Multiple Choice Questions
1. Budgets are:
a. Future oriented
b. For managers only
c. Required by GAAP
d. Typically not used by small businesses

2. One advantage of the budgeting process is that it:
a. Reduces communication throughout the organization
b. Forces management to focus on the past and not be distracted by daily crises in the organization
c. Helps management identify and manage potential bottlenecks or constraints before they become major problems
d. Can decrease the coordination of organizational activities

3. Last year, Elise Toys sold 100,000 sets of baseball cards at $1.50 each. If sales volume is expected to increase by 30 percent and the price of each deck of cards is expected to decrease by 20 percent, what is the expected sales revenue for the coming year?
a. $120,000
b. $150,000
c. $156,000
d. It cannot be determined from the information provided.

4. Harrison Company produces hats for golfers. The company’s projected sales for April are 15,000 hats. March sales were less than expected, so the company had 1,800 hats remaining in inventory at the end of March. Harrison prefers to maintain a 5 percent inventory of the next month’s sales. Expected sales for May are 14,000 hats. How many hats should the company plan to produce in April?
a. 15,700
b. 15,000
c. 13,900
d. 17,500

5. Which of the following is a correct formula for calculating projected production when the inventory of finished goods is expected to decrease during the year?
a. Projected sales – change in work in process inventory
b. Projected sales + change in work in process inventory
c. Projected sales – change in finished goods inventory
d. Projected sales + change in finished goods inventory

6. Tea Lovers produces herbal teas. The company expects to sell 125,000 boxes of tea during 2009. The company had 10,000 tea boxes on hand at the beginning of 2009. The sales budget calls for the company to sell 120,000 boxes of tea in 2010. If the company has a policy of maintaining an inventory of 10 percent of the boxes needed for next year’s expected sales, how many boxes must be purchased during 2009?
a. 125,000
b. 127,000
c. 137,000
d. It cannot be determined from the information provided.

7. Refer to question 6 above. If each tea box costs $0.27, what is the total projected cost of tea boxes for 2009?
a. $33,750
b. $34,290
c. $36,990
d. It cannot be determined from the information provided.