Budgeting MCQs

All of the following are advantages of the use of budgets in a management control system except that budgets

Force management planning.
Provide performance criteria.
Promote communication and coordination within the organization.
Limit unauthorized expenditures.

In the budgeting and planning process for a firm, which one of the following should be completed first?

Sales budget.
Financial budget.
Cost management plan.
Strategic plan.

Each organization plans and budgets its operations for slightly different reasons. Which one of the following is not a significant reason for plannin...

Providing a basis for controlling operations.
Forcing managers to consider expected future trends and conditions.
Ensuring profitable operations.
Checking progress toward the objectives of the organization.

Which one of the following best describes the role of top management in the budgeting process? Top management

Should be involved only in the approval process.
Lacks the detailed knowledge of the daily operations and should limit their involvement.
Needs to be involved, including using the budget process to communicate goals.
Needs to separate the budgeting process and the business planning process into two separate processes.

Which one of the following is usually not cited as being an advantage of a formal budgetary process?

Forces management to evaluate the reasonableness of assumptions used and goals identified in the budgetary process.
Ensures improved cost control within the organization and prevents inefficiencies
Provides a formal benchmark to be used for feedback and performance evaluation
Serves as a coordination and communication device between management and subordinates.

The major objectives of any budget system are to

Define responsibility centers, provide a framework for performance evaluation, and promote communication and coordination among organization segments.
Define responsibility centers, facilitate the fixing of blame for missed budget predictions, and ensure goal congruence between superiors and subordinates.
Foster the planning of operations, provide a framework for performance evaluation, and promote communication and coordination among organization segments.
Foster the planning of operations, facilitate the fixing of blame for missed budget predictions, and ensure goal congruence between superiors and subordinates.

One of the primary advantages of budgeting is that it

Does not take place of management and administration
Bases the profit plan on estimates.
Is continually adapted to fit changing circumstances.
Requires departmental managers to make plans in conjunction with the plans of other interdependent departments.

A budget helps a company control costs by setting cost guidelines. However, a budget also performs the function(s) of

Planning.
Motivating.
Communicating
All of the answers are correct.

When comparing performance report information for top management with that for lower-level management,

Top management reports are more detailed.
Lower-level management reports are typically for longer time periods.
Top management reports show control over fewer costs.
Lower-level management reports are likely to contain more quantitative data and less financial data.

An improperly executed budget process might have the effect(s) of

Disregard of overall company goals.
Inflated budget requests
Meeting short-term but not long-term goals
All of the answers are correct.

Ineffective budget control systems are characterized by

Use of budgets as a planning but not a control tool.
Use of budgets for harassment of individuals rather than motivation.
Lack of timely feedback in the use of the budget.
All of the answers are correct.

Which of the following statements regarding budgets is false?

Budgets present organizational plans in a formal, logical, and integrated manner.
Budgets are used only as a planning function.
Budgets may be developed for cash flows or labor usage.
A budget is a plan that contains a quantitative statement of expected results.

A planning calendar in budgeting is the

Calendar period covered by the budget.
Schedule of activities for the development and adoption of the budget
Calendar period covered by the annual budget and the long-range plan.
Sales forecast by months in the annual budget period.

A budget manual, which enhances the operation of a budget system, is most likely to include

A chart of accounts.
Distribution instructions for budget schedules.
Employee hiring policies.
Documentation of the accounting system software.

Which one of the following is not an advantage of a participatory budgeting process?

Coordination between departments.
Communication between departments
Goal congruence
Control of uncertainties

In developing the budget for the next year, which one of the following approaches would produce the greatest amount of positive motivation and goal co...

Permit the divisional manager to develop the goal for the division that in the manager’s view will generate the greatest amount of profits.
Have senior management develop the overall goals and permit the divisional manager to determine how these goals will be met.
Have the divisional and senior management jointly develop goals and objectives while constructing the corporation’s overall plan of operation.
Have the divisional and senior management jointly develop goals and the divisional manager develop the implementation plan.

Which one of the following statements concerning approaches for the budget development process iscorrect?

