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 Each organization plans and budgets its operations for slightly different reasons. Which one of the following is not a significant reason for planning ? Providing a basis for controlling operations Checking progress toward the objectives of the organization 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 2 / 20 Which one of the following items would most likely cause the planning and budgeting system to fail? The lack of : Input from several levels of management Historical financial data 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 3 / 20 All of the following are disadvantages of top-down budgeting as opposed to participatory budgeting, except that it : Reduces the time required for budgeting May limit the acceptance of proposed goals and objectives 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 Which one of the following is most important to a successful budgeting effort? Integrated budget software Reliable forecasts and trend analyses Experienced analysts Top management support 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 5 / 20 MBO (Management by objectives) managers are most likely to believe that employees : Work best when threatened with punishment Are self-motivated Dislike their work Avoid responsibility whenever possible 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 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 develop the company’s budget by using a decentralized bottom-up budget approach. Chip Jarrett is production manager in one of the divisions. Jarrett’s involvement in the budget process this year will probably: Require development of a production budget based on the prior year’s manufacturing activity Require development of a production budget after receiving the division’s projected sales forecast Require development of a production budget that is forwarded to the Budget Department Be negligible Management of the division is responsible for setting the sales forecast. As production manager, Jarrett has the responsibility of ensuring the products are ready on schedule and in the right quantities 7 / 20 Suboptimal decision making is not likely to occur when : Guidance is given to subunit managers about how standards and goals affect them There is little congruence among the overall organization goals, the subunit goals, and the individual goals of decision makers The subunits in the organization compete with each other for the same input factors or for the same customers Goals and standards of performance are set by the top management 8 / 20 When developing a budget, an external factor to consider in the planning process is : The implementation of a new bonus program The merger of two competitors A change to a decentralized management system New product development Several planning assumptions should be made at the beginning of the budget process. Some of these assumptions are internal factors; others are external to the company. External factors include general economic conditions and their expected trend, governmental regulatory measures, the labor market in the locale of the company’s facilities, and activities of competitors, including the effects of mergers 9 / 20 Which of the following statements regarding budgets is false ? A budget is a plan that contains a quantitative statement of expected results Budgets are used only as a planning function Budgets may be developed for cash flows or labor usage Budgets present organizational plans in a formal, logical, and integrated manner 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 10 / 20 Which one of the following statements concerning approaches for the budget development process is correct ? Since department managers have the most detailed knowledge about organizational operations, they should use this information as the building blocks of the operating budget 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 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 11 / 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 practice of understating budgeted revenues or overestimating budgeted costs to make budgeted targets more achievable 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 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 12 / 20 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 When managers set the final targets for the budget, senior management need not be concerned with the overall profitability of current operations Managers are more motivated to reach the budget objectives since they participated in setting them 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 13 / 20 The major objectives of any budget system are to : Foster the planning of operations, provide a framework for performance evaluation, and promote communication and coordination among organization segments Define responsibility centers, 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 Define responsibility centers, facilitate the fixing of blame for missed budget predictions, and ensure goal congruence between superiors and subordinates 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 14 / 20 Which one of the following is an advantage of using the budgeting process to judge performance ? Past performance can be used to evaluate performance improvements Management is able to measure actual performance against predicted performance Company performance can be measured against the performance of others in the same industry Management believes that past conditions are an indicator of future conditions 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 15 / 20 An advantage of participative budgeting is that it : Reduces the effect on the budgetary process of employee biases Minimizes the cost of developing budgets Yields information known to management but not to employees 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 16 / 20 A budget manual, which enhances the operation of a budget system, is most likely to include : A chart of accounts Employee hiring policies Distribution instructions for budget schedules Documentation of the accounting system software 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 17 / 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 typically for longer time periods Lower-level management reports are likely to contain more quantitative data and less financial data 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 18 / 20 he budgeting technique that is most likely to motivate managers is : Bottom-up budgeting Program budgeting and review technique Zero-based budgeting Top-down budgeting 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 19 / 20 Which one of the following is not an advantage of a participatory budgeting process ? Control of uncertainties Goal congruence Coordination between departments Communication between departments Uncertainties can be prepared for, but they cannot be subjected to human control through any budget process 20 / 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 Long-term planning and operational budgets only Operational budgets and strategy 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 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
