Ch13-Testbank Removed

lOMoARcPSD|13397308
Budgetary Planning 13 - 7
34. The manufacturing overhead budget shows the expected manufacturing overhead costs.
Ans: T, LO: 3, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Resource Management, AICPA FN: Decision Modeling, AICPA PC: Problem
Solving, IMA: Budget Preparation
35. In order to develop a budgeted balance sheet, the previous year's balance sheet is
needed.
Ans: T, LO: 4, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Resource Management, AICPA FN: Decision Modeling, AICPA PC: Problem
36. In service enterprises, the critical factor in budgeting is coordinating materials and
equipment with anticipated services.
Ans: F, LO: 5, Bloom: C, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Industry/Sector Perspective, AICPA FN: Decision Modeling, AICPA PC:
Problem Solving, IMA: Budget Preparation
Answers to True-False Statements

Item Ans. Item Ans. Item Ans. Item Ans. Item Ans. Item Ans.
1. T 7. T 13. T 19. F 25. T 31. F
2. T 8. F 14. F 20. T 26. F 32. T
3. F 9. T 15. T 21. F 27. F 33. T
4. T 10. T 16. F 22. F 28. T 34. T
5. F 11. F 17. T 23. F 29. T 35. T
6. F 12. T 18. F 24. T 30. F 36. F
MULTIPLE CHOICE QUESTIONS

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.
Ans: B, LO: 1, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Strategic/Critical Thinking, AICPA FN: Decision Modeling, AICPA PC: Problem
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.
Solving, IMA: Business Economics
FOR INSTRUCTOR USE ONLY
Downloaded by Taqwa alh (gb9crc79mf@privaterelay.appleid.com)

lOMoARcPSD|13397308
13 - 8 Test Bank for Survey of Accounting, First Edition
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.
Ans: C, LO: 1, Bloom: C, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Strategic/Critical Thinking, AICPA FN: Decision Modeling, AICPA PC: Problem
41. Budgeting is usually most closely associated with which management function?
a. Planning
b. Directing
c. Motivating
d. Controlling
Ans: A, LO: 1, Bloom: C, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Strategic/Critical Thinking, AICPA FN: Decision Modeling, AICPA PC: Problem
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
Ans: D, LO: 1, Bloom: C, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Strategic/Critical Thinking, AICPA FN: Decision Modeling, AICPA PC: Problem
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.
Ans: D, LO: 1, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Strategic/Critical Thinking, AICPA FN: Decision Modeling, AICPA PC: Problem
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.
Ans: B, LO: 1, Bloom: C, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Strategic/Critical Thinking, AICPA FN: Decision Modeling, AICPA PC: Problem
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.
Ans: C, LO: 1, Bloom: C, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Strategic/Critical Thinking, AICPA FN: Decision Modeling, AICPA PC:
Leadership, IMA: Budget Preparation
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.
Ans: C, LO: 1, Bloom: C, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Strategic/Critical Thinking, AICPA FN: Decision Modeling, AICPA PC:

lOMoARcPSD|13397308
47. It is important that budgets be accepted by

a. division managers only.
b. department heads only.
c. supervisors only.
d. All of these answers are correct.
Ans: D, LO: 1, Bloom: C, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Strategic/Critical Thinking, AICPA FN: Decision Modeling, AICPA PC:
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.
Ans: B, LO: 1, Bloom: C, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Strategic/Critical Thinking, AICPA FN: Decision Modeling, AICPA PC:
Professional Demeanor, IMA: Business Economics
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.
Ans: A, LO: 1, Bloom: C, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Strategic/Critical Thinking, AICPA FN: Decision Modeling, AICPA PC:
Leadership, IMA: Business Economics
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.

lOMoARcPSD|13397308
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.
Ans: D, LO: 1, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Strategic/Critical Thinking, AICPA FN: Decision Modeling, AICPA PC:
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.
Ans: C, LO: 1, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Strategic/Critical Thinking, AICPA FN: Decision Modeling, AICPA PC:
57. The budget committee would not normally include the

a. research director.
b. treasurer.
c. sales manager.
d. external auditor.

lOMoARcPSD|13397308
58. In larger companies, responsibility for coordinating the preparation of the budget rests with
the
a. president.
b. controller.
c. treasurer.
d. budget committee.
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.
Ans: B, LO: 1, Bloom: C, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Strategic/Critical Thinking, AICPA FN: Decision Modeling, AICPA PC: Problem
60. Long-range planning usually encompasses a period of at least

a. six months.
b. 1 year.
c. 5 years.
d. 10 years.
Ans: C, LO: 1, Bloom: C, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Strategic/Critical Thinking, AICPA FN: Decision Modeling, AICPA PC: Problem
61. 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
Ans: D, LO: 1, Bloom: AP, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Strategic/Critical Thinking, AICPA FN: Decision Modeling, AICPA PC:
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
Ans: A, LO: 1, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Strategic/Critical Thinking, AICPA FN: Decision Modeling, AICPA PC: Problem
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
Ans: D, LO: 2, Bloom: AP, Difficulty: Medium, Min: 5, AACSB: None, AICPA BB: Resource Management, AICPA FN: Measurement, AICPA PC: Problem
Solution:410,000 + 120,000 − 60,000 = 470,000

lOMoARcPSD|13397308
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.
Ans: B, LO: 3, Bloom: C, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Industry/Sector Perspective, AICPA FN: Measurement, AICPA PC: Problem
65. The direct materials and direct labor budgets provide information for preparing the
a. sales budget.
c. manufacturing overhead budget.
d. cash budget.
Ans: D, LO: 2, Bloom: C, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Industry/Sector Perspective, AICPA FN: Measurement, AICPA PC: Problem
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.
Ans: C, LO: 2, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Strategic/Critical Thinking, AICPA FN: Measurement, AICPA PC: Problem
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
Ans: C, LO: 2, Bloom: C, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Resource Management, AICPA FN: Decision Modeling, AICPA PC: Problem
69. Which of the following is done to improve the reliability of the sales forecast?
a. Receive input from top management
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
Ans: A, LO: 2, Bloom: C, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Strategic/Critical Thinking, AICPA FN: Decision Modeling, AICPA PC: Problem
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.
Ans: B, LO: 2, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Resource Management, AICPA FN: Decision Modeling, AICPA PC: Problem

