costs budget.

Answer: FALSE

Explanation: Cost of goods sold budget does not take any input from nonmanufacturing costs budget.

Diff: 2

Objective: 3

AACSB: Analytical thinking

59) Preparation of the budgeted statement of cash flows is the final step in preparing the operating budget.

Answer: FALSE

Explanation: Preparation of the budgeted income statement is the final step in preparing the operating budget.

Diff: 1

Objective: 3

AACSB: Analytical thinking

28

Copyright ? 2015 Pearson Education, Inc.

60) A company usually prepares a budget for nonmanufacturing costs after preparing all operating budgets.

Answer: FALSE

Explanation: A company usually prepares a budget for nonmanufacturing costs along with operating budgets.

Diff: 2

Objective: 3

AACSB: Analytical thinking

61) The use of activity-based cost drivers gives rise to zero-based budgeting. Answer: FALSE

Explanation: The use of activity-based cost drivers gives rise to activity-based budgeting.

Diff: 2

Objective: 3

AACSB: Analytical thinking

62) The revenues budget should be based on the cost of goods sold budget. Answer: FALSE

Explanation: The revenues budget provides input to the cost of goods sold budget.

Diff: 2

Objective: 3

AACSB: Analytical thinking

63) Cost-based budgeting is a budgeting method that focuses on the budgeted cost of the activities necessary to produce and sell products and services. Answer: FALSE

Explanation: Activity-based budgeting is a budgeting method that focuses on the budgeted cost of the activities necessary to produce and sell products and services.

Diff: 2

Objective: 3

AACSB: Analytical thinking

64) The production cost budget identifies how each product is manufactured. Answer: FALSE

Explanation: The bill of materials identifies how each product is manufactured, specifying all materials, the sequence in which the materials are used, the quantity of materials in each finished unit, and the work centers where the operations are performed.

Diff: 2

Objective: 3

AACSB: Analytical thinking

65) The manufacturing labor budget depends on wage rates, production methods, and hiring plans. Answer: TRUE

Diff: 2

Objective: 3

AACSB: Analytical thinking

29

Copyright ? 2015 Pearson Education, Inc.

66) The revenues budget is prepared after all other operating budgets are prepared. Answer: FALSE

Explanation: The revenues budget is generally the starting point for preparing operating budgets and is generally the first operating budget to be prepared.

Diff: 3

Objective: 3

AACSB: Analytical thinking

67) Activity-based budgeting provides better decision-making information than budgeting based solely on output-based cost drivers (units produced, units sold, or revenues). Answer: TRUE

Diff: 2

Objective: 3

AACSB: Analytical thinking

68) Activity-based costing analysis takes a long-run perspective and treats all activity costs as variable costs.

Answer: TRUE

Diff: 3

Objective: 3

AACSB: Analytical thinking

69) As budgeting is not a cross-functional activity, it tends to be accurate and reliable with regard to forecasts.

Answer: FALSE

Explanation: Budgeting is a cross-functional activity involving inputs from different business functions of the value chain.

Diff: 1

Objective: 3

AACSB: Analytical thinking

70) Activity-based budgeting would permit the use of multiple drivers and multiple cost pools in the budgeting process. Answer: TRUE

Diff: 2

Objective: 3

AACSB: Analytical thinking

30

Copyright ? 2015 Pearson Education, Inc.

71) Listed below are elements of the master budget. Determine whether each budget is an operating budget or a financial budget. Place an O for operating budget or F for a financial budget. 1. Capital expenditures budget 2. Cost of goods sold budget 3. Revenues budget 4. Budgeted statement of cash flows 5. Distribution costs budget 6. Marketing costs budget 7. Cash budget 8. Direct materials cost budget 9. Budgeted balance sheet 10. Budgeted income statement Answer: 1. F 6. O 2. O 7. F 3. O 8. O 4. F 9. F 5. O 10. O

Diff: 3

Objective: 3

AACSB: Analytical thinking

31

Copyright ? 2015 Pearson Education, Inc.

72) Prescher Company sells three products with the following seasonal sales pattern: Products Quarter A B C 1 40% 30% 10% 2 30% 20% 30% 3 20% 20% 50% 4 10% 30% 10%

The annual sales budget shows forecasts for the different products and their expected selling price per unit to be as follows: Product Units Selling Price A 50,000 $ 16 B 125,000 40 C 62,500 24

Required:

Prepare a sales budget, in units and dollars, by quarters for the company for the coming year.

