1. The type of budget that focuses on investments in long-term assets and the means of financing those acquisitions is known as a(n)

a. Forecast budget.

b. Pro-forma budget.

c. Operating (or master) budget.

d. Capital budget.

2. The item that does not represent good budgeting practices is

a. Encouraging participation in the budgeting process.

b. Establishing multiple budgets to allow for alternative outcomes.

c. Excluding the process of rolling operating budgets forward from period to period.

d. Setting realistic budgets.

3. The budget included in the master budgeting process of a manufacturer but excluded from the master budgeting process of a retailer is the

a. Sales budget.

b. Cash receipts budget.

c. Cash payments budget.

d. Production budget.

4. The concluding step in the master budgeting process is the preparation of the

a. Pro-forma financial statements.

b. Sales budget.

c. Cash receipts budget.

d. Cash payments budget.

5. The type of cost that changes in direct relation to sales activity is known as a

a. Product cost.

b. Cost of goods sold.

c. Variable cost.

d. Fixed cost.

Part B.

Redlands, Inc. sells one product for $5.00 per unit. Each item costs $4.00 in material and labor to produce. Redlands has $60 of fixed costs.

Required: Complete the following.

1. The breakeven point in number of units is ________.

2. The breakeven point in sales revenue is $_______.

3. The number of units Redlands must sell if it desires a $40 profit is ________.

4. The amount of sales revenue needed for Redlands to earn a $120 profit is $________.

5. If Redlands increased its fixed costs to $130 (from $60), it could decrease its variable cost per unit to $3.00 (from $4.00). Assuming Redlands can sell 110 units regardless of cost structure, should it change to the new cost structure?

Yes or No (circle one)