lOMoARcPSD|13397308
71. The culmination of preparing operating budgets is the

a. budgeted balance sheet.
c. cash budget.
d. budgeted income statement.
Ans: D, LO: 2, Bloom: C, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Resource Management, AICPA FN: Decision Modeling, AICPA PC: Problem
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
Ans: A, LO: 2, Bloom: AP, Difficulty: Medium, Min: 3, AACSB: Analytic, AICPA BB: Resource Management, AICPA FN: Measurement, AICPA PC: Problem
Solution: 426,000 + 3,200 – 1,200 = 428,000

(Bud. Sales + Desired end. inv. – Beg. inv)
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.
Ans: D, LO: 2, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Strategic/Critical Thinking, AICPA FN: Measurement, AICPA PC: Problem
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
Ans: C, LO: 2, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Resource Management, AICPA FN: Measurement, AICPA PC: Problem

lOMoARcPSD|13397308
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
Ans: D, LO: 2, Bloom: AP, Difficulty: Medium, Min: 3, AACSB: Analytic, AICPA BB: Resource Management, AICPA FN: Measurement, AICPA PC: Problem
Solution: 32,000 + Desired end. inv. – 3,600 = 33,600; Desired end. inv. = 5,200
(Bud. Sales + Desired end. inv. – Beg. inv. = Req. production)
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
Ans: B, LO: 2, Bloom: AP, Difficulty: Medium, Min: 3, AACSB: Analytic, AICPA BB: Resource Management, AICPA FN: Measurement, AICPA PC: Problem
Solution: Req. production is greater than Bud. Sales by 4,000, therefore inv. must increase by 4,000 units: 100,000 + 10,000 – 6,000 = 104,000
(Bud. Sales + Req. end. inv. – Beg. inv. = Req. production)
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.
Solution: 9,000 + 3,000 = 3.0

(Tot. lbs. needed for production + Units to be produced)

lOMoARcPSD|13397308
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.
Solution: 69,000 − 48,000

(Tot. mat. req. − Desired end. mat)
81. If the required direct materials purchases are 24,000 pounds, the direct materials required
for production is three times the direct materials purchases, and the beginning direct
materials are three and a half times the direct materials purchases, what are the desired
ending direct materials in pounds?
a. 60,000
b. 12,000
c. 36,000
d. 24,000
Ans: C, LO: 2, Bloom: AP, Difficulty: Medium, Min: 3, AACSB: Analytic, AICPA BB: Resource Management, AICPA FN: Measurement, AICPA PC: Problem
Solution: (3 × 24,000) + Desired end. Inv. – (3.5 × 24,000) = 24,000; Desired end. inv. = 36,000
(DM reg. for production + Desired end. Inv. – Beg. inv. = DM purch.)
82. Dart, Inc. makes and sells umbrellas. The company is in the process of preparing its
Selling and Administrative Expense Budget for the last half of the year. The following
budget data are available:
Variable Cost Per Unit Sold Monthly Fixed Cost
Sales commissions $0.60 $ 6,000
Shipping 1.20
Advertising 0.30
Executive salaries 40,000
Depreciation on office equipment 8,000
Other 0.35 28,000
Expenses are paid in the month incurred. If the company has budgeted to sell 8,000
umbrellas in October, how much is the total budgeted variable selling and administrative
expenses for October?
a. $16,800
b. $18,400
c. $101,600
d. $19,600
Ans: D, LO: 3, Bloom: AP, Difficulty: Hard, Min: 5, AACSB: Analytic, AICPA BB: Resource Management, AICPA FN: Measurement, AICPA PC: Problem
Solution: (($0.60 + $1.20 +$0.30 +$0.35) × 8,000) = $19,600

(Var. S&A per unit × No. of units sold)

lOMoARcPSD|13397308
83. Which of the following expenses would not appear on a selling and administrative
expense budget?
a. Sales commissions
b. Depreciation
c. Property taxes
d. Indirect labor
Ans: D, LO: 3, Bloom: C, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Resource Management, AICPA FN: Measurement, AICPA PC: Problem
84. Which of the following would not appear as a fixed expense on a selling and
administrative expense budget?
a. Freight-out
b. Office salaries
c. Property taxes
d. Depreciation
Ans: A, LO: 3, Bloom: C, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Resource Management, AICPA FN: Measurement, AICPA PC: Problem
85. A master budget consists of

a. an interrelated long-term plan and operating budgets.
b. financial budgets and a long-term plan.
c. interrelated financial budgets and operating budgets.
d. all the accounting journals and ledgers used by a company.
Ans: C, LO: 2, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Resource Management, AICPA FN: Measurement, AICPA PC: Problem
86. The starting point in preparing a master budget is the preparation of the
a. production budget.
b. sales budget.
c. purchasing budget.
d. personnel budget.
Ans: B, LO: 2, Bloom: C, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Resource Management, AICPA FN: Measurement, AICPA PC: Problem
87. Which one of the following is not needed in preparing a production budget?
a. Budgeted unit sales
b. Budgeted raw materials
c. Beginning finished goods units
d. Ending finished goods units
Ans: B, LO: 2, Bloom: C, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Resource Management, AICPA FN: Measurement, AICPA PC: Problem
88. A company budgeted unit sales of 204,000 units for January, 2017 and 240,000 units for
February 2017. The company has a policy of having an inventory of units on hand at the
end of each month equal to 30% of next month's budgeted unit sales. If there were 61,200
units of inventory on hand on December 31, 2016, how many units should be produced in
January, 2017 in order for the company to meet its goals?
a. 214,800 units
b. 204,000 units
c. 193,200 units
d. 276,000 units
Solution: 204,000 + (.30 × 240,000) – 61,200 = 214,800

