5TH QUIZ

CHAPTER 7 MASTER BUDGET AND FLEXIBLE BUDGETING

VANDERBECK

Question 1
1 / 1 pts
Participative budgeting:

 Describes the budget meetings in which managers participate.

 Leaves room to blame top management in the event budget numbers are not met.
 Results in managers being less apt to meet or beat their budget projections.
 Motivates managers to meet budget numbers because they set them.

Question 2
1 / 1 pts
Which of the following is not an operating budget?

Sales budget
Sales and administrative budget
Cost of goods sold budget
Capital projects budget

Question 3
1 / 1 pts
A budget prepared for a single level of volume based on management’s best estimate of the level of
production and sales for the coming period is a:

Continuous budget.
Flexible budget.
Capital budget.
Static budget.

Question 4
1 / 1 pts
Budgeting provides the framework for:

Delegating authority to managers.

Planning and control.
Process costing.
Breaking semivariable costs into their fixed and variable components.

Question 5
1 / 1 pts
The budget that is used as a basis for preparing all other budgets is the:

sales budget.
production budget.
cost of goods sold budget.
budget balance sheet.
Question 6
1 / 1 pts
The process of setting unrealistically low budgeting goals in an effort to make only average
performance look good is:

budget cushion
budget slack
normal budget
safe budget

Question 7
1 / 1 pts
A plan for timing acquisitions of buildings, equipment or other significant assets is a(n):

asset budget.
cash budget.
budget balance sheet.
capital expenditures budget.

Question 8
1 / 1 pts
The budget should use historical data:

And add a 5% growth factor for each year.

Only as a stepping-off point for aiding projections into the future.
Because things don’t really change.
Because management is satisfied with historical results.

Question 9
1 / 1 pts
Which of the following represents the correct relationship between budgets and inventories?

 The direct materials budget includes the budgeted number of units in the direct materials
inventory at the beginning and end of the budget period.
 The direct materials budget includes the budgeted dollar value of the direct materials inventory
at the beginning and end of the budget period.
 The production budget includes the budgeted number of units in the work in process inventory
at the beginning and end of the budget period.
 The direct labor budget includes the budgeted number of units in the work in process inventory
at the beginning and end of the budget period.

Question 10
1 / 1 pts
Producing goods evenly throughout the year despite having a seasonal sales pattern could lead to:

Relatively stable inventory levels.

The potential for inventory obsolescence.
Employee morale issues.
High costs for recruiting and training new employees.
Question 11
2 / 2 pts
Budgeted inventories for the Remle Company follow:

JANUARY DECEMBER

Direct materials $24,800 $26,700

Work in process 57,600 55,200

Finished goods 81,300 87,400

Additional budget information follows:

Total manufacturing costs $354,500

Cost of goods manufactured 356,900

Calculate the budgeted cost of goods sold.

$359,300
$350,800
$361,000
$350,400

SOLUTION
STATEMENT OF COGS
FINISHED GOODS JANUARY 81,300
ADD Cost of goods manufactured 356,900
COST OF GOODS AVAILABLE FOR SALE 438,200
LESS FINISHED GOODS DECEMBER 87,400
COST OF GOODS SOLD $350,800
Denny Door Company has budgeted door sales as follows:

Month Number of Units Budgeted Sales Dollars

March 50,000 $1,000,000

April 60,000 $1,200,000

Finished goods inventory at February 28 will be 7,000 units, but the company is making an effort to
reduce inventory and its new policy is that inventory at the end of the month should be 10% of the
budgeted sales for the following month. How many units should Denny Door Company produce in
March?

63,000
53,000
56,000
49,000

SOLUTION:
PRODUCTION BUDGET
MARCH SALES 50,000
ADD DESIRED END APRIL [ 60,000 X 10%] 6,000
[* inventory at the end
of the month should be
10% of the budgeted
sales for the following month]
TOTAL 56,000
LESS ESTIMATED BEG FEBRUARY 7,000
TOTAL PRODUCTION 49,000

Question 13
2 / 2 pts
Allen Company’s master budget called for 50,000 units of production. Budgeted direct material costs
at this level were $450,000 or $9 per unit. Allen actually produced 54,000 units and incurred direct
material costs of $496,000.

What is Allen’s direct material variance using flexible budgeting?

