M3: RA

Both financial and non-financial aspects of planned operations and project are included in a(n)

- Budget

A primary advantage of the budgeting process is the .

- ability to anticipate upcoming problems

Budgeted amounts often serve as both approval of activities and a ceiling for expenditures in NFP
and organizations.

- Government

True or false: Budgets assist in planning and day to day operations, but are not useful in assessing
performance.

- False

One primary fault or limitation of traditional budgeting systems is .

- the failure to link budgets to organizational strategy and goals

A plan of action, expressed either in financial or non-financial terms, is a(n) .

- Budget

Actions to be taken over a 5 to 7 year period to achieve the organization's strategic goal(s) are
identified in a .
- Long-range plan

Budgets and budget preparation .

- allows time to anticipate and develop strategies for potential problems
- facilitates the coordination of activities across subunits
- communicates expectations to employees throughout the organization

The process of evaluating, selecting, and financing major projects of an organization is referred
to as budgeting.
- Capital

In not-for-profit (NFP) and governmental sectors budgets serve primarily as .

- the authority to acquire and use resources
Planned spending on long-term projects, investments, and initiatives that lead to long-term value
and competitive advantage is called expenditures.
- strategic budget

The control function of budgeting is best exemplified by .

- comparing actual results to budgeted results

The final step of the master budgeting process is budgeted .

- pro forma financial statements

Even though it is extremely important for planning and budgeting, many organizations fail to link
their budget to their

- strategy

The set of operating budgets culminates in a .

- budgeted income statement

Required actions to be taken over a 5 to 7 year period to achieve the organization's strategic goal(s)
are identified in a(n) plan
- long-range

Financial budgets include the .

- budgeted balance sheet
- cash budget
- budgeted statement of cash flows

True or false: An organization's capacity is a result of capital investments made in prior budgeting
period.
- True

The group within an organization that typically has ultimate responsibility for the budgeting
process is the committee.
- Budget

Capital budgeting expenditures related to sustainability are considered part of a

company's expenditures.
- Strategic budget

True or false: In practice, the planning horizon for most firms (for budgeting purposes) is a single
year.

- False
The collection of all short-term budgets is called the budget.

- Master

n a traditional budgeting process, the is (are) responsible for providing initial budget
guidelines that set the tone for the budget and govern its preparation.

- Budget committee

Plans that identify spending needed to carry out sales, customer-service, production, and marketing
activities are called budgets.

- Operating

For public companies, the group or individual having ultimate responsibility for approving the
organization's budget is the company's .

- board of directors

The set of budgets that includes the cash budget, budgeted statement of cash flows, and budgeted
balance sheet are called budgets.

- Financial

For most profit-seeking organizations, the starting point in the master budgeting process
is preparation of the .

- Sales budget

The budget committee .

- resolves budget preparation conflicts

- reviews operating results at the end of the period
- monitors operations during the year
- sets overall budget goals

Planned output for a given period is shown on the budget.

- Production

Conventional master budgeting systems produce a budget covering the coming

- Fiscal year

The required production for a period in which estimated sales demand = 100 units, the
beginning inventory = 5 units, and the desired ending inventory = 3 units is units.
 - 98

In a traditional budgeting process, the is responsible for providing

initial budget guidelines that set the tone for the budget and govern its preparation.
- Budget committee

When preparing a quarterly production budget by the month, beginning and

ending inventory for the quarter is .
- based on the first and last day of the quarter

Initial budget proposals are examined by the .

- executives of budget units

The budget that shows the amount and budgeted cost of direct materials required
for production is the direct materials budget.
- Usage

The sales budget is typically viewed as the cornerstone in master budgeting

process because .
- many other budgets are directly or indirectly affected by it
The desired end-of-period ending inventory of raw material A = $20. The budgeted cost of
purchases of raw material A for the upcoming period = $200. If the beginning-of-period inventory
of raw material A = $10, the budgeted cost of raw material A for production during the upcoming
period equals .

