Accounting Chapter 9 Bright Lamp Company Manufactures Lamps The

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Chapter 9Profit Planning
TRUE/FALSE
1. A strategic plan identifies strategies for future activities and operations, generally covering at least five
years.
2. Budgets are financial plans for the future.
3. The master budget is composed of operating budgets and financial budgets.
4. Control is achieved by comparing actual results with budgeted results on a periodic basis.
5. Planning is looking ahead to see what actions should be taken to realize particular goals.
6. Budgets identify objectives and the actions needed to achieve them because they are foresighted
financial plans.
7. A firm should develop a strategic plan before preparing a budget.
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8. A firm acquires information that can be used to improve decision making from a budgetary system.
9. Comparing actual results with budgeted results on a periodic basis provides control in a budgetary
system.
10. A large difference between actual and planned results is feedback that the system is providing
adequate control.
11. Communication and coordination are served by budgets.
12. The master budget is typically a comprehensive financial plan for the organization for the past fiscal
year.
13. A continuous budget is a moving 12-month budget.
14. The department manager reviews the budget, provides policy guidelines and budgetary goals, and
resolves differences that arise as the budget is prepared, approves the final budget, and monitors the
actual performance of the organization as the year unfolds.
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15. The budget director is the person responsible for directing and coordinating the organization's overall
budgeting process.
16. The first budget to be prepared is the sales budget.
17. The production budget is prepared in units and in dollars.
18. The direct materials purchases budget is based on the sales budget.
19. There are as many direct materials purchases budgets as there are products.
20. The direct labor budget includes: units to be produced, direct labor time needed per unit, and total
direct labor cost for the period.
21. The selling and administrative expenses budget is part of the operating budgets.
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22. The sales budget is used directly in the development of the production budget.
23. In preparing the direct labor budget, the average wage rate is used to calculate total direct labor cost.
24. The cash budget includes the beginning balance of cash, cash receipts, cash disbursements, and the
ending balance of cash.
25. If the initial cash budget indicates a cash deficiency, the company must go out of business.
26. Cash receipts must be at least as much as sales.
27. Cash budgets are often prepared monthly or even weekly.
28. The output of the cost of goods sold budget is entered into the pro forma balance sheet.
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29. Individual behavior that is in basic conflict with the goals of the organization is called goal
congruence.
30. Pseudoparticipation is one of the potential problems with participative budgeting.
31. Budgets should be based on ideal standards to encourage everyone to reach for the highest level of
performance.
32. Ideally, managers are held accountable for controllable costs.
33. Myopic behavior is one of the advantages of participative budgeting.
34. Monetary incentives include salary increases, bonuses, and promotions.
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MATCHING
Identify each item as a component of the production budget or the direct materials purchases budget.
a.
production budget
b.
direct materials purchases budget
1. beginning inventory of materials
2. sales in units
3. units of raw materials needed for each unit of product
4. ending inventory of product
Identify each item as either part of the operating budget or the financial budget.
a.
Operating Budget
b.
Financial Budget
5. production budget
6. sales budget
7. cash budget
8. ending finished goods inventory budget
9. budgeted balance sheet
10. budgeted capital expenditures
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Identify each item as an advantage or disadvantage of budgeting.
a.
advantage
b.
disadvantage
11. Pseudoparticipation
12. forces managers to plan
13. improves communication and coordination
14. leads to budgetary slack
15. provides standard for performance evaluation
COMPLETION
1. __________________ is looking ahead to see what actions should be taken to realize particular goals.
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2. The ________________ plots a direction for an organization’s future activities and operations; it
generally covers at least five years.
3. Budgets improve _________________.
4. The _________________ is the comprehensive financial plan for the organization as a whole.
5. A __________________ is a moving 12-month budget.
6. The controller of the company usually serves as the __________________.
7. The cash budget and budgeted balance sheet are part of the ________________.
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8. The _______________ tells how many units must be produced to meet sales needs and to satisfy
ending inventory requirements.
9. The __________________ shows the expected cost of all production costs other than direct materials
and direct labor.
10. Salaries expense, advertising expense and depreciation expense would be included in the
______________________ budget.
11. The basic structure of a ______________ includes cash receipts, cash disbursements, any excess or
deficiency of cash, and financing.
12. _________________ consists of beginning cash balance and the expected cash receipts.
13. The alignment of managerial and organizational goals is often referred to as _______________.
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14. ____________________ is individual behavior that is in basic conflict with the goals of the
organization.
15. ______________ are the means an organization uses to influence a manager to exert effort to achieve
an organization’s goals.
16. Examples of ________________ include job enrichment, increased responsibility and autonomy, and
recognition programs.
17. _____________________ allows subordinate managers considerable say in how the budgets are
established.
18. ___________________ exists when a manager deliberately underestimates revenues or overestimates
cost in an effort to make the future period appear less attractive in the budget than they think it will be
in reality.
