TEST BANK managerial accounting by 5e kieso weygand ch09

CHAPTER 9
BUDGETARY PLANNING
SUMMARY OF QUESTIONS BY STUDY OBJECTIVES AND BLOOM’S
TAXONOMY
Item

SO

BT

Item

SO

BT

1.
2.
3.
4.
5.
6.
7.
8.

1
1
1
1
1
1

2
2

K
C
C
C
C
K
K
K

9.
10.
11.
12.
13.
14.
15.
16.

2
2
2
2
2
2
2
3

C
C
C
C
K
K
C
K

Item

SO

BT

Item

SO

BT

4
5
5
6
6
6
1
2

K
C
C
K
C
C
K
K

106.
107.
108.
109.
110.
111.
112.
113.
114.
115.
116.
117.
118.
119.
120.
121.
122.
123.
124.
125.
126.

127.
128.

5
5
5
5
5
5
5
5
5
5
5
5
5
5
5
5
5
5
5
5
5
6
6

155.
156.

5
5

Item

SO

BT

33.
34.
sg
35.
sg
36.

3
3
3
6

K
K
K
C

K
C
AP
AP

AP
K
AP
K
C
AP
C
AP
AP
AP
AP
AP
AP
AP
AP
AP
AP
C
K

129.
130.
131.
132.
133.
134.
135.
136.
st
137.

sg
138.
st
139.
sg
140.
st
141.
sg
142.
st
143.
sg
144.
st
145.
sg
146.
sg
147.
sg
148.

6
6
6
6
6
6
6

6
1
1
2
2
3
3
4
5
5
5
6
6

C
C
C
C
C
C
C
C
K
K
K
K
K
AP
K
AP

K
AP
K
K

AP
AP

157.
158.

5
5

AP
AP

True-False Statements
17.
18.
19.
20.
21.
22.
23.
24.

3
3
3

3
3
3
3
3

K
C
C
C
C
K
C
C

25.
26.
27.
28.
29.
30.
sg
31.
sg
32.

sg
sg

Multiple Choice Questions

37.
38.
39.
40.
41.
42.
43.
44.
45.
46.
47.
48.
49.
50.
51.
52.
53.
54.
55.
56.
57.
58.
59.

1
1
1
1
1
1

2
2
2
2
2
2
2
2
2
2
2
2
2
2
2
2
2

K
K
K
C
C
C
K
C
C
C
C
C

C
C
C
K
K
K
K
K
K
K
C

60.
61.
62.
63.
64.
65.
66.
67.
68.
69.
70.
71.
72.
73.
74.
75.
76.
77.

78.
79.
80.
81.
82.

2
2
3
3
3
3
3
3
3
3
3
3
3
3
3
3
3
3
3
3
3
3
3

C
AP
K
AP
C
C
K
C
C
C
K
C
AN
C
K
K
AP
AP
AP
AP
AP
AP
AP

83.
84.
85.
86.
87.
88.

89.
90.
91.
92.
93.
94.
95.
96.
97.
98.
99.
100.
101.
102.
103.
104.
105.

3
3
3
3
3
3
3
3
3
3
3
3

3
3
3
3
3
4
4
4
5
5
5

C
C
K
C
C
AP
AP
AP
AP
AP
AP
AP
AP
AP
AP
AP
AP
C

K
K
C
K
C

Brief Exercises
149.
150.
sg
st

3
3

AP
AP

151.
152.

3
3

AP
AP

153.
154.

5
5

AP
AP

This question also appears in the Study Guide.
This question also appears in a self-test at the student companion website.


9-2

Test Bank for ISV Managerial Accounting, Fourth Edition

SUMMARY OF QUESTIONS BY STUDY OBJECTIVES AND BLOOM’S
TAXONOMY
Exercises
159.
160.
161.
162.
163.

3
3
3
3
3

AP

AP
AP
AP
AP

164.
165.
166.
167.
168.

3
3
3
3
3

AP
AP
AP
C
AP

169.
170.
171.
172.
173.

3

4
4
5
5

AP
AP
AP
AP
AP

174.
175.
176.
177.
178.

5
5
5
5
5

AP
AP
C
AP
AP

3

5
6

K
K
K

179.
180.

5
6

AP
C

Completion Statements
181.
182.
183.

1
1
2

K
K
K

184.

185.
186.

2
2
2

K
K
K

187.
188.
189.

2
3
3

K
K
K

190.
191.
192.

SUMMARY OF STUDY OBJECTIVES BY QUESTION TYPE
Item

Type

Item

Type

Item

1.
2.
3.

TF
TF
TF

4.
5.
6.

TF
TF
TF

31.
37.
38.

7.
8.

9.
10.
11.
12.

TF
TF
TF
TF
TF
TF

13.
14.
15.
32.
43.
44.

TF
TF
TF
TF
MC
MC

45.
46.
47.
48.

49.
50.

16.
17.
18.
19.
20.
21.
22.
23.
24.
33.

TF
TF
TF
TF
TF
TF
TF
TF
TF
TF

34.
35.
62.
63.
64.

65.
66.
67.
68.
69.

TF
TF
MC
MC
MC
MC
MC
MC
MC
MC

70.
71.
72.
73.
74.
75.
76.
77.
78.
79.

25.

TF

100.

MC

101.

26.
27.
102.
103.
104.

TF
TF
MC
MC
MC

107.
108.
109.
110.
111.

MC
MC
MC
MC

MC

114.
115.
116.
117.
118.

Type

Item

Type

Item

Study Objective 1
TF
39. MC
42.
MC
40. MC
137.
MC
41. MC
138.
Study Objective 2
MC
51. MC
57.

