Chappy 6

Operating decisions primarily deal with

The best use of scarce resources

Activity-based budgeting would separately estimate

The cost of a setup activity

The revenues budget identifies

The expected level of sales for the company

The use of activity-based budgeting is growing because of

The increased use of activity-based costing

Best products, an Atlanta based company, is in the midst of its budgeting process. It has already prepared its direct materials usage budget and is now in the process of preparing its direct material purchase budget. In addition to the details gathered to prepare the direct materials usage budget, Best also must know

The level of direct material inventory to be maintained

A master budget

Is the initial plan of what the company intends to accomplish in the period and evolves from both the operating and financing decisions

Which of the following is a limitation of using past performance as a basis for judging actual results

It does consider inefficiencies of previous periods

Which of the following is a benefit of budgeting

It helps managers gather information for improving future performance

Which of the following best describes a rolling budget

It is a budget that is always available for a specified future time period

Which of the following is true of responsibility accounting

It is a system that measures the plans, budgets, actions, and actual results of a responsibility center

Which of the following departments is most likely to be a profit center

The consulting department of a law firm

Which of the following is a factor while choosing the period of a budget

The motive for creating the budget

Demanding but achievable targets tend to

Improve performance of employees when they are closer to the target

Kaizen refers to incorporating cost reductions

In each successive budgeting period

Which of the following statements is true about activity-based budgeting

Activity-based budgeting provides more detailed information than cost-based budgeting

A company's actual performance should be compared against budgeted amounts for the same accounting period so that

Adjustments for future conditions can be included

Financial planning models

Are mathematical representations of the relationships affecting the budget process

Managers who feel that top management does not believe in the budget are most likely to

Be inactive participants in the budgeting process

Which of the following is a financial budget?

Budgeted balance sheet

The operating budget process generally concludes with the preparation of the

Budgeted income statement

Total finished units to be produced is based on the

Budgeted sales units

Which of the following is a benefit of keeping inventory levels low

Budgeted unit sales + targeted ending finished goods inventory - beginning finished goods inventory

Which of the following is true of a budget?

Budgets help managers to revise their plans and strategies

Sensitivity analysis helps managers evaluate risks

By showing the effects of changes to the original data or an underlying assumption

Participation of employees in the budgeting process helps

Create greater commitment towards the budget

The _____ is required to prepare the cash budget of an organization

Capital expenditures budget

The _____ is a component of financial budgets

Cash budget

In which order are the following developed first to last: A: Production budget B: Direct materials costs budget C: Budgeted income statment D: Revenues Budget

DABC

Activity-based budgeting makes it easier to

Determine how to reduce costs

____ include a budgeted statement of cash flows and a budgeted balance sheet

Financial budgets

The number of units in the sales budget and the production budget may differ because of a change in

Finished goods inventory levels

Financing decisions primarily deal with

How to obtain funds to acquire resources

Tom Magic Company manufactures various kinds of toys for different age groups. The company's flagship product is Rx. The company currently requires 8.50 labor hours to manufacture per unit of Rx. The company believes that because of numerous small improvements in the process, it will require 0.10 labor-hours less and hence will only 8.40 labor-hours in the next quarter. It will require 8.35 and 8.25 labor-hours in third and fourth quarter. The company has adopted

Kaizen budgeting

Which of the following component of operating budgets

Sales budget

The cash flow statement includes

Sales revenues of the organization

A budget is an end product of negotiations among senior and subordinate managers because

Senior managers want stiffer targets and subordinates want relatively easy targets

Financial planning software packages assist management with

Sensitivity analysis in their planning and budgeting activities

A master budget forces managers to examine the business as they plan, so they can

Set expectations against which actual results can be compared

_____ is the usual starting point for budgeting

The revenues budget

The budgeting process is most strongly influenced by

The sales forecast

Which of the following is true of master budgets?

