Question 1. Budgets perform the function of: Predicting interest rates. Determining a firms sustainable rate of growth.

Providing the basis for taking corrective action. Calculating plowback ratios.

Question 2. Which of the following items would NOT be included in the cash budget? Depreciation charges Payments to suppliers Cash receipts Taxes

Question 3. A flexible budget differs from a fixed budget in that more than one set of input values for variables such as Sales are used. True False

Question 4. Which of the following would be classified as spontaneous liabilities?

Accounts receivable

Accounts payable Notes payable Long-term debt Question 5. Which of the following would decrease the need for additional discretionary financing, everything else constant? The firm anticipated higher sales growth. The firms net profit margin was lower. The firm paid a higher percentage of earnings out as cash dividends. The firm retained a higher percentage of earnings. Question 6. A firms sustainable rate of growth (g*) is determined by which of the following: g* = ROE(1 - b). g* = net income/common equity. g* = sales/assets. g* = common equity/assets.

Question 7. The presence of excess capacity increases the need for discretionary financing for any level of sales increase. True False

Question 8. If there exist economies of scale in inventory investment, the percent of sales method is likely to overstate additional asset needs for a given increase in sales. True False

Question 9. At the sustainable rate of growth, the company does not need any additional assets to support the increased sales. True False

Question 10. Which of the following work to automatically reduce the need for discretionary financing as sales increase? Increases in spontaneous liabilities Increases in retained earnings Increases in fixed assets Both a and b above

Question 1. A firm is using the DFN model to forecast the additional capital that they need to raise because of a sales increase. Which of the following factors are likely to increase the DFN?

The firm has a lot of excess capacity. The firm has a high dividend payout ratio. The firm has a lot of spontaneous liabilities that increase as sales increase. The firm has a high profit margin.

Question 2. The first step involved in predicting financing needs is: project the firm's sales revenues and expenses over the planning period. estimating the levels of investment in current and fixed assets that are necessary to support the projected sales. determining the firm's financing needs throughout the planning period. estimating the firm's DFN.

Question 3. The Stuff Antique Store has current sales of $12 million and predicts next year's sales will grow to $16 million. Current assets are $3 million and fixed assets are $4 million. The firm's net profit margin is 6 percent after taxes. Presently, Stuff has $800,000 in accounts payable, $1.1 million in long-term debt, and $5 million (including $2.5 million in retained earnings) in common equity. Next year, Stuff projects that current assets and liabilities will rise in direct proportion to the forecasted sales, and that fixed assets will rise by $600,000. The Stuff Antique Store plans to pay dividends of $400,000 to common shareholders. What are Stuff's total financing needs and discretionary financing needs for the upcoming year?

$8.6 million and $.27 million. $7.5 million and $.25 million. $6.5 million and $.15 million. $5.5 million and $.45 million.

Question 4. To determine the amount of discretionary funds needed, you would subtract the expected increase in liabilities from the sum of the expected increases in retained earnings and assets. True False Question 5. Accounts payable represent a spontaneous form of financing for a firm. True False

The process of planning future business actions and expressing those plans in a formal manner, usually in monetary terms, is called budgeting.

True False 26-2. The budgeting process can be used to promote a positive effect on employees' attitudes, but it can also yield a negative one.

True False 26-3. The task of preparing the budget normally is the responsibility of one department, the controller's department or a department of one of the high-level managers.

True False 26-4. Most successful businesses generally prepare their budgets from 'the top down'. These budgets are tightly controlled by upper management.

True False 26-5. Since the budget period normally coincides with the accounting period, budgets of less than one year or greater than one year are not normally prepared.

True False 26-6. When a company adds one increment of time to its budget period as one increment of time expires, it is practicing continuous budgeting.

True False 26-7. The cash budget is a financial budget.

True False 26-8. The operating budgets provide all of the information necessary for the preparation of the budgeted income statement.

True False 26-9. Normally, the cash budget is the first subbudget prepared in the process of developing the master budget.

True False

26-10. A quantity of merchandise or materials that is held as inventory to compensate for unexpected demand or delays in receipts from suppliers is called the just-in-time inventory stock.

True False 26-11. The total amount of budgeted expenses from the selling budget and the general and administrative budget are shown as disbursements in the cash budget.

True False 26-12. The general and administrative expense budget should include any amortization on equipment used by either function.

True False 26-13. The ending cash balance of the cash budget should be equal to the net income shown on the budgeted income statement.

True False 26-14. When a company starts each budgeting period at 'ground zero', the budgets are prepared as if they are the first budget prepared for the company.

True False 26-15. The manufacturing budget is a statement of the estimated cost of materials to produce a product.

True False 26-16. The production budget for a manufacturer and the merchandise purchases budget for a retailer are similar in structure and content--both show the cost of obtaining the product to be sold or manufactured.

True False 26-17. The direct materials budget shows the amount of cash outflow for the purchase of direct materials over the period of the budget.

True False 26-18. The production budget, direct materials budget, direct labour budget, and manufacturing overhead budget are all tied to the projections in the sales budget.

True False

Which of the following is NOT true about the Master Budget?

a) It is composed of many interrelated budgets. b) It consists of 2 classes of budgets: Operating Budgets and Financial Budgets. c) Within the master budget the first budget to be prepared is the sales budget. d) It constitutes a plan of action for a specified period of time. e) All of the above are true.

The Willsey Merchandise Company has budgeted $40,000 in sales for the month of December. The company's cost of goods sold is 30% of sales. If the company has budgeted to purchase $18,000 in merchandise during December, then the budgeted change in inventory levels over the month of December is: A. $ 6,000 increase. B. $10,000 decrease. C. $22,000 decrease. D. $15,000 increase. The Stacy Company makes and sells a single product, Product R. Budgeted sales for April are $300,000. Gross Margin is budgeted at 30% of sales dollars. If the net income for April is budgeted at $40,000, the budgeted selling and administrative expenses are: A. $133,333. B. $50,000. C. $102,000. D. $78,000.