Question 1

When a company's district managers submitted their preliminary budget proposals, top management discovered that the southern district manager had requested a new project management information system. Unfortunately, the system is incompatible with the system used at headquarters. Which of the following advantages of budgeting reduces the likelihood that the company will end up with two incompatible systems?

Accepted Answer

A)   Planning
B)   Coordination
C)   Performance measurement
D)   Corrective measuresE) A) and D)
F) C) and D)

Question 2

Which of the following accounts would appear on the sales budget and the pro forma income statement?

Accepted Answer

A)   Selling and administrative expenses
B)   Sales revenue
C)   Accounts receivable
D)   Both sales and accounts receivable are correctE) C) and D)
F) B) and D)

Question 3

Which of the following is a benefit of participative budgeting?

Accepted Answer

A)   Employees tend to be more motivated to achieve the budget.
B)   A twelve-month planning horizon is maintained at all times.
C)   Budget planning is highly centralized.
D)   Communication is clearer because it flows in only one direction - upward.E) A) and C)
F) B) and D)

Question 4

Budgeted sales commissions would appear on the:

Accepted Answer

A)   selling, general and administrative budget and pro forma income statement
B)   selling, general and administrative budget and pro forma balance sheet
C)   sales budget and pro forma balance sheet
D)   sales budget and pro forma income statementE) A) and B)
F) A) and C)

Question 5

Sentra Sporting Company sells tennis rackets and other sporting equipment. The purchasing department manager prepared the inventory purchases budget. Sentra's policy is to maintain an ending inventory balance equal to 15% of the following month's cost of goods sold. January's budgeted cost of goods sold is $70,000.  What is the amount of cost of goods sold the company will report on its fourth quarter pro forma income statement?

Accepted Answer

A)   $100,000
B)   $50,000
C)   $150,000
D)   $162,300E) C) and D)
F) B) and D)

Question 6

The budgeting technique that provides for employee input into the planning process is known as:

Accepted Answer

A)   continuous budgeting.
B)   perpetual budgeting.
C)   participative budgeting.
D)   zero-based budgeting.E) A) and C)
F) None of the above

Question 7

Select the incorrect statement regarding the cash budget.

Accepted Answer

A)   The cash budget helps managers to anticipate cash shortages and excess cash balances.
B)   Cash inflows and outflows indicated on the cash budget are reported on a company's pro forma statement of cash flows.
C)   Cash payments may include outflows for inventory, selling and administrative expenses, and equipment purchases.
D)   The total cash available is calculated by adding cash receipts and the ending cash balance.E) A) and C)
F) A) and B)

Question 8

Valley Farm Supply started the period with $80,000 cash. Cash receipts for January expected to total $350,000. Cash disbursements for January were expected to be $290,000. What is the expected cash balance at the end of January?

Accepted Answer

A)   $290,000
B)   $350,000
C)   $80,000
D)   $140,000E) None of the above
F) B) and C)

Question 9

Select the correct statement.

Accepted Answer

A)   The four advantages of budgeting include planning, coordination, performance measurement, and reporting.
B)   In a participative budgeting system, budget information flows in one direction only, from bottom to top.
C)   The three major categories of the master budget are operating budgets, capital budgets, and pro forma financial statements.
D)   The accounting department normally coordinates the development of the sales forecast.E) B) and C)
F) C) and D)

Question 10

What information does the sales budget provide for pro forma financial statements?

Accepted Answer

A)   Total budgeted sales to be used on the pro forma income statement
B)   Cash collections from customers to be used on the pro forma balance sheet
C)   The ending balance in accounts payable which appears on the pro forma balance sheet
D)   All of the answers are correct.E) A) and C)
F) All of the above

Question 11

The capital budget does not affect any of a company's operating budgets.

Accepted Answer

A) True 
 B)False

Question 12

Hernandez Company expects credit sales for January to be $100,000. Cash sales are expected to be $60,000. The company expects credit and cash sales to increase 10% for the month of February. Credit sales are collected in the month following the month in which sales are made. Based on this information the amount of cash collections in February would be:

Accepted Answer

A)   $166,000.
B)   $160,000.
C)   $170,000.
D)   $176,000.E) C) and D)
F) A) and B)

Question 13

Interest expense is not included in the selling and administrative budget because a company cannot estimate interest expense until it prepares the cash budget and makes borrowing projections.

Accepted Answer

A) True 
 B)False

Question 14

Bright Minds Toy Company prepared the following sales budget for the second quarter. Projected sales for each of the first three months of operations are as follows:  Bright Minds expects to collect 70% of the sales on account in the month of sale, and 20% in the month following the sale, and the remainder in the second month following the sale.
What is the ending accounts receivable balance that would be reported on the pro forma balance sheet prepared as of June 30?

Accepted Answer

A)   $164,700
B)   $121,500
C)   $283,500
D)   $86,400E) C) and D)
F) A) and B)

Question 15

Which of the following would represent the order in which most master budgets are prepared?

