• Part of the cash budget is based on information taken from the capital expenditures
budget. True
• One of the major benefits of formal budgeting is the positive effect it can have on
employee attitudes if applied correctly. True
• The merchandise purchases budget depends on information provided by the sales budget.
True
• Part of the budgeting process is summarizing the financial statement effects on the
budgeted income statement and the budgeted balance sheet. True
• The responsibility for coordinating the preparation of a master budget should be assigned
to the Chief Executive Officer. False
• A budget can be an effective means of communicating management’s plans to the
employees of a business. True
• A budget is a formal statement of future plans, usually expressed in monetary terms. True
• A capital expenditures budget is prepared before the operating budgets. False
• Traditional budgeting is generally better than activity-based budgeting when attempting
to reduce costs by eliminating non-value-added activities. False
• While companies strive to achieve ideal standards, reality implies that some loss of
materials usually occurs with any process. True
• A flexible budget expresses variable costs on a per unit basis and fixed costs on a total
basis. True
• The total sales variance can be divided into the sales price variance and the sales volume
variance. True
• The purchasing department is usually responsible for the price paid for materials. True
• When standard costs are used, factory overhead is assigned to products with a
predetermined standard overhead rate. True
• A volume variance is the difference between overhead at maximum volume of production
and the standard volume of production. False
• Cost variances are ignored under management by exception. False
• A budget performance report shows budgeted amounts, actual amounts, and differences
between budgeted and actual amounts. True
• When the actual cost of direct materials used exceeds the standard cost, the company
must have experienced an unfavorable direct materials price variance. T
• Departmental contribution to overhead is the amount of sales for that department less its
direct expenses. T
• Joint costs can be allocated either using a physical basis or a value basis. T
• The process of preparing departmental income statements begins with allocating service
department expenses. F
• Investment center is another name for profit center. F
• Advertising expense can be reasonably allocated to departments on the basis of each
department’s proportion of sales. T
• A department’s direct expenses are usually considered uncontrollable costs. F
• A responsibility accounting performance report usually compares actual costs to