MC
52. MC
58.
MC
53. MC
59.
MC
54. MC
60.
MC
55. MC
61.
MC
56. MC
139.
Study Objective 3
MC
80. MC
90.
MC
81. MC
91.
MC
82. MC
92.
MC
83. MC
93.
MC
84. MC

94.
MC
85. MC
95.
MC
86. MC
96.
MC
87. MC
97.
MC
88. MC
98.
MC
89. MC
99.
Study Objective 4
MC
102. MC
143.
Study Objective 5
MC
121. MC
145.
MC
122. MC
146.
MC
123. MC
153.

MC
124. MC
154.
MC
125. MC
155.

Type

Item

Type

Item

Type

MC
MC
MC

181.
182.

C
C

MC
MC
MC

MC
MC
MC

140.
183.
184.
185.
186.
187.

MC
C
C
C
C
C

MC
MC
MC
MC
MC
MC
MC
MC
MC
MC

141.

142.
149.
150.
151.
152.
159.
160.
161.
162.

MC
MC
BE
BE
BE
BE
Ex
Ex
Ex
Ex

163.
164.
165.
166.
167.
168.
169.
188.
189.

190.

Ex
Ex
Ex
Ex
Ex
Ex
Ex
C
C
C

MC

170.

Ex

171.

Ex

MC
MC
BE
BE
BE

158.

172.
173.
174.
175.

BE
Ex
Ex
Ex
Ex

178.
179.
191.

Ex
Ex
C


Budgetary Planning
105.
106.

MC
MC

112.
113.

MC
MC

119.
120.

28.
29.
30.

TF
TF
TF

36.
127.
128.

TF
MC
MC

129.
130.
131.

Note: TF = True-False
MC = Multiple Choice

MC

126. MC
156.
MC
144. MC
157.
Study Objective 6
MC
132. MC
135.
MC
133. MC
136.
MC
134. MC
147.

BE
BE

176.
177.

Ex
Ex

MC
MC
MC

148.

180.
192.

MC
Ex
C

BE = Brief Exercise
Ex = Exercise

9-3

C = Completion

The chapter also contains one set of ten Matching questions and four Short-Answer Essay
questions.

CHAPTER STUDY OBJECTIVES
1. Identify the benefits of budgeting. The primary advantages of budgeting are that it (a)
requires management to plan ahead, (b) provides definite objectives for evaluating
performance, (c) creates an early warning system for potential problems, (d) facilitates
coordination of activities, (e) results in greater management awareness, and (f) motivates
personnel to meet planned objectives.
2. State the essentials of effective budgeting. The essentials of effective budgeting are (a)
sound organizational structure, (b) research and analysis, and (c) acceptance by all levels of
management.
3. Identify the budgets that comprise the master budget. The master budget consists of the
following budgets: (a) sales, (b) production, (c) direct materials, (d) direct labor, (e) manufacturing overhead, (f) selling and administrative expense, (g) budgeted income statement, (h)
capital expenditure budget, (i) cash budget, and (j) budgeted balance sheet.
4. Describe the sources for preparing the budgeted income statement. The budgeted

income statement is prepared from (a) the sales budget, (b) the budgets for direct materials,
direct labor, and manufacturing overhead, and (c) the selling and administrative expense
budget.
5. Explain the principal sections of a cash budget. The cash budget has three sections
(receipts, disbursements, and financing) and the beginning and ending cash balances.
6. Indicate the applicability of budgeting in nonmanufacturing companies. Budgeting may
be used by merchandisers for development of a master budget. In service enterprises
budgeting is a critical factor in coordinating staff needs with anticipated services. In not-forprofit organizations, the starting point in budgeting is usually expenditures, not receipts.


9-4

Test Bank for ISV Managerial Accounting, Fourth Edition

TRUE-FALSE STATEMENTS
1.

Budgets are statements of management's plans stated in financial terms.

2.

A benefit of budgeting is that it provides definite objectives for evaluating performance.

3.

A budget can be a means of communicating a company's objectives to external parties.

4.

A budget can be used as a basis for evaluating performance.

5.

A well-developed budget can operate and enforce itself.

6.

The budget itself and the administration of the budget are the responsibility of the
accounting department.

7.

Effective budgeting requires clearly defined lines of authority and responsibility.

8.

The flow of input data for budgeting should be from the highest levels of responsibility to
the lowest.

9.

Budgets can have a positive or negative effect on human behavior depending on the
manner in which the budget is developed and administered.

10.

A budget can facilitate the coordination of activities among the segments of a large
company.

11.

The longer the budget period, the more reliable the estimates of future outcomes.

12.

The budget committee has the responsibility for coordinating the preparation of the
budget.

13.

The budget is developed within the framework of a sales forecast.

14.

Budgeting and long-range planning are two terms that describe the same process.

15.

Long-range plans are used more as a review of progress toward long-term goals rather
than an evaluation of specific results to be achieved.

16.

The master budget reflects management's long-term plans encompassing five years or
more.

17.

The master budget consists of operating and financial budgets.

18.

Financial budgets must be completed before the operating budgets can be prepared.

19.

The direct materials budget must be completed before the production budget because the
quantity of materials available for production must be known.

20.

The number of direct labor hours needed for production is obtained from the production
budget.

21.

A manufacturing overhead budget is not needed if the company develops a predetermined overhead rate to apply overhead.


Budgetary Planning

9-5

22.

The manufacturing overhead budget generally has separate sections for variable, mixed,
and fixed costs.

23.

A production budget should be prepared before the sales budget.

24.

The direct materials budget contains both quantity and cost data.

25.

The budgeted income statement indicates the expected profitability of operations for the
next year.

26.

If a monthly cash budget is prepared properly, there will never be a cash deficiency at the
end of any month.

27.

The budgeted balance sheet is prepared entirely from the budgets for the current year.

28.

The starting point when budgeting for a not-for-profit organization is generally to budget
expenditures first.

29.

A merchandiser has a merchandise purchases budget rather than a production budget.

30.

A critical factor in budgeting for a service firm is to determine the amount of products to
purchase.

Additional True-False Questions
31.

The budget itself and the administration of the budget are entirely accounting
responsibilities.

32.

