REVIEW MATERIAL FOR FINANCIAL PLANNING AND BUDGETS

1) A formal written statement of management’s plans for the future, packaged in financial terms, is a:
A. Responsibility report.
B. Cost of production report.
C. Performance report.
D. Budget.

2) Budgeting supports the planning process by encouraging all of the following activities except:
A. Requiring all organizational units to establish their goals for the coming period.
B. Increasing the motivation of managers and employees by providing agreed-upon expectations.
C. Improving overall decision making by considering all viewpoints, options, and cost control programs.
D. Directing and coordinating operations during the period.

3) Which of the following is NOT an advantage of budgeting?

A. It forces managers to plan.
B. It provides resource information that can be used to improve decision making.
C. It aids in the use of resources and employees by setting a benchmark that can be used for the subsequent evaluation of
performance.
D. It provides organizational independence.

4) Which of the following is least likely a reason why a company prepares its budget?
A. To provide a basis for comparison of actual performance
B. To communicate the company’s plans throughout the entire business organization
C. To control income and expenditure in a particular period.
D. To make sure the company expands its operations.

5) The primary variable affecting active participation and commitment to the budget and the control system is
A. Management efforts to achieve the budget rather than optimize results.
B. The rigid adherence to the budget without recognizing changing conditions.
C. Top management involvement in support of the budget.
D. The opportunity budgeting gives to risk-taker managers for department growth.

6) The term “decision package” relates to

A. comprehensive budgeting C. program budgeting
B. zero-based budgeting D. line budgeting

7) The process of developing budget estimates by requiring all levels of management to estimate sales, production, and other
operating data as though operations were being initiated for the first time is referred to as:
A. Forecasting. C. Continuous budgeting.
B. Zero-based budgeting. D. Program budgeting.

8) Zero-base budgeting requires managers to

A. Justify expenditures that are increases over the prior period’s budgeted amount.
B. Justify all expenditures, not just increases over last year’s amount.
C. Maintain a full-year budget intact at all times.
D. Maintain a budget with zero increases over the prior period.

9) Flexible budgeting is a reporting system wherein the

A. Budget standards may be adjusted at management’s discretion.
B. Planned level of activity is adjusted to the actual level of activity before the performance report is prepared.
C. Reporting dates vary according to the managerial levels of the users.
D. Packages of activities vary from period to period.

10) A static budget is not appropriate in evaluating a manager's effectiveness if a company has
A. substantial fixed costs.
B. substantial variable costs.
C. planned activity levels that match actual activity levels.
D. no variable costs.
11) Which of the following is a difference between a static budget and a flexible budgets?
A. A flexible budget includes only variable costs; a static budget includes only fixed costs.
B. A flexible budget includes all costs, a static budget includes only fixed costs.
C. A flexible budget gives different allowances for different levels of activity, a static budget does not.
D. There is no difference between the two.

12) The basic difference between a master budget and a flexible budget is that a
A. Flexible budget considers only variable costs but a master budget considers all costs.
B. Flexible budget allows management latitude in meeting goals whereas a master budget is based on a fixed standard.
C. Master budget is for an entire production facility but a flexible budget is applicable to single department only.
D. Master budget is based on one specific level of production and a flexible budget can be prepared for any production level
within a relevant range

13) The ideal financial planning process would be

A. top-down planning.
B. bottom-up planning.
C. a combination of top-down and bottom-up planning.
D. None of the above

14) A common starting point in the budgeting process is

A. expected future net income.
B. to motivate the sales force.
C. past performance.
D. a clean slate, with no expectations

15) Which one of the following is an external factor that would need to be considered in forming an initial budget proposal?
A. changes in product design
B. introduction of a new product
C. competitors' actions
D. adoption of a new manufacturing process

16) An overly optimistic sales budget may result in

A. increases in selling prices late in the year.
B. insufficient inventories.
C. increased sales during the year.
D. excessive inventories.

17) Which of the following budgets provides the data for the preparation of the direct labor cost budget?
A. Direct materials purchase budget. C. Sales budget.
B. Cash budget. D. Production budget.

18) The increased use of automation and less use of the work force in companies has caused a trend towards an increase in
A. both variable and fixed costs.
B. fixed costs and a decrease in variable costs.
C. variable costs and a decrease in fixed costs.
D. variable costs and no change in fixed costs.

19) In preparing a cash budget, which of the following is normally the starting point for projecting cash requirements?
A. Fixed assets. C. Accounts receivable.
B. Sales. D. Inventories.

