Chapter 8: Master Budgeting

Question 1

Gathering feedback to ensure that the plan is being followed is referred to as _____

Answer 1

control

Question 2

Budgets _____

Answer 2

communicate management’s plan throughout the organization

Question 3

A budget that is prepared with the full cooperation of managers at all levels is a self-imposed or _____ budget.

Answer 3

participative

Question 4

If a budget initiated by top management has targets that are set too high, _____

Answer 4

resentment may occur

Question 5

Budgets are used for two distinct purposes: ______ and ______

Answer 5

planning; control

Question 6

Identify the true statements about budgets.

Answer 6

• The budgeting process can uncover potential bottlenecks before they occur.
• They encourage managers to think about and plan for the future.
• They define goals and objectives that can serve as benchmarks for evaluating subsequent performance.
• They coordinate the activities of the entire organization by integrating the plans of its various parts.

Question 7

Many managers believe that being empowered to create their own self-_____
budgets is the most effective method of budget preparation.

Answer 7

imposed

Question 8

When profit targets are set by top managers, _____

Answer 8

• too much slack may be allowed
• goals may be unrealistically high

Question 9

More accurate estimates and higher motivation are generally the result of using a(n) ______ budget.

Answer 9

participative

Question 10

True or False. Control involves developing goals and preparing various budgets to achieve those goals.

Answer 10

false

Question 11

Budgetary slack occurs when a manager submits a budget that is _____

Answer 11

too easy to attain

Question 12

In companies that do not use a self-imposed budgeting process, profit targets are generally set by _____

Answer 12

top managers

Question 13

Recognizing individuals at all levels of the organization as team members whose views and judgments are valued by top management is an advantage of _____

Answer 13

self-imposed budgeting

Question 14

Limitations of self-imposed budgeting include _____

Answer 14

• suboptimal budget recommendations
• budgetary slack

Question 15

An integrated business plan that formally lays out the company’s goals is called the ______ budget.

Answer 15

master

Question 16

Because all other parts of the budget depend on it, if the ______ budget is inaccurate, the rest of the budget will be inaccurate.

Answer 16

sales

Question 17

In a manufacturing company, the _____ budget is used to determine the direct materials budget, the direct labor budget, and the manufacturing overhead budget

Answer 17

production

Question 18

When a manager creates a budget that is too easy to attain, ______ occurs.

Answer 18

budgetary slack

Question 19

A number of separate, but interdependent, budgets that formally lay out the company’s sales, production, and financial goals are contained in the _____ budget.

Answer 19

planning

Question 20

The first step in the budgeting process is the preparation of the _____ budget.

Answer 20

sales

Question 21

Which of the following budgets are directly based on information from the sales budget?

Answer 21

• Production
• Selling & administrative expense

Question 22

The cash budget uses information from several other budgets. Which of the following budgets is not used to prepare the cash budget?

Answer 22

production

Question 23

True or false. Many of the schedules in a master budget are based on a variety of management estimates and assumptions.

Answer 23

true

Question 24

Both the production and selling and administrative expense budgets are prepared using information directly from the _____ budget.

Answer 24

sales

Question 25

The annual master budget file includes the ______ from last year because it is needed for the schedule of expected cash collections.

Answer 25

balance sheet

Question 26

The cash budget _____

Answer 26

is prepared near the end of the master budget process

Question 27

Using budgeting assumptions when preparing the master budget _____

Answer 27

makes it easier to answer "what-if" questions

Question 28

Experience has shown that 60% of sales are collected in the month of sale and 40% are collected the month after sale. Calculate expected cash collections for the month of April.

Answer 28

$184,000

Question 29

Master budget schedules _____

Answer 29

- answer several key questions for a company - are based on estimates and assumptions

Question 30

Because it is needed for the schedule of expected cash collections, the annual master budget file includes the _____ _____ from last year.

Answer 30

balance sheet

Question 31

When creating a budget and performing what-if analysis, it is generally easiest to _____

Answer 31

create the budget with a budgeting assumption tab

Question 32

Experience has shown that 60% of sales are collected in the month of sale and 40% are collected the month after sale. Calculate expected cash collections for the month of March.

Answer 32

$156,000

Question 33

In a manufacturing company, the _____ budget shows the number of units that must be manufactured to satisfy sales needs and provide for the desired ending inventory.

Answer 33

production

Question 34

The amount of goods to be acquired from suppliers during the period is shown on the ______ budget.

Answer 34

merchandise purchases

Question 35

In a manufacturing company, the ______ budget details the raw materials that must be purchased to fulfill the production budget and provide for adequate inventories

Answer 35

direct materials

Question 36

The direct materials budget directly relies on the ______ budget.

Answer 36

production

Question 37

A detailed plan used by a merchandising company that shows the amount of goods that must be purchased from suppliers during the period is called a(n) _____ _____ budget.

