Master Budget quiz Managerial Accounting Quiz On Feb 1, 2026 Share Master Budget 20 questions in 20 minutes Pass Score 70% The questions change when you repeat the exam 1 / 20 Which of the following is normally included in the financial budget of a firm ? Sales budget Direct materials budget Budgeted balance sheet Selling expense budget The financial budget normally includes the capital budget, the cash budget, the budgeted balance sheet, and the budgeted statement of cash flows 2 / 20 ELG Manufacturing, Inc., produces farm tractors. The details of its budgeted cost of goods manufactured schedule should come from which of the following schedules? Purchases, raw material, work-in-process, and finished goods Cost of goods sold plus or minus the change planned in finished goods Purchases, direct labor, manufacturing overhead, finished goods, and work-inprocess Direct materials used, direct labor, manufacturing overhead, and work-in-process Cost of goods manufactured equals all manufacturing costs incurred during the period, plus beginning work-inprocess inventory, minus ending work-in-process inventory. The cost of goods manufactured schedule therefore includes direct materials, direct labor, factory overhead, and changes in work-in-process inventories 3 / 20 There are various budgets within the master budget cycle. One of these budgets is the production budget. Which one of the following best describes the production budget ? It includes required direct labor hours It summarizes all discretionary costs It is calculated from the desired ending inventory and the sales forecast It includes required material purchases A production budget is based on sales forecasts, in units, with adjustments for beginning and ending inventories. It is used to plan when items will be produced. After the production budget has been completed, it is used to prepare materials purchases, direct labor, and factory overhead budgets 4 / 20 The financial budget process includes : The cash budget All of the answers are correct The budgeted statement of cash flows The capital budget The financial budget normally includes the capital budget, the cash budget, the budgeted balance sheet, and the budgeted statement of cash flows 5 / 20 Which one of the following may be considered an independent item in the preparation of the master budget? Pro forma income statement Capital investment budget Pro forma statement of financial position Ending inventory budget The capital investment budget may be prepared more than a year in advance, unlike the other elements of the master budget. Because of the long-term commitments that must be made for some types of capital investments, planning must be done far in advance and is based on needs in future years as opposed to the current year’s needs 6 / 20 When sales volume is seasonal in nature, certain items in the budget must be coordinated. The three most significant items to coordinate in budgeting seasonal sales volume are : Production volume, finished goods inventory, and sales volume Direct labor hours, work-in-process inventory, and sales volume Raw material inventory, direct labor hours, and manufacturing overhead costs Raw material inventory, work-in-process inventory, and production volume The most important items that need to be coordinated in a seasonal business are sales volume and production. The sales budget is the basis for other budgets. The sales projection determines how much needs to be purchased and produced. In turn, projected sales and production (or purchases) must be coordinated with existing quantities on hand (inventory) and with amounts to be held in the future. If a manufacturer faces sharp variations in demand, this coordination becomes especially crucial 7 / 20 In developing a comprehensive budget for a manufacturing company, which one of the following items should be done first ? Development of a sales plan Determination of manufacturing capacity Development of the capital budget Determination of the advertising budget The starting point for the annual budget is the sales forecast. All other aspects of the budget, including production, costs, and inventory levels, rely on projected sales figures 8 / 20 Individual budget schedules are prepared to develop an annual comprehensive or master budget. The budget schedule that would provide the necessary input data for the direct labor budget would be the : Schedule of cash receipts and disbursements Sales forecast Production budget Raw materials purchases budget Once the production budget has been completed, the next step is to prepare the direct labor, raw material, and overhead budgets. Thus, the production budget provides the data for the completion of the direct labor budget 9 / 20 All of the following are considered operating budgets except the : Sales budget Production budget Capital budget Materials budget The operating budget consists of all budgets that concern normal operating activities, including the sales budget, production budget, materials budget, direct labor budget, and factory overhead budget. The capital expenditures budget, which outlines needs for new capital investment, is not a part of normal operations. The capital expenditures budget is sometimes prepared more than a year in advance to allow sufficient time to secure financing for these major expenditures 10 / 20 Which one of the following items should be done first when developing a comprehensive budget for a manufacturing company ? Development of the capital budget Determination of the advertising budget Development of a sales budget Preparation of a pro forma income