Budgeting and Financial Planning Practice
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Course Introduction
Budgeting and Financial Planning explores the principles and techniques essential for effective financial management in both personal and organizational contexts. The course covers the preparation, implementation, and control of budgets, as well as the strategic use of financial planning tools to set and achieve short- and long-term goals. Students will learn to analyze financial statements, forecast revenues and expenses, evaluate investment opportunities, and assess financial risks. Emphasis is placed on real-world applications, ethical considerations, and the use of software for budgeting and financial decision-making, equipping students with the skills necessary for sound fiscal leadership.
Recommended Textbook
Managerial Accounting An Introduction to Concepts Methods and Uses 11th Edition by Michael W.
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2
Chapter 1: Fundamental Concepts
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Q1) Which of the following is best defined as a cost that changes in totalas the level of activity changes?
A)an opportunity cost
B)a fixed cost
C)a variable cost
D)a cost object
Answer: C
Q2) What management technique focuses on increasing quality as perceived and defined by the customer?
A)Theory of constraints.
B)Benchmarking.
C)Total quality management.
D)Web hosting.
Answer: C
Q3) What does the term "just-in-time" refer to?
A)factories built just in time to meet production needs.
B)machinery placed in service just in time to begin production.
C)materials received from suppliers just in time for production needs.
D)All of the answers are correct.
Answer: C
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Chapter 2: Measuring Product Costs
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Q1) Compare and contrast job costing and process costing.Provide specific examples of the types of companies that might use one over the other.
Answer: In job costing,firms collect costs for each unit produced.Companies that manufacture unique products whose costs can be easily tracked will generally use job costing.Service companies also use job costing. In process costing,firms accumulate costs in a department or production process during an accounting period,then spread those costs evenly over the units produced during that period,to determine an average cost per unit.Companies that produce fairly homogeneous products over a long period of time will likely use process costing. Job costing provides more detailed information than process costing and the costs of record keeping under job costing systems exceed those under process costing.
Q2) Identify ethical issues in job costing.
Answer: Some organizations commit improprieties in the way they assign costs to jobs.To avoid the appearance of cost overruns on jobs,job supervisors sometimes ask employees to charge costs to wrong jobs.
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Chapter 3: Activity-Based Management
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Sample Questions
Q1) What is the secondstep in the activity analysis process used to implement Activity Based Management?
A)Chart,from start to finish,the activities used to complete the product or service.
B)Classify activities as value-added or non-value-added.
C)Eliminate non-value-added activities.
D)Continuously improve and reevaluate the efficiency of value-added activities or replace them with more efficient activities.
Answer: B
Q2) Which of the following reflects the simplest allocation method for a factory?
A)The department allocation method.
B)The unit cost allocation method.
C)The plantwide allocation method.
D)The use of activity-based costing.
Answer: C
Q3) What are the strategic and operational uses of activity-based management?
Answer: Activity-based management can help a company develop strategy,long-range plans,and subsequent cost advantage by focusing attention on activities.
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Chapter 4: Strategic Management of Costs,quality,and
Time
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Q1) Define Break-even time (BET)and describe how it works.Include any limitations from using this approach.
Break-even time (BET)is the length of time required to recover the investment made in new-product development.It is important to identify the relevant cash flows in break-even time analysis.The relevant cash flows are the differential future cash inflows and outflows that change as a result of introducing the new product.Overhead costs are irrelevant if adding a new product only changes the way overhead is allocated without changing the total cash outflow for overhead costs.Break-even time analysis should also include both positive and negative cash-flow effects that the new product may have on sales of existing products.
Q2) On the balanced scorecard,the measure of employee turnover would most likely be an example of a performance measure in the:
A)financial dimension
B)customer dimension
C)internal business process dimension
D)learning and growth dimension
Q3) Distinguish between the traditional view of quality and the quality-based view.
Q4) Compare the traditional and the new quality-based view.
Q5) Why does Just-in-time requires total quality management?
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Chapter 5: Cost Drivers and Cost Behavior
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Sample Questions
Q1) Which of the following statements best describes costs that increase in steps?
A)curvilinear variable.
B)curvilinear fixed.
C)semi-variable.
D)semi-fixed.
Q2) Which of the following is a weakness of the account analysis method of cost estimation?
A)The method is not particularly useful when the physical relation between inputs and outputs is indirect.
B)The method is subjective.
C)The method requires that several relatively strict assumptions be satisfied.
D)The method is based on studies of what future costs should be rather than what past costs have been.
Q3) Costs that will continue regardless of production level are
A)capacity costs.
B)committed costs.
C)discretionary costs.
D)opportunity costs.
Q4) Identify capacity costs,committed costs,and discretionary costs.
Q5) How does one interpret the results of regression analysis?
Page 7
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Chapter 6: Financial Modeling for Short-Term Decision Making
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Sample Questions
Q1) SunDevil Co.plans to sell 200,000 special Rose Bowl footballs with fixed costs of $400,000 and variable expenses at 60% of sales.To have a net income of $100,000
SunDevil management must set the sales price at
A)$3.75
B)$4.17
C)$5.00
D)$6.25
Q2) The formula used in performing cost-volume-profit (CVP)analysis for the Target Profit in Sales Dollars,where t is the tax rate,is
A)(Total Fixed Costs + Before-Tax Target Profit)/ Unit Contribution Margin.
B)(Total Fixed Costs + Before-Tax Target Profit)/ Contribution Margin Ratio.
C)(Total Fixed Costs ´ t)/ Unit Contribution Margin.
D)(Total Fixed Costs + (Target Profit ´ t))/ Unit Contribution Margin.
Q3) What is the formula for the Target Profit in Units?
A)Total Fixed Costs / Unit Contribution Margin.
B)(Total Fixed Costs + Target Profit)/ Unit Contribution Margin.
C)Sales Units - Break-Even Sales Units.
D)None of the answers is correct.
Q4) Explain what is meant by the margin of safety and how it is used by managers.
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Chapter 7: Differential Cost Analysis for Operating Decisions
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Q1) Just-in-time inventory is a method of managing purchasing,production,and sales,by which
A)the firm attempts to produce each item only as needed for the next step in the production process.
B)the firm attempts to time purchases so that items arrive just in time for sale or production.
C)the firm attempts to produce each item only as needed for the next step in the production process,and the firm attempts to time purchases so that items arrive just in time for sale or production.
D)None of the answers is correct.
Q2) What is the theory of constraints and how is it applied?
Q3) With just-in-time inventory,what does a firm attempt to do?
A)Produce each item only as needed for the next step in the production process.
B)Time purchases so that items arrive just in time for production.
C)Time purchases so that items arrive just in time for sale.
D)All of the answers are correct.
Q4) How do the value chain and product life cycle influence long-run pricing decisions?
Q5) What is the difference between short-run and long-run pricing decisions?
Page 9
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Chapter 8: Capital Expenditure Decisions
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Q1) Which of the following are steps needed for using the net present value method for making long-term decisions using discounted cash flows?
A)estimate the amounts of future cash inflows and future cash outflows in each period for each alternative under consideration.
B)discount the future cash flows to the present using the project's discount rate. C)accept or reject the proposed project,or select one from a set of mutually exclusive projects.
D)all of the above.
Q2) An investment that costs $79,100 will reduce operating costs by $14,000 per year for 10 years.
Required:
Determine the internal rate of return of the investment (ignoring taxes).Should the investment be undertaken if the required rate of return is 18 percent?
Q3) Why does the capital investment process require audits?
Q4) Describe the internal rate of return method of assessing investment alternatives.
Q5) Discuss the advantages of using spreadsheets including sensitivity analysis.
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Chapter 9: Profit Planning and Budgeting
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Q1) Donut,Inc.had 10,000 pounds of flour on hand at the beginning of the year.The company plans to produce 100,000 boxes of donuts during the year.Each box of donuts takes half a pound of flour.The company wants 8,000 pounds of flour on hand at the end of the year.How many pounds of flour must be purchased during the year?
Q2) Describe the master budget.
Q3) Which of the following is not a benefit of participative or grassroots budgeting?
A)The process of participative budgeting can be time consuming.
B)Participating budgeting enhances employee motivation and acceptance of goals.
C)Participative budgeting provides information that enables employees to associate rewards and penalties with performance.