Answer:

Product A Sales (in units) × Price per unit Sales (in dollars)

Product B

Sales (in units) × Price per unit Sales (in dollars)

Product C Sales (in units) × Price per unit Sales (in dollars)

Total sales

First Quarter Second Quarter Third Quarter 10,000 $16 $160,000

25,000 $40

$1,000,000

31,250 $24 $750,000

$1,910,000 Fourth Quarter Total 20,000 15,000 $16 $16 $320,000 $240,000

37,500 25,000 $40 $40

$1,500,000 $1,000,000

6,250 18,750 $24 $24 $150,000 $450,000

$1,970,000 $1,690,000

5,000 50,000 $16 $16 $80,000 $800,000

37,500 125,000 $40 $40

$1,500,000 $5,000,000

6,250 62,500 $24 $24 $150,000 $1,500,000

$1,730,000 $7,300,000 Diff: 2

Objective: 3

AACSB: Application of knowledge

32

Copyright ? 2015 Pearson Education, Inc.

73) Lubriderm Corporation has the following budgeted unit sales for the next six-month period: Month Unit Sales June 90,000 July 120,000 August 210,000 September 150,000 October 180,000 November 120,000

There were 30,000 units of finished goods in inventory at the beginning of June. Plans are to have an inventory of finished products that equal 20% of the unit sales for the next month.

Five pounds of materials are required for each unit produced. Each pound of material costs $8. Inventory levels for materials are equal to 30% of the needs for the next month. Materials inventory on June 1 was 15,000 pounds.

Required:

a. Prepare production budgets in units for July, August, and September.

b. Prepare a purchases budget in pounds for July, August, and September, and give total purchases in both pounds and dollars for each month.

33

Copyright ? 2015 Pearson Education, Inc.

Answer: a. Budgeted sales Add: Required ending inventory Total inventory requirements Less: Beginning inventory Budgeted production b. Production in units *

Targeted ending inventory in lbs.* Production needs in lbs.*** Total requirements in lbs.

July 120,000 42,000 162,000 24,000 138,000 July 138,000 297,000 690,000 August 210,000 30,000 240,000 42,000 198,000 August 198,000 234,000 990,000 1,224,000 297,000 927,000

× $8 $7,416,000 September

150,000 36,000 186,000 30,000 156,000 September

156,000 **252,000 780,000 1,032,000 234,000 798,000 × $8 $6,384,000 987,000

Less: Beginning inventory in lbs. ****207,000 Purchases needed in lbs. Cost ($8 per lb.) Total material purchases 0.3 times next month's needs

780,000

× $8 $6,240,000 ** (180,000 + 24,000 - 36,000) times 5 lbs. × 0.3 *** 5 lbs. times units to be produced, across row **** (690,000 × .3) = 207,000 lbs., etc. row across

Diff: 3

Objective: 3

AACSB: Application of knowledge

34

Copyright ? 2015 Pearson Education, Inc.

74) Perry Company has provided the following information: Month Budgeted Sales March $200,000 April 212,000 May 204,000 June 218,000 July 210,000

In addition, the gross profit rate is 40% and the desired inventory level is 30% of next month's cost of sales.

Required:

Prepare a purchases budget for April through June.

Answer: April May June Total Desired ending inventory $36,720 $39,240 $37,800 $113,760 Add: Cost of goods sold 127,200 122,400 130,800 380,400 Total needed 163,920 161,640 168,600 494,160 Less: Opening inventory 38,160 36,720 39,240 114,120 Total purchases budget $125,760 $124,920 $129,360 $380,040 Explanation: Desired ending inventory is for example for April: $204,000 × .60 × .30=$36,720. Cost of goods sold is for example for April: $212,000 × .60 = $127,200 Opening inventory for example for April: $212,000 × .60 × .30 = $38,160

Diff: 2

Objective: 3

AACSB: Application of knowledge

35

Copyright ? 2015 Pearson Education, Inc.