$10,000 U
$36,000 U
$46,000 U
$10,000 F

SOLUTION
BUDGETED= 54,000UNITS X $9 per unit = 486,0000
VARIANCE= ACTUAL COST- BUDGETED COST
=$496,000 ACTUAL - $486,000 BDG = $10,000 U
Question 14
2 / 2 pts
A summary of Jacob Company’s flexible budget of manufacturing costs follows:

20,000 Units

Direct materials $ 60,000

Direct labor 70,000

Variable factory overhead 30,000

Fixed factory overhead 32,000

Total $192,000

What would the flexible budget of manufacturing costs be at a production volume of 14,000 units?

$144,000
$172,800
$176,000
$192,000

SOLUTION
*FIXED COST IS STILL THE SAME
UNIT VARIABLE COST = [$ 60,000 +70,000 +30,000] / 20,000 UNITS
=160,000/ 20,000 UNITS = $8 VARIABLE UNIT COST

@ 14,000 UNITS
Variable cost = $8 VARIABLE UNIT COST x 14,000 UNITS
= 112,000 + 32,000fixed cost = $144,000

Question 15
2 / 2 pts
Shaw Corporation has developed the following flexible budget formula for annual indirect labor cost:
Total costs = $9,600 + $0.50 per machine hour
Operating budgets for the current month are based upon 30,000 hours of planned machine time.
Indirect labor costs included in this planning budget are:

$15,000.
$2,460.
$24,600.
$15,800.

Solution
Total cost $9,600 / 12 mos 800
30,000 hours of planned machine time x $0.50 per machine hour 15,000

$15,800.
Question 16
2 / 2 pts
Information from the operating budgets of Roswell Fabricators follows:

Selling and administrative expenses $ 140,000

Factory overhead 200,000
Sales 1,000,000
Cost of goods sold 450,000
Capital expenditures 100,000

If Northwest’s income tax rate is 30%, what is the budgeted net income?

$287,000
$126,000
$410,000
$186,000

Solution
budgeted net income

Sales 1,000,000

450,000
Cost of goods sold

Gross profit 550,000

Selling and administrative expenses 140,000

Operating income 410,000

Income tax [410,000 x 30%] 123,000
Net Income $287,000

Comfy Inc. uses five yards of wool in each blanket it produces. Comfy’s production budget next year
is 30,000 blankets. The anticipated wool inventory at January 1 is 30,000 yards, but the company
desires to reduce the inventory to 20,000 yards by the end of the year. Each yard of wool costs $10.
How many yards of wool should Comfy purchase?

170,000 yards
200,000 yards
140,000 yards
1,400,000 yards
Solution
Qty required for production
[ budgeted production of blankets in units 30,000 x 5 yards of wool in each blanket] 150,000
Plus desired ending inventory 20,000
170,000
Less beginning inventory 30,000
TOTAL QTY TO BE PURCHASED 140,000 yards
Chase Company’s production budget is as follows:

Budgeted sales in units 300,000

Desired units in inventory, December 31 70,000

370,000

Estimated units in inventory, January 1 50,000

Budgeted units of production 320,000

Each unit takes 30 minutes to produce and the standard labor rate is $18 per labor hour. What is
Chase’s direct labor budget?

$2,880,000
$2,700,000
$10,800,000
$5,760,000

Solution
Hours required for production
[ 320,000 x [ 30 minutes / 60 min] 160,000
Hourly rate x $18 per labor hour
direct labor budget $2,880,000

Question 19
2 / 2 pts
The normal capacity of Noel Company is 4,000 units per month. At this volume, budgeted fixed and
variable factory overhead are $16,000 and $20,000, respectively. In May, actual production was
4,200 units and actual overhead incurred was $37,900.

What was the amount of factory overhead allowed for the actual level of production in May?

$36,000
$37,800
$37,000
$36,800

Solution
@ 4,000 units @ 4,200 units

fixed $16,000 $16,000

Variable $20,000/ 4,000 units = $5 per unit $20,000 21,000
Total 36,000 $37,000
Question 20
2 / 2 pts
Kerry Kola Company sells Kerry Kola in two sizes: 12 ounce and 32 ounce bottles, at a price of $1.00
and $2.25, respectively. Projected unit sale volumes by region follow:

East Region:

12 ounce bottles 200,000

32 ounce bottles 150,000

West Region:

12 ounce bottles 325,000

32 ounce bottles 250,000

What is Kerry Kola’s budgeted sales?

$1,425,000
$1,581,250
$1,643,750
$1,362,500

Total
East Region: Cost per unit

12 ounce bottles 200,000 $1.00 200,000

32 ounce bottles 150,000 $2.25 337,500

West Region:

12 ounce bottles 325,000 $1.00 325,000

32 ounce bottles 250,000 $2.25 562,500

TOTAL $1,425,000