Question 1
tb.frazp.bud.060_1809
In 20x7 the Blue Company incurred $3,000,000 in set-up costs. It spent
75,000 hours on set-up to produce 400,000 units that year. In 20x8 Blue
expects to need 80,000 hours of set-up to produce 410,000 units. Using
activity-based budgeting and the 20x7 cost data, what would Blue's budget
for set-up costs equal in 20x8?
$3,075,000
$3,200,000
$2,812,500
$2,928,000
This Answer is Correct
Correct. An activity-based budgeting system is a budgeting system where
activities are the focus, not departments, products, or services. An activity-
based budgeting system uses nonvolume cost drivers to more accurately
estimate costs since not all costs vary with volume. To implement activity-
based budgeting, Blue would budget set-up costs based on expected set-up
hours. Using 20x7 cost data, Blue would estimate set-up costs as $40 per set-
up hour ($3,000,000 ÷ 75,000 hours). Based on an expected 80,000 set-up
hours in 20x8, Blue would budget setup costs as $3,200,000 ($40 × 80,000).
Question 2
tb.frazp.bud.055_1809
A company wishes to focus on reducing wasteful and ineffective R&D
spending. Which budgeting system would be the most appropriate system for
this company to use?
A zero-based budgeting system.
A continuous or rolling budgeting
system.
A project budgeting system.
An activity-based budgeting system.
You Answered Correctly!
Correct. A zero-based budgeting system is a budgeting system that focuses
on constant cost justification of each and every budget item. This focus
increases the likelihood of identifying wasteful and ineffective spending.
Question 3
tb.frazp.bud.051_1809
A company wants to develop a budget that will focus on factors directly
related to building a new warehouse building and not on any corporate
administrative costs or activities. Which budgeting system would be the most
appropriate system to use for this purpose?
A continuous or rolling budgeting
system.
A project budgeting system.
An activity-based budgeting system.
A zero-based budgeting system.
This Answer is Correct
,Correct. A project budgeting system is used when the goal is to only focus on
factors directly related to a specific project such as building a new warehouse
building. It does not take corporate administrative costs or activities into
consideration.
Question 4
tb.frazp.bud.057_1809
The Drum Company has gathered the information below concerning budgeted
and actual selling costs. Based on this information, what would Drum's
flexible budget selling costs be for 20x8?
Year Budgeted Units Budgeted Costs Actual Units Actual Costs
20x7 30,000 $210,000 31,000 $224,750
20x8 32,000 $216,000 31,200 $213,720
$210,600
$219,200
$217,000
$232,000
You Answered Correctly!
Correct. A flexible budgeting system is a budgeting system that shows the
budget that would have been prepared if the organization knew in advance
what its actual volume would be. It is the amount that “should have” been
spent for the actual level of volume, based on budgeted expectations.
Amounts are calculated by multiplying the actual volume of activity by the
budgeted cost per unit. Drum's budgeted selling costs per unit for 20x8 is
$6.75 per unit ($216,000 ÷ 32,000). This means the flexible budget selling
costs for 20x8 equal $210,600 (31,200 × $6.75).
Question 5
tb.frazp.bud.011_1805
Weaver Company plans to make and sell 55,000 shirts in one month. The
company's total fixed costs are expected to be $108,000, and its total
variable costs are expected to be $178,750. What is the expected cost per
shirt if the production level changes to 60,000 units?
$4.94
$5.05
$5.21
$4.78
This Answer is Correct
Total costs consist of variable costs and fixed costs. Variable costs change in
direct proportion to changes in output while fixed costs do not change when
output changes. If variable costs are budgeted to be $178,750 when
budgeted production is 55,000 shirts, budgeted variable costs are $3.25 per
unit ($178,750 ÷ 55,000). If production changes to 60,000 shirts, variable
costs will remain $3.25 per shirt. If fixed costs are budgeted to be $108,000
for 60,000 shirts, fixed costs will be $1.80 per shirt ($108,000 ÷ 60,000). This
means expected total costs will be $5.05 per shirt for 60,000 shirts ($3.25 +
$1.80). Therefore, this is the correct answer.
Question 6
tb.frazp.bud.027_1809
,Which of the following statements concerning the preparation of a project
budget is correct?
A project budget is prepared in much the same way as a master budget is prepared.
A project budget is prepared in much the same way as an activity-based budget is prepared.
A project budget is prepared in much the same way as a zero-based budget is prepared.
A project budget is prepared in much the same way as a flexible budget is prepared.
You Answered Correctly!
Correct. A project budget system is a budgeting system used when a project
is completely separate from other components of a company's operations or
is the only component of the company. It is prepared in much the same way
as a master budget is prepared except only the costs and revenues specific to
the project are included. No company overhead unrelated to the project is
included.
Question 7
1B4-LS20
When compared to static budgets, flexible budgets:
* Source: Retired ICMA CMA Exam Questions.
encourage managers to use less fixed costs items and more variable cost items that are under
their control.
offer managers a more realistic comparison of budget and actual revenue and cost items under
their control.
offer managers a more realistic comparison of budget and actual fixed cost items under their
control.
provide a better understanding of the capacity variances during the period being evaluated.
This Answer is Correct
Flexible budgeting offers managers a more realistic comparison of budget and
actual revenue and cost items under their control as it adjusts the budgets to
accommodate fluctuations in activity levels.
Question 8
tb.frazp.bud.023_1809
The starting point for preparing a master budget is the:
Sales forecast.
Production forecast.
Cash expenditure
forecast.
Cash collection forecast.
You Answered Correctly!
Correct. A master budget system is a comprehensive budgeting system that
shows every aspect of an organization's revenue and cost flows and results in
the preparation of pro forma financial information. The sales forecast is the
starting point since it helps determine budgeted revenue and budgeted
production.
Question 9
tb.frazp.bud.046_1809
, A company wants to develop a budget that is suitable to plan activities in an
environment of rapid changes. Which budgeting system would be the most
appropriate system to use for this purpose?
A continuous or rolling budgeting
system.
A master budgeting system.
An activity-based budgeting system.
A flexible budgeting system.
You Answered Correctly!
Correct. A continuous or rolling budgeting system is a budgeting system
where a new period is added to the budget each period so there are always
several periods budgeted out and the budget stays up-to-date with the
operating environment. Because a continuous or rolling budgeting system
results in up-to-date budgets, it is the most appropriate system to use for
planning activities in an environment of rapid changes.
Question 10
1B4-LS05
A firm wants to place its budgeting emphasis on teamwork, synchronized
activity, and customer satisfaction. Which of the following budget types
would best fit these needs?
Zero-based budgeting.
Project budgeting.
Continuous budgeting.
Activity-based
budgeting.
This Answer is Correct
An activity-based budget places emphasis on teamwork, synchronized
activity, and customer satisfaction. Traditional budgeting places emphasis on
increasing management performance.
Question 11
tb.frazp.bud.048_1809
A company wishes to prepare a budget that will enable it to compare the
amount actually spent to produce 10,000 units of output with the amount that
should have been spent to produce 10,000 units. Which budgeting system
would be the most appropriate system for this company to use?
A zero-based budgeting
system.
A master budgeting system.
A project budgeting system.
A flexible budgeting system.
This Answer is Correct
Correct. A flexible budgeting system is a budgeting system that shows the
budget that would have been prepared if the organization knew in advance
what its actual volume would be. It is the only budgeting system that will
enable the company to compare the amount actually spent to produce 10,000
units of output with the amount that should have been spent to produce
10,000 units.
tb.frazp.bud.060_1809
In 20x7 the Blue Company incurred $3,000,000 in set-up costs. It spent
75,000 hours on set-up to produce 400,000 units that year. In 20x8 Blue
expects to need 80,000 hours of set-up to produce 410,000 units. Using
activity-based budgeting and the 20x7 cost data, what would Blue's budget
for set-up costs equal in 20x8?
$3,075,000
$3,200,000
$2,812,500
$2,928,000
This Answer is Correct
Correct. An activity-based budgeting system is a budgeting system where
activities are the focus, not departments, products, or services. An activity-
based budgeting system uses nonvolume cost drivers to more accurately
estimate costs since not all costs vary with volume. To implement activity-
based budgeting, Blue would budget set-up costs based on expected set-up
hours. Using 20x7 cost data, Blue would estimate set-up costs as $40 per set-
up hour ($3,000,000 ÷ 75,000 hours). Based on an expected 80,000 set-up
hours in 20x8, Blue would budget setup costs as $3,200,000 ($40 × 80,000).
Question 2
tb.frazp.bud.055_1809
A company wishes to focus on reducing wasteful and ineffective R&D
spending. Which budgeting system would be the most appropriate system for
this company to use?
A zero-based budgeting system.
A continuous or rolling budgeting
system.
A project budgeting system.
An activity-based budgeting system.
You Answered Correctly!
Correct. A zero-based budgeting system is a budgeting system that focuses
on constant cost justification of each and every budget item. This focus
increases the likelihood of identifying wasteful and ineffective spending.
Question 3
tb.frazp.bud.051_1809
A company wants to develop a budget that will focus on factors directly
related to building a new warehouse building and not on any corporate
administrative costs or activities. Which budgeting system would be the most
appropriate system to use for this purpose?
A continuous or rolling budgeting
system.
A project budgeting system.
An activity-based budgeting system.
A zero-based budgeting system.
This Answer is Correct
,Correct. A project budgeting system is used when the goal is to only focus on
factors directly related to a specific project such as building a new warehouse
building. It does not take corporate administrative costs or activities into
consideration.
Question 4
tb.frazp.bud.057_1809
The Drum Company has gathered the information below concerning budgeted
and actual selling costs. Based on this information, what would Drum's
flexible budget selling costs be for 20x8?
Year Budgeted Units Budgeted Costs Actual Units Actual Costs
20x7 30,000 $210,000 31,000 $224,750
20x8 32,000 $216,000 31,200 $213,720
$210,600
$219,200
$217,000
$232,000
You Answered Correctly!
Correct. A flexible budgeting system is a budgeting system that shows the
budget that would have been prepared if the organization knew in advance
what its actual volume would be. It is the amount that “should have” been
spent for the actual level of volume, based on budgeted expectations.
Amounts are calculated by multiplying the actual volume of activity by the
budgeted cost per unit. Drum's budgeted selling costs per unit for 20x8 is
$6.75 per unit ($216,000 ÷ 32,000). This means the flexible budget selling
costs for 20x8 equal $210,600 (31,200 × $6.75).
Question 5
tb.frazp.bud.011_1805
Weaver Company plans to make and sell 55,000 shirts in one month. The
company's total fixed costs are expected to be $108,000, and its total
variable costs are expected to be $178,750. What is the expected cost per
shirt if the production level changes to 60,000 units?
$4.94
$5.05
$5.21
$4.78
This Answer is Correct
Total costs consist of variable costs and fixed costs. Variable costs change in
direct proportion to changes in output while fixed costs do not change when
output changes. If variable costs are budgeted to be $178,750 when
budgeted production is 55,000 shirts, budgeted variable costs are $3.25 per
unit ($178,750 ÷ 55,000). If production changes to 60,000 shirts, variable
costs will remain $3.25 per shirt. If fixed costs are budgeted to be $108,000
for 60,000 shirts, fixed costs will be $1.80 per shirt ($108,000 ÷ 60,000). This
means expected total costs will be $5.05 per shirt for 60,000 shirts ($3.25 +
$1.80). Therefore, this is the correct answer.
Question 6
tb.frazp.bud.027_1809
,Which of the following statements concerning the preparation of a project
budget is correct?
A project budget is prepared in much the same way as a master budget is prepared.
A project budget is prepared in much the same way as an activity-based budget is prepared.
A project budget is prepared in much the same way as a zero-based budget is prepared.
A project budget is prepared in much the same way as a flexible budget is prepared.
You Answered Correctly!
Correct. A project budget system is a budgeting system used when a project
is completely separate from other components of a company's operations or
is the only component of the company. It is prepared in much the same way
as a master budget is prepared except only the costs and revenues specific to
the project are included. No company overhead unrelated to the project is
included.
Question 7
1B4-LS20
When compared to static budgets, flexible budgets:
* Source: Retired ICMA CMA Exam Questions.
encourage managers to use less fixed costs items and more variable cost items that are under
their control.
offer managers a more realistic comparison of budget and actual revenue and cost items under
their control.
offer managers a more realistic comparison of budget and actual fixed cost items under their
control.
provide a better understanding of the capacity variances during the period being evaluated.
This Answer is Correct
Flexible budgeting offers managers a more realistic comparison of budget and
actual revenue and cost items under their control as it adjusts the budgets to
accommodate fluctuations in activity levels.
Question 8
tb.frazp.bud.023_1809
The starting point for preparing a master budget is the:
Sales forecast.
Production forecast.
Cash expenditure
forecast.
Cash collection forecast.
You Answered Correctly!
Correct. A master budget system is a comprehensive budgeting system that
shows every aspect of an organization's revenue and cost flows and results in
the preparation of pro forma financial information. The sales forecast is the
starting point since it helps determine budgeted revenue and budgeted
production.
Question 9
tb.frazp.bud.046_1809
, A company wants to develop a budget that is suitable to plan activities in an
environment of rapid changes. Which budgeting system would be the most
appropriate system to use for this purpose?
A continuous or rolling budgeting
system.
A master budgeting system.
An activity-based budgeting system.
A flexible budgeting system.
You Answered Correctly!
Correct. A continuous or rolling budgeting system is a budgeting system
where a new period is added to the budget each period so there are always
several periods budgeted out and the budget stays up-to-date with the
operating environment. Because a continuous or rolling budgeting system
results in up-to-date budgets, it is the most appropriate system to use for
planning activities in an environment of rapid changes.
Question 10
1B4-LS05
A firm wants to place its budgeting emphasis on teamwork, synchronized
activity, and customer satisfaction. Which of the following budget types
would best fit these needs?
Zero-based budgeting.
Project budgeting.
Continuous budgeting.
Activity-based
budgeting.
This Answer is Correct
An activity-based budget places emphasis on teamwork, synchronized
activity, and customer satisfaction. Traditional budgeting places emphasis on
increasing management performance.
Question 11
tb.frazp.bud.048_1809
A company wishes to prepare a budget that will enable it to compare the
amount actually spent to produce 10,000 units of output with the amount that
should have been spent to produce 10,000 units. Which budgeting system
would be the most appropriate system for this company to use?
A zero-based budgeting
system.
A master budgeting system.
A project budgeting system.
A flexible budgeting system.
This Answer is Correct
Correct. A flexible budgeting system is a budgeting system that shows the
budget that would have been prepared if the organization knew in advance
what its actual volume would be. It is the only budgeting system that will
enable the company to compare the amount actually spent to produce 10,000
units of output with the amount that should have been spent to produce
10,000 units.
