37. Why are budgets
useful in the planning process?
a. They
provide management with information about the company’s past
b. They
help communicate goals and provide a basis for evaluation.
c. They
guarantee the company will be profitable if it meets its
d. They enable the budget
committee to earn their paycheck.

38. A budget
a. is a substitute for management.
b. is an aid to management.
c. can operate or enforce itself.
d. is the responsibility of the accounting

39. Accounting generally has the responsibility
a. setting company goals.
b. expressing the budget in financial terms.
c. enforcing the budget.
d. administration of the budget.

40. Which one of the following is not a benefit
of budgeting?
a. It facilitates the coordination of
b. It provides definite objectives for
evaluating performance.
c. It provides assurance that the company will
achieve its objectives.
d. It requires all levels of management to plan
ahead on a recurring basis.

41. Budgeting is usually most closely
associated with which management function?
a. Planning
b. Directing
c. Motivating
d. Controlling

42. Which of the following items does not
follow from the adoption of a budget?
a. Promote efficiency
b. Deterrent to waste
c. Basis for performance evaluation
d. Guarantee of accomplishing the profit

43. Which is true of
a. They
are voted on and approved by stockholders.
b. They
are used in the planning, but not in the control, process.
c. There
is a standard form and structure for budgets.
d. They are used in performance

44. A common starting point in the budgeting
process is
a. expected future net income.
b. past performance.
c. to motivate the sales force.
d. a clean slate, with no expectations.

45. If budgets are to be effective, all of the
following must be present except
a. acceptance at all levels of management.
b. research and analysis in setting realistic
c. stockholders’ approval of the budget.
d. sound organizational structure.

46. If budgets are to be effective, there must
a. a history of successful operations.
b. independent verification of budget goals.
c. an organizational structure with clearly
defined lines of authority and responsibility.
d. excess plant capacity.

47. It is important that budgets be accepted by
a. division managers.
b. department heads.
c. supervisors.
d. All of these.

48. Which of the following statements about
budget acceptance in an organization is true?
a. The most widely accepted budget by the
organization is the one prepared by top management.
b. The most widely accepted budget by the
organization is the one prepared by the department heads.
c. Budgets are hardly ever accepted by anyone
except top management.
d. Budgets have a greater chance of acceptance
if all levels of management have provided input into the budgeting process.

49. Top management notices a variation from
budget and an investigation of the difference reveals that the department
manager could not be expected to have controlled the variation. Which of the
following statements is applicable?
a. Department managers should be held
accountable for all variances from budgets for their departments.
b. Department managers should only be held
accountable for controllable variances for their departments.
c. Department managers should be credited for
favorable variances even if they are beyond their control.
d. Department managers’ performances should not
be evaluated based on actual results to budgeted results.

50. An unrealistic budget is more likely to
result when it
a. has been developed in a top down fashion.
b. has been developed in a bottom up fashion.
c. has been developed by all levels of
d. is developed with performance appraisal
usages in mind.

51. A budget is most likely to be effective if
a. it is used to assess blame when things do not
occur according to plans.
b. it is not used to evaluate a manager’s
c. employees and managers at the lower levels do
not get involved in the budgeting process.
d. it has top management support.

52. In many companies, responsibility for
coordinating the preparation of the budget is assigned to
a. the company’s independent certified public
b. the company’s internal auditors.
c. the company’s board of directors.
d. a budget committee.

53. 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.

54. 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.

55. The most common budget period is
a. one month.
b. three months.
c. six months.
d. one year.

56. Budget development for the coming year
usually starts
a. a year in advance.
b. the first month of the year to be budgeted.
c. several months before the end of the current
d. the last month of the previous year.

57. The budget committee would not normally
include the
a. research director.
b. treasurer.
c. sales manager.
d. external auditor.

58. The budget committee in a company is often
headed by the
a. president.
b. controller.
c. treasurer.
d. budget director.

59. Long-range planning
a. generally presents more detailed information
than an annual budget.
b. generally encompasses a longer period of time
than an annual budget.
c. is usually more accurate than an annual
d. is prepared on a quarterly basis if the
budget is prepared on a quarterly basis.