75) Favata Company has the following information: Month Budgeted Sales June $60,000 July 51,000 August 40,000 September 70,000 October 72,000

In addition, the cost of goods sold rate is 70% and the desired inventory level is 30% of next month's cost of sales.

Required:

Prepare a purchases budget for July through September. Answer: July Aug Sept Total Desired ending inventory $ 8,400 $14,700 $15,120 $15,120 Plus COGS 35,700 28,000 49,000 112,700 Total needed 44,100 42,700 64,120 127,820 Less beginning inventory 10,710 8,400 14,700 10,710 Total purchases $33,390 $34,300 $49,420 $117,110 Diff: 2

Objective: 3

AACSB: Application of knowledge

36

Copyright ? 2015 Pearson Education, Inc.

76) Picture Pretty manufactures picture frames. Sales for August are expected to be 10,000 units of

various sizes. Historically, the average frame requires four feet of framing, one square foot of glass, and two square feet of backing. Beginning inventory includes 1,500 feet of framing, 500 square feet of glass, and 500 square feet of backing. Current prices are $0.90 per foot of framing, $8.00 per square foot of glass, and $4 per square foot of backing. Ending inventory of materials should be 150% of beginning inventory. Purchases are paid for in the month acquired.

Required:

a. Determine the quantity of framing, glass, and backing that is to be purchased during August. b. Determine the total costs of direct materials for August purchases. Answer: a. Framing Glass Backing Desired ending inventory* 2,250 750 750 Production needs (10,000 units)** 40,000 10,000 20,000 Total needs 42,250 10,750 20,750 Less: Beginning inventory 1,500 500 500 Purchases planned 40,750 10,250 20,250

b. Cost of direct materials: Framing (40,750 × $0.90) $36,675.00 Glass (10,250 × $8.00) 82,000.00 Backing (20,250 × $4) 81,000.00 Total $199,675.00 * 1,500 × 1.5 = 2,250 framing 500 × 1.5 = 750 glass 500 × 1.5 = 750 backing ** 10,000 × 4 feet of framing = 40,000 feet of framing 10,000 × 1 square foot of glass = 10,000 square feet of glass 10,000 × 2 square feet of backing = 20,000 square feet of backing

Diff: 2

Objective: 3

AACSB: Application of knowledge

37

Copyright ? 2015 Pearson Education, Inc.

77) Christy Enterprises reports the year-end information from 2015 as follows: Sales (100,000 units) $500,000 Less: Cost of goods sold 300,000 Gross profit 200,000 Operating expenses (includes $20,000 of Depreciation) 120,000 Net income $ 80,000

Christy is developing the 2016 budget. In 2016 the company would like to increase selling prices by 10%, and as a result expects a decrease in sales volume of 5%. Cost of goods sold as a percentage of sales is expected to increase to 62%. Other than depreciation, all operating costs are variable.

Required:

Prepare a budgeted income statement for 2016. Answer: Christy Enterprises Budgeted Income Statement For the Year 2016

Sales (95,000 × $5.50) $522,500 Cost of goods sold (2016 sales × 62%) 323,950 Gross profit 198,550 Less: Operating expenses [($1.00 × 95,000] + $20,000) 115,000 Net income $ 83,550 Diff: 2

Objective: 3

AACSB: Application of knowledge

78) Describe operating and financial budgets and give at least two examples of each discussed in the textbook.

Answer: Operating budgets specify the expected outcomes of any selling, manufacturing, purchasing, labor management, R&D, marketing, distribution, customer service, and administrative activities during the planning period. Operations personnel use these plans to guide and coordinate activities during the planning period.

Examples of operating budgets include the revenues budget, production budget, direct materials costs budget, direct manufacturing labor costs budget, manufacturing overhead budget, and budgets for R&D, marketing, distribution, customer service, and administrative activities.

Financial budgets are used to evaluate the financial consequences of a proposed decision.

Examples of financial budgets include the capital expenditures budget, cash budget, budgeted balance sheet, and the budgeted statement of cash flows.

Diff: 2

Objective: 3

AACSB: Analytical thinking

38

Copyright ? 2015 Pearson Education, Inc.

79) Discuss the importance of the sales forecast and items that influence its accuracy. Answer: All other budgets are based on information from the sales forecast.

