Multiple Choice Answers

Question: True Masons budgeted costs for 25,000 linear feet of block are

Fixed manufacturing costs $12,000 per month
Variable manufacturing costs $16.00 per linear foot

True Masons installed 20,000 linear feet of block during March. How much is budgeted total manufacturing costs in March?
A $320,000
B $412,000
C $400,000
D $332,000

Question: Why are budgets useful in the planning process?
A They provide management with information about the company’s past performance
B They help communicate goals and provide a basis for evaluation
C They guarantee the company will be profitable if it meets its objectives
D They enable the budget committee to earn their paychecks

Question: If a company has adopted continuous budgeting, the budget will show plans for
A Every day
B A full year ahead
C The current year and the next year
D At least five years

Question: Neal Merchandising Company expects to purchase $90,000 of materials in July and $105,000 of materials in August. Three-quarters of all purchases are paid for in the month of purchase, and the other one-fourth are paid for in the month following the month of purchase. How much will August’s cash disbursements for materials purchases be?
A $67,500
B $78,750
C $101,250
D $105,000

Question: A major element in budgetary control is
A The preparation of long-term plans
B The comparison of actual results with planned objectives
C The valuation of inventories
D Approval of the budget by the stockholders

Question: The most common budget period is
A One month
B Three months
C Six months
D One year

Question: Lester Production is planning to sell 600 boxes of ceramic tile, with production estimated at 580 boxes during May. Each box of tile requires 44 pounds of clay mix and a quarter hour of direct labor. Clay mix costs $0.50 per pound and employees of the company are paid $15.00 per hour. Manufacturing overhead is applied at a rate of 110% of direct labor costs. Lester has 2,600 pounds of clay mix in beginning inventory and wants to have 3,000 pounds in ending inventory.

What is the total amount to be budgeted in pounds for direct materials to be purchased for the month?
A 25,520
B 25,120
C 25,920
D 26,800

Question: The starting point in preparing a master budget is the preparation of the
A Production budget
B Sales budget
C Purchasing budget
D Personnel budget

Question: Budget reports should be prepared
A Daily
B Monthly
C Weekly
D As frequently as needed

Question: At 9,000 direct labor hours, the flexible budget for indirect materials is $18,000. If $18,700 is incurred at 9,200 direct labor hours, the flexible budget report should show the following difference for indirect materials
A $700 unfavorable
B $700 favorable
C $300 favorable
D $300 unfavorable

Question: The production budget shows that expected unit sales are 40,000. The total required units are 45,000. What are the required production units?
A 5,000
B 7,500
C 10,000
D Cannot be determined from the data provided

Question: A static budget report
A Shows costs at only two or three different levels of activity
B Is appropriate in evaluating a manager’s effectiveness in controlling variable costs
C Should be used when the actual level of activity is materially different from the master budget activity level
D May be appropriate in evaluating a manager’s effectiveness in controlling costs when the behavior of the costs in response to changes in activity is fixed

Question: The static budget is prepared only for units produced, while a flexible budget reflects the number of units sold
A Is prepared when management cannot agree on objectives for the company
B Projects budget data for various levels of activity
C Is only useful in controlling fixed costs
D Cannot be used for evaluation purposes because budgeted data are adjusted to reflect actual results

Question: Accounting generally has the responsibility for
A Setting company goals
B Expressing the budget in financial terms
C Enforcing the budget
D Administration of the budget

Question: Ashcroft Inc. prepared a 2010 budget for 60,000 units of product. Actual production in 2010 was 65,000 units. To be most useful, what amounts should a performance report for this company compare?
A The actual results for 65,000 units with the original budget for 60,000 units
B The actual results for 65,000 units with a new budget for 65,000 units
C The actual results for 65,000 units with last year’s actual results for 67,000 units
D It doesn’t matter. All of these choices are equally useful

Question: Pine Company produced 128,000 units in 60,000 direct labor hours. Production for the period was estimated at 132,000 units and 66,000 direct labor hours. A flexible budget would compare budgeted costs and actual costs, respectively, at
A 64,000 hours and 66,000 hours
B 66,000 hours and 60,000 hours
C 64,000 hours and 60,000 hours
D 60,000 hours and 60,000 hours

Question: Meyerhoff Company has the following budgeted sales: July $100,000, August $150,000, and September $125,000. 40% of the sales are for cash and 60% are on credit. For the credit sales, 50% are collected in the month of sale, and 50% the next month. The total expected cash receipts during September are
A $140,000
B $132,500
C $131,250
D $125,000

Question: In a production budget, total required units are the budgeted sales units plus
A Beginning finished goods units
B Desired ending finished goods units
C Desired ending finished goods units plus beginning finished goods units
D Desired ending finished goods units minus beginning finished goods units

Question: A budget period should be
A Monthly
B For a year or more
C Long term
D Long enough to provide an obtainable goal under normal business conditions

Question: Davies Nursery plans to sell 160 potted plants during April and 120 units in May. Davies Nursery keeps 15% of the next month’s sales as ending inventory. How many units should Davies Nursery produce during April?
A 154
B 166
C 160
D 178

Question: A cost is considered controllable at a given level of managerial responsibility if
A The manager has the power to incur the cost within a given time period
B The cost has not exceeded the budget amount in the master budget
C It is a variable cost, but it is uncontrollable if it is a fixed cost
D It changes in magnitude in a flexible budget

Question: The financial budgets include the
A Cash budget and the selling and administrative expense budget
B Cash budget and the budgeted balance sheet
C Budgeted balance sheet and the budgeted income statement
D Cash budget and the production budget

Question: A static budget is appropriate for
A Variable overhead costs
B Direct materials costs
C Fixed overhead costs
D None of these

Question: Top management’s reaction to a difference between budgeted and actual sales often depends on
A Whether the difference is favorable or unfavorable
B Whether management anticipated the difference
C The materiality of the difference
D The personality of the top managers

Question: Not-for-profit entities
A Do not use responsibility accounting
B Utilize responsibility accounting in trying to maximize net income
C Utilize responsibility accounting in trying to minimize the cost of providing services
D Have only noncontrollable costs