McGraw-Hill Education 2,000 Review Questions for the CPA Exam

Denise M Stefano; Darrel Surett

Chapter 17 Planning and Budgeting - all with Video Answers

Educators

Chapter Questions

Problem 120

Participative budgeting can be characterized by which of the following?
I. Increased motivation
II. More time consuming
III. Decreased acceptance
A. I and II
B. II and III
C. I and III
D. I, II, and III

Rikhil Makwana

Numerade Educator

Problem 121

Which of the following types of budgets would NOT be contained in the master budget?
I. Operating budgets
II. Financial budgets
A. I only
B. II only
C. Both I and II
D. Neither I nor II

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Problem 122

Which of the following would be found in the operating rather than the financial budget?
I. Pro forma income statement
II. Capital expenditures budget
A. I only
B. II only
C. Both I and II
D. Neither I nor II

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Problem 123

Which of the following budgets is/are generally produced BEFORE the sales budget?
I. Production budget
II. Cash budget
A. I only
B. II only
C. Both I and II
D. Neither I nor II

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01:27

Problem 124

A manufacturer wants to improve its staging process and compares this process against the check-in process for a major airline. In doing so, the tool the manufacturer is using is:
A. Six Sigma
B. economic value-added
C. benchmarking
D. total quality management

Oluwadamilola Ameobi

Numerade Educator

Problem 125

Which of the following budgets is prepared independently of the sales budget?
A. Production budget
B. Selling and administrative budget
C. Cash budget
D. Capital expenditures budget

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Problem 126

Which of the following budgets are appropriate for planning because they involve both fixed and variable costs?
I. Flexible budgets
II. Static budgets
A. I only
B. II only
C. Both I and II
D. Neither I nor II

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Problem 127

A static budget:
I. is based on costs at one level of output
II. includes budgeted costs for actual and budgeted output
A. I only
B. II only
C. Both I and II
D. Neither I nor II

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01:00

Problem 128

The annual business plan typically begins with operating budgets driven by which of the following?
A. Financial budgets
B. Production budgets
C. Personnel budgets
D. Sales budgets

Natalie Britton

Numerade Educator

01:38

Problem 129

Of the four budgets listed, what is the proper order in which they are prepared?
I. Cash disbursements budget
II. Production budget
III. Direct materials budget
IV. Sales budget
A. IV, II, III, I
B. IV, I, III, II
C. III, II, IV, I
D. I, II, III, IV

Raghvendra Singh

Numerade Educator

Problem 130

What are sales forecasts based upon?
I. Past patterns of sales
II. Changes in the firm's prices
III. Results of market research studies
A. I and II
B. I, II, and III
C. II and III
D. I and III

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Problem 131

What is the required unit production level given the following factors?
$$
\begin{array}{lr}
\text { Projected sales } & 2,000 \\
\text { Beginning inventory } & 185 \\
\text { Desired ending inventory } & 220 \\
\text { Prior-year beginning inventory } & 30
\end{array}
$$
A. 1,965 units
B. 2,035 units
C. 1,995 units
D. 1,935 units

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Problem 132

A company's controller is adjusting next year's budget to reflect the impact of an expected $4 \%$ inflation rate. Listed are selected items from next year's budget before the adjustment:
$$
\begin{array}{lr}
\text { Salaries expense } & \$ 210,000 \\
\text { Insurance expense } & \$ 120,000 \\
\text { Supplies expense } & \$ 60,000
\end{array}
$$
After adjusting for the $4 \%$ inflation rate, what is the company's total budget for the selected items before taxes for next year?
A. $$\$ 380,000$$
B. $$\$ 395,800$$
C. $$\$ 401,200$$
D. $$\$ 405,600$$

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Problem 133

. A company's controller is adjusting next year's budget to reflect the impact of an expected $4 \%$ inflation rate. Listed are selected items from next year's budget before the adjustment:
$$
\begin{array}{lr}
\text { Salaries expense } & \$ 210,000 \\
\text { Insurance expense } & \$ 120,000 \\
\text { Supplies expense } & \$ 60,000 \\
\begin{array}{l}
\text { Depreciation expense }
\end{array} & \$ 25,000 \\
\begin{array}{l}
\text { Interest expense on 10-year fixed } \\
\text { rate bonds }
\end{array} & \$ 27,000
\end{array}
$$
After adjusting for the $4 \%$ inflation rate, what is the company's total budget for the selected items before taxes for next year?
A. $$\$ 459,680$$
B. $$\$ 458,680$$
C. $$\$ 458,350$$
D. $$\$ 457,600$$

