Master Budget Quizzers

QUIZ Marathon 1: Theory Questions: 1. A budget aids in a. communication. b. motivation. c. coordination. d. all of the above. 2. Measuring the firm’s performance against established objectives is part of which of the following functions? a. Planning b. Controlling c. Organizing d. Staffing 3. The preparation of an organization’s budget a. forces management to look ahead and try to see the future of the organization. b. requires that the entire management team work together to make and carry out the yearly plan. c. makes performance review possible at all levels of management. d. all of the above. 4. External factors that cause the achievement of company goals are the a. annual budget. b. industry price and cost structure. c. talents possessed by its managers. d. board of directors. 5.A budget is a. a planning tool. b. a control tool. c. a means of communicating goals to the firm’s divisions. d. all of the above. 6.Ineffective budgets and/or control systems are characterized by the use of a. budgets as a planning tool only and disregarding them for control purposes. b. budgets for motivation. c. budgets for coordination. d. the budget for communication. 7.Strategic planning is a. planning activities for promoting products for the future. b. planning for appropriate assignments of resources. c. setting standards for the use of important but hard-to-find materials. d. stating and establishing long-term plans. 8. Key variables that are identified in strategic planning are

MASTER BUDGET (Set A) a. normally controllable if they are internal. b. seldom if ever controllable. c. normally controllable if they occur in a domestic market. d. normally uncontrollable if they are internal. 9. Tactical planning usually involves which level of management? a. middle b. top c. middle and top d. operational 10. Which of the following statements is true? a. All organizations have the same set of budgets. b. All organizations are required to budget. c. Budgets are a quantitative expression of an organization’s goals and objectives. d. Budgets should never be used to evaluate performance. 11. Which of the following is not normally a characteristic of a profit rich, cash poor company? a Low inventory turnover. b High accounts receivable turnover. c High operating income, but low cash flow from operations. d A long operating cycle. 12. Which of the following is not considered a benefit from budgeting? a Limited managerial perspectives. b Advance warning of problems. c Better coordination among activities. d A measure of performance evaluation. 1 3. Which of the following is a characteristic of the behavioral approach to setting budget targets? a Complete elimination of inefficiency. b Complete elimination of non-valueadding activities. c Constant need for improvement. d Achievable performance expectations. 14. Which of the following is not normally considered an element of a master budget? a The production schedule. b The employee turnover budget. c The operating expense budget. d The cash budget. 15. Which budget typically serves as a starting point in developing a master budget? a The sales budget. b The cost of goods sold budget. c The employee turnover budget. d The manufacturing cost budget

16 Which of the following statements incorrectly describe relationships within the master budget? a The manufacturing budget is based in large part upon the sales forecast. b In many elements of the master budget, the amounts budgeted for the upcoming quarter are reviewed and subdivided into monthly budget figures. c The manufacturing cost budget affects the budgeted income statement, the cash budget, and the budgeted balance sheet. d The capital expenditures budget has a greater effect upon the budgeted income statement than it does upon the budgeted balance sheet. 17 Rodgers Mfg. Co. prepares a flexible budget. The original budget forecasted sales of 100,000 units @ $20, and operating expenses of $300,000 fixed plus $2 per unit. Production also was budgeted at 100,000 units. Actual sales and production for the period totaled 110,000 units. When the budget is adjusted to reflect these new activity levels, which of the following budgeted amounts will increase, but by less than 10%? a Sales revenue. b Variable manufacturing costs. c Fixed manufacturing costs. d Total operating expenses. 18 Lamberton Manufacturing Company has just completed its master budget. The budget indicates that the company’s operating cycle needs to be shortened. Thus, the company will likely attempt: a Decreasing its inventory turnover. b Decreasing its accounts receivable turnover. c Tighten credit policies. d None of the above selections is correct. 19 Which of the following is not an element of the master budget? a The capital expenditures budget. b The production schedule. c The operating expense budget. d All of the above are elements of the master budget. 20 Which of the following is not a potential benefit of using budgets? a Enhanced coordination of firm activities. b More motivated managers c More accurate external financial statements. d Improved interdepartmental communication.

