The Master Budget and
Responsibility Accounting
Chapter 22
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All of the following are key benefits of budgeting
except:
1. provides a benchmark for evaluating
performance
2. forces manager to plan for the future
3. ensures a positive cash flow
4. promotes coordination and communication
within the organization
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Answer: 3
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The operating budget includes all of the following
except
1.
2.
3.
4.
Operating expense budget
Budgeted income statement
Sales budget
Capital expenditures budget
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Answer: 4
Although the capital expenditures budget is a part
of the Master Budget, it is not part of the Operating
Budget
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The preparation of the Master Budget begins with
1.
2.
3.
4.
Operating expense budget
Budgeted income statement
Sales budget
Capital expenditures budget
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Answer: 3
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The purchasing department has gathered the
following data:
Sales from sales budget
$50,000
Beginning Inventory
2,000
Projected ending inventory
3,000
Cost of goods sold
40% of sales
How much inventory must be purchased?
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Answer: $21,000 must be purchased
Beg. Inventory + Purchases – End. Inventory = CGS
$2,000
+ Purchases - $3,000 = ($50,000 x 40%)
$2,000
+ Purchases - $3,000 = $20,000
Purchases = $20,000 - $2,000 + $3,000
Purchases = $21,000
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The following have been projected in appropriate
budgets:
Sales for October: $50,000
Cost of goods sold: 60% of sales
Sales are expected to increase by 10% in
November.
What is the budgeted gross profit for November?
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Answer:
Budgeted sales for Nov.($50,000 x 110%) $55,000
Less cost of goods sold ($55,000 x 60%)
33,000
Budgeted gross profit for Nov.
$22,000
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The following amounts have been projected:
Sales from sales budget: $50,000
Salaries: $10,000
Commissions: 10% of sales
Rent: $1,000
Miscellaneous expenses: 6% of sales
What are the projected operating expenses?
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Answer: Projected operating expenses = $19,000
Salaries
Commissions
Rent
Miscellaneous
Total
$10,000
5,000
1,000
3,000
$19,000
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Which of the following would not be included in the
cash budget?
1.
2.
3.
4.
Cash payments to suppliers
Depreciation expense
Cash receipts from customers
Cash payments for 1 year’s insurance in
advance
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Answer: 2 Depreciation is a noncash expense.
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The following cash transactions are projected:
Beginning cash balance
$1,000
Cash sales
6,000
Cash receipts of past-period credit sales
5,000
Cash purchases
3,000
Payment of operating expenses
4,000
Payment on vehicles & equipment
2,000
Minimum ending cash balance required
4,500
What is the budgeted cash amount at the end of the
period?
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Answer: $3,000
Beginning cash balance
$1,000
Cash sales
6,000
Cash receipts of past-period credit sales
5,000
Subtotal
$12,000
Cash purchases
($3,000)
Payment of operating expenses
(4,000)
Payment on vehicles & equipment
(2,000) (9,000)
Budgeted ending cash balance
$3,000
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Bertrand Co. budgets the following credit sales:
January, $4,000; February, $2,000; March, $6,000.
Prior experience shows that payment for credit
sales is received as follows: 10% in the month of
sale, 70% in the first month after sale, 10% in the
second month after the sale, and 10%
uncollectible. How much cash does Bertrand
expect to collect in March as a result of credit
sales?
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Answer:$2,400
Collections from Jan. sales ($4,000 x 10%)
Collections from Feb. sales ($2,000 x 70%)
Collections from Mar. sales ($6,000 x 10%)
Total
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$400
1,400
600
$2,400
In which responsibility center is the manager
responsible for the center’s expenses?
1.
2.
3.
4.
Cost center
Revenue center
Profit center
Investment center
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Answer: 1
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The practice of directed executive attention to
important deviations from budgeted amounts is
called management by:
1.
2.
3.
4.
Objectives
Exception
Intimidation
Data analysis
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Answer: 2
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Famous Co. compiled the following information at
the end of the period:
Budgeted
Actual
Sales
$10,000
$8,000
Cost of goods sold
6,000
4,400
Operating expenses
2,000
1,500
What amount of variance does the performance
report for the period show? [Indicate whether the
variance is positive/(negative)]
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Answer: +$100
Budgeted net income
Actual net income
Positive variance
$2,000
2,100
$100
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Responsibility accounting reports at various levels
are used to
1. Make managers at all levels accountable
2. Identify coordination weaknesses
3. Decide which manager gets fired at the end of
each period.
4. Inform the public about the company’s ability to
manage resources.
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Answer: 1
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