Financial planning models and statistical and mathematical techniques may be used in
forecasting sales.

33.

The direct materials budget is derived from the direct materials units required for
production plus desired ending direct materials units less beginning direct materials units.

34.

The manufacturing overhead budget shows the expected manufacturing overhead costs.

35.

In order to develop a budgeted balance sheet, the previous year's balance sheet is
needed.

36.

In service enterprises, the critical factor in budgeting is coordinating materials and
equipment with anticipated services.

Answers to True-False Statements
Item

1.
2.
3.
4.
5.
6.

Ans.

T
T
F
T
F
F

Item

7.
8.
9.
10.
11.

12.

Ans.

T
F
T
T
F
T

Item

13.
14.
15.
16.
17.
18.

Ans.

T
F
T
F
T
F

Item

19.
20.
21.
22.
23.
24.

Ans.

F
T
F
F
F
T

Item

25.
26.
27.
28.
29.
30.

Ans.

T
F

F
T
T
F

Item

31.
32.
33.
34.
35.
36.

Ans.

F
T
T
T
T
F


9-6

Test Bank for ISV Managerial Accounting, Fourth Edition

MULTIPLE CHOICE QUESTIONS
37.

Why are budgets useful in the planning process?
a. They provide management with information about the company's past performance.
b. They help communicate goals and provide a basis for evaluation.
c. They guarantee the company will be profitable if it meets its objectives.
d. They enable the budget committee to earn their paycheck.

38.

A budget
a. is a substitute for management.
b. is an aid to management.
c. can operate or enforce itself.
d. is the responsibility of the accounting department.

39.

Accounting generally has the responsibility for
a. setting company goals.
b. expressing the budget in financial terms.
c. enforcing the budget.
d. administration of the budget.

40.

Which one of the following is not a benefit of budgeting?
a. It facilitates the coordination of activities.
b. It provides definite objectives for evaluating performance.
c. It provides assurance that the company will achieve its objectives.
d. It requires all levels of management to plan ahead on a recurring basis.

41.

Budgeting is usually most closely associated with which management function?
a. Planning
b. Directing
c. Motivating
d. Controlling

42.

Which of the following items does not follow from the adoption of a budget?
a. Promote efficiency
b. Deterrent to waste
c. Basis for performance evaluation
d. Guarantee of accomplishing the profit objective

43.

Which is true of budgets?
a. They are voted on and approved by stockholders.
b. They are used in the planning, but not in the control, process.
c. There is a standard form and structure for budgets.
d. They are used in performance evaluation.

44.

A common starting point in the budgeting process is
a. expected future net income.
b. past performance.

c. to motivate the sales force.
d. a clean slate, with no expectations.


Budgetary Planning

9-7

45.

If budgets are to be effective, all of the following must be present except
a. acceptance at all levels of management.
b. research and analysis in setting realistic goals.
c. stockholders' approval of the budget.
d. sound organizational structure.

46.

If budgets are to be effective, there must be
a. a history of successful operations.
b. independent verification of budget goals.
c. an organizational structure with clearly defined lines of authority and responsibility.
d. excess plant capacity.

47.

It is important that budgets be accepted by
a. division managers.
b. department heads.
c. supervisors.

d. all of these.

48.

Which of the following statements about budget acceptance in an organization is true?
a. The most widely accepted budget by the organization is the one prepared by top
management.
b. The most widely accepted budget by the organization is the one prepared by the
department heads.
c. Budgets are hardly ever accepted by anyone except top management.
d. Budgets have a greater chance of acceptance if all levels of management have
provided input into the budgeting process.

49.

Top management notices a variation from budget and an investigation of the difference
reveals that the department manager could not be expected to have controlled the
variation. Which of the following statements is applicable?
a. Department managers should be held accountable for all variances from budgets for
their departments.
b. Department managers should only be held accountable for controllable variances for
their departments.
c. Department managers should be credited for favorable variances even if they are
beyond their control.
d. Department managers' performances should not be evaluated based on actual results
to budgeted results.

50.

An unrealistic budget is more likely to result when it

a. has been developed in a top down fashion.
b. has been developed in a bottom up fashion.
c. has been developed by all levels of management.
d. is developed with performance appraisal usages in mind.

51.

A budget is most likely to be effective if
a. it is used to assess blame when things do not occur according to plans.
b. it is not used to evaluate a manager's performance.
c. employees and managers at the lower levels do not get involved in the budgeting
process.
d. it has top management support.


9-8

Test Bank for ISV Managerial Accounting, Fourth Edition

52.

In many companies, responsibility for coordinating the preparation of the budget is
assigned to
a. the company's independent certified public accountants.
b. the company's internal auditors.
c. the company's board of directors.
d. a budget committee.

53.

A budget period should be
a. monthly.
b. for a year or more.
c. long-term.
d. long enough to provide an obtainable goal under normal business conditions.

54.

If a company has adopted continuous budgeting, the budget will show plans for
a. every day.
b. a full year ahead.
c. the current year and the next year.
d. at least five years.

55.

The most common budget period is
a. one month.
b. three months.
c. six months.
d. one year.

56.

Budget development for the coming year usually starts
a. a year in advance.
b. the first month of the year to be budgeted.
c. several months before the end of the current year.
d. the last month of the previous year.

57.

The budget committee would not normally include the
a. research director.
b. treasurer.
c. sales manager.
d. external auditor.

58.

The budget committee in a company is often headed by the
a. president.
b. controller.
c. treasurer.
d. budget director.

59.

Long-range planning
a. generally presents more detailed information than an annual budget.
b. generally encompasses a longer period of time than an annual budget.
c. is usually more accurate than an annual budget.
d. is prepared on a quarterly basis if the budget is prepared on a quarterly basis.


Budgetary Planning

9-9

60.

Long-range planning usually encompasses a period of at least
a. six months.
b. 1 year.
c. 5 years.
d. 10 years.

61.

