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1. A budget
A. is the responsibility of management accountants.
B. is the primary method of communicating agreed-upon objectives throughout an organization.
C. ignores past performance because it represents management's plans for a future time period.
D. may promote efficiency but has no role in evaluating performance.

2. Which of the following are correct statements about a budget?


A. It is a formal written statement of management's plans for a specified future time period.
B. It becomes an important basis for evaluating performance.
C. It promotes efficiency and serves as a deterrent to waste and inefficiency.
D. All of these options are correct statements.

3. The primary benefits of budgeting include all of the following except it


A. requires only top management to plan ahead and formalize goals.
B. provides definite objectives for evaluating performance.
C. creates an early warning system for potential problems.
D. motivates personnel throughout the organization.

4. The most common budget period is one month.


A. True
B. False
The most common budget period is one year.

5. The chief accountant (controller) has responsibility for coordinating the preparation of the budget.
A. True
B. False
The budget committee has responsibility for coordinating the preparation of the budget.

6. Which one of the following is necessary if a company expects its budget to be effective?
A. The budget amounts must be based on those of previous accounting periods.
B. The company must have a sound organizational structure.

C. The company's budget should be a good substitute for management.


D. Managers must be held responsible for controllable and uncontrollable costs.

7. Which of the following is one of the factors that must be present if budgets are to be effective?
A. The budget should be prepared for long time periods.
B. The budget committee must prepare the budget.
C. The company must have a sound organizational structure.
D. Participative budgeting must be used.

8. The essentials of effective budgeting do not include


A. top-down budgeting.
B. management acceptance.
C. research and analysis.
D. sound organizational structure.

9. The production budget is the first budget prepared in the master budget.
A. True
B. False
The sales budget is the first budget prepared.

10. The direct materials budget shows both the quantity and cost of direct materials to be purchased.
A. True
B. False
This statement is correct.

11. In the direct materials budget, the quantity of direct materials to be purchased is computed by
adding direct materials required for production to
A. desired ending direct materials.
B. beginning direct materials.
C. desired ending direct materials less beginning direct materials.
D. beginning direct materials less desired ending direct materials.

12. The direct labor budget and the manufacturing overhead budget are prepared directly from the
A. budgeted income statement.

B. cash budget.
C. production budget.
D. sales budget.

13. At the beginning of the year, Goldenrod had beginning inventory of 2,000 scooters. Goldenrod
estimates it will sell 5,000 units during the first quarter of the current year, with a 10% increase in
sales each quarter. It is Goldenrod's policy to maintain an ending inventory equal to 20% of the
next quarter's budgeted sales. Each scooter costs $100 to produce and is sold for $150. How much
is the budgeted sales revenue for the third quarter of the current year?
A. $825,000.
B. $907,500.
C. $605,000.
D. $500,000.

14. Microtech plans to sell 2,000 computers in April; 1,900 in May; and 2,000 in June. The company
keeps 15% of the next month's sales as ending inventory. How many units should Microtech
produce in May?
A. 1,915.
B. 2,200.
C. 1,885.
D. Amount cannot be determined due to insufficient information.

15. Tomy Toys is planning to sell 200 action figures and to produce 190 action figures in July. Each
action figure requires 100 grams of plastic and a half hour of direct labor. The cost of the plastic
used in each action figure is $5 per 100 grams. Employees of the company are paid at a rate of
$15.00 per hour. Manufacturing overhead is applied at a rate of 120% of direct labor costs. Tomy
Toys has 90,000 grams of plastic in its beginning inventory and wants to have 80,000 grams in its
ending inventory. What is the amount of budgeted direct labor cost for the month of July?
A. $1,500.
B. $3,000.
C. $1,425.
D. $2,850.

16. The formula for computing the direct labor budget is to multiply the direct labor cost per hour by
the
A. total required direct labor hours.
B. physical units to be produced.
C. equivalent units to be produced.
D. no correct answer is given.

17. Windathon, Inc. expects sales volume totaling $500,000 for June. Data for the month follows:

How much is Windathon's selling expense budget for June?


A. $30,850.
B. $83,750.
C. $57,100.
D. $85,850.

18. Heaters, Inc. provided the following budgeted information for March through July:

Heaters estimates that it will collect 30% of its sales in the month of sale and 70% in the month
after the sale.
General operating expenses are budgeted to be $31,000 per month of which depreciation is
$3,000 of this amount. Heater pays operating expenses in the month incurred.
The income tax rate is 30%.
How much is budgeted net income for May?
A. $4,480.
B. $6,400.
C. $6,090.
D. $8,400.

19. The financing section of a cash budget shows expected borrowings and the repayment of borrowed
funds plus interest.
A. True
B. False
This statement is correct.

20. The budgeted balance sheet is developed from the budgeted balance sheet for the preceding year
and the budgets for the current year.
A. True

B. False
This statement is correct.

21. Which one of the following budgets is considered to be the most important financial budget?
A. Budgeted income statement.
B. Budgeted balance sheet.
C. Cash budget.
D. Sales budget.

22. Drew Enterprises reports all its sales on credit, and pays operating costs in the month incurred.
Estimated amounts for the months of June through October are:

Customer amounts on account are collected 60% in the month of sale and 40% in the
following month.
Cost of goods sold is 45% of sales.
Drew purchases and pays for merchandise 30% in the month of acquisition and 70% in the
following month.
How much cash is budgeted to be received during August?
A. $312,000.
B. $180,000.
C. $291,000.
D. $318,000.

23. Scan Design provided the following budgeted information for April through July:

The cash balance on June 1 is $12,000. The company pays 40% of merchandise purchases in
the month purchased and 60% in the following month.
General operating expenses are budgeted to be $31,000 per month of which depreciation is
$3,000 of this amount. Management pays operating expenses in the month incurred.
The company makes loan payments of $4,000 per month of which $600 is interest and the
remainder is principal.
How much are budgeted cash disbursements for June?
A. $102,800.
B. $118,400.
$86,400.

C.
D. $63,200.

24. The budgeted balance sheet is


A. developed from the budgeted balance sheet for the preceding year and the budgets for the
current year.
B. the last operating budget prepared.
C. used to prepare the cash budget.
D. all of these.

25. In most cases, not-for-profit entities


A. prepare budgets using the same steps as those used by profit-oriented enterprises.
B. know budgeted cash receipts at the beginning of a time period, so they budget only for
expenditures.
C. begin the budgeting process by budgeting expenditures rather than receipts.
D. can ignore budgets because they are not expected to generate net income.

26. Budgets are used by all of the following except


A. merchandisers.
B. service enterprises.
C. not-for-profit organizations.
D. all of these organizations use budgets.

27. In the merchandise purchases budget, required merchandise purchases are computed by adding
A. budgeted sales and desired ending merchandise inventory together.
B. budgeted cost of goods sold and desired ending merchandise inventory together.
C. budgeted sales and desired ending merchandise inventory together and deducting beginning
merchandise inventory.
D. budgeted cost of goods sold and desired ending merchandise inventory together and
deducting beginning merchandise inventory.

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