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37. Why are budgets useful in the planning process?

a. They provide management with information about the company’s past performance.

b. They help communicate goals and provide a basis for evaluation.

c. They guarantee the company will be profitable if it meets its objectives.

d. They enable the budget committee to earn their paycheck.

38. A budget

a. is a substitute for management.

b. is an aid to management.

c. can operate or enforce itself.

d. is the responsibility of the accounting department.

39. Accounting generally has the responsibility for

a. setting company goals.

b. expressing the budget in financial terms.

c. enforcing the budget.

d. administration of the budget.

40. Which one of the following is not a benefit of budgeting?

a. It facilitates the coordination of activities.

b. It provides definite objectives for evaluating performance.

c. It provides assurance that the company will achieve its objectives.

d. It requires all levels of management to plan ahead on a recurring basis.

41. Budgeting is usually most closely associated with which management function?

a. Planning

b. Directing

c. Motivating

d. Controlling

42. Which of the following items does not follow from the adoption of a budget?

a. Promote efficiency

b. Deterrent to waste

c. Basis for performance evaluation

d. Guarantee of accomplishing the profit objective

43. Which is true of budgets?

a. They are voted on and approved by stockholders.

b. They are used in the planning, but not in the control, process.

c. There is a standard form and structure for budgets.

d. They are used in performance evaluation.

44. A common starting point in the budgeting process is

a. expected future net income.

b. past performance.

c. to motivate the sales force.

d. a clean slate, with no expectations.

45. If budgets are to be effective, all of the following must be present except

a. acceptance at all levels of management.

b. research and analysis in setting realistic goals.

c. stockholders’ approval of the budget.

d. sound organizational structure.

46. If budgets are to be effective, there must be

a. a history of successful operations.

b. independent verification of budget goals.

c. an organizational structure with clearly defined lines of authority and responsibility.

d. excess plant capacity.

47. It is important that budgets be accepted by

a. division managers.

b. department heads.

c. supervisors.

d. All of these.

48. Which of the following statements about budget acceptance in an organization is true?

a. The most widely accepted budget by the organization is the one prepared by top management.

b. The most widely accepted budget by the organization is the one prepared by the department heads.

c. Budgets are hardly ever accepted by anyone except top management.

d. Budgets have a greater chance of acceptance if all levels of management have provided input into the budgeting process.

49. Top management notices a variation from budget and an investigation of the difference reveals that the department manager could not be expected to have controlled the variation. Which of the following statements is applicable?

a. Department managers should be held accountable for all variances from budgets for their departments.

b. Department managers should only be held accountable for controllable variances for their departments.

c. Department managers should be credited for favorable variances even if they are beyond their control.

d. Department managers’ performances should not be evaluated based on actual results to budgeted results.

50. An unrealistic budget is more likely to result when it

a. has been developed in a top down fashion.

b. has been developed in a bottom up fashion.

c. has been developed by all levels of management.

d. is developed with performance appraisal usages in mind.

51. A budget is most likely to be effective if

a. it is used to assess blame when things do not occur according to plans.

b. it is not used to evaluate a manager’s performance.

c. employees and managers at the lower levels do not get involved in the budgeting process.

d. it has top management support.

52. In many companies, responsibility for coordinating the preparation of the budget is assigned to

a. the company’s independent certified public accountants.

b. the company’s internal auditors.

c. the company’s board of directors.

d. a budget committee.

53. A budget period should be

a. monthly.

b. for a year or more.

c. long-term.

d. long enough to provide an obtainable goal under normal business conditions.

54. If a company has adopted continuous budgeting, the budget will show plans for

a. every day.

b. a full year ahead.

c. the current year and the next year.

d. at least five years.

55. The most common budget period is

a. one month.

b. three months.

c. six months.

d. one year.

56. Budget development for the coming year usually starts

a. a year in advance.

b. the first month of the year to be budgeted.

c. several months before the end of the current year.

d. the last month of the previous year.

57. The budget committee would not normally include the

a. research director.

b. treasurer.

c. sales manager.

d. external auditor.

58. The budget committee in a company is often headed by the

a. president.

b. controller.

c. treasurer.

d. budget director.

59. Long-range planning

a. generally presents more detailed information than an annual budget.

b. generally encompasses a longer period of time than an annual budget.

c. is usually more accurate than an annual budget.

d. is prepared on a quarterly basis if the budget is prepared on a quarterly basis.