PROBLEMS:

1. Budgeted sales for the first six months of 2001 for Henry Corp. are listed below: JANUARY FEBRUARY MARCH APRIL MAY JUNE UNITS: 6,000 7,000 8,000 7,000 5,000 4,000 Henry Corp. has a policy of maintaining an inventory of finished goods equal to 40 percent of the next month’s budgeted sales. If Henry Corp. plans to produce 6,000 units in June, what are budgeted sales for July? 2. McGill Co. manufactures card tables. The company has a policy of maintaining a finished goods inventory equal to 40 percent of the next month’s planned sales. Each card table requires 3 hours of labor. The budgeted labor rate for the coming year is $13 per hour. Planned sales for the months of April, May, and June are respectively 4,000; 5,000; and 3,000 units. The budgeted direct labor cost for June for McGill Co. is $136,500. What are budgeted sales for July for McGill Co.? 3. Budgeted sales for K Inc. for the first quarter of 2001 are shown below: JANUARY FEBRUARY MARCH UNITS: 35,000 25,000 32,000 The company has a policy that requires the ending inventory in each period to be 10 percent of the following period’s sales. Assuming that the company follows this policy, what quantity of production should be scheduled for February? 4. Budgeted sales for the first six months of 2001 for Henry Corp. are listed below: JANUARY FEBRUARY MARCH APRIL MAY JUNE UNITS: 6,000 7,000 8,000 7,000 5,000 4,000 Henry Corp. has a policy of maintaining an inventory of finished goods equal to 40 percent of the next month’s budgeted sales. How many units has Henry Corp. budgeted to produce in the first quarter of 2001? 5. Production of Product X has been budgeted at 200,000 units for May. One unit of X requires 2 lbs. of raw material. The projected beginning and ending materials inventory for May are: Beginning inventory: 2,000 lbs. Ending inventory: 10,000 lbs. How many lbs. of material should be purchased during May? 6. X Co. manufactures toy airplanes. Information on X Co.’s labor costs follow: Sales commissions $5 per plane Administration $10,000 per month Indirect factory labor $3 per plane Direct factory labor $5 per plane The following information applies to the upcoming month of July for X Co.:

Budgeted production 1,200 units Budget sales 1,000 units What amount of budgeted labor cost would appear in the July selling, general, and administrative expense budget? 7. McGill Co. manufactures card tables. The company has a policy of maintaining a finished goods inventory equal to 40 percent of the next month’s planned sales. Each card table requires 3 hours of labor. The budgeted labor rate for the coming year is $13 per hour. Planned sales for the months of April, May, and June are respectively 4,000; 5,000; and 3,000 units. What is McGill Co.’s budgeted direct labor cost for May? 8. X Co. manufactures toy airplanes. Information on X Co.’s labor costs follow: Sales commissions $5 per plane Administration $10,000 per month Indirect factory labor $3 per plane Direct factory labor $5 per plane The following information applies to the upcoming month of July for X Co.: Budgeted production 1,200 units Budget sales 1,000 units What is X Co.’s budgeted factory labor cost for July? 9. E Co. has the following expected pattern of collections on credit sales: 70 percent collected in the month of sale, 15 percent in the month after the month of sale, and 14 percent in the second month after the month of sale. The remaining 1 percent is never collected. At the end of May, E Co. has the following accounts receivable balances: From April sales $21,000 From May sales 48,000 E’s expected sales for June are $150,000. How much cash will E Co. expect to collect in June? 10. For the month of October, P Corp. predicts total cash collections to be $1 million. Also for October, P Corp. estimates that its beginning cash balance will be $50,000 and that it will borrow cash in the amount of $70,000. If P Corp. estimates an ending cash balance of $30,000 for October, what must its projected cash disbursements be? 11. Volkers Hospital has provided you with the following budget information for April: Cash collections $876,000 April 1 cash balance 23,000 Cash disbursements 978,600 Volkers has a policy of maintaining a minimum cash balance of $20,000 and borrows only in $1,000 increments. How much will Volkers borrow in April?

12. Hayden Corporation budgeted its cost of finished goods manufactured at $500,000 for May. Its May 31 finished goods inventory budgeted to be twice the level of its May 1 finished goods inventory. The cost of goods sold budget for May has been set at $450,000. Hayden’s finished goods inventory at May 31 is budgeted at: 13. Suffolk Corporation expects to incur $360,000 in expenses during June (excluding interest and taxes). Of this amount, depreciation is budgeted at $70,000, and expired prepayments are budgeted at $35,000. Suffolk’s current payables total $60,000 at June 1 and are budgeted to increase to $70,000 by June 30. Payments on current payables budgeted for June total 14. Weaver Corporation pays its debt service costs in full each month. April debt service costs are budgeted at $9,000. However, of this amount, only $1,000 represents a reduction principal. The company expects to issue no new debt during the month.What cash disbursement amount will be shown on Weaver’s debt service budget? 15. Capricorn, Inc. uses a flexible budget. Capricorn produced 16,000 units in May incurring direct materials cost of $20,480. Its master budget for the year projected direct materials cost of $362,500, at a production volume of 290,000 units. A flexible budget for May should reflect direct materials cost of: 16-20.(5 points) Listed below are eight operating budget estimates. In the space provided, list which of these estimates is typically made first, second, third, etc. (a) ____Operating expense budget (b) ____Budgeted income statement (c) ____Ending finished goods forecast (d) ____Production schedule (in units) (e) ____Manufacturing cost estimates (f) ____Cost of goods sold budget (g) ____Sales forecast (h) ____Manufacturing cost budget

you started up this road, because you will have your CPA license.”

