Exam 23: Operational Budgeting

Elements of the master budget Describe briefly the purpose of a master budget and discuss its elements.

A segment of a master budget relating to that portion of a business under the control of a particular manager is termed a:

[The following information applies to the questions displayed below.] The following information is from the manufacturing budget and budgeted financial statements of Altman Corp.: -Sherman has budgeted sales for the upcoming quarter as follows: The desired ending finished goods inventory for each month is one-half of next month's budgeted sales.Three pounds of direct material are required for each unit produced.If direct material costs $5 per pound,and must be paid for in the month of purchase,the budgeted direct materials purchases (in dollars)for April are:

A budget provides a comprehensive plan enabling multiple departments to work together in a coordinated manner.

[The following information applies to the questions displayed below.] Baskin Promotions,Inc.sells T-shirts decorated for a variety of concert performers.The company has developed the following budget for the coming year based on a sales forecast of 80,000 T-shirts: Cost of goods sold and variable operating expenses vary directly with sales,and the income tax rate is 30% at all levels of operating income. If the concert season is slow due to poor weather,Baskin estimates that sales could fall to as low as 60,000 T-shirts. -Assume Baskin actually achieves the 60,000 unit sales level,and that net income actually earned at this level was $70,000.A performance report would indicate that net income was:

Establishing budgeted amounts (a)The text discusses two basic philosophies as to the levels at which budgeted amounts should be set.Identify and describe briefly each of these two philosophies. (b)Which of the two management philosophies would be more likely to elicit the following comment? "At our company,budgeted revenue is set so high and budgeted costs so low that no department can ever meet the budget.This way,department managers can never relax;they are motivated to keep working harder no matter how well they are already doing."

Use the following information to prepare a cash budget for Knightsbridge Corporation for the month of June 2018. In May,30-day credit sales were $175,000;80% of this amount is estimated to be collectible in June. June sales are estimated to be $425,000;cash sales are usually 25% of total sales.Only 10% of credit sales are collected in the month in which the sale is made. Total fixed expenses are $60,000 per month,including $26,000 depreciation.Variable expenses are 55% of sales.All expenses requiring payment are paid in cash when incurred. A $40,000 note payable must be paid on June 30. As of May 31,the cash balance is $94,000. Answer: Difficulty: 3 Hard Topic: Preparing the Master Budget: An Illustration Learning Objecti: 23-05 Prepare the budgets and supporting schedules included in a master budget. Bloom's: Apply AACSB: Analytical Thinking -Aron Company makes computer screens,Model 1 and Model 2.Aron anticipates selling the screens as follows: The inventory on 1/1/18 is 2500 units of Model 1 and 3000 units of Model 2.Aron wants to have on hand 45% of the anticipated sales of the following month for each model.Prepare a production budget for the first 3 quarters of 2018 for both models.

In preparing a master budget,budgeted levels for production,manufacturing costs,and operating expenses normally are determined after preparing the sales forecast.

A budget that can be easily adjusted to show budgeted revenues,costs,and cash flows at different levels of activity is known as:

A company that is profitable may not have sufficient cash on hand to meet its immediate needs.

Because a budget is merely a forecast of future events,its benefits are extremely narrow and limited.

Which of the following is considered an operating budget?

A company's operating cycle is the time between purchases of direct materials and conversion of these materials back into cash.

Flexible budgeting may be used for profit centers by applying cost-volume-profit relationships to the actual level of:

The sales forecast directly affects many elements of the master budget.Which of the following would be least affected by short-term fluctuations in the sales forecasts?

Which element of a master budget would normally be prepared last?

The behavioral approach to budgeting has as its goal the complete elimination of inefficiency.

Preparation of a budgeted income statement does not require:

In a flexible budget for a profit center,which of the following items would not be expected to vary with the level of activity?

If the behavioral approach is employed to determine the levels at which budgeted amounts are set,then reasonable and achievable levels should be used.