Multiple-Choice Questions
1. A company plans on selling 220 units. The selling price per unit is $ 24. There are 20 units in beginning inventory, and the company would like to have 50 units in ending inventory. How many units should be produced for the coming period?
a. 250
b. 200
c. 230
d. 220
e. None of these
2. Which of the following is needed to prepare a budgeted income statement?
a. The production budget
b. Budgeted selling and administrative expenses
c. The budgeted balance sheet
d. The capital expenditures budget
e. Last year’s income statement
3. Select the one budget below that is not an operating budget.
a. Cost of goods sold budget
b. Cash budget
c. Production budget
d. Overhead budget
e. All of these are operating budgets.
4. The cash budget serves which of the following purposes?
a. Documents the need for liberal inventory policies
b. Reveals the amount of depreciation expense
c. Reveals the amount lost due to uncollectible accounts
d. Provides information about the ability to repay loans
e. None of the above
5. Assume that a company has the following accounts receivable collection pattern:
Month of sale ........ 40%
Month following sale .... 60%
All sales are on credit. If credit sales for January and February are $ 200,000 and $ 100,000, respectively, the cash collections for February are
a. $ 140,000.
b. $ 300,000.
c. $ 120,000.
d. $ 160,000.
e. $ 80,000.
6. The percentage of accounts receivable that are uncollectible can be ignored for cash budgeting because
a. No cash is received from an account that defaults.
b. It is included in cash sales.
c. It appears on the budgeted income statement.
d. For most companies, it is not a material amount.
e. None of the above is correct.
7. An ideal budgetary system is one that
a. Encourages dysfunctional behavior.
b. Encourages goal-congruent behavior.
c. Encourages myopic behavior.
d. Encourages subversion of an organization’s goals.
e. Does none of these.
8. Some key budgetary features that tend to promote positive managerial behavior are
a. Frequent feedback on performance.
b. Participative budgeting.
c. Realistic standards.
d. Well-designed monetary and nonmonetary incentives.
e. All of these.
9. Which of the following is not an advantage of participative budgeting?
a. It fosters a sense of creativity in managers.
b. It tends to lead to a higher level of performance.
c. It fosters a sense of responsibility.
d. It encourages greater goal congruence.
e. It encourages budgetary slack.
10. Which of the following items is a possible example of myopic behavior?
a. Failure to promote deserving employees
b. Reducing expenditures on preventive maintenance
c. Cutting back on new product development
d. Buying cheaper, lower-quality materials so that the company does not exceed the materials purchases budget
e. All of these.