ACFINA1 QUIZZER #2
THEORIES:
1.
Budgets are related to which of the following management functions?
A. Planning
B. Performance evaluation
C. Control
D. All of these
2.
Which of the following is an advantage of the budgeting process?
A. It requires very little input from various departmental managers, leaving them more time to devote to day-to-day
activities.
B. It communicates to employees specific goals and objectives that may be used in evaluating their job
performance.
C. It forces management to focus on the past and not be distracted by the –day-to-day operations of the business.
D. It requires no communication between various managers in the organization.
3.
Which of the following statements is correct regarding budgeting?
A. It is primarily focused on past performance.
B. It is primarily a bookkeeping task.
C. It should be built from the ground up each year.
D. It involves input from a broad range of managers.
4.
Which of the following best defines budgeting?
A. Budgeting is planning.
B. Budgeting is communicating objectives and controlling outcomes.
C. Budgeting is communicating specific objectives which can be measured and refined based upon feedback.
D. Budgeting is communicating the planned objectives.
5.
The concept of “management by exception” refers to management’s consideration of:
A. only those items that vary materially from expectations.
B. only rare events.
C. samples selected at random.
D. only significant unfavorable deviations.
6.
A formal written statement of management’s plans for the future, packaged in financial terms, is a:
A. Responsibility report.
B. Performance report.
C. Cost of production report.
D. Budget.
7.
Which of the following is least likely a reason why a company prepares its budget?
A. To provide a basis for comparison of actual performance
B. To communicate the company’s plans throughout the entire business organization
C. To control income and expenditure in a particular period.
D. To make sure the company expands its operations.
8.
Which of the following is not an attribute of a budget?
A. The budget is an organization’s operating plan.
B. The budget is a motivating device.
C. The budget is a guarantee of actual results.
D. The budget is a guideline for operations.
9.
Which is not true regarding the responsibilities of the budget committee?
A. The budget committee prepares and develops department budgets.
B. The budget committee provides guidance from a “big picture” or central perspective.
C. The budget committee provides feedback that may include rejection of department budgets that do not reflect
realistic amounts.
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D. The budget committee provides ongoing communication of the budget to the organization.
10.
The budgets that are based on a very high levels of performance, like expected costs using ideal standards,
A. assist in planning the operations of the company.
B. motivate people to perform better than they ordinarily would.
C. are helpful in evaluating the performance of managers.
D. can lead to low levels of performance.
11.
Which of the following statements is incorrect?
A. An imposed budget is the same as a participative budget.
B. The preparation of the budget would be the responsibility of each responsibility unit.
C. Top management’s support is necessary to promote budget participation.
D. The top management should review and approve each responsibility unit’s budget.
12.
A budgeting process in which information flows top down and bottom up is referred to as:
A. Continuous budgeting
B. Participative budgeting
C. Perpetual budgeting
D. Joint budgeting
13.
The process of developing budget estimates by requiring all levels of management to estimate sales, production,
and other operating data as though operations were being initiated for the first time is referred to as:
A. Forecasting
B. Zero-based budgeting
C. Continuous budgeting
D. Program budgeting
14.
The ideal financial planning process would be
A. top-down planning.
B. bottom-up planning.
C. a combination of top-down and bottom-up planning.
D. none of the given choices
15.
The most important budget in the master budget is likely the:
A. Cash budget
B. Capital budget
C. Personnel budget
D. Purchases budget
16.
A variant of fiscal-year budgeting whereby a twelve-month projections into the future is maintained at all times:
A. Forecasting
B. Zero-based budgeting
C. Continuous budgeting
D. Calendar budgeting
17.
Zero-based budgeting:
A. involves the review of changes made to an organization’s original budget.
B. does not provide a summary of annual projections.
C. involves the review of each cost component from a cost/benefit perspective.
D. emphasizes the relationship of effort to projected annual revenues.
18.
Which one of the following is a budgeting process that requires managers to prepare budgets from ground zero?
A. Flexible budgeting
B. Volume-based budgeting
C. Activity-based budgeting
D. Zero-base budgeting
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19.
A system that classifies budget requests by activity and estimates the benefits arising from each activity:
A. Incremental budgeting system.
B. Static budgeting system.
C. Program planning and budgeting system.
D. Participative system.
20.
A budgeting process in which information is constantly updated to provide a glance at a future twelve-month plans
is referred to as:
A. Continuous budgeting
B. Participative budgeting
C. On-going budgeting
D. Joint budgeting
21.
A type of budget plan that is updated monthly or quarterly and where one month or quarter is dropped, another is
added is called:
A. Master budget
B. Operating and financial budget
C. Continuous budget
D. Zero-base budget
22.
A systematized approach known as zero-based budgeting:
A. classifies the budget by the prior year’s activity and estimates the benefits arising from each activity.
B. begins with either the current level of spending or projected whichever is lower.
C. presents planned activities for a period of time but does not present a firm commitment.
D. divides the activities of individual responsibility centers into a series of packages that are prioritized.
23.
Which of the following statements is true?
A. Under zero-based budgeting, a manager is required to start at zero budget levels each period, as if the
programs involved were being initiated for the first time.
B. The primary purpose of the cash budget is to show the expected cash balance at the end of the budget period.
C. Budget data are generally prepared by top management and distributed downward in an organization.
D. The budget committee is responsible for preparing detailed budget figures for an organization.
24.
Which of the following statements about zero-based budgeting is incorrect?
A. All activities in the company are organized into break-up units called packages.
B. All costs have to be justified every budgeting period.
C. The process is not time consuming since justification of costs can be done as a routine matter.
D. Zero-based budgeting includes variable costs only.
25.
The difference between an individual's submitted budget projection and his or her best estimate of the item being
projected is an example of
A. padding the budget
B. adhering to zero-based budgeting assumptions
C. creating budgetary slack
D. being incongruent with participative budgeting
26.
A budget built from the ground up each year rather than by simply adding a percentage increase to last year’s
numbers is called a
A. Static budget.
B. Zero-based budget.
C. Flexible budget.
D. Master budget.
27.
A continuous budget
A. is a budget that is revised monthly or quarterly.
B. is a medium term plan that consists of more than 2 years’ projections.
C. is appropriate only for use of a not-for-profit entity.
D. works best for an entity that can reliably forecast events a year or more into the future.
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28.
Using the concept of ‘expected value” in sales forecasting means that the sales forecast to be used is
A. developed using the indicator method
B. the sum of the sales expected by individual managers
C. based on expected selling prices of the products
D. based on probabilities
29.
In preparing a cash budget, which of the following is normally the starting point for projecting cash requirements?
A. Fixed assets
B. Sales
C. Accounts receivable
D. Inventories
30.
Budgeting expenditures by purpose is called
A. program budgeting
B. line budgeting
C. zero-based budgeting
D. flexible budgeting
31.
The method of budgeting which adds one month’s budget to the end of the plan when the current month’s budget
is dropped from the plan refers to
A. long-term budget
B. operations budget
C. incremental budget
D. continuous budget
32.
“Incremental budgeting” refers to
A. line-by-line approval of expenditures
B. setting the budget allowances based on prior year expenditures
C. requiring top management approval of increases in budgets
D. using incremental revenues and costs in budgeting
33.
Which of the following is a contemporary approach to budgeting?
A. Incremental approach
B. Zero-based approach
C. Baseline approach
D. All of the given choices
34.
Budget slack is a condition in which
A. demand is low at various times of the year
B. excess machine capacity exists in some areas of the plant
C. there is an intentional overestimate of expenses or an underestimate of revenues
D. managers grant favored employees extra time-off
35.
The usual starting point when developing a sales forecast is
A. The production budget
B. The cash budget
C. Last year’s level of sales
D. Competitor budget information
36.
Budgetary slack occurs when:
A. Costs are estimated too high and sales are estimated too high
B. Costs are estimated too high but sales are estimated too low
C. Costs are estimated too low but sales are estimated too high
D. Costs are estimated too low and sales are estimated too low
37.
Which of the following is not a consideration in the preparation of a sales budget or sales forecast?
A. General economic trends
B. Anticipated marketing or advertising plans
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C. Issuance of the current year’s financial statements
D. Anticipated price changes in both purchasing costs and sales prices
38.
A common starting point in the budgeting process is
A. expected future net income.
B. past performance.
C. the total market size.
D. a clean slate, with no expectations.
39.
Which of the following statements is incorrect regarding sales forecasting?
A. It may involve the use of elaborate planning models and regression analysis
B. It may rely heavily on the intuition and opinions of managers
C. Other budgets are rarely affected by errors in sales forecasts
D. The usual starting point is last year’s level of sales
40.
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.
41.
The “percentage” used in the percent-of-sales calculation can be obtained from
A. The most recent financial statement item as a percent of current sales.
B. An average computed over several years.
C. An analyst’s judgment.
D. All of the above.
42.
Which of the following are considered to be spontaneous sources of financing?
A. Notes payable and common stock
B. Accounts receivable and bonds
C. Fixed assets and inventory
D. Accounts payable and accrued expenses
43.