statement The sales budget is the first to be prepared because all other elements of a comprehensive budget depend on projected sales. For example, the production budget is based on an estimate of unit sales and desired inventory levels. Thus, sales volume affects purchasing levels, operating expenses, and cash flow 11 / 20 Which budget is prepared after the creation of the cash budget ? Sales budget Production budget Budgeted balance sheet Capital expenditures budget Budgeted financial statements, more specifically the budgeted balance sheet, are prepared after the creation of the cash budget 12 / 20 The starting point for creating a master budget for a proprietary secretarial school would be : Forecasting enrollment Preparing a capital expenditure budget Estimating salaries of the instructors Preparing the student recruiting budget The sales forecast drives all the other components of the operating budget. How much revenue the firm expects to bring in affects every other decision 13 / 20 The budget that is usually the most difficult to forecast is the : Sales budget Manufacturing overhead budget Expense budget Production budget Following the preparation of the sales budget, all other budgets are prepared based on the assumptions used in the sales budget. For this reason, the sales budget is the most difficult to prepare because there are no internal figures to use as a guide. Sales are based on the desires of consumers and the current business climate 14 / 20 After the goals of the company have been established and communicated, the next step in the planning process is development of the : Selling and administrative budget Sales budget Direct materials budget Production budget The sales budget is the first step in the operating budget process because it is needed to prepare all of the other budgets. For example, the production budget cannot be prepared until the sales department has determined how many units are needed 15 / 20 The budget that is usually the most difficult to forecast is the : Manufacturing overhead budget Production budget Expense budget Sales budget Following the preparation of the sales budget, all other budgets are prepared based on the assumptions used in the sales budget. For this reason, the sales budget is the most difficult to prepare because there are no internal figures to use as a guide. Sales are based on the desires of consumers and the current business climate 16 / 20 While an operating budget is a key element in planning and control, it is not likely to: Integrate organizational activities Provide subsidiary planning information Establish a commitment of company resources Set out long-range, strategic concepts Operating budgets seldom set out long-range strategic concepts because they usually deal with the quantitative allocation of people and resources. Strategic concepts are overall goals for the organization and are almost always stated in words 17 / 20 ELG Company is anticipating that a major supplier might experience a strike this year. Because of the nature of the product and emphasis on quality, extra production cannot be stored as finished goods inventory. When developing a contingency budget that would anticipate a direct materials buildup, the two most significant items that will be affected are: Production and cash flow Direct materials and cash flow Sales and ending inventory Production volume and direct material The most significant items are those that will vary between the contingency budget and the regular budget. The company cannot increase its finished goods inventory, but it can increase its inventory of the direct materials provided by the supplier. Thus, the items most affected will be direct materials and cash. The cash budget will be affected because of the need to pay for direct materials prior to their usage 18 / 20 When preparing the series of annual operating budgets, management usually starts the process with the : Balance sheet Capital budget Cash budget Sales budget The budgeting process begins with the sales budget and then proceeds to the production budget. Once the production budget is complete, then the raw materials, direct labor, overhead, and cash budgets can be prepared. The capital budget is prepared outside the operating budget process, followed by a cash budget 19 / 20 The production budget process usually begins with the : Manufacturing overhead budget Sales budget Direct materials budget Direct labor budget Neither a master budget nor a production budget can be prepared until after the sales budget has been completed. Once a firm knows its expected sales, production can be estimated. The production budget is based on assumptions appearing in the sales budget; thus, the sales budget is the first step in the preparation of a production budget 20 / 20 In preparing a corporate master budget, which one of the following is most likely to be prepared last ? Sales budget Production budget Cash budget Cost of goods sold budget The cash budget is the lynchpin of the financial budget. It combines the results of the operating budget with the cash collection and disbursement schedules to produce a comprehensive picture of where the company’s cash flows are expected to come from and where they are expected to go. All the other budgets listed feed the cash budget in one way or another Your score is LinkedIn Facebook Twitter VKontakte 0% Send feedback 2017. budgeted sala flexible budget variance is calculated by comparing the master budget to the flexible budget.a key difference between a master budget prepared for a merchandiser versus a manufacturer is
