Budgeting Process quiz Managerial Accounting Quiz On Jan 3, 2026 Share Budgeting Process 20 questions in 20 minutes Pass Score 70% The questions change when you repeat the exam 1 / 20 he budgeting technique that is most likely to motivate managers is : Zero-based budgeting Program budgeting and review technique Top-down budgeting Bottom-up 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 2 / 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 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 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 be involved, including using the budget process to communicate goals Needs to separate the budgeting process and the business planning process into two separate processes 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 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 Management is able to measure actual performance against predicted performance Management believes that past conditions are an indicator of future conditions Past performance can be used to evaluate performance improvements 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 5 / 20 Which one of the following is not a characteristic of a successful budget process ? Using market feedback to assist in setting expectations Setting specific expectations to compare to actual results Gaining top management’s support Implementing the budget as the only benchmark for performance evaluation 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 6 / 20 Which one of the following is not considered to be a benefit of participative budgeting ? When managers set the final targets for the budget, senior management need not be concerned with the overall profitability of current operations Individuals at all organizational levels are recognized as being part of the team; this results in greater support of the organization Managers are more motivated to reach the budget objectives since they participated in setting them The budget estimates are prepared by those in direct contact with various activities 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 7 / 20 One of the primary advantages of budgeting is that it : Bases the profit plan on estimates Does not take the place of management and administration 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 8 / 20 A company’s annual budget provides information that can impact the company’s : Operational budgets and strategy only Long-term planning, operational budgets, and strategy Long-term planning 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 9 / 20 When developing a budget, an external factor to consider in the planning process is : The merger of two competitors A change to a decentralized management system New product development The implementation of a new bonus program 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 10 / 20 A planning calendar in budgeting is the : 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 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 11 / 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 Motivating Planning 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 12 / 20 All of the following are advantages of top-down budgeting as opposed to participatory budgeting, except that it: May limit the acceptance of proposed goals and objectives Facilitates implementation of strategic plans 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 13 / 20 Which one of the following is not an advantage of a participatory budgeting process ? Coordination between departments Control of uncertainties Goal congruence Communication between departments Uncertainties can be prepared for, but they cannot be subjected to human control through any budget process 14 / 20 Which one of the following statements best describes budgetary slack ? 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 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 15 / 20 All of the following are advantages of the use of budgets in a management control system except that budgets : Force management planning Limit unauthorized expenditures Provide performance criteria Promote communication and coordination within the organization Budgets serve many roles. They force management to plan ahead, communicate organizational goals throughout the organization, and provide criteria for future performance evaluations 16 / 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 it has not been widely accepted by the employees 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 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 17 / 20 Which one of the following is usually not cited as being an advantage of a formal budgetary process ? Provides a formal benchmark to be used for feedback and performance evaluation Ensures improved cost control within the organization and prevents inefficiencies Forces management to evaluate the reasonableness of assumptions used and goals identified in the budgetary process Serves as a coordination and communication device between management and subordinates 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 18 / 20 Which one of the following statements concerning approaches for the budget development process is correct ? 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 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 19 / 20 An advantage of participative budgeting is that it : Encourages acceptance of the budget by employees Yields information known to management but not to employees Reduces the effect on the budgetary process of employee biases 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 20 / 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 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 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 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