The top-down approach to budgeting will ensure adherence to strategic organizational goals.
To prevent ambiguity, once departmental budgeted goals have been developed, they should remain fixed even if the sales forecast upon which they are based proves to be wrong in the middle of the fiscal year.
With the information technology available, the role of budgets as an organizational communication device has declined.
Since department managers have the most detailed knowledge about organizational operations, they should use this information as the building blocks of the operating budget.

Rock Industries has four divisions. In the quest to develop a more achievable budget for the coming year, the chief executive officer has elected to ...

Be negligible.
Require development of a production budget that is forwarded to the Budget Department.
Require development of a production budget after receiving the division’s projected sales forecast.
Require development of a production budget based on the prior year’s manufacturing activity.

When developing a budget, an external factor to consider in the planning process is

A change to a decentralized management system.
The implementation of a new bonus program
New product development.
The merger of two competitors.

An advantage of participative budgeting is that it

Minimizes the cost of developing budgets.
Reduces the effect on the budgetary process of employee biases.
Yields information known to management but not to employees.
Encourages acceptance of the budget by employees.

The primary role of the budget director and the budgeting department is to

Settle disputes among operating executives during the development of the annual operating plan.
Develop the annual profit plan by selecting the alternatives to be adopted from the suggestions submitted by the various operating segments.
Justify the budget to the executive committee of the board of directors.
Compile the budget and manage the budget process.

Which one of the following is not considered to be a benefit of participative budgeting?

Individuals at all organizational levels are recognized as being part of the team; this results in greater support of the organization.
The budget estimates are prepared by those in direct contact with various activities.
Managers are more motivated to reach the budget objectives since they participated in setting them.
When managers set the final targets for the budget, senior management need not be concerned with the overall profitability of current operations.

The budgeting technique that is most likely to motivate managers is

Top-down budgeting.
Zero-based budgeting.
Program budgeting and review technique.
Bottom-up budgeting.

Which one of the following is most important to a successful budgeting effort?

Experienced analysts.
Integrated budget software.
Reliable forecasts and trend analyses.
Top management support.

The major disadvantage of a budget produced by means of a top-down process is

Impairment of goal congruence.
Lack of involvement by upper-level management.
Inconsistency with strategic plans.
Absence of a significant motivational effect.

All of the following are criticisms of the traditional budgeting process except that it

Makes across-the-board cuts when early budget iterations show that planned expenses are too high.
Incorporates non-financial measures as well as financial measures into its output.
Overemphasizes a fixed time horizon, such as one year.
Is not used until the end of the budget period to evaluate performance.

The following sequence of steps is employed by a company to develop its annual profit plan: ? Planning guidelines are disseminated downward by top man...

Imposed budgeting by top management.
Bottom-up approach.
Top-down approach.
Total justification of all activities by operating units.

Which one of the following items would most likely cause the planning and budgeting system to fail? The lack of

Historical financial data.
Input from several levels of management.
Top management support.
Adherence to rigid budgets during the year.

All of the following are advantages of top-down budgeting as opposed to participatory budgeting, except that it

Increases coordination of divisional objectives.
Reduces the time required for budgeting.
May limit the acceptance of proposed goals and objectives.
Facilitates implementation of strategic plans

Marietta Thomas, Amador Corporationâ€™s vice president of planning, has seen and heard it all. She has told the corporate controller that she is ...

1 only.
2 and 3
2 and 4
2, 4, and 5.

Budgeting problems where departmental managers are repeatedly achieving easy goals or failing to achieve demanding goals can be best minimized by esta...

Preventive controls
A policy that allows managers to build slack into the budget.
Participative budgeting where managers pursue objectives consistent with those set by top management.
Better communication whereby managers discuss budget matters daily with their superiors.

All of the following are disadvantages of top-down budgeting as opposed to participatory budgeting, except that it

May result in a budget that is not possible to achieve.
May limit the acceptance of proposed goals and objectives.
Reduces the communication between employees and management.
Reduces the time required for budgeting.

Sub optimal decision making is not likely to occur when

There is little congruence among the overall organization goals, the subunit goals, and the individual goals of decision makers.
Goals and standards of performance are set by the top management.
Guidance is given to subunit managers about how standards and goals affect them.
The subunits in the organization compete with each other for the same input factors or for the same customers.

The budgeting process should be one that motivates managers and employees to work toward organizational goals. Which one of the following is least lik...

Setting budget targets at attainable levels.
Participation by subordinates in the budgetary process.
Use of management by exception.
Having top management set budget levels.

The best explanation of how the efficient allocation of organizational resources is planned during the budgeting process is that a budget

Demonstrates how important it is to have additional spare resources on hand in case the actual results vary from the budget.
Demonstrates how a company can pull resources from bottlenecks to apply them to other areas to attain goals.
Identifies the resources and commitments required to fulfill the organization’s goals for the period identified.
Is a process for evaluating projects needed and related external financing required to meet resource requirements.

A company’s annual budget provides information that can impact the company’s

Long-term planning only.
Long-term planning and operational budgets only.
Operational budgets and strategy only.
Long-term planning, operational budgets, and strategy.

Which one of the following is an advantage of using the budgeting process to judge performance?

Management is able to measure actual performance against predicted performance.
Past performance can be used to evaluate performance improvements.
Management believes that past conditions are an indicator of future conditions.
Company performance can be measured against the performance of others in the same industry.

Which one of the following is not a characteristic of a successful budget process?

Setting specific expectations to compare to actual results.
Gaining top management’s support.
Using market feedback to assist in setting expectations.
Implementing the budget as the only benchmark for performance evaluation.

Which one of the following statements best describes budgetary slack?

The practice of management assigning relaxed budgetary goals after the company achieves the first several months of the annual budget.
The total amount that actual expenses are below budgeted expenses and actual revenues exceed budgeted revenues
The practice of understating budgeted revenues or overestimating budgeted costs to make budgeted targets more achievable.
The margin of error assigned to each cost center to encourage the manager to budget accurately and consistently.

The finance department of a large company has prepared a master budget with very limited expense budgets for each department. The department managers ...

A successful budgeting process because it will be a very useful tool to hold people accountable for overspending.
A successful budgeting process because it will encourage the associates to work their hardest to meet the goals.
Not a successful budgeting process because management has left too much room for strategic unknowns.
Not a successful budgeting process because it has not been widely accepted by the employees.

Jura Corporation is developing standards for the next year. Currently XZ-26, one of the material components, is being purchased for $36.45 per unit. I...

Current actual cost plus the forecasted 10% price increase.
Lowest purchase price in the anticipated range to keep pressure on purchasing to always buy in the lowest price range.
Highest price in the anticipated range to ensure that there are only favorable purchase price variances.
Price agreed upon by the purchasing manager and the appropriate level of company management.

After performing a thorough study of Michigan Companyâ€™s operations, an independent consultant determined that the firmâ€™s labor standards...

A review of performance reports revealed the presence of many unfavorable efficiency variances.
Michiganâ€™s budgeting process was well-defined and based on a bottom-up philosophy.
Management noted that minimal incentive bonuses have been paid in recent periods.
Production supervisors found several significant fluctuations in manufacturing volume, with short-term increases on output being followed by rapid, sustained declines.

When compared with ideal standards, practical standards

Produce lower per-unit product costs.
Result in a less desirable basis for the development of budgets.
Incorporate very generous allowance for spoilage and worker inefficiencies.
Serve as a better motivating target for manufacturing personnel.

Diana Stinson, Cherry Valley, Inc.â€™s factory manager, had lost her patience. Six months ago, she appointed a team from the production and servi...

Brennan and Rose may not fully understand Cherry Valleyâ€™s manufacturing process, resulting in suboptimal performance.
Employees could react negatively since they did not participate in setting the standards.
There could be dissatisfaction if the standards contain costs that are not controllable by the unit held responsible.
The standards may appear to lack management support.

All of the following statements concerning standard costs are correct except that

Time and motion studies are often used to determine standard costs.
Standard costs are usually set for one year.
Standard costs can be used in costing inventory accounts.
Standard costs are usually stated in total, while budgeted costs are usually stated on a per-unit basis.

One approach for developing standard costs incorporates communication, bargaining, and interaction among product line managers; the immediate supervi...

Imposed approach.
Centralized top-down approach.
Engineering approach.
Team development approach.

Granger Company is reviewing its standard machine hours per unit to use in its budget for the upcoming year. The machine manufacturer’s specificatio...

0.75 machine hours per unit.
0.78 machine hours per unit.
0.80 machine hours per unit.
0.83 machine hours per unit.

The budget that describes the long-term position and objectives of an entity within its environment is the

Capital budget.
Operating budget.
Cash management budget.
Strategic budget.

A manufacturer makes picture frames that require one sheet of glass each. Each sheet of glass comes from one larger sheet that is cut into four pieces...

It is an ideal standard because it would normally be attainable with some deviations.
It is a currently attainable standard because it demands perfect implementation.
It is a theoretical standard because it assumes that all equipment is in order and employees work as expected.
It is a practical standard because it assumes all operating factors occur as expected.

All of the following are advantages of the budgeting process except that the budget

Forces management to assess the future objectives of the company.
Establishes benchmarks to identify unsatisfactory organizational performance.
Facilitates communication among organizational units.
Allocates resources on an as-needed basis.

Herrington Industries is able to sell up to 50,000 units of product X each month. Engineers are currently in the process of studying labor movement t...

Theoretical standard.
Average standard.
Practical standard
Variance standard.

In an organization that plans by using comprehensive budgeting, the master budget is A.

A compilation of all the separate operational and financial budget schedules of the organization.
The booklet containing budgeting guidlines, policies and forms to use in the budgeting process
The current budget updated for operations for part of the current year.
A budget of a not-for-profit organization after it is approved by the appropriate authoritative body.

While an operating budget is a key element in planning and control, it is not likely to

Establish a commitment of company resources.
Set out long-range, strategic concepts
Integrate organizational activities.
Provide subsidiary planning information.

In preparing a corporate master budget, which one of the following is most likely to be prepared last?

Sales budget.
Cash budget
Production budget
Cost of goods sold budget.

The master budget process usually begins with the

Production budget
Operating budget.
Financial budget.
Sales budget.

All of the following are considered operating budgets except the

Sales budget.
Materials budget.
Production budget.
Capital budget.

Which one of the following items is the last schedule to be prepared in the normal budget preparation process?

Cash budget.
Cost of goods sold budget.
Manufacturing overhead budget.
Selling expense budget.

The master budget

Shows forecasted and actual results.
Reflects controllable costs only.
Can be used to determine manufacturing cost variances.
Contains the operating budget.

The preparation of a comprehensive master budget culminates with the preparation of the

Production budget.
Capital investment budget.
Cash management and working capital budget.
Strategic budget.

Wilson Company uses a comprehensive planning and budgeting system. The proper order for Wilson to prepare certain budget schedules would be

Cost of goods sold, balance sheet, income statement, and statement of cash flows.
Income statement, balance sheet, statement of cash flows, and cost of goods sold.
Statement of cash flows, cost of goods sold, income statement, and balance sheet.
Cost of goods sold, income statement, balance sheet, and statement of cash flows.

Which one of the following may be considered an independent item in the preparation of the master budget?

Ending inventory budget.
Capital investment budget.
Pro forma income statement.
Pro forma statement of financial position.

The Yummy Dog Bone Company is anticipating that a major supplier might experience a strike this year. Because of the nature of the product and emphas...

Production volume and direct material.
Sales and ending inventory.
Production and cash flow.
Direct materials and cash flow.

The starting point for creating a master budget for a proprietary secretarial school would be

Estimating salaries of the instructors.
Forecasting enrollment.
Preparing a capital expenditure budget.
Preparing the student recruiting budget.

Which of the following is normally included in the financial budget of a firm?

Direct materials budget.
Selling expense budget.
Budgeted balance sheet.
Sales budget.

The financial budget process includes

The cash budget.
The capital budget.
The budgeted statement of cash flows.
All of the answers are correct.

The foundation of a profit plan is the

Capital budget.
Sales forecast.
Cost and expense budget.
Production plan.

The operating budget process usually begins with the

Financial budget.
Balance sheet.
Income statement.
Sales budget.

Adams Manufacturing, Inc., produces farm tractors. The details of its budgeted cost of goods manufactured schedule should come from which of the foll...

