Content check — Managerial Accounting, Chapter 7: Budgeting

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Chapter 7: Budgeting

16 problems · 0 figures

Multiple Choice 7.1 §7.1 source ↗

Which of the following is not a part of budgeting?

a.
planning
b.
finding bottlenecks
c.
providing performance evaluations
d.
preventing net operating losses

Answer

D. preventing net operating losses

Multiple Choice 7.3 §7.1 source ↗

Which of the following is a finance budget?

a.
cash budget
b.
production budget
c.
direct materials purchasing budget
d.
tax budget

Answer

A. cash budget

Multiple Choice 7.5 §7.1 source ↗

Which approach requires management to justify all its expenditures?

a.
bottom-up approach
b.
zero-based budgeting
c.
master budgeting
d.
capital allocation budgeting

Answer

B. zero-based budgeting

Multiple Choice 7.7 §7.1 source ↗

The most common budget is prepared for a ________.

a.
week
b.
month
c.
quarter
d.
year

Answer

D. year

Multiple Choice 7.9 §7.2 source ↗

The direct materials budget is prepared using which budget’s information?

a.
cash payments budget
b.
cash receipts budget
c.
production budget
d.
raw materials budget

Answer

C. production budget

Multiple Choice 7.11 §7.2 source ↗

Which of the following statements is not correct?

a.
The sales budget is computed by multiplying estimated sales by the sales price.
b.
The production budget begins with the sales estimated for each period.
c.
The direct materials budget begins with the sales estimated for each period.
d.
The sales budget is typically the first budget prepared.

Answer

C. The direct materials budget begins with the sales estimated for each period.

Multiple Choice 7.13 §7.3 source ↗

The cash budget is part of which category of budgets?

a.
sales budget
b.
cash payments budget
c.
financial budget
d.
operating budget

Answer

C. financial budget

Multiple Choice 7.15 §7.3 source ↗

Which budget is the starting point in preparing financial budgets?

a.
the budgeted income statement
b.
the budgeted balance sheet
c.
the capital expense budget
d.
the cash receipts budget

Answer

C. the capital expense budget

Multiple Choice 7.17 §7.4 source ↗

Which budget evaluates the results of operations at the actual level of activity?

a.
capital budget
b.
cash budget
c.
flexible budget
d.
static budget

Answer

C. flexible budget

Question 7.1 §7.1 source ↗

What is a budget and what are the different types of budgets?

Answer

A budget is a written financial plan for a set period, which is typically a year. There are several different types of budgets including the master budget, operating budget, financial budget, flexible budget, and operating budget.

Question 7.3 §7.1 source ↗

What are the advantages and disadvantages of the bottom-up budgeting approach?

Answer

This approach begins at the lowest levels of management. These managers know the details involved with their departments. This allows for more accurate budget estimates when management understands how their department contributes to the company’s goals. Disadvantages include that this type of budgeting takes time, which leads to more labor costs, and when management doesn’t fully understand how it contributes to the company goals, the budget may support the department and not the company.

Question 7.5 §7.2 source ↗

What information is necessary for the operating budgets?

Answer

Operating budgets plan the primary operations of the business and need accurate information in order to provide accurate planning. Assumptions such as sales in units, sales price, desired ending inventory in units, manufacturing costs per unit, which include direct material needed per unit, desired direct materials ending inventory, amount of direct labor hours and rate, and the overhead required for production and managing the company.

Question 7.7 §7.3 source ↗

What is the process for developing a budgeted balance sheet?

Answer

The budgeted income statement includes the estimated revenue and expenses for the company. Using historical data on cash collections helps plan when the cash will be received and is used to develop the cash collections schedule. The company applies its payment policies on its purchases and other items requiring cash expenditures. This creates the cash payments schedule. Information from the cash collections schedule, cash payments schedule, and the capital expense budget are combined to develop the cash budget. The information from the cash budget and the ending balance sheet from the preceding year are used to develop the budgeted balance sheet.

Question 7.9 §7.4 source ↗

A company has prepared the operating budget and the cash budget. It is now preparing the budgeted balance sheet. Identify the document that contains each of these balances.

A. cash

B. accounts receivable

C. finished goods inventory

D. accounts payable

E. equipment purchases

Answer

A. cash budget; B. cash receipts budget; C. production budget; D. cash payments schedule; E. capital assets budget

Question 7.11 §7.4 source ↗

What information is included in the capital asset budget?

Answer

This budget is the plan for the purchase and disposal of plant assets and lists the estimated dollar amounts for each.

Question 7.13 §7.5 source ↗

What steps should be considered if a budget is to be set and later have its results evaluated?

Answer

Before the time period begins, the organization’s goals should be defined so the budget can be set to achieve the goals. During the time period, the results should be properly measured and reported so necessary changes can be made during the year. Then, the results of the operations can be evaluated and compared to the original budget and organization’s goals.

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Problems and answers are adapted from Principles of Accounting, Volume 2: Managerial Accounting by Mitchell Franklin, Patty Graybeal and Dixon Cooper, OpenStax, and are used under the CC BY-NC-SA 4.0 licence. Access for free at https://openstax.org/books/principles-managerial-accounting/pages/1-why-it-matters. Illustrations: Copyright Rice University, OpenStax, under CC BY-NC-SA 4.0 license. This adaptation is released under the same licence, is non-commercial, and is neither affiliated with nor endorsed by OpenStax or Rice University.