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19. When top management assumes total control of the budgeting process and only seeks superficial
participation from lower-level managers this is known as ________________.
20. _________________ are used to ensure that budgeted costs can be realistically compared with costs
for actual levels of activity.
MULTIPLE CHOICE
1. Which of the following is an advantage of budgeting?
a.
Forces managers to plan.
b.
Provides information useful for control.
c.
Provides information for improved decision making.
d.
Improves communication.
e.
All of these.
2. Which of the following is a use of budgets for control?
a.
Plans can be made for the future.
b.
If conditions change between the formation of the budget and the current time, budgets
can be quickly adapted.
c.
Budgets set a standard against which results can be compared.
d.
Communication is improved.
e.
All of these.
3. Which of the following budgets can be used for control?
a.
Production budget
b.
Cash budget
c.
Budgeted income statement
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d.
Selling and administrative expense budget
e.
All of these
4. In a (n) ____, as one month expires, an additional month in the future is added to the budget so that the
company always has a 12-month plan on hand.
a.
continuous budget
b.
financial budget
c.
operational budget
d.
yearly budget
e.
master budget
5. The ____ is the person responsible for directing and coordinating the organization's overall budget
process.
a.
budget master
b.
controller
c.
chief financial planner
d.
budget director
e.
chief accountant
6. Looking backward to determine what actually happened and comparing it with the previously planned
outcomes is
a.
control.
b.
communicating.
c.
decision making.
d.
strategic planning.
e.
budgeting.
7. Budgets are
a.
key components of planning.
b.
financial plans for the future.
c.
an identifier of objectives and the actions needed to achieve them.
d.
used for communication and coordination.
e.
all of these.
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8. The master budget is
a.
the selective financial plan for the organization as a whole.
b.
typically for a 1-year period corresponding to the fiscal year of the company.
c.
broken down into daily and weekly budgets.
d.
used for misinformation and coordination.
e.
all of these.
9. Which of the following is not true?
a.
The sales forecast is done before the sales budget.
b.
The master budget is the comprehensive plan for the organization as a whole.
c.
The production budget is prepared in units and dollars.
d.
One approach to forecasting sales is the bottom-up approach.
e.
In creating the sales forecast, outside factors such as the state of the economy, should be
considered.
10. The first step in creating the master budget is the creation of the
a.
production budget.
b.
direct labor budget.
c.
cash budget.
d.
sales budget.
e.
budgeted income statement.
11. The budget that describes how many units must be produced in order to meet sales needs and ending
inventory objectives is the
a.
production budget.
b.
direct materials purchases budget.
c.
cash budget.
d.
budgeted income statement.
e.
none of these.
12. Direct materials needed for production is calculated by
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a.
multiplying units to be produced by direct materials per unit.
b.
subtracting units to be produced from direct materials per unit.
c.
dividing units to be produced by direct materials per unit.
d.
adding units to be produced to direct materials per unit.
e.
subtracting direct materials per unit from units to be produced.
13. In preparing the overhead budget, many companies use
a.
activity-based costing.
b.
multiple drivers for a simple budget.
c.
participative costing.
d.
a unit-based driver such as direct labor hours.
e.
none of these.
14. Which of the following statements is true?
a.
The overhead budget is typically composed of variable overhead and fixed overhead.
b.
The direct labor budget uses an average wage rate for direct labor.
c.
The production budget is not converted into dollars.
d.
The sales budget includes both units and dollars.
e.
All of these.
15. The ending finished goods inventory budget supplies information needed for the
a.
sales budget.
b.
cash budget.
c.
budgeted income statement.
d.
cost of goods sold budget.
e.
all of these.
16. Which of the following budgets are needed to calculate a budgeted unit cost?
a.
Direct materials purchases budget
b.
Direct labor budget
c.
Overhead budget
d.
Direct materials purchases budget and overhead budget
e.
Direct materials purchases budget, direct labor budget, and overhead budget
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17. The selling and administrative expenses budget includes
a.
cost of goods sold.
b.
overhead.
c.
fixed production expense.
d.
variable cost of selling.
e.
all of these.
18. Budgeted operating income includes
a.
budgeted interest expense.
b.
budgeted income taxes.
c.
budgeted cost of goods sold.
d.
budgeted net income.
e.
none of these.
19. Depreciation expense on sales equipment appears in a separate line on which of the following budgets?
a.
Cash budget
b.
Selling and administrative expenses budget
c.
Direct labor budget
d.
Production budget
e.
Overhead budget
20. Rodriquez Company budgeted the following sales in units:
January
30,000
February
20,000
March
40,000
Rodriquez's policy is to have 20% of the following month's sales in inventory. On January 1, inventory
equaled 7,500 units. February production in units is
a.
20,000.
b.