“Begin NOW thinking about how you will rejoin civilized society, but at a much higher level than you were when QUIZ Marathon 1: MASTER BUDGET (Set B) Theory Questions: 1. It is least likely that a production budget revision would cause a revision in the a. capital budget. b. cash budget. c. purchases budget. d. pro forma balance sheet. 2. Budgeted production for a period is equal to a. the beginning inventory + sales – the ending inventory. b. the ending inventory + sales – the beginning inventory. c. the ending inventory + the beginning inventory – sales. d. sales – the beginning inventory + purchases. 3. Chronologically, in what order are the sales, purchases, and production budgets prepared? a. sales, purchases, production b. sales, production, purchases c. production, sales, purchases d. purchases, sales, production 4. The material purchases budget tells a manager all of the following except the a. quantity of material to be purchased each period. b. quantity of material to be consumed each period. c. cost of material to be purchased each period. d. cash payment for material each period. 5. Of the following budgets, which one is least likely to be determined by the dictates of top management? a. sales b. material usage c. revenues d. general and administrative 6. The amount of raw material purchased in a period may be different than the amount of material used that period because a. the number of units sold may be different from the number of units produced.

b. finished goods inventory may fluctuate during the period. c. the raw material inventory may increase/decrease during the period. d. companies often pay for material in the period after it is purchased. 7. A purchases budget is a. not affected by the firm’s policy of granting credit to customers. b. the same thing as a production budget. c. needed only if a firm does not pay for its merchandise in the same period as it is purchased. d. affected by a firm’s inventory policy only if the firm purchases on credit. 8. Which of the following equations can be used to budget purchases? (BI = beginning inventory, EI = ending inventory desired, CGS = budgeted cost of goods sold, P = budgeted purchases) a. P = CGS + BI – EI b. P = CGS + BI c. P = CGS + EI + BI d. P = CGS + EI – BI 9. Both the budgeted quantity of material to be purchased and the budgeted quantity of material to be consumed can be found in the a. material purchases budget. b. production budget. c. pro forma income statement. d. cash budget. 10. A company that maintains a raw material inventory, which is based on the following month’s production needs, will purchase less material than it uses in a month where a. sales exceed production. b. production exceeds sales. c. planned production exceeds the next month’s planned production. d. planned production is less than the next month’s planned production. 11. Which of the following is not considered an operating budget? A) Manufacturing cost budget.

B) Production schedule. C) Capital expenditures budget. D) Sales forecast. 12. Which element of a master budget would normally be prepared first? A) A production budget. B) A cash budget. C) A budget of operating expenses. D) A sales forecast.

C) A budgeted income statement. D) A production budget. 20. A cash budget is affected directly by each of the following except: A) A capital expenditures budget. B) A sales forecast. C) A manufacturing cost budget. D) A budgeted income statement.

13. Which of the following is a major component of a master budget? A) A production throughput schedule. B) A machinery maintenance schedule. C) A manufacturing cost budget. D) An employee training budget.

PROBLEMS:

14. Which of the following is considered an operating budget estimate? A) The prepayments budget. B) The debt service budget. C) The manufacturing cost budget. D) The capital expenditures budget.

(a) ____Operating expense budget (b) ____Budgeted income statement (c) ____Ending finished goods forecast (d) ____Production schedule (in units) (e) ____Manufacturing cost estimates (f) ____Cost of goods sold budget (g) ____Sales forecast (h) ____Manufacturing cost budget

15. The sales forecast directly affects many elements of the master budget. Which of the following would be least affected by short-term fluctuations in the sales forecasts? A) The production schedule. B) The budgeted income statement. C) The capital expenditures budget. D) The operating expense budget. 16. The production schedule in units: A) Cannot be prepared until the budgeted income statement is completed. B) Is dependent upon the sales forecast for the period. C) Is based upon the manufacturing cost budget, that is, upon the level of funds available for manufacturing costs. D) Is the starting point in the preparation of the master budget. 17. Preparation of a budgeted income statement does not require: A) Estimates of cost of goods sold. B) Estimates of the timing of cash receipts and payments. C) Preparation of a sales forecast. D) Anticipation of operating expenses. 18. Which of the following is considered a financial budget estimate? A) The manufacturing cost budget. B) The cost of goods sold budget. C) The operating expense budget. D) The prepayments budget. 19. Which element of a master budget would normally be prepared last? A) A cash budget. B) A budgeted balance sheet.