Which of the following is not a proper match-up?
a. Long range planning  Strategies
b. Budgeting  Short-term goals
c. Long-range planning  5 years
d. Budgeting  Long-term goals

62.

Which is the last step in developing the master budget?
a. Preparing the budgeted balance sheet
b. Preparing the cost of goods manufactured budget
c. Preparing the budgeted income statement
d. Preparing the cash budget

63.

If there were 70,000 pounds of raw materials on hand on January 1, 140,000 pounds are
desired for inventory at January 31, and 420,000 pounds are required for January
production, how many pounds of raw materials should be purchased in January?
a. 350,000 pounds
b. 560,000 pounds

c. 280,000 pounds
d. 490,000 pounds

64.

The total direct labor hours required in preparing a direct labor budget are calculated
using the
a. sales forecast.
b. production budget.
c. direct materials budget.
d. sales budget.

65.

The direct materials and direct labor budgets provide information for preparing the
a. sales budget.
b. production budget.
c. manufacturing overhead budget.
d. cash budget.

66.

A sales forecast
a. shows a forecast for the firm only.
b. shows a forecast for the industry only.
c. shows forecasts for the industry and for the firm.
d. plays a minor role in the development of the master budget.

67.

Which of the following is not an operating budget?
a. Direct labor budget
b. Sales budget
c. Production budget
d. Cash budget


9 - 10

Test Bank for ISV Managerial Accounting, Fourth Edition

68.

Which of the following is not a financial budget?
a. Capital expenditure budget
b. Cash budget
c. Manufacturing overhead budget
d. Budgeted balance sheet

69.

Which of the following is done to improve the reliability of the sales forecast?
a. Employ financial planning models
b. Lengthen the planning horizon to more than a year
c. Rely solely on outside consultants
d. Use the sales forecasts from the previous year

70.

The financial budgets include the

a. cash budget and the selling and administrative expense budget.
b. cash budget and the budgeted balance sheet.
c. budgeted balance sheet and the budgeted income statement.
d. cash budget and the production budget.

71.

The culmination of preparing operating budgets is the
a. budgeted balance sheet.
b. production budget.
c. cash budget.
d. budgeted income statement.

72.

The following information is taken from the production budget for the first quarter:
Beginning inventory in units
Sales budgeted for the quarter
Capacity in units of production facility

900
342,000
354,000

How many finished goods units should be produced during the quarter if the company
desires 2,400 units available to start the next quarter?
a. 343,500
b. 340,500
c. 355,500
d. 344,400

73.

An overly optimistic sales budget may result in
a. increases in selling prices late in the year.
b. insufficient inventories.
c. increased sales during the year.
d. excessive inventories.

74.

In a production budget, total required units are the budgeted sales units plus
a. beginning finished goods units.
b. desired ending finished goods units.
c. desired ending finished goods units plus beginning finished goods units.
d. desired ending finished goods units minus beginning finished goods units.


Budgetary Planning

9 - 11

75.

The direct materials budget details
1. the quantity of direct materials to be purchased.
2. the cost of direct materials to be purchased.
a. 1
b. 2
c. both 1 and 2
d. neither 1 nor 2

76.

The production budget shows expected unit sales of 32,000. Beginning finished goods
units are 5,600. Required production units are 33,600. What are the desired ending
finished goods units?
a. 4,000
b. 5,600
c. 6,400
d. 7,200

77.

The production budget shows expected unit sales are 50,000. The required production units
are 52,000. What are the beginning and desired ending finished goods units, respectively?
a.
b.
c.
d.

Beginning Units
5,000
3,000
2,000
5,000

Ending Units
3,000
5,000
5,000

2,000

78.

The production budget shows that expected unit sales are 40,000. The total required units
are 45,000. What are the required production units?
a. 5,000
b. 7,500
c. 10,000
d. Cannot be determined from the data provided.

79.

The direct materials budget shows:
Units to be produced
Total pounds needed for production
Total materials required

3,000
12,000
13,200

What are the direct materials per unit?
a. .44 pounds
b. 4.0 pounds
c. 4.4 pounds
d. Cannot be determined from the data provided.
80.

The direct materials budget shows:

Desired ending direct materials
Total materials required
Direct materials purchases

36,000 pounds
54,000 pounds
47,400 pounds

The total direct materials needed for production is
a. 18,000 pounds.
b. 6,600 pounds.
c. 11,400 pounds.
d. 101,400 pounds.


9 - 12

Test Bank for ISV Managerial Accounting, Fourth Edition

81.

If the required direct materials purchases are 18,000 pounds, the direct materials required
for production is three times the direct materials purchases, and the beginning direct
materials are three and a half times the direct materials purchases, what are the desired
ending direct materials in pounds?
a. 45,000
b. 9,000
c. 27,000
d. 18,000

82.

Razmataz Company makes and sells umbrellas. The company is in the process of
preparing its Selling and Administrative Expense Budget for the last half of the year. The
following budget data are available:
Variable Cost Per Unit Sold
Monthly Fixed Cost
Sales commissions
$0.60
$ 3,000
Shipping
1.20
Advertising
0.30
Executive salaries
20,000
Depreciation on office equipment
4,000
Other
0.35
14,000
Expenses are paid in the month incurred. If the company has budgeted to sell 4,000
umbrellas in October, how much is the total budgeted variable selling and administrative
expenses for October?
a. $8,400
b. $9,200
c. $50,800
d. $9,800

83.

Which of the following expenses would not appear on a selling and administrative
expense budget?
a. Sales commissions
b. Depreciation
c. Property taxes
d. Indirect labor

84.

Which of the following would not appear as a fixed expense on a selling and administrative expense budget?
a. Freight-out
b. Office salaries
c. Property taxes
d. Depreciation

85.

A master budget consists of
a. an interrelated long-term plan and operating budgets.
b. financial budgets and a long-term plan.
c. interrelated financial budgets and operating budgets.
d. all the accounting journals and ledgers used by a company.

86.

