1. Copyright © 2007 Prentice-Hall. All rights reserved The Master Budget and Responsibility Accounting Chapter 22

2. Copyright © 2007 Prentice-Hall. All rights reserved 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

3. Copyright © 2007 Prentice-Hall. All rights reserved Answer: 3

4. Copyright © 2007 Prentice-Hall. All rights reserved The operating budget includes all of the following except 1.Operating expense budget 2.Budgeted income statement 3.Sales budget 4.Capital expenditures budget

5. Copyright © 2007 Prentice-Hall. All rights reserved Answer: 4 Although the capital expenditures budget is a part of the Master Budget, it is not part of the Operating Budget

6. Copyright © 2007 Prentice-Hall. All rights reserved The preparation of the Master Budget begins with 1.Operating expense budget 2.Budgeted income statement 3.Sales budget 4.Capital expenditures budget

7. Copyright © 2007 Prentice-Hall. All rights reserved Answer: 3

8. Copyright © 2007 Prentice-Hall. All rights reserved 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?

9. Copyright © 2007 Prentice-Hall. All rights reserved 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

10. Copyright © 2007 Prentice-Hall. All rights reserved 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?

11. Copyright © 2007 Prentice-Hall. All rights reserved 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

12. Copyright © 2007 Prentice-Hall. All rights reserved 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?

13. Copyright © 2007 Prentice-Hall. All rights reserved Answer: Projected operating expenses = $19,000 Salaries$10,000 Commissions5,000 Rent1,000 Miscellaneous3,000 Total$19,000

14. Copyright © 2007 Prentice-Hall. All rights reserved Which of the following would not be included in the cash budget? 1.Cash payments to suppliers 2.Depreciation expense 3.Cash receipts from customers 4.Cash payments for 1 year’s insurance in advance

15. Copyright © 2007 Prentice-Hall. All rights reserved Answer: 2 Depreciation is a noncash expense.

16. Copyright © 2007 Prentice-Hall. All rights reserved The following cash transactions are projected: Beginning cash balance$1,000 Cash sales6,000 Cash receipts of past-period credit sales5,000 Cash purchases3,000 Payment of operating expenses4,000 Payment on vehicles & equipment2,000 Minimum ending cash balance required4,500 What is the budgeted cash amount at the end of the period?

17. Copyright © 2007 Prentice-Hall. All rights reserved Answer: $3,000 Beginning cash balance$1,000 Cash sales6,000 Cash receipts of past-period credit sales5,000 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

18. Copyright © 2007 Prentice-Hall. All rights reserved 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?

19. Copyright © 2007 Prentice-Hall. All rights reserved Answer:$2,400 Collections from Jan. sales ($4,000 x 10%)$400 Collections from Feb. sales ($2,000 x 70%)1,400 Collections from Mar. sales ($6,000 x 10%)600 Total$2,400

20. Copyright © 2007 Prentice-Hall. All rights reserved In which responsibility center is the manager responsible for the center’s expenses? 1.Cost center 2.Revenue center 3.Profit center 4.Investment center

21. Copyright © 2007 Prentice-Hall. All rights reserved Answer: 1

22. Copyright © 2007 Prentice-Hall. All rights reserved The practice of directed executive attention to important deviations from budgeted amounts is called management by: 1. Objectives 2. Exception 3. Intimidation 4. Data analysis

23. Copyright © 2007 Prentice-Hall. All rights reserved Answer: 2

24. Copyright © 2007 Prentice-Hall. All rights reserved Famous Co. compiled the following information at the end of the period: BudgetedActual Sales$10,000$8,000 Cost of goods sold6,0004,400 Operating expenses2,0001,500 What amount of variance does the performance report for the period show? [Indicate whether the variance is positive/(negative)]

25. Copyright © 2007 Prentice-Hall. All rights reserved Answer: +$100 Budgeted net income $2,000 Actual net income2,100 Positive variance$100

26. Copyright © 2007 Prentice-Hall. All rights reserved 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.

27. Copyright © 2007 Prentice-Hall. All rights reserved Answer: 1

28. Copyright © 2007 Prentice-Hall. All rights reserved