Cost of goods sold plus or minus the change planned in finished goods.
Direct materials used, direct labor, manufacturing overhead, and work-inprocess.
Purchases, direct labor, manufacturing overhead, finished goods, and workin- process.
Purchases, raw material, work-in-process, and finished goods.

In developing a comprehensive budget for a manufacturing company, which one of the following items should be done first?

Development of a sales plan.
Determination of manufacturing capacity.
Development of the capital budget
Determination of the advertising budget.

When budgeting, the items to be considered by a manufacturing firm in going from a sales quantity budget to a production budget would be the

Expected change in the quantity of work-in-process inventories.
Expected change in the quantity of finished goods and work-in-process inventories.
Expected change in the quantity of finished goods and raw material inventories.
Expected change in the availability of raw material without regard to inventory levels.

Which one of the following schedules would be the last item to be prepared in the normal budget preparation process?

Direct labor budget.
Cash budget.
Cost of goods sold budget.
Manufacturing overhead budget.

After the goals of the company have been established and communicated, the next step in the planning process is development of the

Production budget.
Direct materials budget.
Selling and administrative budget.
Sales budget.

The production budget process usually begins with the

Direct labor budget.
Direct materials budget.
Manufacturing overhead budget.
Sales budget.

Individual budget schedules are prepared to develop an annual comprehensive or master budget. The budget schedule that would provide the necessary inp...

Sales forecast.
Raw materials purchases budget.
Schedule of cash receipts and disbursements.
Production budget.

Which one of the following items should be done first when developing a comprehensive budget for a manufacturing company?

Determination of the advertising budget.
Development of a sales budget.
Development of the capital budget.
Preparation of a pro forma income statement.

There are various budgets within the master budget cycle. One of these budgets is the production budget. Which one of the following best describes the...

It summarizes all discretionary costs.
It includes required direct labor hours.
It includes required material purchases.
It is calculated from the desired ending inventory and the sales forecast.

The budget that is usually the most difficult to forecast is the

Production budget
Expense budget.
Sales budget
Manufacturing overhead budget.

When sales volume is seasonal in nature, certain items in the budget must be coordinated. The three most significant items to coordinate in budgeting ...

Direct labor hours, work-in-process inventory, and sales volume.
Production volume, finished goods inventory, and sales volume.
Raw material inventory, direct labor hours, and manufacturing overhead costs.
Raw material inventory, work-in-process inventory, and production volume.

Maximilian Computer Company uses a comprehensive budgeting system in planning its annual operations. Which of the following best describes the informa...

Begin with budgeted laptop sales in units, add the desired ending inventory of circuit boards, deduct the expected beginning inventory of circuit boards, and multiply the resulting amount by the budgeted purchase cost per circuit board.
Begin with budgeted laptop sales in units, deduct the desired ending inventory of circuit boards, add the expected beginning inventory of circuit boards, and multiply the resulting amount by the purchase cost per circuit board.
Begin with budgeted laptop production in units, deduct the desired ending inventory of circuit boards, add the expected beginning inventory of circuit boards, and multiply the resulting amount by the purchase cost per circuit board.
Begin with budgeted laptop production in units, add the desired ending inventory of circuit boards, deduct the expected beginning inventory of circuit boards, and multiply the resulting amount by the budgeted purchase cost per circuit board.

Which one of the combinations listed correctly depicts the chronological order of preparation for the following budgets? I. Cost of goods sold budge...

I, II, III, IV.
III, II, IV, I.
IV, II, III, I.
II, III, I, IV.

Which one of the following best describes the order in which budgets should be prepared when developing the annual master operating budget?

Production budget, direct material budget, revenue budget.
Production budget, revenue budget, direct material budget
Revenue budget, production budget, direct material budget.
Revenue budget, direct material budget, production budget.

When preparing the series of annual operating budgets, management usually starts the process with the

Cash budget.
Balance sheet.
Capital budget.
Sales budget.

Which of the following is normally included in the operating budget?

Capital budget.
Cash budget.
Selling expense budget.
Budgeted balance sheet.

Which budget is prepared after the creation of the cash budget?

Sales budget.
Capital expenditures budget.
Production budget
Budgeted balance sheet.

Which one of the following is not an advantage of activity-based budgeting?

