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Lecture 1

33:010:272 Lecture Notes - Lecture 1: Direct Labor Cost, Cash Flow Statement, Budget


Department
Accounting
Course Code
33:010:272
Professor
S A V I T A S A H A Y
Lecture
1

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Cost Accounting, 14e (Horngren/Datar/Rajan)
Chapter 6 Master Budget and Responsibility Accounting
Objective 6.1
1) A budget:
A) is the quantitative expression of a proposed plan of action by management
B) is an aid to coordinate what needs to be done
C) generally includes both financial and nonfinancial aspects of the plan
D) All of the above are correct.
Answer: D
Terms: budget
2) A budget
A) is the quantitative expression of a proposed plan of action.
B) aids in coordinating what needs to be done.
C) includes both financial and nonfinancial aspects.
D) All of these answers are correct.
Answer: D
Terms: budget
3) Budgeting is used to help companies:
A) plan to better satisfy customers
B) anticipate potential problems
C) focus on opportunities
D) All of these answers are correct.
Answer: D
Terms: master budget
4) A master budget:
A) includes only financial aspects of a plan and excludes nonfinancial aspects
B) is an aid to coordinating what needs to be done to implement a plan
C) includes broad expectations and visionary results
D) should not be altered after it has been agreed upon
Answer: B
Terms: master budget
5) Operating decisions primarily deal with:
A) the use of scarce resources
B) how to obtain funds to acquire resources
C) acquiring equipment and buildings
D) satisfying stockholders
Answer: A
Terms: operating budget
6) Financing decisions primarily deal with:
A) the use of scarce resources
B) how to obtain funds to acquire resources
C) acquiring equipment and buildings
D) preparing financial statements for stockholders
Answer: B
Terms: financial budget
1
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7) Budgeting provides all of the following EXCEPT:
A) a means to communicate the organization's short-term goals to its members
B) support for the management functions of planning and coordination
C) a means to anticipate problems
D) an ethical framework for decision making
Answer: D
Terms: master budget
8) If initial budgets prove UNACCEPTABLE, planners achieve the most benefit from:
A) planning again in light of feedback and current conditions
B) deciding not to budget this year
C) accepting an unbalanced budget
D) using last year's budget
Answer: A
Terms: master budget
9) Operating budgets and financial budgets:
A) combined form the master budget
B) are prepared before the master budget
C) are prepared after the master budget
D) have nothing to do with the master budget
Answer: A
Terms: operating budget, financial budget, master budget
10) A good budgeting system forces managers to examine the business as they plan, so they can:
A) detect inaccurate historical records
B) set specific expectations against which actual results can be compared
C) complete the budgeting task on time
D) get promoted for doing a good job
Answer: B
Terms: master budget
11) A budget is the quantitative expression of a proposed plan of action by management
for a specified period.
Answer: TRUE
Terms: budget
12) A budget generally includes both financial and nonfinancial aspects of the
plan.
Answer: TRUE
Terms: budget
13) Budgeted financial statements are also referred to as pro forma statements.
Answer: TRUE
Terms: financial budget
14) Budgeting includes only the financial aspects of the plan and NOT any nonfinancial aspects such as the number of
physical units manufactured.
Answer: FALSE
Explanation: Budgeting includes both financial and nonfinancial aspects of the plan.
Terms: financial budget
15) Budgeting helps management anticipate and adjust for trouble spots in advance.
Answer: TRUE
1
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Terms: budget
16) Budgets can play both planning and control roles for management.
Answer: TRUE
Terms: budget
17) Long-run planning and short-run planning are best performed independently of each other.
Answer: FALSE
Explanation: Long-run planning and short-run planning are best performed as a part of an overall strategic planning
process since they influence each other.
Terms: planning
18) Financing decisions deal with how to best use the limited resources of an organization.
Answer: FALSE
Explanation: Financing decisions deal with how to obtain the funds to acquire those resources.
Terms: master budget
19) Operating decisions deal with how to obtain the funds to acquire resources.
Answer: FALSE
Explanation: Financing decisions deal with obtaining funds.
Terms: master budget
20) Budgeted financial statements are called pro forma statements.
Answer: TRUE
Diff: 2
Terms: pro forma statements
Objective: 1
AACSB: Reflective thinking
21) Describe the benefits to an organization of preparing an operating budget.
Answer: A well-prepared operating budget should serve as a guide for a company to follow during the budgeted period. It
is not "set in stone." If new information or opportunities arise, the budget should be adjusted.
A well-prepared operating budget assists management with the allocation of scarce resources. It can help management see
trouble spots in advance, and then management can decide where to allocate its limited resources.
A well-prepared operating budget fosters communication and coordination among various segments of the company. The
process of preparing a budget requires managers from different functional areas to work together and communicate
performance levels they both want and can attain.
A well-prepared operating budget can become the performance standard against which firms can compare the actual
results.
Diff: 2
Terms: operating budget
Objective: 1
AACSB: Reflective thinking
22) Bob and Dale have just purchased a small honey manufacturing company that was having financial difficulties. After
a brief operating period, they decided that the company's main problem was the lack of any financial planning. The
company made a good product and market potential was great.
Required:
Explain why a company needs a good budgeting plan. Specifically address the need for a master budget.
Answer: The master budget is a series of interrelated budgets that quantify management's expectations about a company's
1
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