Discretionary financing needs implies
A. That management may choose between various forms of debt and equity.
B. That the purchases being financed are optional rather than necessary.
C. That management has considerable discretion in how to dispose of retained earnings.
D. That management may choose between debt, new equity or retained earnings.
44.
Which of the following will reduce the firm’s financing requirements?
A. The firm operates at full capacity
B. The firm has excess capacity
C. The firm expects rapid growth in sales
D. The firm increases its dividend payout ratio
45.
Because financial planning usually takes place in a highly uncertain environment
A. It is rarely worth the time and expense.
B. Time horizons should be limited to a few months.
C. It is important to develop contingency plans to respond to unexpected events.
D. It should avoid such specific issues as what sources of financing to use.
PROBLEMS:
Lindsey Insurance Co. has current sales of P10 million and predicts next year's sales will grow to P14 million. Current
assets are P3 million and fixed assets are P4 million. The firm's net profit margin is 7% after taxes. Presently, Lindsey has
P900,000 in accounts payable, P1.1 million in long-term debt, and P5 million (including P2.5 million in retained earnings)
in common equity. Next year, Lindsey projects that current assets will rise in direct proportion to the forecasted sales, and
that fixed assets will rise by P500,000. Lindsey also plans to pay dividends of P400,000 to common shareholders.
1. What are Lindsey's total financing needs for the upcoming year?
2. Given the above information, what are Lindsey's discretionary financing needs?
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The balance sheet of the Jackson Company is presented below:
Jackson Company Balance Sheet
March 31, 2017
(Millions of pesos)
Current assets P12
Accounts payable
P6
Fixed assets
18
Long-term debt
12
Total
P30
Common equity
12
Total
P30
For the year ending March 31, 2017, Jackson had sales of P35 million. The common stockholders received all net
earnings of the firm in the form of cash dividends, leaving no funds from earnings available to the firm for expansion
(assume that depreciation expense is just equal to the cost of replacing worn-out assets).
The company is expecting the level of sales to be P45 million. Assume current assets and accounts payable vary as a
percent of sales, and fixed assets remain at the present level.
Compute for:
3. Projected total assets
4. Discretionary financing needs
Prism Design, Inc. sells a variety of porcelain products including porcelain sinks. In December 31, the company had
1,000 sinks in inventory. The company’s policy is to maintain a sink inventory equal to 5 percent of next month’s sales.
The company expects the following sales activity for the first quarter of the year as:
January
15,000 sinks
February
20,000 sinks
March
23,000 sinks
5. What is the projected production for February?
Montalbo Company’s sales budget shows the following expected sales for the following year:
Quarter
Units
First
120,000
Second
160,000
Third
90,000
Fourth
110,000
Total
480,000
The inventory at December 31 of the prior year was budgeted at 36,000 units. The quantity of finished goods inventory
at the end of each quarter is to equal 30% of the next quarter’s budgeted unit sales.
6. How many units should be produced during the first quarter?
Violin Company manufactures a single product. It keeps its inventory of finished goods at twice the coming month’s
budgeted sales and inventory of raw materials at 150% of the coming month’s budgeted production requirements. Each
unit of product requires two pounds of materials. The production budgets in units consist of the following:
May
1,000
June
1,200
July
1,300
August
1,600
7. Raw material purchases in June would be?
Michael Cage Manufacturing Company sells birdhouses. The company has prepared the following forecast for the third
quarter of 2017:
July
5,000 units
August
6,000 units
September
10,000 units
Inventory of finished goods in June 30, 2017 is budgeted at 1,000 units. Management would like the desired quantity of
finished goods inventory at the end of each month to equal 20 percent of next month’s budgeted sales. October’s
projected sales are 12,000 units.
Each completed unit of finished product requires 3 square feet of cedar at a cost of P15 per square foot.
The company has determined that it needs 10 percent of next month’s raw material needs on hand at the end of each
month.
8. The cost of the direct material that should be purchased in August is?
Shoeline Company manufactures a single product. It keeps its inventory of finished goods at 75% of the coming month’s
budgeted sales. It also keeps its inventory of raw materials at 50% of the coming month’s budgeted production
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requirement. Each unit of product requires two pounds of materials. The production budget in units: May, 1,000; June,
1,200; July, 1,300; August, 1,600.
9. Raw material purchases in July would be?
Clover Company desires an ending inventory of P140,000. It expects sales of P800,000 and has a beginning inventory of
P130,000. Cost of sales is 65% of sales.
10. Budgeted purchases are?
Caress Co. has projected its sales to be P600,000 in January, P750,000 in February, and P800,000 in March. Caress
wants to have 50% of next month’s sales needs on hand at the end of each month.