The sales forecast is a challenge to predict because its accuracy depends on the ability to forecast the state of the general economy, changes in the industry, actions of the competition, and developments in technology. Each of these items affects individual products or product lines and are quantified and aggregated to obtain the sales forecast.

Diff: 2

Objective: 3

AACSB: Analytical thinking

Objective 6.4

1) Financial planning models ________. A) are not used in the budgeting process B) are not useful for sensitivity analysis

C) are mathematical representations of the relationships affecting the budget process D) are used for nonfinancial aspects of budgeting Answer: C

Diff: 2

Objective: 4

AACSB: Analytical thinking

2) Financial planning software packages assist management with ________. A) assigning responsibility to various levels of management B) identifying the target customer

C) sensitivity analysis in their planning and budgeting activities D) achieving greater commitment from lower management Answer: C

Diff: 2

Objective: 4

AACSB: Analytical thinking

3) ERP systems store vast quantities of information about the materials, machines and equipment, labor, power, maintenance, and setups needed to manufacture different products. This helps simplify the budgeting process as ERP systems ________.

A) can quickly calculate the manufacturing and nonmanufacturing costs based on a given sales quantity B) automatically identify and record changes in processes involved in producing products C) identify which underlying assumptions are likely to change

D) always use a rolling budget ensuring that a budget is always available for a specified future period Answer: A

Diff: 1

Objective: 4

AACSB: Analytical thinking

39

Copyright ? 2015 Pearson Education, Inc.

4) When performing a sensitivity analysis, if the selling price per unit is increased, then the ________. A) per unit fixed administrative costs will increase

B) per unit direct materials purchase price will increase C) total volume of sales will increase

D) total costs for sales commissions and other nonmanufacturing variable costs will increase Answer: D

Diff: 3

Objective: 4

AACSB: Analytical thinking

5) Sensitivity analysis helps managers evaluate risks ________.

A) by showing the effects of changes to the original data or an underlying assumption B) by identifying inconsistencies in underlying assumptions and actual conditions

C) by removing the effects of foreign currency exposure and other uncontrollable factors

D) by identifying gaps in the production process using information on setups needed to manufacture products Answer: A

Diff: 3

Objective: 4

AACSB: Analytical thinking

Answer the following questions using the information below:

Kramer Enterprises reports year-end information from 2015 as follows: Sales (160,000 units) $960,000 Cost of goods sold 640,000 Gross margin 320,000 Operating expenses 260,000 Operating income $60,000

Kramer is developing the 2016 budget. In 2016 the company would like to increase selling prices by 12.5%, and as a result expects a decrease in sales volume of 9%. All other operating expenses are expected to remain constant. Assume that cost of goods sold is a variable cost and that operating expenses are a fixed cost.

6) What is budgeted sales for 2016? A) $1,080,000 B) $1,000,000 C) $982,800 D) $873,600 Answer: C

Explanation: C) Budgeted sales = $960,000 × 1.125 × 0.91 = $982,800

Diff: 3

Objective: 4

AACSB: Application of knowledge

40

Copyright ? 2015 Pearson Education, Inc.

7) What is budgeted cost of goods sold for 2016? A) $720,000 B) $582,400 C) $691,200 D) $640,000 Answer: B

Explanation: B) Cost of goods sold in 2015 per unit: $640,000/160,000 units = $4 per unit Number of units sold in 2016 = 160,000 × 0.91 = 145,600 units × $4 per unit = $582,400.

Diff: 3

Objective: 4

AACSB: Application of knowledge

8) Should Kramer increase the selling price in 2016? A) Yes, because operating income increases for 2016. B) Yes, because sales revenue increases for 2016. C) No, because sales volume decreases for 2016. D) No, because gross margin decreases for 2016. Answer: A

Explanation: A) Yes, because it would result in an increase in operating income compared to 2015 ( 2016 operating income would be: $982,800 -$582,400 (COGS)-$260,000 (operating expenses, which are fixed) = $140,400 compared to $60,000 in 2015.

Diff: 3

Objective: 4

AACSB: Application of knowledge

41

Copyright ? 2015 Pearson Education, Inc.

