CHAPTER 8: BUDGETING FOR PLANNING AND CONTROL
1. A budget is a financial plan for the future used for planning, controlling, and decision making.
a. True
b. False
2. Budgeting means to set standards, receive feedback, and executing corrective action.
a. True
b. False
3. The budget director is responsible for directing and coordinating the budgeting process.
a. True
b. False
4. The master budget is composed of the operations budget and the future budget.
a. True
b. False
5. A continuous budget is a moving twelve-month budget.
a. True
b. False
6. The sales forecast is the basis for the sales budget.
a. True
b. False
7. The sales budget shows the expected sales quantity and price of each product or service.
a. True
b. False
8. The first section of the master budget is the financial budget.
a. True
b. False
Chapter 8: Budgeting for Planning and Control
9. The production budget describes how many units must be produced in order to meet sales and inventory needs.
a. True
b. False
10. In a for-profit service firm, the sales budget is also the production budget.
a. True
b. False
11. Once all the operating budgets have been completed, the net income can be estimated.
a. True
b. False
12. The capital expenditures budget is a long-term financial plan.
a. True
b. False
13. The cash budget is the least priority budget in the master budget.
a. True
b. False
14. The cash excess or deficiency section of the cash budget compares expected available cash to the expected cash
needed.
a. True
b. False
15. The budgeted income statement depends partly on information in the budgets in the master budget.
a. True
b. False
16. A static budget is one developed for a single level of activity.
a. True
b. False
Chapter 8: Budgeting for Planning and Control
17. Static budgets show costs for varying levels of activities.
a. True
b. False
18. A flexible budget is sometimes referred to as a variable budget.
a. True
b. False
19. A flexible budget compares actual costs to budgeted costs.
a. True
b. False
20. Activity-based budgeting recognizes interdependencies among departments.
a. True
b. False
21. The activity-based budget begins with output and then determines the resources necessary to create that output.
a. True
b. False
22. An ideal budgeting system is one that achieves goals and encourages managers to achieve goals ethically.
a. True
b. False
23. Feedback is not important to managers as a measuring tool of their performance.
a. True
b. False
24. Incentives are the means used to encourage managers to achieve goals.
a. True
b. False
Chapter 8: Budgeting for Planning and Control
25. Participative budgeting detracts from a manager’s sense of responsibility and creativity.
a. True
b. False
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.
Chapter 8: Budgeting for Planning and Control
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:
a. Cost of goods sold statement
b. Financial statement
c. Budget
d. Cost of goods manufactured statement
42. Which of the following is NOT a component of the master budget?
a. Sales Budget
b. Capital Budget
c. Cost of Goods Sold Budget
d. Budget to Actual Variance Analysis
43. Which of the following statement is correct regarding a continuous budget?
a. The budget is prepared for a one-year period that corresponds to the company’s fiscal year.
b. A continuous budget is a monthly budget.
c. As a month/period expires in the budget, an additional month/period in the future is added so the company always
has a 12-month budget on hand.
d. None of these
44. Control can be defined as
a. the process of setting standards, receiving feedback on actual performance, and taking corrective action
whenever actual performance deviates significantly from plan.
b. a quantification of plans, stated in either physical or financial terms, or both.
c. identification of corporate objectives.
d. a comprehensive financial plan.
Chapter 8: Budgeting for Planning and Control
45. Which of the following is the most common starting point in the information gathering process for budgeting?
a. the personnel forecast
b. the sales forecast
c. the production forecast
d. the projected income statement
46. Which of the following is NOT an advantage of budgeting?
a. It forces managers to plan.
b. It provides resource information that can be used to improve decision making.
c. It aids in the use of resources and employees by setting a benchmark that can be used for the subsequent
evaluation of performance.
d. It provides organizational independence.
47. The process of setting standards, receiving feedback on actual performance, and taking corrective action whenever
actual performance deviates significantly from planned performance.
a. Control
b. Monitoring
c. Eye balling
d. Comparing
48. Which of the following factors is NOT an advantage of preparing operating budgets?
a. It provides resource information that can be used to improve decision making.
b. It improves communication and coordination.
c. It aids in the use of resources and employees by setting a benchmark that can be used for the subsequent
evaluation of performance.
d. It saves time and resources.
49. The budget committee
a. has the responsibility to review the budget.
b. resolves differences that may arise as the budget is prepared.
c. prepares financial statements for the auditor.
d. both a and b
Chapter 8: Budgeting for Planning and Control
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:
a. budget director
b. budget committee
c. controller
d. president
51. The budgets that are comprehensive financial plans made up of various individual departmental and activity budgets
are the:
a. Operating budgets
b. Master budgets
c. Financial budgets
d. Continuous budgets
52. The budgets that are concerned with the income-generating activities of a firm are called the:
a. Operating budgets
b. Master budgets
c. Financial budgets
d. Continuous budgets
53. The budgets that are concerned with the inflows and outflows of cash and with financial position are called the:
a. Operating budgets
b. Master budgets
c. Financial budgets
d. Continuous budgets
54. Operating budgets are
a. a forecast of expected operating expenses.
b. a forecast of operating expenses and related revenues.
c. a forecast of units of production.
d. concerned with the income-generating activities of a firm.
Chapter 8: Budgeting for Planning and Control
55. The following is responsible for directing and coordinating the overall budgeting process:
a. budget committee
b. budget director
c. president
d. treasurer
56. Wheeling Company produces and sells bikes. It expects to sell 20,000 bikes in April 2016 and had 1,200 bikes in
finished goods inventory at the end of March 2016. 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 2016?
a. $1,150,000
b. $1,850,000
c. $2,000,000
d. $1,730,000
57. Wheeling Company produces and sells bikes. It expects to sell 20,000 bikes in April 2016 and had 1,200 bikes in
finished goods inventory at the end of March 2016. 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 2016?
a. 20,000 bikes
b. 20,300 bikes
c. 19,700 bikes
d. 18,800 bikes
58. The type of budget that is a moving twelve-month budget is called the:
a. zero-based budget
b. flexible budget
c. continuous budget
d. both a and b
Chapter 8: Budgeting for Planning and Control
59. Which of the following is an operating budget?
a. budgeted statement of cash flows
b. capital expenditures budget
c. budgeted income statement
d. cash budget
Figure 8-1
Armando Company produces and sells mattresses. It expects to sell 10,000 mattresses in the year 2017 and had
1,000 mattresses in finished goods inventory at the end of 2016. Armando would like to complete operations in the
year 2017 with at least 1,250 completed mattresses in inventory. There is no ending work-in–process inventory. The
mattresses sell for $300 each.
60. Refer to Figure 8-1. What would be the total sales for the year 2017?
a. $3,375,000
b. $3,675,000
c. $3,000,000
d. $3,300,000
61. Refer to Figure 8-1. How many mattresses would be produced in the year 2015?
a. 10,000 mattresses
b. 11,000 mattresses
c. 11,250 mattresses
d. 10,250 mattresses
62. Which of the following is NOT a responsibility of the budget committee?
a. prepare actual financial statements
b. provide policy guidelines
c. provide budgeting goals
d. resolve differences that may arise as the budget is prepared
Chapter 8: Budgeting for Planning and Control
Figure 8-2
Asian Lamp Company manufactures lamps. The estimated number of lamp sales for the last three months of 2016
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 2016 sales
is projected at 16,000 lamps.
63. Refer to Figure 8-2.What is the expected sales revenue for December?
a. $250,000
b. $350,000
c. $325,000
d. $100,000
64. Refer to Figure 8-2. How many lamps should be produced in November?
a. 11,000 lamps
b. 10,500 lamps
c. 14,000 lamps
d. 13,750 lamps
65. 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
a. finished goods inventories.
b. cash receipts.
c. factory overhead costs.
d. selling expenses.
Chapter 8: Budgeting for Planning and Control
66. Refer to Figure 8-2. How many lamps should be produced in October?
a. 10,000 lamps
b. 14,000 lamps
c. 9,500 lamps
d. 10,500 lamps
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
a. 5,600 units.
b. 4,000 units.
c. 5,000 units.
d. 3,200 units.
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
a. 19,200 units.
b. 20,800 units.
c. 21,200 units.
d. 24,800 units.
Chapter 8: Budgeting for Planning and Control
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?
a. 8,500 units
b. 12,500 units
c. 14,500 units
d. 10,500 units
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?
a. 36,000 units
b. 50,000 units
c. 82,000 units
d. 42,000 units
Chapter 8: Budgeting for Planning and Control
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?
a. 12,000 units
b. 12,500 units
c. 10,000 units
d. 10,750 units
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?
a. 30 units
b. 45 units
c. 40 units
d. 35 units
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
a. 9,500 units.
b. 10,000 units.
c. 1,000 units.
d. 10,500 units.
Chapter 8: Budgeting for Planning and Control
74. Foremost Corporation manufactures boxes. The estimated number of boxes sold for the first three months of 2016
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 2016 sales is
projected at 4,500 boxes.
What is the expected sales revenue for March?
a. $15,000
b. $21,000
c. $19,500
d. $4,500
75. Foremost Corporation manufactures boxes. The estimated number of boxes sold for the first three months of 2016
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 2016 sales is
projected at 4,500 boxes.
How many boxes should be produced in February?
a. 4,140 boxes
b. 4,200 boxes
c. 4,260 boxes
d. 3,900 boxes
Chapter 8: Budgeting for Planning and Control
76. Foremost Corporation manufactures boxes. The estimated number of boxes sold for the first three months of 2016
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 2016 sales is
projected at 4,500 boxes.
How many boxes should be produced in January?
a. 3,060 boxes
b. 2,940 boxes
c. 3,000 boxes
d. 3,840 boxes
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.
77. Refer to Figure 8-3. How many units of wood are expected to be used in production during the second month?
a. 12,500 units
b. 10,000 units
c. 15,000 units
d. 12,000 units
78. Refer to Figure 8-3. How many units of steel are expected in the material inventory at the end of the second
month?
a. 30 units
b. 45 units
c. 40 units
d. 35 units
Chapter 8: Budgeting for Planning and Control
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?
a. 1,000 units
b. 9,500 units
c. 500 units
d. 10,000 units
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?
a. $61,000
b. $60,000
c. $65,000
d. $59,000
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
a. $40,000.
b. $60,000.
c. $90,000.
d. $89,000.
Chapter 8: Budgeting for Planning and Control
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?
a. $6,000
b. $28,500
c. $6
d. $7,500
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?
a. $4,500
b. $3,000
c. $11,250
d. $7,500
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?
a. $29,000
b. $29,500
c. $30,000
d. $30,500
Chapter 8: Budgeting for Planning and Control
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
a. $29,500.
b. $30,500.
c. $50,000.
d. $30,000.
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?
a. 4,000 units
b. 3,500 units
c. 5,500 units
d. 4,500 units
Chapter 8: Budgeting for Planning and Control
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
a. 3,360 units.
b. 4,640 units.
c. 1,440 units.
d. 5,440 units.
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
a. 1,200 units.
b. 1,680 units.
c. 1,460 units.
d. 3,200 units.
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.
Chapter 8: Budgeting for Planning and Control
After preparing a finished goods inventory budget for August, what is the total ending inventory cost?
a. $26,100
b. $31,755
c. $69,600
d. $36,540
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?
a. $104,400
b. $109,620
c. $67,860
d. $140,940