(Bud. sales + Desired end. Inv. – Beg. inv.)

lOMoARcPSD|13397308
89. At January 1, 2016, Deer Corp. has beginning inventory of 2,000 surfboards. Deer
estimates it will sell 10,000 units during the first quarter of 2016 with a 12% increase in
sales each quarter. Deer’s policy is to maintain an ending inventory equal to 25% of the
next quarter’s sales. Each surfboard costs $100 and is sold for $150. How much is
budgeted sales revenue for the third quarter of 2016?
a. $450,000
b. $1,950,000
c. $1,881,600
d. $12,544
Solution: ((10,000 × 1.12 × 1.12) × $150) = $1,881,600

((1st qtr. Sales × 112% × 112%) × unit sales price)
90. Doe Manufacturing plans to sell 6,000 purple lawn chairs during May, 5,700 in June, and
6,000 during July. The company keeps 15% of the next month’s sales as ending inventory.
How many units should Doe produce during June?
a. 5,745
b. 6,600
c. 5,655
d. Not enough information to determine.
Solution: 5,700 + (.15 × 6,000) – (.15 × 5,700) = 5,745

(June sales + (15% × July sales) – (15% × June sales))
91. Strand Company is planning to sell 400 buckets and produce 380 buckets during March.
Each bucket requires 500 grams of plastic and one-half hour of direct labor. Plastic costs
$10 per 500 grams and employees of the company are paid $15.00 per hour.
Manufacturing overhead is applied at a rate of 110% of direct labor costs. Strand has 300
kilos of plastic in beginning inventory and wants to have 200 kilos in ending inventory.
How much is the total amount of budgeted direct labor for March?
a. $3,000
b. $6,000
c. $2,850
d. $5,7000
Solution: 380 × ($15.00/hr. × ½ hr.) = $2,850

(No. of units produced × hrly. Rate × ½ hr.)

lOMoARcPSD|13397308
92. Teller Co. is planning to sell 900 boxes of ceramic tile, with production estimated at 870
boxes during May. Each box of tile requires 44 pounds of clay mix and a quarter hour of
direct labor. Clay mix costs $0.40 per pound and employees of the company are paid
$12.00 per hour. Manufacturing overhead is applied at a rate of 110% of direct labor
costs. Teller has 3,900 pounds of clay mix in beginning inventory and wants to have 4,500
pounds in ending inventory.
What is the total amount to be budgeted for manufacturing overhead for the month?
a. $2,871
b. $2,970
c. $11,484
d. $11,880
Solution: 870 × (1/4 hr. × $12.00/hr.) × 110% = $2,871

(No. boxes produced × (Hrly. Rate × 1/4 hr.) × OH rate)
What is the total amount to be budgeted for direct labor for the month?
a. $2,610
b. $10,440
c. $2,700
d. $41,760
Solution: 870 × (1/4 hr. × $12.00/hr.) = $2,610

(No. boxes produced × (Hrly. Rate × 1/4 hr.))
What is the total amount to be budgeted in pounds for direct materials to be purchased for
the month?
a. 38,280
b. 37,680
c. 38,880
d. 40,200
Solution: (870 × 44) + 4,500 – 3,900 = 38,880

(DM production needs + Desired end. Inv. – Beg. inv.)

lOMoARcPSD|13397308
95. Lorie Nursery plans to sell 320 potted plants during April and 240 units in May. Lorie
Nursery keeps 15% of the next month’s sales as ending inventory. How many units should
Lorie Nursery produce during April?
a. 308
b. 332
c. 320
d. 356
Solution: 320 + (240 × .15) – (320 × .15) = 308

(Bud. sales + Desired end. Inv. – Beg. inv.)
96. Comma Co. makes and sells widgets. The company is in the process of preparing its
selling and administrative expense budget for the month. The following budget data are
available:
Item Variable Cost Per Unit Sold Monthly Fixed Cost
Sales commissions $1 $10,000
Shipping $3
Advertising $4
Executive salaries $120,000
Depreciation on office equipment $4,000
Other $2 $6,000
Expenses are paid in the month incurred. If the company has budgeted to sell 80,000
widgets in October, how much is the total budgeted selling and administrative expenses
for October?
a. $940,000
b. $140,000
c. $930,000
d. $800,000
Ans: A, LO: 3, Bloom: AP, Difficulty: Hard, Min: 5, AACSB: Analytic, AICPA BB: Resource Management, AICPA FN: Measurement, AICPA PC: Problem
Solution: (($1 + $3 + $4+ $2) × 80,000) + ($10,000 + $120,000 + $4,000 + $6,000) = $940,000
((VC per unit sold × No. units sold) + Tot. fixed costs)
97. Comma Manufacturing budgets on an annual basis for its fiscal year. The following
beginning and ending inventory levels are planned for the fiscal year of July 1, 2016 to
June 30, 2017:
June 30, 2017 June 30, 2016
Raw Materials 3,000 kilos 2,000 kilos
Three kilos of raw materials are needed to produce each unit of finished product. If
Comma Manufacturing plans to produce 560,000 units during the 2016-2017 fiscal year,
how many kilos of materials will the company need to purchase for its production during
the year?
a. 1,681,000
b. 1,686,000
c. 1,680,000
d. 1,678,000
Solution: (560 × 3) + 3,000 – 2,000 = 1,681,000

((Fin. units produced × kilos/unit) + Desired end. DM inv. – Beg. DM inv.)

lOMoARcPSD|13397308
98. The following information is taken from the production budget for the first quarter:
Beginning inventory in units 1,200
Sales budgeted for the quarter 456,000
Production capacity in units 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. 458,000
b. 454,000
c. 474,000
d. 459,200
Solution: 456,000 + 3,200 – 1,200 = 458,000