D)Participative budgeting yields information that employees know but managers do not know.
Q4) Explain the difference between a flexible budget and master budget.
Q5) Describe ethical dilemmas in budgeting.
Q6) How is the budget used for performance evaluation?
Q7) The Wholesome Company had an unfavorable sales price variance of $100.The budgeted selling price was $10 per unit,and the number of units sold was 50.What was the actual selling price?
Page 11
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Chapter 10: Profit and Cost Center Performance Evaluation
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Q1) When substituting computerized equipment for direct labor,a firm should treat labor as which of the following?
A)Fixed (or capacity)costs.
B)Mixed costs.
C)Opportunity costs.
D)Variable costs.
Q2) For financial reporting purposes,how are fixed manufacturing costs treated?
A)As period costs.
B)As product costs.
C)As direct materials costs.
D)None of the above.
Q3) Which of the following does the cost variance model use to analyze differences between actual and budgeted profits?
A)Flexible production budget.
B)Fixed production budget.
C)Prior period's production budget.
D)Generally accepted accounting principles.
Q4) How do you apply activity-based costing to variance analysis?
Q5) How do you calculate the mix variance portion of the efficiency variance?
Q6) What tools do managers use to decide when to investigate variances?
Page 12
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Chapter 11: Investment Center Performance Evaluation
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Q1) When measuring a division's operating costs,thecost of the company president's salary is
A)direct,controllable.
B)indirect,controllable.
C)direct,noncontrollable.
D)indirect,noncontrollable.
Q2) Which statement is true concerning economic value added (EVA)?
A)EVA indicates how much employee wealth is being created by company managers.
B)EVA indicates how much shareholder wealth is being created by company managers.
C)EVA indicates how much customer wealth is being created by company managers.
D)EVA indicates how much national wealth is being created by company managers.
Q3) Management uses the following as a measure for assessing efficiency in producing and selling goods and services because it indicates the portion of each dollar of revenue that is profit.
A)Profit margin percentage.
B)Return on investment
C)Investment turnover ratio.
D)Revenue realization ratio.
Q4) How do you calculate economic value added (EVA)and how is it used?
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Chapter 12: Incentive Issues
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Q1) Effective incentive compensation plans must induce individual behavior compatible with increasing the firm's wealth.Why are special awards given?
A)to improve short-term performance.
B)as a long-term incentive.
C)for particular actions or extraordinary performance.
D)None of the answers is correct.
Q2) In 1977,Congress addressed foreign bribes paid by U.S.Companies by passing which of the following acts?
A)Foreign Anti-bribery Practices Act.
B)Foreign Corruption Act.
C)Foreign Corrupt Practices Act.
D)Foreign Bribery and Corruption Act.
Q3) Explain incentive compensation plans and what they should accomplish.
Q4) Bowers Company is considering a new accounting policy to write-off of design and development costs as current period expenses.Explain how this could affect managers' incentives to incur these costs.
Q5) How do environmental conditions influence fraudulent conduct?
Q6) Explain the linkages among the four balanced scorecard perspectives.
Q7) What are the incentives for committing financial fraud?
Page 14
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Chapter 13: Allocating Costs to Responsibility Centers
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Q1) Transtech,Inc. ,processes silicon crystals into purified wafers and chips.Silicon crystals cost $60,000 per tank-car load.The process involves heating the crystals for 12 hours,producing 45,000 purified wafers with a market value of $20,000,and 15,000 chips with a market value of $140,000.The joint cost of the heat process is $25,600.
Required:
a.If the crystal costs and the heat process costs are to be allocated on the basis of units of output,what cost is assigned to each product?
b.If the crystal costs and the heat process costs are allocated on the basis of the net realizable value,what cost is assigned to each product?
c.How much profit or loss does the purified wafers product provide using the data in this problem and your analysis in requirement a.? Is it really possible to determine which product is more profitable? Explain why or why not.
Q2) What is the nature of common (or indirect)costs?
Q3) How is activity-based costing used to allocate service department costs?
Q4) Why are joint-process costs allocated?
Q5) How are service department costs allocated to production departments?
Q6) Why do companies allocate common costs to departments and products?
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