CHAPTER 6 QUIZ
1. Budgeting is the common accounting tool companies use for planning and controlling.
Budgets
a. provide a measure of planned financial results.
b. are prepared independent of the company’s long term strategies.
c. do not usually reflect actual results, so they are a useless exercise.
d. serve as the financial expression of management’s plans for the upcoming period.
2. [AICPA Adapted] Dewitt Co. budgeted its activity for October 2004 from the following
information:
· Sales are budgeted at $750,000. All sales are credit sales and a provision for doubtful
accounts is made monthly at the rate of 2 percent of sales.
Merchandise inventory was $120,000 at September 30, 2004, and an increase of $10,000 is
planned for the month.
All merchandise is marked up to sell at invoice cost plus 50 percent.
Estimated cash disbursements for selling and administrative expenses for the month are
$105,000.
Depreciation for the month is projected at $25,000.
Dewitt is projecting operating income for October 2004 in the amount of
a. $105,000.
b. $119,000.
c. $129,000.
d. $230,000.
3. Which of the following is not a major benefit of budgets?
a. Compels planning
b. Eliminates innovation
c. Provides performance criteria
d. Promotes coordination and communication
The following data apply to questions 4 and 5.
Hester Company budgets on an annual basis for its fiscal year. The following beginning
and ending inventory levels (in units) are planned for the fiscal year of July 1, 2004
through June 30, 2005.
July 1, 2004 June 30, 2005
Raw material1 40,000 10,000
Work-in-process 8,000 8,000
Finished goods 30,000 5,000
1 Three (3) units of raw material are needed to produce each unit of finished product.
4. [CMA Adapted] If Hester Company plans to sell 500,000 units during the 2004–2005
fiscal year, the number of units it would have to manufacture during the year would be
a. 505,000 units.
b. 500,000 units.
c. 480,000 units.
d. 475,000 units.
5. [CMA Adapted] If 450,000 finished units were to be manufactured during the
2004–2005 fiscal year by Hester Company, the units of raw material needed to be
purchased would be
a. 1,350,000 units.
b. 1,360,000 units.
c. 1,320,000 units.
d. 1,330,000 units.
6. Which of the following does not pertain to financial planning models in software form?
a. Reduces computational burden and time required to prepare budgets
b. Eliminates need to update budgets as uncertainty resolved
c. Assists managers with sensitivity analysis
d. Performs calculations that are mathematical representations of relationships in master
budget
7. The major cost management concept used in kaizen budgeting is that of
a. eliminating inventories of every type but materials.
b. refinements in the indirect-cost categories for costing systems.
c. continuous improvement.
d. sensitivity analysis using computer-based financial planning models.
8. Which of the following statements does not describe responsibility accounting?
a. It measures the plans and actions of each responsibility center.
b. It budgets to emphasize that for which each responsibility center is accountable.
c. It calculates variances between budgeted and actual accountability for each
responsibility center.
d. It identifies managers at fault for operating problems by reports for each responsibility
center.
9. Controllability
a. is always clear cut as to who has responsibility for a cost.
b. is another term for responsibility.
c. is the responsibility of the corporate controller.
d. is the degree of influence a specific manager has over costs, revenues, and other items.
10. Budgetary slack
a. is going to be included in budget estimates, so it should just be ignored.
b. provides managers with a hedge against unexpected circumstances.
c. should be totally eliminated from the budget.
d. is not found in governmental budgets.
The following data apply to questions 11 and 12 [Appendix].
Information pertaining to Brenton Corporation’s sales revenue is presented in the
following table.
February March April
Cash sales $160,000 $150,000 $120,000
Credit sales 300,000 400,000 280,000
Total sales $460,000 $550,000 $400,000
Management estimates that 5 percent of credit sales are not collectible. Of the credit sales
that are collectible, 60 percent are collected in the month of sale and the remainder in the
month following the sale. Cost of purchases of inventory each month is 70 percent of the
next month’s projected total sales. All purchases of inventory are on account; 25 percent
are paid in the month of purchase, and the remainder is paid in the month following the
purchase.
11. [CMA Adapted] Brenton’s budgeted total cash receipts in April are
a. $448,000.
b. $437,000.
c. $431,600.
d. $328,000.
12. [CMA Adapted] Brenton’s budgeted total cash payments in March for inventory
purchases are
a. $385,000.
b. $358,750.
c. $306,250.
d. $280,000.
CHAPTER 6 QUIZ SOLUTIONS
