Exam 10: Strategy and the Master Budget

Contrast the budgeting unit (or focus) under a traditional budgeting system and under an activity-based budgeting (ABB) system.

Information pertaining to Yekstop Corp.'s sales revenue is presented below:Management estimates that 4% of credit sales are eventually uncollectible. Of the collectible credit sales, 65% are likely to be collected in the month of sale and the remainder in the month following the month of sale. The company desires to begin each month with an inventory equal to 75% of the sales projected for the month. All purchases of inventory are on open account; 30% will be paid in the month of purchase, and the remainder paid in the month following the month of purchase. Purchase costs are approximately 60% of the selling prices. Total budgeted inventory purchases in December by Yekstop Corp. are:

________ is a process of varying key estimates to identify those variables that are most critical to a decision (or a model, such as a budget).

Budgets can serve as the standard against which actual performance is measured. When compensation is based on this comparison, the organization is said to use:

Which of the following statements about budgeting is not true?

Doanne Food Processing expects to have 36,000 pounds of raw materials inventory on hand on March 31, the end of the current year. The company budgets the following production (in units) for April through July, inclusive:At the end of each month the firm desires its ending raw material inventory to be 10% of the next month's production needs. Each finished unit requires three pounds of raw materials. Doanne's budgeted purchases (in pounds) of raw materials for June would be:

The act of encouraging non-value-adding actions on the part of management in order to improve indicated performance is referred to as:

Ardel Co. budgeted to sell 200,000 units of Zbox in September. Production of one unit of Zbox requires two pounds of aluminum and five pounds of steel powder. The beginning inventory and the desired ending inventory (in units) are as follows:How many units of Zbox are to be manufactured by Ardel Co. during September?

Brownsville Novelty Store prepared the following budget information for the month of May: Sales are budgeted at $360,000. All sales are on account and a provision for bad debts is made for each month at three percent of sales for the month. Inventory was $84,000 on April 30; an inventory increase of $12,000 is planned for May 31. All inventory is marked to sell at cost plus 50 percent. Estimated cash disbursements for selling and administrative expenses for the month are $48,000. Depreciation for May is projected at $6,000. Brownsville's budgeted gross profit for May is:

The focal point in budgeting for a service organization is likely to be:

Flowers Inc.has budgeted cost of goods sold for August of $1,000 for plastic flowers.Management also wants to have $500 in inventory at the end of the month to prepare for the fall season.Beginning inventory in August was $400.What dollar amount of plastic flowers should be purchased to meet the above objectives?

ACEM Hardware purchased 5,000 gallons of paint in March. The store had 1,500 gallons on hand at the beginning of March, and expects to have 1,000 gallons on hand at the end of March. What is the budgeted number of gallons to be sold during March?

As indicated in the text, one of the behavioral issues associated with budgeting deals with the linkage of employee compensation to budgeted performance.In this regard, distinguishbetween so-called fixed performance contracts the use of relative performance (relative improvement) contracts along with "rolling financial forecasts." With respect to the use of fixed performance contracts, define what is meant by the term "gaming the performance indicator." With respect to the use of relative performance contracts, define what is meant by the term "rolling financial forecasts."

Which of the following budgets must be completed before preparing a cash budget?

The practice of managers knowingly including a higher amount of expenditures (or lower amount of revenue) in the budget than they actually believe will occur is called:

Which of the following is not an alternative approach to traditional budgeting practices?

Which one of the following is a budgeting approach that explicitly demands continuous improvement and that incorporates expected improvements in the resultant budget?

Unless properly controlled, a "bottom-up" budgeting process can lead to:

The Bambola Doll Company produces a single product: an inexpensive plastic toy doll. This item sells for $4.00 per unit, and has variable costs (manufacturing plus marketing) of $2.50 per unit. Monthly fixed costs amount to approximately $60,000. Last month, sales reached 100,000 units. Management would like to do some financial planning, the end result of which would—it is hoped— be even better future financial performance. As a management accountant you have been asked to construct a planning model and to conduct "what-if" analyses with the model you develop. Management has told you to consider the following options, all of which have the potential to increase the profitability of the company: A) Increase monthly promotional and advertising costs. B) Increase raw material quality and increase the product selling price. C) Increase the product selling price, with no increase in the raw material costs. Required: 1. The sales manager of the company is fairly confident that a well-done marketing campaign could increase sales volume substantially, perhaps as much as doubling sales from the current position. The president of the company would like to increase operating profits by 50% over those of the most recent month. You are asked to determine how much the company could afford to spend on an intensive marketing campaign, in order to achieve the projected doubling of sales volume? 2. As an alternative to 1 above, assume that the company increases the quality of its raw materials going into the manufacturing of its product. This increase would result in a new variable cost per unit of $3.00. What is the required increase in selling price per unit that would be needed to maintain the same break-even volume as currently exists? 3. As a final alternative, assume that the company has decided to increase the selling price of its product by $1 per unit, with no accompanying marketing and promotion campaign. What is the unit sales volume needed, with the new selling price, for the company to make the same amount of profit as it did last month?

General Manufacturing expects to have 40,000 pounds of raw materials inventory on hand on June 30, the end of the current year. The company has budgeted the following production for the first four months of the coming year:General Manufacturing desires each month's ending raw materials inventory to be 20% of the following month's production needs. A finished unit requires two pounds of raw materials. General Manufacturing's budgeted purchases of raw materials during July (in lbs.) should be: