CHAPTER 7 Flashcards
The budget process is a loop that consists of ________.
A) planning, directing, and controlling
B) developing strategies, planning, directing, and controlling
C) developing strategies, planning, and directing
D) developing strategies, directing, and controlling
Answer: B
Which of the following statements is true of the budgeting process?
A) If a company carefully plans for its future, there will be no need to make modifications during the budget period.
B) It is a continuous process that encourages communication.
C) It shows the actual performance of the business.
D) Managers and employees are motivated to accept the budget’s goals because they enjoy having their work monitored and evaluated.
Answer: B
Which of the following is an example of the benchmarking function of the budgeting process?
A) A budget demands integrated input from different business units and functions.
B) Budgeting requires close cooperation between accountants and operational personnel.
C) Budget numbers are used to evaluate the performance of managers.
D) The budget outlines a specific course of action for the coming period.
Answer: C
An intentional understatement of expected revenues or overstatement of expected expenses by managers in order to have a favorable performance evaluation is known as ________.
A) benchmarking
B) appropriation
C) budgetary slack
D) variance analysis
Answer: C
The starting point in developing the master budget is the preparation of the ________.
A) cash budget
B) production budget
C) sales budget
D) budgeted income statement
Answer: C
The cash budget and the budgeted financial statements are collectively known as the ________.
A) operating budget
B) master budget
C) financial budget
D) production budget
Answer: C
Which of the following is true of the sales budget?
A) It provides sales data that is used to prepare financial statements for external reporting purposes.
B) It captures the variable and fixed expenses of the business.
C) It is used in the production budget.
D) It shows the cost of expected production in a period.
Answer: C
Which of the following describes the production budget?
A) It aids in planning to ensure the company has adequate inventory and cash on hand.
B) It provides the quantity of finished goods to be produced during a budget period.
C) It depicts the breakdown of sales on the basis of terms and conditions of collection of sales revenue.
D) It helps in planning to ensure the business has adequate cash.
Answer: B
Which of the following statements regarding capital expenditures is incorrect?
A) Capital expenditures are purchases of long-term assets.
B) The decision to purchase long-term assets is part of a strategic plan.
C) Capital expenditures include delivery trucks, computer systems, and manufacturing equipment.
D) Installment payments related to the purchase of short-term assets are included in the capital expenditures budget.
Answer: D
Which of the following statements regarding the capital expenditures budget is correct?
A) Installment payments related to the purchase of current assets are included in the capital expenditures budget.
B) Capital expenditures are purchases of long-term assets, such as office supplies.
C) The decision to purchase long-term assets is part of a strategic plan.
D) Capital expenditures are inexpensive assets.
Answer: C
After comparing budgets with the actual results, the feedback allows managers to determine what, if any, corrective action should be taken.
T/F
TRUE
A budget is a financial plan that managers use to coordinate a business’s activities.
T/F
TRUE
A master budget is a financial plan for a specific segment of an organization.
T/F
FALSE
Budgeted financial statements are financial statements based on budgeted amounts rather than actual amounts.
T/F
TRUE
The level of forecasted sales has little effect on other elements of the master budget.
T/F
FALSE