Answer the following questions using the information below:

Violet Sales Corp, reports the year-end information from 2016 as follows: Sales (35,000 units) $280,000 Cost of goods sold 105,000 Gross margin 175,000 Operating expenses 150,000 Operating income $ 25,000

Violet is developing the 2016 budget. In 2016 the company would like to increase selling prices by 3.5%, and as a result expects a decrease in sales volume of 15%. All other operating expenses are expected to remain constant. Assume that cost of goods sold is a variable cost and that operating expenses are a fixed cost.

9) What is budgeted sales for 2016? A) $291,200 B) $246,330 C) $302,400 D) $322,000 Answer: B

Explanation: B) Budgeted sales in 2016: Selling prices in 2015 were $8 per unit ($280,000/35,000 units); increase selling price by 3.5% in 2016 means new selling price per unit in 2016 is $8.28 per unit; 2016 sales volume will be 35,000 units × .85 = 29,750 units times $8.28 per unit = $246,330

Diff: 3

Objective: 4

AACSB: Application of knowledge

10) What is budgeted cost of goods sold for 2016? A) $89,250 B) $98,250 C) $15,750 D) $257,040 Answer: A

Explanation: A) Budgeted cost of goods sold = $105,000 × 0.85 = $89,250

Diff: 3

Objective: 4

AACSB: Application of knowledge

42

Copyright ? 2015 Pearson Education, Inc.

11) Should Violet increase the selling price in 2016? A) Yes, because sales revenue increases for 2016. B) Yes, because gross margin increases for 2016. C) No, because sales volume decreases for 2016.

D) No, because operating income decreases for 2016. Answer: D

Explanation: D) $257,040 – $89,250 = $167,790 (Gross margin); $167,790 – $150,000 = $17,790 (Operating income). No, because there would be a decrease in operating income compared to 2016.

Diff: 3

Objective: 4

AACSB: Application of knowledge

12) Computer-based systems, like ERP, help managers budget for all manufacturing costs but lack the ability to help managers budget for non-manufacturing costs. Answer: FALSE

Explanation: Computer-based systems, like ERP, not only help managers budget for manufacturing costs but also for non-manufacturing costs.

Diff: 2

Objective: 4

AACSB: Analytical thinking

13) Financial planning models are non-mathematical, abstract representations of the relationships among operating activities, financing activities, and other factors that affect the master budget. Answer: FALSE

Explanation: Financial planning models are mathematical models representing the relationships among operating activities, financing activities, and other factors that affect the master budget.

Diff: 1

Objective: 4

AACSB: Analytical thinking

14) Most computer-based financial planning models have difficulty incorporating sensitivity (what-if) analysis.

Answer: FALSE

Explanation: Computer-based financial planning models easily assist management with sensitivity (what-if) analysis.

Diff: 2

Objective: 4

AACSB: Analytical thinking

15) Sensitivity analysis is a useful tool that helps managers evaluate risks. Answer: TRUE

Diff: 2

Objective: 4

AACSB: Analytical thinking

43

Copyright ? 2015 Pearson Education, Inc.

16) Computer-based systems, such as ERP systems, cannot perform calculations for financial planning models.

Answer: FALSE

Explanation: Managers can use computer-based systems, such as enterprise resource planning (ERP) systems, to perform calculations for financial planning models.

Diff: 2

Objective: 4

AACSB: Analytical thinking

17) Economics suggests that a decrease in the selling price of a product will decrease revenue. Answer: FALSE

Explanation: If there is a decrease in the selling price of a product, there may either be an increase in total revenue or a decrease in total revenue due to the uncertain effect of price change on demand.

Diff: 2

Objective: 4

AACSB: Analytical thinking

18) Explain what is meant by sensitivity analysis in budgeting, and discuss how managers might use sensitivity analysis in practice.

Answer: Sensitivity analysis is a \original predicted data are not achieved or if an underlying assumption changes. Managers often use financial planning models, which are mathematical representations of relationships among the factors that influence the master budget.

It is possible, using these models, to examine the financial impact of one or more parameters that

influence a master budget, for example selling price and material cost. Management could consider three levels of each of these two parameters, resulting in nine scenarios of different selling prices and material costs. The financial model could then present a master budget based on each of these changes, and

demonstrate the financial impact on the original data given changes in selling prices and/or material costs. Management could use these predictions to make contingency plans, change their strategies, or simply update the budgets as environmental conditions change.

