Section Managerial PDF

Profit Planning: REVISION
True / False Questions
No statement T/F
1 The production budget is typically prepared prior to the sales budget. F
2 One benefit of budgeting is that it coordinates the activities of the entire T
organization.
3 Both planning and control are needed for an effective budgeting system. T
4 The master budget is a network consisting of many separate budgets that are T
interdependent.
5 Planning and control are essentially the same thing. F
6 A sales budget is a detailed schedule showing the expected sales for the budget T
period; typically, it is expressed in both dollars and units of product.
7 Both variable and fixed manufacturing overhead costs are included in the T
manufacturing overhead budget.
8 In the selling and administrative budget, the non-cash charges (such as depreciation) F
are added to the total budgeted selling and administrative expenses to determine the
expected cash disbursements for selling and administrative expenses.
9 Operating budgets are financial plans associated with the income-producing activities T
of the organization.
10 The budget that shows how many units must be produced to meet sales needs and T
satisfy ending inventory requirements is the production budget.
11 The collection of all area and activity budgets representing a firm’s comprehensive T
plan of action is the master budget
12 Budgeting is a trade-off between planning and control in that increased use of F
budgeting will usually improve planning but will weaken control.
13 When a company adds one increment of time to its budget period as one increment of T
time expires, it is practicing continuous budgeting.
14 The production budget, direct materials budget, direct labor budget, and T
manufacturing overhead budget are all tied to the projections in the sales budget.
Multiple Choice Questions

1. Operating budgets are:
A. a forecast of expected operating expenses.
B. a forecast of operating expenses.
C. concerned with the inflows and outflows of cash.
D. concerned with the income-generating activities of a firm.
1|Page
2. Which of the following represents the normal sequence in which the indicated budgets
are prepared?
A. Direct Materials, Cash, Sales
B. Production, Cash, Income Statement
C. Sales, Balance Sheet, Direct Labor
D. Production, Manufacturing Overhead, Sales.
3. 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.
4. Which of the following represents the correct order in which the indicated budget
documents for a manufacturing company would be prepared?
A. Sales budget, cash budget, direct materials budget, direct labor budget
B. Production budget, sales budget, direct materials budget, direct labor budget
C. Sales budget, cash budget, production budget, direct materials budget
D. Selling and administrative expense budget, cash budget, budgeted income
statement, budgeted balance sheet
5. A continuous (or perpetual) budget:

A. is prepared for a range of activity so that the budget can be adjusted for changes in
activity.
B. is a plan that is updated monthly or quarterly, dropping one period and adding
another.
C. is a strategic plan that does not change.
D. is used in companies that experience no change in sales.
6. Which of the following statements is not correct?

A. The sales budget is the starting point in preparing the master budget.
B. The sales budget is constructed by multiplying the expected sales in units by the sales
price.
C. The sales budget generally is accompanied by a computation of expected cash receipts
for the forthcoming budget period.
D. The cash budget must be prepared prior to the sales budget because managers want
to know the expected cash collections on sales made to customers in prior periods
before projecting sales for the current period.
2|Page
7. Budgeted production in units are determined by:
A. adding budgeted sales in units to the desired ending inventory in units and
deducting the beginning inventory in units from this total.
B. adding budgeted sales in units to the beginning inventory in units and deducting the
desired ending inventory in units from this total.
C. adding budgeted sales in units to the desired ending inventory in units.
D. deducting the beginning inventory in units from budgeted sales in units.
8. The budgeted amount of raw materials to be purchased is determined by:

A. adding the desired ending inventory of raw materials to the raw materials needed to meet
the production schedule.
B. subtracting the beginning inventory of raw materials from the raw materials needed to
meet the production schedule.
C. adding the desired ending inventory of raw materials to the raw materials needed to
meet the production schedule and subtracting the beginning inventory of raw
materials.
D. adding the beginning inventory of raw materials to the raw materials needed to meet the
production schedule and subtracting the desired ending inventory of raw materials.
9. Shown below is the sales forecast for Cooper Inc. for the first four months of the coming
year.
On average, 50% of credit sales are paid for in the month of the sale, 30% in the month
following sale, and the remainder are paid two months after the month of the sale.
Assuming there are no bad debts, the expected cash inflow in March is:
A. $138,000
B. $122,000
C. $119,000
D. $108,000
Cash inflow for March:
3|Page
10. Walsh Company expects sales of Product W to be 60,000 units in April, 75,000 units
in May and 70,000 units in June. The company desires that the inventory on hand at the end
of each month be equal to 40% of the next month's expected unit sales. Due to excessive
production during March, on March 31 there were 25,000 units of Product W in the ending
inventory. Given this information, Walsh Company's production of Product W for the month
of April should be:
A. 60,000 units
B. 65,000 units
C. 75,000 units
D. 66,000 units
1
May sales of 75,000 units  40% = 30,000 units
11. AZAZY Company has budgeted production for next year as follows:
Two pounds of material A are required for each unit produced. The company has a policy of
maintaining a stock of material A on hand at the end of each quarter equal to 25% of the next
quarter's production needs for material A. A total of 30,000 pounds of material A are on hand
to start the year. Budgeted purchases of material A for the second quarter would be:
A. 82,500 pounds
B. 165,000 pounds
C. 200,000 pounds
D. 205,000 pounds
4|Page
Budgeted purchases of material A:
12. Ayman Corporation is working on its direct labor budget for the next two months. Each
unit of output requires 0.84 direct labor-hours. The direct labor rate is $9.40 per direct
labor-hour. The production budget calls for producing 2,100 units in June and 1,900 units
in July. If the direct labor work force is fully adjusted to the total direct labor-hours
needed each month, what would be the total combined direct labor cost for the two
months?
A. $15,792.00
B. $15,002.40
C. $16,581.60
D. $31,584.00
Direct Labor Budget
13. Shuck Inc. bases its manufacturing overhead budget on budgeted direct labor-hours. The
direct labor budget indicates that 8,100 direct labor-hours will be required in May. The
variable overhead rate is $1.40 per direct labor-hour. The company's budgeted fixed
manufacturing overhead is $100,440 per month, which includes depreciation of $8,910. All
other fixed manufacturing overhead costs represent current cash flows. The May cash
disbursements for manufacturing overhead on the manufacturing overhead budget should
be:
A. $102,870
B. $11,340
C. $91,530
D. $111,780
5|Page
Manufacturing Overhead Budget
14. Delta Inc. is working on its cash budget for June. The budgeted beginning cash balance is
$16,000. Budgeted cash receipts total $188,000 and budgeted cash disbursements total
$187,000. The desired ending cash balance is $40,000. The excess (deficiency) of cash
available over disbursements for June will be:
A. $15,000
B. $1,000
C. $17,000
D. $204,000
Cash Budget
15- ALQUDS Company plans the following beginning and ending inventory levels (in units)
for April:
April 1 April 30
Raw Material 80,000 100,000
Work in Process 20,000 20,000
Finished Goods 160,000 100,000
Two units of raw material are needed to produce each unit of finished product. If the company
plans to sell 960,000 units during April, the number of units it would need to manufacture
during April would be ?
A) 1,020,000 units.
B) 960,000 units.
C) 900,000 units.
D) 880,000 units.
6|Page
Budgeted units sales 960,000
+ Desired ending inventory units 100,000
Total need 1,060,000
(-) Beginning inventory units (160,000)
Required production 900,000
16- OMER Company makes collections on sales according to the following schedule:
30% in the month of sale
60% in the month following sale
8% in the second month following sale
The following sales are expected:
Cash collections in March should be budgeted to be:

A. $110,000
B. $110,800
C. $105,000
D. $113,000
Cash collections for March:
7|Page

Section Managerial PDF

Uploaded by

Copyright:

Available Formats

Section Managerial PDF

Uploaded by

Document Information

Original Description:

Original Title

Copyright

Available Formats

Share this document

Share or Embed Document

Sharing Options

Did you find this document useful?

Is this content inappropriate?

Copyright:

Available Formats

Section Managerial PDF

Uploaded by

Copyright:

Available Formats

Profit Planning: REVISION

True / False Questions

Multiple Choice Questions

3. Which of the following is not a benefit of budgeting?

5. A continuous (or perpetual) budget:

6. Which of the following statements is not correct?

8. The budgeted amount of raw materials to be purchased is determined by:

Cash inflow for March:

Direct Labor Budget

The following sales are expected:

Cash collections in March should be budgeted to be:

Cash collections for March:

You might also like