16. In zero-based budgeting, which of the following statements are True?
1. All activities in the company are organized into break-up units called packages.
2. All costs have to be justified every budgeting period.
3. The process is not time consuming since justification of costs can be done as a
routine matter.
a. All three statements. c. Statement 1 only.
b. Statements 1 and 2 only. d. Statement 2 and 3 only.
17. A budget that is expressed in units of materials, number of employees, or number
of man-hours or service units rather than in pesos is known as
a. Planning budget b. Progressive budget c.Physical budget d. Traditional budget
18. Which of these statements are advantages of profit planning?
1. Develops profit-mindedness, encourages cost consciousness and resources utilization
throughout the company.
2. Provides vehicle to communicate objectives, gain support for the plan, of what is
expected, thereby developing a sense of commitment to achieve established goals.
3. Provides yardstick to evaluate actual performance; encouraging efficiency,
increasing output and reducing cost.
4. Provides a sense of direction for the company and enhances coordination of business
activity.
5. Eliminates or takes over the role of administration by providing detailed
information that allows executives to operate toward achievement of the
organization’s objectives.
a. Statements 3, 4, and 5 only. c. Statements 1, 3, and 4 only.
b. All five statements. d. Statements 1, 2, 3, and 4 only.
19. For a company that does not have resource limitations in what sequence would the
budgets be prepared?
1. cash budget 4. production budgets
2. sales budget 5. purchase budgets
3. inventory budgets
a. sequence 2, 3, 4, 5 and 1 c. sequence 2, 4, 3, 5 and 1
b. sequence 2, 3, 4,1 and 5 d. sequence 4, 3, 2, 1 and 5
20. A budget that identifies revenues and costs with an individual controlling their
incurrence is
a. Master budget c. Responsibility budget
b. Product budget d. None of the above
21. If a company has a policy of maintaining an inventory of finished goods at a
specified percentage of the next month's budgeted sales, budgeted production for
January will exceed budgeted sales for January when budgeted
a. February sales exceed budgeted January sales.
b. January sales exceed budgeted December sales.
c. January sales exceed budgeted February sales.
d. December sales exceed budgeted January sales.
22. A company that maintains a raw material inventory, which is based on the
following month's production needs, will purchase less material than it uses in a
month where
a. sales exceed production.
b. production exceeds sales.
c. planned production exceeds the next month's planned production.
d. planned production is less than the next month's planned production.
23. A company has prepared a cash budget for January through June of 20x3. Which of
the following, discovered in February 20x3, is LEAST likely to require revising the cash
budget?
a. February sales are lower than budgeted.
b. The interest rate on short-term borrowing is higher than budgeted.
c. The company increased from 10% to 20% the down payment it requires from
customers.
d. The company changed inventory methods from LIFO to FIFO.
24. Which of the following is not a functional budget?
a. Research and development budget c. Cash budget
b. Purchasing budget d. Direct labor cost
25. By the end of this year you expect to have a cash balance of P500,000. Which of these
transactions/indicators (not considered in your estimate) will reduce this balance?
a. A modification on credit terms to customers will reduce credit sales.
b. A dialogue with key suppliers will allow discounts on extended payment terms.
c. A new machine will be bought with proceeds from a bank loan that will carry a
17% interest per annum and monthly payments over 2 years.
d. The ratio of current trade receivables to total receivables will decrease.
26. Information not shown in the cash budget but needed in the preparation of the
statement of operations for the period
a. Sales b. Dividends c. Inventory levels d. Tax Payments
27. Which of the following is LEAST likely to be affected if unit sales for this month are
lower than budgeted?
a. Production for this month. c. Cash receipts for next month.
b. Production for next month. d. Inventory at the end of this month.
28. The cash budget for 20x2 would be affected in some way by all of the following
EXCEPT
a. A cash dividend declared in 20x1 for payment in 20x2.
b. A cash dividend declared in 20x2 for payment in 20x3.
c. Interest expense on loans taken out and repaid during 20x2.
d. The sales forecast for the first month in 20x3.
29. Net cash inflow is given too much emphasis by managers today, for they know that cash
is the common cause of business failures. Net cash inflow is equal to
a. Cash balance at the beginning + cash receipts – cash disbursements
b. Cash balance at the end of last month + cash from all sources of revenue – revenue
payments
c. Cash received during the period minus cash disbursements during the period
d. Cash sales and collections of accounts receivable minus revenue and capital
expenditures
30. A financing gap occurs when
a. Required assets exceed available equities.
b. The budgeted cash balance goes below the minimum required balance.
c. Budgeted cash receipts are less than budgeted cash disbursements.
d. Any of the above occurs.
