chapter 10 assignment questions

Question 1

Budgets, by their very nature, create a negative effect on human behaviour within companies because they imply that management is trying to control

True

False

Answer 1

False

Question 2

A sales budget should be prepared before the production budget

True

False

Answer 2

True

Question 3

Companies can use either a predetermined overhead rate or a manufacturing overhead budget

True

False

Answer 3

False

Question 4

The manufacturing overhead budget generally has separate sections for variable and fixed costs

True

False

Answer 4

True

Question 5

In preparing the budgeted balance sheet, management should not be concerned if it does not balance since it does not reflect actual results

True

False

Answer 5

False

Question 6

Budgets promote efficiency and serve as a deterrent to waste

True

False

Answer 6

True

Question 7

The last step in the budgeting process is developing a sales forecast

True

False

Answer 7

False

Question 8

The direct materials budget contains only quantity data so the purchasing department knows how much materials should be purchased

True

False

Answer 8

False

Question 9

Companies that do not prepare cash budgets have significant cash deficiencies

True

False

Answer 9

False

Question 10

The “bottoms-up” approach to budgeting is also referred to as which of the following?

a) zero-based budgeting
b) grassroots budgeting
c) participative budgeting
d) cooperative budgeting

Answer 10

c) participative budgeting

Question 11

The budgeted amount of raw materials necessary for a period is computed by

a) subtracting the beginning inventory of raw materials from the materials necessary to meet the production budget.
b) subtracting the desired ending inventory of raw materials from the raw materials necessary to meet the production budget and adding that result to the beginning inventory of raw materials.
c) adding the desired ending inventory of raw materials to the raw materials necessary to meet the production budget.
d) adding the desired ending inventory of raw materials to the raw materials necessary to meet the production budget and subtracting the beginning inventory of raw materials.

Answer 11

d) adding the desired ending inventory of raw materials to the raw materials necessary to meet the production budget and subtracting the beginning inventory of raw materials.

Question 12

Which of the following is not a benefit of budgeting?

a) It promotes efficiency.
b) It deters waste.
c) It is a basis for performance evaluation.
d) It assures the company that management will perform at a particular operational level.

Answer 12

d) It assures the company that management will perform at a particular operational level.

Question 13

Which one of the following is necessary if a company expects its budget to be effective?

a) The company must be operating at less than capacity.
b) The budget period must cover more than one year.
c) The company’s organizational structure must be sound.
d) The company must have sufficient cash for operations.

Answer 13

c) The company’s organizational structure must be sound.

Question 14

Which of the following individuals should accept the company’s budgets in order for the budgets to be most effective?

a) division managers and customers
b) department heads and division managers
c) supervisors and clerks
d) department heads and creditors

Answer 14

b) department heads and division managers

Question 15

Which of the following approvals will make the most effective environment for budget acceptance?

a) The budget is prepared by top management.
b) The budget preparation contains input from all levels of management.
c) The budget is prepared by the department heads.
d) Acceptance has nothing to do with who prepares budgets.

Answer 15

b) The budget preparation contains input from all levels of management.

Question 16

In many companies, who is assigned the responsibility for coordinating the preparation of the budget?

a) A budget committee.
b) The sales managers since the sales budget is the backbone of the master budget.
c) The company’s board of directors since they approve major corporate changes.
d) The company’s independent certified general accountants.

Answer 16

a) A budget committee.

Question 17

Which one of the following is an advantage of using participative budgeting?

a) It is updated daily to reflect current activity.
b) It assures the company is operating at the activity level of the master budget.
c) It allows companies to compare the current with the previous year.
d) Lower level managers are more likely to perceive budgets as fair.

Answer 17

d) Lower level managers are more likely to perceive budgets as fair.

