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Exam 23: Master Budgets and Planning

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Question 71

True/False

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One of the major benefits of formal budgeting is the positive effect it can have on employee attitudes if applied correctly.

A) True
B) False

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Question 72

Multiple Choice

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

A) Capital expenditures budget.
B) Sales budget.
C) Merchandise purchases budget.
D) General and administrative expense budget.
E) All of these.

F) A) and B)
G) A) and E)

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Question 73

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The sales budget for Carmel shows that 20,000 units of Product A and 22,000 units of Product B are going to be sold for prices of $10 and $12, respectively. The desired ending inventory of Product A is 20% higher than its beginning inventory of 2,000 units. The beginning inventory of Product B is 2,500 units. The desired ending inventory of B is 3,000 units. Budgeted purchases of Product B for the year would be:

A cash budget is a plan that includes the expected cash receipts and cash expenditures during each of the periods that it covers.

For budgets to be effective:

Consulting the persons affected by a budget when it is prepared can provide an effective means of motivation and cooperation.

Traditional budgeting is generally better than activity-based budgeting when attempting to reduce costs by eliminating nonvalue-added activities.

Budgeting is an informal plan for future business activities.

Grafton budgets production of 300 units in June and 310 units in July. Each finished unit requires 4 pounds of raw material K, which costs $5 per pound. Each month's ending inventory of raw materials should be 30% of the following month's budgeted production. The June 1 raw materials inventory has 360 pounds of raw material K. Compute budgeted purchases for raw material K for June.

Part of the cash budget is based on information taken from the capital expenditures budget.

A comprehensive or overall formal plan for a business that includes specific plans for expected sales, the units of product to be produced, the merchandise or materials to be purchased, the expenses to be incurred, the long-term assets to be purchased, and the amounts of cash to be borrowed or loans to be repaid, as well as a budgeted income statement and balance sheet, is called a:

The sales budget is derived from the production budget.

Past performance is the best overall basis for evaluating current performance and assessing the need for corrective action.

The master budget process usually ends with:

Kent Company anticipates total sales for April, May, and June of $800,000, $900,000, and $950,000 respectively. Cash sales are normally 25% of total sales. Of the credit sales, 30% are collected in the same month as the sale, 65% are collected during the first month after the sale, and the remaining 5% are not collected. Compute the amount of cash received from credit sales for June.

Pantheon Company has prepared the following forecasts of monthly sales: Pantheon has decided that the number of units in its inventory at the end of each month should equal 25% of the next month's sales. The budgeted cost per unit is $30. (1) How many units should be in July's beginning inventory? (2) What amount should be budgeted for the cost of merchandise purchases in July? (3) How many units should be purchased in September?

A formal statement of future plans, usually expressed in monetary terms, is a:

Which of the following statements about budgeting is false?

The __________________________ shows expected cash inflows and outflows during the budget period.

Miles Company is preparing a cash budget for February. The company has $30,000 cash at the beginning of February and anticipates $75,000 in cash receipts and $96,250 in cash disbursements during February. Miles Company has an agreement with its bank to maintain a cash balance of $10,000. What amount, if any, must the company borrow during February to maintain a $10,000 cash balance?