(Bud. sales + Desired end. inv. – Beg. inv.)
99. Off-Line Co. has 9,000 units in beginning finished goods. The sales budget shows
expected sales to be 36,000 units. If the production budget shows that 42,000 units are
required for production, what was the desired ending finished goods?
a. 3,000.
b. 9,000.
c. 15,000.
d. 27,000.
Solution: 36,000 + Desired end. inv. – 9,000 = 42,000; Desired end. inv. = 15,000
(Bud. sales + Desired end. inv. – Beg. inv. = Required units of production)
100. Lion Industries required production for June is 132,000 units. To make one unit of finished
product, three pounds of direct material Z are required. Actual beginning and desired
ending inventories of direct material Z are 300,000 and 330,000 pounds, respectively.
How many pounds of direct material Z must be purchased?
a. 378,000.
b. 396,000.
c. 408,000.
d. 426,000.
101. Haft Construction Company determines that 54,000 pounds of direct materials are needed
for production in July. There are 3,200 pounds of direct materials on hand at July 1 and
the desired ending inventory is 2,800 pounds. If the cost per unit of direct materials is $3,
what is the budgeted total cost of direct materials purchases?
a. 158,400.
b. 160,800.
c. 163,200.
d. 165,600.
Solution: 54,000 + 2,800 – 3,200 = 53,600; 53,600 × $3 = $160,800

((DM production needs + Desired end. inv. – Beg. inv.) × Cost/unit)

lOMoARcPSD|13397308
102. Pell Manufacturing is preparing its direct labor budget for May. Projections for the month
are that 33,400 units are to be produced and that direct labor time is three hours per unit.
If the labor cost per hour is $12, what is the total budgeted direct labor cost for May?
a. 1,159,200.
b. 1,180,800.
c. 1,202,400.
d. 1,296,000.
Solution: (33,400 × 3) × $12= $1,202,400

((Bud. units to be produced × hrs./unit) × Hrly. Rate)
103. Dolce Co. estimates its sales at 180,000 units in the first quarter and that sales will
increase by 18,000 units each quarter over the year. They have, and desire, a 25% ending
inventory of finished goods. Each unit sells for $25. 40% of the sales are for cash. 70% of
the credit customers pay within the quarter. The remainder is received in the quarter
following sale.
Production in units for the third quarter should be budgeted at

a. 220,500.
b. 207,000.
c. 274,500.
d. 216,000.
Solution: (180,000 + 18,000 + 18,000) + ((180,000 + 18,000 + 18,000 + 18,000) × .25) − ((180,000 + 18,000 + 18,000) × .25) = 220,500
104. Dolce Co. estimates its sales at 180,000 units in the first quarter and that sales will
following sale.
Cash collections for the third quarter are budgeted at

a. $3,051,000.
b. $4,428,000.
c. $5,319,000.
d. $6,156,000.
Ans: C, LO: 4, Bloom: AP, Difficulty: Hard, Min: 5, AACSB: Analytic, AICPA BB: Resource Management, AICPA FN: Measurement, AICPA PC: Problem
Solution: ((180,000 + 18,000) × $25 × .6 × .3) + ((180,000 + 18,000 + 18,000) × $25 × .4) + ((180,000 + 18,000 + 18,000) × $25 × .6 × .7) =
$5,319,000
(Cash collect from 2nd qtr. credit sales + Cash collect from 3rd qtr. cash sales + Cash collect from 3rd qtr. credit sales)

lOMoARcPSD|13397308
105. Bear, Inc. estimates its sales at 200,000 units in the first quarter and that sales will
following sale.
Production in units for the third quarter should be budgeted at

a. 245,000.
b. 230,000.
c. 305,000.
d. 240,000.
Solution: (200,000 + 20,000 + 20,000) + ((200,000 + 20,000 + 20,000 + 20,000) × .25) − ((200,000 + 20,000 + 20,000) × .25) = 245,000
106. Bear, Inc. estimates its sales at 200,000 units in the first quarter and that sales will
following sale.
Cash collections for the third quarter are budgeted at

a. $4,746,000.
b. $6,888,000.
c. $8,274,000.
d. $9,576,000.
Solution: ((200,000 + 20,000) × $35 × .6 × .3) + ((200,000 + 20,000 + 20,000) × $35 × .4) + ((200,000 + 20,000 + 20,000) × $35 × .6 × .7) =
$8,274,000
(Cash collect from 2nd qtr. credit sales + Cash collect from 3rd qtr. cash sales + Cash collect from 3rd qtr. credit sales)
107. A company determined that the budgeted cost of producing a product is $30 per unit. On
June 1, there were 80,000 units on hand, the sales department budgeted sales of 300,000
units in June, and the company desires to have 120,000 units on hand on June 30. The
budgeted cost of goods sold for June would be
a. $7,800,000.
b. $11,400,000.
c. $9,000,000.
d. $10,200,000.
Solution: (80,000 × $30) + Bud. cost of units produced − (120,000 × $30) = (300,000 × $30); Bud. cost of units produced = $10,200,000
(Beg. inv. + Bud. cost of units produced – Beg. inv.)
108. Of the following items, which one is not obtained from an individual operating budget?
a. Selling and administrative expenses
b. Accounts receivable
c. Cost of goods sold
d. Sales

lOMoARcPSD|13397308
109. Which of the following statements about a budgeted income statement is not true?
a. The budgeted income statement is prepared after the financial budgets are prepared.
b. The budgeted income statement is the end-product of the operating budgets.
c. The budgeted income statement provides the basis for evaluating company
performance.
d. The budgeted income statement is prepared using the individual operating budgets.
Ans: A, LO: 3, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Industry/Sector Perspective, AICPA FN: Measurement, AICPA PC: Problem
110. A company has budgeted direct materials purchases of $300,000 in July and $480,000 in
August. Past experience indicates that the company pays for 70% of its purchases in the
month of purchase and the remaining 30% in the next month. During August, the following
items were budgeted:
Wages Expense $150,000
Purchase of office equipment 72,000
Selling and Administrative Expenses 48,000
Depreciation Expense 36,000
The budgeted cash disbursements for August are
a. $648,000.
b. $426,000.
c. $696,000.
d. $732,000.
Solution: ($30,000 × $3) + ($480,000 × .7) + $150,000 + $72,000 + $48,000 = $696,000

