Quizzer: MS – 05

BUDGETING
Sources CMA/CIA/RPCPA/Various test banks

1. Which of the following is not an advantage of budgeting?

a. It requires manager to state their objectives.
b. It facilitates control by permitting comparisons of budgeted and actual results.
c. It facilitates performance evaluation by comparing budgets with actual results.
d. It provides a check-up device that allows managers to keep close tabs on their
subordinates.

2. Budgets are a necessary component of financial decision making because they provide
a (n)
a. Efficient allocation of resources
b. Means to use all the firm’s resources
c. Means to check managerial discretion
d. Automatic corrective mechanism for errors

3. In an organization that plans by using comprehensive budgeting the master budget is

a. A compilation of all the separate operational and financial budget schedules of
the organization
b. The booklet containing budget guidelines, policies and forms to use in the
budgeting process.
c. The current budget updated for operations for part of the current year.
d. A budget for a non-profit entity after it is approved by the appropriate
authoritative body
NOTE: Letter ‘b’ describes a budget manual

4. The sales budget is classified as

a. A financial budget
b. A flexible budget
c. An operating budget
d. A program budget

5. 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
c. Based on expected selling prices of the products
d. Based on probabilities

6. Which if the following is included in a firm’s financial budget?

a. Budgeted income statement
b. Cash budget
c. Production schedule
d. Cost of goods sold budget

7. Which of the following equations can be used to budget purchases? (BI= Beginning
inventory, EI= Ending inventory desired, CGS= Budgeted cost of goods sold)
 a. Budgeted purchases= CGS + BI – EI
b. Budgeted purchases = CGS + BI
c. Budgeted purchases = CGS + EI + BI
d. Budgeted purchases = CGS + EI – BI

8. Colorado Company desires an ending inventory of ₱ 60,000. It expect sales of ₱

120,000 and has a beginning inventory of ₱ 40,000. Cost of sales is 60% of sales.
Budgeted purchases are
a. ₱ 60,000
b. ₱ 72,000
c. ₱ 92,000
d. ₱ 132,000

9. Individual budget schedules are prepared to develop an annual comprehensive or

master budget. The budget schedule that would provide the necessary input data for the
direct labor budget would be the
a. Sales forecast
b. Raw materials purchases budget
c. Schedule of cash receipts and disbursement
d. Production budget

10. South Dakota Company budgets sales of 22,000 units for January, 30,000 for February.
The budgeted beginning inventory for January 1 was 7,000 units. South Dakota desires
an ending inventory equal to one-half of the following month’s sales needs. What is the
budgeted production for January?
a. 37,000 units
b. 30,000 units
c. 26,000 units
d. 14,000 units

11. Florida keeps its inventory of finished goods at 75% of the coming month’s budgeted
sales and inventory of raw materials at 50% of the coming month’s budgeted production
needs. Each unit of production requires 2 pounds of materials. The production budget is
in units: May, 1,000; June, 1,200; July, 1,300; August, 1,600. What would be the raw
material purchases in June?
a. 1,525 pounds
b. 2,500 pounds
c. 2,800 pounds
d. 3,050 pounds

12. New Jersey Co. is budgeting sales of 53,000 units of product A1 for 2015. The
manufactured of one unit of A1 requires 4kilos of chemical Z5. During 2015, New Jersey
plans to reduce the inventory of Z5 by 50,000 kilos and increase the finished goods
inventory of A1 by 6,000 units. There is no work-in-process inventory. How many kilos of
Z5 is New Jersey budgeting to purchase in 2015?
a. 138,000
b. 162,000
c. 186,000
d. 238,000

13. Washington Company has the following 2015 budget data.

 Beginning finished goods inventory 40,000 units
Sales 70,000 units
Ending finished goods inventory 30,000 units
Direct materials ₱ 10 per unit
Direct labor ₱ 20 per unit
Variable factory overhead ₱ 5 per unit
Fixed factory overhead ₱ 80,000
What are the 2015 total budgeted production costs?
a. ₱ 2,100,000
b. ₱ 2,180,000
c. ₱ 2,240,000
d. ₱ 2,320,000

14. Montana Company’s budget contains the following information

Units
Beginning finished goods inventory 85
Beginning work-in-process in equivalent units 10
Desired ending finished goods inventory 100
Desired ending work-in-process in equivalent units 40
Projected Sales 1,800
How many equivalent units should Montana plans to produce?
a. 1565
b. 1800
c. 1815
d. 1845

15. The information contained in a cost of goods manufactured budget most directly relates
to the
a. Materials used, direct labor, overhead applied, and ending work-in-process
b. Materials used, direct labor, overhead applied, and work-in-process inventories
budgets
c. Materials used, direct labor, overhead applied, and work-in-process inventories,
and finished goods inventories budgets
d. Materials used, direct labor, overhead applied, and finished goods inventories
budgets