The starting point in preparing a master budget is the preparation of the
a. production budget.
b. sales budget.
c. purchasing budget.

d. personnel budget.


Budgetary Planning

9 - 13

87.

Which one of the following is not needed in preparing a production budget?
a. Budgeted unit sales
b. Budgeted raw materials
c. Beginning finished goods units
d. Ending finished goods units

88.

A company budgeted unit sales of 102,000 units for January, 2008 and 120,000 units for
February, 2008. The company has a policy of having an inventory of units on hand at the
end of each month equal to 30% of next month's budgeted unit sales. If there were 30,600
units of inventory on hand on December 31, 2007, how many units should be produced in
January, 2008 in order for the company to meet its goals?
a. 107,400 units
b. 102,000 units
c. 96,600 units
d. 138,000 units

89.

At January 1, 2008, Ceatric, Inc. has beginning inventory of 2,000 surfboards. Ceatric

estimates it will sell 5,000 units during the first quarter of 2008 with a 12% increase in
sales each quarter. Ceatric’s policy is to maintain an ending inventory equal to 25% of the
next quarter’s sales. Each surfboard costs $100 and is sold for $150. How much is
budgeted sales revenue for the third quarter of 2008?
a. $225,000
b. $975,000
c. $940,800
d. $6,272

90.

Sargent.Com plans to sell 2,000 purple lawn chairs during May, 1,900 in June, and 2,000
during July. The company keeps 15% of the next month’s sales as ending inventory. How
many units should Sargent.Com produce during June?
a. 1,915
b. 2,200
c. 1,885
d. Not enough information to determine.

91.

Secret Prizes, Inc. is planning to sell 200 buckets and produce 190 buckets during March.
Each bucket requires 500 grams of plastic and one-half hour of direct labor. Plastic costs
$10 per 500 grams and employees of the company are paid $15.00 per hour.
Manufacturing overhead is applied at a rate of 110% of direct labor costs. Secret Prizes
has 300 kilos of plastic in beginning inventory and wants to have 200 kilos in ending
inventory. How much is the total amount of budgeted direct labor for March?
a. $1,500
b. $3,000
c. $1,425

d. $2,850

Use the following information for questions 92–94.
Sudler Production is planning to sell 600 boxes of ceramic tile, with production estimated at 580
boxes during May. Each box of tile requires 44 pounds of clay mix and a quarter hour of direct
labor. Clay mix costs $0.50 per pound and employees of the company are paid $15.00 per hour.
Manufacturing overhead is applied at a rate of 110% of direct labor costs. Sudler has 2,600
pounds of clay mix in beginning inventory and wants to have 3,000 pounds in ending inventory.


9 - 14

Test Bank for ISV Managerial Accounting, Fourth Edition

92.

What is the total amount to be budgeted for manufacturing overhead for the month?
a. $2,392.50
b. $2,475
c. $9,570
d. $9,900

93.

What is the total amount to be budgeted for direct labor for the month?
a. $2,175
b. $8,700
c. $2,250
d. $34,800

94.

What is the total amount to be budgeted in pounds for direct materials to be purchased for
the month?
a. 25,520
b. 25,120
c. 25,920
d. 26,800

95.

Green Plants plans to sell 160 potted plants during April and 120 units in May. Green
Plants keeps 15% of the next month’s sales as ending inventory. How many units should
Green Plants produce during April?
a. 154
b. 166
c. 160
d. 178

96.

Swingers Company makes and sells widgets. The company is in the process of preparing
its Selling and Administrative Expense Budget for the month. The following budget data
are available:
Item
Variable Cost Per Unit Sold
Sales commissions
$1
Shipping
$3

Advertising
$4
Executive salaries
Depreciation on office equipment
Other
$2

Monthly Fixed Cost
$5,000
$60,000
$2,000
$3,000

Expenses are paid in the month incurred. If the company has budgeted to sell 40,000
widgets in October, how much is the total budgeted selling and administrative expenses
for October?
a. $470,000
b. $70,000
c. $465,000
d. $400,000


Budgetary Planning
97.

9 - 15

Tripod Exports, Inc. budgets on an annual basis for its fiscal year. The following beginning
and ending inventory levels are planned for the fiscal year of July 1, 2008 to June 30,
2009:

Raw Materials

June 30, 2009
3,000 kilos

June 30, 2008
2,000 kilos

Three kilos of raw materials are needed to produce each unit of finished product. If Tripod
Exports plans to produce 280,000 units during the 2008-2009 fiscal year, how many kilos
of materials will the company need to purchase for its production during the year?
a. 841,000
b. 843,000
c. 840,000
d. 839,000
98.

The following information is taken from the production budget for the first quarter:
Beginning inventory in units
Sales budgeted for the quarter
Production capacity in units

600
228,000
236,000

How many finished goods units should be produced during the quarter if the company
desires 1,600 units available to start the next quarter?
a. 229,000
b. 227,000

c. 237,000
d. 229,600
99.

A company determined that the budgeted cost of producing a product is $30 per unit. On
June 1, there were 40,000 units on hand, the sales department budgeted sales of 150,000
units in June, and the company desires to have 60,000 units on hand on June 30. The
budgeted cost of goods manufactured for June would be
a. $3,900,000.
b. $5,700,000.
c. $4,500,000.
d. $5,100,000.

100.

Of the following items, which one is not obtained from an individual operating budget?
a. Selling and administrative expenses
b. Accounts receivable
c. Cost of goods sold
d. Sales

101.

Which of the following statements about a budgeted income statement is not true?
a. The budgeted income statement is prepared after the financial budgets are prepared.
b. The budgeted income statement is prepared on the accrual basis of accounting.
c. The budgeted income statement can be prepared in a multiple-step format.
d. The budgeted income statement is prepared using the individual operating budgets.

102.

What is the proper preparation sequencing of the following budgets?
1. Budgeted Balance Sheet
2. Sales Budget
3. Selling and Administrative Budget
4. Budgeted Income Statement


Test Bank for ISV Managerial Accounting, Fourth Edition

9 - 16

a.
b.
c.
d.

