Chapter 8- Budgeting for Planning and Control

3. The budget director is responsible for directing and coordinating the budgeting process. a. True b. False

: True

11. Once all the operating budgets have been completed, the net income can be estimated. a. True b. False

False

1. A budget is a financial plan for the future used for planning, controlling, and decision making. a. True b. False

True

10. In a service firm, the sales budget is also the production budget because units of service provided equal the units of service sold. a. True b. False

True

13. The capital expenditures budget is a long-term financial plan. a. True b. False

True

15. The cash excess or deficiency section of the cash budget compares expected available cash to the expected cash needed. a. True b. False

True

16. A static budget is one developed for a single level of activity. a. True b. False

True

18. A flexible budget is sometimes referred to as a variable budget. a. True b. False

True

19. A flexible budget compares actual costs to budgeted costs. a. True b. False

True

20. Activity-based budgeting recognizes interdependencies among departments. a. True b. False

True

21. The activity-based budget begins with output and then determines the resources necessary to create that output. a. True b. False

True

22. An ideal budgeting system is one that achieves goals and encourages managers to achieve goals ethically. a. True b. False

True

24. Incentives are the means used to encourage managers to achieve goals. a. True b. False

True

5. A continuous budget is a moving 12-month budget. a. True b. False

True

6. The sales forecast is the basis for the sales budget. a. True b. False

True

7. The sales budget shows the expected sales quantity and price of each product or service. a. True b. False

True

9. The production budget describes how many units must be produced in order to meet sales and inventory needs. a. True b. False

True

166. Participative budgeting has which of the following potential problems? a. Slack is built into a budget. b. Individual behavior that is in basic conflict with the goals of the organization is encouraged. c. Using budgets as a part of performance evaluations could lead to unethical behavior. d. Managers take action that will improve performance in the short run but has long-term consequences.

a. Slack is built into a budget.

163. Myopic behavior occurs when a. actions improve budgetary performance in the short run but are harmful in the long run. b. there is uncertainty. c. there is focus on immediate costs. d. actions improve budgetary performance in the distant time horizon.

a. actions improve budgetary performance in the short run but are harmful in the long run.

50. Asian Comp. manuf lamps. The est # of lamp sales for the last 3 months for the current yr are as follows: Oct 10,000 Nov 14,000 Decem 13,000 FG inv. at the end of Sep was 3,000 units. End FG inv is budgeted = 25% of the next month's sales. Asian Lamp expects to sell the lamps for $25 each. Jan sales is projected at 16,000 lamps. In going from the sales budg to production budget, adjustm to sales budg need to be made for a. FG inv b. Cash receipt c. factory OH cost d. Selling exp.

a. finished goods inventories.

157. Which of the following refers to the alignment of managerial and organizational goals? a. goal congruence b. goal slack c. controllable goal d. behavioral goal

a. goal congruence

37. The budgets that are concerned with the income-generating activities of a firm are called the a. operating budgets. b. master budgets. c. financial budgets. d. continuous budgets.

a. operating budgets.

79. Which of the following is NOT a component of the cash budget? a. sales forecast b. cash disbursements c. financing d. cash excess or deficiency

a. sales forecast

182. The type of budgeting that recognizes interdependencies among departments is called __________ budgeting.

activity-based

175. Operating expense budgets include the marketing expense budget and the __________ expense budget.

administrative

168. Realistic budgets reflect a. actual levels of activity, full capacity usage, efficiencies, and general economic trends. b. actual levels of activity, seasonal variations, efficiencies, and general economic trends. c. ideal levels of activity, full capacity usage, efficiencies, and general economic trends. d. ideal levels of activity, full capacity usage, and efficiencies.

b. actual levels of activity, seasonal variations, efficiencies, and general economic trends.

35. Which of the following ensures that the budget is linked to the strategic plan of the organization? a. budget council b. budget committee c. budget operator d. budget auditor

b. budget committee

40. Which of the following is responsible for directing and coordinating the overall budgeting process? a. budget committee b. budget director c. president d. treasurer

b. budget director

80. Which of the following budgets involves the preparation of cash budgets? a. marketing budget b. financial budget c. overhead budget d. sales budget

b. financial budget

118. Which of the following budgets provides budgeted costs for actual level of activity? a. cash budget b. flexible budget c. efficiency budget d. incremental budget

b. flexible budget

36. The comprehensive financial plan made up of various individual departmental and activity budgets is the a. operating budget. b. master budget. c. financial budget. d. continuous budget.

b. master budget.

