Master Budgets and Planning

The process of planning future business actions and expressing those plans in a formal manner, usually in monetary terms, is called budgeting.

True / False
True
The budgeting process can be used to promote a positive effect on employees' attitudes, but it can also yield a negative one.

True / False
True
The task of preparing the budget normally is the responsibility of one department, the controller's department or a department of one of the high-level managers.

True / False
False
Most successful businesses generally prepare their budgets from 'the top down'. These budgets are tightly controlled by upper management.

True / False
False
Since the budget period normally coincides with the accounting period, budgets of less than one year or greater than one year are not normally prepared.

True / False
False
When a company adds one increment of time to its budget period as one increment of time expires, it is practicing continuous budgeting.

True / False
True
The cash budget is a financial budget.

True / False
True
The operating budgets provide all of the information necessary for the preparation of the budgeted income statement.

True / False
False
Normally, the cash budget is the first sub budget prepared in the process of developing the master budget.

True / False
False
A quantity of merchandise or materials that is held as inventory to compensate for unexpected demand or delays in receipts from suppliers is called the just-in-time inventory stock.

True / False
False
The total amount of budgeted expenses from the selling budget and the general and administrative budget are shown as disbursements in the cash budget.

True / False
False
The general and administrative expense budget should include any amortization on equipment used by either function.

True / False
True
The ending cash balance of the cash budget should be equal to the net income shown on the budgeted income statement.

True / False
False
When a company starts each budgeting period at 'ground zero', the budgets are prepared as if they are the first budget prepared for the company.

True / False
True
The manufacturing budget is a statement of the estimated cost of materials to produce a product.

True / False
False
The production budget for a manufacturer and the merchandise purchases budget for a retailer are similar in structure and content--both show the cost of obtaining the product to be sold or manufactured.

True / False
False
The direct materials budget shows the amount of cash outflow for the purchase of direct materials over the period of the budget.

True / False
False
The production budget, direct materials budget, direct labour budget, and manufacturing overhead budget are all tied to the projections in the sales budget.

True / False
True
A formal statement of future plans, usually expressed in monetary terms, is called a ________________.

BUDGET
A managerial accounting report that presents predicted amounts of the company's assets, liabilities, and shareholders' equity as of the budget period is called a budgeted ________________.

BALANCE SHEET
A managerial accounting report that presents predicted amounts of the company's revenues and expenses for the budget period is called a budgeted ________________.

INCOME STATEMENT
________________ is the process of planning future business actions and expressing them as formal plans.

BUDGETING
The budget that deals with predicted acquisition(s) and disposal(s) of operating assets is called a ________________ budget.

CAPITAL EXPENDITURES
A ________________ budget is a plan that shows the expected inflows and outflows of cash during the budget period.

CASH
Another term for a rolling budget is a ________________ budget.

CONTINUOUS
Management by ________________ is the principle that management should focus attention on significant deviations from budget when evaluating performance.

EXCEPTION
The combination and interaction of all the budgets (financial, operating, and budgeted financial statements) prepared by a firm is called the ________________ budget.

MASTER
One of the budgets that does not show dollar amounts but rather shows activities in terms of units is called a ________________ budget.

PRODUCTION
When a new budget period replaces the ones that have lapsed, a company is said to use a ________________ budget.

ROLLING
The excess of inventory requirements that is kept on hand to reduce the risk of running out is called a ________________.

SAFETY STOCK
A formal statement of future plans, usually expressed in monetary terms.
Budget
A managerial accounting report that presents predicted amounts of the company's assets, liabilities, and shareholders' equity as of the budget period.
Budgeted balance sheet
A managerial accounting report that presents predicted amounts of the company's revenues and expenses for the budget period.
Budgeted income statement
The process of planning future business actions and expressing them as formal plans.
Budgeting
A plan that lists dollar amounts to be received from disposing of equipment and dollar amounts to be spent on purchasing additional equipment if the proposed production program is carried out.
Capital expenditures budget
A plan that shows the expected cash inflows and outflows during the budget period, including receipts from loans needed to maintain a minimum cash balance and repayments of such loans.
Cash budget
The practice of preparing budgets for each of several future periods and revising those budgets as each period is completed; as one period is completed, a new budget is added, with the result that the budget always covers the same number of future periods.
Continuous budgeting
A plan that shows the predicted operating expenses not included in the selling expenses budget.
General and administrative expense budget
A plan that shows the predicted costs for materials, direct labour, and overhead costs to be incurred in manufacturing the units in the production budget.
Manufacturing budget
A comprehensive or overall formal plan for a business that includes specific plans for expected sales, the units of product to be produced, the merchandise (or materials) to be purchased, the expense to be incurred, the long-term assets to be purchased, and the amounts of cash to be borrowed or loans to be repaid, as well as a budgeted income statement and balance sheet.
Master budget
A plan that states the units or costs of merchandise to be purchased by a merchandising company during the budget period.
Merchandise purchases budget
A plan showing the number of units to be produced each month.
Production budget
As each monthly or quarterly budget period goes by, a firm adds new monthly or quarterly budgets to replace the ones that have lapsed.
Rolling budgets
Inventory on hand to reduce the risk of running out; a quantity of merchandise or materials over the minimum needed to satisfy budgeted demand.
Safety stock
A plan showing the units of goods to be sold and the revenue to be derived from the sales; the starting point in the budgeting process because the plans for most departments are related to sales.
Sales budget
A plan that lists the types and amounts of selling expenses expected during the budget period.
Selling expense budget