Budgeting Process quiz Managerial Accounting Quiz On Aug 17, 2024 Share /20 1234567891011121314151617181920 Budgeting Process 20 questions in 20 minutes Pass Score 70% The questions change when you repeat the exam 1 / 20 A company’s annual budget provides information that can impact the company’s : Long-term planning and operational budgets only Long-term planning, operational budgets, and strategy Operational budgets and strategy only Long-term planning only Budgeting plays a role in the overall planning and evaluation process of the company. It includes information that can impact the company’s long-term planning, operational budgets, and strategy. The strategic plan is made up of longterm objectives that make clear the priorities of the organization. Awareness of priorities is crucial for the allocation of resources because it affects the operational and financial budgets 2 / 20 Which one of the following is not an advantage of a participatory budgeting process ? Control of uncertainties Coordination between departments Goal congruence Communication between departments Uncertainties can be prepared for, but they cannot be subjected to human control through any budget process 3 / 20 All of the following are disadvantages of top-down budgeting as opposed to participatory budgeting, except that it : May limit the acceptance of proposed goals and objectives Reduces the time required for budgeting May result in a budget that is not possible to achieve Reduces the communication between employees and management Since a top-down budget is coordinated from above, it is less time-consuming than obtaining lower-level input 4 / 20 An advantage of participative budgeting is that it : Encourages acceptance of the budget by employees Minimizes the cost of developing budgets Yields information known to management but not to employees Reduces the effect on the budgetary process of employee biases Participative (grass-roots) budgeting and standard-setting use input from lower-level and middle-level employees. Participation encourages employees to have a sense of ownership of the output of the process. The result is an acceptance of and commitment to the goals expressed in the budget 5 / 20 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 Top management’s belief in and support of the planning and budgeting process is the single most important element in its success 6 / 20 The best explanation of how the efficient allocation of organizational resources is planned during the budgeting process is that a budget : Is a process for evaluating projects needed and related external financing required to meet resource requirements Demonstrates how important it is to have additional spare resources on hand in case the actual results vary from the budget Identifies the resources and commitments required to fulfill the organization’s goals for the period identified Demonstrates how a company can pull resources from bottlenecks to apply them to other areas to attain goals A budget lays out in specific terms an organization’s expectations about the consumption of resources and the resulting outcomes. Therefore, it identifies the resources and commitments required to fulfill the organization’s goals for the period identified 7 / 20 An improperly executed budget process might have the effect(s) of : Disregard of overall company goals Inflated budget requests All of the answers are correct Meeting short-term but not long-term goals Lack of goal congruence can result when attaining a subunit’s budgetary goal results in disregard of overall company goals. Subunit managers may inflate their budget requests to provide operating leeway and then engage in unnecessary spending to avoid future budget cuts. A budget may encourage exclusive concentration on meeting short-term standards at the expense of long-term considerations. A manager fearful of not meeting the budget targets may improperly manipulate allocation of expenses. The manager seeking to stay within the budget may disregard employee morale and poor working conditions. Interunit resentment may develop as a result of competition for scarce funds 8 / 20 MBO (Management by objectives) managers are most likely to believe that employees : Avoid responsibility whenever possible Are self-motivated Work best when threatened with punishment Dislike their work MBO managers believe that employees are committed to achieving objectives, working hard to receive the rewards of achievement, and striving for self-actualization. The MBO view is that employees enjoy work, need little supervision, seek responsibility, and are imaginative problem solvers 9 / 20 Budgeting problems where departmental managers are repeatedly achieving easy goals or failing to achieve demanding goals can be best minimized by establishing: Better communication whereby managers discuss budget matters daily with their superiors 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 Participative budgeting is a practical means of setting realistic, achievable budget goals 10 / 20 The primary role of the budget director and the budgeting department is to: Justify the budget to the executive committee of the board of directors Compile the budget and manage the budget process 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 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 11 / 20 All of the following are advantages of top-down budgeting as opposed to participatory budgeting, except that it: Reduces the time required for budgeting Increases coordination of divisional objectives May limit the acceptance of proposed goals and objectives Facilitates implementation of strategic plans Since a top-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 12 / 20 A budget manual, which enhances the operation of a budget system, is most likely to include : A chart of accounts Employee hiring policies Documentation of the accounting system software Distribution instructions for budget schedules A budget manual describes how a budget is to be prepared. Items usually included in a budget manual are a planning calendar and distribution instructions for all budget schedules. Distribution instructions are important because, once a schedule is prepared, other departments within the organization will use the schedule to prepare their own budgets. Without distribution instructions, someone who needs a particular schedule may be overlooked 13 / 20 Each organization plans and budgets its operations for slightly different reasons. Which one of the following is not a significant reason for planning ? Forcing managers to consider expected future trends and conditions Providing a basis for controlling operations Ensuring profitable operations Checking progress toward the objectives of the organization This question is apparently directed toward budgeting. A budget is a realistic plan for the future that is expressed in quantitative terms. It is a planning, control, motivational, and communications tool. A budget promotes goal congruence and coordination among operating units. Unfortunately, a budget does not ensure profitable operations 14 / 20 The finance department of a large company has prepared a master budget with very limited expense budgets for each department. The department managers are worried about being held accountable for these assigned targets, but senior management wants to keep spending reduced to allow for contingencies and strategic adjustments to the company-wide master budget. Based on this information, this budget process is : 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 A successful budgeting process because it will be a very useful tool to hold people accountable for overspending This budget process represents a top-down budgeting approach. It is imposed by upper management and therefore has less of a chance of acceptance by those on whom the budget is imposed. It is not a successful budgeting process since there is not a buy-in at all levels. Participative budgeting has a much greater chance of acceptance by those affected and thus of achieving ultimate success than does a budget that is imposed from above 15 / 20 Which one of the following statements concerning approaches for the budget development process is correct ? 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 The top-down approach to budgeting will ensure adherence to strategic organizational goals Since department managers have the most detailed knowledge about organizational operations, they should use this information as the building blocks of the operating budget 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 16 / 20 The budgeting process should be one that motivates managers and employees to work toward organizational goals. Which one of the following is least likely to motivate managers ? Having top management set budget levels Participation by subordinates in the budgetary process Use of management by exception Setting budget targets at attainable levels A budget is potentially a good motivational tool. If lower-level managers have participated in preparing the budget, instead of simply receiving a budget imposed by top management, they are more likely to understand and share the goals of top management and to work to keep costs within the budget. Participation and understanding are also likely to result in budgets that are reasonably attainable and viewed as realistic. However, a budget is also a motivator in the sense that managers are accountable for variances in controllable costs but are rewarded for good performance. Moreover, budgeting coupled with analysis of variances tends to improve motivation by allowing upper-level managers to concentrate on problems (exceptions) rather than engaging in routine supervision of subordinates, which may be viewed as unnecessarily intrusive and unwelcome 17 / 20 A planning calendar in budgeting is the : Calendar period covered by the annual budget and the long-range plan Schedule of activities for the development and adoption of the budget Calendar period covered by the budget Sales forecast by months in the annual budget period The budget planning calendar is the schedule of activities for the development and adoption of the budget. It should include a list of dates indicating when specific information is to be provided by each information source to others. The preparation of a master budget usually takes several months. For instance, many firms start the budget for the next calendar year some time in September in hopes of having it completed by December 1. Because all of the individual departmental budgets are based on forecasts prepared by others and the budgets of other departments, it is essential to have a planning calendar to ensure the proper integration of the entire process 18 / 20 The major objectives of any budget system are to : Foster the planning of operations, facilitate the fixing of blame for missed budget predictions, and ensure goal congruence between superiors and subordinates 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 A budget is a realistic plan for the future expressed in quantitative terms. The process of budgeting forces a company to establish goals, determine the resources necessary to achieve those goals, and anticipate future difficulties in their achievement. A budget is also a control tool because it establishes standards and facilitates comparison of actual and budgeted performance. Because a budget establishes standards and accountability, it motivates good performance by highlighting the work of effective managers. Moreover, the nature of the budgeting process fosters communication of goals to company subunits and coordination of their efforts. Budgeting activities by entities within the company must be coordinated because they are interdependent. Thus, the sales budget is a necessary input to the formulation of the production budget. In turn, production requirements must be known before purchases and expense budgets can be developed, and all other budgets must be completed before preparation of the cash budget 19 / 20 All of the following are criticisms of the traditional budgeting process except that it : Overemphasizes a fixed time horizon, such as one year Makes across-the-board cuts when early budget iterations show that planned expenses are too high Is not used until the end of the budget period to evaluate performance Incorporates non-financial measures as well as financial measures into its output Traditional budgeting focuses strictly on financial measures 20 / 20 In the budgeting and planning process for a firm, which one of the following should be completed first ? Cost management plan Financial budget Sales budget Strategic plan An organization must complete its strategic plan before any specific budgeting can begin. The strategic plan lays out the means by which a firm expects to fulfill its stated mission Your score is LinkedIn Facebook Twitter VKontakte 0% Send feedback 4 steps of budgeting process8 steps of budgeting processa common starting point in the budgeting process is
