In: Accounting
23. Which one of the following items is the last schedule to be prepared in the normal
budget preparation process?
a. Selling and Administrative Expense budget.
b. Cost of goods sold budget.
c. Manufacturing overhead budget.
d. Cash Budget.
24. Which one of the following organizational policies is most likely to result in
undesirable managerial behavior?
a. Joe Walk, the chief executive officer of Eagle Rock Brewery, wrote a
memorandum to his executives stating, "Operating plans are contracts, and
they should be met without fail."
b. The budgeting process at Madsen Manufacturing starts with operating
managers providing goals for their respective departments.
c. Fullbright Lighting holds quarterly meetings of departmental managers to
consider possible changes in the budgeted targets due to changing conditions.
d. At Fargo Transportation, managers are expected to provide explanations for
variances from the budget in their departments.
25. The process of creating formal plan and translating goals into a quantitative format
is
a. Process costing
b. Activity based costing
c. Budgeting
d. Variance analysis
26. Using absorption costing, fixed manufacturing overhead costs are best described
as
a. Indirect product costs
b. Direct product costs
c. Indirect period costs
d. Direct period costs
27. When using a variable costing system, the contribution margin discloses the excess
of
a. Revenues over fixed costs.
b. Projected revenues over the breakeven point.
c. Revenues over variable costs
d. Variable costs over fixed costs
28. Which method of inventory costing treats direct manufacturing costs and
manufacturing overhead costs, both variable and fixed, as inventoriable costs?
a. Direct costing
b. Variable costing
c. Absorption costing
d. Conversion costing
23. The answer is 'd' cash budget. All other options a, b and c are prepared as a part of operational budgets (also known as functional bugets) which precedes preparation of financial budgets (in which cash budget is prepared).
The order of preparation of budgets is as follows:
24. The answer is 'a' Budgets are mere estimates depending on the best possible outcomes. The managers cannot be forced to given firm commitment on adherence of the same. A policy which does so will lead to behavioral problems since the managers may end up with internal conflicts in pursuit of chasing behind the targets.
25. The answer is 'c'.
Budgeting: It is a process of estimating all revenues and expenditure to be incurred in a given period of time. It is a process in which a formal plan which acts as indicative guidelines for performance. It involves forging of goals into quantitative statements and then starting to act.
26. The answer is 'a'
In absorption costing fixed expenses are treated as product costs and are abosorbed into the value of the product on a predetermined basis unlike variable costing which treats fixed expenses as period costs and charge entirely to the income statement of the period in which such costs are incurred. The fixed manufacturin overheads are treated as indiret product costs and are absorbed into the value of production.
27. The answer is 'c'
In variable costing, the costs are segregated into variable costs and fixed costs depending upon their nature (i.e., whether the costs are directly proportionate to the level of activity. If a particular cost is directly proportionate to the changes in activity level, then they are classified as variable expenses and otherwise they are classified as fixed expenses). A typical income statement under variable costing obtains contribution by deducting variable expenses from revenue obtained from operations.
28. The answer is 'c'
Absorption costing treats all the direct costs and manufacturing overheads (irrespective of the nature, i.e., variable or fixed) as inventorable costs and these costs are absorbed on predetermined basis into the value of inventory unlike variable costing in which entire fixed expenses are treated as period costs and are charged to income statement of the period in which they are incurred,