Which of the Following Statements Is Correct

question 101

Multiple Choice

Which of the following statements is correct?

• A) Depreciation is included in the estimate of cash flows (Cash flow = Net income + Depreciation),so depreciation is set forth on a separate line in the cash budget.
• B) If cash inflows and cash outflows occur on a regular basis,such as the situation where inflows from collections occur in equal amounts each day and most payments are made regularly on the 10^th of each month,then it is not necessary to use a daily cash budget.A cash budget prepared at the end of the month will suffice.
• C) Cash budgets are more important for fast food retailers,such as McDonald's,which deal primarily with cash than for manufacturers,such as General Motors,that generally sell on credit.
• D) When constructing a cash budget,it probably is easier to forecast cash inflows than cash outflows.
• E) All of the above statements are false.

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Definitions:

Material Price Variance

The difference between the actual cost of materials purchased for production and the standard cost, indicating how much more or less was spent than expected.

Flexible Budget

A budget that adjusts or flexes with changes in volume or activity levels of the business.

Static Budget

A financial plan that does not change over the period for which it is set, regardless of any changes in activity levels.

Standard Cost

A predetermined cost of manufacturing a product or performing a service under normal conditions, used for budgeting and performance evaluation.