Chapter 09 Testbank

Managerial Accounting (The University of the South Pacific)

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 Chapter 09 Testbank
Student: ___________________________________________________________________________

1. The budget is:

A. a short-term
plan
B. more detailed than a strategic
plan
C. not in�uenced by strategic
decisions
D. a short-term plan AND more detailed than a
strategic plan

2. The �ve primary purposes of a budget are:

A. planning, allocating resources, facilitating communication and coordination, controlling pro�t and
operations, evaluating performance and providing incentives
B. planning, allocating resources, facilitating communication and coordination, controlling pro�t and
operations, and allocating overhead costs
C. planning, allocating resources, facilitating communication and coordination, controlling pro�t and
operations, and evaluating competition
D. planning, allocating resources, controlling pro�t and operations, providing incentives, evaluating
performance, and allocating overhead costs

3. The purposes of a budget include:

A. plannin
g
B. facilitating communication and
coordination
C. controlling pro�t and operations, and evaluating performance and
providing incentives
D. All of the given
answers

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4. A company's plan for the acquisition of long-term assets, such as buildings and equipment, is called a:

A. capital expenditure
budget
B. master
budget
C. �nancial
budget
D. pro�t
plan

5. Which of the following involves decisions about the types of businesses and markets that an
organisation operates in, and about how those businesses and activities will be �nanced?

A. Sales
forecasting
B. Strategic
planning
C. Financial statement
forecasting
D. Financial
planning

6. The annual �nancial budget is also called a:

A. capital
budget
B. master
budget
C. long-range
budget
D. None of the given
answers

7. A budget that is continually updated by periodically adding a new incremental time period such as a
quarter, and dropping the period just completed is a:

A. short-range
budget
B. long-range
budget
C. capital
budget
D. rolling
budget

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8. Budgeted �nancial statements include:

A. a budgeted pro�t and loss

statement
B. a budgeted balance
sheet
C. a cash
budget
D. All of the given
options

9. Budgets that cover a particular period of time, longer than a year, are:

A. short-range
budgets
B. long-range
budgets
C. rolling
budgets
D. continuous
budgets

10. Past sales levels and trends, general economic trends, and political and legal events are all used for:

A. sales
forecasting
B. resource
allocation.
C. �nancial
budgets
D. resource
budgets

11. A slightly inaccurate sales forecast, since it comes at the beginning of the budgeting process:

A. has an insigni�cant in�uence on the other schedules comprising the annual

�nancial budget.
B. should not in�uence the accuracy of the other schedules comprising the annual �nancial
budget at all.
C. has a distorting e�ect on the other estimates in the
budget.
D. slightly in�uences the sales �gure and the budgeted �nancial statements and in�uences no
other �gures.

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12. For a manufacturing business, a production budget, including budgets for direct material, direct labour
and manufacturing overhead are part of the:

A. sales
budgets
B. operating
budgets
C. budgeted �nancial
statements
D. budgeted balance
sheets

13. A manufacturer prepares a production budget. The comparable budget for a retail or wholesale
business would be a budget for:

A. sale
s
B. purchase
s
C. direct
materials
D. direct
labour

14. Based on the production budget, the manufacturer develops budgets for:

A. direct
labour
B. direct
materials
C. manufacturing
overhead
D. All of the given
options

15. Which of the following encompasses a detailed plan for using the basic factors of production material,
labour and overhead to produce a product or provide a service?

A. Budget �nancial
statement
B. Sales
forecast
C. Operating
budget
D. Cash
budget

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16. Which of the following indicate/s the overall �nancial results of the organisation's planned operations
for the budget period?

A. Sales
forecast
B. Budgeted �nancial
statements
C. Cash
budget
D. None of the given
answers

17. The typical starting point in the sales forecasting process is generally:

A. the sales level of the preceding

year
B. input from key
executives
C. economic
trends
D. the sales manager's best
guess

18. A cash budget:

A. is appropriate for a business in any

industry.
B. shows expected cash receipts and planned
payments.
C. shows expected sales and planned
expenses.
D. is appropriate for a business in any industry AND shows expected cash receipts and
planned payments.

19. Which of the following shows the schedule of cash payments for the materials and services the �rm
purchased on account, and all cash payments for services that are paid in advance or paid at the time
of purchase?

A. Selling and administrative expense

budget
B. Cash payments
budget
C. Cash receipts
budget
D. Overhead
budget

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20. Which of the following includes the cash receipts and cash payments and discloses a �rm's �nancial
plans?