- $190

The number of units to be produced each period is equal to .

- desired ending inventory of finished units + budgeted sales (in units) - beginning inventory
of finished units
The budgeted quantity of direct materials to be purchased equals .
- the number of units of direct materials needed for production adjusted by the projected
change in materials inventory
A company anticipates sales of 10,000 units in January, 15,000 units in February and 20,000 units
in March. If desired ending inventory is 10% of the following month's sales, expected production for
February equals units.
- 15,500

The direct materials budget details the physical units and cost of planned direct material
purchases
 - Purchases

When preparing a production budget for the quarter ended June 30, 2022, beginning inventory is
the .
- beginning inventory amount reported on the April budget
A direct materials usage budget includes .
- budgeted production for the period
- budgeted direct materials cost per unit
- budgeted units of direct material per unit of output

A direct labor budget .

- assists with employee repositioning
- helps avoid emergency hiring
- reduces or eliminates layoffs

The budgeted cost of DM usage for a given period is equal to .

- the cost of beginning inventory of DM + budgeted cost of DM purchases - cost of
desired ending inventory of DM

The factory overhead budget for the period includes .

- all production-related costs other than direct labor and direct materials

Assume 500 units of raw material A are needed to meet production requirements.
Projected beginning-of-period inventory of raw material A = 20 units. If the targeted end-
of-period inventory for raw material A = 40 units, budgeted purchases of raw material A
for the period equals units.
- 520

The budget that contains the amount of direct materials (in both units and cost) to
meet production and ending materials inventory requirements is the direct materials

budget.
- Purchases

Given the following budget information, calculate total budgeted cost of goods
manufactured:
Direct materials $20,000
Direct labor $15,000
Total factory overhead $30,000
Beginning finished goods inventory $ 5,000
 Ending finished goods inventory $ 3,000

- $65,000

Calculate budgeted cost of goods sold (CGS):

- $67,000

When preparing a quarterly production budget by the month, beginning and ending inventory for
the quarter is .

- based on the first and last day of the quarter

Let CGM represent the budgeted cost of goods manufactured for an upcoming period, EI represent
ending finished goods inventory, and BI represent beginning-of-period finished goods inventory.
The correct formula to calculate Cost of Goods Sold (CGS) is .
- CGS = CGM - EI + BI

The direct labor budget contains the hours and cost of .

- skilled and semiskilled labor needed to meet production requirements for the upcoming
period
The merchandise purchases budget for a merchandising firm has the same basic format
as the budget for a manufacturing firm.
- Production

All production costs other than direct materials and direct labor are included in
the budget.
- Manufacturing/factory overhead
True or false: The selling and administrative budget identifies both total expenses and total cash
expenses in order to properly prepare the pro forma balance sheet.
- False
Details of cash collections from operating activities are reported on the .
- cash receipts budget
- Reason:
- The cash budget shows summary, not detailed information.

The budgeted cost of goods manufactured statement contains .

 - the total manufacturing cost associated with budgeted production
Based on past experience, gross sales are 80% cash + bank credit card sales, and 20% credit sales
(on open account). Credit sales are billed and collected in the month following month of sale. Of the
cash + bank credit card sales, 40% are cash sales and 60% are bank credit card sales. Bank credit
card sales, less than a 5% service charge, are credited to the seller's bank account on the day of sale.
If total sales in April are $100, estimated net cash received in April from sales made in April equals
.

- $77.60

A cash budget includes three major sections: net cash flows

from activities, activities and activities.
- Operating
- Investing
- Financing
True or false: A merchandise purchases budget is prepared only by manufacturing firms.
- False
What is the approximate opportunity cost (to 2 decimal places) of NOT taking advantage of the
early-payment discount associated with the following credit terms: 1/10, net 30?
- 18.43%

The selling and administrative expenses budget for a manufacturing firm .

