1. The cash budget is usually prepared after the budgeted income statement.
2. The manufacturing overhead budget is typically prepared before the production budget.
3. Self-imposed budgets prepared by lower-level managers should be scrutinized by higher
levels of management.
4. The basic idea underlying responsibility accounting is that each manager should be held
responsible for the overall profit of the company to ensure that all managers are acting together.
5. Budgets are used to plan and to control operations.
6. The sales budget is usually prepared before the production budget.
7. A continuous or perpetual budget is a budget that almost never needs to be revised.
8. The cash budget is typically prepared before the direct materials budget.
9. In business, a budget is a method for putting a limit on spending.
10. Planning involves gathering feedback to ensure that the plan is being properly executed or
modified as circumstances change.
11. A benefit of self-imposed budgeting is that it may allow lower-level managers to create
budgetary slack.
12. The first budget a company prepares in a master budget is the production budget.
13. One disadvantage of a self-imposed budget is that budget estimates prepared by front-line
managers are often less accurate and reliable than estimates prepared by top managers.
14. The direct materials budget is typically prepared before the production budget.
15. A self-imposed budget is a budget that is prepared with the full cooperation and participation
of managers at all levels.
16. The sales budget often includes a schedule of expected cash collections.
17. The number of units to be produced in a period can be determined by adding the expected
sales to the beginning inventory and then deducting the desired ending inventory.
18. In a merchandising company, the required merchandise purchases for a period are
determined by subtracting the desired ending inventory from the sum of the units to be sold during the
period and the units in beginning inventory.
19. When preparing a direct materials budget, the units of raw material needed to meet production
should be added to desired ending inventory and the beginning inventory for raw materials should be
subtracted to determine the amount of raw materials to be purchased.
20. In companies that do not have “no lay-off” policies, the total direct labor cost for a budget
period is computed by multiplying the total direct labor hours needed to make the budgeted output of
completed units by the direct labor wage rate.
21. The direct labor budget shows the direct labor-hours required to produce the desired ending
inventory.
22. The manufacturing overhead budget lists all costs of production other than selling and
administrative expenses.
23. Only variable manufacturing overhead costs are included in the manufacturing overhead
budget.
24. The budgeted selling and administrative expense is calculated by multiplying the budgeted
unit sales by the selling and administrative expense per unit.
25. Both variable and fixed manufacturing overhead costs are included in the selling and
administrative expense budget.
26. On a cash budget, the total amount of budgeted cash payments for manufacturing overhead
should not include any amounts for depreciation on factory equipment.
27. Which of the following budgets are prepared before the production budget?
Direct Materials Budget Sales Budget
A) Yes Yes
B) Yes No
C) No Yes
D) No No
28. Which of the following represents the normal sequence in which the below budgets are
prepared?
29. Which of the following is NOT an objective of the budgeting process?
30. Which of the following benefits could an organization reasonably expect from an effective
budget program?
Increased employee motivation Uncover potential bottlenecks
A) Yes Yes
B) Yes No
C) No Yes
D) No No
31. The budget method that maintains a constant twelve–month planning horizon by adding a
new month on the end as the current month is completed is called:
32. All the following are considered to be benefits of participative budgeting, except for:
33. When preparing a production budget, the required production equals:
34. The direct labor budget is based on:
35. Which of the following might be included as a disbursement on a cash budget?
Depreciation on factory equipment Income taxes to be paid
A) Yes Yes
B) Yes No
C) No Yes
D) No No
36. The WRT Corporation makes collections on sales according to the following schedule:
25% in month of sale
65% in month following sale
5% in second month following sale
5% uncollectible
The following sales have been budgeted:
Sales
April $120,000
May $100,000
June $110,000
Budgeted cash collections in June would be:
37. Trumbull Corporation budgeted sales on account of $120,000 for July, $211,000 for August,
and $198,000 for September. Experience indicates that none of the sales on account will be collected
in the month of the sale, 60% will be collected the month after the sale, 36% in the second month,
and 4% will be uncollectible. The cash receipts from accounts receivable that should be budgeted for
September would be:
38. Sioux Corporation is estimating the following sales for the first four months of next year:
January $260,000
February $230,000
March $270,000
April $320,000
Sales are normally collected 60% in the month of sale, 35% in the month following the sale, and the
remaining 5% being uncollectible. Based on this information, how much cash should Sioux expect to
collect during the month of April?
39. Seventy percent of Parlee Corporation’s sales are collected in the month of sale, 25% in the
month following sale, and 5% in the second month following sale. The following are budgeted sales
data for the company:
January February March April
Total sales $600,000 $700,000 $500,000 $300,000
Total budgeted cash collections in April would be:
40. Budgeted sales in Acer Corporation over the next four months are given below:
September October November December
Budgeted sales $140,000 $150,000 $170,000 $130,000
Twenty-five percent of the company’s sales are for cash and 75% are on account. Collections for
sales on account follow a stable pattern as follows: 50% of a month’s credit sales are collected in the
month of sale, 30% are collected in the month following sale, and 15% are collected in the second
month following sale. The remainder are uncollectible. Given these data, cash collections for
December should be:
41. All of Porter Corporation’s sales are on account. Sixty percent of the credit sales are collected
in the month of sale, 25% in the month following sale, and 10% in the second month following sale.
The remainder are uncollectible. The following are budgeted sales data for the company:
January February March April
Total sales $400,000 $600,000 $500,000 $700,000
Cash receipts in April are expected to be:
42. Paradise Corporation budgets on an annual basis for its fiscal year. The following beginning
and ending inventory levels (in units) are planned for next year.
Beginning
Inventory Ending
Inventory
Raw material* 40,000 50,000
Finished goods 80,000 50,000
*Three pounds of raw material are needed to produce each unit of finished product.
If Paradise Corporation plans to sell 480,000 units during next year, the number of units it would
have to manufacture during the year would be:
43. Frodic Corporation has budgeted sales and production over the next quarter as follows:
July August September
Sales in units 40,000 52,000 ?
Production in units 41,200 52,300 56,650
The company has 4,000 units of product on hand at July 1. 10% of the next month’s sales in units
should be on hand at the end of each month. October sales are expected to be 71,500 units.
Budgeted sales for September would be (in units):
44. JT Department Store expects to generate the following sales for the next three months:
July August September
Expected sales $460,000 $580,000 $620,000
JT’s cost of gods sold is 60% of sales dollars. At the end of each month, JT wants a merchandise
inventory balance equal to 20% of the following month’s expected cost of goods sold. What dollar
amount of merchandise inventory should JT plan to purchase in August?
45. Fab Manufacturing Corporation manufactures and sells stainless steel coffee mugs.
Expected mug sales at Fab (in units) for the next three months are as follows:
October November December
Budgeted unit sales 28,000 25,000 31,000
Fab likes to maintain a finished goods inventory equal to 30% of the next month’s estimated sales.
How many mugs should Fab plan on producing during the month of November?
46. The following information was taken from the production budget of Paeke Corporation for
next quarter:
January February March
Units to be produced 130,000 138,000 154,000
Desired ending inventory of finished goods 32,000 35,000 38,000
How many units is the company expecting to sell in the month of February?
47. On November 1, Barnes Corporation has 8,000 units of Product A on hand. During the
month, the company plans to sell 30,000 units of Product A, and plans to have 6,500 units on hand at
end of the month. How many units of Product A must be produced during the month?