11. If Caress has an average gross profit of 40%, what are the February purchases?
Cost of goods sold
P750,000 x 0.6
P450,000
Add Ending Inventory
P800,000 x 0.6 x 0.5
240,000
Total available for sale
P690,000
Deduct Beginning inventory P450,000 x 0.5
225,000
Budgeted purchases, February
P465,000
Coach Company budgeted purchases of P100,000. Cost of sales was P120,000 and the desired ending inventory was
P42,000.
12. The beginning inventory was?
Cost of sales
P120,000
Add Desired ending inventory
42,000
Total available for sale
162,000
Deduct Budgeted purchases
100,000
Beginning inventory
P 62,000
German Company sells a single product. Budgeted sales for the year are anticipated to be 640,000 units. The
estimated beginning and ending finished goods inventory are 108,000 and 90,000, respectively. A production of one
unit requires the following materials:
Material LL
0.50 lb. @ P0.60
Material MM
1.00 lb. @ P1.70
Material NN
1.20 lb. @ P1.00
Compute for the peso amounts of material to be used in production during the year:
13. Material LL
14. Material MM
15. Material NN
LL
MM
NN
Budgeted production
622,000
622,000
622,000
Required
materials
per
unit of product
0.50
1.00
1.2
Materials required
311,000
622,000
746,400
Unit cost
P0.60
P1.70
P1.00
Peso amounts of materials
used by units produced
P186,600
P1,057,40
P746,400
0
Budgeted sales in units
640,000
Add Finished goods, end
90,000
Total
730,000
Deduct Finished goods, beginning
108,000
Budgeted production
622,000
The payment schedule of purchases made on account is: 60% during the month of purchase, 30% in the following
month, and 10% in the subsequent month. Total credit purchases were P200,000 in May, and P100,000 in June. Total
payments on credit purchases were P140,000 in June.
16. What were the credit purchases in the month of April?
Total payments for purchases in June
P140,000
Deduct payments applicable to purchase of:
June (P100,000 x 0.6)
P60,000
May (P200,000 x 0.30)
60,000 120,000
Payments applicable to April purchase
P 20,000
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Credit purchase in April: P20,000  0.10
P200,000
Florida Company plans to sell 400,000 units of finished product in July and anticipates a growth rate in sales of 5% per
month. The desired monthly ending inventory in units of finished product is 80% of the next month’s estimated sales.
There are 300,000 finished units in the inventory on June 30. Each unit of finished product requires four pounds of
direct materials at a cost of P2.50 per pound. There are 800,000 pounds of direct materials in the inventory on June
30.
17. How many units should be produced for the three-month period ending September 30?
Sales for three-month period:
July
400,000
August 400,000 x 1.05
420,000
September 420,000 x 1.05
441,000
Total
1,261,000
Inventory, September 30
(441,000 x 1.05 x 0.8)
370,440
Total Requirements
1,631,440
Less July Inventory
300,000
Budgeted Production
1,331,440
Lopez Company has a collection schedule of 60% during the month of sales, 15% the following month, and 15%
subsequently. The total credit sales in the current month of September were P80,000 and total collections in September
were P57,000.
18. What were the credit sales in July?
Total cash collections
P57,000
Deductions collections on September
sales (P80,000 x 0.6)
48,000
Collections applicable to July and August sales
P 9,000
Credit sales in July: P9,000  2  0.15
P30,000
Selerum Company has P299,000 in accounts receivable on January 1, 2017. Budgeted sales for January are
P860,000. Selerum expects to sell 20% of its merchandise for cash. Of the remaining sales, 75% are expected to be
collected in the month of sale and the remainder the following month.
19. The January cash collections from sales are:
Collections from:
January sales (P860,000 x 0.8 x 0.75)
P516,000
December sales (January 1 Accounts)
299,000
Collections of credit sales
815,000
Cash sales
(P860,000 x 0.2)
172,000
Total cash received
P987,000
Barat Company began its operations on January 1 of the current year. Budgeted sales for the first quarter are
P240,000, P300,000, and P420,000, respectively, for January, February and March. Barat Company expects 20% of its
sales on cash and the remainder on account. Of the sales on account, 70% are expected to be collected in the month
of sale, 25% in the month following the sale, and the remainder in the following month.
20. How much should Barat receive from sales in March?
Cash sales (March) 0.2 x P420,000
P 84,000
Collections of account sales:
March sales: (P420,000 x 0.8 x 0.7)
235,200
February sales: (P300,000 x 0.8 x 0.25)
60,000
January sales: (P240,000 x 0.8 x .05)
9,600
Total cash from sales
P388,800
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