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Problem 134

Rascal Company plans to produce 100,000 toy fire trucks during July. Planned production for August is 150,000 trucks. Sales are forecasted at 90,000 trucks for July and 110,000 trucks for August. Each truck has eight wheels. Rascal's policy is to maintain $5 \%$ of the next month's production in inventory at the end of a month. How many wheels should Rascal purchase during July?
A. 860,000
B. 820,000
C. 810,000
D. 780,000

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Problem 135

Mallard Inc. is in the process of preparing its annual budget. The following beginning and ending inventory levels (in units) are planned for the year ending December 31, Year 4:
(TABLE CAN'T COPY)
Two units of raw material are needed to produce each unit of finished product. If Mallard plans to sell 380,000 units during Year 4, how many units would it have to manufacture during the year?
A. 400,000 units
B. 360,000 units
C. 350,000 units
D. 325,000 units

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Problem 136

The sales budget for Wagner Industries shows quarterly sales for the next year as follows:
(TABLE CAN'T COPY)
Wagner's policy is to have a finished goods inventory at the end of each quarter equal to $10 \%$ of the next quarter's sales. What would budgeted production for the second quarter of the next year be?
A. 8,700 units
B. 9,300 units
C. 9,550 units
D. 9,900 units

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Problem 137

Yanna Corp. manufactures computer tables. The tabletops are manufactured by Yanna, but the keyboard draw is purchased from an outside supplier. The assembly department takes a manufactured table and attaches the keyboard draw. It takes 30 minutes of labor to assemble a keyboard draw to a table. The company follows a policy of producing enough tables to ensure that $30 \%$ of next month's sales are in the finished goods inventory. Yanna also purchases sufficient raw materials to ensure that raw materials inventory is $55 \%$ of the following month's scheduled production. Yanna's sales budget in units for the fourth quarter of Year 1 follows:
$$
\begin{array}{ll}
\text { October } & 2,400 \\
\text { November } & 3,000 \\
\text { December } & 2,100
\end{array}
$$
Yanna’s ending inventories in units for September 30, Year 1, are:
$$
\begin{array}{ll}
\text { Finished goods } & 1,600 \\
\text { Raw materials (keyboard draws) } & 3,800
\end{array}
$$
What is the number of computer tables to be produced during November in Year 1?
A. 1,825 tables
B. 2,210 tables
C. 2,340 tables
D. 2,730 tables

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Problem 138

Tucker Tool and Dye has developed the following production plan:
(TABLE CAN'T COPY)
Each unit contains 3 pounds of raw material. The desired raw material ending inventory each month is $120 \%$ of the next month's production, plus 500 pounds. (The beginning inventory meets this requirement.) Tucker has developed the following direct labor standards for production of these units:
(TABLE CAN'T COPY)
Tucker's total budgeted direct labor dollars for March usage should be:
A. $$\$ 162,000$$
B. $$\$ 122,000$$
C. $$\$ 202,000$$
D. $$\$ 192,000$$

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Problem 139

Inputs in calculating a cost of goods manufactured budget include which of the following?
I. Overhead applied
II. Material usage
A. I only
B. II only
C. Both I and II
D. Neither I nor II

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Problem 140

Inputs in calculating a cost of goods manufactured budget include which of the following?
I. Finished goods inventory
II. Work-in-process inventory
A. I only
B. II only
C. Both I and II
D. Neither I nor II

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Problem 141

The selling and administrative expense budget can be correctly described as:
I. a financial rather than an operational budget
II. dependent upon sales
A. I only
B. II only
C. Both I and II
D. Neither I nor II

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Problem 142

Stirling Corp. is preparing a Year 1 cash budget for the purchase of merchandise. Budgeted data are:
Cost of goods sold for Year 1
$$\$ 200,000$$
Accounts payable, Jan. 1, Year $$1 \$ \$ 20,000$$
Inventory, Jan. 1, Year $$1 \$ \$ 30,000$$
Inventory, Dec. 31, Year $$1 \$ \$ 43,000$$
Purchases will be made in 12 equal monthly amounts and paid for in the following month. What is Stirling's Year 1 budgeted cash payment for purchases of merchandise?
A. $$\$ 210,750$$
B. $$\$ 215,250$$
C. $$\$ 226,250$$
D. $$\$ 245,000$$

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Problem 143

The cash budget shows itemized cash receipts and disbursements during the period, including the:
I. financing activities
II. beginning cash balances
A. I only
B. II only
C. Both I and II
D. Neither I nor II

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Problem 144

Which of the following is/are correct regarding a cash budget?
I. The cash budget shows the availability of funds for repayment of debt.
II. The cash budget is usually NOT broken down into monthly periods.
A. I only
B. II only
C. Both I and II
D. Neither I nor II

