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A just-in-time manufacturer does NOT need a sales budget. T 2. A flexible budget allowance is NOT especially useful for budgeting discret ionary costs. F 3. The purchases budget is prepared before the sales budget because the compa ny cannot estimate what it will sell until it has some idea of what will be on h and. F 4. The longer the time period covered by a budget, the more useful the budget will be for controlling operations. F 5. A purchases budget is normally prepared after the company has forecast how much cash it will have available to pay for purchases. F 6. Imposed budgets are exceptionally ambitious goals not likely to be achieve d without making fundamental changes in the way a job is done. F 7. A JIT manufacturer that maintains no inventory doesn't need a cash disburs ements budget. F 8. The budget for a retailer is likely to be more complex than that for a man ufacturer because a retailer has a wider variety of customers. F 9. The increasing public demand for accountability from governmental and othe r not-for-profit organizations has resulted in an increased use of incremental b udgeting. T 10. Line-by-line budget authorization is common in governmental units. Multiple Choice A 1. The starting point in preparing a comprehensive budget is a. the sales forecast. b. the cash budget. c. the budgeted income statement. d. the flexible expense budget. D 2. Budgets are related to which of the following management functions? a. Planning. b. Control. c. Performance evaluation. d. All of the above. D 3. Which of the following should be used to forecast sales? a. Regression analysis. b. The scatter diagram. c. The judgment of the most experienced managers. d. Whatever method produces the most accurate forecast. A 4. A critical factor for using indicator methods to forecast sales is a. the availability of a forecasted value for the indicator. b. an upward trend in the value of the indicator. c. governmental collection of data for computing and reporting the value o f the indicator.
d. b. Costs of the product shipping department. Budgeted purchases = CGS + BI . Inventory policy is most critical in the budgeting of a.EI b. b. the availability of an indicator that covers the entire country. D 13. A 12. sales. b. one that uses the formula total cost = cost per unit x units produced. c.BI B 6. It facilitates control by permitting comparisons of budgeted and actual . d. with only fixed costs. a static budget includes only fix ed costs. A flexible budget includes all costs. Budgeted purchases = CGS + EI . assist in planning the operations of the company. CGS = budgeted cost of goods sold) a. A 10. Costs of the material receiving department. can lead to low levels of performance. line budgeting. c. d. D 5. b. b. d. adjusted to reflect expected costs at the actual level of activity. A flexible budget includes only variable costs. C 9. A flexible budget is a. purchases. flexible budgeting.d. c. d. Costs of the general accounting department. C 11. cost of goods sold. with any of the above characteristics. very low costs) a. b. c. zero-based budgeting.. Which of the following equations can be used to budget purchases? (BI = b eginning inventory. c. Budgeted purchases = CGS + BI c. one that can be changed whenever a manager so desires. with only variable costs. Budgets set at very high levels of performance (i. EI = ending inventory desired. d. Which of the following is NOT an advantage of budgeting? a. b. b. A static budget is most appropriate for a department a. a static budget does not. with mostly mixed costs. Budgeting expenditures by purpose is called a. A flexible budget gives different allowances for different levels of ac tivity. are helpful in evaluating the performance of managers. stimulate people to perform better than they ordinarily would. None of the above. c. Costs of the production department. It requires managers to state their objectives. the same as a continuous budget. c. Which of the following is a difference between a static budget and a flexi ble budget? a. a static budget include s only fixed costs.e. program budgeting. Budgeted purchases = CGS + EI + BI d. expenses. The use of flexible (as opposed to static) budget allowances is LEAST impo rtant for which of the following? a. D 8. d. B 7.
b. B 21. prepared its purchases budget. All of the above. c. B 15. eliminates the need for a sales forecast. The company will show a profit. prepare production budgets without a sales forecast. c. Which of the following is LEAST likely to be affected if unit sales for th is month are lower than budgeted? a. It provides a check-up device that allows managers to keep close tabs o n their subordinates. b. determined that enough cash is available to meet dividend payments. setting budget allowances based on prior year expenditures. c. It facilitates performance evaluation by permitting comparisons of budg eted and actual results. d. X's actual purchases in June will be higher than budgeted. which of the follo wing is most likely to be true? a. use static budget allowances for manufacturing costs. d. is best for planning purposes. C 19. A cash budget is NOT prepared until a company has a. obtained a commitment from its bank that cash will be available as need ed. d. it can only be used by not-for-profit entities. "Incremental budgeting" refers to a. d. d. If cash receipts from customers are greater than sales. c. c. Production for next month. improves company performance. Inventory at the end of this month. Production for this month. b. usually reduces the need to prepare a cash budget. The balance of accounts receivable will decrease. experience budget variances. b. The principal DISADVANTAGE of line budgeting is a. b. prepared the pro forma balance sheet. d. B 22. d. imposed budget is the same as a static budget. JIT manufacturers are more likely than conventional manufacturers to a.'s actual sales in May are lower than its budgeted sales for that month? a. Cash receipts for next month. C 17. it limits the flexibility of managers to accomplish the entity's object . X won't have enough cash to cover bills requiring payment in May. c. Prohibiting managers from overspending budget allowances a. b. d. b. The company's cash balance will increase.results. b. c. eliminates the need for comparisons of budgeted and actual amounts. can lead to poor performance. Which of the following will occur if X Co. A 18. c. The company's outstanding debt will decrease. d. A 20. line-by-line approval of expenditures. B 14. using incremental revenues and costs in budgeting. can harm company performance. budget unit production equal to budgeted unit sales. c. An a. requiring top management approval of increases in budgets. b. X's actual inventory at the end of May will be higher than budgeted. B 16.
d. b. b. C 24. b. its inventory is increasing. its purchases budget. has none of the above characteristics. d. b. c. it might have to borrow money. it works only in conjunction with zero-based budgeting. D 27. is prepared after the cash disbursements budget. c. are less likely to use incremental budgeting. To a. b. c. c. d. relatively low fixed costs. d. b. a company uses information from its balance sheet at the end of the prior period. use computer software-packages to facilitate the budgeting process. c. prepare its cash disbursements budget. experience cash shortages. A 23. requires a sales forecast. d. none of the above.ives. D 25. d. The cash receipts budget a. budget unit production for the month at greater than budgeted unit sale s for the month. c. If a. . don't need a cash budget. its cash balance is increasing. c. d. A 26. budget materials purchases equal to the current month's needs for produ ction. budget expenses before revenues. a company is earning a profit. prepare production budgets without a sales forecast. requires a purchases or production budget. high contribution margin percentage. high seasonality and rapid sales growth. little seasonality. . its capital budget. One difference between budgeting in for-profit and not-for-profit entities is that not-for-profit entities usually a. B 28. The type of company most likely to run short of cash during the year is on e with a. all of the above sources. Just-in-time manufacturers are more likely than conventional manufacturers to a. its monthly cash disbursements will be stable.
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