Diff: 2

Objective: 4

AACSB: Analytical thinking

44

Copyright ? 2015 Pearson Education, Inc.

Objective 6.5

1) Which of the following is true of responsibility accounting?

A) It is a system that measures the plans, budgets, actions, and actual results of a responsibility center. B) It is an arrangement of lines of responsibility and authority within a responsibility center. C) It explicitly incorporates continuous improvement and changes due to learning curve. D) It examines how a result will change if the original plan is not achieved. Answer: A

Diff: 2

Objective: 5

AACSB: Analytical thinking

2) Which of the following departments is most likely to be a cost center? A) sales department of a company selling industrial tools

B) call center of a company that serves customers and cross-sells other products C) maintenance department of a luxury resort

D) research department of a company providing consultancy services Answer: C

Diff: 2

Objective: 5

AACSB: Analytical thinking

3) Which of the following departments is most likely to be a profit center?

A) the accounting department of a company that also assists in budgeting process B) the research and development department of a company

C) the sales department of a company whose objective is to maximize the revenues D) the consulting department of a law firm Answer: D

Diff: 2

Objective: 5

AACSB: Analytical thinking

4) A maintenance manager of a theatre is most likely to be responsible for a(n) ________. A) revenue center B) investment center C) cost center D) profit center Answer: C

Diff: 1

Objective: 5

AACSB: Analytical thinking

45

Copyright ? 2015 Pearson Education, Inc.

5) The regional sales office manager of a national firm is most likely responsible for a(n) ________. A) revenue center B) investment center C) cost center D) profit center Answer: A

Diff: 1

Objective: 5

AACSB: Analytical thinking

6) A regional manager of a restaurant chain in charge of finding additional locations for expansion is most likely responsible for a(n) ________. A) revenue center B) investment center C) cost center D) profit center Answer: B

Diff: 1

Objective: 5

AACSB: Analytical thinking

7) Silas has been recently promoted to head his department. He is responsible for maximizing the profits of the department and to ensure that the earnings are ploughed back into the business. Silas is most likely to head a (n) ________. A) revenue center B) investment center C) cost center D) profit center Answer: B

Diff: 1

Objective: 5

AACSB: Analytical thinking

8) A manager of a revenue center is responsible ________. A) for only the profits of his center B) for investments, revenues, and costs C) for only the revenues of his center

D) for both, the revenues and costs of his center Answer: C

Diff: 2

Objective: 5

AACSB: Analytical thinking

46

Copyright ? 2015 Pearson Education, Inc.

9) A controllable cost is any cost that can be ________ by a responsibility center manager for a period of time.

A) controlled B) influenced C) segregated D) excluded Answer: B

Diff: 2

Objective: 5

AACSB: Analytical thinking

10) Which of the following statements is true about responsibility accounting statements? A) Responsibility accounting excludes controllable costs.

B) Responsibility accounting segregates fixed costs and variable costs. C) Responsibility accounting excludes fixed costs and variable costs.

D) Responsibility accounting segregates uncontrollable costs from controllable costs. Answer: D

Diff: 2

Objective: 5

AACSB: Analytical thinking

11) Which of the following is the fundamental purpose of responsibility accounting? A) to penalize managers for inefficiency

B) to gather information that will enable future improvement C) to create an efficient and centralized organization D) to evaluate the performance of managers Answer: B

Diff: 2

Objective: 5

AACSB: Analytical thinking

12) A company using responsibility accounting system decides to exclude all uncontrollable costs from a manager's performance report. Jenson is the machine supervisor. Which of the following costs will impact Jenson's performance report?

A) rent and taxes paid on by the company B) cost of materials used in manufacture C) machine maintenance cost

D) cost of power consumed by the plant Answer: C

Diff: 2

Objective: 5

AACSB: Analytical thinking

47

Copyright ? 2015 Pearson Education, Inc.

