Chapter 10 Subunit 1

Which one of these activities should the corporation implement in order to best remedy the vice president's concerns, help eliminate the problems experienced by the corporation, and motivate personnel?

2, 4, and 5.

A ceramics manufacturer is facing several challenges in its operations due to economic and industry conditions. The company is currently preparing its annual plan and budget. Which one of the following is subject to the least control by management in the current fiscal year?

A competitor has achieved an unexpected technological breakthrough that has given them a significant quality advantage, and has caused the company to lose market share.

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.

An improperly executed budget process might have the effect(s) of

All of the answers are correct.

Ineffective budget control systems are characterized by

All of the answers are correct.

All of the following are advantages of the budgeting process except that the budget

Allocates resources on an as-needed basis.

The following sequence of steps is employed by a company to develop its annual profit plan: Planning guidelines are disseminated downward by top management after receiving input from all levels of management. A sales budget is prepared by individual sales units reflecting the sales targets of the various segments. This provides the basis for departmental production budgets and other related components by the various operating units. Communication is primarily lateral with some upward communication possible. A profit plan is submitted to top management for coordination and review. Top management's recommendations and revisions are acted upon by middle management. A revised profit plan is resubmitted for further review to top management. Top management grants final approval and distributes the formal plan downward to the various operating units. This outline of steps best describes which one of the following approaches to budget development?

Bottom-up approach.

The budgeting technique that is most likely to motivate managers is

Bottom-up budgeting.

A company uses participative budgeting. In order to more easily meet budgetary goals, the controller underestimates the amount of revenue and overestimates fixed selling and administrative expenses. This is an example of

Budgetary slack.

Which of the following statements regarding budgets is false ?

Budgets are used only as a planning function.

A company pays its production manager an annual bonus based on how well the manager performs against the production department's annual budgets. The production manager has been overestimating budgeted costs the past few years in order to obtain a higher bonus payment. The production manager's actions are best described as

Building budgetary slack

The primary role of the budget director and the budgeting department is to

Compile the budget and manage the budget process.

Which one of the following is not an advantage of a participatory budgeting process?

Control of uncertainties.

A budget manual, which enhances the operation of a budget system, is most likely to include

Distribution instructions for budget schedules.

An advantage of participatory budgeting is that it

Encourages acceptance of the budget by employees.

When properly developed and administered, budgets provide the following advantages to the organization except to

Ensure that the organization makes a profit.

Which one of the following is usually not cited as being an advantage of a formal budgetary process?

Ensures improved cost control within the organization and prevents inefficiencies.

The major objectives of budgeting are to

Foster the planning of operations, provide a framework for performance evaluation, and promote communication and coordination among the organization's segments.

Suboptimal decision making is not likely to occur when

Guidance is given to subunit managers about how standards and goals affect them.

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 the divisional and senior management jointly develop goals and the divisional manager develop the implementation plan.

The budgeting process should be one that motivates managers and employees to work toward organizational goals. Which one of the following is least likely to motivate managers?

Having top management set budget levels.

Which one of the following best describes a reason why a company's budgeting should be based on the company's strategic plans?

Identifies resources needed to reach strategic goals.

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.

The major disadvantage of a budget produced by means of a top-down process is

Impairment of goal congruence.

Which one of the following is not a characteristic of a successful budget process?

Implementing the budget as the only benchmark for performance evaluation.

All of the following are criticisms of the traditional budgeting process except that it

Incorporates non-financial measures as well as financial measures into its output.

All of the following are advantages of the use of budgets in a management control system except that budgets

Limit unauthorized expenditures.

A company's annual budget provides information that can impact the company's

Long-term planning, operational budgets, and strategy.

Which one of the following is an advantage of using the budgeting process to judge performance?

Management is able to measure actual performance against predicted performance.

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.

Which one of the following best describes the role of top management in the budgeting process? Top management

Needs to be involved, including using the budget process to communicate goals.

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.

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.

All of the following are disadvantages of top-down budgeting as opposed to participatory budgeting, except that it

Reduces the time required for budgeting.

One of the primary advantages of budgeting is that it

Requires departmental managers to make plans in conjunction with the plans of other interdependent departments.

A planning calendar in budgeting is the

Schedule of activities for the development and adoption of the budget.

Which one of the following statements concerning approaches for the budget development process is correct ?

Since department managers have the most detailed knowledge about organizational operations, they should use this information as the building blocks of the operating budget.

In the budgeting and planning process for a firm, which one of the following should be completed first?

Strategic plan.

When developing a budget, an external factor to consider in the planning process is

The merger of two competitors.

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.

A manufacturer's factory manager had lost her patience. Six months ago, she appointed a team from the production and service departments to finalize the allocation of costs and setting of standard costs. They were still feuding, so she hired a large consulting firm to resolve the matter. All of the following are potential consequences of having the standards set by the consulting firm except that

The standards may appear to lack management support.

Which one of the following is most important to a successful budgeting effort?

Top management support

Which one of the following items would most likely cause the planning and budgeting system to fail? The lack of

Top management support.

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.