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Chapter 23 Operational Budgeting Answer Key
True / False Questions
1.
A company that is profitable may not have sufficient cash on hand to meet its immediate
needs.
2.
A company's operating cycle is the time between purchases of direct materials and
conversion of these materials back into cash.
3.
The operating cycle is the average time required to manufacture products for sale.
4.
Because a budget is merely a forecast of future events, its benefits are extremely narrow
and limited.
5.
If a budget is to provide a basis for evaluating departmental performance, departmental
managers should not know what their budget targets are until after the budget period has
ended.
6.
The total quality management approach to budgeting sets budgeted amounts at levels that
can be achieved through reasonably efficient operations.
7.
The behavioral approach to budgeting has as its goal the complete elimination of
inefficiency.
8.
A budget prepared using the total quality management approach is always achievable by
departments within a company.
9.
Under the "total quality management" philosophy, budgeted amounts should be set at
realistic and achievable levels rather than at levels representing absolute efficiency.
10.
If the behavioral approach is employed to determine the levels at which budgeted amounts
are set, then reasonable and achievable levels should be used.
11.
If the total quality management approach is employed to determine the level at which
budgeted amounts are set, then absolute efficiency is assumed.
12.
In a master budget, the sales forecast would be dependent upon the budgeted production
figures.
13.
A master budget is a comprehensive financial plan setting forth the financial and
operational goals of a business.
14.
A master budget actually includes a number of related budgets.
15.
Once a company determines its desired production level, it uses that estimated production
level to forecast sales for the period.
16.
A cash budget determines the maximum amount of money that can be spent during the
period.
17.
In preparing a master budget, budgeted levels for production, manufacturing costs, and
operating expenses normally are determined after preparing the sales forecast.
18.
The typical starting point of a master budget would be to prepare a budgeted balance
sheet.
19.
The preparation of a budgeted balance sheet requires consideration of the budgeted
capital expenditures and budgeted net income.
20.
A budget provides a comprehensive plan enabling multiple departments to work together in
a coordinated manner.
21.
A common means of performance evaluation occurs by comparing budgeted amounts with
actual amounts.
22.
A flexible budget allows management to spend more or less for labor and materials without
regard to the amount of production.
23.
Flexible budgets can be prepared for sales budgets but not for productions budgets.
24.
In a flexible budget, both variable and fixed costs will vary with the level of activity.
25.
A performance report can be easily adjusted to show budgeted revenues and costs at
different levels of activity.
26.
Flexible budgeting may be viewed as combining the concepts of budgeting with cost-
volume-profit analysis.
Multiple Choice Questions
27.
Mentha Company currently has the following statistics:
Days in inventory - 80
Days in accounts receivable - 68
What is Mentha's operating cycle?
28.
Mentha Company currently has the following statistics:
Days in inventory - 80
Operating cycle - 148
What is Mentha's days in accounts receivable?
29.
Mentha Company currently has the following statistics:
Days in accounts receivable - 68
Operating cycle - 148
What is Mentha's days in inventory?
30.
The benefits of budgeting include all of the following
except
:
31.
Which of the following is
not
a benefit of a careful and thorough budgeting process?
32.
Benefits derived from budgeting do
not
include:
33.
The most widely used budgeting philosophy is the:
34.
A budget that adds a new month when the current month ends is called a:
35.
Which philosophy in setting budgeted amounts assumes both the complete elimination of
inefficiencies and a level of absolute efficiency?
36.
Which of the following is
not
a characteristic of the total quality approach to setting
budgetary targets?
37.
When budgeted amounts are set at reasonable and achievable levels:
38.
Capital expenditures budgets are typically prepared for a period of:
39.
A master budget usually includes all of the following
except
:
40.
The master budget may be comprised of:
41.
A segment of a master budget relating to that portion of a business under the control of a
particular manager is termed a:
42.
Which of the following is
not
considered an operating budget?
43.
Which of the following is considered a financial budget?
44.
Which element of a master budget would normally be prepared first?
45.
Which of the following is a major component of a master budget?
46.
Which of the following is considered an operating budget?
47.
The sales forecast directly affects many elements of the master budget. Which of the
following would be
least
affected by short-term fluctuations in the sales forecasts?
48.
The production schedule in units:
