QUIZ Marathon 1:

Theory Questions:
1. A budget aids in
a.
communication.
b.
motivation.
c.
coordination.
d.
all of the above.
2.
Measuring the firms 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 organizations
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
firms 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 organizations 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 companys 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 months 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
months 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 periods 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 months 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
months 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
Es 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.
Haydens 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.
Suffolks 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
Weavers 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 firms 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 firms 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 months 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
months planned production.
d.
planned production is less than the next
months 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 months 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
months 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
Es 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
Jacksons 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.