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Exam 6: Operational Budgets

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Question 21

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Differences between budgeted amounts and actual amounts are called budget benchmarks.

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Question 22

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Cash receipts, cash disbursements and short term borrowing or investments all appear in the cash budget.

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Question 23

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Zariz Ltd budgeted product costs for the third quarter of 2019 were based on an expected volume of 2,000 units. The budgeted unit costs appear below: $\begin{array}{lr}\text { Direct material } & \$ 1.50 \\\text { Direct labor } & 2.25 \\\text { Variable overhead } & 4.25 \\\text { Fixed overhead } & \underline{3.00} \\\quad \text { Total } & \underline{\$ 11.00} \\\end{array}$ Zariz Ltd's total budgeted product cost for the third quarter of 2019 was:

Cash payments are always budgeted to take place in the month in which the transaction is budgeted to occur.

Poster Artist Ltd, a retail store selling classic and rare marketing materials, has just completed its master budget for the next fiscal year. Ending inventory is budgeted at 20% of cost of goods available for sale. Selected data from that process appear in the table below: $\begin{array} { l l } \text { Begirring irventory } & \$ 20,000 \\\text { Budgeted purchases } & 50,000 \\\text { Expected reverue } & 150,000 \\\text { Irflows of cash } & 120,000 \\\text { Support departments costs } & 30,000 \\\text { Total cash outflows } & 80,000\end{array}$ Poster Artist Ltd's budgeted gross profit for the next fiscal year will be:

The operating budget is another name for master budget.

Preparation of the operating budgets should start with the capital budget.

One way to decrease budgetary slack is to offer bonuses for accurate forecasts.

Super Solar Systems has forecast the following unit sales and production for the next year, by quarter: $\begin{array} { | l | l | l | l | l | } \hline & 1 ^ { \text {st } } & 2 ^ { \text {nd } } & 3 ^ { \text {rd } } & 4 ^ { \text {th } } \\\hline \text { Production } & 75 & 80 & 70 & 50 \\\hline \text { Sales } & 60 & 70 & 75 & 60 \\\hline\end{array}$ Super Solar has the following beginning inventories: $\begin{array} { | l | l | } \hline \text { Firished Goods } & 50 \\\hline \text { Direct Material A } & 50 \\\hline \text { Direct Material B } & 50 \\\hline\end{array}$ A finished unit requires one unit of material A and two units of material B There should be enough material on hand at the end of each quarter to meet 20% of the next quarter's production needs. There are no work-in-process inventories. How much material A must be purchased in quarter 2?

An organization operating in a highly competitive and volatile environment is likely to have more significant budget variances than an established business with low uncertainty about business operations.

Which of the following is not an objective of budgeting?

Managers need information from about current beginning inventories and required ending inventories to prepare the capital budget.

A budget cycle refers to the length of time that the budget period covers.

The production budget requires a forecasted level of sales volume.

In 2018, Flowers Ltd budgeted its sales volume at 10,000 units. Actual volume was 9,800 units. If Flowers Ltd uses the static budget to calculate variances and assuming that inventory levels are insignificant, which of the following statements is true?

At the end of 2019, Dubai Mission prepared its master budget for 2020. Selected amounts from that budget, along with actual results for 2020, are presented below: $\begin{array} { l r r } & \underline { \text { Budgeted } } & \underline { \text { Actual } } \\\text { Sales } & \$ 180,000 & \$ 210,000 \\\text { Research and development cost } & 25,000 & 20,000 \\\text { Interest revenue } & 7,600 & 7,000 \\\text { Cost of goods sold } & 60,000 & 65,000 \\\text { Marketing costs } & 45,000 & 45,000\end{array}$ The variance for cost of goods sold could be explained by:

When evaluating actual results at the end of an accounting period, the flexible budget provides the appropriate benchmark for actual operations.

The master budget reflects the entity's future operating and financing decisions and is often summarized in a set of budgeted financial statements.

A favourable variance may be caused by efficient use of resources or less activity than expected.

The master budget includes two components: an operating budget and a flexible budget.