A. Cash
budget
B. Selling and administrative expense
budget
C. Budgeted �nancial
statement
D. None of the given
answers

21. A budget that includes indirect materials, indirect labour and other indirect manufacturing costs is:

A. an overhead
budget
B. a cash
budget
C. an administrative expense
budget
D. a summary
budget

22. A budget that includes sales revenue, cost of goods sold, operating expenses and net pro�t is a:

A. budgeted pro�t and loss

statement
B. budgeted balance
sheet
C. budgeted statement of changes in �nancial
position
D. budgeted statement of cash
�ows

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23. BeActive Sporting Goods sells tandem bicycles. The following data was taken from the most recent
quarterly sales forecast.

BeActive's cost for one bicycle is $125. How many units should the company purchase in May?

A. 147
8
B. 167
2
C. 157
5
D. 156
2

24. BeActive Sporting Goods sells tandem bicycles. The following data was taken from the most recent
quarterly sales forecast.

BeActive's cost for one bicycle is $125. What dollar amount should the company budget for June
purchases?

A. $153
125
B. $154
750
C. $204
625
D. $207
875

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25. Vebco manufactures a product requiring 0.5 grams of platinum per unit. The cost of platinum is
approximately $360 per gram. Vebco maintains an ending inventory of platinum equal to 10 per cent
of the following month's production. The following data were taken from the most recent quarterly
production budget.

Determine the cost of platinum purchased in August.

A. $195
840
B. $200
160
C. $391
680
D. $400
320

26. Lee's Appliances forecasts the following sales �gures for the next four months.

Cash sales average 10 per cent of total sales and credit sales are collected 50 per cent in the month
of sale and 50 per cent in the month following sale. What are the estimated cash collections in May?

A. $215
000
B. $207
500
C. $195
000
D. $82
500

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27. Lee's Appliances forecasts the following sales �gures for the next four months.

Cash sales average 10 per cent of total sales and credit sales are collected 50 per cent in the month
of sale and 50 per cent in the month following sale. What is Lee's estimated accounts receivable
balance on July 31?

A. $150
000
B. $135
000
C. $75
000
D. $67
500

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28. The Grainger Company's Budgeted Pro�t & Loss Statement re�ects the following amounts:

Sales are collected 50 per cent in the month of sale, 30 per cent in the month following sale, 19 per
cent in the second month following sale and 1 per cent is uncollectible. The uncollectible accounts are
expensed at the end of the year.
Grainger pays for purchases by the �fth of the month following purchase, to take advantage of the 3
per cent discount allowed.
On January 1, Grainger had a cash balance of $88 000 and an accounts receivable balance of $58
000; $35 000 on account will be collected in January with the remaining balance to be collected in
February. Grainger had an accounts payable balance of $72 000 on January 1. Invoices are recorded at
their gross amount.
The monthly expense �gures include $5000 in monthly depreciation. The expenses are paid for in the
month incurred.
What is Grainger's expected cash balance at the end of January?

A. $92
000
B. $94
160
C. $87
000
D. $89
160

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29. Telcer & Company had 3000 units in �nished goods inventory on December 31. Following is a partial
production budget for January to March.

How many units does the company expect to sell in January?

A. 690
0
B. 890
0
C. 940
0
D. 990
0

30. On January 1, Bandy Manufacturing plans to introduce a product called Handy Dandy. The company
plans to sell each unit of Handy Dandy for $25.00. Management has forecast the following in sales
units for the �rst three months.

Each unit of Handy Dandy requires 2 kg of Dingaling and 1 hour of direct labour. Management wants
to end each month with a Handy Dandy inventory level equal to 10 per cent of the following month's
sales and a Dingaling inventory equal to 5 per cent of the following month's production. Dingaling can
be purchased for $3 per kg and direct labour costs are estimated to be $5.00 per hour. How many
units should Bandy Manufacturing produce in February?

A. 32
000
B. 27
300
C. 28
000
D. 29
200

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31. On January 1, Bandy Manufacturing plans to introduce a product called Handy Dandy. The company
plans to sell each unit of Handy Dandy for $25.00. Management has forecast the following in sales
units for the �rst three months.

