Chapter 8—Budgeting for Planning and Control Key
1. A budget is a financial plan for the future used for planning, controlling, and decision making.
2. Budgeting means to set standards, receive feedback, and executing corrective action.
3. The budget director is responsible for directing and coordinating the budgeting process.
4. The master budget is composed of the operations budget and the future budget.
5. A continuous budget is a moving twelve-month budget.
6. The sales forecast is the basis for the sales budget.
7. The sales budget shows the expected sales quantity and price of each product or service.
8. The first section of the master budget is the financial budget.
9. The production budget describes how many units must be produced in order to meet sales and inventory
needs.
10. In a for-profit service firm, the sales budget is also the production budget.
11. Once all the operating budgets have been completed, the net income can be estimated.
12. The capital expenditures budget is a long-term financial plan.
13. The cash budget is the least priority budget in the master budget.
14. The cash excess or deficiency section of the cash budget compares expected available cash to the expected
cash needed.
15. The budgeted income statement depends partly on information in the budgets in the master budget.
16. A static budget is one developed for a single level of activity.
17. Static budgets show costs for varying levels of activities.
18. A flexible budget is sometimes referred to as a variable budget
19. A flexible budget compares actual costs to budgeted costs.
20. Activity-based budgeting recognizes interdependencies among departments.
21. The activity-based budget begins with output and then determines the resources necessary to create that
output.
22. An ideal budgeting system is one that achieves goals and encourages managers to achieve goals ethically.
23. Feedback is not important to managers as a measuring tool of their performance.
24. Incentives are the means used to encourage managers to achieve goals.
25. Participative budgeting detracts from a manager’s sense of responsibility and creativity.
26. The quantitative expressions of plans stated in either physical or financial terms are called __________ .
27. The process of setting standards, receiving feedback, and taking corrective action whenever performance
deviates from standards is called __________ .
28. The body responsible for reviewing the budget, providing policy guidelines and budgetary goals, resolving
differences that may arise, and approving the final budget is the __________ committee.
29. The comprehensive financial plans made up of departmental and activity budgets are
the __________ .
30. The __________ income statement is the culmination of the operating budget.
31. Operating expense budgets include the marketing expense budget and the __________ expense budget.
32. The __________ budget shows the projected sales and prices.
33. Cash disbursements and cash excess or deficiency are components of the __________ budget.
34. The accounts receivable aging schedule aids in determining the timing of cash __________ .
35. The budgeted __________ shows projected assets, liabilities, and shareholders’ equity of the end of the
budget period.
36. A __________ budget is developed around one particular level of activity.
37. Volume variances examine differences between the __________ budget and the __________ budget.
38. The budgeting that recognizes interdependencies among departments is called __________ budgeting.
39. Activity-based budgets also focus on __________ processes.
40. When managers intentionally underestimate or overestimate revenues and costs it is called
budgetary __________ .
41. The quantitative expression of a plan stated in either physical or financial terms or both is called a:
42. Which of the following is NOT a component of the master budget?
43. Which of the following statement is correct regarding a continuous budget?
44. Control can be defined as
45. Which of the following is the most common starting point in the information gathering process for
budgeting?
46. Which of the following is NOT an advantage of budgeting?
47. The process of setting standards, receiving feedback on actual performance, and taking corrective action
whenever actual performance deviates significantly from planned performance.
48. Which of the following factors is NOT an advantage of preparing operating budgets?
49. The budget committee
50. The body that has the responsibility to review the budget, provide policy guidelines and budgetary goals,
resolve differences that may arise as the budget is prepared, approve the final budget, and monitor the actual
performance of the organization as the year unfolds is called the:
51. The budgets that are comprehensive financial plans made up of various individual departmental and activity
budgets are the:
52. The budgets that are concerned with the income-generating activities of a firm are called the:
53. The budgets that are concerned with the inflows and outflows of cash and with financial position are called
the:
54. Operating budgets are
55. The following is responsible for directing and coordinating the overall budgeting process:
56. Wheeling Company produces and sells bikes. It expects to sell 20,000 bikes in April 2014 and had 1,200
bikes in finished goods inventory at the end of March 2014. Wheeling Company would like to complete
operations in April with at least 1,500 completed bikes in inventory. The bikes sell for $100 each.
What would be the total sales for April 2014?
57. Wheeling Company produces and sells bikes. It expects to sell 20,000 bikes in April 2014 and had 1,200
bikes in finished goods inventory at the end of March 2014. Wheeling Company would like to complete
operations in April with at least 1,500 completed bikes in inventory. The bikes sell for $100 each.
How many bikes would be produced in April 2014?
58. The type of budget that is a moving twelve-month budget is called the:
59. Which of the following is an operating budget?
60. Figure 8-1
Armando Company produces and sells mattresses. It expects to sell 10,000 mattresses in the year 2015 and had
1,000 mattresses in finished goods inventory at the end of 2014. Armando would like to complete operations in
the year 2015 with at least 1,250 completed mattresses in inventory. There is no ending work-in-process
inventory. The mattresses sell for $300 each.
Refer to Figure 8-1. What would be the total sales for the year 2015?
61. Figure 8-1
Armando Company produces and sells mattresses. It expects to sell 10,000 mattresses in the year 2015 and had
1,000 mattresses in finished goods inventory at the end of 2014. Armando would like to complete operations in
the year 2015 with at least 1,250 completed mattresses in inventory. There is no ending work-in-process
inventory. The mattresses sell for $300 each.
Refer to Figure 8-1. How many mattresses would be produced in the year 2015?
62. Which of the following is NOT a responsibility of the budget committee?
63. Figure 8-2
Asian Lamp Company manufactures lamps. The estimated number of lamp sales for the last three months of
2014 are as follows:
Month
Sales
October
10,000
November
14,000
December
13,000
Finished goods inventory at the end of September was 3,000 units. Ending finished goods inventory is budgeted to equal 25 percent of the next
month’s sales. Asian Lamp expects to sell the lamps for $25 each. January 2014 sales is projected at 16,000 lamps.
Refer to Figure 8-2.What is the expected sales revenue for December?
64. Figure 8-2
Asian Lamp Company manufactures lamps. The estimated number of lamp sales for the last three months of
2014 are as follows:
Month
Sales
October
10,000
November
14,000
December
13,000
Finished goods inventory at the end of September was 3,000 units. Ending finished goods inventory is budgeted to equal 25 percent of the next
month’s sales. Asian Lamp expects to sell the lamps for $25 each. January 2014 sales is projected at 16,000 lamps.
Refer to Figure 8-2. How many lamps should be produced in November?
65. Figure 8-2
Asian Lamp Company manufactures lamps. The estimated number of lamp sales for the last three months of
2014 are as follows:
Month
Sales
October
10,000
November
14,000
December
13,000
Finished goods inventory at the end of September was 3,000 units. Ending finished goods inventory is budgeted to equal 25 percent of the next
month’s sales. Asian Lamp expects to sell the lamps for $25 each. January 2014 sales is projected at 16,000 lamps.
Refer to Figure 8-2. In going from the sales budget to the production budget, adjustments to the sales budget need to be made for
66. Refer to Figure 8-2. How many lamps should be produced in October?
67. Molina Company has the following sales forecast for the next quarter: April, 20,000 units; May, 24,000
units; June, 28,000 units. Sales totaled 16,000 units in March. The March finished goods inventory was 4,000
units. End-of-month finished goods inventory levels are planned to be equal to 20 percent of the next month’s
planned sales.
The planned ending inventory of finished goods for May is
68. Molina Company has the following sales forecast for the next quarter: April, 20,000 units; May, 24,000
units; June, 28,000 units. Sales totaled 16,000 units in March. The March finished goods inventory was 4,000
units. End-of-month finished goods inventory levels are planned to be equal to 20 percent of the next month’s
planned sales.
The planned production for Ben Company for April is
69. The following forecasted sales pertain to Alicia Company:
Sales
$200,000
250,000
150,000
100,000
Finished goods inventory as of March 31
4,000 units
The company has a selling price of $20 per unit and expects to maintain ending inventories equal to 20 percent of the next month’s sales.
How many units are expected to be produced in April?
70. The following forecasted sales pertain to Rapid City:
Month
Sales
June
$160,000
July
200,000
August
120,000
September
80,000
Finished goods inventory as of May 31
6,000 units
Rapid City has a selling price of $5 per unit and expects to maintain ending inventories equal to 25 percent of next month’s sales.
How many units are expected to be produced in June?
71. Alana Company manufactures books. Manufacturing a book takes 10 units of A1 and 1 unit of A2.
Scheduled production of books for the next two months is 1,000 and 1,200 units, respectively. Beginning
inventory is 4,000 units of A1 and 30 units of A2. The ending inventory of A1 is planned to decrease 500 units
in each of the next two months, and the A2 inventory is expected to increase 5 units in each of the next two
months.
How many units of A1 does Alana Company expect to use in production during the second month?
72. Alana Company manufactures books. Manufacturing a book takes 10 units of A1 and 1 unit of A2.
Scheduled production of books for the next two months is 1,000 and 1,200 units, respectively. Beginning
inventory is 4,000 units of A1 and 30 units of A2. The ending inventory of A1 is planned to decrease 500 units
in each of the next two months, and the A2 inventory is expected to increase 5 units in each of the next two
months.
How many units of A2 are expected in the raw material inventory at the end of the second month?
73. Alana Company manufactures books. Manufacturing a book takes 10 units of A1 and 1 unit of A2.
Scheduled production of books for the next two months is 1,000 and 1,200 units, respectively. Beginning
inventory is 4,000 units of A1 and 30 units of A2. The ending inventory of A1 is planned to decrease 500 units
in each of the next two months, and the A2 inventory is expected to increase 5 units in each of the next two
months.
Based on this information, the number of units of A1 that needs to be purchased by Alana during the first month
is
74. Foremost Corporation manufactures boxes. The estimated number of boxes sold for the first three months of
2014 are:
Month
Sales
January
3,000
February
4,200
March
3,900
Finished goods inventory at the end of December was 900 units. Ending finished goods inventory is equal to 20 percent of the next month’s sales.
General Corporation expects to sell the boxes for $5 each. April 2014 sales is projected at 4,500 boxes.
What is the expected sales revenue for March?
75. Foremost Corporation manufactures boxes. The estimated number of boxes sold for the first three months of
2014 are as follows:
Month
Sales
January
3,000
February
4,200
March
3,900
Finished goods inventory at the end of December was 900 units. Ending finished goods inventory is equal to 20 percent of the next month’s sales.
General Corporation expects to sell the boxes for $5 each. April 2014 sales is projected at 4,500 boxes.
How many boxes should be produced in February?
76. Foremost Corporation manufactures boxes. The estimated number of boxes sold for the first three months of
2014 are as follows:
Month
Sales
January
3,000
February
4,200
March
3,900
Finished goods inventory at the end of December was 900 units. Ending finished goods inventory is equal to 20 percent of the next month’s sales.
General Corporation expects to sell the boxes for $5 each. April 2014 sales is projected at 4,500 boxes.
How many boxes should be produced in January?
77. Figure 8-3
Roaming Vehicles Company manufactures buggies. Manufacturing a buggy takes 20 units of wood and 1 unit
of steel. Scheduled production of buggies for the next two months is 500 and 600 units, respectively. Beginning
inventory is 4,000 units of wood and 30 units of steel. The ending inventory of wood is planned to decrease 500
units in each of the next two months, and the steel inventory is expected to increase 5 units in each of the next
two months.
Refer to Figure 8-3. How many units of wood are expected to be used in production during the second month?
78. Refer to Figure 8-3. How many units of steel are expected in the material inventory at the end of the second
month?
79. Refer to Figure 8-3. What is the number of units of wood that need to be purchased by Roaming Vehicles
Company during the first month?
80. Olga’s Company has a sales budget for next month of $150,000. Cost of goods sold is expected to be 40
percent of sales. All goods are purchased in the month used and paid for in the month following purchase. The
beginning inventory of merchandise is $5,000, and an ending inventory of $6,000 is desired. Beginning
accounts payable is $38,000.
How much merchandise inventory will Olga’s need to purchase next month?
81. Olga’s Company has a sales budget for next month of $150,000. Cost of goods sold is expected to be 40
percent of sales. All goods are purchased in the month used and paid for in the month following purchase. The
beginning inventory of merchandise is $5,000, and an ending inventory of $6,000 is desired. Beginning
accounts payable is $38,000.
The cost of goods sold for next month is expected to be
82. Moriah Manufacturing Company expects to incur the following per unit costs for 1,000 units of production:
Direct materials
3 lb. @ $5 = $15
Direct labor
1 hr @ $6 = $6
Variable overhead
75% of direct labor costs
Fixed overhead
50% of direct labor costs
What is the total amount of direct labor included in the direct labor budget?
83. Moriah Manufacturing Company expects to incur the following per unit costs for 1,000 units of production:
Direct materials
3 lb. @ $5 = $15
Direct labor
1 hr @ $6 = $6
Variable overhead
75% of direct labor costs
Fixed overhead
50% of direct labor costs
What is the total amount of overhead included in the overhead budget?
84. Alpha Beta Company has a sales budget for next month of $50,000. Cost of goods sold is expected to be 60
percent of sales. All goods are purchased in the month used and paid for in the month following their purchase.
The beginning inventory of merchandise is $1,500 and an ending inventory of $2,000 is desired. Beginning
accounts payable is $13,000.
How much merchandise inventory will Alpha Beta Company need to purchase next month?
85. Alpha Beta Company has a sales budget for next month of $50,000. Cost of goods sold is expected to be 60
percent of sales. All goods are purchased in the month used and paid for in the month following their purchase.
The beginning inventory of merchandise is $1,500 and an ending inventory of $2,000 is desired. Beginning
accounts payable is $13,000.
The cost of goods sold for next month is expected to be
86. The following forecasted sales pertain to Shankar Company:
Month
Sales
May
$200,000
June
250,000
July
150,000
August
100,000
Finished goods inventory as of April 30
4,000 units
The company has a selling price of $10 per unit and expects to maintain ending inventories equal to 30 percent of the next month’s sales.
What is the budgeted beginning balance in units for finished goods inventory on July 1?
87. Colorado Corporation has the following sales forecast for the next quarter:
July, 4,000 units; August, 4,800 units; September, 5,600 units
Sales totaled 3,200 units in June. The June ending finished goods inventory was 800 units. End-of-month
finished goods inventory levels are planned to be equal to 30 percent of next month’s planned sales.
The planned production for Colorado Corporation for July is
88. Colorado Corporation has the following sales forecast for the next quarter:
July, 4,000 units; August, 4,800 units; September, 5,600 units
Sales totaled 3,200 units in June. The June ending finished goods inventory was 800 units. End-of-month
finished goods inventory levels are planned to be equal to 30 percent of the next month’s planned sales.
The planned ending inventory of finished goods for August is
89. Colorado Corporation has the following sales forecast for the next quarter:
July, 4,000 units; August, 4,800 units; September, 5,600 units
Sales totaled 3,200 units in June. The June ending finished goods inventory was 800 units. End-of-month
finished goods inventory levels are planned to be equal to 30 percent of the next month’s planned sales. Records
showed that each unit is budgeted at 2 pounds of materials costing $3 per pound. Direct labor was budgeted at
.5 direct labor hours per unit at a wage of $20 per hour. Budgeted variable overhead is $1.50 per direct labor
hour. Fixed overhead is budgeted at $250,000 for the year, and 50,000 units are expected to be produced.
After preparing a finished goods inventory budget for August, what is the total ending inventory cost?
90. Colorado Corporation has the following sales forecast for the next quarter:
July, 4,000 units; August, 4,800 units; September, 5,600 units
Sales totaled 3,200 units in June. The June ending finished goods inventory was 800 units. End-of-month
finished goods inventory levels are planned to be equal to 30 percent of the next month’s planned sales. Records
showed that each unit is budgeted at 2 pounds of materials costing $3 per pound. Direct labor was budgeted at
.5 direct labor hours per unit at a wage of $20 per hour. Budgeted variable overhead is $1.50 per direct labor
hour. Fixed overhead is budgeted at $250,000 for the year, and 50,000 units are expected to be produced.
The beginning finished inventory is valued at $31,320.
After preparing a finished goods inventory budget for August, what is the cost of goods sold for August?
91. The following forecasted sales pertain to Rapid City:
Month
Sales
June
$160,000
July
200,000
August
120,000
September
80,000
Finished goods inventory as of May 31
6,000 units
Rapid City has a selling price of $5 per unit and expects to maintain ending inventories equal to 25 percent of next month’s sales.
What is the budgeted beginning balance in units for finished goods inventory on August 1?
92. Dali, Inc. is constructing its marketing budget.
1st quarter
2nd quarter
3rd quarter
4th quarter
Sales
30,000
40,000
50,000
60,000
Production
35,000
45,000
55,000
65,000
Commissions are $3 per unit sold. Salesperson salaries are $100,000 per quarter. Depreciation is $25,000 per quarter. Travel is $10,000 per quarter.
Advertising is $50,000 in the first quarter; $40,000 in the second quarter; $60,000 in the third quarter; and $55,000 in the fourth quarter. What is the
budgeted marketing expense for the third quarter?
93. In a merchandising organization, the merchandise purchases budget replaces what budget from a
manufacturing firm?
94. What is the formula used to compute the units to be produced?