28,000.
c.
40,000.
d.
26,500.
e.
24,000.
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21. A company has had stable sales and production for several years. Next year, sales are expected to
increase by at least 50%. Assuming that the company maintains its policy for desired ending
inventories of finished product and direct materials purchases, what will be the likely effect on the
desired ending inventory of finished product?
a.
It will increase
b.
It will decrease
c.
It will stay the same
d.
It will be twice the size of the desired ending inventory of raw materials
e.
None of these
22. A company expects the following sales for the coming year:
1st Quarter
2nd Quarter
3rd Quarter
4th Quarter
Units
40,000
30,000
60,000
80,000
Average selling price
$5
$5
$5
$6
Budgeted sales revenue for the year is
a.
$1,050,000
b.
$1,260,000
c.
$1,155,000
d.
$1,130,000
e.
it is impossible to tell from this information
23. A company provided the following information on sales for the coming year:
1st Quarter
2nd Quarter
3rd Quarter
4th Quarter
Units
40,000
40,000
30,000
80,000
Average selling price
$5
$5
$5
$6
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Assuming that the beginning inventory is 3,000 units, and that the company policy is to have 25% of
the next quarter's sales in ending inventory, which quarter will have the lowest production?
a.
Quarter 4
b.
Quarter 3
c.
Quarter 2
d.
Quarter 1
e.
All quarters have the same production
24. Belant Company budgeted 200,000 units of production for June, 210,000 units for July and 300,000
units for August. Each unit requires 0.25 direct labor hours. How many direct labor hours are budgeted
for August?
a.
50,000
b.
5,000
c.
75,000
d.
52,500
e.
300,000
25. In budgeting direct labor hours for the coming year, it is important to
a.
multiply production in units by the direct labor hours per unit.
b.
divide production in units by the direct labor hours per unit.
c.
subtract production in units from the direct labor hours per unit.
d.
subtract direct labor hours per unit from production in units.
e.
multiply production in units by the labor wage rate.
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26. Galvern Company provided the following data for July:
Direct materials
$50,000
Direct labor
$25,000
Overhead
$90,000
Beginning finished goods
$15,000
Ending finished goods
$34,000
Production in units
10,000
What is the cost of goods sold?
a.
$165,000
b.
$146,000
c.
$214,000
d.
$184,000
e.
$75,000
27. A production budget is most important for which of the following?
a.
retail stores
b.
manufacturing firms
c.
not-for-profit agencies
d.
local government agencies
e.
all of these
28. A company requires 200 pounds of plastic to meet the production needs of a product. It currently has
20 pounds of plastic inventory. The desired ending inventory of plastic is 60 pounds. How many
pounds of plastic should be budgeted for purchasing during the coming period?
a.
200 pounds
b.
240 pounds
c.
260 pounds
d.
280 pounds
e.
160 pounds
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29. A company plans on selling 400 units. The selling price per unit is $5. There are 40 units in beginning
inventory, and the company would like to have 75 units in ending inventory. How many units should
be produced for the coming period?
a.
435
b.
400
c.
365
d.
2,000
e.
2,035
30. A company has provided a sales budget for the next four months. It bases its production budget on the
sales budget, and has a policy that each month's ending inventory of finished product must be equal to
25% of the following month's sales needs. The direct materials purchases budget is based on the
production budget. The company's policy for each month's ending inventory of raw materials is that
they must be equal to 10% of the following month's production needs for raw materials. Given this
information, the company can prepare direct materials purchases budgets for how many months?
a.
One
b.
Two
c.
Three
d.
Four
e.
Five
31. 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
32. Which of the following is an operating budget?
a.
Budgeted statement of cash flows
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b.
Capital expenditures budget
c.
Budgeted income statement
d.
Cash budget
33. What is the formula used to compute the units to be produced?
a.
Units produced = Units sold
b.
Units produced = Units sold + Units in beginning inventory + Units in ending inventory
c.
Units produced = Units sold + Units in beginning inventory Units in ending inventory
d.
Units Produced = Units sold Units in beginning inventory + Units in ending inventory
34. Candace Company produces and sells pillows. It expects to sell 10,000 pillows in the year 2015 and
had 1,000 pillows in finished goods inventory at the end of 2014. Candace would like to complete
operations in the year 2015 with at least 1,250 completed pillows in inventory. There is no ending
work-in-process inventory. The pillows sell for $5 each. How many pillows would be produced in the
year 2015?
a.
10,000 pillows
b.
11,000 pillows
c.
11,250 pillows
d.
10,250 pillows
35. Bright 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% of the next month's sales. Bright Lamp expects to sell the lamps for $25 each.
January 2015 sales are projected at 16,000 lamps. How many lamps should be produced in November?
a.
11,000 lamps
b.
10,500 lamps
c.
14,000 lamps
d.
13,750 lamps

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