- shows planned spending on non-manufacturing costs (i.e., operating expenses)

Capstone, Inc. expects to have $50,000 of cash on hand on March 1. Operating cash inflows are
expected to be $140,000 and operating cash outflows are expected to be $97,000. The company
expects to spend $20,000 on a new piece of equipment and repay $10,000 of outstanding debt and
$100 of interest. Ending cash balance is expected to be .
- $62,900

The cash receipts budget includes .

- collections of credit sales
- cash sales
Based on past experience, gross sales revenues are 80% cash + bank credit card sales, and 20%
credit sales (on open account). On average, 60% of credit sales are collected in the month of sale,
37% are collected in the month following the sale and the balance are uncollectible. Given gross
sales of $100 in January, $120 in February and $150 in March, total estimated cash receipts in
February equals .
- $117.80
If the results shown on the budgeted (pro forma)
goal, management can investigate actions to improve results. fall short of the prespecified

- Income statement
The budget that summarizes changes to the cash account for a given period is the .
- cash budget
The budgeted balance sheet .
- starts with the expected financial position at the beginning of the budget period
- includes the effects of all operations and cash flows during the budget period
- is usually the last step in the budget preparation cycle

The opportunity cost of not taking advantage of early-payment discounts on accounts payable is
estimated as .
- [discount%÷(1 - discount%] × (365÷no. of extra days allowed for payment if
the discount is not taken)

Spreadsheet software can be used to deal with uncertainty associated with budget-preparation by
performing what-if analysis, analysis, and analysis.
- Sensitivity
- Scenario
Capstone, Inc. expects to have $50,000 of cash on hand on March 1. Operating cash inflows are
expected to be $140,000 and operating cash outflows are expected to be $97,000. The company
expects to spend $20,000 on a new piece of equipment and repay $10,000 of outstanding debt and
$100 of interest. Cash flow from financing activities on the cash budget is expected to be an
outflow of .
- $10,100

Answering the question "What would be the impact on the production budget of a
20% reduction in targeted end-of-month inventory?" is an example of analysis.
- What-if

The budgeted (pro forma) details expected net income for an upcoming
period.
- Income statement

A tool used by budget planners to determine the extent to which a change in the forecasted
value of one or more budgetary inputs affects individual budgets and the set of pro forma
financial statements produced as part of the master budgeting process is
called .
 - Sensitivity analysis

The last step in a budget-preparation cycle is usually to prepare the .

- pro forma balance sheet

Which of the following procedures can be used in Excel to deal with uncertainty in terms of
the budget-preparation process?
- What-if analysis
- Scenario analysis
- Sensitivity analysis

The ability to isolate risks associated with particular components of operations and to
develop contingency plans for dealing with those risks is one of the primary advantages of
conducting analysis.
- Sensitivity

Scenario analysis is characterized by .

- the ability to capture/model the effects of interrelationships among input variables
- the use of a small number of realistic combinations of planning-model inputs

Examining the effect of a change in one or more budgetary input items (e.g., selling price
per unit) on a budget of interest (e.g., the sales budget) is .
- what-if analysis

Budgeting for service firms .

- includes personnel planning as a focal point

- consists of an integrated set of plans for an upcoming period
- is conceptually similar to budgeting for manufacturing or merchandising firms

The managerial tool used to estimate the extent to which a change in the forecasted
value of one or more budgetary inputs affects individual budgets is analysis.
- Sensitivity

To balance costs and benefits, zero-based budgeting (ZBB) .

- can be implemented across organizational subunits on a rotating basis

Which of the following segregates costs required for the budgeted output into
homogeneous activity cost pools?
- Activity-based budgeting (ABB)

A primary advantage of using sensitivity analysis in conjunction with budgeting is .

- the ability to develop contingency plans
A primary advantage of activity-based budgeting (ABB) and time-driven activity-based
budgeting (TDABB) is the .
- ability to better manage an organization's human capital (labor supply)

Scenario analysis .

