1. A budget is the plan, stated in financial terms, of how an organization expects to carry out
its activities and meet its goals.
2. A master budget consists of (a) organizational goals, (b) strategic long-range profit plan,
and (c) tactical short-range profit plan.
3. Individual managers’ beliefs and expectations are incorporated into the budgeting process
using grass roots budgeting procedures.
4. Both variable and fixed manufacturing overhead costs are included in the manufacturing
overhead budget.
5. Sales projections are often the most difficult part of the budgeting process because it
involves a considerable amount of subjectivity.
6. An organization’s sales staff is more likely to provide a lower sales forecast than a
forecast provided by market researchers.
7. The Delphi technique uses highly sophisticated computerized time series analysis to
reduce the subjectivity surrounding the sales forecast.
8. 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.
9. 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.
10. 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.
11. The production budget must be prepared before the direct materials, direct labor, and
overhead budgets can be prepared.
12. Estimates for direct labor costs are obtained from the engineering and production
management, as well as from the Personnel Department.
13. Bottlenecks in the production process can be discovered by the budgeting process before
they occur.
14. In effect, the cash budget simply restates the budgeted income statement to the cash
basis.
15. The cash budget is normally prepared before the budgeted income statement.
16. The sales budget drives the rest of the budgeting process for both manufacturers and
merchandisers.
17. A production budget is not needed for a service organization.
18. Ethical conflicts can occur in the budgeting process because managers supply information
for the budgets that are then used to evaluate their performance.
19. The use of sensitivity analysis techniques allows managers to ask “what-if” questions
regarding budget assumptions and estimates.
20. Sensitivity analysis is more likely to be used for sales forecasts than for fixed overhead
costs.
21. 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.
22. Long-range planning as a management function is more important:
23. Which of the following terms is not an alternative for
master budget
?
24. A master budget:
25. A continuous (rolling) budget:
26. Which of the following is not a benefit of budgeting?
27. 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.
28. In general, the first budget prepared is the:
29. In developing a master budget for a manufacturing company, which one of the following
items should be done first?
30. The forecasting method in which individual forecasts of group members are submitted
anonymously and evaluated by the group as a whole is called:
31. The statistical method of forecasting that relies heavily on regression models is called:
32. 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
33. The number of units required for production is equal to:
34. The amount of materials to be purchased during the budget period is equal to budgeted:
35. Which of the following budgets does not require the production budget?
36. The manufacturing overhead budget requires that costs be separated into their fixed and
variable components. Another budget that has this requirement is the:
37. Which of the following statements does
not
reflect a difficulty in preparing the marketing
and administrative budget?