Section 4

Budgets

Teaching assistant / Nada Mahmoud

1) A budget can do all of the following EXCEPT

A) promote coordination among subunits

B) determine actual profitability

C) motivate managers

D) motivate employees

Answer: B

2) A budget can help implement:

A) strategic planning

B) long-run planning

C) short-run planning

D) All of these answers are correct.

Answer: D

3) To gain the benefits of budgeting ________ must understand

and support the budget.
A) senior management

B) middle management

C) line employees

D) All of these answers are correct.

Answer: D
4) A budget:
A) is the quantitative expression of a proposed plan of action by management

B) is an aid to coordinate what needs to be done

C) generally includes both financial and nonfinancial aspects of the plan

D) All of the above are correct

Answer: D

5) A budget
A) is the quantitative expression of a proposed plan of action

. B) aids in coordinating what needs to be done.

C) includes both financial and nonfinancial aspects.

D) All of these answers are correct.

Answer: D

6) Budgeting is used to help companies:

A) plan to better satisfy customers

B) anticipate potential problems

C) focus on opportunities

D) All of these answers are correct.

Answer: D

7) A budget is the quantitative expression of a proposed plan of action by

management for a specified period.
Answer: TRUE

8) A budget generally includes both financial and nonfinancial

aspects of the plan.
Answer: TRUE
9) Budgeting includes only the financial aspects of the plan and
NOT any nonfinancial aspects such as the number of physical
units manufactured.
Answer: FALSE Explanation: Budgeting includes both financial and nonfinancial aspects of
the plan.

8) A budget can help implement:

A) strategic planning B) long-run planning C) short-run planning D) All of these answers are
correct.

Answer: D

9) To gain the benefits of budgeting ________ must understand

and support the budget
A) senior management

B) middle management

C) line employees

D) All of these answers are correct.

10) The time coverage of a budget should be:

A) one year

B) guided by the purpose of the budget

C) cover design through manufacture and sale of the product

D) shorter rather than longer

Answer: B

11) Budgets should:

A) be flexible

B) be administered rigidly

C) only be developed for short periods of time

D) include only variable costs

Answer: A

12) Operating budgets include all of the following EXCEPT

: A) the revenues budge

t B) the budgeted income statement

C) the administrative costs budget

D) the budgeted balance sheet

Answer: D

13) Operating budgets include the:

A) budgeted balance sheet

B) budgeted income statement

C) capital expenditures budget

D) budgeted statement of cash flows

Answer: B

14) Financial budgets include the all of the following EXCEPT:

A) capital expenditures budget

B) budgeted income statement

C) budgeted balance sheet

D) budgeted statement of cash flows

Answer: B

15) ________ includes a budgeted statement of cash flows and a

budgeted balance sheet.
A) An annual report

B) The financial budget

C) The operating budget

D) The capital expenditures budget

Answer: B

16) In which order are the following developed?

First to last: A = Production budget B = Direct materials costs budget C = Budgeted income
statement D = Revenues budget

A) ABDC

B) DABC

C) DCAB

D) CABD

Answer: B

17) The budgeting process is most strongly influenced by:

A) the capital budget

B) the budgeted statement of cash flows

C) the sales forecast

D) the production budget

Answer: C

18) ________ is the usual starting point for budgeting.

A) The revenues budget

b) Net income

C) The production budget

D) The cash budget

Answer: A

19) The revenues budget identifies:

A) expected cash flows for each product

B) actual sales from last year for each product

C) the expected level of sales for the company

D) the variance of sales from actual for each product

Answer: C

20) Production is primarily based on

: A) projected inventory levels

B) the revenues budget

C) the administrative costs budget

D) the capital expenditures budget

Answer: B

21) Budgeted production equals:

A) beginning finished goods inventory + budgeted unit sales - targeted ending finished
goods inventory

B) targeted ending finished goods inventory + beginning finished goods inventory -

budgeted unit sales

C) budgeted unit sales + targeted ending finished goods inventory - beginning finished
goods inventory

D) budgeted unit sales + targeted ending finished goods inventory + beginning finished
goods inventory

Answer: C

22) The direct materials usage budget is based on:

A) the units to be produced during a period
B) budgeted sales dollars

C) the predetermined factory overhead rate

D) the amount of labor-hours worked

Answer: A

23) Direct material purchases equal:

A) production needs

B) production needs plus target ending inventories

C) production needs plus beginning inventories

D) production needs plus target ending inventories less beginning inventories

24) The manufacturing overhead costs budget includes

budgeted amounts for:
A) indirect materials

B) indirect manufacturing labor

C) depreciation on factory equipment

D) All of these answers are correct.

