Section B - Planning, Budgeting and

Forecasting
Test Questions - Final Review
Teached By- Elbashir Hamid CMA, ACCA, MCS
TA - Mujtaba Fathelrahman Jailani Ahmed
An organization that has a competitive advantage over its industry rivals will

A.be able to distribute its product more quickly than other industry competitors.
B.have distribution channels that are wider than others in its industry.
C.be more profitable than the average company in its industry.
D.spend more money on advertising than its competitors do.
What type of plan is formulated at the highest levels of management, takes the broadest view of the
company and its environment, is the least quantifiable, and determines the future nature of the firm, its
products, and its customers?

A.Future plan.
B.Long-range plan.
C.Strategic plan.
D.Short-range plan.
Which of the following is not a characteristic of a tactical plan?

A.It covers a period of time of from one year to three years.

B.It is quantitative in focus.
C.It relates to production, materials requirements, inventory, cash flows and income statements.
D.Top management is responsible for development and overall implementation.
A company's mission statement is, above all, intended to define:

A.The weaknesses of the firm.

B.The specific actions that the company should take.
C.Why the company exists, or its "reason to be."
D.The company's profit objectives.
Which of the following would not be an example of a strategic decision?

A.Management decides to cut administrative personnel by 5%.

B.Management decides to reorganize its manufacturing process to implement lean production.
C.The board decides to build a new plant costing $12.5 million to expand production of an existing product.
D.The company decides to enter a new geographical market.
Which of the following is not a significant reason for planning in an organization?

A.Forcing managers to consider expected future trends and conditions.

B.Developing a basis for controlling operations.
C.Promoting coordination among operation units.
D.Enabling selection of personnel for open positions.
The goal of every company is to be profitable. Concerning management’s role in attaining profitable growth,
there are two opposing philosophies. If a manager takes a more passive role and believes that his/her role
is to make decisions based on environmental events as they occur, the manager is operating under which
philosophy?

A.The planning and control theory.

B.The profit growth theory.
C.The market theory.
D.The passive control theory.
A company is debating whether to purchase a relatively small manufacturing company that operates in a
different industry. Because the company operates in a different industry, the CEO has asked its business
development department to assess the competitive nature of the industry using Porter's Five Forces model.
The business development department reviewed factors influencing the competitive nature of the industry
and found the following inherent in the industry:
● There are few barriers to entry.
● Competition is intense.
● There does not seem to be too much brand loyalty.
● There are a number of dominant buyers.

Based on the results of the review, the department could conclude that
A.prices are kept artificially high to keep competition out.
B.returns on the investment might not be attractive for shareholders.
C.the industry as a whole is unprofitable.
D.the company would need to develop a new brand to gain bargaining power
Which of the following should not be included in a company’s internal analysis process?

A.Weak areas within the internal organization that should be improved.

B.Understanding the company’s capacity for innovation.
C.Issues relating to creating value for the company’s customers.
D.Evaluation of environmental issues that may affect the company’s profitability.
Buyers might be particularly powerful in their bargaining ability in which of the following situations?

I When the volumes of their purchases are high relative to the size of the supplier.

II.When the products of suppliers are highly differentiated.

III.When the buyer has full information about suppliers and prices.

IV.When the profits of the buyer are high.

A.II and IV only.

B.II and III only.
C.I and III only.
D.I and II only.
The four factors that derive from a company's distinctive competencies and which create competitive
advantage are

A.superior efficiency, quality, innovation, and customer responsiveness.

B.the value (utility) customers place on the company's products, the price it charges for its products, the
costs of creating those products, and the profitability of the company.
C.employee productivity, capital productivity, product innovation and process innovation.
D.continuous improvement, continuous learning, prior strategic commitments and absorptive capacity.
It could be argued that the reason a company has succeeded in a very competitive market while its rivals
have failed is because:

A.The successful company has adopted more steps to its formal strategic planning process.
B.The strategies that the successful company pursues have a strong impact on its performance relative to
its rivals.
C.The company has adopted a strategy with a low propensity for risk-taking.
D.The company has evolved into a multi-divisional organization.
The concurrent action of basic competitive forces as defined by Porter’s 5 forces model determines the

A.strategy that a firm should follow to achieve its objectives.

B.long-term profitability and the competitive intensity of the industry.
C.rivalry inside the industry.
D.entrance barriers that potential players must face to get into the industry.
During the strategic planning process, which one of the following is an external factor to be analyzed?

A.Employee morale.
B.Organizational structure.
C.Organizational culture.
D.Societal culture.
Two types of integration strategies are used when a company merges with another company or expands its operations: vertical and horizontal. What are
the potential benefits of a vertical integration strategy?

I. Improved production scheduling.

II. Increased bargaining power with suppliers.

III. Potential for economies of scale.

IV. Ability to drive competitors out of the market.

A.I, II, and III only.

