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1. [1] Gleim #: 6.1.1 -- Source: CMA 0205
In an organization that plans by using comprehensive budgeting, the master budget is
A compilation of all the separate operational and financial budget schedules of the
organization.
A.
The booklet containing budget guidelines, policies, and forms to use in the
budgeting process.
B.
The current budget updated for operations for part of the current year.
C.
A budget of a not-for-profit organization after it is approved by the appropriate
authoritative body.
D.
Answer (A) is correct. A company’s overall budget, often called the master or
comprehensive budget, encompasses the organization’s operating and financial
plans for a specified period, ordinarily a year. Thus, all other budgets are subsets of
the master budget. In the operating budget, the emphasis is on obtaining and using
current resources. In the financial budget, the emphasis is on obtaining the funds
needed to purchase operating assets.
Answer (B) is incorrect. The booklet containing budget guidelines, policies, and
forms to use in the budgeting process is the budget manual.
Answer (C) is incorrect. The current budget updated for operations for part of the
current year is a continuous budget.
Answer (D) is incorrect. A master budget may be prepared by a for-profit entity.
[3] Gleim #: 6.1.3 -- Source: CMA 0205 2-3
In preparing a corporate master budget, which one of the following is most likely to be
prepared last?
Sales budget.
A.
Cash budget.
B.
Production budget.
C.
Cost of goods sold budget.
D.
Answer (A) is incorrect. The sales budget precedes the cash budget.
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2. Answer (B) is correct. 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.
Answer (C) is incorrect. The production budget is the second step in the master budget,
immediately following the sales budget.
Answer (D) is incorrect. The cost of goods sold budget is completed well before the cash
budget in the budgeting process.
[4] Gleim #: 6.1.4 -- Source: CMA 694 3-11
The master budget process usually begins with the
Production budget.
A.
Operating budget.
B.
Financial budget.
C.
Sales budget.
D.
Answer (A) is incorrect. The production budget normally cannot be prepared until
the expected sales are known.
Answer (B) is incorrect. The operating budget is another term for the budget used
on a day-to-day basis for managing operations. It cannot be prepared until after the
sales budget is prepared.
Answer (C) is incorrect. Preparation of the sales budget is the first step in the
overall budgeting process.
Answer (D) is correct. 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.
[5] Gleim #: 6.1.5 -- Source: CMA 1295 3-18
All of the following are considered operating budgetsexcept the
Sales budget.
A.
Materials budget.
B.
Production budget.
C.
Capital budget.
D.
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3. Answer (A) is incorrect. It is considered an operating budget.
Answer (B) is incorrect. It is considered an operating budget.
Answer (C) is incorrect. It is considered an operating budget.
Answer (D) is correct. 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.
[6] Gleim #: 6.1.6 -- Source: CMA 1296 3-15
Which one of the following items is the last schedule to be prepared in the normal budget
preparation process?
Cash budget.
A.
Cost of goods sold budget.
B.
Manufacturing overhead budget.
C.
Selling expense budget.
D.
Answer (A) is correct. The last schedule prepared before the financial statements is
the cash budget. The cash budget is a schedule of estimated cash collections and
payments. The various operating budgets and the capital budget are inputs to the
cash budgeting process.
Answer (B) is incorrect. The cost of goods sold budget provides information
necessary to prepare the cash budget.
Answer (C) is incorrect. The manufacturing overhead budget provides information
necessary to prepare the cash budget.
Answer (D) is incorrect. The selling expense budget provides information
necessary to prepare the cash budget.
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4. [7] Gleim #: 6.1.7 -- Source: CMA 1292 3-10
Pro forma financial statements are part of the budgeting process. Normally, the last pro
forma statement prepared is the
Capital expenditure plan.
A.
Income statement.
B.
Statement of cost of goods sold.
C.
Statement of cash flows.
D.
Answer (A) is incorrect. The capital expenditure plan must be prepared before the
cash budget. Cash may be needed to pay for capital purchases.
Answer (B) is incorrect. The income statement must be prepared before the
statement of cash flows, which reconciles net income and net operating cash flows.
Answer (C) is incorrect. Cost of goods sold is included in the income statement,
which is an input to the statement of cash flows.
Answer (D) is correct. The statement of cash flows is usually the last of the listed
items prepared. All other elements of the budget process must be completed before
it can be developed.
[8] Gleim #: 6.1.8 -- Source: CIA 1190 IV-17
The master budget
Shows forecasted and actual results.
A.
Reflects controllable costs only.
B.
Can be used to determine manufacturing cost variances.
C.
Contains the operating budget.
D.
Answer (A) is incorrect. The master budget does not contain actual results.
Answer (B) is incorrect. The master budget reflects all applicable expected costs,
whether or not controllable by individual managers.
Answer (C) is incorrect. The master budget is not structured to allow determination
of manufacturing cost variances, which requires using the flexible budget and actual
results.
Answer (D) is correct. All other budgets are subsets of the master budget. Thus,
quantified estimates by management from all functional areas are contained in the
master budget. These results are then combined in a formal quantitative model
recognizing the organization’s objectives, inputs, and outputs.
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5. [9] Gleim #: 6.1.9 -- Source: CMA 692 3-9
The preparation of a comprehensive master budget culminates with the preparation of the
Production budget.
A.
Capital investment budget.
B.
Cash management and working capital budget.
