Budgeting Process quiz Managerial Accounting Quiz On Feb 2, 2025 Share /20 1234567891011121314151617181920 Budgeting Process 20 questions in 20 minutes Pass Score 70% The questions change when you repeat the exam 1 / 20 All of the following are disadvantages of top-down budgeting as opposed to participatory budgeting, except that it : Reduces the communication between employees and management Reduces the time required for budgeting May result in a budget that is not possible to achieve May limit the acceptance of proposed goals and objectives Since a top-down budget is coordinated from above, it is less time-consuming than obtaining lower-level input 2 / 20 One of the primary advantages of budgeting is that it : Does not take the place of management and administration Bases the profit plan on estimates Requires departmental managers to make plans in conjunction with the plans of other interdependent departments Is continually adapted to fit changing circumstances A budget promotes goal congruence within a company. Departments must coordinate their activities with other interdependent departments in planning and developing the budget 3 / 20 All of the following are advantages of top-down budgeting as opposed to participatory budgeting, except that it: Facilitates implementation of strategic plans Reduces the time required for budgeting Increases coordination of divisional objectives May limit the acceptance of proposed goals and objectives 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 4 / 20 Ineffective budget control systems are characterized by : Lack of timely feedback in the use of the budget Use of budgets as a planning but not a control tool All of the answers are correct Use of budgets for harassment of individuals rather than motivation Ineffective budget control systems are characterized by each of the items noted. The use of budgets for planning only is a problem that must be resolved through the education process. Management must be educated to use the budget documents for control, not just planning. Management must learn that budgets can motivate and help individuals achieve professional growth as well as the goals of the firm. Ignoring budgets obviously contributes to the ineffectiveness of the budget system. Finally, feedback must be timely or lower management and employees will soon recognize that budget feedback is so late it provides no information, making the budget a worthless device 5 / 20 In the budgeting and planning process for a firm, which one of the following should be completed first ? Financial budget Cost management plan 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 6 / 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 7 / 20 Which of the following statements regarding budgets is false ? Budgets present organizational plans in a formal, logical, and integrated manner Budgets may be developed for cash flows or labor usage Budgets are used only as a planning function A budget is a plan that contains a quantitative statement of expected results Budget formulation is a planning function; however, budgets are also useful control devices. Budgets provide a basis for control of performance through comparisons of actual with budgeted data. They permit analysis of variations from plans and signal the need for corrective managerial action 8 / 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 Incorporates non-financial measures as well as financial measures into its output Is not used until the end of the budget period to evaluate performance Traditional budgeting focuses strictly on financial measures 9 / 20 Which one of the following items would most likely cause the planning and budgeting system to fail? The lack of : Top management support Input from several levels of management Historical financial data 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 10 / 20 When comparing performance report information for top management with that for lower-level management : Lower-level management reports are likely to contain more quantitative data and less financial data Lower-level management reports are typically for longer time periods Top management reports show control over fewer costs Top management reports are more detailed Information sent to top management is ordinarily more highly aggregated and less timely than that communicated to managers at operational levels. Top managers are concerned with the organization’s overall financial results and long-term prospects and are responsible for the strategic planning function. Lower-level reports contain more quantitative information of an operational nature, e.g., production data 11 / 20 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 Justify the budget to the executive committee of the board of directors Compile the budget and manage the budget process 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 12 / 20 Which one of the following statements concerning approaches for the budget development process is correct ? The top-down approach to budgeting will ensure adherence to strategic organizational goals With the information technology available, the role of budgets as an organizational communication device has declined 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 Since department managers have the most detailed knowledge about organizational operations, they should use this information as the building blocks of the operating budget Since department managers have the most detailed knowledge about organizational operations, they should use this information as the building blocks of the operating budget 13 / 20 An improperly executed budget process might have the effect(s) of : All of the answers are correct Inflated budget requests Disregard of overall company goals 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 14 / 20 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 margin of error assigned to each cost center to encourage the manager to budget accurately and consistently The practice of understating budgeted revenues or overestimating budgeted costs to make budgeted targets more achievable Budgetary slack is the practice of understating budgeted revenues or overestimating budgeted costs to make budgeted targets more achievable. The natural tendency of a manager is to negotiate for a less stringent measure of performance to avoid unfavorable variances from expectations 15 / 20 Which one of the following is most important to a successful budgeting effort? Top management support Integrated budget software Reliable forecasts and trend analyses Experienced analysts 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 16 / 20 A company’s annual budget provides information that can impact the company’s : Long-term planning only Long-term planning, operational budgets, and strategy Operational budgets and strategy only Long-term planning and operational budgets 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 17 / 20 Which one of the following is an advantage of using the budgeting process to judge performance ? Company performance can be measured against the performance of others in the same industry Past performance can be used to evaluate performance improvements Management believes that past conditions are an indicator of future conditions Management is able to measure actual performance against predicted performance This is an advantage of using the budgeting process to judge performance. Comparing actual results to the budget allows the organization as a whole to evaluate performance and allows managers to do the same on an individual level 18 / 20 Which one of the following is not an advantage of a participatory budgeting process ? Goal congruence Control of uncertainties Coordination between departments Communication between departments Uncertainties can be prepared for, but they cannot be subjected to human control through any budget process 19 / 20 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 Absence of a significant motivational effect Inconsistency with strategic plans 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 budget 20 / 20 An advantage of participative budgeting is that it : Reduces the effect on the budgetary process of employee biases Encourages acceptance of the budget by employees Yields information known to management but not to employees Minimizes the cost of developing budgets 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 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
