Fundamentals of Cost Accounting 4th Edition: Chapter 13 (Pforsich) – Flashcards

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Budget
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Overall plan for achieving an organization's objectives
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Master Buget
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One-year plan that encompasses budgeted sales and production, budgeted I/S, B/S and cash flow statement.
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Role of budgets in overall organization plans
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To help companies determine the means for achieving their goals by outlining projected sales, production cost, and marketing/admin costs
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Importance of people in the budgeting process
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Budgets based on people's estimates, which are affected by own goals, values and abilities.
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1) Sales Forecast
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Key to Budget
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2) Production and Cost Budget
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After sales estimate. Derives cost of Goods sold
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3) Estimate Cash Flows
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Requires revenues, costs and other transactions effect on cash
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4) Financial Statements
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Sales, production costs, marketing/admin come from budgeted I/S
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Budgeting for merchandising and service organizations
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Retail/wholesale have no production budget. Service has no invetories.
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Ethical issues with budgeting
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Employees rewarded for staying on budget, so conflict of interest in creating accuracy. If budgets not attainable, employees could turn to fraudulent reporting
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More detail: budget for coming period or long-range forecast?
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The period's budget closest to current time is more detailed. Upcoming budget is used to determine actual operations
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Purpose of cash budget
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Cash receipt/disbursement often take place in different time periods than recognition. Company must ensure cash needs are met
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Four methods to estimate sales for budgeting purposes
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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
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Role of Master Budget
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Links long-term objectives and short-term. Provides specific numbers for set goals.
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Problems with relying solely on management estimates for budget
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Management often has conflict of interest for setting accurate budgets due to being rewarded for staying at or below budget
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Coordinating role of budgeting
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Coordinates sales with production. Coordinate production units with one another. Coordinate s availability of cash
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A budget is the plan, stated in financial terms, of how an organization expects to carry out its activities and meet its goals.
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TRUE
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A master budget consists of (a) organizational goals, (b) strategic long-range profit plan, and (c) tactical short-range profit plan.
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FALSE
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Individual managers' beliefs and expectations are incorporated into the budgeting process using grass roots budgeting procedures.
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TRUE
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Both variable and fixed manufacturing overhead costs are included in the manufacturing overhead budget.
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TRUE
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Sales projections are often the most difficult part of the budgeting process because it involves a considerable amount of subjectivity.
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TRUE
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An organization's sales staff is more likely to provide a lower sales forecast than a forecast provided by market researchers.
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TRUE
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The Delphi technique uses highly sophisticated computerized time series analysis to reduce the subjectivity surrounding the sales forecast.
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FALSE
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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.
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TRUE
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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.
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FALSE
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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.
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TRUE
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The production budget must be prepared before the direct materials, direct labor, and overhead budgets can be prepared.
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TRUE
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Estimates for direct labor costs are obtained from the engineering and production management, as well as from the Personnel Department.
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TRUE
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Bottlenecks in the production process can be discovered by the budgeting process before they occur.
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TRUE
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In effect, the cash budget simply restates the budgeted income statement to the cash basis.
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FALSE
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The cash budget is normally prepared before the budgeted income statement.
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FALSE
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The sales budget drives the rest of the budgeting process for both manufacturers and merchandisers
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TRUE
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A production budget is not needed for a service organization.
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TRUE
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Ethical conflicts can occur in the budgeting process because managers supply information for the budgets that are then used to evaluate their performance
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TRUE
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The use of sensitivity analysis techniques allows managers to ask "what-if" questions regarding budget assumptions and estimates.
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TRUE
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Sensitivity analysis is more likely to be used for sales forecasts than for fixed overhead costs.
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TRUE
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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.
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BOTH FALSE
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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.
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A. at top management levels.
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Which of the following terms is not an alternative for master budget? A. Budget plan. B. Static budget. C. Profit plan. D. Planning budget.
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C. Profit plan.
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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.
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C. presents the plan for only one level of activity and does not adjust to changes in the level of activity.
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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
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D. drops the current month or quarter and adds a future month or quarter as the current month or quarter is completed.
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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.
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A. It reduces the need for tracking actual cost activity.
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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.
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Only B is True
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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.
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C. sales budget.
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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.
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A. Development of a sales budget.
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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.
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C. Delphi technique.
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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.
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A. econometric models.
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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.
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B. an estimate of productive capacity.
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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.
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B. budgeted sales plus units in the ending inventory minus the units in the beginning inventory.
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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.
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B. total production needs plus units in the ending materials inventory minus the units in the beginning materials inventory.
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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.
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D. Marketing and administrative expenses.
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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.
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D. marketing and administrative expenses.
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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.
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D. Marketing and administrative expenses normally have a one year time horizon.
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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.
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E. Cash budget.
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Cash disbursements would not include payments for: A. dividends. B. income taxes. C. accounts receivable. D. capital budget expenditures. E. marketing and administrative expenses.
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C. accounts receivable.
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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.
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E. Revenues.
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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.
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C. Production.
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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.
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D. Cost of goods sold.
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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.
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C. answer "what-if" questions regarding key projections.
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