Answer 37

merchandise purchase

Question 38

Working hours required to satisfy the production budget are shown on the ______ budget.

Answer 38

direct labor

Question 39

What number does the direct materials budget take directly from the production budget?

Answer 39

required production

Question 40

The first line of the direct labor budget consists of the budgeted units expected to be ______ during the period.

Answer 40

produced

Question 41

Sperling Company's master budget shows expected sales of 10,000 units and expected production of 11,000 units for the month of March. Each unit requires 1/2 hour of direct labor. The direct labor rate is $15.00 per hour. Calculate the expected total direct labor cost for the month of March.

Answer 41

$82,500

Question 42

The number of working hours required to satisfy the production budget is shown on the _____ _____ budget.

Answer 42

direct labor

Question 43

All costs of production other than direct materials and direct labor are shown on the ______ budget.

Answer 43

manufacturing overhead

Question 44

Which of the following is needed to calculate raw materials to be purchased on the direct materials budget?

Answer 44

- Beginning inventory of raw materials - Raw materials required per unit

Question 45

The direct labor budget is based directly on the ______ budget.

Answer 45

production

Question 46

During May, Davidson Corporation's expected sales equal 12,000 units and expected production is 15,000 units. If each unit requires 1/2 hour of direct labor and the direct labor rate is $12.00 per hour, the expected total direct labor cost for the month of May is $_____

Answer 46

90,000

Question 47

Edison Corporation's variable manufacturing overhead rate is $5.00 per direct labor-hour. Total budgeted fixed overhead is $25,000 per month. The $25,000 per month includes $7,000 in depreciation expense. Total budgeted direct labor-hours for the month of July is 20,000. Based on the month of July only, the predetermined overhead rate is $_____

Answer 47

6.25

Question 48

The cost of unsold units is computed on the ______ budget.

Answer 48

ending finished goods inventory

Question 49

Edison Corporation's variable manufacturing overhead rate is $5.00 per direct labor-hour. Total budgeted fixed overhead is $25,000 per month. The $25,000 per month includes $7,000 in depreciation expense. Total budgeted direct labor-hours for the month of July is 20,000. Budgeted cash disbursements for manufacturing overhead for July equals _____

Answer 49

$118,000

Question 50

The calculation of unit product cost requires information from the ______ budget.

Answer 50

manufacturing overhead

Question 51

Budgeted expenses for areas other than manufacturing are shown on the ______ budget.

Answer 51

selling and administrative

Question 52

The ending finished goods inventory budget computes the cost of ______ units.

Answer 52

unsold

Question 53

What is added to the variable selling and administrative expenses to get the total selling and administrative expenses?

Answer 53

Fixed selling and administrative expenses

Question 54

Which of the following budgets are needed to calculate unit product costs?

Answer 54

- Manufacturing overhead - Direct materials - Direct labor

Question 55

In large organizations, many smaller individual budgets submitted by department heads and other responsible people comprise the ______ budget.

Answer 55

selling and administrative

Question 56

Required borrowings on a cash budget is calculated by _____

Answer 56

adding the desired ending cash balance to the amount of the cash deficiency

Question 57

Variable selling and administrative expenses are calculated by multiplying the budgeted units ______ by the variable selling and administrative expense per unit.

Answer 57

sold

Question 58

What is usually the major source of receipts in the receipts section of the cash budget?

Answer 58

sales

Question 59

A company can repay outstanding principal and interest when _____

Answer 59

the cash excess is greater than the minimum required cash balance

Question 60

If a cash budget is prepared by quarter, the beginning cash balance for the year is the same as the beginning cash balance for the _____ quarter and the ending cash balance for the year is the same as the ending cash balance for the _____ quarter.

Answer 60

first; fourth

Question 61

Madison Corporation's expected beginning cash balance is $35,000. Cash collections are budgeted at $50,000 and cash disbursements are estimated to be $80,000. The minimum required cash balance is $20,000 and the company can borrow as much as needed in increments of $10,000. Calculate the expected ending cash balance for the month.

Answer 61

$25,000

Question 62

To prepare a budgeted balance sheet as of December 31, 2026, data is needed from the ______ December 31, 2025.

Answer 62

balance sheet as of

Question 63

The amounts under the Year column in the cash budget always equal the sum of the amounts for the months or quarters of the budget.

Answer 63

false

Question 64

What is subtracted from total budgeted selling and administrative expenses to determine the cash disbursements for selling and administrative expenses?

Answer 64

Non-cash expenses

Question 65

On the cash budget, what is subtracted from the total cash available to find the cash excess or deficiency?

Answer 65

cash disbursements

Question 66

A budgeted balance sheet is developed using data from the ______ of the budget period and data contained in the various schedules.

Answer 66

beginning