60. Long-range planning usually encompasses a
period of at least
a. six months.
b. 1 year.
c. 5 years.
d. 10 years.

1. Which of the following is not a proper
a. Long range planning¨
b. Budgeting¨
Short-term goals
c. Long-range planning¨
5 years
d. Budgeting¨
Long-term goals

62. Which is the last
step in developing the master budget?
a. Preparing
the budgeted balance sheet
b. Preparing
the cost of goods manufactured budget
c. Preparing
the budgeted income statement
d. Preparing the cash budget

63. If there were 60,000 pounds of raw
materials on hand on January 1, 120,000 pounds are desired for inventory at
January 31, and 410,000 pounds are required for January production, how many
pounds of raw materials should be purchased in January?
a. 350,000 pounds
b. 530,000 pounds
c. 290,000 pounds
d. 470,000 pounds

64. The total direct labor hours required in
preparing a direct labor budget are calculated using the
a. sales forecast.
b. production budget.
c. direct materials budget.
d. sales budget.

65. The direct materials and direct labor
budgets provide information for preparing the
a. sales budget.
b. production budget.
c. manufacturing overhead budget.
d. cash budget.

66. A sales forecast
a. shows a forecast for the firm only.
b. shows a forecast for the industry only.
c. shows forecasts for the industry and for the
d. plays a minor role in the development of the
master budget.

67. Which of the following is not an operating
a. Direct labor budget
b. Sales budget
c. Production budget
d. Cash budget

68. Which of the following is not a financial
a. Capital expenditure budget
b. Cash budget
c. Manufacturing overhead budget
d. Budgeted balance sheet

69. Which of the following is done to improve
the reliability of the sales forecast?
a. Employ financial planning models
b. Lengthen the planning horizon to more than a
c. Rely solely on outside consultants
d. Use the sales forecasts from the previous

70. 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.

71. The culmination of preparing operating
budgets is the
a. budgeted balance sheet.
b. production budget.
c. cash budget.
d. budgeted income statement.

72. The following
information is taken from the production budget for the first
Beginning inventory in units 1,200
Sales budgeted for the quarter 426,000
Capacity in units of production facility 472,000
How many finished goods units should be produced during the quarter
if the company desires 3,200 units available to start the next quarter?
a. 428,000
b. 424,000
c. 474,000
d. 429,200

73. An overly optimistic sales budget may
result in
a. increases in selling prices late in the year.
b. insufficient inventories.
c. increased sales during the year.
d. excessive inventories.

74. In a production budget, total required
production 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.

75. The direct materials budget details
1. the quantity of direct materials to be
2. the
cost of direct materials to be purchased.
a. 1
b. 2
c. both 1 and 2
d. neither 1 nor 2

76. The production budget shows expected unit
sales of 32,000. Beginning finished goods units are 3,600. Required production
units are 33,600. What are the desired ending finished goods units?
a. 2,000
b. 3,600
c. 6,400
d. 5,200

77. The production budget shows
expected unit sales are 100,000. The required production units are 104,000.
What are the beginning and desired ending finished goods units, respectively?
Units Ending Units
a. 10,000 6,000
b. 6,000 10,000
c. 4,000 10,000
d. 10,000 4,000

78. The production budget shows that expected
unit sales are 48,000. The total required units are 54,000. What are the
required production units?
a. 6,000
b. 9,000
c. 12,000
d. Cannot be determined from the data provided.

79. The direct materials budget shows:
Units to be produced 3,000
Total pounds needed for production 9,000
Total materials required 9,900
are the direct materials per unit?
a. .33 pounds
b. 3.0 pounds
c. 3.3 pounds
d. Cannot be determined from the data provided.

80. The direct materials budget shows:
Desired ending direct materials 48,000 pounds
Total materials required 69,000 pounds
Direct materials purchases 63,200 pounds
The total direct materials needed for
production is
a. 21,000 pounds.
b. 5,800 pounds.
c. 15,200 pounds.
d. 132,200 pounds.

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