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Problem 145

Singer Company budgeted sales on account of $$\$ 200,000$$ for October, $$\$ 250,000$$ for November, and $$\$ 275,000$$ for December. Collection experience indicates that $70 \%$ of the budgeted sales will be collected the month after the sale, $26 \%$ the second month, and $4 \%$ will be uncollectible. The cash receipts from accounts receivable that should be budgeted for December would be:
A. $$\$ 198,250$$
B. $$\$ 199,700$$
C. $$\$ 147,700$$
D. $$\$ 191,712$$

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Problem 146

Levin Inc. is preparing a schedule of cash receipts and disbursements for Year 4. Which of the following items should be included?
I. Borrowing funds from a bank on a note payable taken out in August Year 4 and agreeing to pay the principal and interest in July Year 5
II. Dividends declared in October Year 4 to be paid in January Year 5 to shareholders of record as of December Year 4
A. I only
B. II only
C. Both I and II
D. Neither I nor II

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Problem 147

Which of the following would NOT be included in a statement of cash receipts and disbursements for KingPin Corp. in Year 2?
I. A purchase order issued in December Year 2 for items to be delivered in January Year 3
II. The amount of uncollectible customer accounts for Year 2
A. I only
B. II only
C. Both I and II
D. Neither I nor II

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Problem 148

Norris Company forecasted first quarter sales of 10,000 units, second quarter sales of 15,000 units, third quarter sales of 14,000 units, and fourth quarter sales of 17,000 units at $$\$ 4$$ per unit. Past experience has shown that $70 \%$ of the sales will be in cash and $30 \%$ will be on credit. All credit sales are collected in the following quarter, and none are uncollectible. What amount of cash is forecasted to be collected in the second quarter?
A. $$\$ 54,000$$
B. $$\$ 42,000$$
C. $$\$ 30,000$$
D. $$\$ 28,500$$

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06:09

Problem 149

Which of the following budgeted (pro forma) financial statements is prepared first?
A. Pro forma statement of cash flows
B. Pro forma income statement
C. Pro forma balance sheet
D. May be prepared in any order

Puneet Prajapati

Numerade Educator

Problem 150

Flexible budgeting is limited because it is highly dependent upon an accurate identification of:
I. fixed cost
II. variable cost per unit
A. I only
B. II only
C. Both I and II
D. Neither I nor II

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Problem 151

Planned additions of capital equipment from the capital budget are added to the:
I. pro forma balance sheet
II. cash budget
A. I only
B. II only
C. Both I and II
D. Neither I nor II

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Problem 152

A flexible budget would NOT be appropriate for:
I. service industries
II. a direct labor usage budget
A. I only
B. II only
C. Both I and II
D. Neither I nor II

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Problem 153

When calculating net income using flexible budgeting, which of the following would be assumed constant within a relevant range?
I. Variable cost per unit
II. Total fixed cost
III. Selling price per unit
A. II only
B. I and II
C. II and III
D. I, II, and III

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02:04

Problem 154

A flexible budget contains:
A. budgeted costs for budgeted output
B. actual costs for budgeted output
C. budgeted costs for actual output
D. actual costs for actual output

Oluwadamilola Ameobi

Numerade Educator

02:02

Problem 154

If flexible budgeting is used, how much is contribution margin per unit based on actual sales of 12,000 units?
A. $$\$ 4.00$$
B. $$\$ 5.10$$
C. $$\$ 4.55$$
D. None of the above

Amany Waheeb

Numerade Educator

Problem 156

How much is the operating income for Hyson Inc. using a flexible budget for July?
A. $$\$ 31,200$$
B. $$\$ 21,000$$
C. $$\$ 23,000$$
D. $$\$ 15,000$$

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Problem 157

If Gilbert Watches uses a flexible budget to analyze its performance, the variable cost flexible budget variance for March is
A. $$\$ 500$$ unfavorable
B. $$\$ 500$$ favorable
C. $$\$ 3,500$$ unfavorable
D. $$\$ 3,500$$ favorable

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Problem 158

The fixed cost variance for March is:
A. $$\$ 700$$ unfavorable
B. $$\$ 700$$ favorable
C. $$\$ 2,500$$ favorable
D. $$\$ 300$$ unfavorable

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Problem 159

The initial budget forecast for Jayson Corp. was production of 10,000 units during the year with a variable cost of $$\$ 10$$ per unit. Jayson produced 9,000 units during the year. Actual variable manufacturing costs were $$\$ 89,000$$. What is Jayson's flexible budget variance for the year?
A. $$\$ 1,000$$ unfavorable
B. $$\$ 11,000$$ favorable
C. $$\$ 1,000$$ favorable
D. $$\$ 11,000$$ unfavorable