Each unit of Handy Dandy requires 2 kg of Dingaling and 1 hour of direct labour. Management wants
to end each month with a Handy Dandy inventory level equal to 10 per cent of the following month's
sales, and a Dingaling inventory equal to 5 per cent of the following month's production. Dingaling can
be purchased for $3 per kg and direct labour costs are estimated to be $5.00 per hour. How many
kilograms of Dingaling should be purchased in January? Bandy plans to have no inventory of Dingaling
on January 1:

A. 78
520
B. 72
800
C. 72
680
D. 78
400

32. On January 1, Bandy Manufacturing plans to introduce a product called Handy Dandy. The company
plans to sell each unit of Handy Dandy for $25.00. Management has forecast the following in sales
units for the �rst three months.

Each unit of Handy Dandy requires 2 kg of Dingaling and 1 hour of direct labour. Management wants
to end each month with a Handy Dandy inventory level equal to 10 per cent of the following month's
sales, and a Dingaling inventory equal to 5 per cent of the following month's production. Dingaling can
be purchased for $3 per kg and direct labour costs are estimated to be $5.00 per hour. What amount
should be budgeted for direct labour in February?

A. $160
000
B. $146
000
C. $140
000
D. $134
000

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33. On January 1, Bandy Manufacturing plans to introduce a product called Handy Dandy. The company
plans to sell each unit of Handy Dandy for $25.00. Management has forecast the following in sales
units for the �rst three months.

Each unit of Handy Dandy requires 2 kg of Dingaling and 1 hour of direct labour. Management wants
to end each month with a Handy Dandy inventory level equal to 10 per cent of the following month's
sales, and a Dingaling inventory equal to 5 per cent of the following month's production. Dingaling can
be purchased for $3 per kg and direct labour costs are estimated to be $5.00 per hour. What are
Bandy Manufacturing's budgeted prime costs in January?

A. $235
560
B. $294
000
C. $385
000
D. None of the given
answers

34. The person responsible for managing the budget process:

A. is responsible for specifying the process by which budget data will be

gathered.
B. collects information and prepares the annual �nancial
budget.
C. communicates budget procedures and deadlines to employees throughout the
organisation.
D. All of the given
answers

35. Consider the following statements about budget administration.

i. Regardless of size, the budgeting process in all organisations must be a formal process.
ii. The budget manual is prepared to communicate budget procedures and deadlines to employees
throughout the organisation.
iii. Good internal control procedures require that the manager responsible for managing the budget
process be an individual other than the chief accountant.
Which statement/s is/are true?

A. i
B. i
i
C. ii
i
D. i and
iii

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36. To communicate budget procedures and deadlines to employees throughout the organisation, the
manager responsible for managing the budget often develops and disseminates a:

A. budget
manual
B. sales
forecast
C. memorandu
m
D. budget
schedule

37. In preparing and using any budget, it is important that managers keep in mind the:

A. assumptions and predictions upon which the budget

is based
B. present value of future cash
�ow
C. budgeted pro�t and loss
statement
D. ‘bottom
line'

38. The di�erence between the revenue or cost projection that a person provides and a realistic estimate
of the revenue or cost is called:

A. passing the
buck
B. budgetary
slack
C. participative
budgeting
D. resource allocation
processing

39. People create budgetary slack because:

A. their performance will look better if they beat the

budget.
B. it helps them cope with
uncertainty.
C. they believe their budget requests will
be cut.
D. All of the given
answers

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40. When employees throughout an organisation are meaningfully involved in the budget-setting process,
this is referred to as:

A. budgeting
slack
B. participative
budgeting
C. padding the
budget
D. employee-based
budgeting

41. Consider the following statements about zero-base budgeting.

i. The budget for virtually every activity in an organisation is initially set to the level that existed
during the previous year.
ii. The budget helps identify areas of waste and redundant activities.
iii. The budget must be justi�ed in terms of its continued usefulness.
Which statement/s is/are true?

A. i, ii and
iii
B. i and
ii
C. ii and
iii
D. ii
i

42. Program budgeting:

A. is similar to line item

budgeting.
B. relates budget performance to the achievement of
objectives.
C. develops qualitative performance criteria rather than
quantitative criteria.
D. focuses on inputs rather than
outputs.

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43. Which of the following statements are true if optimum bene�t is to be derived from the budget
process?

A. Employees participate in the development of the

budget.
B. Targets should include slack to enable easy
achievement.
C. Rewards are not
required.
D. Employees participate in the development of the budget AND rewards are
not required.

44. The position where the �rm's goals and employees' aims coincide is called:

A. participative
budgeting
B. goal
achievement
C. goal
congruence
D. budgetary
achievement

45. Which of the following does budget preparation require to achieve optimum outcomes?
i. Top-down budgeting
ii. Bottom-up budgeting
iii. Participative budgeting

A. i
B. ii and
iii
C. i and
iii
D. i, ii and
iii

46. Suppose that the departmental manager deliberately underestimates the level of sales activity by 10
000 units. What is this practice called?