Question 18

Which problem might be a result of an unrealistic budget?

a) profitable operations
b) reduced employee morale
c) favourable operating activity
d) minimal differences between actual and budgeted amounts

Answer 18

b) reduced employee morale

Question 19

How does long-range planning compare to a master budget?

a) It focuses on meeting profit objectives instead of strategies to achieve those goals.
b) It is less detailed than an annual budget.
c) It is prepared by the president, unlike a master budget which is prepared by a budget committee.
d) It generally encompasses a shorter period of time than a master budget.

Answer 19

b) It is less detailed than an annual budget.

Question 20

What three differences exist between long-range planning and budgeting?

a) amount of detail, content, and emphasis
b) time periods involved, amount of detail, and content
c) content, emphasis, and amount of detail
d) emphasis, time periods involved, and amount of detail

Answer 20

d) emphasis, time periods involved, and amount of detail

Question 21

Which of the following is a proper match-up?

a) long-range planning -> 1 year
b) budgeting -> review of progress
c) budgeting -> anticipated trends in economic environment
d) long-range planning -> strategies

Answer 21

d) long-range planning -> strategies

Question 22

Which one of the following best describes a master budget?

a) It is an interrelated long-term plan and operating budgets.
b) It includes financial budgets and a long-term plan.
c) It includes interrelated financial budgets and operating budgets.
d) It is all the accounting journals and ledgers used by a company.

Answer 22

c) It includes interrelated financial budgets and operating budgets.

Question 23

What is the starting point in preparing a master budget?

a) the production budget
b) the sales budget
c) the direct labour budget
d) the purchases budget

Answer 23

b) the sales budget

Question 24

Which one of the following sets of budgets are financial budgets?

a) budgeted balance sheet and production budget
b) budgeted income statement and sales budget
c) capital expenditure budget and cash budget
d) cash budget and sales budget

Answer 24

c) capital expenditure budget and cash budget

Question 25

Which of the following is not a characteristic of bottom-up budgeting?

a) encourages organization-wide input into the process.
b) It takes advantage of employees’ intimate knowledge of operations when formulating plans.
c) It is not as time consuming as top-down budgeting.
d) It increases employees’ commitment to achieving budget goals.

Answer 25

c) It is not as time consuming as top-down budgeting.

Question 26

Which one of the following helps improve the reliability of the sales forecast?

a) reduction of differences between actual and estimated amounts
b) creation of management awareness
c) consideration of industry trends
d) extension of the budget period

Answer 26

c) consideration of industry trends

Question 27

Which of the following is correct regarding the manufacturing overhead budget?

a) The manufacturing overhead budget should include all costs of marketing and advertising.
b) The budget should show only indirect materials and indirect labour.
c) Manufacturing overhead costs should be broken down by cost behaviour.
d) Total budgeted manufacturing overhead should be calculated using a predetermined overhead rate.

Answer 27

c) Manufacturing overhead costs should be broken down by cost behaviour.

Question 28

Indicate whether each budget is an operating or a financial budget

Budgeted balance sheet

Answer 28

Financial Budget

Question 29

Indicate whether each budget is an operating or a financial budget

Capital expenditures budget

Answer 29

Financial Budget

Question 30

Indicate whether each budget is an operating or a financial budget

Cash budget

Answer 30

Financial Budget

Question 31

Indicate whether each budget is an operating or a financial budget

Direct labour budget

Answer 31

Operating budget

Question 32

Indicate whether each budget is an operating or a financial budget

Direct materials budget

Answer 32

Operating budget

Question 33

Indicate whether each budget is an operating or a financial budget

Budgeted income statement

Answer 33

Operating budget

Question 34

Indicate whether each budget is an operating or a financial budget

Manufacturing overhead budget

Answer 34

Operating budget

Question 35

Indicate whether each budget is an operating or a financial budget

Production budget

Answer 35

Operating budget

Question 36

Indicate whether each budget is an operating or a financial budget

Sales budget

Answer 36

Operating budget

Question 37

Indicate whether each budget is an operating or a financial budget

Selling and administrative expenses budget

Answer 37

Operating budget