60. Long-range planning usually encompasses a period of at least

a. six months.

b. 1 year.

c. 5 years.

d. 10 years.

1. Which of the following is not a proper match-up?

a. Long range planning¨ Strategies

b. Budgeting¨ Short-term goals

c. Long-range planning¨ 5 years

d. Budgeting¨ Long-term goals

62. Which is the last step in developing the master budget?

a. Preparing the budgeted balance sheet

b. Preparing the cost of goods manufactured budget

c. Preparing the budgeted income statement

d. Preparing the cash budget

63. If there were 60,000 pounds of raw materials on hand on January 1, 120,000 pounds are desired for inventory at January 31, and 410,000 pounds are required for January production, how many pounds of raw materials should be purchased in January?

a. 350,000 pounds

b. 530,000 pounds

c. 290,000 pounds

d. 470,000 pounds

64. The total direct labor hours required in preparing a direct labor budget are calculated using the

a. sales forecast.

b. production budget.

c. direct materials budget.

d. sales budget.

65. The direct materials and direct labor budgets provide information for preparing the

a. sales budget.

b. production budget.

c. manufacturing overhead budget.

d. cash budget.

66. A sales forecast

a. shows a forecast for the firm only.

b. shows a forecast for the industry only.

c. shows forecasts for the industry and for the firm.

d. plays a minor role in the development of the master budget.

67. Which of the following is not an operating budget?

a. Direct labor budget

b. Sales budget

c. Production budget

d. Cash budget

68. Which of the following is not a financial budget?

a. Capital expenditure budget

b. Cash budget

c. Manufacturing overhead budget

d. Budgeted balance sheet

69. Which of the following is done to improve the reliability of the sales forecast?

a. Employ financial planning models

b. Lengthen the planning horizon to more than a year

c. Rely solely on outside consultants

d. Use the sales forecasts from the previous year

70. The financial budgets include the

a. cash budget and the selling and administrative expense budget.

b. cash budget and the budgeted balance sheet.

c. budgeted balance sheet and the budgeted income statement.

d. cash budget and the production budget.

71. The culmination of preparing operating budgets is the

a. budgeted balance sheet.

b. production budget.

c. cash budget.

d. budgeted income statement.

72. The following information is taken from the production budget for the first quarter:

Beginning inventory in units 1,200

Sales budgeted for the quarter 426,000

Capacity in units of production facility 472,000

How many finished goods units should be produced during the quarter if the company desires 3,200 units available to start the next quarter?

a. 428,000

b. 424,000

c. 474,000

d. 429,200

73. An overly optimistic sales budget may result in

a. increases in selling prices late in the year.

b. insufficient inventories.

c. increased sales during the year.

d. excessive inventories.

74. In a production budget, total required production units are the budgeted sales units plus

a. beginning finished goods units.

b. desired ending finished goods units.

c. desired ending finished goods units plus beginning finished goods units.

d. desired ending finished goods units minus beginning finished goods units.

75. The direct materials budget details

1. the quantity of direct materials to be purchased.

2. the cost of direct materials to be purchased.

a. 1

b. 2

c. both 1 and 2

d. neither 1 nor 2

76. The production budget shows expected unit sales of 32,000. Beginning finished goods units are 3,600. Required production units are 33,600. What are the desired ending finished goods units?

a. 2,000

b. 3,600

c. 6,400

d. 5,200

77. The production budget shows expected unit sales are 100,000. The required production units are 104,000. What are the beginning and desired ending finished goods units, respectively?

Beginning Units Ending Units

a. 10,000 6,000

b. 6,000 10,000

c. 4,000 10,000

d. 10,000 4,000

78. The production budget shows that expected unit sales are 48,000. The total required units are 54,000. What are the required production units?

a. 6,000

b. 9,000

c. 12,000

d. Cannot be determined from the data provided.

79. The direct materials budget shows:

Units to be produced 3,000

Total pounds needed for production 9,000

Total materials required 9,900

What are the direct materials per unit?

a. .33 pounds

b. 3.0 pounds

c. 3.3 pounds

d. Cannot be determined from the data provided.

80. The direct materials budget shows:

Desired ending direct materials 48,000 pounds

Total materials required 69,000 pounds

Direct materials purchases 63,200 pounds

The total direct materials needed for production is

a. 21,000 pounds.

b. 5,800 pounds.

c. 15,200 pounds.

d. 132,200 pounds.

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