(Pmt. of July DM purch. + Pmt. of Aug. DM purch. + Wages exp. + Purch. of office equip. + S&A exp.)
111. Astor Manufacturing has the following budgeted sales: January $120,000, February
$180,000, and March $150,000. 40% of the sales are for cash and 60% are on credit. For
the credit sales, 50% are collected in the month of sale, and 50% the next month. The
total expected cash receipts during March are:
a. $168,000.
b. $159,000.
c. $157,500.
d. $150,000.
Ans: B, LO: 4, Bloom: AP, Difficulty: Hard, Min: 5, AACSB: Analytic, AICPA BB: Resource Management, AICPA FN: Measurement, AICPA PC: Problem
Solution: ($180,000 × .6 × .5) + ($150,000 × .4) + (150,000 × .6 × .5) = $159,000

(Collect. of Feb. credit sales + Mar. cash sales + Collect. of Mar. credit sales)
112. Garnett Co. expects to purchase $180,000 of materials in July and $210,000 of materials
in August. Three-fourths of all purchases are paid for in the month of purchase, and the
other one-fourth are paid for in the month following the month of purchase. How much will
August's cash disbursements for materials purchases be?
a. $135,000
b. $157,500
c. $202,500
d. $210,000
Solution: ($180,000 × .25) + ($210,000 × .75) = $202,500

(Pmt. of July DM purch. + Pmt. of Mar. DM purch.)

lOMoARcPSD|13397308
113. The single most important output in preparing financial budgets is the
a. sales forecast.
b. determination of the unit cost of the product.
c. cash budget.
Ans: C, LO: 4, Bloom: C, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Industry/Sector Perspective, AICPA FN: Measurement, AICPA PC: Problem
114. Which of the following does not appear as a separate section on the cash budget?
a. Cash receipts
b. Cash disbursements
c. Capital expenditures
d. Financing
Ans: C, LO: 4, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Industry/Sector Perspective, AICPA FN: Measurement, AICPA PC: Problem
115. The financing section of a cash budget is needed if there is a cash deficiency or if the
ending cash balance is less than
a. the prior years.
b. management's minimum required balance.
c. the amount needed to avoid a service charge at the bank.
d. the industry average.
116. Beginning cash balance plus total receipts

a. equals ending cash balance.
b. must equal total disbursements.
c. equals total available cash.
d. is the excess of available cash over disbursements.
117. The projection of financial position at the end of the budget period is found on the
a. budgeted income statement.
b. cash budget.
c. budgeted balance sheet.
d. sales budget.
118. What is the proper preparation sequencing of the following budgets?

1. Budgeted Balance Sheet
2. Sales Budget
3. Selling and Administrative Budget
4. Budgeted Income Statement
a. 1, 2, 3, 4
b. 2, 3, 1, 4
c. 2, 3, 4, 1
d. 2, 4, 1, 3

lOMoARcPSD|13397308
119. Kam Department Store reported the following information for 2016:
October November December
Budgeted sales $1,240,000 $1,160,000 $1,440,000
 All sales are on credit.
 Customer amounts on account are collected 50% in the month of sale and 50% in the
following month.
How much cash will Kam receive in November?
a. $580,000
b. $1,300,000
c. $1,200,000
d. $1,160,000
Ans: C, LO: 4, Bloom: AP, Difficulty: Medium, Min: 3, AACSB: None, AICPA BB: Industry/Sector Perspective, AICPA FN: Measurement, AICPA PC:
120. The following information was taken from Southgate Industry’s cash budget for the month
of July:
Beginning cash balance $480,000
Cash receipts 304,000
Cash disbursements 544,000
If the company has a policy of maintaining a minimum end of the month cash balance of
$400,000, the amount the company would have to borrow is
a. $160,000.
b. $80,000.
c. $240,000.
d. $96,000.
Ans: A, LO: 4, Bloom: AP, Difficulty: Medium, Min: 3, AACSB: None, AICPA BB: Industry/Sector Perspective, AICPA FN: Measurement, AICPA PC:
Solution: $480,000 + $302,000 − $544,000 = $240,000; $400,000 − $240,000 = $160,000

((Beg. cash bal. + Cash receipts − Cash disb.) − Min. cash bal. requirement)
121. The cash budget reflects

a. all revenues and all expenses for a period.
b. expected cash receipts and cash disbursements from all sources.
c. all the items that appear on a budgeted income statement.
d. all the items that appear on a budgeted balance sheet.
Ans: B, LO: 4, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Industry/Sector Perspective, AICPA FN: Measurement, AICPA PC: Problem

lOMoARcPSD|13397308
122. The following credit sales are budgeted by Terra Co.:

January $204,000
February 300,000
March 420,000
April 360,000
The company's past experience indicates that 70% of the accounts receivable are
collected in the month of sale, 20% in the month following the sale, and 8% in the second
month following the sale. The anticipated cash inflow for the month of April is
a. $370,320.
b. $336,000.
c. $360,000.
d. $352,800.
Ans: C, LO: 4, Bloom: AP, Difficulty: Medium, Min: 5, AACSB: None, AICPA BB: Industry/Sector Perspective, AICPA FN: Measurement, AICPA PC:
Solution: ($300,000 × 8%) + ($420,000 × 20%) + ($360,000 × 70%) = $360,000

