Chapter 9: Profit Planning, Activity-Based Budgeting, and e-Budgeting
MULTIPLE CHOICE QUESTIONS
1. Generally speaking, budgets are not used to:
A. identify a company's most profitable products.
B. evaluate performance.
C. create a plan of action.
D. assist in the control of profit and operations.
E. facilitate communication and coordinate activities.
Answer: A LO: 1 Type: RC
2. Which of the following choices correctly denotes managerial functions that
are commonly associated with budgeting?
Performance Coordination
Planning Evaluation of Activities
A. Yes Yes No
B. Yes Yes Yes
C. Yes No No
D. Yes No Yes
E. No Yes No
Answer: B LO: 1 Type: RC
3. A formal budget program will almost always result in:
A. higher sales.
B. more cash inflows than cash outflows.
C. decreased expenses.
D. improved profits.
E. a detailed plan against which actual results can be compared.
Answer: E LO: 1 Type: RC, N
4. A budget serves as a benchmark against which:
A. actual results can be compared.
B. allocated results can be compared.
C. actual results become inconsequential.
D. allocated results become inconsequential.
E. cash balances can be compared to expense totals.
Answer: A LO: 1 Type: RC
234 Hilton, Managerial Accounting, Seventh Edition
, 5. The comprehensive set of budgets that serves as a company's overall financial plan is commonly
known as:
A. an integrated budget.
B. a pro-forma budget.
C. a master budget.
D. a financial budget.
E. a rolling budget.
Answer: C LO: 1 Type: RC
6. A company's plan for the acquisition of long-lived assets, such as buildings and equipment, is
commonly called a:
A. pro-forma budget.
B. master budget.
C. financial budget.
D. profit plan.
E. capital budget.
Answer: E LO: 1 Type: RC
7. Wilson Corporation is budgeting its equipment needs on an on-going basis, with a new quarter
being added to the budget as the current quarter is completed. This type of budget is most
commonly known as a:
A. capital budget.
B. rolling budget.
C. revised budget.
D. pro-forma budget.
E. financial budget.
Answer: B LO: 1 Type: RC
8. An organization's budgets will often be prepared to cover:
A. one month.
B. one quarter.
C. one year.
D. periods longer than one year.
E. all of the above.
Answer: E LO: 1 Type: RC
9. A manufacturing firm would begin preparation of its master budget by constructing a:
A. sales budget.
B. production budget.
C. cash budget.
D. capital budget.
E. set of pro-forma financial statements.
Answer: A LO: 1, 4 Type: RC
235 Hilton, Managerial Accounting, Seventh Edition
,10. Which of the following budgets is based on many other master-budget components?
A. Direct labor budget.
B. Overhead budget.
C. Sales budget.
D. Cash budget.
E. Selling and administrative expense budget.
Answer: D LO: 1, 4 Type: N
11. The budgeted income statement, budgeted balance sheet, and budgeted statement of cash flows
comprise:
A. the final portion of the master budget.
B. the depiction of an organization's overall actual financial results.
C. the first step of the master budget.
D. the portion of the master budget prepared after the sales forecast and before the remainder of
the operational budgets.
E. the second step of the master budget.
Answer: A LO: 1, 4 Type: RC
12. Which of the following budgets is prepared at the end of the budget-construction cycle?
A. Sales budget.
B. Production budget.
C. Budgeted financial statements.
D. Cash budget.
E. Overhead budget.
Answer: C LO: 1, 4 Type: N
13. Which of the following would depict the logical order for preparing (1) a production budget, (2) a
cash budget, (3) a sales budget, and (4) a direct-labor budget?
A. 1-3-4-2.
B. 2-3-1-4.
C. 2-1-3-4.
D. 3-1-4-2.
E. 3-1-2-4.
Answer: D LO: 1, 4 Type: N
Chapter 9 236
, 14. The master budget contains the following components, among others: (1)
direct-material budget, (2) budgeted balance sheet, (3) production budget,
and (4) cash budget. Which of these components would be prepared first and
which would be prepared last?
First Last
A. 1 4
B. 1 2
C. 3 4
D. 3 2
E. 4 1
Answer: D LO: 1, 4 Type: N
15. A company's sales forecast would likely consider all of the following factors except:
A. political and legal events.
B. advertising and pricing policies.
C. general economic and industry trends.
D. top management's attitude toward decentralized operating structures.
E. competition.
Answer: D LO: 1 Type: RC
16. Which of the following would be considered when preparing a company's
sales forecast?
Anticipated General Expected
Advertising Economic Competitive
Campaigns Trends Actions
A. Yes Yes No
B. Yes No Yes
C. Yes No No
D. Yes Yes Yes
E. No No Yes
Answer: D LO: 1 Type: RC
17. Which of the following statements best describes the relationship between the sales-forecasting
process and the master-budgeting process?
A. The sales forecast is typically completed after completion of the master budget.
B. The sales forecast is typically completed approximately halfway through the master-budget
process.
C. The sales forecast is typically completed before the master budget and has no impact on the
master budget.
D. The sales forecast is typically completed before the master budget and has little impact on the
master budget.
E. The sales forecast is typically completed before the master budget and has significant impact
on the master budget.
