Question 1

Which of the following items would be least useful in preparing a schedule of cash receipts?

Accepted Answer

A)  Expected revenue from cash sales. 
B)  Number of units expected to be purchased. 
C)  Service charges for credit card sales. 
D)  Past accounts receivable collection experience.

Question 2

If a budgeting system is designed correctly, top management will not have to get involved in the process.

Accepted Answer

A) True 
 B)False

Question 3

Although only 20 units are on hand at the beginning of the year, World Company plans to sell 100 units during Year 2. Assuming the company desires an ending inventory of 10 units, it should plan to purchase 110 units.

Accepted Answer

A) True 
 B)False

Question 4

Oakton Furniture provided the following information relevant to its sales for December Year 1 and the first quarter of Year 2  Based on the company's collection history, 42% of credit sales are collected in month of sale and the remainder is collected in the following month. Cash collections in January from December credit sales would be:

Accepted Answer

A)  $69,600. 
B)  $81,200. 
C)  $72,000. 
D)  $84,000.

Question 5

Which of the following items typically found on the selling and administrative expense budget will also impact the cash budget?

Accepted Answer

A)  Depreciation expense 
B)  Administrative salaries 
C)  Advertising expense 
D)  Both administrative salaries and advertising expense are correct.

Question 6

Which of the following items is not needed to prepare an inventory purchases budget for a merchandising business?

Accepted Answer

A)  Expected unit selling price 
B)  Beginning inventory 
C)  Expected unit sales 
D)  Desired ending inventory

Question 7

The cash budget is not the same as the pro forma cash flow statement.

Accepted Answer

A) True 
 B)False

Question 8

Janice was questioned recently about her department's spending in excess of the budget. This is an example of using the budget for performance measurement.

Accepted Answer

A) True 
 B)False

Question 9

Select the correct equation format for the purchases budget.

Accepted Answer

A)  Beginning inventory + expected sales = required purchases. 
B)  Cost of budgeted sales + beginning inventory - desired ending inventory = required purchases. 
C)  Beginning inventory + expected sales - desired ending inventory = required purchases. 
D)  Cost of budgeted sales + desired ending inventory - beginning inventory = required purchases.

Question 10

Which of the following would be prepared first when a merchandising company uses a master budget?

Accepted Answer

A)  Selling and administrative expense budget 
B)  Budgeted income statement 
C)  Sales forecast 
D)  Inventory purchases budget

Question 11

In a participative budgeting system, budget information flows in both directions, from bottom to top, and from top to bottom.

Accepted Answer

A) True 
 B)False

Question 12

Which of the following is not considered a pro forma financial statement?

Accepted Answer

A)  Sales budget 
B)  Balance sheet 
C)  Cash flow statement 
D)  Income statement

Question 13

Barnes Company expects to begin operating on January 1. The company's master budget contained the following operating expense budget:  Sales commissions are paid in cash in the month following the month in which the expense is recognized. All other expense items requiring cash payment are paid in the month in which they are recognized. The amount of accumulated depreciation appearing on the company's March 31 pro forma balance sheet is:

Accepted Answer

A)  $1,000. 
B)  $2,000. 
C)  $3,000. 
D)  $12,000.

Question 14

Which of the following is not an advantage of budgeting?

Accepted Answer

A)  Provides assurance that accounting records are in accordance with generally accepted accounting principles. 
B)  Forces coordination among departments to promote decisions in the best interests of the company as a whole. 
C)  Provides advance notice of potential shortages, bottlenecks, or other weaknesses in operating plans. 
D)  Provides a way to evaluate performance.

Question 15

The pro forma income statement gives managers an advance estimate of a company's profitability.

Accepted Answer

A) True 
 B)False

Question 16

Jason had been operating his machine for an entire month before he realized that it was generating more scrap than usual. Which advantage of budgeting would have helped him identify this problem sooner?

Accepted Answer

A)  Performance measurement 
B)  Coordination 
C)  Planning 
D)  Corrective action

Question 17

The nature of planning changes with the length of the time period being considered. Generally, the shorter the time period, the more general the plans.

Accepted Answer

A) True 
 B)False

Exam 14: Planning for Profit and Cost Control

Which of the following items would be least useful in preparing a schedule of cash receipts?

If a budgeting system is designed correctly, top management will not have to get involved in the process.

Although only 20 units are on hand at the beginning of the year, World Company plans to sell 100 units during Year 2. Assuming the company desires an ending inventory of 10 units, it should plan to purchase 110 units.

Which of the following items typically found on the selling and administrative expense budget will also impact the cash budget?

Which of the following items is not needed to prepare an inventory purchases budget for a merchandising business?

The cash budget is not the same as the pro forma cash flow statement.

Janice was questioned recently about her department's spending in excess of the budget. This is an example of using the budget for performance measurement.

Select the correct equation format for the purchases budget.

Which of the following would be prepared first when a merchandising company uses a master budget?

In a participative budgeting system, budget information flows in both directions, from bottom to top, and from top to bottom.

Which of the following is not considered a pro forma financial statement?

Which of the following is not an advantage of budgeting?

The pro forma income statement gives managers an advance estimate of a company's profitability.

Jason had been operating his machine for an entire month before he realized that it was generating more scrap than usual. Which advantage of budgeting would have helped him identify this problem sooner?

The nature of planning changes with the length of the time period being considered. Generally, the shorter the time period, the more general the plans.