BUSN 278 Budgeting and Forecasting

Week 1

Week DQ 1

Discuss the relationship between budgeting and planning. How are they related? What differences exist between the two?

Week 1 DQ 2

Discuss the difference between quantitative and qualitative forecasting. Does one provide a more accurate forecast than the other?

Week 2

Week 2 DQ 1

Compare linear regression to the moving averages and smoothing techniques used in Week 1. Why is linear regression more appropriate for long-range forecasts?

Week 2 DQ 2

What is seasonality, and what role does it play in regression analysis?

Week 3

Week 3 DQ 1

Nonproduction expenses such as marketing, research and development, and general administrative costs can play an important role in a company’s ability to meet long-term goals. Discuss how the budgets for each of these costs contribute to the company’s success. Which do you think plays the greatest role and why?

Week 3 DQ 2

What are capital expenditures, and how can they help a company achieve its long-term objectives?

Week 4

Week 4 DQ 1

Explain what is meant by the time value of money, and discuss its relevance to the capital budgeting process.

Week 4 DQ 2

Discuss the complications related to creating a forecast and budget for a new business.

BUSN 278 Week 4 Midterm Exam

1.(TCO 1) Why are budgets useful in the planning process? (Points : 5)

2.(TCO 2) The qualitative forecasting method that individually questions a panel of experts is _____. (Points : 5)

3.(TCO 3) Which of the following is not used to evaluate the accuracy of regression results? (Points : 5)

4.(TCO 4) Capital expenditures are incurred for all of the following reasons except _____. (Points : 5)

5.(TCO 5) Priority budgeting that ranks activities is known as _____.(Points : 5)

6.(TCO 6) Which of the following ignores the time value of money? (Points : 5)

7. (TCO 1) There are several approaches that may be used to develop the budget. Managers typically prefer an approach known as participative budgeting. Discuss this form of budgeting and identify its advantages and disadvantages. (Points : 20)
8. (TCO 2) There are a variety of forecasting techniques that a company may use. Identify and discuss the four main qualitatative approaches, including their advantages and disadvantages. (Points : 20)
12. (TCO 6) Corn Doggy Inc. produces and sells corn dogs. The corn dogs are dipped by hand. Austin Beagle, production manager, is considering purchasing a machine that will make the corn dogs. Austin has shopped for machines and found that the machine he wants will cost $262,000. In addition, Austin estimates that the new machine will increase the company’s annual net cash inflows by $40,300. The machine will have a 12-year useful life and no salvage value.

Week 5

Week 5 DQ 1

The sales budget is the starting point for the master budget. Discuss how it is prepared. Why is its accuracy so important?

Week 5 DQ 2

Discuss how managers can use the cash budget as a monitoring and control tool.

Week 6

Week 6 DQ 1

A coworker comes to you with the following problem: “I provided my boss a projection of factory overhead using the high-low method. He was unhappy with the results and told me to do more work and not return until I had a lower cost estimate. My initial analysis was based on data points for the last 24 months. By dropping the three highest data points, I was able to get a lower cost.” Was what your coworker did unethical? Explain.

Week 6 DQ 2

The differences identified in variance analysis are often interdependent. A favorable variance in one category may lead to an unfavorable variance in another, and vice versa. Identify and describe an example of interdependent variances, and discuss the trade-off that exists.

Week 7

Week 7 DQ 1

Discuss the differences in the reports prepared for upper management compared to the reports prepared for lower-level managers. Why do these differences exist?

Week 7 DQ 2

The sales forecast is often the starting point of the budgeting process. Identify and discuss key assumptions that are made in the creation of the sales forecast. How would you defend these assumptions when presenting your budget to the budget committee?

BUSN 278 Final Exam

1. (TCO 1) A common starting point in the budgeting process is _____. (Points : 5)

2. (TCO 2) “Groupthink” is a primary disadvantage of which qualitative forecasting method? (Points : 5)

3. (TCO 3) Which of the following is not an example of a seasonal variation? (Points : 5)

4. (TCO 4) Which of the following statements regarding the risk associated with R & D activities is incorrect? (Points : 5)

5. (TCO 5) Program budgeting does not include _____.(Points : 5)

6. (TCO 6) The payback period technique _____.(Points : 5)

7. (TCO 6) The profitability index is computed by dividing the _____.  (Points : 5)

8. (TCO 6) A company projects annual cash inflows of $90,000 each year for the next 5 years if it invests $450,000 in new equipment. The equipment has a 5-year life and an estimated salvage value of $150,000. What is the accounting rate of return on this investment? (Points : 5)

9. (TCO 6) If an asset costs $210,000 and is expected to have a $30,000 salvage value at the end of its 10-year life, and generates annual net cash inflows of $30,000 each year, the payback period is _____. (Points : 5)

10. (TCO 6) Selma Inc. is comparing several alternative capital budgeting projects as shown below.

11. (TCO 6) Cleaners, Inc. is considering purchasing equipment costing $30,000 with a 6-year useful life. The equipment will provide cost savings of $7,300 and will be depreciated straight-line over its useful life with no salvage value. Cleaners requires a 10% rate of return. What is the approximate net present value of this investment? (Points : 5)

12. (TCO 7) Which of the following is not an operating budget? (Points : 5)

13. (TCO 7) If the required materials to be purchased are 18,000 pounds, the production needs are three times the direct materials purchases, and the beginning direct materials are three and a half times the direct materials purchases, what are the desired ending direct materials in pounds? (Points : 5)

14. (TCO 8) Which of the following is not a cause of profit variance? (Points : 5)

15. (TCO 9) A static budget is appropriate in evaluating a manager’s performance if _____.(Points : 5)

16. (TCO 9) If costs are not responsive to changes in activity level, how are they best described? (Points : 5)

17. (TCO 9) At the high level of activity in November, 7,000 machine hours were run and power costs were $12,000. In April, a month of low activity, 2,000 machine hours were run and power costs amounted to $6,000. Using the high-low method, what is the estimated fixed cost element of power costs? (Points : 5)

18. (TCO 10) What is the method used to determine whether the budgeting process is operating effectively? (Points : 5)

1. (TCO 7) At Lakeside Manufacturing, budgets are the responsibility of everyone. Each department collaborates in determining its expected needs, and sales personnel determine the likely sales volume. Al Talbott, one of the production managers, believes in building plenty of slack into everything, including his estimates of ending inventory of work in process. As the accounting manager, write a memo to Mr. Talbott, explaining why the ending inventory figure should be extremely accurate, with as little slack as possible. (Points : 20)

2. (TCO 9) Understanding how costs behave can help managers plan operations and choose between various courses of action.  
Part (a): Identify and describe the three types of cost behavior, including examples of each.  
Part (b): As a manager, which cost behavior would you prefer and why? (Points : 20)

3. (TCO 6) Yappy Company is considering a capital investment of $320,000 in additional equipment. The new equipment is expected to have a useful life of 8 years with no salvage value. Depreciation is computed by the straight-line method. During the life of the investment, annual net income and cash inflows are expected to be $25,000 and $65,000, respectively. Yappy requires a 10% return on all new investments.
4. (TCO 7) Farris Co.’s projected sales are as follows.

Farris estimates that it will collect 30% in the month of sale, 50% in the month after the sale, and 18% in the second month following the sale. Two percent of all sales are estimated to be bad debts. How much are Farris Co.’s budgeted cash receipts for October? (Points : 30)

6. (TCO 9) Herbart Company gathered the following information on power costs and factory machine usage for the last 6 months.