Budgeting Process quiz Managerial Accounting Quiz On Dec 3, 2025 Share Budgeting Process 20 questions in 20 minutes Pass Score 70% The questions change when you repeat the exam 1 / 20 Which one of the following is not an advantage of a participatory budgeting process ? Control of uncertainties Communication between departments Coordination between departments Goal congruence Uncertainties can be prepared for, but they cannot be subjected to human control through any budget process 2 / 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 3 / 20 Which one of the following best describes the role of top management in the budgeting process ? Top management Lacks the detailed knowledge of the daily operations and should limit their involvement Should be involved only in the approval process Needs to separate the budgeting process and the business planning process into two separate processes Needs to be involved, including using the budget process to communicate goals Among other things, the budget is a tool by which management can communicate goals to lower-level employees. It is also a tool for motivating employees to reach those goals. For the budget to function in these communication and motivating roles, top management must be involved in the process. This involvement does not extend to dictating the exact numerical contents of the budget since top management lacks a detailed knowledge of daily operations 4 / 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 5 / 20 MBO (Management by objectives) managers are most likely to believe that employees : Work best when threatened with punishment Avoid responsibility whenever possible Are self-motivated 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 6 / 20 An improperly executed budget process might have the effect(s) of : Meeting short-term but not long-term goals Disregard of overall company goals All of the answers are correct Inflated budget requests 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 7 / 20 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 Provides a formal benchmark to be used for feedback and performance evaluation Serves as a coordination and communication device between management and subordinates Ensures improved cost control within the organization and prevents inefficiencies A budget is a realistic plan for the future expressed in quantitative terms. It is useful for planning, control, motivation, communication, and achieving goal congruence. As a planning tool, a budget forces management to evaluate the reasonableness of assumptions used and goals identified in the budgetary process. As a control tool, the budget provides a formal benchmark to be used for feedback and performance evaluation. As a communication tool, a budget serves to coordinate activities between management and subordinates and provides management with a means of dealing with uncertainty. Despite its advantages, a budget neither ensures improved cost control nor prevents inefficiencies 8 / 20 In developing the budget for the next year, which one of the following approaches would produce the greatest amount of positive motivation and goal congruence? Have the divisional and senior management jointly develop goals and the divisional manager develop the implementation plan Have the divisional and senior management jointly develop goals and objectives while constructing the corporation’s overall plan of operation Have senior management develop the overall goals and permit the divisional manager to determine how these goals will be met Permit the divisional manager to develop the goal for the division that in the manager’s view will generate the greatest amount of profits Joint development of goals is more conducive to motivation, as is allowing divisional managers to develop the implementation plan. Goal congruence is enhanced when senior management is involved in the budgeting process along with division managers 9 / 20 A budget helps a company control costs by setting cost guidelines. However, a budget also performs the function(s) of : All of the answers are correct Planning Motivating Communicating A budget is a realistic plan for the future expressed in quantitative terms. It is a planning tool that establishes goals and permits a company to anticipate problems and to plan for decisions. A budget can be a motivator, especially if it sets reasonable standards, has some flexibility, and was prepared with the participation of those affected. A budget is a communication tool because it informs employees about the goals the company is striving to attain and thus enhances goal congruence. A budget is also a means of coordinating the company’s various activities. The company’s overall budget consists of many smaller budgets 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 Settle disputes among operating executives during the development of the annual operating plan 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 11 / 20 An advantage of participative budgeting is that it : 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 Encourages acceptance of the budget by employees 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 12 / 20 The major disadvantage of a budget produced by means of a top-down process is : Lack of involvement by upper-level management Impairment of goal congruence Inconsistency with strategic plans Absence of a significant motivational effect 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 13 / 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 Participative budgeting where managers pursue objectives consistent with those set by top management A policy that allows managers to build slack into the budget Preventive controls Participative budgeting is a practical means of setting realistic, achievable budget goals 14 / 20 When comparing performance report information for top management with that for lower-level management : Top management reports are more detailed Top management reports show control over fewer costs 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 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 15 / 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 margin of error assigned to each cost center to encourage the manager to budget accurately and consistently 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 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 16 / 20 Suboptimal decision making is not likely to occur when : 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 There is little congruence among the overall organization goals, the subunit goals, and the individual goals of decision makers 17 / 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 Is continually adapted to fit changing circumstances Requires departmental managers to make plans in conjunction with the plans of other interdependent departments A budget promotes goal congruence within a company. Departments must coordinate their activities with other interdependent departments in planning and developing the budget 18 / 20 Which one of the following is not considered to be a benefit of participative budgeting ? 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 budget estimates are prepared by those in direct contact with various activities Individuals at all organizational levels are recognized as being part of the team; this results in greater support of the organization 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 19 / 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 : Not a successful budgeting process because management has left too much room for strategic unknowns A successful budgeting process because it will encourage the associates to work their hardest to meet the goals A successful budgeting process because it will be a very useful tool to hold people accountable for overspending Not a successful budgeting process because it has not been widely accepted by the employees 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 20 / 20 Each organization plans and budgets its operations for slightly different reasons. Which one of the following is not a significant reason for planning ? Checking progress toward the objectives of the organization Providing a basis for controlling operations Ensuring profitable operations Forcing managers to consider expected future trends and conditions 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 Your score is LinkedIn Facebook Twitter VKontakte 0% Send feedback Follow the Facebook page Accountants Quiz and join the group Accounting Quiz 4 steps of budgeting process8 steps of budgeting processa common starting point in the budgeting process is