A. Budgetary
participation
B. Appropriate
caution
C. Budgetary
slack
D. Allowance for
uncertainty

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47. The following is the forecast level of inventory (in units) for Aardvark Ltd.

If the company plans to sell 320 000 units, how many will they need to produce during the period?

A. 330
000
B. 315
000
C. 305
000
D. 320
000

48. The usual order of steps in preparing a budget is:

A. production budget, sales budget, budgeted income

statement
B. sales budget, production budget, budgeted income
statement
C. budgeted income statement, production budget,
sales budget
D. budgeted income statement, sales budget,
production budget

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49. Budgeted sales for ABC Company are as follows:

All stock is marked up to sell at its invoice cost plus 25 per cent. On average 60 per cent of credit
sales are collected in the month of sale, 35 per cent in the month following sale and the remainder is
uncollectable. The budgeted cost of goods sold for the month of October is:

A. $1 360
000
B. $1 425
000
C. $1 520
000
D. None of the given
answers

50. Budgeted sales for ABC Company are as follows:

All stock is marked up to sell at its invoice cost plus 25 per cent. On average 60 per cent of credit
sales are collected in the month of sale, 35 per cent in the month following sale and the remainder is
uncollectible. Budgeted total cash receipts for November are:

A. $1 675
000
B. $1 875
000
C. $1 280
000
D. None of the given
answers

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51. A production budget:

A. is based on projected purchases as disclosed by the

purchases budget
B. does not make provision for production planning by determining what products
will be made
C. contributes to scheduling labour
requirements
D. is not used to review available production
capacity

52. XYZ has budgeted to sell 100 000 units of P for February 2008. It has an opening inventory of 20 000
units of P and would like a closing inventory of 30 000 units. Each unit of P requires 2 kg of raw
material Y. Inventory of Y at the beginning of the month is 5000 kg. Assuming the sales budget is met
and the desired closing inventory of P is achieved, how many kilograms of Y need to be purchased
during February, in order to have a closing balance of 8000 kg?

A. 113
000
B. 117
000
C. 223
000
D. 183
000

53. Which of the following is not typically a responsibility centre for a manufacturing �rm?

A. Cost
centre
B. Pro�t
centre
C. Investment
centre
D. Inventory
centre

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54. The Z Company has prepared a sales budget for 40 000 units for a three-month period. The company
desires a closing �nished goods inventory of 12 000 units, and closing direct material inventory of 14
000 units at the end of the quarter. There is no beginning �nished goods inventory, but beginning
inventory of direct materials is 2000 units. It takes two units of direct material to make one unit of
�nished product. The number of units of direct material to be purchased during the quarter is:

A. 52
000
B. 104
000
C. 118
000
D. 116
000

55. Sales of 50 000 �nished products are budgeted for Tracey Company. Four kilograms of direct material
are required for each �nished unit. Actual beginning and desired ending inventories of direct material
and �nished goods are as follows.

All products are �nished at the end of the period, so there is no work in process at the beginning and
end of the period. How many kilograms of direct material is the company planning to purchase?

A. 218
000
B. 214
000
C. 186
000
D. 184
000

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56. Carter Manufacturers have budgeted sales for the coming months as follows.

The �rm has decided that to avoid losing customers because of production hold-ups it will in future
maintain a �nished goods inventory on hand equal to one-�fth of the following month's budgeted
sales. At 31 December, the company had in �nished goods stock 10 000 units. What is budgeted
production for the quarter January–March?

A. 530 000
units
B. 830 000
units
C. 670 000
units
D. 680 000
units

57. Assume for a �rm that budgeted production for July and August is 180 000 and 200 000 units
respectively. It takes half a kilogram of direct material to make one unit of �nished product. Materials
inventory is maintained at 10 per cent of the next month's budgeted production needs. If the 30 June
inventory of materials was 5000 kg, how many kilograms of direct material should be purchased
during July?

A. 105 000
kg
B. 195 000
kg
C. 90 000
kg
D. 95 000
kg

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58. Which of the following items should be taken into account when setting budgets?

