Question

Q9

Which of the below statements regarding the sales budget is incorrect?

Select one:

a. The sales budget sets the expected level of activity for the budget period.

b. The sales budget provides an important input variable for other budgets.

c. The sales budget is part of the financial budgets.

d. The sales budget is often referred to as the 'cornerstone' of the budget process.

Q10

A local manufacturer has been approached to supply a special order for 500 ceramic vases at a price of $25 per vase. The current cost of producing the vases is made up of direct materials of $10 per vase, direct labour costs of $8 per vase, direct overhead costs of $5 per vase. The company is operating at full production capacity before the special order. Sale of vases from normal production has a contribution margin of $5 per vase. Should they accept the order?

Select one:

a. Yes, as long as there are no adverse long-term effects of accepting the order that outweigh the short-term benefits.

b. Yes

c. No

d. Yes, as long as the customer pays for the order in cash.

Q12

Which factor below needs to be considered when deciding whether to accept a special order?

Select one:

a. Reactions of existing customers who are paying a higher price for the product

b. Whether there is available capacity

c. All of the options should be considered

d. If there is a possibility of developing a long-term relationship with the customer

Q13

What is one assumption of the net present value method of investment decision making?

Select one:

a. That cash flows are constant throughout the project

b. That projects are suitable investments if the NPV equals zero

c. That the cash flows have occurred at the end of each relevant period

d. That projects with lower NPVs are more profitable

Answer 1

Ans.9. The correct answer is part C. The sales budget is part of the financial budgets, because sales budget is a part of operating budgets – which include sales budgets, production budgets, cost of goods sold budgets etc. Financial budgets on the other hand, include cash budgets, income statements, capex budgets,etc.

The other three options are true since sales budget sets the level of activity for the budget period(expected sales), it does provide input variable for other budgets such as production budget, and it is often referred to as the cornerstone of budget process because it forms the basis of other budgets.