Financial and Managerial Accounting, 8e (Wild)
Chapter 20 Master Budgets and Performance Planning
1) Employees who will have performance evaluated according to the budget standards should not
be involved in preparing the budget.
2) A budget can be an effective means of communicating management’s plans to employees.
3) Budgets are normally more effective when all levels of management are involved in the
budgeting process.
4) Managers must ensure that activities of employees and departments contribute to meeting the
company’s overall goals.
5) If applied correctly, budgeting may have a positive effect on employee motivation.
6) Budgeting is an informal plan for future business activities.
7) A budget is a formal statement of future plans, usually expressed in monetary terms.
8) Budgets are long-term financial plans that generally cover more than a one-year period.
9) The process of evaluating performance can be improved by using budgets.
10) Continuous budgeting is the practice of revising the budgets as time passes.
11) Budget preparation is best done in a top-down managerial approach.
12) Preparing a budget should be the sole task of the most important department in an
organization.
13) The responsibility for coordinating the preparation of a master budget should be assigned to
the Chief Executive Officer.
14) Larger, more complex organizations usually require a longer time to prepare their budgets
than smaller organizations because of the considerable effort to coordinate the different units
within the business.
15) A rolling budget is relevant only to merchandising companies.
16) The sequence of the budgets within the master budget begins with the capital expenditures
budget.
17) The number and types of budgets included in a master budget depend on the company’s size
and complexity.
18) The capital expenditures budget summarizes the effects of financing activities on cash.
19) The capital expenditures budget summarizes the effects of investing activities on cash.
20) The merchandise purchases budget depends on information from the sales budget.
21) The production budget cannot be prepared until the direct materials and direct labor budgets
are prepared.
22) The merchandise purchases budget is the starting point for preparing the master budget of a
merchandiser.
23) The master budget includes individual budgets for sales, production or merchandise
purchases, various expenses, capital expenditures, and cash.
24) Part of the budgeting process is summarizing the financial statement effects on the budgeted
income statement and the budgeted balance sheet.
25) The budget process rarely coincides with the accounting period.
26) A master budget refers to a company’s sales budget that includes all of its segments or
departments.
27) Activity-based budgeting is a budget system based on expected activities and their levels for
the budget period, which helps management plan for the resources required.
28) Traditional budgeting is generally better than activity-based budgeting when attempting to
reduce costs by eliminating non-value-added activities.
29) The sales budget is derived from the production budget.
30) The production budget is derived from the sales budget and the company’s desired inventory
levels.
31) A capital expenditures budget is prepared before the operating budgets.
32) The selling expenses budget is normally prepared before the sales budget because selling
expenses affect the amount of sales.
33) The sales budget comes from a careful analysis of forecasted economic and market
conditions, business capacity, and advertising plans.
34) To develop the sales budget, companies must estimate both unit sales and the production cost
per unit.
35) A manufacturing budget shows dollar amounts estimated to be spent to purchase additional
plant assets and amounts expected to be received from plant asset disposals.
36) A capital expenditures budget shows dollar amounts estimated to be spent to purchase
additional plant assets and amounts expected to be received from plant asset disposals.
37) If a merchandiser’s budgeted beginning inventory is $8,300, budgeted ending inventory is
$9,400, and cost of goods sold is expected to be $10,260, then budgeted purchases should be
$11,360.
38) Part of the cash budget is based on information taken from the capital expenditures budget.
39) A cash budget shows the expected cash receipts and cash payments during the budget period.
40) The budgeted balance sheet is prepared primarily from data contained in the previously
prepared components of the master budget.
41) The budgeted balance sheet and income statement are normally completed after preparation
of operating and capital expenditure budgets.
42) The financial statement effects of the budgeting process are summarized on the cash budget
and the capital expenditures budget.
43) A company’s history indicates that 20% of its sales are for cash and the remaining 80% are
on credit. Collections on credit sales are 30% in the month of the sale and 70% the following
month. Projected sales for January, February, and March are $75,000, $92,000 and $60,000,
respectively. The March expected cash receipts are $80,500.
44) A company’s history indicates that 20% of its sales are for cash and the remaining 80% are
on credit. Collections on credit sales are 30% in the month of the sale and 70% the following
month. Projected sales for January, February, and March are $75,000, $92,000 and $60,000,
respectively. The March expected cash receipts are $77,920.
45) Production budgets always show both budgeted units of product and total costs for the
budgeted units.
46) The manufacturing budgets include the sales budget and the budgeted income statement.
47) A formal statement of future plans, usually expressed in monetary terms, is a:
A) Variance report.
B) Position statement.
C) Budget.
D) Prospectus.
E) Variance analysis.
