Chapter 9 Profit Planning
460 Garrison, Managerial Accounting, 12th Edition
True/False Questions
1. The sales budget is usually prepared before the production budget.
Answer: True Level: Easy LO: 1,2,3
2. The cash budget is the starting point in preparing the master budget.
Answer: False Level: Medium LO: 1,8
3. The first budget a company prepares in a master budget is the production budget.
Answer: False Level: Medium LO: 1
4. One of the weaknesses of budgets is that they are of little value in uncovering potential
bottlenecks in an organization.
Answer: False Level: Medium LO: 1
5. One of the advantages of a self-imposed budget is that the person directly involved in
an activity is more likely to be in a position to make good budget estimates.
Answer: True Level: Easy LO: 1
6. The basic idea behind responsibility accounting is that top management is responsible
for preparing detailed budgets by which the performance of middle and lower
management will be evaluated.
Answer: False Level: Easy LO: 1
7. Budgeting is a trade-off between planning and control in that increased use of
budgeting will usually improve planning but will weaken control.
Answer: False Level: Medium LO: 1
8. The sales budget often includes a schedule of expected cash collections.
Answer: True Level: Easy LO: 2
9. Uncollectible amounts on credit sales to customers will be listed as cash outflows on
the schedule of expected cash collections.
Answer: False Level: Medium LO: 2
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Profit Planning: REVISION
True / False Questions
The production budget is typically prepared prior to the sales budget.
One benefit of budgeting is that it coordinates the activities of the entire
organization.
Both planning and control are needed for an effective budgeting system.
The master budget is a network consisting of many separate budgets that are
interdependent.
Planning and control are essentially the same thing.
A sales budget is a detailed schedule showing the expected sales for the budget
period; typically, it is expressed in both dollars and units of product.
Both variable and fixed manufacturing overhead costs are included in the
manufacturing overhead budget.
In the selling and administrative budget, the non-cash charges (such as depreciation)
are added to the total budgeted selling and administrative expenses to determine the
expected cash disbursements for selling and administrative expenses.
Operating budgets are financial plans associated with the income-producing activities
of the organization.
The budget that shows how many units must be produced to meet sales needs and
satisfy ending inventory requirements is the production budget.
The collection of all area and activity budgets representing a firm’s comprehensive
plan of action is the master budget
Budgeting is a trade-off between planning and control in that increased use of
budgeting will usually improve planning but will weaken control.
When a company adds one increment of time to its budget period as one increment of
time expires, it is practicing continuous budgeting.
The production budget, direct materials budget, direct labor budget, and
manufacturing overhead budget are all tied to the projections in the sales budget.
Multiple Choice Questions
1. Operating budgets are:
A. a forecast of expected operating expenses.
B. a forecast of operating expenses.
C. concerned with the inflows and outflows of cash.
D. concerned with the income-generating activities of a firm.