BUDGETING with PROBABILITY ANALYSIS Flashcards
- A budget can serve as
a. A control tool
b. A planning tool usual mistake ☺
c. A planning and control tool
d. A basis for preparing financial statements
- In the budgeting and planning process for a firm, which one of the following should be completed first?
a. Sales budget usual mistake ☺
b. Financial budget
c. Cost management plan
d. Strategic plan
d. Strategic plan
- Strategic planning is
a. setting standards for the use of important but hard-to-find materials.
b. planning activities for promoting products for the future.
c. planning for appropriate assignments of resources.
d. stating and establishing long-term plans.
d. stating and establishing long-term plans.
- Strategy specifies:
a. The demand created for products and services
b. Standard procedures to ensure quality products
c. Incremental changes for improved performance
d. How an organization matches its own capabilities with the opportunities in the marketplace
- The process of preparing a budget:
a. Forces coordination and communication across business functions
b. Increases accounting efficiencies
c. Promotes production automation
d. Reduces overcapacity
a. Forces coordination and communication across business functions
- The master budget embraces the impact of
a. Operating and financing decisions
b. Operating and managerial decisions
c. Financing and managerial decisions
d. Operating, managerial, and financing decisions
a. Operating and financing decisions
- The steps to follow when preparing the operating budget are
a. Revenue budget, production budget, and direct materials purchases budget.
b. Costs of goods sold budget, production budget, and cash budget.
c. Revenue budget, overhead budget, and production budget.
d. Revenue budget, cash inflows, and production expenditures.
a. Revenue budget, production budget, and direct materials purchases budget.
- Pro forma financial statements are part of budgeting process. Normally, the last pro forma statement prepared is:
a. Income statement
b. Statement of cost of goods sold
c. Statement of cash flows
d. Statement of manufacturing costs
c. Statement of cash flows
- Unlike zero-based budgeting, incremental budgeting
a. Starts from a base of zero {Zero-based budgeting}
b. Requires a manager to justify the entire budget for each year {Zero-based budgeting}
c. Simply adjusts the current year’s budget to allow for changes planned for the coming year
d. Eliminates the need to review all functions periodically to obtain optimum use of resources
c. Simply adjusts the current year’s budget to allow for changes planned for the coming year
- ‘Kaizen’ budgeting refers to the budgeting process where
a. The budget is based on only one level of activity {Static budget}
b. The budget is based on many levels of activity so that the budget may be adjusted based on actual
activity {Flexible budget}
c. The budget is based not on the existing system, but on changes or improvements that are to be made
d. A product’s revenues and expenses are estimated over its entire life cycle (i.e., from R&D phase to
customer support phase) {Life-cycle budget}
- When actual performance varies from the budgeted performance, managers will be more likely to revise future
budgets if the variances were
a. Small
b. Favorable rather than unfavorable
c. Controllable rather than uncontrollable
d. Uncontrollable rather than controllable
d. Uncontrollable rather than controllable
- In probability analysis, expected value may be considered as a
a. Simple average
b. Moving average
c. Weighted average
d. Geometric average
c. Weighted average
- Martini makes P 500,000 if the fishing season weather is good, P 200,000 if the weather is fair, and loses P 50,000
if the weather is poor during the season. If the weather forecasts a 40% probability of good weather, a 25%
probability of fair weather, and a 35% probability of poor weather, what is the expected monetary value for Martini?
a. P 200,000
b. P 232,500
c. P 267,500
d. P 500,000
b. P 232,500
Solution: Expected value (100%) = 40% (500,000) + 25% (200,000) + 35% (-50,000)
- Manhattan Company began operations on January 1 of the current year with a P 12,000 cash balance. 40% of sales are collected in the month of sale; 60% are collected in the month following sale. 20% of purchases are paid in the
month of purchase, and 80% are paid in the month following purchase.
January February
Sales P 35,000 P 55,000
Purchases 30,000 40,000
Operating expenses (P 2,500 monthly depreciation) 7,000 9,000
If operating expenses are paid in the month incurred, then what is the increase in cash balance for February?
a. P 2,000 increase
b. P 4,500 increase
c. P 5,000 increase
d. P 7,500 increase
b. P 4,500 increase
Solution: 40% (55,000) + 60% (35,000) – 20% (40,000) – 80% (30,000) – (9,000 – 2,500)
Items 24 and 25 are based on the following information
Old-Fashioned Company has budgeted quarterly sales for the year 2024 as follows:
Quarter 1 2 3 4
Sales in unit 12,000 14,000 18,000 16,000
The ending inventory of finished goods for each quarter should equal 25% of the next quarter’s budgeted sales in
units. Four pounds (lbs.) of raw materials are required for each unit produced. The raw materials inventory at the
end of each quarter should equal 10% of the next quarter’s production needs in materials.
- What is the budgeted or scheduled production for the third quarter (in units)?
a. 16,500
b. 17,500
c. 18,000
d. 18,500
b. 17,500
Solution: 3Q production = sales + closing units – opening units = 18,000 + (25% x 16,000) – (25% x 18,000)