(Collect. from Feb. A/R + Collect. from Mar. A/R + Collect. from Apr. A/R)
123. Hyde Corp.'s cash budget showed total available cash less cash disbursements. What
does this amount equal?
a. Ending cash balance
b. Total cash receipts
c. The excess of available cash over cash disbursements
d. The amount of financing required
124. Which one of the following sections would not appear on a cash budget?
a. Cash receipts
b. Financing
c. Investing
d. Cash disbursements
125. A company's past experience indicates that 60% of its credit sales are collected in the
month of sale, 30% in the next month, and 5% in the second month after the sale; the
remainder is never collected. Budgeted credit sales were:
January $360,000
February 216,000
March 540,000
The cash inflow in the month of March is expected to be
a. $406,800.
b. $307,800.
c. $324,000.
d. $388,800.
Ans: A, LO: 4, Bloom: AP, Difficulty: Medium, Min: 5, AACSB: None, AICPA BB: Industry/Sector Perspective, AICPA FN: Measurement, AICPA PC:
Solution: ($360,000 × .05) + ($216,000 × .30) + ($540,000 × .60) = $406,800

(Collect. of Jan. credit sales + Collect. of Feb. credit sales + Collect. of Mar. credit sales)

lOMoARcPSD|13397308
126. Which one of the following items would never appear on a cash budget?
a. Office salaries expense
b. Interest expense
c. Depreciation expense
d. Travel expense
127. Correy Inc. reported the following information for 2016:

Budgeted sales $460,000 $440,000 $540,000
Budgeted purchases $240,000 $256,000 $288,000
following month.
 Cost of goods sold is 35% of sales.
 Correy purchases and pays for merchandise 60% in the month of acquisition and 40%
in the following month.
 Accounts payable is used only for inventory acquisitions.
How much cash will Correy receive during November?
a. $220,000
b. $490,000
c. $450,000
d. $440,000
Ans: C, LO: 4, Bloom: AP, Difficulty: Hard, Min: 7, AACSB: None, AICPA BB: Industry/Sector Perspective, AICPA FN: Measurement, AICPA PC: Problem
Solution: ($460,000 × .50) + ($440,000 × .50) = $450,000

(Collect. of Oct. bud. sales + Collect. of Nov. credit sales)
128. Correy Company reported the following information for 2016:

Budgeted sales $460,000 $440,000 $540,000
 Cost of goods sold is 35% of sales.
 Correy purchases and pays for merchandise 60% in the month of acquisition and 40%
in the following month.
How much is the budgeted balance for Accounts Payable at October 31, 2016?
a. $96,000
b. $144,000
c. $204,000
d. $102,400
Ans: A, LO: 4, Bloom: AP, Difficulty: Hard, Min: 5, AACSB: None, AICPA BB: Industry/Sector Perspective, AICPA FN: Measurement, AICPA PC: Problem
Solution: $240,000 × .40 = $96,000

(unpd. bal. of Oct. bud. purch.)

lOMoARcPSD|13397308
129. Petal Co. reported the following information for 2016:

Budgeted sales $930,000 $870,000 $1,080,000

following month.
How much is the November 30, 2016 budgeted Accounts Receivable?
a. $900,000
b. $540,000
c. $465,000
d. $435,000
Ans: D, LO: 4, Bloom: AP, Difficulty: Medium, Min: 3, AACSB: None, AICPA BB: Industry/Sector Perspective, AICPA FN: Measurement, AICPA PC:
Solution: $870,000 × .50 = $435,000

(Uncollect. portion of Nov. bud. ales)
130. Bean Manufacturing reported the following information for 2016:

 Operating expenses are: Salaries, $100,000; Depreciation, $40,000; Rent, $20,000;
Utilities, $28,000
 Operating expenses are paid during the month incurred.
How much is the budgeted amount of cash to be paid for operating expenses in
November?
a. $404,000
b. $148,000
c. $188,000
d. $444,000
Solution: $100,000 + $20,000 + $28,000 = $148,000
131. During September, the capital expenditure budget indicates a $420,000 purchase of
equipment. The ending September cash balance from operations is budgeted to be
$60,000. The company wants to maintain a minimum cash balance of $30,000. What is
the minimum cash loan that must be planned to be borrowed from the bank during
September?
a. $330,000
b. $360,000
c. $450,000
d. $390,000
Ans: d, LO: 4, Bloom: AP, Difficulty: Medium, Min: 5, AACSB: None, AICPA BB: Industry/Sector Perspective, AICPA FN: Measurement, AICPA PC:
Solution: $420,000 − $30,000 = $390,000

(Cap. exp. bud. − Min. reg. end. cash bal.)

lOMoARcPSD|13397308
132. Young Co. has budgeted its activity for December according to the following information:
1. Sales at $600,000, all for cash.
2. Budgeted depreciation for December is $15,000.
4. The cash balance at December 1 was $15,000.
5. Selling and administrative expenses are budgeted at $60,000 for December and
are paid for in cash.
6. The planned merchandise inventory on December 31 and December 1 is $18,000.
7. The invoice cost for merchandise purchases represents 75% of the sales price. All
purchases are paid in cash.
How much are the budgeted cash disbursements for December?
a. $345,000
b. $510,000
c. $525,000
d. $492,000
Solution: ($600,000 × .75) + $60,000 = $510,000

(Cost of merch. Purch. + S&A exp.)
133. Dex Industries expects to purchase $120,000 of materials in March and $140,000 of
materials in April. Three-fourths of all purchases are paid for in the month of purchase, and
the other one-fourth are paid for in the month following the month of purchase. In addition, a
2% discount is received for payments made in the month of purchase. How much will
April's cash disbursements for materials purchases be?
a. $88,200
b. $108,200
c. $132,900
d. $120,000
Solution: ($120,000 × .25) + (($140,000 × .75) × .98) = $132,900

(Pmt. of Mar. purch. + Pmt. of Apr. purch. less disc.)
134. On January 1, Witt Company has a beginning cash balance of $126,000. During the year,
the company expects cash disbursements of $1,020,000 and cash receipts of $870,000. If
Witt requires an ending cash balance of $120,000, Witt Company must borrow
a. $96,000.
b. $120,000.
c. $144,000.
d. $276,000.
Solution: $120,000 + $1,020,000 – ($126,000 + $870,000) = $144,000

