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 All of the following are advantages of top-down budgeting as opposed to participatory budgeting, except that it: Facilitates implementation of strategic plans May limit the acceptance of proposed goals and objectives Increases coordination of divisional objectives Reduces the time required for budgeting 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 2 / 20 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 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 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 3 / 20 A budget manual, which enhances the operation of a budget system, is most likely to include : Distribution instructions for budget schedules A chart of accounts Employee hiring policies 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 4 / 20 Which one of the following best describes the role of top management in the budgeting process ? Top management Needs to separate the budgeting process and the business planning process into two separate processes Should be involved only in the approval process Needs to be involved, including using the budget process to communicate goals Lacks the detailed knowledge of the daily operations and should limit their involvement 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 5 / 20 A planning calendar in budgeting is the : Calendar period covered by the budget Sales forecast by months in the annual budget period Schedule of activities for the development and adoption of the budget Calendar period covered by the annual budget and the long-range plan 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 6 / 20 Which one of the following statements best describes budgetary slack ? 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 The total amount that actual expenses are below budgeted expenses and actual revenues exceed budgeted revenues The practice of management assigning relaxed budgetary goals after the company achieves the first several months of the annual budget 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 7 / 20 A company’s annual budget provides information that can impact the company’s : Long-term planning only Long-term planning and operational budgets only Long-term planning, operational budgets, and strategy 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 8 / 20 Budgeting problems where departmental managers are repeatedly achieving easy goals or failing to achieve demanding goals can be best minimized by establishing: Participative budgeting where managers pursue objectives consistent with those set by top management A policy that allows managers to build slack into the budget Better communication whereby managers discuss budget matters daily with their superiors Preventive controls Participative budgeting is a practical means of setting realistic, achievable budget goals 9 / 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: 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 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 10 / 20 Which one of the following is not considered to be a benefit of participative budgeting ? 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 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 11 / 20 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 Reduces the time required for budgeting Reduces the communication between employees and management 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 12 / 20 Which one of the following is not a characteristic of a successful budget process ? Using market feedback to assist in setting expectations Implementing the budget as the only benchmark for performance evaluation Setting specific expectations to compare to actual results Gaining top management’s support Implementing the budget as the only benchmark for performance evaluation is not a characteristic of a successful budget process. Decisions about a firm’s strategy, and in turn about its budget, are dependent upon general economic conditions and their expected trends as well as the availability of financial resources. Industry information is also a crucial aspect of benchmarking performance 13 / 20 All of the following are advantages of the use of budgets in a management control system except that budgets : Provide performance criteria Limit unauthorized expenditures Promote communication and coordination within the organization Force management planning Budgets serve many roles. They force management to plan ahead, communicate organizational goals throughout the organization, and provide criteria for future performance evaluations 14 / 20 The primary role of the budget director and the budgeting department is to: Compile the budget and manage the budget process 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 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 15 / 20 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 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 16 / 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 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 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 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 17 / 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 18 / 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 19 / 20 MBO (Management by objectives) managers are most likely to believe that employees : Dislike their work Work best when threatened with punishment Are self-motivated 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 20 / 20 When developing a budget, an external factor to consider in the planning process is : The implementation of a new bonus program A change to a decentralized management system The merger of two competitors 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 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