B.I only.

C.I and III only.

D.I and IV only.

A company sells a product that is aimed at the broad mass market but is perceived as unique throughout its
industry. The company is earning above average returns on the product. Which one of the following is the
most appropriate term for the competitive strategy followed by the company?

A.Differentiation.
B.Cost focus.
C.Financial leadership.
D.Market focus.
After leading the market for the past decade, the growth of product ABC is slowing down. In this stage of its
life cycle, the product is still generating significant amounts of cash flows that cover the company’s
investment into new product innovations. According to the BCG Growth-Share Matrix, product ABC is most
likely an example of a

A.star.
B.cash cow.
C.dog.
D.question mark.
Which of the following best describes the primary reason that organizations develop contingency plans for
their IT operations?

A.To ensure that critical transactions can be processed in the event of any type of disaster.
B.To plan for sources of capital for recovery from any type of disaster.
C.To ensure the safety of important records and data files.
D.To reduce the cost of insurance.
The budgeting technique that is most likely to motivate managers is

A.zero-base budgeting.
B.bottom-up budgeting.
C.top-down budgeting.
D.program budgeting and review technique.
All of the following are advantages of top-down budgeting as opposed to participatory budgeting, except
that it:

A.May limit the acceptance of proposed goals and objectives.

B.Facilitates implementation of strategic plans.
C.Increases coordination of divisional objectives.
D.Reduces the time required for budgeting.
A continuous profit plan

A.Is a plan devised by a full-time planning staff.

B.Works best for a company that can reliably forecast events a year or more into the future.
C.Is an annual plan that is part of a 5-year plan.
D. Is a plan that is revised monthly or quartely
ne of the primary advantages of budgeting is that it

A.requires departmental managers to make plans in conjunction with the plans of other interdependent
departments.
B.is continually adapted to fit changing circumstances.
C.bases the profit plan on estimates.
D.does not take the place of management and administration.
A company pays its production manager an annual bonus based on how well the manager performs against
the production department’s annual budgets. The production manager has been overestimating budgeted
costs the past few years in order to obtain a higher bonus payment. The production manager’s actions are
best described as

A.setting budgeted performance.

B.balancing production costs.
C.motivating employee effort.
D.building budgetary slack.
Which one of the following best describes the role of top management in the budgeting process? Top
management

A.needs to be involved, including using the budget process to communicate goals.

B.needs to separate the budgeting process and the business planning process into two separate processes.
C.lacks the detailed knowledge of the daily operations and should limit their involvement.
D.should be involved only in the approval process.
A company is preparing the sales budget for two potential products. Both products require the use of the
same manufacturing equipment, which is available for only 60 hours each month. The contribution margin
of product A is $95 per unit and the contribution margin of product B is $55 per unit. Product A requires 4
hours of machine time per unit and product B requires 2.5 hours per unit. In order to efficiently allocate the
equipment resources, the company should manufacture

A.product B, because they can produce more units of that product than product A.
B.product A, because it will make better use of the equipment than product B.
C.product A, because the contribution margin is more per unit than product B.
D.product B, because it will make better use of the equipment than product A.
The major objectives of budgeting are to

A.define responsibility centers, facilitate the identification of blame for missed budget predictions, and
ensure goal congruence between superiors and subordinates.
B.define responsibility centers, provide a framework for performance evaluation, and promote
communication and coordination among the organization’s segments.
C.foster the planning of operations, facilitate the identification of blame for missed budget predictions, and
ensure goal congruence between superiors and subordinates.
D.foster the planning of operations, provide a framework for performance evaluation, and promote
communication and coordination among the organization’s segments.
A company has determined the following standards for production of its dining tables.

Square feet of oak per table: 10

Price per square foot of oak: $3.50
Number of screws per table: 12
Price per screw: $0.50

The company expects a 10% increase in the cost of oak and a 5% decrease in the cost of screws. What is
the new standard cost per table?

A- 45.10

B- 43.05

C- 44.20

D- 40.88
he average labor cost per unit for the first batch produced by a new process is $120. The cumulative
average labor cost after the second batch is $72 per product. Using a batch size of 100 and assuming the
learning curve continues, the total labor cost of four batches will be

A.$4,320.
B.$10,368.
C.$2,592.
D.$17,280.
Propeller Inc. plans to manufacture a newly designed high-technology propeller for airplanes. Propeller forecasts that as workers gain experience,
they will need less time to complete the job. Based on prior experience, Propeller estimates a 70% cumulative learning curve and has projected the
following costs.

Cumulative number Manufacturing Projections

of units produced Average cost per unit Total costs

1 $20,000 $20,000

2 14,000 28,000

If Propeller produces eight units, the average manufacturing cost per unit will be

A.$1,647.