1, 2, 3, 4
2, 3, 1, 4
2, 3, 4, 1
2, 4, 1, 3

103.

The single most important output in preparing financial budgets is the
a. sales forecast.
b. determination of the unit cost of the product.
c. cash budget.
d. budgeted income statement.

104.

Which of the following does not appear as a separate section on the cash budget?
a. Cash receipts
b. Cash disbursements
c. Capital expenditures
d. Financing

105.

The financing section of a cash budget is needed if there is a cash deficiency or if the
ending cash balance is less than
a. the prior years.
b. management's minimum required balance.
c. the amount needed to avoid a service charge at the bank.
d. the industry average.

106.

Beginning cash balance plus total receipts
a. equals ending cash balance.
b. must equal total disbursements.
c. equals total available cash.
d. is the excess of available cash over disbursements.

107.

The projection of financial position at the end of the budget period is found on the
a. budgeted income statement.
b. cash budget.

c. budgeted balance sheet.
d. sales budget.

108.

Reed Merchandising Company expects to purchase $90,000 of materials in July and
$105,000 of materials in August. Three-quarters of all purchases are paid for in the month
of purchase, and the other one-fourth are paid for in the month following the month of
purchase. How much will August's cash disbursements for materials purchases be?
a. $67,500
b. $78,750
c. $101,250
d. $105,000

109.

Faucet Company reported the following information for 2008:
Budgeted sales



October
$620,000

November
$580,000

December
$720,000

All sales are on credit.
Customer amounts on account are collected 50% in the month of sale and 50% in the
following month.


Budgetary Planning

9 - 17

How much cash will Faucet receive in November?
a. $290,000
b. $650,000
c. $600,000
d. $580,000
110.

The following information was taken from Sloan Company’s cash budget for the month of
July:
Beginning cash balance
$240,000
Cash receipts
152,000
Cash disbursements
272,000
If the company has a policy of maintaining a minimum end of the month cash balance of
$200,000, the amount the company would have to borrow is
a. $80,000.
b. $40,000.
c. $120,000.
d. $48,000.

111.

The cash budget reflects
a. all revenues and all expenses for a period.
b. expected cash receipts and cash disbursements from all sources.
c. all the items that appear on a budgeted income statement.
d. all the items that appear on a budgeted balance sheet.

112.

The following credit sales are budgeted by Roswell Company:
January
February
March
April

$102,000
150,000
210,000
180,000

The company's past experience indicates that 70% of the accounts receivable are
collected in the month of sale, 20% in the month following the sale, and 8% in the second
month following the sale. The anticipated cash inflow for the month of April is
a. $185,160.
b. $168,000.
c. $180,000.
d. $176,400.
113.

Macoo Company's cash budget showed total available cash less cash disbursements.
What does this amount equal?
a. Ending cash balance
b. Total cash receipts
c. The excess of available cash over cash disbursements
d. The amount of financing required

114.

Which one of the following sections would not appear on a cash budget?
a. Cash receipts
b. Financing
c. Investing
d. Cash disbursements


Test Bank for ISV Managerial Accounting, Fourth Edition

9 - 18
115.

A company's past experience indicates that 60% of its credit sales are collected in the
month of sale, 30% in the next month, and 5% in the second month after the sale; the
remainder is never collected. Budgeted credit sales were:
January
February
March

$180,000

108,000
270,000

The cash inflow in the month of March is expected to be
a. $203,400.
b. $153,900.
c. $162,000.
d. $194,400.
116.

Which one of the following items would never appear on a cash budget?
a. Office salaries expense
b. Interest expense
c. Depreciation expense
d. Travel expense

117.

Farley Company reported the following information for 2008:
October
November
December
Budgeted sales
$230,000
$220,000
$270,000
Budgeted purchases $120,000
$128,000
$144,000







All sales are on credit.
Customer amounts on account are collected 50% in the month of sale and 50% in the
following month.
Cost of goods sold is 35% of sales.
Farley purchases and pays for merchandise 60% in the month of acquisition and 40%
in the following month.
Accounts payable is used only for inventory acquisitions.

How much cash will Farley receive during November?
a. $110,000
b. $245,000
c. $225,000
d. $220,000
118.

Farley Company reported the following information for 2008:
Budgeted sales
Budgeted purchases




October
$230,000
$120,000

November
$220,000
$128,000

December
$270,000
$144,000

Cost of goods sold is 35% of sales.
Farley purchases and pays for merchandise 60% in the month of acquisition and 40%
in the following month.
Accounts payable is used only for inventory acquisitions.

How much is the budgeted balance for Accounts Payable at October 31, 2008?
a. $48,000
b. $72,000
c. $102,000


Budgetary Planning
119.

9 - 19

d. $51,200
Farley Company reported the following information for 2008:
Budgeted sales



October
$310,000

November
$290,000

December
$360,000

All sales are on credit.
Customer amounts on account are collected 50% in the month of sale and 50% in the
following month.

How much is the November 30, 2008 budgeted Accounts Receivable?
a. $300,000
b. $180,000
c. $155,000
d. $145,000
120.

Farley Company reported the following information for 2008:
Budgeted purchases




October
$120,000

November
$128,000

December
$144,000

Operating expenses are: Salaries, $50,000; Depreciation, $20,000; Rent, $10,000;
Utilities, $14,000
Operating expenses are paid during the month incurred.
Accounts payable is used only for inventory acquisitions.

How much is the budgeted amount of cash to be paid for operating expenses in
November?
a. $202,000
b. $74,000
c. $94,000
d. $222,000
121.

During September, the capital expenditure budget indicates a $140,000 purchase of
equipment. The ending September cash balance from operations is budgeted to be
$20,000. The company wants to maintain a minimum cash balance of $10,000. What is
the minimum cash loan that must be planned to be borrowed from the bank during
September?
a. $110,000
b. $120,000
c. $130,000
d. $150,000

122.