1-5. Listed below are eight operating budget estimates. In the space provided, list which of these estimates is typically made first, second, third, etc.

6. Budgeted sales for the first six months of 2001 for Henry Corp. are listed below: JANUARY FEBRUARY MARCH APRIL MAY JUNE UNITS: 6,000 7,000 8,000 7,000 5,000 4,000 Henry Corp. has a policy of maintaining an inventory of finished goods equal to 40 percent of the next month’s budgeted sales. How many units has Henry Corp. budgeted to produce in the first quarter of 2001? 7. Production of Product X has been budgeted at 200,000 units for May. One unit of X requires 2 lbs. of raw material. The projected beginning and ending materials inventory for May are: Beginning inventory: 2,000 lbs. Ending inventory: 10,000 lbs. How many lbs. of material should be purchased during May? 8. X Co. manufactures toy airplanes. Information on X Co.’s labor costs follow: Sales commissions $5 per plane Administration $10,000 per month Indirect factory labor $3 per plane Direct factory labor $5 per plane The following information applies to the upcoming month of July for X Co.: Budgeted production 1,200 units Budget sales 1,000 units What amount of budgeted labor cost would appear in the July selling, general, and administrative expense budget?

9 McGill Co. manufactures card tables. The company has a policy of maintaining a finished goods inventory equal to 40 percent of the next month’s planned sales. Each card table requires 3 hours of labor. The budgeted labor rate for the coming year is $13 per hour. Planned sales for the months of April, May, and June are respectively 4,000; 5,000; and 3,000 units. What is McGill Co.’s budgeted direct labor cost for May? 10 X Co. manufactures toy airplanes. Information on X Co.’s labor costs follow: Sales commissions $5 per plane Administration $10,000 per month Indirect factory labor $3 per plane Direct factory labor $5 per plane The following information applies to the upcoming month of July for X Co.: Budgeted production 1,200 units Budget sales 1,000 units What is X Co.’s budgeted factory labor cost for July? 11. E Co. has the following expected pattern of collections on credit sales: 70 percent collected in the month of sale, 15 percent in the month after the month of sale, and 14 percent in the second month after the month of sale. The remaining 1 percent is never collected. At the end of May, E Co. has the following accounts receivable balances: From April sales $21,000 From May sales 48,000 E’s expected sales for June are $150,000. How much cash will E Co. expect to collect in June? 12. For the month of October, P Corp. predicts total cash collections to be $1 million. Also for October, P Corp. estimates that its beginning cash balance will be $50,000 and that it will borrow cash in the amount of $70,000. If P Corp. estimates an ending cash balance of $30,000 for October, what must its projected cash disbursements be? 13. Volkers Hospital has provided you with the following budget information for April: Cash collections $876,000 April 1 cash balance 23,000 Cash disbursements 978,600 Volkers has a policy of maintaining a minimum cash balance of $20,000 and borrows only in $1,000 increments. How much will Volkers borrow in April? Use the following information for questions 63– 65. CASH BUDGET CASE A CASE B CASE C Beginning cash balance $ 100 $ 300 $ 700 Cash collections ? 400 ?

Cash disbursements 500 Cash excess (shortage) 400 Borrowing (repayments) ? Ending cash 200 200

? ?

600 ?

300

100

100

14 In CASE A, what are the budgeted cash collections? 15 In CASE B, what are the budgeted cash disbursements? 16. In CASE C, what are the budgeted cash collections? 17. On October 1 of the current year, Jackson Corporation prepared a cash budget for October, November, and December. All of Jackson‘s sales are made on account. The following information was used in preparing estimated cash collections:

Approximately 60% of all sales are collected in the month of the sale, 30% is collected in the following month, and 10% is collected in the month thereafter. 17 Refer to the information above. Budgeted collections from customers in October total: 18. Refer to the information above. Budgeted collections from customers in November total: 19. Refer to the information above. Budgeted collections from customers in December total: 20. Capricorn, Inc. uses a flexible budget. Capricorn produced 16,000 units in May incurring direct materials cost of $20,480. Its master budget for the year projected direct materials cost of $362,500, at a production volume of 290,000 units. A flexible budget for May should reflect direct materials cost of:

“Begin NOW thinking about how you will rejoin civilized society, but at a much higher level than you were when you started up this road, because you will have your CPA license.”