B.$6,860.

C.$14,000.

D.$9,800.
Propeller Inc. plans to manufacture a newly designed high-technology propeller for airplanes. Propeller forecasts that as workers gain experience,
they will need less time to complete the job. Based on prior experience, Propeller estimates a 70% cumulative learning curve and has projected the
following costs.

Cumulative number Manufacturing Projections

of units produced Average cost per unit Total costs

1 $20,000 $20,000

2 14,000 28,000

The estimated cost of an order for seven additional propellers, after completing production of the first propeller, would be

A.$92,000.

B.$54,880.

C.$34,880.

D.$98,000.
Philip Enterprises, a distributor of table lamps, is developing its budgeted cost of goods sold for 20X3. Philip has developed the following range
of sales estimates and associated probabilities for the year:

Sales Estimated Probability

$60,000 25%

85,000 40%

100,000 35%

Philip's cost of goods sold averages 80% of sales. What is the expected value of Philip's 20X3 budgeted cost of goods sold?

A.$67,200

B.$84,000

C.$85,000

D.$68,000
A manager is reviewing a potential investment, which has significant uncertainty related to its ultimate financial outcome. The manager has estimated the
following probabilities for the various levels of net cash flows that may result from the investment.

Likelihood of

Outcome Net Cash Flows

10% $(300,000)

20% 0

50% 100,000

20% 600,000

What is the expected value of net cash flows that the manager should use in evaluating the investment?

A.$137,000.

B.$400,000.

C.$100,000.

D.$140,000.
A company’s master budget for the year planned that the company would manufacture and sell 2,000 units
for €500,000 in sales, €350,000 in variable expenses, and €45,000 in fixed expenses. If the company
manufactured and sold only 1,750 units during the year, how much is the company’s flexible budget
operating income?

A.€91,875.
B.€42,500.
C.€86,250.
D.€105,000.
The estimated unit costs for a company using absorption (full) costing and planning to produce and sell at a level of 12,000 units per month are as
follows.

Cost Item Estimated Unit Cost

Direct materials $32

Direct labor 20

Variable manufacturing overhead 15

Fixed manufacturing overhead 6

Variable selling 3

Fixed selling 4

Estimated total costs that would be incurred during a month with a production level of 12,000 units and a sales level of 8,000 units are:

A.$692,000

B.$932,000

C.$948,000

D.$960,000
An organization that specializes in reviewing and editing technical magazine articles sets the following
standards for evaluating the performance of the professional staff:
● Annual budgeted fixed costs for normal capacity level of 10,000 articles reviewed and edited:
$600,000
● Standard professional hours per 10 articles: 200 hours
● Flexible budget of standard labor costs to process 10,000 articles: $10,000,000

The following data apply to the 9,500 articles that were actually reviewed and edited during the current
year:
● Total hours used by professional staff: 192,000 hours
● Variable costs: $9,120,000
● Total cost: 9,738,000

Using a flexible budget, the total cost planned for the review and editing of 9,500 articles should be
A.$10,100,000.
B.$10,070,000.
C.$10,570,000.
D.$9,500,000.
A manufacturing firm has certain peak seasons, the summer season and the last two weeks of February.
During these periods of increased output, the firm leases additional production equipment and hires
additional temporary employees. Which one of the following budget techniques would best fit this firm’s
needs?

A.Zero-based budgeting because it is based on manager input.

B.Static budgeting because it shows the changes in sales or production levels.
C.Project budgeting because discrete financial information is available.
D.Flexible budgeting because it allows for adjustments to the budget based on actual activity levels.
A flexible budget is a quantitative expression of a plan that

A.focuses on the costs of activities necessary to produce and sell products and services for a budget period.
B.is developed for the actual level of output achieved for the budget period.
C.projects costs on the basis of future improvements in existing practices and procedures during a budget
period.
D.is comprised of the budgeted income statement and its supporting schedules for a budget period.
A flexible budget is a quantitative expression of a plan that

A.focuses on the costs of activities necessary to produce and sell products and services for a budget period.
B.is developed for the actual level of output achieved for the budget period.
C.projects costs on the basis of future improvements in existing practices and procedures during a budget
period.
D.is comprised of the budgeted income statement and its supporting schedules for a budget period.
Barnes Corporation expected to sell 150,000 board games during the month of November, and the company's master budget contained the following data
related to the sale and production of these games:

Revenue$2,400,000

Direct materials 675,000

Direct labor 300,000

Variable overhead 450,000

Contribution $ 975,000

Fixed overhead 250,000

Fixed selling/administration 500,000

Operating income $ 225,000

Actual sales during November were 180,000 games. Using a flexible budget, the company expects the operating income for the month of November to be

A.$510,000.

B.$225,000.

C.$420,000.

