Following are a series of statements regarding topics discussed in this chapter.
(a) The production budget is used to determine how much raw material is needed to manufacture the units that will be sold in a month.
(b) If a company has no plans to purchase new equipment in the next year, the company should still prepare a capital budget.
(c) The cash payments budget is used only for cash disbursements related to purchases of raw material.
(d) A favorable total material variance is a positive indication that materials are being used efficiently.
(e) A flexible budget is prepared one month or one quarter at a time.
(f) A labor efficiency variance is the difference between (actual labor rate multiplied by actual labor quantity) and (actual labor rate multiplied by standard labor quantity).
(g) The direct labor budget should include the cost of all individuals working in the production area.
(h) A budget is the quantitative representation of a company’s plans for the future.
(i) The order in which budgets are prepared is based on reverse chronological order.
(j) A company only produces one sales budget, production budget, and purchase budget for a product regardless of the number of units sold, units produced, or different raw materials required.
(k) If a company experiences a favorable material price variance, there will usually be a favorable material quantity variance.
(l) In preparing the production budget, beginning inventory units are added to, and desired ending inventory units are subtracted from, the units to be produced.
(m) Depreciation expense is included in the overhead budget and the pro forma income statement, but not in the cash budget.
(n) Both the cash collections and cash payments pattern for a company may include a percentage for amounts not paid.
Required:
Indicate whether each statement is true (T) or false (F).