BUDGETING WITH PROBABILITY ANALYSIS

Which of the following is NOT an advantage of budgeting?

• It requires managers to state their objectives.

• It facilitates control by permitting comparisons of budgeted and actual results.

• It facilitates performance evaluation by comparing budgets with actual results.

• It provides a check-up device that allows managers to keep close tabs on their subordinates.

Budgets are a necessary component of financial decision making because they provide a (n)

• Efficient allocation of resources

• Means to use all the firm9s resources

• Means to check managerial discretion

• Automatic corrective mechanism for errors

In an organization that plans by using comprehensive budgeting, the master budget is

• A compilation of all the separate operational and financial budget schedules of the organization

• The booklet containing budget guidelines, policies and forms to use in the budgeting process

• The current budget updated for operations for part of the current year

• A budget for a non-profit entity after it is approved by the appropriate authoritative body

The sales budget is classified as

• A financial budget

• A flexible budget

• An operating budget

• A program budget

Using the concept of 8expected value9 in sales forecasting means that the sales forecast to be used is

• Developed using the indicator method.

• The sum of the sales expected by individual

• Based on expected selling prices of the products

• Based on probabilities

Which of the following equations can be used to budget purchases? (BI = Beginning inventory, EI = ending inventory desired, CGS = Budgeted cost of goods sold)

• Budgeted purchases = CGS + BI – EI

• Budgeted purchases = CGS + BI

• Budgeted purchases = CGS + EI + BI

• Budgeted purchases = CGS + EI – BI

Colorado Company desires an ending inventory of P 60,000. It expects sales of P 120,000 and has a beginning inventory of P 40,000. Cost of sales is 60% of sales. Budgeted purchases are

• P 60,000

• P 72,000

• P 92,000

• P 132,000

Individual budget schedules are prepared to develop an annual comprehensive or master budget. The budget schedule that would provide the necessary input data for the direct labor budget would be the

• Sales forecast

• Raw materials purchases budget

• Schedule of cash receipts and disbursements

• Production budget

South Dakota Company budgets sales of 22,000 units for January, 30,000 for February. The budgeted beginning inventory for January 1 was 7,000 units. South Dakota desires an ending inventory equal to one-half of the following month9s sales needs. What is the budgeted production for January?

• 37,000 units

• 30,000 units

• 26,000 units

• 14,000 units

New Mexico Company plans to sell 24,000 units of Product A in July and 30,000 units in August. Sales of Product A during June were 25,000 units. Past experience has shown that end-of-month inventory must equal 3,000 units plus 30% of the next month9s sales. On June 30, this requirement was met. Based on these data, how many units of Product A must be produced during the month of July?

• 28,800

• 22,200

• 24,000

• 25,800