Lowe Ridge has budgeted its activity for December according to the following information:
1.
2.
4.
5.

Sales at $400,000, all for cash.
Budgeted depreciation for December is $10,000.
The cash balance at December 1 was $10,000.
Selling and administrative expenses are budgeted at $40,000 for December and
are paid for in cash.
6. The planned merchandise inventory on December 31 and December 1 is $12,000.
7. The invoice cost for merchandise purchases represents 75% of the sales price. All
purchases are paid in cash.


9 - 20

Test Bank for ISV Managerial Accounting, Fourth Edition
How much are the budgeted cash disbursements for December?
a. $230,000
b. $340,000
c. $350,000
d. $328,000

123.

Streak Merchandising Company expects to purchase $60,000 of materials in March and
$70,000 of materials in April. Three-quarters of all purchases are paid for in the month of

purchase, and the other one-fourth are paid for in the month following the month of
purchase. In addition, a 2% discount is received for payments made in the month of
purchase. How much will April's cash disbursements for materials purchases be?
a. $44,100
b. $54,100
c. $66,450
d. $60,000

124.

On January 1, Dooley Company has a beginning cash balance of $63,000. During the
year, the company expects cash disbursements of $510,000 and cash receipts of
$435,000. If Dooley requires an ending cash balance of $60,000, Dooley Company must
borrow
a. $48,000.
b. $60,000.
c. $72,000.
d. $138,000.

125.

Stanbrough Company has the following budgeted sales: July $100,000, August $150,000,
and September $125,000. 40% of the sales are for cash and 60% are on credit. For the
credit sales, 50% are collected in the month of sale, and 50% the next month. The total
expected cash receipts during September are
a. $140,000.
b. $132,500.
c. $131,250.
d. $125,000.

126.

Kemper Company's direct materials budget shows total cost of direct materials purchases
for April $200,000, May $240,000 and June $280,000. Cash payments are 60% in the
month of purchase and 40% in the following month. The budgeted cash payments for
June are
a. $264,000.
b. $256,000.
c. $240,000.
d. $208,000.

127.

Which one of the following budgets would be prepared for a manufacturer but not for a
merchandiser?
a. Direct labor budget
b. Cash budget
c. Sales budget
d. Budgeted income statement


Budgetary Planning

9 - 21

128.

The formula for determining budgeted merchandise purchases is budgeted
a. production + desired ending inventory – beginning inventory.
b. sales + beginning inventory – desired ending inventory.

c. cost of goods sold + desired ending inventory – beginning inventory.
d. cost of goods sold + beginning inventory – desired ending inventory.

129.

Which one of the following is a problem resulting from a service company being
overstaffed?
a. Labor costs will be disproportionately low.
b. Profits will be higher because of the additional salaries.
c. Staff turnover may increase.
d. Revenue may be lost.

130.

The master budget for a service enterprise
a. will have the same types of budgets as a merchandiser.
b. may include a sales budget for sales revenue.
c. will not include a budgeted income statement.
d. includes a service revenue budget based on expected client billings.

131.

Budgeting in not-for-profit organizations
a. is not important because they are not profit-oriented.
b. usually starts with budgeting expenditures, rather than receipts.
c. is necessary only if some product is produced and sold.
d. consists entirely of budgeted contributions.

132.

For a merchandiser, the starting point in the development of the master budget is the
a. cash budget.
b. sales budget.
c. selling and administrative expenses budget.
d. budgeted income statement.

133.

Instead of a production budget, a merchandiser will prepare a
a. pseudo-production budget.
b. merchandise purchases budget.
c. master time sheet.
d. sales forecast.

134.

Company A is a manufacturer and Company B is a merchandiser. What is the difference
in the budgets the two entities will prepare?
a. Company A will prepare a production budget, and Company B will prepare a
merchandise purchases budget.
b. Company A will prepare a sales forecast, and Company B will prepare a sales budget.
c. Company B will prepare a production budget, and Company A will prepare a
merchandise purchases budget.
d. Both companies will prepare the same types of budgets.

135.

An appropriate activity index for a college or university for budgeting faculty positions
would be the
a. faculty hours worked.

b. number of administrators.
c. credit hours taught by a department.
d. number of days in the school term.


9 - 22

Test Bank for ISV Managerial Accounting, Fourth Edition

136.

A critical factor in budgeting for a service firm is to
a. hire professional staff to perform the budgeting work.
b. coordinate professional staff needs with anticipated services.
c. classify all personnel as either variable or fixed.
d. budget expenditures before anticipated receipts.

Additional Multiple Choice Questions
137.

The primary benefits of budgeting include all of the following except it
a. requires only top management to plan ahead and formalize their future goals.
b. provides definite objectives for evaluating performance.
c. creates an early warning system for potential problems.
d. motivates personnel throughout the organization.

138.

The responsibility for expressing management's budgeting goals in financial terms is
performed by the

a. accounting department.
b. top management.
c. lower level of management.
d. budget committee.

139.

Coordinating the preparation of the budget is the responsibility of the
a. treasurer.
b. president.
c. chief accountant.
d. budget committee.

140.

For better management acceptance, the flow of input data for budgeting should begin with
the
a. accounting department.
b. top management.
c. lower levels of management.
d. budget committee.

141.

In the direct materials budget, the quantity of direct materials to be purchased is computed
by adding direct materials required for production to
a. desired ending direct materials.
b. beginning direct materials.
c. desired ending direct materials less beginning direct materials.
d. beginning direct materials less desired ending direct materials.

142.

Unger Company has 12,000 units in beginning finished goods. If sales are expected to be
60,000 units for the year and Unger desires ending finished goods of 15,000 units, how
many units must the company produce?
a. 57,000
b. 60,000
c. 63,000
d. 75,000


Budgetary Planning

9 - 23

143.

