Miscellaneous Budgeting Topics and Quizbowl Questions

Kaizen Budgeting

• A budgeting technique which takes into account the costs of improving the product.

• Kaizen is a Japanese term for “improvement” and refers to the philosophy or practices that focus on continuous improvement of processes in manufacturing, engineering, and business management.

Activity-based Budgeting

• The traditional approach to budgeting which emphasizes the estimation of revenues and costs by organizational units and the use of a single unit-based driver such as direct labor hours.

Activity-based budgeting (an example) • ABC manufactures three standard products which it sells to several large wholesale

chains. Production (which is highly automated) occurs in large batches, and goods are shipped to customers in slightly smaller batches. Details of a typical month’s output are as follows:

• Two types of indirect labor are employed, namely, 4 quality control inspectors (at a cost of P4,000 each per month) and 9 administrators (at a monthly cost of P3,500 each). Each employee works a standard 180 hours per month. The role of the quality control staff is to inspect a sample from each batch of output produced. This takes a standard 3 hours inspection time per batch produced. The administrators perform two tasks, namely, shipping processing work (which takes 2 hours per batch shipped) and monitoring of production (at the rate of one hour of administrator time for every 600 units of output).

Product A B C Total

Units of output 100,000 200,000 450,000 750,000

Production machine hours (PMH) per unit of output 0.3 PMH 0.2 PMH 0.4 PMH

Production batch size (units) 2,500 4,000 7,500

Shipment batch size (units) 2,000 2,000 5,000

Activity-based budgeting (an example) • In addition to the production machinery (which has a capacity of 225,000

production machine hours (PMH) per month), there are two additional types of specialized machinery which perform automated production setup and automated shipment loading procedures. Details of these two machines are:

• Prepare an activity based budget for ABC Company.

Production setup machinery Shipment loading machinery

Monthly capacity 650 hours 400 hours

Usage rates 4 hours per batch produced 1.5 hours per batch produced

Quizbowl

EASY ROUND

5 points each

Question 1

• 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 manufacturing overhead.

d. Production budget.

Question 2

• A budget manual, which enhances the operation of a budget system is most likely to include:

a. Chart of accounts.

b. Distribution instructions for budget schedules.

c. Employee hiring policies.

d. Documentation of the accounting system software.

Question 3

• This refers to a budget that describes the long-term position, goals, and objectives of an entity within its environment is the:

a. Capital budget.

b. Operating budget.

c. Cash management budget.

d. Strategic budget.

Question 4

• An advantage of participative budgeting is that it:

a. Minimizes the cost of developing budgets.

b. Reduces the effect on the budgetary process of employee biases.

c. Yields information known to management but not to employees.

d. Encourages acceptance of the budget by employees.

Question 5

• In preparing a corporate master budget, which one of the following is most likely to be prepared last?

a. Sales budget.

b. Cash budget.

c. Production budget.

d. Cost of goods sold budget.

Question 6

• An advantage of incremental budgeting when compared with zero based budgeting is that incremental budgeting:

a. Encourages adopting new projects quickly.

b. Accepts the existing base as being satisfactory.

c. Eliminates functions and duties that have outlived their usefulness.

d. Eliminates the need to review all functions periodically to obtain optimum use of resources.

Question 7

• The process of developing plans for a company’s expected operations and controlling the operations to help carry out those plans is known as:

a. Preparing a period budget.

b. Preparing a master budget.

c. Budgetary control.

d. Participative budgeting.

Question 8

• A budget period is usually good for:

a. 1 month.

b. 1 quarter.

c. 1 year.

d. 5 years.

Question 9

• After the goals of the company have been established and communicated, the next step in the planning process is the development of the:

a. Sales budget.

b. Production budget.

c. Direct materials budget.

d. Selling and administrative budget.

Question 10

• A budget slack:

a. Overstates revenue and/or understates costs.

b. Understates revenue and/or overstates costs.

c. Overstates revenue and costs.

d. Understates revenue and costs.

Question 11

• This is a budget that lists all costs of production other than direct materials and direct labor:

a. Cash disbursement budget.

b. Manufacturing overhead budget.

c. Operating expense budget.

d. Ending finished goods inventory budget.

Question 12

• The following are parts of a financial budget, except:

a. Budgeted income statement.

b. Budgeted statement of cash flows.

c. Budgeted balance sheet.

d. Cash budget.

Question 13

• A method of budgeting in which the cost of each program must be justified, starting with the one most vital to the company is:

a. Flexible budgeting.

b. Zero-based budgeting.

c. Continuous budgeting.

d. Probabilistic budgeting.