- may benefit from the use of a cross-functional team

- can be enhanced by assigning probabilities to each scenario
- presents an idea of how good or bad things might be in terms of
budgeted performance

True or false: Budgeting for service firms is similar to budgeting for manufacturing and
merchandising firms.
- True

The process that requires in-depth reviews of activities and functions prior to each
budget period is budgeting.
- zero-base

Identification of value-added versus non-value-added activities is one of the focuses of

budgeting.
- activity-based
Traditional budgeting and activity-based budgeting are conceptually .
- Very different

The approach to budgeting where activity costs are estimated based on two factors (cost
of resources supplied, and amount of resource capacity supplied, measured in time) for
each department or business process is budgeting.
- time-driven activity-based

Most organizations today are particularly interested in budgeting for _ .

- Labor

The use of planned capacity to establish cost-driver rates under both ABC and TDABC
systems allows management to better estimate the for each resource supplied.
- Cost of unused capacity

The most appropriate treatment of idle capacity costs is to .

- assign the costs based on the level in the organization where the decision was
made to acquire the capacity in question

Which one of the following is not a characteristic of traditional budgeting?

 - Focuses on identifying value-added vs. non-value-added activities

The primary focus on Kaizen budgeting, relative to a traditional approach to budgeting, is

.
- its focus on continuous improvement of activities, costs, and processes

The implementation of a time-driven activity-based budgeting (TDABB) system is greatly

facilitated by .
- the existence and use of an enterprise resource planning (ERP) system

The process of "padding the budget" is called _ .

- Budgetary slack

The difference between the total cost of resources supplied and the cost of resources used
equals the cost of .
- Idle capacity

Adding "slack" to budgets can result in .

- wasted resources
- reduced efforts to meet to exceed the budget
- an unrealistic appearance of success

The compatibility of goals for individuals (managers and employees) and the
organization as a whole is referred to as .
- Goal congruence

A bottom-up approach that involves those affected in the budget-preparation process is

referred to as budgeting.
- Participative

The approach to budgeting the incorporates continuous-improvement expectations in the

budget is called budgeting.
- Kaizen

Which of the following is a purported benefit of authoritative budgeting?

- Better decision making control
Knowingly including higher expenditures or lower revenues in the budget than expected is
called budgetary .
- Slack/ padding

A budget target that is too easy to attain

- may not encourage employees to put forth their best effort

True or false: Budgetary slack generally encourages employees to meet or exceed the budget.
- False

An incentive plan that links compensation to the difference between actual and budgeted results
(operating profit, sales, etc.) is a(n) .
- fixed-performance contract

Which of the following budgeting-related items (or factors) does not likely affect the amount of goal
congruence in conjunction with budgeting?
- Choice of budgetary period (e.g., month, quarter, or year).

A key characteristic of a linear compensation plan is .

- level of reward is a function of level of performance

The level (or extent) of lower-level employee participation in the budgeting process .
- refers to the use of authoritative vs. participative budgeting.

A key characteristic of relative-improvement managerial incentive programs is .

- a focus on performance based on benchmarks, not budget targets

Which of the following is not a purported benefit of participative budgeting?

- Reduced implementation time and cost.

The use of "rolling financial forecasts" for control purposes differs in what major respect from
control procedures embodied in a traditional master budgeting process?
- The forecasts are separated from performance evaluation and control.

Research shows that a(n) budget target serves quite well in most organizations.
- highly achievable

Possible negative consequences of using fixed-performance contracts include .

- inclusion of budgetary slack in the budgets
- managerial actions that do not add value to the firm
- rewarding managers for performance over which they had no control

An incentive compensation plan that severs the relationship between managerial compensation
and budgets is referred to as a .
- linear compensation plan
Changing to a relative-performance contracts for incentive compensation .
- represents significant reliance on employee self-regulation
- may better motivate managers to achieve their highest level of performance
- may avoid many of the negative behavioral effects of traditional budgeting

The process of maintaining a constant planning horizon can be accomplished through the use of
.
- rolling financial forecasts