Planning - Budgeting and analysis

Question 1

Tactical plans are also called

Answer 1

Single-use plans - they apply to specific circumstances during specific times

Question 2

A type of single-use plan that translates the strategic plan and implementation into a period-specific operational guide is called

Answer 2

an annual budget

Question 3

The budget committee is charged with

Answer 3

• resolving disputes

- making final decisions regarding major budget changes

Question 4

Guidelines for the annual budget preparation should consider the company’s

Answer 4

strategic goals and long-term plan

Question 5

Per unit budgets are known as

Answer 5

Standard

Question 6

Ideal standards represent costs that result from

Answer 6

perfect efficiency and effectiveness. No provision is made for normal spoilage or downtime

Question 7

Currently attainable standards represent costs that result from

Answer 7

work performed by employees with appropriate training and experience but WITHOUT extraordinary effort. Provisions ARE made for spoilage and downtime

Question 8

A disadvantage of using ideal standards is that employees may feel that the standards are

Answer 8

unattainable and are therefore discouraged.

Question 9

Standards set exclusively by management are known as _____ standards

Answer 9

Authoritative.

Question 10

Standards set by both management and the individuals who are held accountable to those standards are known as _____ standards

Answer 10

Participative

Question 11

Plans that document specific short-term operating performance goals for a period are known as a

Answer 11

master budget or annual business plan (also called static budgets)

Question 12

True or false: Master budgets are comprised of only financial budgets

Answer 12

False; they are comprised of both operating AND financial budgets

Question 13

True or false: Master budgets are prepared in anticipation of achieving a SINGLE LEVEL OF SALES VOLUME

Answer 13

True

Question 14

The _____ budget is the foundation of the entire budget process

Answer 14

Sales

Question 15

Sales forecasts are derived from input received from numerous organizational resources, including?

Answer 15

• opinions sales staff
• statistical analysis of correlation b/w sales and economic indicators
• opinions of line management

Question 16

Sales forecasts consider factors including:

Answer 16

• past patterns of sales
• sales force estimates
• general economic conditions
• competitors’ actions
• changes in the firm’s prices
• changes in product mix
• results of marketing research studies
• advertising and sales promotion plans

Question 17

The production budget is make up of the amounts spent for

Answer 17

• direct labor
• direct materials
• factory overhead

Question 18

Formula for budgeted production:

Answer 18

Budgeted sales
+ desired ending inventory
- beginning inventory
= budgeted production

Question 19

Desired levels of inventory (on production budget) seek to balance

Answer 19

risk of stock-outs (lost sales) with cost of maintaining inventory (carrying costs)

Question 20

Direct Materials to be purchased formula:

Answer 20

Units of DM needed for production period
+ desired EI @ end of period
- BI @ beginning of period
= Units of DM to be purchased for period

Question 21

Direct Materials Usage Budget formula:

Answer 21

BI @ cost
+ Purchases @ cost
- EI @cost
= DM usage

Question 22

Cash budgets are generally divided into these three major sections:

Answer 22

• cash available
• cash disbursements
• financing

Question 23

Flexible budgets allow for adjustments or changes in

Answer 23

production or sales (activity)

Question 24

Planned cost (flexible budget) calculation:

Answer 24

Standard costs * actual activity = planned cost

Question 25

DM Price Variance Formula

Answer 25

Actual Quantity Purchased * (Actual Price - Standard Price) = DM Price Variance

Question 26

DM Quantity Usage Variance Formula

Answer 26

standard price * (actual quantity used - standard quantity allowed) = DM Quantity Usage Variance

Question 27

DL Rate Variance Formula

Answer 27

Actual hours worked * (actual rate - standard rate) = DL Rate Variance

Question 28

DL Efficiency Variance Formula

Answer 28

standard rate * (actual hours worked - standard hours allowed) = DL Efficiency Variance

Question 29

mnemonic for three-way variance

Answer 29

SEV
S - Spending
E - Efficiency
V - Volume

Question 30

What are the two steps in applying MOH when standard costing is used?

Answer 30

Step 1: Calculated OH rate = Budgeted OH Costs / Estimated Cost Drivers
Step 2: Applied OH = Std cost driver for actual activity level * OH rate (from step 1)

Question 31

(ABA BSA) the BA in three-way variance =

Answer 31

Budgeted FOH + (actual DLH worked * std VOH rate per DLH)

Question 32

(ABA BSA) the BS in three-way variance =

Answer 32

Budgeted FOH + (std DLH allowed for output * std VOH rate per DLH)

Question 33

Sales Price Variance =

Answer 33

(Actual SP per unit - Budgeted SP per unit) * actual units sold

Question 34

Sales Volume Variance =

Answer 34

(Actual units sold - Budgeted units sold) * Std CM per unit

Question 35

mnemonic for strategic business units (SBUs)

Answer 35

CRPI
C - Cost 
R - Revenue
P - Profit
I - Investment

Question 36

Financial Scorecards must be:

Answer 36

• Accurate and Timely
• Understandable
• Specific (accountability by segment)

Question 37

The controllable margin represents the difference between the CM and

Answer 37

controllable fixed costs (those that managers can impact in less than one year)

Question 38

mnemonic for Balanced Scorecard

Answer 38

FICA
F - Financial (profit)
I - Internal business proccesses (efficient production)
C - Customer satisfaction (market share)
A - Advancement of innovation and human resource development (learning and growth / retention of key employees)

Question 39

when do you use Learning curve analysis ?

Answer 39

Learning curve analysis is used to determine increases in efficiency or production as experience is gained. Both products have long production runs, making learning curve analysis the best method for estimating the cost of the competitive bid.

Question 40

when do you use expected value analysis ?

Answer 40

Expected value analysis represents the long- term average of repeated trials and is found by multiplying the probability of each outcome by its payoff and then summing the results.

Question 41

When do you use Continuous probability simulation?

Answer 41

Continuous probability simulation is a procedure that studies a problem by creating a model of the process and then, through trial and error solutions, attempts to improve the problem solution.

Question 42

Which of the following budgets provides information for preparation of the owner’s equity section of a budgeted balance sheet?

a. Sales budget.
b. Capital expenditures budget.
c. Cash budget.
d. Budgeted income statement.

Answer 42

Choice “d” is correct. The budgeted income statement produces anticipated accrual basis net income or loss and is added to beginning owner’s equity to generate the owner’s equity section of the budgeted balance sheet.

Choice “a” is incorrect. The sales budget is the starting point for all operating and cash flow budgets but does not directly provide information for preparation of the owner’s equity section of the budgeted balance sheet.

Question 43

A firm develops an annual cash budget in order to:

a. Support the preparation of its cash flow statement for the annual report.
b. Ascertain which capital expenditure projects are feasible and which capital expenditure projects should be deferred.
c. Avoid the opportunity costs of noninvested excess cash and minimize the cost of interim financing.
d. Balance the noncash and cash activities of the company.

Answer 43

Choice “c” is correct. The main reason for preparing a cash budget is to anticipate cash flows so that excess cash can be invested and to minimize the need for interim financing.

Question 44

Controllable margin is used as a refined measure of strategic business unit reporting that is best described as:

Answer 44

Controllable margin is computed as contribution margin net of controllable costs. Controllable costs represent those fixed costs that managers can impact in less than one year.