The primary role of the budget director and the budgeting department is to
Answer (D) is correct. The budget department is responsible for compiling the budget and managing the budget process. The budget director and department are not responsible for actually developing the estimates on which the budget is based. This role is performed by those to whom the resulting budget will be applicable. The budget director has staff, not line, authority. (S)he has a technical and advisory role. The final decision-making responsibility rests with line management.
Which one of the following is not considered to be a benefit of participative budgeting?
Answer (D) is correct. One of the behavioral considerations of budgeting is the extent of participation in the process by managers at all levels within the organization. Managers are more motivated to achieve budgeted goals when they are involved in budget preparation. A broad level of participation usually leads to greater support for the budget and the entity as a whole, as well as a greater understanding of what is to be accomplished. Advantages of a participative budget include greater accuracy of budget estimates. Managers with immediate operational responsibility for activities have a better understanding of what results can be achieved and at what costs. Also, managers cannot blame unrealistic objectives as an excuse for not achieving budget expectations when they have helped to establish those objectives. Despite the involvement of lower level managers, senior management must still participate in the budget process to ensure that the combined objectives of the various departments are consistent with profitability objectives of the company.
The budgeting technique that is most likely to motivate managers is
Answer (D) is correct.
Bottom-up budgeting is the best way of motivating managers to meet
budget estimates because it permits participation in the budget process.
Lower level managers who take part in budgeting decisions are more
likely to support the result and less likely to feel that the budget has been
imposed from above.
Which one of the following is most important to a successful budgeting effort?
Answer (D) is correct.
An organizational budget requires a significant commitment of internal
resources. The single most important factor in assuring its success is for
upper management to demonstrate that they take the project seriously
and consider it vital to the organization’s future.
The major disadvantage of a budget produced by means of a top-down process is
Answer (A) is correct.
Budgets provide a means for coordinating the plans of all organizational
subunits. Thus, budgets are a way to promote goal congruence. Although
budgets should be consistent with the strategic plans of top management,
they should also be based on input from lower-level managers since the
latter have detailed knowledge of operating activities. Successful budgets
are therefore a compromise. In a top-down process, however, budgets are
imposed on subordinates without their participation. This lack of
participation may impair the coordination of the goals of subunits with
those of the organization (goal congruence) since lower-level managers
will tend not to have an understanding of and support for the top-down
All of the following are criticisms of the traditional budgeting process except that it
Answer (B) is correct. Traditional budgeting focuses strictly on financial measures.
The following sequence of steps is employed by a company to develop its annual profit plan: ? Planning guidelines are disseminated downward by top management after receiving input from all levels of management. ? A sales budget is prepared by individual sales units reflecting the sales targets of the various segments. This provides the basis for departmental production budgets and other related components by the various operating units. Communication is primarily lateral with some upward communication possible. ? A profit plan is submitted to top management for coordination and review. Top management’s recommendations and revisions are acted upon by middle management. A revised profit plan is resubmitted for further review to top management. ? Top management grants final approval and distributes the formal plan downward to the various operating units. This outline of steps best describes which one of the following approaches to budget development?
Answer (B) is correct. A bottom-up approach is characterized by general guidance from the highest levels of management, followed by extensive input from middle and lower management. This sequence of steps aptly describes this process.
All of the following are advantages of top-down budgeting as opposed to participatory budgeting, except that it
Answer (C) is correct. -down budget is imposed by upper management, it has less chance of acceptance (also called buy-in) by those on whom the budget is imposed.
Marietta Thomas, Amador Corporation’s vice president of planning, has seen and heard it all. She has told the corporate controller that she is “....very upset with the degree of slack that veteran managers use when preparing their budgets.” Thomas has considered implementing some of the following activities during the budgeting process. 1. Develop the budgets by top management and issue them to lower-level operating units. 2. Study the actual revenues and expenses of previous periods in detail. 3. Have the budgets developed by operating units and accept them as submitted by a company-wide budget committee. 4. Share the budgets with all employees as a means to reach company goals and objectives. 5. Use an iterative budgeting process that has several “rounds” of changes initiated by operating units and/or senior managers. Which one of these activities should Amador implement in order to best remedy Thomas’ concerns, help eliminate the problems experienced by Amador, and motivate personnel?
Answer (D) is correct. Steps 2, 4, and 5 are appropriate for alleviating Amador’s budget problems. Step 1 should not be performed because a budget imposed from the top is more likely to encounter resistance. Step 3 should not be performed because operating units will tend to consider only their own interests when preparing budgets.
Budgeting problems where departmental managers are repeatedly achieving easy goals or failing to achieve demanding goals can be best minimized by establishing
Answer (C) is correct.
Participative budgeting is a practical means of setting realistic,
achievable budget goals.