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Exam 7: Planning for Profit and Cost Control

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Question 21

True/False

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One advantage of participatory budgeting is that it allows subordinates to perform the budgeting function thus freeing up upper management for more important tasks.

A) True
B) False

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Question 22

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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 answers are correct

E) B) and D)
F) C) and D)

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Question 23

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How do budget expectations influence a company's employees?

Budgeted cash payments for inventory would appear on the:

In a participative budgeting system,budget information flows in both directions,from bottom to top,and from top to bottom.

Depreciation expense will appear on the schedule of cash payments for selling and administrative expenses.

Cheyenne Company has budgeted the following information for June: $\begin{array}{|l|r|}\hline \text { Cash receipts }& \$ \quad 271,000\\\hline \text { Beginning cash balance } & 5,000 \\\hline \text { Cash payments } & 280,000 \\\hline \text { Desire dending cash balance } & 25,000\\\hline\end{array}$ If there is a cash shortage,the company borrows money from the bank.All cash is borrowed at the beginning of the month in $1,000 increments and interest is paid monthly at 1% on the first day of the following month.The company had no debt before June 1^st.The amount of interest paid on July 1 would be:

Select the term from the list of terms that best matches the description provided. $\begin{array}{|l|l|l|}\hline \text {Your Answer } & \text {Definition no Descrittint } &\text {Term } \\\hline & \text {A. This shows the inventory needs for each month. } &\text {1. Cash budget} \\\hline & \text { B. This shows the projected financinl condition of the company at the end of the budget period } &\text {2. Inventory purchases budget } \\\hline & \text {C. Comparison of actual results to budget expectations in order to evaluate employee andhor department performance.} &\text {3. Performance measurement.} \\\hline & \text {D. Expected borrowing (firancing activities) and related interest expense are shown in this budget. } &\text {4. Pro forma balance sheet } \\\hline & \text {E . This budget is the starting point for the entire master budget.} &\text {5. Pro forma financial statements } \\\hline & \text {F. These are based on projected rather than historical information} &\text {6. Pro forme income statement. } \\\hline & \text { G. This provides an advance estimate of the expected profitability.} &\text {7. Sales budget } \\\hline\end{array}$

What information does the sales budget provide for pro forma financial statements?

The type of planning that involves long term decisions,such as defining the scope of the business and deciding what products to make is known as:

The selling and administrative expense budget is prepared prior to the cash budget.

What is the amount of cost of goods sold the company will report on its fourth quarter pro forma income statement?

Bonnie's Bakery is a relatively small company that makes pies,cakes,and cookies sold in supermarkets.Sales employees' bonuses are determined based on meeting or exceeding the budget.For the coming year,sales employees have set a budget target of 3 percent for sales growth.The market has been growing at 6 percent,and the company has averaged 10 percent growth for the last two years.What is the problem here,and how can it be fixed?

A company's numerous specific budgets (sales,inventory purchases,etc. ) together are referred to as the:

What is the amount of sales revenue that the company will report on the second quarter pro forma income statement?

A schedule of cash receipts is often prepared in conjunction with the sales budget.

Budgeting that involves decisions such as whether to buy or lease equipment or build a new factory is referred to as:

Select the term from the list provided that best matches the description provided.

The basic cash budget format is: Total cash available - Total cash disbursed = Surplus or shortage of cash +/ - Effects of financing = Ending cash.

The capital budget does not affect any of a company's operating budgets.