20) Recognition of the many uncertainties in budgeting is exemplified by companies normally

A. forecasting sales
B. establishing minimum required cash balances
C. forecasting only fixed costs
D. omitting expected dividend payments from budgeted disbursements
21) Calypso Co. has projected sales to be P600,000 in January, P750,000 in February, and P800,000 in March. Calypso wants to
have 50% of next month’s sales needs on hand at the end of a month. If Calypso has an average gross profit of 40%, what are
the February 28 purchases?
A. P465,000 C. P775,000
B. P310,000 D. P428,000

22) The payment schedule of purchases made on account is: 60% in the time period of purchase, 30% in the following time
period, and 10% in the subsequent time period. Total credit purchases were P200,000 in May, and P100,000 in June. Total
payments on credit purchases were P140,000 in June. What were the credit purchases in the month of April?
A. P200,000 C. P145,000
B. P100,000 D. P215,000

23) Lorie Company plans to sell 400,000 units of finished product in July an anticipates a growth rate in sales of 5% per month.
The desired monthly ending inventory in units of finished product is 80% of the next month’s estimated sales.
There are 300,000 finished units in the inventory on June 30. Each unit of finished product requires four pounds of direct
materials at a cost of P2.50 per pound. There are 800,000 pounds of direct materials in the inventory on June 30.
How many units should be produced for the three-month period ending September 30?
A. 1,260,000 C. 1,331,440
B. 1,328,000 D. 1,424,050

24) Silver Bowl Company manufactures a single product. It keeps its inventory of finished goods at 75% the coming month’s budgeted sales. It also
keeps its inventory of raw materials at 50% of the coming month’s budgeted production. Each unit of product requires two pounds of materials.
The production budget is, in units: May, 1,000; June, 1,200; July, 1,300; august, 1,600. Raw material purchases in July would be
A. 1,525 pounds C. 2,550 pounds
B. 2,900 pounds D. 3,050 pounds

25) Obligacion Company has P299,000 in accounts receivable on January 1, 2006. Budgeted sales for January are P860,000.
Obligacion expects to sell 20% of its merchandise for cash. Of the remaining sales, 75% are expected to be collected in the
month of sale and the remainder the following month.
The January cash collections from sales are:
A. P815,000 C. P471,000
B. P691,000 D. P987,000

26) Albatross Company started its commercial operations on September 30 of the current year. Projected manufacturing costs
for the first three months of operations are P1,568,000, P1,952,000, and P2,176,000, respectively. Depreciation, insurance,
and property taxes represent P288,000 of the estimated manufacturing costs. Insurance was paid on September 30, and
property taxes will be paid in July next year. Seventy-five percent of the remainder of the manufacturing costs are expected
to be paid in the month in which they are incurred, with the balance to be paid in the following month. The cash payments
for manufacturing costs in the month of November are:
A. P1,568,000 C. P1,664,000
B. P1,952,000 D. P1,856,000

27) Albania Company expects its June sales to be P300,000, which is 25% higher than its May sales. Purchases were P200,000
in May and are expected to be P240,000 in June. All sales are on credit and are collected as follows: 80% in the month of
the sale and 20% in the following month. All payments in the month of sales are given 2% discount. Sixty percent of purchases
are paid in the month of purchase to take advantage of purchase term of 1/10, n/40. The remaining amount is paid in the
following month. The beginning cash balance on June 1 is P20,000. The ending cash balance on June 30 would be:
A. P64,160 C. P80,640
B. P73,000 D. P85,440

Question Nos. 28 through 30 are based on the following:

Super Sales’ actual sales and purchases for April and May are shown here along with forecasted sales and purchases for June
through September.
Sales Purchases
April (Actual) P390,000 P200,000
May (Actual) 420,000 220,000
June (forecast) 390,000 210,000
July (forecast) 350,000 240,000
August (forecast) 420,000 320,000
September (forecast) 410,000 230,000
The company makes 10 percent of its sales for cash and 90 percent on credit. Of the credit sales, 30 percent are collected in the
month after the sale and 70 percent are collected two months after. Super Sales pays for 45 percent of its purchases in the month
after purchase and 55 percent two months after.

Labor expense equals 15 percent of the current month's sales. General overhead expense equals P10,000 per month. Interest
payments of P35,000 are due in June and September. A cash dividend of P25,000 is scheduled to be paid in June. Tax payments
of P30,000 are due in June and September. There is a scheduled purchase for cash of an equipment, P290,000 in September.

Super Sales’ ending cash balance in May is P25,000. The minimum desired cash balance is P20,000. The maximum desired cash
balance is P50,000. Excess cash (above P50,000) is used to buy marketable securities. Marketable securities are sold before
borrowing funds in case of a cash shortfall (less than P20,000).

28) During the month of June, Super Sales expects to receive cash from sales amounting to:
A. P606,000 C. P398,100
B. P408,900 D. P359,100

29) The cumulative amount of marketable securities purchased as of July 31 amounts to:
A. P126,000 C. P143,300
B. 132,500 D. P 0

30) The amount of loan to be obtained to maintain a balance of P50,000 cash as of September 30 will be:
A. P109.4 C. P 9.4
B. P 59.4 D. P 0.0