Unit:FNSACC503 Manage Budgets and Forecasts

Student ID: ______

Student Name: ______

Class Test

Unit:FNSACC503 – Manage budgets and forecasts

Date:TBA

Duration:60 minutes

Total Marks:This exam is worth 15% of the total marks in the unit.

Instructions:

1. Answer all questions;

2. Please write your answer in Question Paper;

3. You are not permitted to take the question paper with you after finish the test.

Part One: Multiple Choice Questions

1. The statement relating to a budget that is not true is:

a. It is a detailed plan

b. It is a management tool

c. It provides many of the performance targets used in responsibility accounting

d .It is prepared on an historical basis

2. Which statement relating to the provision of motivation as a benefit of budgeting is not true?

a. When all levels of management participate in preparing the budget it has a better chance of acceptance

b. The budgeted level of performance should be beyond that attainable with a reasonably amount of effort, to provide employees with a challenge

c. An improperly prepared budget may have an adverse effect on motivation

d. To increase the chances of acceptance the budget is best approached from the bottom up

3. The first and last steps respectively in the developing a master budget are:

a. Forecasting sales; estimating expenses

b. Preparation of the sales budget; preparation of the capital expenditure budget

c. Identifying goals; preparation of a set of budgeted financial statements

d. Identifying goals; preparation of the cash budget

4. The method which would not be used to forecast sales is:

a. Extrapolation of past sales

b. Predictions by senior management

c. Statistical or mathematical techniques

d. Working out the maximum production that can be achieved

5. The statement relating to a master budget that is not true is:

a. Budget targets are fixed and not subject to revision

b. It is a set of interrelated budgets

c. It is normally overseen by a budget committee

d. It is typically prepared for a one-year period that coincides with the entity's financial year

6. The statement that is not true is:

a. Preparing operating budgets for service businesses is normally simpler than preparing them for retailers or manufacturers

b. A service business does not need to prepare a cash budget

c. GST estimates need to be included in a cash budget

d. The emphasis in budgeting for not-for profit organisations tends to be on cash flows and the final cash position rather than on profits, income and expenditure

7. It is true in relation to cash budgets that:

a. They are prepared by entities that sell entirely on credit

b. They include depreciation

c. They are based on preparing a projected bank reconciliation

d. They are the last budget to be prepared

8. It is not necessary in the control phase of budgeting to:

a. Decide on management action

b. Compare actual performance with budget estimates

c. Provide timely information to management

d. Investigate all variances

9. The statement concerning responsibility accounting that is untrue is:

a. For successful budgeting responsibility must be clearly defined

b. A manager is held responsible for the activities of his/her department

c. The choice of responsibility centres in an organisation depends on its characteristics

d. Responsibility centres are usually determined by differences in the product the firm produces

10. The untrue statement is:

a. A properly prepared budget is a motivating device

b. An improperly prepared budget can have a negative effect on motivation

c. Managers should be given sole responsibility for setting their own budget targets so that they are motivated to achieve these targets

d. The budgeted level of performance should be attainable with a reasonably efficient amount of effort.

11. The purposes of a budget include:

A. Planning.

B. Facilitating communication and coordination.

C. Controlling profit and operations, and evaluating performance and providing incentives.

D. All of the given answers

12. Which of the following involves decisions about the types of businesses and markets that an organisation operates in, and about how those businesses and activities will be financed?

A. Sales forecasting

B. Strategic planning

C. Financial statement forecasting

D. Financial planning

13. The annual financial budget is also called a

A. Capital budget.

B. Master budget.

C. Long-range budget.

D. None of the given answers.

14. A budget that is continually updated by periodically adding a new incremental time period such as a quarter, and dropping the period just completed is a

A. Short-range budget.

B. Long-range budget.

C. Capital budget.

D. Rolling budget.

15. Budgets that cover a particular period of time, longer than a year, are

A. Short-range budgets.

B. Long-range budgets.

C. Rolling budgets.

D. Continuous budgets.

16. Which of the following includes the cash receipts and cash payments and discloses a firm's financial plans?

A. Cash budget

B. Selling and administrative expense budget

C. Budgeted financial statement

D. None of the given answers

17. A budget that includes sales revenue, cost of goods sold, operating expenses and net profit is a

A. Budgeted profit and loss statement.

B. Budgeted balance sheet.

C. Budgeted statement of changes in financial position.

D. Budgeted statement of cash flows.

18. BeActive Sporting Goods sells tandem bicycles. The following data was taken from the most recent quarterly sales forecast.