Better identification of resource needs.
Linking of costs to outputs.
Identification of budgetary slack.
Reduction of planning uncertainty.

An advantage of incremental budgeting when compared with zero-based budgeting is that incremental budgeting

Encourages adopting new projects quickly.
Accepts the existing base as being satisfactory.
Eliminates functions and duties that have outlived their usefulness.
Eliminates the need to review all functions periodically to obtain optimum use of resources.

The major appeal of zero-based budgeting is that it

Solves the problem of measuring program effectiveness.
Relates performance to resource inputs by an integrated planning and resource-allocation process.
Reduces significantly the time required to review a budget.
Deals with some of the problems of the incremental approach to budgeting.

A continuous (rolling) budget

Presents the plan for only one level of activity and does not adjust to changes in the level of activity.
Presents the plan for a range of activity so the plan can be adjusted for changes in activity.
Is a plan that is revised monthly or quarterly, dropping one period and adding another.
Is one of the budgets that is part of a long-range strategic plan, unchanged unless the strategy of the company changes.

A systemized approach known as zero-based budgeting (ZBB)

Presents the plan for only one level of activity and does not adjust to changes in the level of activity.
Presents a statement of expectations for a period of time but does not present a firm commitment.
Divides the activities of individual responsibility centers into a series of packages that are prioritized.
Classifies budget requests by activity and estimates the benefits arising from each activity.

The major feature of zero-based budgeting (ZBB) is that it

Takes the previous yearâ€™s budgets and adjusts them for inflation.
Questions each activity and determines whether it should be maintained as it is, reduced, or eliminated.
Assumes all activities are legitimate and worthy of receiving budget increases to cover any increased costs.
Focuses on planned capital outlays for property, plant, and equipment.

A continuous profit plan

Is a plan that is revised monthly or quarterly.
Is an annual plan that is part of a 5-year plan.
Is a plan devised by a full-time planning staff.
Works best for a company that can reliably forecast events a year or more into the future.

Zero-based budgeting forces managers to

Estimate a product’s revenues and expenses over its expected life cycle.
Prepare a budget based on historical costs.
Formulate a budget by objective rather than function.
Justify all expenditures at the beginning of every budget period.

A company uses a type of budgeting that focuses on the cost of the processes required to produce and sell products and services. This type of budgeti...

Process budgeting.
Activity-based budgeting.
Master activity budgeting.
Controllability budgeting.

Blackmore, Inc., has a goal to reduce wastefulness and develop a tight, efficient budget. The management team knows that this will take time, so they...

Yes, he should take the current budget and make incremental changes to reduce waste.
No, he should implement a continuous budget to provide more current information.
No, he should select zero-based budgeting to allow no costs unless they are justified.
No, he should select activity-based budgeting to focus on the historical cost patterns.

Medico has found that its annual budgets are quickly outdated once actual data is recorded. Sometimes actual preparations have already begun for the ...

Flexible budgeting.
Activity-based budgeting.
Zero-based budgeting
Continuous budgeting.

The type of budget that is available on a continuous basis for a specified future period -- by adding a month, quarter, or year in the future as the ...

Rolling budget.
Kaizen budget.
Activity-based budget
Flexible budget.

The use of the master budget throughout the year as a constant comparison with actual results signifies that the master budget is also a

Flexible budget
Capital budget.
Zero-base budget
Static budget

Which one of the following budgeting methodologies would be most appropriate for a firm facing a significant level of uncertainty in unit sales volume...

Top-down budgeting.
Life-cycle budgeting
Static budgeting.
Flexible budgeting.

A budgeting approach that requires a manager to justify the entire budget for each budget period is known as

Performance budgeting
Program budgeting
Zero-based budgeting.
Incremental budgeting.

There are many different budget techniques or processes that business organizations can employ. One of these techniques or processes is zero-based bud...

Budgeting from the ground up as though the budget process were being initiated for the first time.
Budgeting for cash inflows and outflows to time investments and borrowings in a way to maintain a bank account with a minimum balance.
Using the prior year’s budget as a base year and adjusting it based on the experiences of the prior year and the expectations for the coming year.
Developing budgeted costs from clear-cut measured relationships between inputs and outputs.

Categories

Budgeting MCQs