C.
Strategic budget.
D.
Answer (A) is incorrect. The production budget must precede the capital
investment and cash budgets.
Answer (B) is incorrect. A capital investment budget is prepared before a cash
budget.
Answer (C) is correct. The comprehensive master budget begins with the
preparation of the sales budget and proceeds to the production budget.
Answer (D) is incorrect. A strategic budget is a long-range planning tool that is
prepared before the master budget.
[10] Gleim #: 6.1.10 -- Source: CMA 691 3-1
Wilson Company uses a comprehensive planning and budgeting system. The proper order
for Wilson to prepare certain budget schedules would be
Cost of goods sold, balance sheet, income statement, and statement of cash flows.
A.
Income statement, balance sheet, statement of cash flows, and cost of goods sold.
B.
Statement of cash flows, cost of goods sold, income statement, and balance sheet.
C.
Cost of goods sold, income statement, balance sheet, and statement of cash flows.
D.
Answer (A) is incorrect. The balance sheet should not precede the income
statement.
Answer (B) is incorrect. The income statement cannot precede cost of goods sold.
Answer (C) is incorrect. The statement of cash flows cannot precede the cost of
goods sold. The latter is an input of the former.
Answer (D) is correct. The pro forma cost of goods sold must be prepared before
the pro forma income statement because it is a component of the income statement.
Also, the income statement must be prepared before the pro forma balance sheet
because net income is a necessary part of preparing the stockholders’ equity section
of the balance sheet. In turn, the income statement and the balance sheet are
necessary for estimating cash flows. If the statement of cash flows is prepared using
the indirect method, balance sheet data, e.g., the changes in accounts receivable,
inventory, and accounts payable, must be available to determine the adjustments
needed to reconcile net income to net cash flow.
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6. [11] Gleim #: 6.1.11 -- Source: CMA 692 3-10
Which one of the following may be considered an independent item in the preparation of
the master budget?
Ending inventory budget.
A.
Capital investment budget.
B.
Pro forma income statement.
C.
Pro forma statement of financial position.
D.
Answer (A) is incorrect. The ending inventory budget is based on the current
production budget.
Answer (B) is correct. 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.
Answer (C) is incorrect. The pro forma income statement is based on the sales
budget, expense budgets, and all other elements of the current master budget.
Answer (D) is incorrect. The pro forma balance sheet is based on the other
elements of the current master budget.
[12] Gleim #: 6.1.12 -- Source: CMA 697 3-21
The Yummy Dog Bone 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 volume and direct material.
A.
Sales and ending inventory.
B.
Production and cash flow.
C.
Direct materials and cash flow.
D.
Answer (A) is incorrect. The nature of the product prevents an increase in
production volume to augment finished goods inventory.
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7. Answer (B) is incorrect. Sales are dependent on demand, a factor not affected by the strike.
Sales may decrease, however, if the company suffers a stockout. Furthermore, ending
finished goods inventory cannot increase because of the nature of the product.
Answer (C) is incorrect. The nature of the product prevents an increase in production
volume to augment finished goods inventory.
Answer (D) is correct. 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.
[13] Gleim #: 6.1.13 -- Source: CMA 0408 2-031
Many companies use comprehensive budgeting in planning for the next year’s activities.
When both an operating budget and a financial budget are prepared, which one of the
following is correct concerning the financial budget?
Included in the Financial Budget
Capital Pro-forma Cash
Budget Balance Sheet Budget
A. Yes No Yes
B. No Yes No
C. Yes Yes Yes
D. No No No
Answer (A) is incorrect. The pro forma balance sheet is part of the financial
budget.
Answer (B) is incorrect. The capital budget and cash budget are part of the
financial budget.
Answer (C) is correct. In the financial budget, the emphasis is on obtaining the
funds needed to purchase operating assets. It contains the capital budget, projected
cash disbursement schedule, projected cash collection schedule, cash budget, pro
forma balance sheet, and pro forma statement of cash flows.
Answer (D) is incorrect. All three of these items are part of the financial budget.
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8. [14] Gleim #: 6.1.14 -- Source: CMA 0205 2-7
The starting point for creating a master budget for a proprietary secretarial school would
be
Estimating salaries of the instructors.
A.
Forecasting enrollment.
B.
Preparing a capital expenditure budget.
C.
Preparing the student recruiting budget.
D.
Answer (A) is incorrect. Instructor salaries will be addressed in the direct labor
budget.
Answer (B) is correct. 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.
Answer (C) is incorrect. Since the capital budget spans multiple budget periods, it
must be prepared outside the operating budget cycle and often must be approved by
the board of directors.
Answer (D) is incorrect. The student recruiting budget is part of the marketing
budget, which is prepared near the end of the operating budget process.
[16] Gleim #: 6.1.16 -- Source: CMA 694 3-10
The financial budget process includes
The cash budget.
A.
The capital budget.
B.
The budgeted statement of cash flows.
C.
All of the answers are correct.
D.
Answer (A) is incorrect. All of the listed budgets are elements of the financial
budget process.
Answer (B) is incorrect. All of the listed budgets are elements of the financial
budget process.
Answer (C) is incorrect. All of the listed budgets are elements of the financial
budget process.
Answer (D) is correct. The financial budget normally includes the capital budget,
the cash budget, the budgeted balance sheet, and the budgeted statement of cash
flows.
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