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 Which one of the following statements best describes budgetary slack ? 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 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 2 / 20 Which one of the following is not an advantage of a participatory budgeting process ? Communication between departments Goal congruence Coordination between departments Control of uncertainties Uncertainties can be prepared for, but they cannot be subjected to human control through any budget process 3 / 20 Ineffective budget control systems are characterized by : All of the answers are correct Lack of timely feedback in the use of the budget Use of budgets for harassment of individuals rather than motivation Use of budgets as a planning but not a control tool 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 4 / 20 All of the following are criticisms of the traditional budgeting process except that it : Overemphasizes a fixed time horizon, such as one year Incorporates non-financial measures as well as financial measures into its output Makes across-the-board cuts when early budget iterations show that planned expenses are too high Is not used until the end of the budget period to evaluate performance Traditional budgeting focuses strictly on financial measures 5 / 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 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 6 / 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 7 / 20 The best explanation of how the efficient allocation of organizational resources is planned during the budgeting process is that a budget : Identifies the resources and commitments required to fulfill the organization’s goals for the period identified Is a process for evaluating projects needed and related external financing required to meet resource requirements Demonstrates how important it is to have additional spare resources on hand in case the actual results vary from the budget Demonstrates how a company can pull resources from bottlenecks to apply them to other areas to attain goals A budget lays out in specific terms an organization’s expectations about the consumption of resources and the resulting outcomes. Therefore, it identifies the resources and commitments required to fulfill the organization’s goals for the period identified 8 / 20 Which one of the following is not a characteristic of a successful budget process ? Gaining top management’s support 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 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 9 / 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 believes that past conditions are an indicator of future conditions Management is able to measure actual performance against predicted performance Company performance can be measured against the performance of others in the same industry 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 10 / 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 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 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 11 / 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 12 / 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 objectives while constructing the corporation’s overall plan of operation Have the divisional and senior management jointly develop goals and the divisional manager develop the implementation plan 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 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 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 are more detailed Top management reports show control over fewer costs 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 Budgeting problems where departmental managers are repeatedly achieving easy goals or failing to achieve demanding goals can be best minimized by establishing: Preventive controls Better communication whereby managers discuss budget matters daily with their superiors 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 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 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 : 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 management has left too much room for strategic unknowns 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 18 / 20 An improperly executed budget process might have the effect(s) of : Meeting short-term but not long-term goals Inflated budget requests Disregard of overall company goals All of the answers are correct 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 19 / 20 Each organization plans and budgets its operations for slightly different reasons. Which one of the following is not a significant reason for planning ? Ensuring profitable operations Providing a basis for controlling operations Checking progress toward the objectives of the organization 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 20 / 20 Which one of the following best describes the role of top management in the budgeting process ? Top management 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 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 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