Question 14

• On January 1, Barnes Company has 8,000 units of Product A on hand. During the year, the company plans to sell 30,000 units of Product A, and plans to have 6,500 units on hand at year end. How many units of Product A must be produced during the year?

Question 15

• The budget that is usually the most difficult to forecast is the:

a. Production budget.

b. Expense budget.

c. Sales budget.

d. Manufacturing overhead budget.

MODERATE ROUND

10 points each

Question 1

• Which one of the following is usually not cited as being an advantage of a formal budgetary process?

a. Forces management to evaluate the reasonableness of assumptions used and goals identified in the budgetary process.

b. Ensures improved cost control within the organization and prevents inefficiencies.

c. Provides a formal benchmark to be used for feedback and performance evaluation.

d. Serves as a coordination and communication device between management and subordinates.

Question 2

• A major feature of zero based budgeting is that it: a. Takes the previous year’s budgets and adjusts

them for inflation. b. Questions each activity and determines whether

it should be maintained as it is, reduced, or eliminated.

c. Assumes all activities are legitimate and worthy of receiving budget increases to cover any increased costs.

d. Focuses on planned capital outlays for property, plant, and equipment.

Question 3

• Which one of the following statements regarding the difference between a flexible budget and a static budget is true?

a. A flexible budget primarily is prepared for planning purposes, while a static budget is prepared for performance evaluation.

b. A flexible budget provides cost allowances for different levels of activity, whereas a static budget provides costs for one level of activity.

c. A flexible budget includes only variable costs, whereas a static budget includes only fixed costs.

d. A flexible budget is established by operating management, while a static budget is determined by top management.

Question 4 • All of Gaylord Company's sales are on account. Thirty-

five percent of the credit sales are collected in the month of sale, 45% in the month following sale, and the rest are collected in the second month following sale. Bad debts are negligible and should be ignored. The following are budgeted sales data for the company:

January February March April

Total sales 50,000 60,000 40,000 30,000

What is the amount of cash that should be collected in March?

Question 5

• FF is preparing its cash budget for the next year. Sales are expected to be $100k in January, $200k in February, $300k in March, and $100k in April. Approximately half of all sales are cash sales, and the other half are on credit. Experience indicates that 70% of the credit sales will be collected in the month following the sale, 20% the month after that, and 10% in the third month after the sale. What are the budgeted collections for April?

Question 6 • Pooler Corporation is working on its direct labor budget for

the next two months. Each unit of output requires 0.15 direct labor-hours. The direct labor rate is $7.00 per direct labor-hour. The production budget calls for producing 6,500 units in April and 6,200 units in May. The company guarantees its direct labor workers a 40-hour paid work week. With the number of workers currently employed, that means that the company is committed to paying its direct labor work force for at least 1,000 hours in total each month even if there is not enough work to keep them busy. What would be the total combined direct labor cost for the two months?

Question 7

• Haylock Inc. bases its manufacturing overhead budget on budgeted direct labor-hours. The direct labor budget indicates that 5,600 direct labor-hours will be required in August. The variable overhead rate is $5.40 per direct labor-hour. The company's budgeted fixed manufacturing overhead is $69,440 per month, which includes depreciation of $15,680. All other fixed manufacturing overhead costs represent current cash flows. The August cash disbursements for manufacturing overhead on the manufacturing overhead budget should be:

Question 8

• Sedita Inc. is working on its cash budget for July. The budgeted beginning cash balance is $46,000. Budgeted cash receipts total $175,000 and budgeted cash disbursements total $174,000. The desired ending cash balance is $50,000. The excess (deficiency) of cash available over disbursements for July will be:

Question 9

• Arciba Inc. bases its manufacturing overhead budget on budgeted direct labor-hours. The direct labor budget indicates that 7,400 direct labor-hours will be required in January. The variable overhead rate is $9.50 per direct labor-hour. The company's budgeted fixed manufacturing overhead is $130,980 per month, which includes depreciation of $10,360. All other fixed manufacturing overhead costs represent current cash flows. The company recomputes its predetermined overhead rate every month. The predetermined overhead rate for January should be:

Question 10

• Bustillo Inc. is working on its cash budget for March. The budgeted beginning cash balance is $35,000. Budgeted cash receipts total $142,000 and budgeted cash disbursements total $151,000. The desired ending cash balance is $30,000. To attain its desired ending cash balance for March, the company needs to borrow: