Fundamentals of Cost Accounting 4th Edition: Chapter 13 (Pforsich) – Flashcards
Unlock all answers in this set
Unlock answersquestion
Budget
answer
Overall plan for achieving an organization's objectives
question
Master Buget
answer
One-year plan that encompasses budgeted sales and production, budgeted I/S, B/S and cash flow statement.
question
Role of budgets in overall organization plans
answer
To help companies determine the means for achieving their goals by outlining projected sales, production cost, and marketing/admin costs
question
Importance of people in the budgeting process
answer
Budgets based on people's estimates, which are affected by own goals, values and abilities.
question
1) Sales Forecast
answer
Key to Budget
question
2) Production and Cost Budget
answer
After sales estimate. Derives cost of Goods sold
question
3) Estimate Cash Flows
answer
Requires revenues, costs and other transactions effect on cash
question
4) Financial Statements
answer
Sales, production costs, marketing/admin come from budgeted I/S
question
Budgeting for merchandising and service organizations
answer
Retail/wholesale have no production budget. Service has no invetories.
question
Ethical issues with budgeting
answer
Employees rewarded for staying on budget, so conflict of interest in creating accuracy. If budgets not attainable, employees could turn to fraudulent reporting
question
More detail: budget for coming period or long-range forecast?
answer
The period's budget closest to current time is more detailed. Upcoming budget is used to determine actual operations
question
Purpose of cash budget
answer
Cash receipt/disbursement often take place in different time periods than recognition. Company must ensure cash needs are met
question
Four methods to estimate sales for budgeting purposes
answer
1) econometric - uses economic data to forecast 2) Delphi - opinions of experts 3) Estimates from salespeople and other knowledgeable personnel 4) Trend analysis - statistical analysis of historical data 5) market research - info on macroeconomic trends in industry and local markets
question
Role of Master Budget
answer
Links long-term objectives and short-term. Provides specific numbers for set goals.
question
Problems with relying solely on management estimates for budget
answer
Management often has conflict of interest for setting accurate budgets due to being rewarded for staying at or below budget
question
Coordinating role of budgeting
answer
Coordinates sales with production. Coordinate production units with one another. Coordinate s availability of cash
question
A budget is the plan, stated in financial terms, of how an organization expects to carry out its activities and meet its goals.
answer
TRUE
question
A master budget consists of (a) organizational goals, (b) strategic long-range profit plan, and (c) tactical short-range profit plan.
answer
FALSE
question
Individual managers' beliefs and expectations are incorporated into the budgeting process using grass roots budgeting procedures.
answer
TRUE
question
Both variable and fixed manufacturing overhead costs are included in the manufacturing overhead budget.
answer
TRUE
question
Sales projections are often the most difficult part of the budgeting process because it involves a considerable amount of subjectivity.
answer
TRUE
question
An organization's sales staff is more likely to provide a lower sales forecast than a forecast provided by market researchers.
answer
TRUE
question
The Delphi technique uses highly sophisticated computerized time series analysis to reduce the subjectivity surrounding the sales forecast.
answer
FALSE
question
The production budget allows management to plan for the resources needed to meet the current sales demand and ensure that inventory levels are sufficient for future sales.
answer
TRUE
question
ABC Company has 10,000 units on hand at the beginning of the year and plans to sell 100,000 units during the year. If the ending inventory needs to be twice the beginning inventory, ABC will need to produce 90,000 units during the year.
answer
FALSE
question
ABC Company wants to have 10,000 units on hand at the end of the year after marketing 100,000 units during the year. If the beginning inventory is 5,000 units, ABC needs to produce 105,000 units during the year.
answer
TRUE
question
The production budget must be prepared before the direct materials, direct labor, and overhead budgets can be prepared.
answer
TRUE
question
Estimates for direct labor costs are obtained from the engineering and production management, as well as from the Personnel Department.
answer
TRUE
question
Bottlenecks in the production process can be discovered by the budgeting process before they occur.
answer
TRUE
question
In effect, the cash budget simply restates the budgeted income statement to the cash basis.
answer
FALSE
question
The cash budget is normally prepared before the budgeted income statement.
answer
FALSE
question
The sales budget drives the rest of the budgeting process for both manufacturers and merchandisers
answer
TRUE
question
A production budget is not needed for a service organization.
answer
TRUE
question
Ethical conflicts can occur in the budgeting process because managers supply information for the budgets that are then used to evaluate their performance
answer
TRUE
question
The use of sensitivity analysis techniques allows managers to ask "what-if" questions regarding budget assumptions and estimates.
answer
TRUE
question
Sensitivity analysis is more likely to be used for sales forecasts than for fixed overhead costs.
answer
TRUE
question
Which of the following statements is (are) true regarding the master budget? (A) A master budget consists of (a) organizational goals, (b) strategic long-range profit plan, and (c) tactical short-range profit plan. (B) A master budget consists of only a budgeted (a) income statement, (b) balance sheet, and (c) stockholders' equity statement.
answer
BOTH FALSE
question
Long-range planning as a management function is more important: A. at top management levels. B. at lower management levels. C. at middle management levels. D. for staff functions than line functions. E. for line functions than staff functions.
answer
A. at top management levels.
question
Which of the following terms is not an alternative for master budget? A. Budget plan. B. Static budget. C. Profit plan. D. Planning budget.
answer
C. Profit plan.
question
A master budget: A. drops the current month or quarter and adds a future month or quarter as the current month or quarter is completed. B. presents a statement of expectations for a period of time but does not present a firm commitment. C. presents the plan for only one level of activity and does not adjust to changes in the level of activity. D. presents the plan for a range of activity so that the plan can be adjusted for changes in activity levels. E. divides the activities of individual responsibility centers into a series of packages which are ranked ordinally.
answer
C. presents the plan for only one level of activity and does not adjust to changes in the level of activity.
question
A continuous (rolling) budget: A. presents the plan for a range of activity so that the plan can be adjusted for changes in activity levels. B. presents a statement of expectations for a period of time but does not present a firm commitment. C. presents the plan for only one level of activity and does not adjust to changes in the level of activity. D. drops the current month or quarter and adds a future month or quarter as the current month or quarter is completed. E. classifies budget requests by activity and estimates the benefits arising from each activity
answer
D. drops the current month or quarter and adds a future month or quarter as the current month or quarter is completed.
question
Which of the following is not a benefit of budgeting? A. It reduces the need for tracking actual cost activity. B. It sets benchmarks for evaluation performance. C. It uncovers potential bottlenecks. D. It formalizes a manager's planning efforts.
answer
A. It reduces the need for tracking actual cost activity.
question
Which of the following statements is (are) true regarding the benefits associated with participative budgeting? (A) Goal congruence by divisions means top management need not be concerned with overall profitability. (B) Budget assumptions and estimates are prepared by those closest to the budgeted activity.
answer
Only B is True
question
In general, the first budget prepared is the: A. production budget. B. direct labor budget. C. sales budget. D. overhead budget. E. capital expenditures budget.
answer
C. sales budget.
question
In developing a master budget for a manufacturing company, which one of the following items should be done first? A. Development of a sales budget. B. Development of the capital budget. C. Determination of manufacturing capacity. D. Determination of the advertising budget. E. Preparation of a pro forma income statement.
answer
A. Development of a sales budget.
question
The forecasting method in which individual forecasts of group members are submitted anonymously and evaluated by the group as a whole is called: A. trend analysis. B. econometric models. C. Delphi technique. D. regression analysis.
answer
C. Delphi technique.
question
The statistical method of forecasting that relies heavily on regression models is called: A. econometric models. B. Delphi technique. C. scattergraph method. D. participative budgeting.
answer
A. econometric models.
question
The starting point in preparing a comprehensive budget for a manufacturing company limited by its ability to produce and not by its ability to sell is A. a sales forecast. B. an estimate of productive capacity. C. an estimate of cash receipts and disbursements. D. a projection of fixed asset acquisitions.
answer
B. an estimate of productive capacity.
question
The number of units required for production is equal to: A. budgeted sales plus units in the beginning inventory minus the units in the ending inventory. B. budgeted sales plus units in the ending inventory minus the units in the beginning inventory. C. budgeted sales plus the units in the ending inventory. D. budgeted sales minus the units in the beginning inventory. E. budgeted sales.
answer
B. budgeted sales plus units in the ending inventory minus the units in the beginning inventory.
question
The amount of materials to be purchased during the budget period is equal to budgeted: A. total production needs plus units in the beginning materials inventory minus the units in the ending materials inventory. B. total production needs plus units in the ending materials inventory minus the units in the beginning materials inventory. C. units to be produced plus units in the beginning materials inventory minus the units in the ending materials inventory. D. units to be produced plus units in the ending materials inventory minus the units in the beginning materials inventory.
answer
B. total production needs plus units in the ending materials inventory minus the units in the beginning materials inventory.
question
Which of the following budgets does not require the production budget? A. Direct materials. B. Direct labor. C. Manufacturing overhead. D. Marketing and administrative expenses.
answer
D. Marketing and administrative expenses.
question
The manufacturing overhead budget requires that costs be separated into their fixed and variable components. Another budget that has this requirement is the: A. direct labor. B. direct materials. C. cost of goods sold. D. marketing and administrative expenses.
answer
D. marketing and administrative expenses.
question
Which of the following statements does not reflect a difficulty in preparing the marketing and administrative budget? A. Managers have discretion about how much money is spent. B. Managers have discretion about the timing of when money is spent. C. Marketing and administrative expenses are made up of fixed and variable items. D. Marketing and administrative expenses normally have a one year time horizon.
answer
D. Marketing and administrative expenses normally have a one year time horizon.
question
Which one of the following budgets would be the last one prepared in the master budget preparation process? A. Manufacturing overhead budget. B. Cost of goods sold budget. C. Marketing cost budget. D. Direct labor budget. E. Cash budget.
answer
E. Cash budget.
question
Cash disbursements would not include payments for: A. dividends. B. income taxes. C. accounts receivable. D. capital budget expenditures. E. marketing and administrative expenses.
answer
C. accounts receivable.
question
Which of the following types of accounts would not be included on a budgeted balance sheet? A. Cash. B. Assets. C. Liabilities. D. Stockholders' equity. E. Revenues.
answer
E. Revenues.
question
Which of the following budgets is not required in a wholesale organization? A. Cash. B. Sales. C. Production. D. Cost of goods sold. E. Marketing and administrative expenses.
answer
C. Production.
question
Which of the following budgets is not required in a service organization? A. Cash. B. Sales. C. Labor. D. Cost of goods sold. E. Marketing and administrative expenses.
answer
D. Cost of goods sold.
question
Sensitivity analysis can best be used in the budgeting process to: A. explore the uncertainty surrounding their estimates. B. remove the subjective nature from the budgeting process. C. answer "what-if" questions regarding key projections. D. consider alternatives and options in the budgeting process.
answer
C. answer "what-if" questions regarding key projections.