The important end-product of the operating budgets is the
a. budgeted income statement.
b. cash budget.
c. production budget.
d. budgeted balance sheet.

144.

On January 1, Hogan Company has a beginning cash balance of $21,000. During the year,
the company expects cash disbursements of $170,000 and cash receipts of $145,000. If
Hogan requires an ending cash balance of $20,000, the company must borrow
a. $16,000.

b. $20,000.
c. $24,000.
d. $46,000.

145.

The budget that is often considered to be the most important financial budget is the
a. cash budget.
b. capital expenditure budget.
c. budgeted income statement.
d. budgeted balance sheet.

146.

Auermann Company's direct materials budget shows total cost of direct materials
purchases for January $125,000, February $150,000 and March $175,000. Cash
payments are 60% in the month of purchase and 40% in the following month. The
budgeted cash payments for March are
a. $165,000.
b. $160,000.
c. $150,000.
d. $130,000.

147.

A purchases budget is used instead of a production budget by
a. merchandising companies.
b. service enterprises.
c. not-for-profit organizations.
d. manufacturing companies.

148.

Which of the following statements is incorrect?
a. A continuous twelve-month budget results from dropping the month just ended and
adding a future month.
b. The production budget is derived from the direct materials and direct labor budgets.
c. The cash budget shows anticipated cash flows.
d. In the budget process for not-for-profit organizations, the emphasis is on cash flow
rather than on revenue and expenses.


Test Bank for ISV Managerial Accounting, Fourth Edition

9 - 24

Answers to Multiple Choice Questions
Item

Ans.

37.
38.
39.
40.
41.
42.
43.
44.
45.

46.
47.
48.
49.
50.
51.
52.

b
b
b
c
a
d
d
b
c
c
d
d
b
a
d
d

Item

53.
54.
55.

56.
57.
58.
59.
60.
61.
62.
63.
64.
65.
66.
67.
68.

Ans.

d
b
d
c
d
d
b
c
d
a
d
b
d
c

d
c

Item

69.
70.
71.
72.
73.
74.
75.
76.
77.
78.
79.
80.
81.
82.
83.
84.

Ans.

Item

Ans.

Item

Ans.

a
b
d
a
d
d
c
d
b
d
b
a
c
d
d
a

85.
86.
87.
88.
89.
90.
91.
92.
93.
94.
95.

96.
97.
98.
99.
100.

c
b
b
a
c
a
c
a
a
c
a
a
a
a
d
b

101.
102.
103.
104.
105.
106.
107.

108.
109.
110.
111.
112.
113.
114.
115.
116.

a
c
c
c
b
c
c
c
c
a
b
c
c
c
a
c

Item

117.

118.
119.
120.
121.
122.
123.
124.
125.
126.
127.
128.
129.
130.
131.
132.

Ans.

Item

Ans.

c
a
d
b
c
b
c
c

b
a
a
c
c
d
b
b

133.
134.
135.
136.
137.
138.
139.
140.
141.
142.
143.
144.
145.
146.
147.
148.

b
a
c
b

a
a
d
c
c
c
a
c
a
a
a
b

BRIEF EXERCISES
BE 149
Key Co. manufactures beanies. The budgeted units to be produced and sold are below:
August
September

Expected Production
3,100
2,800

Expected Sales
2,900
3,900

It takes 24 yards of yarn to produce a beanie. The company's policy is to maintain yarn at the end
of each month equal to 5% of next month's production needs and to maintain a finished goods
inventory at the end of each month equal to 20% of next month's anticipated production needs.

The cost of yarn is $0.20 a yard. At August 1, 3,720 yards of yarn were on hand.
Instructions
Compute the budgeted cost of purchases.
Solution 149

(5 min.)

Units to be produced
Yards needed per unit
Yards needed for production
Add: Desired materials ending inventory (yards) (5% × 2,800 × 24)
Less: Beginning inventory on hand (yards) (5% × 3,100 × 24)
Yards needed to purchase
Cost per yard
Budgeted cost of purchases

3,100
24
74,400
3,360
(3,720)
74,040
$0.20
$14,808


Budgetary Planning

9 - 25

BE 150
The budget components for McLeod Company for the quarter ended June 30 appear below.
McLeod sells trash cans for $12 each. Budgeted production for the next four months is:
April
May
June

26,000 units
46,000 units
29,000 units

McLeod desires to have trash cans on hand at the end of each month equal to 20 percent of the
following month’s budgeted sales in units. On March 31, McLeod had 4,000 completed units on
hand. The number of trash cans to be produced in April and May are 26,000 and 46,000,
respectively. Seven pounds of plastic are required for each trash can. At the end of each month,
McLeod desires to have 10 percent of the following month’s production material needs on hand.
At March 31, McLeod had 18,200 pounds of plastic on hand. The materials used in production
costs $0.60 per pound. Each trash can produced requires 0.10 hours of direct labor.
Instructions
Compute the cost of the plastic inventory at the end of May.
Solution 150

(4 min.)

Cost of ending inventory = (10% × 29,000) × 7 × $0.60 per pound = $12,180

BE 151
Seas, Inc. makes and sells buckets. Each bucket uses 3/4 pound of plastic. Budgeted production
of buckets in units for the next three months is as follows:
Budgeted production

April
21,000

May
20,000

June
24,000

The company wants to maintain monthly ending inventories of plastic equal to 25% of the
following month's budgeted production needs. The cost of plastic is $2.12 per pound.
Instructions
Prepare a direct materials purchases budget for the month of May.
Solution 151

(5 min.)

Buckets to be produced during May
Pounds of plastic needed for each bucket
Total pounds of plastic needed for production
Add ending inventory, pounds of plastic desired (25% × 24,000 × 3/4)
Less beginning inventory, pounds of plastic (25% × 20,000 × 3/4)
Pounds of plastic needed to purchase
Cost per pound
Estimated cost of purchases for May

20,000
3/4
15,000

4,500
(3,750)
15,750
$2.12
$33,390