Exam 3 (Chapters 7 & 8)

Question 1

Which budget shows all costs of production other than direct materials and direct labor?

Answer 1

Manufacturing overhead budget

Question 2

Which budgets are needed to calculate unit product costs?

Answer 2

Direct labor budget, manufacturing overhead budget, and direct materials budget.

Question 3

Participative Budget or Self-Imposed Budget

Answer 3

A budget that is prepared with the full cooperation of managers at all levels.

Question 4

Responsibility Accounting

Answer 4

Holds individuals accountable for revenues and costs. The underlying idea being that a manager should be held accountable for only those items the manager can actually control.

Question 5

Budget

Answer 5

A quantitative plan for acquiring and using resources over a specified time period.

Question 6

Purposes of a Budget

Answer 6

Planning and control.

Question 7

Budgeted Income Statement

Answer 7

Shows the company’s planned profit and serves as a benchmark against which subsequent company performance can be measured.

Question 8

Budgeted Balance Sheet

Answer 8

Developed using data from the balance sheet from the beginning of the budget period and data contained in the various schedules.

Question 9

Budget Comittee

Answer 9

Group of key managers responsible for overall policy relating to the budget program and for coordinating preparation of the budget. They allocate resources among departments and set benchmarks used to evaluate departments.

Question 10

Steps for Preparing the Master Budget

Answer 10

1) Sales Budget
2) Production Budget (Manufacturing) or Merchandise Purchases Budget (Merchandising)
3) Direct Materials Budget
4) Direct Labor Budget
5) Manufacturing Overhead Budget
6) Ending Finished Goods Inventory Budget
7) Selling and Administrative Expense Budget
8) Cash Budget
9) Budgeted Income Statement
10) Budgeted Balance Sheet

Question 11

Master Budget

Answer 11

Essential management tool that communicates management’s plans throughout the organization, allocates resources, and coordinates activities.

Question 12

Sales Budget

Answer 12

A detailed schedule showing expected sales expressed in both dollars and units., All other items in the master budget, including production, purchases, inventories, and expenses, depend on it (Except DM and DL budgets). Constructed by multiplying budgeted unit sales by the selling price.

Question 13

Production Budget

Answer 13

A detailed plan showing the number of units that must be produced during a period in order to satisfy both sales and inventory needs.

Question 14

Merchandise Purchases Budget

Answer 14

A detailed plan used by a merchandising company that shows the amount of goods that must be purchased from suppliers during the period.

Question 15

Direct Materials Budget

Answer 15

A detailed plan showing the amount of raw materials that must be purchased to fulfill the production budget and to provide for adequate inventories.

Question 16

Direct Labor Budget

Answer 16

A detailed plan that shows the direct labor-hours required to fulfill the production budget.

Question 17

Manufacturing Overhead Budget

Answer 17

A detailed plan showing the production costs, other than direct materials and direct labor, that will be incurred over a specified time period.

Question 18

Ending Finished Goods Inventory Budget

Answer 18

A budget showing the dollar amount of unsold finished goods inventory that will appear on the ending balance sheet.

Question 19

Selling and Administrative Expense Budget

Answer 19

A detailed schedule of planned expenses that will be incurred in areas other than manufacturing during a budget period.

Question 20

Cash Budget

Answer 20

A detailed plan showing how cash resources will be acquired and used over a specific time period.

Composed of four major sections:

1. The receipts section.
2. The disbursements section.
3. The cash excess or deficiency section.
4. The financing section.

Question 21

To calculate the direct labor requirement for each quarter, when preparing a budget:

Answer 21

Multiply the number of direct labor hours required per unit times the number of units to be produced.

Question 22

Control

Answer 22

The process of gathering feedback to ensure that a plan is being properly executed or modified as circumstances change.

Question 23

Planning

Answer 23

Developing goals and preparing budgets to achieve those goals.

Question 24

Continuous or Perpetual Budget

Answer 24

A 12-month budget that rolls forward one month as the current month is completed.

Question 25

The unit product cost is needed to:

Answer 25

Determine cost of goods sold on the budgeted income statement.

Question 26

Who has the most influence over lower-level managers’ attitudes towards a budget program?

Answer 26

Top executives.

Question 27

Profit Planning

Answer 27

Accomplished by preparing a number of budgets that together form an integrated business plan known as the master budget.

Question 28

Advantages of Budgets

Answer 28

1) Communicates* managements plan.
2) Forces managers to think about and plan for the future.
3) Provides a means for allocating resources to parts of the organization where they can be used most effectively.
4) Can uncover potential bottlenecks before they occur.
5) Coordinate activities of the organization by integrating plans.
6) Defines goals and objectives that can serve as benchmarks.

Question 29

How does activity-based costing differ from absorption costing?

Answer 29

1. Non-manufacturing as well as manufacturing costs may be assigned to products, but only on a cause-and-effect basis.
2. Some manufacturing costs may be excluded from product costs.
3. Numerous overhead cost pools are used, each of which is allocated to products and other cost objects using its own unique measure of activity.