Chapter 9

Wilson Corporation is budgeting its equipment needs on an on-going basis, with a new quarter being added to the budget as the current quarter is completed. This type of budget is most commonly known as a:

rolling budget

A manufacturing firm would begin preparation of its master budget by constructing a:

sales budget

The budgeted income statement, budgeted balance sheet, and budgeted statement of cash flows comprise:

the final portion of the master budget

A company's sales forecast would likely consider all of the following factors except:

top management's attitude toward decentralized operating structures

The budgeting technique that focuses on different phases of a product such as planning and concept design, testing, manufacturing, and distribution and customer service is known as:

life-cycle budgeting

The comprehensive set of budgets that serves as a company's overall financial plan is commonly known as:

master budget

When an organization involves its many employees in the budgeting process in a meaningful way, the organization is said to be using:

participative budgeting

Which of the following outcomes is (are) sometimes associated with participative budgeting?

budgeting preparation time can be somewhat lengthy and budget padding may arise

A company that uses activity-based budgeting performs the following: 1—Plans activities for the budget period. 2—Forecasts the demand for products and services as well as the customers to be served. 3—Budgets the resources necessary to carry out activities. Which of the following denotes the proper order of the preceding activities?

2-1-3

Which of the following would depict the logical order for preparing (1) a production budget, (2) a cash budget, (3) a sales budget, and (4) a direct-labor budget?

3-1-4-2

May Production Company, which uses activity-based budgeting, is in the process of preparing a manufacturing overhead budget. Which of the following would likely appear on that budget?

Batch-level costs: Production setup.

Company A uses a heavily participative budgeting approach whereas at Company B, top management develops all budgets and imposes them on lower-level personnel. Which of the following statements is false?

Budget padding will likely be a greater problem at Company B

Which of the following budgets is prepared at the end of the budget-construction cycle?

Budgeted financial statements

E-budgeting: A. often uses specialized software to streamline the budgeting process. B. is an Internet-based budgeting procedure. C. requires significant network security provisions. D. is becoming more commonplace as businesses expand their operations throughout the world. E. possesses all of the above attributes.

E

Which of the following would have no effect, either direct or indirect, on an organization's cash budget? A. Sales revenues. B. Outlays for professional labor. C. Advertising expenditures. D. Raw material purchases. E. None of the above, as all of these items would have some influence.

E. None of the above, as all of these items would have some influence.

Activity-based budgeting:

E. is best described by choices "A" and "D" above A. begins with a forecast of products and services to be produced, and customers served D. reverses the flow of analysis that is associated with activity-based costing

Which of the following statements about financial planning models (FPMs) is (are) false?

FPMs have become less popular in recent years because of computers and spreadsheets

The master budget contains the following components, among others: (1) direct-material budget, (2) budgeted balance sheet, (3) production budget, and (4) cash budget. Which of these components would be prepared first and which would be prepared last?

First - (3) Last - (2)

Consider the following statements about budgetary slack: I. Managers build slack into a budget so that they stand a greater chance of receiving favorable performance evaluations. II. Budgetary slack is used by managers to guard against uncertainty and unforeseen events. III. Budgetary slack is used by managers to guard against dollar cuts by top management in the resource allocation process. Which of the above statements is (are) true?

I, II, and III

Consider the following statements about companies that are involved with international operations: I. Budgeting for these firms is often very involved because of fluctuating values in foreign currencies. II. Multinational firms may encounter hyperinflationary economies. III. Such organizations often face changing laws and political climates that affect business activity. Which of the above statements is (are) true?

I, II, and III

Consider the following statements about budgeting and a product's life cycle: I. Budgets should focus on costs that are incurred only after a product has been introduced to the marketplace. II. Life-cycle costs would include those related to product planning, preliminary design, detailed design and testing, production, and distribution and customer service. III. When a life cycle is short, companies must make certain that before a commitment is made to a product, the product's life-cycle costs are covered. Which of the above statements is (are) true?

II and III

Consider the following statements about zero-base budgeting: I. The budget for virtually every activity in an organization is initially set to the level that existed during the previous year. II. The budget forces management to rethink each phase of an organization's operations before resources are allocated. III. To receive funding for the upcoming period, individual activities must be justified in terms of continued usefulness to the organization. Which of the above statements is (are) true?

II and III

Consider the following statements about budget administration: I. Regardless of size, the budgeting process is a very formal process in all organizations. II. The budget manual is prepared to communicate budget procedures and deadlines to employees throughout an organization. III. Effective internal control procedures require that the budget director be an individual other than the controller. Which of the above statements is (are) true?

II only

The following events took place when Managers A, B, and C were preparing budgets for the upcoming period: I. Manager A increased property tax expenditures by 2% when she was informed of a recent rate hike by local authorities. II. Manager B reduced sales revenues by 4% when informed of recent aggressive actions by a new competitor. III. Manager C, who supervises employees with widely varying skill levels, used the highest wage rate in the department when preparing the labor budget. Assuming that the percentage amounts given are reasonable, which of the preceding cases is (are) an example of building slack in budgets?

III only

Which of the following organizations is not likely to use budgets?

None of the above, as all are likely to use budgets

Santa Fe Corporation has a highly automated production facility. Which of the following correctly shows the two factors that would likely have the most direct influence on the company's manufacturing overhead budget?

Production volume and management judgment.

FastTec, which sells electronics in retail outlets and on the Internet, uses activity-based budgeting in the preparation of its selling, general, and administrative expense budget. Which of the following costs would the company likely classify as a unit-level expense on its budget?

Retail outlet sales commissions

If a manager builds slack into a budget, how would that manager handle estimates of revenues and expenses?

Revenues - Underestimate Expenses - Overestimate

Which of the following statements concerning the budget director is false?

The budget director usually has the authority to give final approval to the master budget

Which of the following statements best describes the relationship between the sales-forecasting process and the master-budgeting process?

The sales forecast is typically completed before the master budget and has significant impact on the master budget

Which of the following choices correctly denotes managerial functions that are commonly associated with budgeting? Planning, Performance Evaluation, Coordination of Activities

Yes, Yes, Yes

Which of the following would be considered when preparing a company's sales forecast? Anticipated Advertising Campaigns, General Economic Trends, Expected Competitive Actions

Yes, Yes, Yes

A formal budget program will almost always result in:

a detailed plan against which actual results can be compared

A budget serves as a benchmark against which:

actual results can be compared

An organization's budgets will often be prepared to cover:

all of the above (One month, one quarter, one year, periods longer than one year)

The difference between the revenue or cost projection that a person provides, and a realistic estimate of the revenue or cost, is called:

budgetary slack

End-of-period figures for accounts receivable and payables to suppliers would be found on the

budgeted balance sheet

A company's plan for the acquisition of long-lived assets, such as buildings and equipment, is commonly called a:

capital budget

Which of the following budgets is based on many other master-budget components?

cash budget

Generally speaking, budgets are not used to:

identify a company's most profitable products.