(End. Bal. + cash disb. – (Beg. bal. + Cash rec.)

lOMoARcPSD|13397308
135. Mapleview, Inc. has the following budgeted sales: July $200,000, August $300,000, and
September $250,000. 40% of the sales are for cash and 60% are on credit. For the credit
sales, 50% are collected in the month of sale, and 50% the next month. The total
expected cash receipts during September are
a. $280,000.
b. $265,000.
c. $262,500.
d. $250,000.
Solution: ($300,000 × .6 × .5) + ($250,000 × .4) + ($250,000 × .6 × .5) = $265,000

(Collect. of Aug. credit sales + Sept. cash sales + Collect. of Sept. credit sales)
136. Burr, Inc.'s direct materials budget shows total cost of direct materials purchases for April
$400,000, May $480,000 and June $560,000. Cash payments are 60% in the month of
purchase and 40% in the following month. The budgeted cash payments for June are
a. $528,000.
b. $512,000.
c. $480,000.
d. $416,000.
Solution: ($480,000 × .4) + ($560,000 × .6) = $528,000

(Pmt. of May purch. + Pmt. of June purch.)
137. Which one of the following budgets would be prepared for a manufacturer but not for a
merchandiser?
a. Direct labor budget
b. Cash budget
c. Sales budget
d. Budgeted income statement
Ans: A, LO: 5, Bloom: C, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Industry/Sector Perspective, AICPA FN: Measurement, AICPA PC: Problem
138. The formula for determining budgeted merchandise purchases is budgeted

a. production + desired ending inventory – beginning inventory.
b. sales + beginning inventory – desired ending inventory.
c. cost of goods sold + desired ending inventory – beginning inventory.
d. cost of goods sold + beginning inventory – desired ending inventory.
139. Which one of the following is a problem resulting from a service company being
overstaffed?
a. Labor costs will be disproportionately low.
b. Profits will be higher because of the additional salaries.
c. Staff turnover may increase.
d. Revenue may be lost.

lOMoARcPSD|13397308
140. The master budget for a service enterprise

a. will have the same types of budgets as a merchandiser.
b. may include a sales budget for sales revenue.
c. will not include a budgeted income statement.
d. includes a service revenue budget based on expected client billings.
Ans: D, LO: 5, Bloom: C, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Industry/Sector Perspective, AICPA FN: Measurement, AICPA PC: Problem
141. Budgeting in not-for-profit organizations

a. is not important because they are not profit-oriented.
b. usually starts with budgeting expenditures, rather than receipts.
c. is necessary only if some product is produced and sold.
d. consists entirely of budgeted contributions.
142. For a merchandiser, the starting point in the development of the master budget is the
a. cash budget.
b. sales budget.
c. selling and administrative expenses budget.
143. Instead of a production budget, a merchandiser will prepare a

a. pseudo-production budget.
b. merchandise purchases budget.
c. master time sheet.
d. sales forecast.
144. Orange Co. is a manufacturer and Pineapple Company is a merchandiser. What is the
difference in the budgets the two entities will prepare?
a. Orange Co. will prepare a production budget, and Pineapple Company will prepare a
merchandise purchases budget.
b. Orange Co. will prepare a sales forecast, and Pineapple Company will prepare a sales
budget.
c. Pineapple Company will prepare a production budget, and Orange Co. will prepare a
merchandise purchases budget.
d. Both companies will prepare the same types of budgets.
Ans: A, LO: 5, Bloom: C, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Industry/Sector Perspective, AICPA FN: Measurement, AICPA PC: Problem
145. An appropriate activity index for a college or university for budgeting faculty positions
would be the
a. faculty hours worked.
b. number of administrators.
c. credit hours taught by a department.
d. number of days in the school term.

lOMoARcPSD|13397308
146. A critical factor in budgeting for a service firm is to

a. hire professional staff to perform the budgeting work.
b. coordinate professional staff needs with anticipated services.
c. classify all personnel as either variable or fixed.
d. budget expenditures before anticipated receipts.
147. The primary benefits of budgeting include all of the following except it
a. requires only top management to plan ahead and formalize their future goals.
b. provides definite objectives for evaluating performance.
c. creates an early warning system for potential problems.
d. motivates personnel throughout the organization.
148. The responsibility for expressing management's budgeting goals in financial terms is
performed by the
a. accounting department.
b. top management.
c. lower level of management.
149. Coordinating the preparation of the budget is the responsibility of the

a. treasurer.
b. president.
c. chief accountant.
Ans: D, LO: 1, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Industry/Sector Perspective, AICPA FN: Measurement, AICPA PC: Problem
150. For better management acceptance, the flow of input data for budgeting should begin with the
a. accounting department.
b. top management.
c. lower levels of management.
151. In the direct materials budget, the quantity of direct materials to be purchased is computed
by adding direct materials required for production to
a. desired ending direct materials.
b. beginning direct materials.
c. desired ending direct materials less beginning direct materials.
d. beginning direct materials less desired ending direct materials.

lOMoARcPSD|13397308
152. Grey Company has 24,000 units in beginning finished goods. If sales are expected to be
120,000 units for the year and Grey desires ending finished goods of 30,000 units, how
many units must the company produce?
a. 114,000
b. 120,000
c. 126,000
d. 150,000
153. The important end-product of the operating budgets is the

a. budgeted income statement.
b. cash budget.
c. production budget.
d. budgeted balance sheet.
154. On January 1, Kale Company has a beginning cash balance of $42,000. During the year,
the company expects cash disbursements of $340,000 and cash receipts of $290,000. If
Kale requires an ending cash balance of $40,000, the company must borrow
a. $32,000.
b. $40,000.
c. $48,000.
d. $92,000.
Solution: $42,000 + $290,000 − $340,000 = ($8,000); $40,000 − ($8,000) = $48,000