25) Budgeted manufacturing overhead costs include all types of

factory expenses EXCEPT:
A) fixed items such as depreciation of manufacturing machinery

B) variable items such as plant supplies

C) indirect labor such as the salary of the plant supervisor

D) direct labor and direct materials

Answer: D

26) Grandma's Baskets Company expects to manufacture and sell

50,000 baskets in 2011 for $5 each. There are 4,000 baskets in
beginning finished goods inventory with target ending inventory of
4,000 baskets. The company keeps no work-in-process inventory.
What amount of sales revenue will be reported on the 2011
budgeted income statement?
A) $246,000

B) $250,000

C) $254,000

D) $258,000

Answer: B Explanation: B) 50,000 × $5 = $250,000

27) Basile Corporation has budgeted sales of 36,000 units, target

ending finished goods inventory of 6,000 units, and beginning
finished goods inventory of 1,800 units. How many units should be
produced next year?
A) 43,800 units
B) 40,200 units
C) 31,800 units
D) 36,000 units
Answer: B Explanation: B) 36,000 + 6,000 - 1,800 = 40,200 unit
28) For next year, Manzo, Inc., has budgeted sales of 30,000 units,
target ending finished goods inventory of 1,500 units, and beginning
finished goods inventory of 900 units. All other inventories are zero.
How many units should be produced next year?
A) 29,400 units
B) 30,000 units
C) 30,600 units
D) 32,400 units
Answer: C Explanation: C) 30,000 + 1,500 - 900 = 30,600 units
29) Wilcox Company has budgeted sales volume of 60,000 units
and budgeted production of 54,000 units, while 10,000 units are in
beginning finished goods inventory. How many units are targeted for
ending finished goods inventory?
A) 10,000 units
B) 16,000 units
C) 6,000 units
D) 4,000 units
Answer: D Explanation: D) 10,000 + 54,000 - 60,000 =4,000
Kason, Inc., expects to sell 20,000 pool cues for $24.00 each. Direct
materials costs are $4.00, direct manufacturing labor is $8.00, and
manufacturing overhead is $1.60 per pool cue.
The following inventory levels apply to 2011: Beginning inventory
Ending inventory
Direct materials 24,000 units 24,000 units
Work-in-process inventory 0 units 0 units
Finished goods inventory 2,000 units 2,500 units
30) On the 2012 budgeted income statement, what amount will be
reported for sales?
A) $492,000
B) $480,000
C) $624,000
D) $636,000
Answer: B Explanation: B) 20,000 × $24 = $480,00
31) How many pool cues need to be produced in 2012?
A) 22,500 cues
B) 22,000 cues
C) 20,500 cues
D) 19,500 cues
Answer: C Explanation: C) 20,000 + 2,500 - 2,000 = 20,500 cues
32) What are the 2012 budgeted costs for direct materials, direct
manufacturing labor, and manufacturing overhead, respectively?
A) $0; $192,000; $38,400
B) $78,000; $156,000; $31,200
C) $160,000; $80,000; $32,000
D) $82,000; $164,000; $32,800
Answer: D Explanation: D) 20,500 × $4.00 = $82,000; 20,500 × $8.00
= $164,000; 20,500 × $1.60 = $32,800

Elton, Inc., expects to sell 6,000 ceramic vases for $40 each. Direct
materials costs are $4, direct manufacturing labor is $20, and
manufacturing overhead is $6 per vase.
The following inventory levels apply to 2011
: Beginning inventory Ending inventory
Direct materials 1,000 units 1,000 units
Work-in-process inventory 0 units 0 units
Finished goods inventory 400 units 500 units
33) On the 2012 budgeted income statement, what amount will be
reported for sales?
A) $244,000
B) $236,000
C) $280,000
D) $240,000
Answer: D Explanation: D) 6,000 × $40 = $240,00
34) How many ceramic vases need to be produced in 2012?
A) 5,900 vases
B) 6,100 vases
C) 7,000 vases
D) 6,000 vases
Answer: B Explanation: B) 6,000 + 500 - 400 = 6,100 vases
35) What are the 2012 budgeted costs for direct materials, direct
manufacturing labor, and manufacturing overhead, respectively?
A) $24,400; $122,000; $36,600
B) $24,000; $120,000; $36,000
C) $4,000; $20,000; $6,000
D) $4,000; $0; $9,000
Answer: A Explanation: A) 6,100 × $4 = $24,400; 6,100 × $20 =
$122,000; 6,100 × $6 = $36,60