They aid in coordinating what needs to be done to implement a plan

When performing a sensitivity analysis, if the selling price per unit is increased, then the

Total costs for sales commissions and other nonmanufacturing variable costs will increase

Budgets should

be flexible

To reduce budgetary slack management may

Use external benchmark performance measures

Which of the following statements is true of budgets

Master budgets express managements operating and financial plans

ERP systems store vast quantities of information about the materials, machines, and equipment, labor, power, maintenance, and setups needed to manufacture different products. This helps simplify the budgeting process as ERP systems

Can quickly calculate the manufacturing and nonmanufacturing costs based on a given sales quantity

Kaizen budgeting involves

Continual small cost reductions

The Japanese use the term kaizen when referring to

Continuous improvement

A maintenance manager of a theatre is most likely to be responsible for a(n)

Cost center

High inventory levels increase the

Cost of carrying inventory, the cost of quality, and shrinkage costs

Kaizen budgeting is driven by

Employees

Which of the following information is required by a company's manager while preparing a manufacturing overhead costs budget

Estimated expense for maintenance of factory building

Which of the following is required to arrive at the budgeted units to be produced in a year

Estimated finished goods inventory required at the end of the year

Which of the following is a reason why budgets in multinational companies are not used to evaluate the firm's performance relative to its budgets?

Evaluations based on budgets can be meaningless due to factors such as exchange rate risk and other volatitlity

Silas has been recently promoted to head his department. He is responsible for maximizing the profits of the department and to ensure that the earnings are ploughed back into the business. Silas is most likely to head a(n)

Investment center

Which of the following is referred to as the bottom-up aspect of the budgeting process

Lower-level managers providing inputs to the budgeting process based on their specialized knowledge

A company using responsibility accounting system decides to exclude all uncontrollable costs from a manager's performance report. Jenson is the machine supervisor. Which of the following costs will impact Jenson's performance report?

Machine maintenance cost

Which of the following departments is most likely to be a cost center

Maintenance department of a luxury resort

Costs such as supervision, depreciation, maintenance, supplies, and power are included in the

Manufacturing overhead budget

Challenging budgets tend to

Motivate improved performance as employees work more intensely to avoid failure

Which of the following is most likely to be a cost driver for the variable portion of marketing costs

Number of units sold

Which of the following is generally expressed through a short-run budget

Operational plans

Financial analysts use the projected cash flow statement to

Plan for short-term cash investments

The cash budget is a schedule of expected cash receipts and disbursements that

Predicts the effect on the cash position at the given levels of operations

A stretch budget is a budget that

Represents a challenging, but achievable level of performance

Which of the following statements is true about responsibility accounting statements

Responsibility accounting segregates uncontrollable costs from controllable costs

Which of the following is true of budgets when they are administered throughtfully

They promote coordination within the subunits of a company

Which of the following is a reason why top managers want lower-level managers to participate in the budgeting process

To benefit from their experience with the day-to-day aspects of running the business

Which of the following is the fundamental purpose of responsibility accounting

To gather information that will enable future improvement

Rolling budgets help management to

Focus on the upcoming budget period

Responsibility accounting

Focuses on who should be asked about the information

When direct material and direct labor is the limiting factor, revenue budgets are usually based on

Maximum units that can be manufactured

The order to follow when preparing the operating budget is

Revenues budget, production budget, and direct manufacturing labor costs budget

Which of the following statements is true in the case of budgeting for multinational companies?

While budgeting for multinational companies, managers must be aware that budgets will not be used for evaluating performance

A primary consideration in assigning a cost to a responsibility center is

Who can best control the change in that cost

A manager of a revenue center is responsible

For only the revenues of his center

Budgets are used to

Formulate company strategies

A limitation of using past performance as a basis for judging actual results is that

Future conditions can be different from the past

A controllable cost is any cost that can be ___ by a responsibility center manager for a period of time

Influenced

The sales forecast should be primarily based on

Input from sales managers and sales representatives

A regional manager of a restaurant chain in charge of finding additional locations for expansion is most likely responsible for a(n)

Investment center

The regional sales office manager of a national firm is most likely responsible a(n)

Revenue center