D.$270,000.
Barnes Corporation expected to sell 150,000 board games during the month of November, and the company's master budget contained the following data
related to the sale and production of these games:

Revenue$2,400,000

Direct materials 675,000

Direct labor 300,000

Variable overhead 450,000

Contribution $ 975,000

Fixed overhead 250,000

Fixed selling/administration 500,000

Operating income $ 225,000

Actual sales during November were 180,000 games. Using a flexible budget, the company expects the operating income for the month of November to be

A.$510,000.

B.$225,000.

C.$420,000.

D.$270,000.
A company sold 12,000 units of a basic product and 8,000 units of an enhanced product in Year 1. Sales
volumes of the basic product and the enhanced product are expected to increase 25% and 20%,
respectively, for Year 2. The current selling price of the basic product is $150 per unit, and the enhanced
product sells for $200 per unit. The selling prices of both products will increase by $15 per unit for Year 2.
What is the company’s total budgeted sales for Year 2?

A.$4,170,000.
B.$3,700,000.
C.$4,539,000.
D.$3,400,000.
The Jung Corporation's budget calls for the following production:

Qtr 1 : 45,000 units

Qtr 2 : 38,000 units
Qtr 3 : 34,000 units
Qtr 4 : 48,000 units

Each unit of product requires three pounds of direct material. The company's policy is to begin each quarter
with an inventory of direct materials equal to 30% of that quarter's direct material requirements. Budgeted
direct materials purchases for the third quarter would be

A.30,600 pounds.
B.38,200 pounds.
C.43,200 pounds.
D.114,600 pounds.
Myers Company uses a calendar-year and prepares a cash budget for each month of the year. Which one of
the following items should be considered when developing July's cash budget?

A.Federal income tax and social security tax withheld from employees' June paychecks to be remitted to the
Internal Revenue Service in July.
B.Recognition that 0.5% of the July sales on account will be credit losses.
C.Property taxes levied in the last calendar year scheduled to be paid quarterly in the coming year during
the last month of each calendar quarter.
D.Quarterly cash dividends scheduled to be declared on July 15 and paid on August 6 to shareholders of
record as of July 25.
Consider the following data for a company for the month just ended.

Sales $4,000,000

Gross margin (based on sales) 25%

Decrease in inventories $160,000

Decrease in accounts payable for inventories $275,000

The estimated cash disbursements for inventories were

A.$2,565,000.

B.$3,115,000.

C.$3,275,000.

D.$2,840,000.
A company has projected unit sales of 110,000 for the month of April, 140,000 for May, and 145,000 for
June. Production volume is scheduled for these three months at 119,000, 141,500, and 149,500,
respectively. The direct labor standard is 45 minutes per unit, and the direct labor rate is set at $18.50 per
hour. What is the total budgeted direct labor cost for these three months?

A.$7,307,500.
B.$5,480,625.
C.$5,688,750.
D.$7,585,000.
Playtime Toys estimates that it will sell 200,000 dolls during the coming year. The beginning inventory is
12,000 dolls; the target ending inventory is 15,000 dolls. Each doll requires two shoes which are purchased
from an outside supplier. The beginning inventory of shoes is 20,000; the target ending inventory is 18,000
shoes. The number of shoes that should be purchased during the year is

A.398,000 shoes.
B.396,000 shoes.
C.402,000 shoes.
D.404,000 shoes.
ANNCO sells products on account, and experiences the following collection schedule.

In the month of sale 10%

In the month after sale 60%

In the second month after sale 30%

At December 31, ANNCO reports accounts receivable of $211,500. Of that amount, $162,000 is due from December sales, and $49,500 from November sales.
ANNCO is budgeting $170,000 of sales for January. If so, what amount of cash should be collected in January?

A.$129,050.

B.$228,500.

C.$211,500.

D.$174,500.
Ward Corporation's current year-end sales totaled $240 million and its ending cash balance was $20 million.
Ward anticipates its sales for the upcoming year will be $260 million. On average, 10% of a year's sales will
be collected during the following year. Assume Ward has no accounts that have become credit losses. Ward
also anticipates cash expenses of $240 million and depreciation of $5 million. During the next year, Ward
intends to spend $30 million cash for capital improvements. If Ward's policy is to have a minimum of $10
million cash available at the beginning of each year, its budgeted cash flow projections indicate that it will
need outside financing of

A.$7 million.
B.$26 million.
C.$0.
D.$2 million.
Savior Corporation assembles backup tape drive systems for home microcomputers. For the first quarter,
the budget for sales is 67,500 units. Savior will finish the fourth quarter of last year with an inventory of
3,500 units, of which 200 are obsolete. The target ending inventory is 10 days of sales (based upon 360
days). What is the budgeted production for the first quarter?

A.64,350
B.71,700
C.75,000
D.71,500