Accepted Answer

A)   Sales, Income Statement, Cash, Purchases
B)   Purchases, Cash, Sales, Income Statement
C)   Purchases, Sales, Cash, Income Statement
D)   Sales, Purchases, Cash, Income StatementE) A) and B)
F) B) and D)

Question 16

Which of the following would appear on a selling and administrative expense budget, but would not appear on a schedule of cash payments for selling and administrative expenses?

Accepted Answer

A)   Cost of goods sold
B)   Depreciation expense
C)   Salary expense
D)   Sales expenseE) B) and D)
F) A) and B)

Question 17

Payne Company provided the following information relevant to its inventory sales and purchases for December Year 1 and the first quarter of Year 2:  Desired ending inventory levels are 25% of the following month's projected cost of goods sold. The company purchases all inventory on account. January Year 2 budgeted purchases are $150,000. The normal schedule for inventory payments is 60% payment in month of purchase and 40% payment in month following purchase.
Budgeted cash payments for inventory in February Year 2 would be:

Accepted Answer

A)   $132,600.
B)   $152,600.
C)   $99,000.
D)   $159,000.E) A) and B)
F) All of the above

Question 18

If a company purchases its inventory on account, it need not prepare a schedule of cash payments for inventory purchases.

Accepted Answer

A) True 
 B)False

Question 19

Which of the following would not be included in the cash budget?

Accepted Answer

A)   Receipts from customers
B)   Ending cash balance
C)   Interest expense
D)   Depreciation expenseE) B) and C)
F) A) and D)

Question 20

The budgeting process that involves adding a month to the end of the budget period at the end of each month, thus maintaining a twelve-month planning horizon, is referred to as:

Accepted Answer

A)   participative budgeting.
B)   capital budgeting.
C)   continuous budgeting.
D)   zero-based budgeting.E) None of the above
F) A) and B)

Exam 14: Planning for Profit and Cost Control

The capital budget does not affect any of a company's operating budgets.

Correct Answer
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The budgeting process that involves adding a month to the end of the budget period at the end of each month, thus maintaining a twelve-month planning horizon, is referred to as:

Correct Answer
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Correct Answer
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Select the incorrect statement regarding the cash budget.

Correct Answer
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Valley Farm Supply started the period with $80,000 cash. Cash receipts for January expected to total $350,000. Cash disbursements for January were expected to be $290,000. What is the expected cash balance at the end of January?

Correct Answer
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Correct Answer
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Select the correct statement.

Correct Answer
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Which of the following accounts would appear on the sales budget and the pro forma income statement?

Correct Answer
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What information does the sales budget provide for pro forma financial statements?

Correct Answer
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If a company purchases its inventory on account, it need not prepare a schedule of cash payments for inventory purchases.

Correct Answer
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Which of the following is a benefit of participative budgeting?

Correct Answer
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Correct Answer
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Which of the following would not be included in the cash budget?

Correct Answer
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Budgeted sales commissions would appear on the:

Correct Answer
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Which of the following would represent the order in which most master budgets are prepared?

Correct Answer
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Which of the following would appear on a selling and administrative expense budget, but would not appear on a schedule of cash payments for selling and administrative expenses?

Correct Answer
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Interest expense is not included in the selling and administrative budget because a company cannot estimate interest expense until it prepares the cash budget and makes borrowing projections.

Correct Answer
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The budgeting technique that provides for employee input into the planning process is known as:

Correct Answer
verified

Exam 14: Planning for Profit and Cost Control

The capital budget does not affect any of a company's operating budgets.

Correct AnswerverifiedShow Answer

The budgeting process that involves adding a month to the end of the budget period at the end of each month, thus maintaining a twelve-month planning horizon, is referred to as:

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

Select the incorrect statement regarding the cash budget.

Correct AnswerverifiedShow Answer

Valley Farm Supply started the period with $80,000 cash. Cash receipts for January expected to total $350,000. Cash disbursements for January were expected to be $290,000. What is the expected cash balance at the end of January?

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

Select the correct statement.

Correct AnswerverifiedShow Answer

Which of the following accounts would appear on the sales budget and the pro forma income statement?

Correct AnswerverifiedShow Answer

What information does the sales budget provide for pro forma financial statements?

Correct AnswerverifiedShow Answer

If a company purchases its inventory on account, it need not prepare a schedule of cash payments for inventory purchases.

Correct AnswerverifiedShow Answer

Which of the following is a benefit of participative budgeting?

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

Which of the following would not be included in the cash budget?

Correct AnswerverifiedShow Answer

Budgeted sales commissions would appear on the:

Correct AnswerverifiedShow Answer

Which of the following would represent the order in which most master budgets are prepared?

Correct AnswerverifiedShow Answer

Which of the following would appear on a selling and administrative expense budget, but would not appear on a schedule of cash payments for selling and administrative expenses?

Correct AnswerverifiedShow Answer

Interest expense is not included in the selling and administrative budget because a company cannot estimate interest expense until it prepares the cash budget and makes borrowing projections.

Correct AnswerverifiedShow Answer

The budgeting technique that provides for employee input into the planning process is known as:

Correct AnswerverifiedShow Answer

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