ACC Ch. 7

Expressing plans for a business in financial terms is commonly called:
A. master planning.
B. strategic planning.
C. budgeting.
D. operational planning.
C
A company’s numerous specific budgets (sales, inventory purchases, etc.) together are referred to as the:
A. grand plan.
B. strategic plan.
C. master budget.
D. current budget.
C
Select the incorrect statement about budgeting committees.
A. Budgeting committees usually have responsibility for the coordination of budgeting activities.
B. Membership on the budgeting committee is restricted most often to accountants because the budget involves numbers.
C. The budgeting committee is responsible for settling disputes between various departments over budget matters.
D. One of the responsibilities of the budget committee is to monitor the organization’s progress toward achieving its budget standards.
B
Select the incorrect statement about the planning process.
A. The longer the time period, the less specific the plans.
B. Planning decisions can often be sub-divided into three distinct planning phases, short-term, intermediate-term, and long-term.
C. The nature of planning changes with the length of the time period being considered.
D. The shorter the time period, the more general the plans.
D
Select the incorrect statement about the master budget.
A. The master budget is a group of detailed budgets and schedules representing the company’s operating and financial plans for the past accounting period.
B. The master budget usually includes operating budgets, capital budgets and pro forma financial statements.
C. The budgeting process usually begins with preparing the operating budgets.
D. Preparing the master budget begins with the sales forecast.
A
What is the role of top management in a participative budgeting system?
A. Top management has no role – the budget is entirely developed by the lower-level employees.
B. Top management must ensure that employee-generated objectives are consistent with those of the company.
C. Top management must always tighten employee-set budget standards to eliminate employees’ attempts to build slack into the standards.
D. All of the above answers are correct.
B
Which of the following items is not needed to prepare a sales budget by product line?
A. Expected unit sales of each product.
B. Expected purchase price of each product.
C. Expected selling price of each product.
D. All of the above answers are correct.
B
Which of the following items would be least useful in preparing a schedule of cash receipts?
A. Expected revenue from cash sales.
B. Past accounts receivable collection experience.
C. Service charges for credit card sales.
D. Number of units expected to be purchased.
D
Meredith Company has completed its sales budget for the first quarter of 2012. Projected credit sales for the first four months of the year are shown below:

The company’s past records show collection of credit sales as follows: 30% in the month of sale and the balance in the following month. The total cash collection from receivables in March is expected to be:
A. $38,700.
B. $45,000.
C. $42,300.
D. $31,800.

A
Oak Furniture provided the following information relevant to its sales for December 2009 and the first quarter of 2010:

Based on the company’s collection history, 2% of credit sales are uncollectible, 40% are collected in month of sale and the remainder collected in the following month. Cash collections in January from December 2009 credit sales would be:
A. $42,000.
B. $40,600.
C. $36,000.
D. $34,800.

D
What budget is generally not included in a master budget?
A. Operating budget
B. Capital budget
C. Strategic budget
D. All of the above answers are correct.
C
Which of the following is a true statement?
A. Pro forma financial statements are based on the company’s budgets.
B. Companies prepare pro forma financial statements to show how their performance for the period will “look” if actual results match the budget.
C. Companies usually prepare a pro forma income statement, pro forma balance sheet, and pro forma statement of cash flows.
D. All of the above answers are correct.
D
Which of the following would not be included in the cash budget?
A. Receipts from customers
B. Selling and administrative expenses
C. Desired ending inventory
D. Interest expense
C
The master budget details:
A. Short-term objectives.
B. Long-term objectives.
C. Intermediate objectives.
D. All of the above answers are correct.
A
Which of the following is a benefit associated with budgeting?
A. Promotes planning and coordination
B. The ability to take corrective action to improve performance
C. Enhances performance measurement
D. All of the above answers are correct
D
The first budget prepared in a master budget is the sales budget.
True
False
T
A schedule of cash payments is often prepared in conjunction with the sales budget.
True
False
F
The accounting department is primarily responsible for establishing the sales forecast.
True
False
F
If a company purchases its inventory on account, it must prepare a schedule of cash payments for inventory purchases.
True
False
T
Although only 20 units are on hand at the beginning of the year, Woods Company plans to sell 100 units during 2010. Assuming the company desires an ending inventory of 10 units, it should plan to purchase 90 units.
True
False
T