13) Responsibility accounting ________. A) emphasizes controllability

B) focuses on who should be asked about the information

C) attempts to assign blame for problems to a specific manager D) attempts to create a decentralized organization Answer: B

Diff: 3

Objective: 5

AACSB: Analytical thinking

14) A primary consideration in assigning a cost to a responsibility center is ________. A) whether the cost is fixed or variable B) whether the cost is direct or indirect

C) who can best control the change in that cost

D) where in the organizational structure the cost was incurred Answer: C

Diff: 3

Objective: 5

AACSB: Analytical thinking

15) A responsibility center is a part, segment, or subunit of an organization, whose manager is accountable for a specified set of activities. Answer: TRUE

Diff: 1

Objective: 5

AACSB: Analytical thinking

16) Performance reports for responsibility centers are sometimes designed to change managers' behavior in the direction top managers desire, even if the reports decrease controllability. Answer: TRUE

Diff: 2

Objective: 5

AACSB: Analytical thinking

17) In a cost center, a manager is responsible for investments, revenues, and costs. Answer: FALSE

Explanation: In a cost center, a manager is responsible for costs, but not revenues or investments.

Diff: 1

Objective: 5

AACSB: Analytical thinking

18) A packaging department is most likely a profit center. Answer: FALSE

Explanation: A packaging department is most likely a cost center.

Diff: 2

Objective: 5

AACSB: Analytical thinking

48

Copyright ? 2015 Pearson Education, Inc.

19) Variances between actual and budgeted amounts inform management about performance relative to the budget. Answer: TRUE

Diff: 1

Objective: 5

AACSB: Analytical thinking

20) Each manager, regardless of level, is in charge of a responsibility center. Answer: TRUE

Diff: 1

Objective: 5

AACSB: Analytical thinking

21) A responsibility center is a part, segment, or subunit of an organization whose manager is accountable for a specified set of activities. Answer: TRUE

Diff: 2

Objective: 5

AACSB: Analytical thinking

22) Management will most likely behave the same way if a department is structured as a cost center or if the same department is structured as a profit center. Answer: FALSE

Explanation: Management will most likely behave differently if a department is structured as a cost center than if the same department is structured as a profit center due to the incentives to control costs as well as revenues in a profit center.

Diff: 2

Objective: 5

AACSB: Analytical thinking

23) Responsibility accounting focuses on control, NOT on information and knowledge. Answer: FALSE

Explanation: Responsibility accounting focuses on information and knowledge, not on control.

Diff: 2

Objective: 5

AACSB: Analytical thinking

24) The sales department in any organization is usually a profit center. Answer: FALSE

Explanation: The sales department is a revenue center because the sales manager is responsible primarily for revenues, and the department's budget is primarily based on revenues.

Diff: 2

Objective: 5

AACSB: Analytical thinking

49

Copyright ? 2015 Pearson Education, Inc.

25) Distinguish between controllable and uncontrollable aspects of revenue and costs. Can a manager totally control all revenue and costs? Why or why not?

Answer: Although no revenue or cost can be totally controlled, a cost or revenue is a controllable item when a manager has significant influence over the amount of a cost or revenue. It is uncontrollable if this is not the case. A manager's ability to influence costs and revenues depends on two factors: (1) the

manager's level of authority, and (2) the time period involved. Costs and revenue contracts, the economic costs of disposing of fixed assets, and the economy are three conditions that are likely to affect the period of time during which an item is not controllable.

Diff: 2

Objective: 5

AACSB: Analytical thinking

Objective 6.6

1) The Japanese use the term kaizen when referring to________. A) scarce resources

B) pro forma financial statements C) continuous improvement D) the sales forecast Answer: C

Diff: 1

Objective: 6

AACSB: Analytical thinking

2) Kaizen refers to incorporating cost reductions ________. A) in each successive budgeting period B) in each successive sales forecast C) in all customer service centers D) in all areas of the organization Answer: A

Diff: 2

Objective: 6

AACSB: Analytical thinking

3) Tom Magic Company manufactures various kinds of toys for different age groups. The company's flagship product is Rx. The company currently requires 8.50 labor hours to manufacture per unit of Rx. The company believes that because of numerous small improvements in the process, it will require 0.10 labor-hours less and hence will only 8.40 labor-hours in the next quarter. It will require 8.35 and 8.25 labor-hours in third and fourth quarter. The company has adopted ________. A) activity based budgeting B) kaizen budgeting

C) zero-based budgeting D) cost-based budgeting Answer: B

Diff: 3

Objective: 6

AACSB: Analytical thinking

50

Copyright ? 2015 Pearson Education, Inc.

本文来源：https://www.bwwdw.com/article/2e1r.html