48) The process of planning future business actions and expressing them as a formal plan is
called:
A) Budgeting.
B) Cost accounting.
C) Managerial accounting.
D) Variance analysis.
E) Standard cost analysis.
49) All of the following are necessary for budgets to be effective except:
A) Goals should be challenging and attainable.
B) Employees affected by a budget should be consulted when it is prepared.
C) Evaluations should be made carefully with opportunities to explain differences between actual
and budgeted amounts.
D) Managers must be aware of potential negative outcomes of budgeting, such as budgetary
slack.
E) All budgeted amounts must be spent to ensure that budgets aren’t reduced for the next period.
50) Which of the following is not a result of following a well-designed budgeting process?
A) Improved decision-making processes.
B) Improved performance evaluations.
C) Improved coordination of business activities.
D) Assurance of future profits.
E) Improved communication of management’s action plans.
51) Which of the following is a benefit derived from budgeting?
A) Budgeting focuses management’s attention on past performance.
B) Budgeting avoids needing industry and economic factors in decision making.
C) Budgeting provides a basis for evaluating performance.
D) Budgeting avoids the need for incentives to improve employee performance.
E) Budgeting eliminates the need for coordination across departments.
52) Which of the following statements about budgeting is false?
A) Budgeting is an aid to planning and control.
B) Budgets create standards for performance evaluation.
C) Budgets help coordinate the activities of the entire organization.
D) Budgeting forces managers to think ahead and formalize future objectives.
E) The master budget should only be prepared by top management.
53) A budget is best described as:
A) A formal statement of a company’s future plans usually expressed in monetary terms.
B) A master control device.
C) An informal statement of company’s future plans usually expressed in monetary terms.
D) The most crucial component of a company’s evaluation process.
E) The minimum acceptable performance level.
54) All of the following are steps in the budgetary control process except:
A) Develop the budget from planned objectives.
B) Compare actual results to budgeted amounts and analyze differences.
C) Take corrective and strategic actions.
D) Communicate differences to supervisors to facilitate promotion decisions.
E) Establish new objectives and a new budget.
55) Budgets that are periodically revised and have new periods added to replace those that have
lapsed are called:
A) Production budgets.
B) Sales budgets.
C) Cash budgets.
D) Rolling budgets.
E) Capital expenditures budgets.
56) In a company that employs continuous budgeting on a quarterly basis and has an accounting
period that ends December 31 of each year, what period would the first revision and update to
the January through December 2017 budget cover?
A) February 2017-January 2018
B) March 2017-February 2018
C) December 2017-November 2018
D) April 2017-March 2018
E) January 2018-December 2018
57) The most useful budget figures are developed:
A) From the “top-down”.
B) From the “bottom-up” following a participatory process.
C) By the budget committee.
D) By the CEO.
E) After the accounting period has begun.
58) The practice of preparing budgets for each of several future periods and revising those
budgets as each period is completed, adding a new budget each period so that the budgets always
cover the same number of future periods, is called:
A) Participatory budgeting.
B) Capital budgeting.
C) Balanced budgeting.
D) Continuous budgeting.
E) Primary budgeting.
59) The usual budget period for most companies is:
A) An annual period of 250 working days.
B) A monthly period separated into daily budgets.
C) A quarterly period separated into weekly budgets.
D) An annual period separated into weekly budgets.
E) An annual period separated into quarterly and monthly budgets.
60) Assuming a bottom-up process of budget development, which of the following should be
initially responsible for developing sales estimates?
A) The budget committee.
B) The accounting department.
C) The sales department.
D) Top management.
E) The marketing department.
61) The master budgeting process typically begins with the sales budget and ends with a cash
budget and:
A) Budgeted financial statements.
B) Forecast budget.
C) Capital expenditures budget.
D) Rolling budget.
E) Production budget.
62) Operating budgets include all the following budgets except the:
A) Sales budget.
B) Selling expense budget.
C) Cash budget.
D) Production budget.
E) General and administrative expense budget.
63) Operating budgets include all the following except the:
A) Sales budget.
B) Budgeted balance sheet.
C) Production budget.
D) Selling expense budget.
E) General and administrative expense budget.
64) The master budget of a merchandising company includes a:
A) Production budget.
B) Direct materials budget.
C) Factory overhead budget.
D) Direct labor budget.
E) Purchases budget.
65) The usual starting point for preparing a master budget is forecasting or estimating:
A) Expenditures.
B) Sales.
C) Production.
D) Income.
E) Cash payments.
66) The master budget process usually ends with:
A) The production budget.
B) The sales budget.
C) The selling expense budget.
D) The budgeted balance sheet.
E) The overhead budget.