Beat, Inc., expects to sell 60,000 athletic uniforms for $80 each in
2012. Direct materials costs are $20, direct manufacturing labor is
$8, and manufacturing overhead is $6 for each uniform.
The following inventory levels apply to 2011: Beginning inventory
Ending inventory
Direct materials 24,000 units 18,000 units
Work-in-process inventory 0 units 0 units
Finished goods inventory 12,000 units 10,000 units
36) How many uniforms need to be produced in 2012?
A) 52,000 uniforms
B) 68,000 uniforms
C) 60,000 uniforms
D) 58,000 uniforms

Answer: D
Explanation: D) 60,000 + 10,000 - 12,000 = 58,000 uniforms
37) What is the amount budgeted for direct material purchases in
2012?
A) $1,040,000
B) $1,200,000
C) $1,160,000
D) $1,520,000
Answer: A
Explanation: A) (60,000 +10,000 - 12,000) units + 18,000 units - 24,000 units =
Purchases 52,000 units × $20 = $1,040,000

38) What is the amount budgeted for cost of goods manufactured in

2012?
A) $2,040,000

B) $1,972,000
C) $2,312,000

D) $2,380,000
Answer: B

Explanation: B) (60,000 + 10,000 - 12,000) × ($20 + $8 + $6) = $1,972,00

Furniture, Inc., estimates the following number of mattress sales for the first
four months of 2012: Month Sales January 10,000
February 14,000
March 13,000

April 16,000
Finished goods inventory at the end of December is 3,000 units. Target ending
finished goods inventory is 30% of the next month's sales.
39) How many mattresses need to be produced in January 2012?

A) 8,800 mattresses
B) 11,200 mattresses

C) 13,000 mattresses
D) 14,200 mattresses

Answer: B Explanation: B) 12,000 + (14,000 × 0.30) - 3,000 = 11,200

mattresses

40) How many mattresses need to be produced in the first quarter (January,
February, March) of 2012?

A) 37,000 mattresses
B) 38,800 mattresses
C) 41,800 mattresses

D) 44,800 mattresses
Answer: B Explanation: B) 10,000 + 14,000 + 13,000 + (16,000 × 0.30) -3,000 =
38,800 mattresse
41) Shamokin Manufacturing produces two products, Big and Bigger.
Shamokin expects to sell 10,000 units of product Bigger and to have an
inventory of 2,000 units of Bigger on hand at the end of the period. Currently,
Shamokin has 800 units of Bigger on hand. Bigger requires two labor
operations, molding and polishing. Each unit of Bigger requires one hour of
molding and two hours of polishing. The direct labor rate for molding is $20
per molding hour and the direct labor rate for polishing is $25 per polishing
hour. The expected cost of direct labor for Bigger is:

A) $224,000
B) $560,000

C) $616,000
D) $784,000 Answer: D Explanation: D) 10,000 + 2,000 - 800 = 11,200 (11,200
× 1 × $20) + (11,200 × 2 × $25) = $784,000

48) Shamokin Manufacturing produces two products, Big and

Bigger. Shamokin expects to sell 10,000 units of product Bigger and
to have an inventory of 2,000 units of Bigger on hand at the end of
the period. Currently, Shamokin has 800 units of Bigger on hand.
Bigger requires two labor operations, molding and polishing. Each
unit of Bigger requires one hour of molding and two hours of
polishing. The direct labor rate for molding is $20 per molding hour
and the direct labor rate for polishing is $25 per polishing hour. The
expected number of hours of direct labor for Bigger is
: A) 8,800 hours of molding; 17,600 hours of polishing
B) 11,200 hours of molding; 22,400 hours of polishing

C) 17,600 hours of molding; 8,800 hours of polishing

D) 22,400 hours of molding; 11,200 hours of polishing

Answer: B Explanation: B) 10,000 + 2,000 - 800 = 11,200 (11,200 × 1) = 11,200

hours of molding; (11,200 × 2) = 22,400 hours of polishing

49) St. Claire Manufacturing expects to produce and sell 6,000 units
of Big, its only product, for $20 each. Direct material cost is $2 per
unit, direct labor cost is $8 per unit, and variable manufacturing
overhead is $3 per unit. Fixed manufacturing overhead is $24,000 in
total. Variable selling and administrative expenses are $1 per unit,
and fixed selling and administrative costs are $3,000 in total.
According to generally accepted accounting principles,
inventoriable cost per unit of Big would be:
A) $13.00 per unit
B) $14.00 per unit
C) $17.00 per unit
D) $18.50 per unit
Answer: C Explanation: C) $2 + $8 +$3 +($24,000 / 6,000) = $17