Principles of Cost Accounting 17th Edition by Vanderbeck – Test Bank

Principles of Cost Accounting 17th Edition by Vanderbeck – Test Bank

Chapter 07

1. Which of the following is not true about budgeting?
a. It is a formal method of detailed financial planning.
b. It is used to help a company reach long-term and short-term objectives.
c. It aids in the efficient use of resources.
d. All of the above are true.
ANSWER: d
RATIONALE: Budgeting is a formal method of planning that companies use to help reach operating objectives. Because it encompasses the coordination and control of every significant item on the balance sheet and income statement, if carried out in the proper manner, budgeting aids in the efficient use of resources.
POINTS: 1
DIFFICULTY: Easy
LEARNING OBJECTIVES: PRIN.EDWA.16.1 – Introduction
ACCREDITING STANDARDS: AACSB Reflective Thinking
ACCT.AICPA.FN.03 – Measurement
BUSPROG.06 – Reflective Thinking
IMA-Budget Preparation
OTHER: Bloom’s: Remembering

2. Budgeting provides the framework for:
a. Process costing.
b. Breaking semivariable costs into their fixed and variable components.
c. Planning and control.
d. Delegating authority to managers.
ANSWER: c
RATIONALE: Budgeting provides the framework for planning how the organization meet the goal of maximizing its income and providing guidelines for controlling costs.
POINTS: 1
DIFFICULTY: Moderate
LEARNING OBJECTIVES: PRIN.EDWA.16.44 – LO1: Explain the general principles involved in the budgeting process
ACCREDITING STANDARDS: AACSB Reflective Thinking
ACCT.AICPA.FN.03 – Measurement
BUSPROG.06 – Reflective Thinking
IMA-Budget Preparation
TOPICS: Principles of Budgeting
OTHER: Bloom’s: Remembering

3. The budget should use historical data:
a. Only as a stepping-off point for aiding projections into the future.
b. Because things don’t really change.
c. And add a 5% growth factor for each year.
d. Because management is satisfied with historical results.
ANSWER: a
RATIONALE: Because the budgeting process involves looking to the future, historical data should only be used as a stepping-off point. The budget must also consider other factors including economic developments and the general business climate.
POINTS: 1
DIFFICULTY: Moderate
LEARNING OBJECTIVES: PRIN.EDWA.16.44 – LO1: Explain the general principles involved in the budgeting process
ACCREDITING STANDARDS: AACSB Reflective Thinking
ACCT.AICPA.FN.03 – Measurement
BUSPROG.06 – Reflective Thinking
IMA-Budget Preparation
TOPICS: Principles of Budgeting
OTHER: Bloom’s: Remembering

4. Which of the following is not a requirement of budgeting?
a. Goals must be realistic and possible to attain.
b. There must be accountability for actual results.
c. Management must clearly define its objectives.
d. The budget must not be changed under any circumstances.
ANSWER: d
RATIONALE: The budget must be flexible enough so it can be modified in light of changing conditions.
POINTS: 1
DIFFICULTY: Moderate
LEARNING OBJECTIVES: PRIN.EDWA.16.44 – LO1: Explain the general principles involved in the budgeting process
ACCREDITING STANDARDS: AACSB Reflective Thinking
ACCT.AICPA.FN.03 – Measurement
BUSPROG.06 – Reflective Thinking
IMA-Budget Preparation
TOPICS: Principles of Budgeting
OTHER: Bloom’s: Understanding

5. A budget prepared for a single level of volume based on management’s best estimate of the level of production and sales for the coming period is a:
a. Flexible budget.
b. Static budget.
c. Continuous budget.
d. Capital budget.
ANSWER: b
RATIONALE: A static budget is prepared for a single level of volume. A flexible budget is prepared for several levels of volume.
POINTS: 1
DIFFICULTY: Easy
LEARNING OBJECTIVES: PRIN.EDWA.16.45 – LO2: Identify and prepare the components of the master budget
ACCREDITING STANDARDS: AACSB Analytic
ACCT.AICPA.FN.03 – Measurement
BUSPROG.06 – Reflective Thinking
IMA-Budget Preparation
TOPICS: Preparing the Master Budget
OTHER: Bloom’s: Remembering

6. A budget that adds a new month at the end of the budget when a month is completed, resulting in a budget that is always one year in advance is a:
a. Flexible budget.
b. Static budget.
c. Continuous budget.
d. Capital budget.
ANSWER: c
RATIONALE: A continuous or rolling budget “rolls forward” so that as one month is completed, another month is added at the end of the budget.
POINTS: 1
DIFFICULTY: Easy
LEARNING OBJECTIVES: PRIN.EDWA.16.45 – LO2: Identify and prepare the components of the master budget
ACCREDITING STANDARDS: AACSB Analytic
ACCT.AICPA.FN.03 – Measurement
BUSPROG.06 – Reflective Thinking
IMA-Budget Preparation
TOPICS: Preparing the Master Budget
OTHER: Bloom’s: Remembering

7. Which of the following is not an operating budget?
a. Capital projects budget
b. Sales and administrative budget
c. Sales budget
d. Cost of goods sold budget
ANSWER: a
RATIONALE: Operating budgets include components of the budgeted income statement which include options b, c, and d. The capital projects budget is a financial budget.
POINTS: 1
DIFFICULTY: Easy
LEARNING OBJECTIVES: PRIN.EDWA.16.45 – LO2: Identify and prepare the components of the master budget
ACCREDITING STANDARDS: AACSB Analytic
ACCT.AICPA.FN.03 – Measurement
BUSPROG.03 – Analytic
IMA-Budget Preparation
TOPICS: Preparing the Master Budget
OTHER: Bloom’s: Understanding