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Problem 160

Which of the following would NOT be a purpose for identifying manufacturing variances and assigning their responsibility to a person or department?
I. To promote learning and improve operations
II. To provide useful information about pricing of finished goods
A. I only
B. II only
C. Both I and II
D. Neither I nor II

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Problem 161

A company budgeted the need for 10,000 materials at a price of $$\$ 30$$ per unit. The actual units needed turned out to be 11,400 at a price of $$\$ 28.50$$ per unit. What is the company's materials price variance?
A. $$\$ 15,000$$ unfavorable
B. $$\$ 17,100$$ unfavorable
C. $$\$ 17,100$$ favorable
D. $$\$ 15,000$$ favorable

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Problem 162

For the current period production levels, Imhoff Company budgeted 12,300 board feet of production and purchased 15,000 board feet. The material cost was budgeted at $$\$ 7$$ per foot. The actual cost for the period was $$\$ 9.50$$ per foot. What was Imhoff's material price variance for the period?
A. $$\$ 37,500$$ favorable
B. $$\$ 30,750$$ favorable
C. $$\$ 30,750$$ unfavorable
D. $$\$ 37,500$$ unfavorable

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Problem 163

The difference between standard hours at standard wage rates and actual hours at standard rates is referred to as:
A. indirect labor variance
B. direct labor rate variance
C. direct labor rate
D. direct labor efficiency variance

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Problem 164

Romeo Manufacturing has relevant information for material Tyrisis as follows:
(TABLE CAN'T COPY)
What was the direct material price variance for material Tyrisis?
A. $$\$ 700$$ unfavorable
B. $$\$ 600$$ unfavorable
C. $$\$ 600$$ favorable
D. $$\$ 700$$ favorable

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Problem 165

The direct labor efficiency variance:
I. could be unfavorable as a result of an unfavorable material usage variance
II. is calculated by using the standard wage rate rather than the actual wage rate
A. I only
B. II only
C. Both I and II
D. Neither I nor II

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Problem 166

When analyzing unfavorable variances, inadequate supervision may explain the reason behind an unfavorable:
I. material price variance
II. labor usage variance
A. I only
B. II only
C. Both I and II
D. Neither I nor II

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Problem 167

The purchase of higher than standard quality material would likely result in:
A. an unfavorable material price variance and a favorable material usage variance
B. a favorable material price variance but an unfavorable material efficiency variance
C. an unfavorable material price variance and an unfavorable material usage variance
D. a favorable material usage variance and a favorable material price variance
A total of 84,000 direct labor hours were worked at a total cost of $$\$ 840,000$$.
The standard direct labor rate is $$\$ 9$$ per hour.
The standard direct labor time per unit is four hours.

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Problem 168

The direct labor price variance for September was
A. $$\$ 84,000$$ favorable
B. $$\$ 84,000$$ unfavorable
C. $$\$ 79,000$$ unfavorable
D. $$\$ 79,000$$ favorable

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Problem 169

Mojo planned on producing 25,000 generators, but only 20,000 were actually produced. What was the direct labor efficiency variance for September?
A. $$\$ 36,000$$ unfavorable
B. $$\$ 36,000$$ favorable
C. $$\$ 40,000$$ unfavorable
D. $$\$ 40,000$$ favorable

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Problem 170

Barlow's material price variance for October is
A. $$\$ 15,750$$ unfavorable
B. $$\$ 15,488$$ favorable
C. $$\$ 15,750$$ favorable
D. $$\$ 15,488$$ unfavorable

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Problem 171

Barlow's labor rate variance for October is
A. $$\$ 875$$ unfavorable
B. $$\$ 875$$ favorable
C. $$\$ 3,063$$ unfavorable
D. $$\$ 3,063$$ favorable

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Problem 172

Gabriel Corp. uses a standard costing system. At the end of the current year, the company provides the following overhead information:
$$
\begin{array}{lr}
\text { Actual direct labor hours } & 10,000 \\
\text { Actual overhead incurred } & \$ 80,000 \text { (variable), } \\
& \$ 52,000 \text { (fixed) } \\
\text { Budgeted fixed overhead } & \$ 55,000 \\
\begin{array}{l}
\text { Variable overhead rate } \\
\quad(\text { per direct labor hour) }
\end{array} & \$ 9 \\
\begin{array}{c}
\text { Standard hours allowed } \\
\text { for actual production }
\end{array} & 11,000
\end{array}
$$
What is Gabriel's variable overhead efficiency variance?
A. 0
B. $$\$ 9,000$$ unfavorable
C. $$\$ 9,000$$ favorable
D. $$\$ 19,000$$ favorable