Answer: E LO: 1 Type: N
237 Hilton, Managerial Accounting, Seventh Edition
MULTIPLE CHOICE QUESTIONS
1. Generally speaking, budgets are not used to:
A. identify a company's most profitable products.
B. evaluate performance.
C. create a plan of action.
D. assist in the control of profit and operations.
E. facilitate communication and coordinate activities.
Answer: A LO: 1 Type: RC
2. Which of the following choices correctly denotes managerial functions that
are commonly associated with budgeting?
Performance Coordination
Planning Evaluation of Activities
A. Yes Yes No
B. Yes Yes Yes
C. Yes No No
D. Yes No Yes
E. No Yes No
Answer: B LO: 1 Type: RC
3. A formal budget program will almost always result in:
A. higher sales.
B. more cash inflows than cash outflows.
C. decreased expenses.
D. improved profits.
E. a detailed plan against which actual results can be compared.
Answer: E LO: 1 Type: RC, N
4. A budget serves as a benchmark against which:
A. actual results can be compared.
B. allocated results can be compared.
C. actual results become inconsequential.
D. allocated results become inconsequential.
E. cash balances can be compared to expense totals.
Answer: A LO: 1 Type: RC
234 Hilton, Managerial Accounting, Seventh Edition
, 5. The comprehensive set of budgets that serves as a company's overall financial plan is commonly
known as:
A. an integrated budget.
B. a pro-forma budget.
C. a master budget.
D. a financial budget.
E. a rolling budget.
Answer: C LO: 1 Type: RC
6. A company's plan for the acquisition of long-lived assets, such as buildings and equipment, is
commonly called a:
A. pro-forma budget.
B. master budget.
C. financial budget.
D. profit plan.
E. capital budget.
Answer: E LO: 1 Type: RC
7. Wilson Corporation is budgeting its equipment needs on an on-going basis, with a new quarter
being added to the budget as the current quarter is completed. This type of budget is most
commonly known as a:
A. capital budget.
B. rolling budget.
C. revised budget.
D. pro-forma budget.
E. financial budget.
Answer: B LO: 1 Type: RC
8. An organization's budgets will often be prepared to cover:
A. one month.
B. one quarter.
C. one year.
D. periods longer than one year.
E. all of the above.
Answer: E LO: 1 Type: RC
9. A manufacturing firm would begin preparation of its master budget by constructing a:
A. sales budget.
B. production budget.
C. cash budget.
D. capital budget.
E. set of pro-forma financial statements.
Answer: A LO: 1, 4 Type: RC
235 Hilton, Managerial Accounting, Seventh Edition
,10. Which of the following budgets is based on many other master-budget components?
A. Direct labor budget.
B. Overhead budget.
C. Sales budget.
D. Cash budget.
E. Selling and administrative expense budget.
Answer: D LO: 1, 4 Type: N
11. The budgeted income statement, budgeted balance sheet, and budgeted statement of cash flows
comprise:
A. the final portion of the master budget.
B. the depiction of an organization's overall actual financial results.
C. the first step of the master budget.
D. the portion of the master budget prepared after the sales forecast and before the remainder of
the operational budgets.
E. the second step of the master budget.
Answer: A LO: 1, 4 Type: RC
12. Which of the following budgets is prepared at the end of the budget-construction cycle?
A. Sales budget.
B. Production budget.
C. Budgeted financial statements.
D. Cash budget.
E. Overhead budget.
Answer: C LO: 1, 4 Type: N
13. Which of the following would depict the logical order for preparing (1) a production budget, (2) a
cash budget, (3) a sales budget, and (4) a direct-labor budget?
A. 1-3-4-2.
B. 2-3-1-4.
C. 2-1-3-4.
D. 3-1-4-2.
E. 3-1-2-4.
Answer: D LO: 1, 4 Type: N
Chapter 9 236
, 14. The master budget contains the following components, among others: (1)
direct-material budget, (2) budgeted balance sheet, (3) production budget,
and (4) cash budget. Which of these components would be prepared first and
which would be prepared last?
First Last
A. 1 4
B. 1 2
C. 3 4
D. 3 2
E. 4 1
Answer: D LO: 1, 4 Type: N
15. A company's sales forecast would likely consider all of the following factors except:
A. political and legal events.
B. advertising and pricing policies.
C. general economic and industry trends.
D. top management's attitude toward decentralized operating structures.
E. competition.
Answer: D LO: 1 Type: RC
16. Which of the following would be considered when preparing a company's
sales forecast?
Anticipated General Expected
Advertising Economic Competitive
Campaigns Trends Actions
A. Yes Yes No
B. Yes No Yes
C. Yes No No
D. Yes Yes Yes
E. No No Yes
Answer: D LO: 1 Type: RC
17. Which of the following statements best describes the relationship between the sales-forecasting
process and the master-budgeting process?
A. The sales forecast is typically completed after completion of the master budget.
B. The sales forecast is typically completed approximately halfway through the master-budget
process.
C. The sales forecast is typically completed before the master budget and has no impact on the
master budget.
D. The sales forecast is typically completed before the master budget and has little impact on the
master budget.
E. The sales forecast is typically completed before the master budget and has significant impact
on the master budget.
Answer: E LO: 1 Type: N
237 Hilton, Managerial Accounting, Seventh Edition