(Beg. cash bal. + Cash recipts − Cash disb. = Cash deficiency. Min. cash req. + Cash deficiency)
155. The budget that is often considered to be the most important financial budget is the
a. cash budget.
b. capital expenditure budget.
c. budgeted income statement.
d. budgeted balance sheet.
156. Lark Corp.'s direct materials budget shows total cost of direct materials purchases for
January $250,000, February $300,000 and March $350,000. Cash payments are 60% in
the month of purchase and 40% in the following month. The budgeted cash payments for
March are
a. $330,000.
b. $320,000.
c. $300,000.
d. $260,000.
Solution: ($300,000 × .4) + ($350,000 × .6) = $330,000

(Pmt. of Feb. credit purch. + Pmt. of Mar. credit purch.)

lOMoARcPSD|13397308
157. A purchases budget is used instead of a production budget by

a. merchandising companies.
b. service enterprises.
c. not-for-profit organizations.
d. manufacturing companies.
158. Which of the following statements is incorrect?

a. A continuous twelve-month budget results from dropping the month just ended and
adding a future month.
b. The production budget is derived from the direct materials and direct labor budgets.
c. The cash budget shows anticipated cash flows.
d. In the budget process for not-for-profit organizations, the emphasis is on cash flow
rather than on revenue and expenses.
Ans: B, LO: 5, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Industry/Sector Perspective, AICPA FN: Measurement, AICPA PC: Problem
Answers to Multiple Choice Questions

Item Ans. Item Ans. Item Ans. Item Ans. Item Ans. Item Ans. Item Ans.
37. b 55. d 73. d 91. c 109. a 127. c 145. c
38. b 56. c 74. d 92. a 110. c 128. a 146. b
39. b 57. d 75. c 93. a 111. b 129. d 147. a
40. c 58. d 76. d 94. c 112. c 130. b 148. a
41. a 59. b 77. b 95. a 113. c 131. d 149. d
42. d 60. c 78. d 96. a 114. c 132. b 150. c
43. d 61. d 79. b 97. a 115. b 133. c 151. c
44. b 62. a 80. a 98. a 116. c 134. c 152. c
45. c 63. d 81. c 99. c 117. c 135. b 153. a
46. c 64. b 82. d 100. d 118. c 136. a 154. c
47. d 65. d 83. d 101. b 119. c 137. a 155. a
48. d 66. c 84. a 102. c 120. a 138. c 156. a
49. b 67. d 85. c 103. a 121. b 139. c 157. a
50. a 68. c 86. b 104. c 122. c 140. d 158. b
51. d 69. a 87. b 105. a 123. c 141. b
52. d 70. b 88. a 106. c 124. c 142. b
53. d 71. d 89. c 107. d 125. a 143. b
54. b 72. a 90. a 108. b 126. c 144. a

Ch13-Testbank Removed

Uploaded by

Document Information

Original Description:

Original Title

Copyright

Available Formats

Share this document

Share or Embed Document

Sharing Options

Did you find this document useful?

Is this content inappropriate?

Copyright:

Available Formats

Ch13-Testbank Removed

Uploaded by

Copyright:

Available Formats

lOMoARcPSD|13397308

Answers to True-False Statements

MULTIPLE CHOICE QUESTIONS

39. Accounting generally has the responsibility for

FOR INSTRUCTOR USE ONLY

Downloaded by Taqwa alh (gb9crc79mf@privaterelay.appleid.com)

13 - 8 Test Bank for Survey of Accounting, First Edition

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

43. Which is true of budgets?

44. A common starting point in the budgeting process is

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

FOR INSTRUCTOR USE ONLY

Downloaded by Taqwa alh (gb9crc79mf@privaterelay.appleid.com)

47. It is important that budgets be accepted by

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

51. A budget is most likely to be effective if

FOR INSTRUCTOR USE ONLY

Downloaded by Taqwa alh (gb9crc79mf@privaterelay.appleid.com)

13 - 10 Test Bank for Survey of Accounting, First Edition

53. A budget period should be

55. The most common budget period is

56. Budget development for the coming year usually starts

57. The budget committee would not normally include the

FOR INSTRUCTOR USE ONLY

Downloaded by Taqwa alh (gb9crc79mf@privaterelay.appleid.com)

59. Long-range planning

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

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

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

Solution:410,000 + 120,000 − 60,000 = 470,000

FOR INSTRUCTOR USE ONLY

Downloaded by Taqwa alh (gb9crc79mf@privaterelay.appleid.com)

13 - 12 Test Bank for Survey of Accounting, First Edition

66. A sales forecast

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

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

70. The financial budgets include the

FOR INSTRUCTOR USE ONLY

Downloaded by Taqwa alh (gb9crc79mf@privaterelay.appleid.com)

71. The culmination of preparing operating budgets is the

Solution: 426,000 + 3,200 – 1,200 = 428,000

73. An overly optimistic sales budget may result in

75. The direct materials budget details

FOR INSTRUCTOR USE ONLY

Downloaded by Taqwa alh (gb9crc79mf@privaterelay.appleid.com)

13 - 14 Test Bank for Survey of Accounting, First Edition

79. The direct materials budget shows:

Solution: 9,000 + 3,000 = 3.0

FOR INSTRUCTOR USE ONLY

Downloaded by Taqwa alh (gb9crc79mf@privaterelay.appleid.com)

80. The direct materials budget shows:

Solution: 69,000 − 48,000

Solution: (($0.60 + $1.20 +$0.30 +$0.35) × 8,000) = $19,600

FOR INSTRUCTOR USE ONLY

Downloaded by Taqwa alh (gb9crc79mf@privaterelay.appleid.com)

13 - 16 Test Bank for Survey of Accounting, First Edition

85. A master budget consists of

Solution: 204,000 + (.30 × 240,000) – 61,200 = 214,800

FOR INSTRUCTOR USE ONLY

Downloaded by Taqwa alh (gb9crc79mf@privaterelay.appleid.com)

Solution: ((10,000 × 1.12 × 1.12) × $150) = $1,881,600

Solution: 5,700 + (.15 × 6,000) – (.15 × 5,700) = 5,745