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Problem 173

Ryan Corp. budgeted sales of 5,250 at $$\$ 13$$ per unit but sold 4,000 at $$\$ 16$$ per unit. Ryan would compute a selling price variance of:
A. $$\$ 3,750$$ unfavorable
B. $$\$ 12,000$$ favorable
C. $$\$ 15,750$$ favorable
D. $$\$ 4,250$$ favorable

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Problem 174

Harper Company has gathered the following information from a recent production run:
$$
\begin{array}{lr}
\text { Standard variable overhead rate } & \$ 20 \\
\text { Actual variable overhead rate } & \$ 16 \\
\text { Standard process hours } & 44 \\
\text { Actual process hours } & 50
\end{array}
$$
What is the company's variable overhead spending variance?
A. $$\$ 200$$ favorable
B. $$\$200$$ unfavorable
C. $$\$176$$ favorable
D. $$\$ 176$$ unfavorable

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Problem 175

Which of the following can occur when the quantity budgeted to be sold differs from the quantity actually sold?
I. Sales price variance
II. Sales volume variance
A. I only
B. II only
C. Both I and II
D. Neither I nor II

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Problem 176

Which of the following can be used to monitor the purchasing manager's performance?
A. Direct material usage variance
B. Direct labor rate variance
C. Indirect material usage variance
D. Direct material price variance

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Problem 177

Benchmarking can be best defined as:
A. the complete redesign of a process within an organization
B. the development of the most effective methods of completing tasks in a particular industry
C. a technique that examines product and process attributes to identify areas for improvements
D. the comparison of existing activities with the best levels of performance in other, similar organizations

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01:33

Problem 178

Which of the following could be used as an example of responsibility accounting?
I. Cost center
II. Profit center
III. Investment center
A. I and III
B. II and III
C. I and II
D. I, II, and III

Muhammad Ahsan

Numerade Educator

01:33

Problem 179

Strategic business units (SBUs) are classified into different types based on the responsibility levels assigned to their managers. Put the following SBUs in order from least responsibility to greatest responsibility.
I. Profit SBU
II. Cost SBU
III. Revenue SBU
IV. Investment capital SBU
A. II, IV, I, III
B. II, I, III, IV
C. II, III, I, IV
D. IV, II, I, III

Muhammad Ahsan

Numerade Educator

Problem 180

The balanced scorecard reports management information regarding organizational performance as defined by "critical success factors." These critical success factors are often classified as:
I. human resources
II. business process
III. customer satisfaction
IV. financial performance
A. I, III, and IV
B. I, II, and IV
C. II, III, and IV
D. I, II, III, and IV

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Problem 181

Responsibility accounting defines a "profit center" as being responsible for:
I. revenues
II. costs
III. invested capital
A. I and III
B. I, II, and III
C. I only
D. I and II

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Problem 182

How does responsibility accounting define and describe an investment center?
I. An investment center is responsible for revenues, expenses, and invested capital.
II. An investment center is similar to an independent business.
A. I only
B. II only
C. Both I and II
D. Neither I nor II

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Problem 183

Which of the following would be contained in a performance report for a cost center?
I. Controllable costs
II. Controllable revenues
A. I only
B. II only
C. Both I and II
D. Neither I nor II

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Problem 184

The financial perspective of a balanced scorecard is concerned with which of the following?
I. Capture of increased market share
II. Employee satisfaction and retention measures
A. I only
B. II only
C. Both I and II
D. Neither I nor II

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Problem 185

The "internal business" perspective of the balanced scorecard measures:
I. results of business operations through improved efficiencies
II. nonfinancial performance such as employee satisfaction and retention
A. I only
B. II only
C. Both I and II
D. Neither I nor II

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Problem 186

Which section of the balanced scorecard would focus on results of operations and utilization of assets?
I. Customer
II. Financial
III. Learning and innovation
A. II only
B. I and II
C. II and III
D. I, II, and III

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01:54

Problem 187

Sales less variable costs less controllable fixed costs is referred to as the:
A. contribution margin
B. controllable margin
C. overhead efficiency variance
D. volume variance

Oluwadamilola Ameobi

Numerade Educator

Problem 188

Which of the following is/are correct regarding controllable margins?
I. Controllable margins are specifically defined as contribution margin less controllable fixed costs.
II. The reporting objective of controllable margin is to most clearly define those margins for which a manager is responsible.
A. I only
B. II only
C. Both I and II
D. Neither I nor II

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