A. Positive behaviour of employees is more likely to result if the budgetary process is

participative.
B. The budget goals should not be so tight that they are
unachievable.
C. The goals of the individual sections' budget should be aligned with the
�rm's goals.
D. All of the given
answers

59. Which of the following items would not be taken into account when preparing a �rm's cash budget?

A. Depreciation on motor
vehicles
B. Provision for doubtful
debts
C. Discount
allowed
D. Depreciation on motor vehicles AND provision for
doubtful debts

60. Which of the following are unlikely to in�uence the sales forecast?

A. Past sales
levels
B. Past production
levels
C. Economic
trends
D. The pricing policy of the
company

61. Strawman Ltd runs tutoring classes for high school students. The maximum number of students a
weekly tutorial class can take is 15. Each tutor, who is paid a per semester salary of $20 000 including
on-costs, can manage up to 5 classes per week per semester. Assuming that this semester there are
350 students enrolled. What is the budgeted salary for tutors this semester?

A. $100
000
B. $93
333
C. $20
000
D. $642
8

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62. Top-down budgeting refers to:

A. a budgeting system that begins with sales forecasts and works downwards to the raw
materials budget
B. a budgeting systems that begins with budgeting the facility-
level costs
C. a budgeting system where senior managers impose budget targets on
junior managers
D. a budgeting system where there are frequent communications between top and
bottom managers.

63. Which of the following statements is false?

A. A top-down budgeting system is more e�cient than a bottom-up

budgeting system.
B. A top-down budgeting system is more likely to result in unrealistically di�cult
budget targets.
C. A bottom-up budgeting system is less likely to result in budget
padding.
D. A bottom-up budgeting systems is more likely to result in employee
empowerment.

64. Jasmine Coy is a barista at Tosa Cafe, which is known for its quality co�ee. Her manager has set a very
di�cult cost target. As a result, Jasmine uses lower quality co�ee beans which results in poor quality
co�ee. This is an example of:

A. Budget
slack
B. Goal
incongruence
C. Lack of employee
empowerment
D. Short range
budgeting

65. EasySleep Inn is a chain of medium-priced hotels. Each year during the budgeting process, the
manager of each hotel in the chain has to submit a capital expenditure request, justifying the amounts
of expenditure they request. Top management then makes a decision on whether to fund each capital
expenditure request. This is an example of which purpose of budgeting?

A. Controlling
pro�t
B. Allocating
resources
C. Empowering
employees
D. Evaluating performance and providing
incentives

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66. Which of the following is/are likely to lead to budget acceptance?
i. Targets are developed with employee inputs.
ii Employees are held responsible for activities that they can control.
iii Budget is cascaded down from corporate level to the various responsibility centres.

A. i
only
B. i and
ii
C. i and
iii
D. ii and
iii

67. Which of the following is an example of padding the budget?

A. Overestimating
sales
B. Underestimating labour
costs
C. Overestimating direct material
costs
D. Underestimating capital
expenditure

68. Christina Wadat is a sales manager at Walter Booksellers. She believes that the sales revenue will
most likely to be $500 000 this coming year. However, she decides to build in budget slack of 10 per
cent. The amount of sales revenue she inputs into the company's sales budget:

A. $450
000
B. $500
000
C. $550
000
D. 600
000

69. Zero-based budgeting refers to:

A. a budgeting system that has very uncertain

assumptions
B. a new budgeting system for a company that has not had a
budget before
C. a budgeting system where all activity costs are based on
estimates only
D. a budgeting system where all activities are initially set to zero and will not be continued unless they
are clearly justi�ed

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70. Employees are always motivated to work towards the company's goals when budgets are handed
down from top management as employees rarely have the time or the inclination to become involved
in the budgeting process.

True False

71. There should never be inaccuracies when forecasting sales �gures as these �gures are only a�ected
by internal factors which management can control.

True False

72. If an organisation were more focused on outputs rather than inputs, they would be advised to use
program budgeting as opposed to other alternatives.

True False

73. Before any steps are taken in the budgeting process, it is essential that all involved in the process
familiarise themselves with the strategic plans of the organisation so they can formulate the budget in
light of these plans.

True False

74. Where an organisation elects to incorporate responsibility accounting into the �rm, they will establish
some common responsibilities centres such as cost, revenue, investment and expense.

True False

75. Budgets can be used as a benchmark against which to evaluate performance and control costs.

True False

76. Budgets can be broken into three main categories, capital expenditure budgets, operating budgets
and continuous budgets.

True False

77. A problem with participative budgeting is that there will always be a tendency for those participating
to build slack into the budget to ensure a better outcome for their performance assessment.

True False

78. As all budgets ‘hang' o� the sales budget, if the sales forecasts are incorrect, chances are all operating
budgets will also be inaccurate.

True False

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