When a budget is easily achieved, it is said to have budgetary slack in it. When budgetary slack exists
either revenues are understated or expenses are overstated to which makes it difficult to properly evaluate the
Mien Co. is budgeting sales of 53,000 units of product Nous
for October 2012. The manufacture of one unit of Nous requires
four kilos of chemical Loire. During October 2012, Mien plans
to reduce the inventory of Loire by 50,000 kilos and increase the
finished goods inventory of Nous by 6,000 units. There is no
Nous work in process inventory. How many kilos of Loire is
Mien budgeting to purchase in October 2012?
(c) The requirement is to determine the number of
kilos of chemical Loire that Mien is planning to purchase in October.
The first step is to prepare a production budget for product
Increase in ending inventory 6,000
Total units needed 59,000
Next, a purchases budget for raw material Loire should be prepared.
Production needs (59,000 × 4) 236,000
Decrease in ending inventory (50,000)
Total kilos needed 186,000
Note that the production needs for Loire equal the number of
units of Nous to be produced times the number of kilos of Loire
needed per unit (4).
The master budget
(d) The requirement is to identify a characteristic of the
master budget. Answer (d) is correct because the master budget
is a comprehensive budget that includes both the operating and
financial budgets. Answer (a) is incorrect because the master
budget does not show actual results. Answer (b) is incorrect
because the master budget shows all costs, controllable and uncontrollable.
Answer (c) is incorrect because the master budget
is not structured for the computation of variances.
Which of the following best describes tactical profit plans?
(c) The requirement is to define a tactical profit plan.
Answer (c) is correct because tactical profit plans have the characteristics
of being quantified, detailed and short-term, and assigning
responsibilities at all levels. Answer (a) is incorrect because
tactical profit plans are quantitative with detailed assigned
responsibilities. Answer (b) is incorrect because tactical profit
plans are detailed. Answer (d) is incorrect because tactical profit
plans are detailed, short-term, quantitative, and include assigned
responsibilities at all levels.
Which of the following budgeting systems focuses on improving
(d) The requirement is to identify the budgeting technique
that focuses on improving operations. Answer (d) is correct
because Kaizen budgeting projects costs on the basis of improvements
to be implemented. Answer (a) is incorrect because
responsibility budgeting focuses on the ability of the manager to
control the cost. Answer (b) is incorrect because activity-based
budgeting uses cost drivers to determine budgeted costs. Answer
(c) is incorrect because operational budgeting focuses on budgeting
Which of the following is included in a firm’s financial
(b) The requirement is to identify the item that is part of
a financial budget. Answer (b) is correct. The financial budget
includes the capital budget, cash budget, and the budgeted
statement of cash flows. The operating budget includes the
budgeted income statement and supporting budgets. Answers
(a), (c), and (d) are incorrect because they are part of the operating
Trumbull Company budgeted sales on account of
$120,000 for July, $211,000 for August, and $198,000 for September.
Collection experience indicates that 60% of the budgeted
sales will be collected the month after the sale, 36% the second
month, and 4% will be uncollectible. The cash from accounts
receivable that should be budgeted for September would
(a) The requirement is to calculate the budgeted cash
from collection of accounts receivable. Answer (a) is correct
because the amount is equal to July’s collections in September
plus August’s collections in September. This amount is $169,800
(36% × $120,000 + 60% × $211,000).
Cook Co.’s total costs of operating five sales offices last year
were $500,000, of which $70,000 represented fixed costs. Cook
has determined that total costs are significantly influenced by
the number of sales offices operated. Last year’s costs and number of
sales offices can be used as the bases for predicting annual costs.
What would be the budgeted costs for the coming year if Cook
were to operate seven sales offices?
(b) The requirement is to find the total budgeted costs
for the seven stores in the coming year. Fixed costs last year were
$70,000, and therefore variable costs totaled $430,000. The key
is to find the variable costs per store. This is calculated by dividing
variable costs ($430,000) by the number of stores last year
(five), or, $86,000. Therefore, total costs budgeted in the new
year is calculated as follows:
Variable cost per store $ 86,000
Number of stores × 7
Total budgeted variable costs 602,000
Add: fixed costs 70,000
Total budgeted costs $672,000