BeActive's cost for one bicycle is $125. What dollar amount should the company budget for June purchases?

A. $153 125

B. $154 750

C. $204 625

D. $207 875

19. Lee's Appliances forecasts the following sales figures for the next four months.

Cash sales average 10 per cent of total sales and credit sales are collected 50 per cent in the month of sale and 50 per cent in the month following sale. What are the estimated cash collections in May?

A. $215 000

B. $207 500

C. $195 000

D. $82 500

20. The Grainger Company's Budgeted Profit and Loss Statement reflects the following amounts:

Sales are collected 50 per cent in the month of sale, 30 per cent in the month following sale, 19 per cent in the second month following sale and 1 per cent is uncollectible. The uncollectible accounts are expensed at the end of the year.

Grainger pays for purchases by the fifth of the month following purchase, to take advantage of the 3 per cent discount allowed.

On January 1, Grainger had a cash balance of $88 000 and an accounts receivable balance of $58 000; $35 000 on account will be collected in January with the remaining balance to be collected in February. Grainger had an accounts payable balance of $72 000 on January 1. Invoices are recorded at their gross amount.

The monthly expense figures include $5000 in monthly depreciation. The expenses are paid for in the month incurred.

What is Grainger's expected cash balance at the end of January?

A. $92 000

B. $94 160

C. $87 000

D. $89 160

Part Two: Practical Questions

Q1: Everywhere Sports is a retail store supplying sporting equipment to community sports clubs. Information about the store's operations is as follows:

• November sales amounted to $200 000.
• Sales are budgeted at $220 000 for December and $200 000 for January.
• Receipts are expected to be 60 per cent in the month of sale and 38 per cent in the month following the sale. Two per cent of sales are expected to be uncollectable.
• The store's gross margin is 25 per cent of its sales revenue.
• A total of 80 per cent of the merchandise for resale is purchased in the month prior to the month of sale, and 20 per cent is purchased in the month of sale. Payment for merchandise is made in the month following the purchase.
• Other monthly expenses paid in cash amount to $22 600.
• Annual depreciation is $216 000.

The balance sheet of Everywhere Sports as at 30 November is:

Required:

Calculate the following amounts:

Q2: Happy Pets is a veterinary clinic operating in Auckland. Recently John Tilley, the manager of the clinic, has been concerned about cash flow shortages, which arose quite unexpectedly in the last three months of the past year. The clinic bank account went into overdraft and incurred interest charges. Tilley believes that the main source of the cash flow difficulties is a lack of attention to outstanding client accounts and the practice of purchasing expensive veterinary supplies in large quantities at irregular intervals.

Tilley has asked you to help design a spreadsheet to help with planning for client consultations, purchases of supplies, cash shortages and cash surpluses for next year. The following data are available:

Revenue is as follows:

During the past year, 50 per cent of consultation revenue was collected in the month of the veterinary visit, 20 per cent in the following month, 20 per cent in the second month, and 10 per cent was not received. In the budget year, new credit policies are expected to result in collections of 60 per cent, 20 per cent, 10 per cent and 10 per cent respectively.

The cost of veterinary supplies was $75 000 in December and is budgeted as $125 000 in February. Half of the suppliers' accounts are paid in the month they are incurred and half in the following month. Salaries of $100 000 per month and other costs of $75 000 are paid in the month they are incurred.

Required:

Q3. What should organizations do when they could not achieve the budget?