16. Maine CO. makes payments for purchases 30% during the month of purchase and the
remainder the following month. April purchases are projected to be ₱ 80,000; May
purchases will be ₱ 120,000. What will be the cash payments on account for May?
a. ₱ 36,000
b. ₱ 54,000
c. ₱ 84,000
d. ₱ 92,000

17. Nebraska Company, a merchandising firm is preparing its master budget and has
gathered the following data to help budget cash disbursements
Budgeted data
Cost of goods sold ₱ 1,680,000
Desired decrease in inventories 70,000
Desired decrease in accounts payable 150,000
 All of the accounts payables are for inventory purchases and all inventories are
purchased on account. What are the estimated cash disbursements for inventories for
the budget period?
a. ₱ 1,460,000
b. ₱ 1,600,000
c. ₱ 1,900,000
d. ₱ 1,760,000

Items 20 and 21 are based on the following information

Operational budgets are used for planning and controlling its busness activities. Data
regarding a company’s sales for the last 6 months of the year and its projected collection
patterns are shown below
Forecast sales
July ₱ 775,000
August 750,000
September 825,000
October 800,000
November 850,000
December 900,000

Types of sales
Cash sales 20%
Credit sales 80%

Collection Pattern for Credit Sales

In the month of sale 40%
In the first month following the sale 57%
Uncollectible 3%
The cost of merchandise averages 40% of its selling price. The company’s policy is to
maintain an inventory equal to 25% of the next month’s forecasted sales. The inventory
balance at cost is ₱ 80,000 as of June 30

18. The budgeted cost of the company’s purchases for the month of August would be
a. ₱ 302,500
b. ₱ 305,000
c. ₱ 307,500
d. ₱ 318,750

19. The company’s total cash receipts from sales and collections on account that would be
budgeted for the month of September would be
a. ₱ 757,500
b. ₱ 771,000
c. ₱ 793,600
d. ₱ 856,500

20. Alaska Company has budgeted sales on account of ₱ 120,000 for July, ₱ 211,000 for
August and ₱ 198,000 for September. Collection experience indicates that 60% of the
budgeted sales will be collected the month after the sale 36% the second month, and
4% will be uncollectible. What would be the cash from accounts receivable that should
be budgeted for September?
 a. ₱ 169,800
b. ₱ 194,760
c. ₱ 197,880
d. ₱ 198,600

21. The Pennsylvania Company is preparing its cash budget for the month of May. The
following information is available concerning its accounts receivable.
Estimated credit sales for May ₱ 200,000
Actual credit sales for April 150,000
Estimated collections in May for credit sales in May 20%
Estimated collections in May for credit sales in April 70%
Estimated collections in May for credit sales prior to April ₱ 12,000
Estimated write-offs in May for uncollectible credit sales 8,000
Estimated provision for bad debts in May for credit sales in May 7,000
What are the estimated cash receipts from accounts receivable collections in May?
a. ₱ 142,000
b. ₱ 149,000
c. ₱ 150,000
d. ₱ 157,000

22. The cash budget should help to ensure

a. That enough cash is on hand at all times to satisfy maximum cash requirements
b. Sufficient liquidity without an excess amount of idle cash
c. That cash dividends can be paid every quarter
d. That sufficient cash is available to pay salaries, even if it means borrowing the
money

23. The cash budget for 2015 would be affected in some way by all of the following except\
a. A cash dividend declared in 2014 for payment in 2015
b. A cash dividends declared in 2015 for payment in 2016
c. Interest expense on loans taken out and repaid during 2015
d. The sales forecast for the first month in 2016

24. The budget method that maintains a constant twelve month planning horizon by adding
a new month on the end as the current month is completed is called
a. An operating budget
b. A capital budget
c. A continuous budget
d. A master budget

25. A company that uses zero-based budgeting has

a. An expense budget of zero
b. Zero as the starting point of budgeting the coming year’s expenses
c. A zero variance between budgeted and actual performance
d. An assumed sales level of zero
 26. Net working capital is the difference between
a. Total assets and total Iiabilities
b. Current assets and current liabilities
c. Fixed assets and current liabilities
d. Shareholders' investment and cash

27. If current assets go up by P 120,000, current liabilities go down by P 50,000, then net working
capital
a. Did not change
b. Increased by P 70,000
c. Increased by P 170,000
d. Decreased by P 170,000

28. Shown below is a forecast of sales for Europe Inc. for the first 4 months of the year

January February March April

Cash sales P15,000 P24,000 P18,000 P14,000
Credit on 100,000 120,000 90,000 70,000
sales

50% of credit sales are paid for in the month of sale, 30% in the following month, and the
remainder months after the month of sale. Assuming there are no bad debts. what is the
expected cash inflow in March?

A. P 138,000
B. P 122,000
C. P 119,000
D. P 108,000