Budget MCQs `FOR SENIOR AUDITOR TEST

Budget/ Budgeting MCQ’s

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

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

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

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

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

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

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

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 Budget MCQs `FOR SENIOR AUDITOR TEST

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

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

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

11) A budget can do all of the following except:

A) promote coordination among subunits
B) determine actual profitability
C) motivate managers
D) motivate employees
Answer: B

12) A budget should/can do all of the following except:

A) be prepared by managers from different functional areas working independently
B) be adjusted if new opportunities become available during the year
C) help management allocate limited resources
D) become the performance standard against which firms can compare the actual results
Answer: A

13) A limitation of comparing a company's performance against actual results of last

year is that:
A) it includes adjustments for future conditions
B) feedback is no longer a possibility
C) past results can contain inefficiencies of the past year
D) the budgeting time period is set at one year
Answer: C

14) Challenging budgets tend to:

A) decrease line-management participation in attaining corporate goals
B) increase failure
C) increase anxiety without motivation
D) motivate improved performance
Answer: D

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 Budget MCQs `FOR SENIOR AUDITOR TEST

15) Actual results should not be compared against past performance because:
A) past results may contain mistakes and substandard performance
B) past results will never happen again
C) past performance is an indicator of future performance
D) future conditions will be similar to past conditions
Answer: A

16) A company's actual performance should be compared against budgeted amounts for
the same accounting period so that:
A) adjustments for future conditions can be included
B) no feedback is possible
C) inefficiencies of the past year can be included
D) a rolling budget can be implemented
Answer: A

17) It is advantageous to coordinate budgets with:

A) suppliers
B) customers
C) the marketing and production departments
D) All of these answers are correct.
Answer: D

18) A budget can help implement:

A) strategic planning
B) long-run planning
C) short-run planning
D) All of these answers are correct.
Answer: D

19) To gain the benefits of budgeting ________ must understand and support the budget
A) senior management
B) middle management
C) line employees
D) All of these answers are correct.
Answer: D

20) Participation of employees in the budgeting process helps to create:

A) greater commitment
B) greater anxiety
C) less commitment
D) better past performance
Answer: A

21) Line managers who feel that top management does not believe in the budget are
most likely to:
A) pick up the slack and participate in the budgeting process
B) be motivated by the budget
C) spend little time on the budgeting process
D) convert the budget to a shorter more reasonable time period
Answer: C

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 Budget MCQs `FOR SENIOR AUDITOR TEST

22) The time coverage of a budget should be:

A) one year
B) guided by the purpose of the budget
C) cover design through manufacture and sale of the product
D) shorter rather than longer
Answer: B

23) Rolling budgets help management to:

A) better review the past calendar year
B) deal with a 5-year time frame
C) focus on the upcoming budget period
D) rigidly administer the budget
Answer: C

24) Budgets should:

A) be flexible
B) be administered rigidly
C) only be developed for short periods of time
D) include only variable costs
Answer: A

25) Operating budgets include all of the following except:

A) the revenues budget
B) the budgeted income statement
C) the administrative costs budget
D) the budgeted balance sheet
Answer: D

26) Operating budgets include the:

A) budgeted balance sheet
B) budgeted income statement
C) capital expenditures budget
D) budgeted statement of cash flows
Answer: B

27) The operating budget process generally concludes with the preparation of the:
A) production budget
B) distribution budget
C) research and development budget
D) budgeted income statement
Answer: D

28) Which budget is not necessary to prepare the budgeted balance sheet?
A) cash budget
B) budgeted statement of cash flows
C) budgeted income statement
D) revenues budget
Answer: B

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 Budget MCQs `FOR SENIOR AUDITOR TEST

29) Financial budgets include the all of the following except:

A) capital expenditures budget
B) budgeted income statement
C) budgeted balance sheet
D) budgeted statement of cash flows
Answer: B

30) ________ includes a budgeted statement of cash flows and a budgeted balance sheet.
A) An annual report
B) The financial budget
C) The operating budget
D) The capital expenditures budget
Answer: B

31) The order to follow when preparing the operating budget is:
A) revenues budget, production budget, and direct manufacturing labor costs budget
B) costs of goods sold budget, production budget, and cash budget
C) revenues budget, manufacturing overhead costs budget, and production budget
D) cash expenditures budget, revenues budget, and production budget.
Answer: A

32) In which order are the following developed? First to last:

A = Production budget
B = Direct materials costs budget
C = Budgeted income statement
D = Revenues budget
A) ABDC
B) DABC
C) DCAB
D) CABD
Answer: B

33) The budgeting process is most strongly influenced by:

A) the capital budget
B) the budgeted statement of cash flows
C) the sales forecast
D) the production budget
Answer: C

34) ________ is the usual starting point for budgeting.

A) The revenues budget
B) Net income
C) The production budget
D) The cash budget
Answer: A

35) The sales forecast should be primarily based on:

A) statistical analysis.
B) input from sales managers and sales representatives

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 Budget MCQs `FOR SENIOR AUDITOR TEST

C) production capacity
D) input from the board of directors
Answer: B

36) The sales forecast is influenced by:

A) advertising and sales promotions
B) competition
C) general economic conditions
D) All of these answers are correct.
Answer: D

37) A sales forecast is:

A) often the outcome of elaborate information gathering and discussions among sales
managers
B) developed primarily to prepare next year's marketing campaign
C) solely based on sales of the previous year
D) a summary of product costs that influence pricing decisions
Answer: A

38) The revenues budget identifies:

A) expected cash flows for each product
B) actual sales from last year for each product
C) the expected level of sales for the company
D) the variance of sales from actual for each product
Answer: C

39) The number of units in the sales budget and the production budget may differ
because of a change in:
A) finished goods inventory levels
B) overhead charges
C) direct material inventory levels
D) sales returns and allowances
Answer: A

40) Production is primarily based on:

A) projected inventory levels
B) the revenues budget
C) the administrative costs budget
D) the capital expenditures budget
Answer: B

41) Budgeted production equals:

A) beginning finished goods inventory + budgeted unit sales - targeted ending finished goods
inventory
B) targeted ending finished goods inventory + beginning finished goods inventory - budgeted
unit sales
C) budgeted unit sales + targeted ending finished goods inventory - beginning finished goods
inventory
D) budgeted unit sales + targeted ending finished goods inventory + beginning finished goods
inventory Answer: C

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 Budget MCQs `FOR SENIOR AUDITOR TEST

42) The direct materials usage budget is based on:

A) the units to be produced during a period
B) budgeted sales dollars
C) the predetermined factory overhead rate
D) the amount of labor-hours worked
Answer: A

43) Individual budgeted amounts included in the manufacturing overhead costs budget
are based on input from:
A) operating personnel
B) costs incurred in prior years
C) cost changes expected in the future
D) All of these answers are correct.
Answer: D

44) The manufacturing overhead costs budget includes budgeted amounts for:
A) indirect materials
B) indirect manufacturing labor
C) depreciation on factory equipment
D) All of these answers are correct.
Answer: D

45) Budgeted manufacturing overhead costs include all types of factory expenses except:
A) fixed items such as depreciation of manufacturing machinery
B) variable items such as plant supplies
C) indirect labor such as the salary of the plant supervisor
D) direct labor and direct materials
Answer: D

46) The cost of goods sold budget requires all of the following budgets except:
A) direct material cost budget
B) manufacturing overhead cost budget
C) distribution cost budget
D) direct manufacturing labor cost budget
Answer: C

47) Rehan Baskets Company expects to manufacture and sell 50,000 baskets in 2019 for
$5 each. There are 4,000 baskets in beginning finished goods inventory with target ending
inventory of 4,000 baskets. The company keeps no work-in-process inventory. What
amount of sales revenue will be reported on the 2011 budgeted income statement?
A) $246,000
B) $250,000
C) $254,000
D) $258,000
Answer: B
Explanation: B) 50,000 × $5 = $250,000

47) Bilal Corporation has budgeted sales of 36,000 units, target ending finished goods
inventory of 6,000 units, and beginning finished goods inventory of 1,800 units. How
many units should be produced next year?

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 Budget MCQs `FOR SENIOR AUDITOR TEST

A) 43,800 units
B) 40,200 units
C) 31,800 units
D) 36,000 units
Answer: B
Explanation: B) 36,000 + 6,000 - 1,800 = 40,200 units

48) For next year, Mezaan, Inc., has budgeted sales of 30,000 units, target ending finished
goods inventory of 1,500 units, and beginning finished goods inventory of 900 units. All
other inventories are zero. How many units should be produced next year?
A) 29,400 units
B) 30,000 units
C) 30,600 units
D) 32,400 units
Answer: C
Explanation: C) 30,000 + 1,500 - 900 = 30,600 units

49) Interwood Company has budgeted sales volume of 60,000 units and budgeted
production of 54,000 units, while 10,000 units are in beginning finished goods inventory.
How many units are targeted for ending finished goods inventory?
A) 10,000 units
B) 16,000 units
C) 6,000 units
D) 4,000 units
Answer: D
Explanation: D) 10,000 + 54,000 - 60,000 =4,000

Answer the following questions using the information below:

Kason, Inc., expects to sell 20,000 pool cues for $24.00 each. Direct materials costs are
$4.00, direct manufacturing labor is $8.00, and manufacturing overhead is $1.60 per pool
cue. The following inventory levels apply to 2019:
Beginning inventory Ending inventory
Direct materials 24,000 units 24,000 units
Work-in-process inventory 0 units 0 units
Finished goods inventory 2,000 units 2,500 units

50) On the 2019 budgeted income statement, what amount will be reported for sales?
A) $492,000
B) $480,000
C) $624,000
D) $636,000
Answer: B
Explanation: B) 20,000 × $24 = $480,000

51) How many pool cues need to be produced in 2019?

A) 22,500 cues
B) 22,000 cues
C) 20,500 cues
D) 19,500 cues

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 Budget MCQs `FOR SENIOR AUDITOR TEST

Answer: C
Explanation: C) 20,000 + 2,500 - 2,000 = 20,500 cues

52) On the 2019 budgeted income statement, what amount will be reported for cost of
goods sold?
A) $278,800
B) $272,000
C) $265,200
D) $306,000
Answer: B
Explanation: B) 20,000 × ($8.00 + $4.00 + $1.60) = $272,000

52) What are the 2019 budgeted costs for direct materials, direct manufacturing labor,
and manufacturing overhead, respectively?
A) $0; $192,000; $38,400
B) $78,000; $156,000; $31,200
C) $160,000; $80,000; $32,000
D) $82,000; $164,000; $32,800
Answer: D
Explanation: D) 20,500 × $4.00 = $82,000; 20,500 × $8.00 = $164,000; 20,500 × $1.60 =
$32,800

Answer the following questions using the information below:

Elton, Inc., expects to sell 6,000 ceramic vases for $40 each. Direct materials costs are $4,
direct manufacturing labor is $20, and manufacturing overhead is $6 per vase. The following
inventory levels apply to 2019:

Beginning inventory Ending inventory

Direct materials 1,000 units 1,000 units
Work-in-process inventory 0 units 0 units
Finished goods inventory 400 units 500 units

53) On the 2019 budgeted income statement, what amount will be reported for sales?
A) $244,000
B) $236,000
C) $280,000
D) $240,000
Answer: D
Explanation: D) 6,000 × $40 = $240,000

54) How many ceramic vases need to be produced in 2019?

A) 5,900 vases
B) 6,100 vases
C) 7,000 vases
D) 6,000 vases
Answer: B
Explanation: B) 6,000 + 500 - 400 = 6,100 vases

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 Budget MCQs `FOR SENIOR AUDITOR TEST

55) On the 2019 budgeted income statement, what amount will be reported for cost of
goods sold?
A) $183,000
B) $210,000
C) $180,000
D) $177,000
Answer: C
Explanation: C) 6,000 × ($4 + $20 + $6) = $180,000

56) What are the 2019 budgeted costs for direct materials, direct manufacturing labor,
and manufacturing overhead, respectively?
A) $24,400; $122,000; $36,600
B) $24,000; $120,000; $36,000
C) $4,000; $20,000; $6,000
D) $4,000; $0; $9,000
Answer: A
Explanation: A) 6,100 × $4 = $24,400; 6,100 × $20 = $122,000; 6,100 × $6 = $36,600

Answer the following questions using the information below:

The following information pertains to the January operating budget for Casey Corporation, a
retailer:

Budgeted sales are $200,000 for January

Collections of sales are 50% in the month of sale and 50% the next month
Cost of goods sold averages 70% of sales
Merchandise purchases total $150,000 in January
Marketing costs are $3,000 each month
Distribution costs are $5,000 each month
Administrative costs are $10,000 each month

57) For January, budgeted gross margin is:

A) $100,000
B) $140,000
C) $60,000
D) $50,000
Answer: C
Explanation: C) $200,000 - (.70 × $200,000) = $60,000

58) For January, the amount budgeted for the nonmanufacturing costs budget is:
A) $78,000
B) $10,000
C) $168,000
D) $18,000
Answer: D
Explanation: D) $3,000 + $5,000 + $10,000 = $18,000

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 Budget MCQs `FOR SENIOR AUDITOR TEST

59) Tiger Pride produces two product lines: T-shirts and Sweatshirts. Product
profitability is analyzed as follows:

T-SHIRTS SWEATSHIRTS
Production and sales volume 60,000 units 35,000 units
Selling price $16.00 $29.00
Direct material $ 2.00 $ 5.00
Direct labor $ 4.50 $ 7.20
Manufacturing overhead $ 2.00 $ 3.00
Gross profit $ 7.50 $13.80
Selling and administrative $ 4.00 $ 7.00
Operating profit $ 3.50 $ 6.80

What is projected operating income if direct materials costs of T-Shirts increase to $4.00 per
unit and direct labor costs of Sweatshirts increase to $8.20 per unit.
A) $293,000
B) $90,000
C) $203,000
D) $473,000
Answer: A
Explanation: A) (60,000 x $1.50) + (35,000 x $5.80) = $293,000

Answer the following questions using the information below:

Beat, Inc., expects to sell 60,000 athletic uniforms for $80 each in 2019. Direct materials
costs are $20, direct manufacturing labor is $8, and manufacturing overhead is $6 for
each uniform. The following inventory levels apply to 2018:

Beginning inventory Ending inventory

Direct materials 24,000 units 18,000 units
Work-in-process inventory 0 units 0 units
Finished goods inventory 12,000 units 10,000 units

60) How many uniforms need to be produced in 2019?

A) 52,000 uniforms
B) 68,000 uniforms
C) 60,000 uniforms
D) 58,000 uniforms
Answer: D
Explanation: D) 60,000 + 10,000 - 12,000 = 58,000 uniforms

61) What is the amount budgeted for direct material purchases in 2019?
A) $1,040,000
B) $1,200,000
C) $1,160,000
D) $1,520,000
Answer: A
Explanation: A) (60,000 +10,000 - 12,000) units + 18,000 units - 24,000 units = Purchases
52,000 units × $20 = $1,040,000

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 Budget MCQs `FOR SENIOR AUDITOR TEST

62) What is the amount budgeted for cost of goods manufactured in 2019?
A) $2,040,000
B) $1,972,000
C) $2,312,000
D) $2,380,000
Answer: B
Explanation: B) (60,000 + 10,000 - 12,000) × ($20 + $8 + $6) = $1,972,000

63) What is the amount budgeted for cost of goods sold in 2019?
A) $2,312,000
B) $1,972,000
C) $2,040,000
D) $4,800,000
Answer: C
Explanation: C) 60,000 × ($20 + $8 + $6) = $2,040,000

Answer the following questions using the information below:

Furniture, Inc., estimates the following number of mattress sales for the first four months of
2019:

Month Sales
January 10,000
February 14,000
March 13,000
April 16,000

Finished goods inventory at the end of December is 3,000 units. Target ending finished goods
inventory is 30% of the next month's sales.

64) How many mattresses need to be produced in January 2019?

A) 8,800 mattresses
B) 11,200 mattresses
C) 13,000 mattresses
D) 14,200 mattresses
Answer: B
Explanation: B) 12,000 + (14,000 × 0.30) - 3,000 = 11,200 mattresses

65) How many mattresses need to be produced in the first quarter (January, February,
March) of 2019?
A) 37,000 mattresses
B) 38,800 mattresses
C) 41,800 mattresses
D) 44,800 mattresses
Answer: B
Explanation: B) 10,000 + 14,000 + 13,000 + (16,000 × 0.30) -3,000 = 38,800 mattresses

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 Budget MCQs `FOR SENIOR AUDITOR TEST

Answer the following questions using the information below:

Wallace Company provides the following data for next year:

Month Budgeted Sales

January $120,000
February 108,000
March 132,000
April 144,000

The gross profit rate is 40% of sales. Inventory at the end of December is $21,600 and target
ending inventory levels are 30% of next month's sales, stated at cost.

66) Purchases budgeted for January total:

A) $130,800
B) $72,000
C) $69,840
D) $74,160
Answer: C
Explanation: C) ($120,000 × 0.6) + ($108,000 × 0.6 × 0.3) - $21,600 = $69,840

67) Purchases budgeted for February total:

A) $69,120
B) $60,480
C) $115,200
D) $64,800
Answer: A
Explanation: A) ($108,000 × 0.6) + ($132,000 × 0.6 × 0.3) - ($108,000 × 0.6 × 0.3) =
$69,120

68) St. Claire Manufacturing expects to produce and sell 6,000 units of Big, its only
product, for $20each. Direct material cost is $2 per unit, direct labor cost is $8 per unit,
and variable manufacturing overhead is $3 per unit. Fixed manufacturing overhead is
$24,000 in total. Variable selling and administrative expenses are $1 per unit, and fixed
selling and administrative costs are $3,000 in total. According to generally accepted
accounting principles, inventoriable cost per unit of Big would be:
A) $13.00 per unit
B) $14.00 per unit
C) $17.00 per unit
D) $18.50 per unit
Answer: C
Explanation: C) $2 + $8 +$3 +($24,000 / 6,000) = $17

69) The use of activity-based budgeting is growing because of:

A) the increased use of activity-based costing
B) the increased use of kaizen costing
C) increases in work-in-process inventory
D) increases in direct materials inventory
Answer: A

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 Budget MCQs `FOR SENIOR AUDITOR TEST

70) Activity-based budgeting would separately estimate:

A) the cost of overhead for a department
B) a plant-wide cost-driver rate
C) the cost of a setup activity
D) All of these answers are correct.
Answer: C

71) Activity-based-costing analysis makes no distinction between:

A) direct-materials inventory and work-in-process inventory
B) short-run variable costs and short-run fixed costs
C) parts of the supply chain
D) components of the value chain
Answer: B

72) Activity-based budgeting makes it easier to:

A) determine a rolling budget
B) prepare pro forma financial statements
C) determine how to reduce costs
D) execute a financial budget
Answer: C

73) Activity-based budgeting does not require:

A) knowledge of the organization's activities
B) specialized expertise in financial management and control
C) knowledge about how activities affect costs
D) the ability to see how the organization's different activities fit together
Answer: B

74) Activity-based budgeting:

A) uses one cost driver such as direct labor-hours
B) uses only output-based cost drivers such as units sold
C) focuses on activities necessary to produce and sell products and services
D) classifies costs by functional area within the value chain
Answer: C

75) Activity-based budgeting includes all the following steps except:

A) determining demands for activities from sales and production targets
B) computing the cost of performing activities
C) determining a separate cost-driver rate for each department
D) describing the budget as costs of activities rather than costs of functions
Answer: C

76) The master budget is:

A) a flexible budget
B) a static budget
C) developed at the end of the period
D) based on the actual level of output
Answer: B

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 Budget MCQs `FOR SENIOR AUDITOR TEST

77) A flexible budget:

A) is another name for management by exception
B) is developed at the end of the period
C) is based on the budgeted level of output
D) provides favorable operating results
Answer: B

78) A variance is:

A) the gap between an actual result and a benchmark amount
B) the required number of inputs for one standard output
C) the difference between an actual result and a budgeted amount
D) the difference between a budgeted amount and a standard amount
Answer: C

79) An unfavorable variance indicates that:

A) actual costs are less than budgeted costs
B) actual revenues exceed budgeted revenues
C) the actual amount decreased operating income relative to the budgeted amount
D) All of these answers are correct.
Answer: C

80) A favorable variance indicates that:

A) budgeted costs are less than actual costs
B) actual revenues exceed budgeted revenues
C) the actual amount decreased operating income relative to the budgeted amount
D) All of these answers are correct.
Answer: B

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