131. Activity-based budgets a. use the knowledge of cost behavior to split the functional-based line items into fixed and variable components. b. start with output and then determine the resources necessary to create that output. c. rely on the use of functional-based line items. d. work in environments where the products are homogenous and the production process is simple.

b. start with output and then determine the resources necessary to create that output.

130. Volume variances examine differences between a. the static budget and actual costs. b. the flexible budget and the static budget. c. the static budget and the rolling budget. d. None of these choices

b. the flexible budget and the static budget.

172. The body responsible for reviewing the budget, providing policy guidelines and budgetary goals, resolving differences that may arise, and approving the final budget is the __________ committee.

budget

174. The __________ income statement is the culmination of the operating budget.

budgeted

170. The quantitative expressions of plans stated in either physical or financial terms are called __________.

budgets

183. Activity-based budgets focus on __________ processes.

business

28. Which of the following statements regarding a continuous budget is true? a. The budget is prepared for a one-year period that corresponds to the company's fiscal year. b. A continuous budget is a monthly budget. c. As a month/period expires in the budget, an additional month/period in the future is added so the company always has a 12-month budget on hand. d. None of these choices

c. As a month/period expires in the budget, an additional month/period in the future is added so the company always has a 12-month budget on hand.

160. Which of the following is NOT a key feature of an ideal budgetary system? a. participation b. incentives c. accountability for noncontrollable costs d. feedback on performance

c. accountability for noncontrollable costs

135. Activity-based budgets compare costs for items based on activities such as a. direct materials. b. direct labor. c. setups. d. power.

c. setups.

33. Which of the following factors is NOT an advantage of preparing operating budgets? a. It provides resource information that can be used to improve decision making. b. It improves communication and coordination. c. It aids in the use of resources and employees by setting a benchmark that can be used for the subsequent evaluation of performance. d. It guarantees profitability.

d. It guarantees profitability.

34. Which of the following statements regarding a budget committee is true? a. It takes care of the marketing activities of a firm. b. It ensures that shareholders approve the budget. c. It works under the direction of the budget director. d. It is responsible for reviewing the budget.

d. It is responsible for reviewing the budget.

31. Which of the following is NOT an advantage of budgeting? a. It forces managers to plan. b. It provides resource information that can be used to improve decision making. c. It aids in the use of resources and employees by setting a benchmark that can be used for the subsequent evaluation of performance. d. It provides organizational independence.

d. It provides organizational independence.

27. Which of the following is NOT a component of the master budget? a. sales budget b. capital budget c. cost of goods sold budget d. budget to actual variance analysis

d. budget to actual variance analysis

181. Volume variances examine differences between the __________ budget and the __________ budget.

flexible; static

173. The comprehensive financial plans made up of departmental and activity budgets are the __________.

master budgets

178. The accounts receivable aging schedule aids in determining the timing of cash __________.

receipts

176. The __________ budget shows the projected sales and prices.

sales

184. When managers intentionally under- or overestimate revenues and costs, it is called budgetary __________.

slack

180. A __________ budget is developed around one particular level of activity.

static

12. The budgeted income statement depends partly on information in the budgets in the master budget. a. True b. False

False

14. The cash budget is the least priority budget in the master budget. a. True b. False

False

17. Static budgets show costs for varying levels of activities. a. True b. False

False

2. Budgeting means to set standards, receive feedback, and execute corrective action. a. True b. False

False

23. Feedback is NOT important to managers as a measuring tool of their performance. a. True b. False

False

25. Participative budgeting detracts from a manager's sense of responsibility and creativity. a. True b. False

False

4. The master budget is composed of the operations budget and the future budget. a. True b. False

False

8. The first section of the master budget is the financial budget. a. True b. False

False

32. The process of setting standards, receiving feedback on actual performance, and taking corrective action whenever actual performance deviates significantly from planned performance is called a. control. b. monitoring. c. eye balling. d. comparing.

a. control.

159. When the reaction to a budget is negative, resulting in managerial behavior that is negative for the organization, the resulting behavior is known as a. dysfunctional behavior. b. psychopathic behavior. c. congruent behavior. d. sociopathic behavior.

a. dysfunctional behavior.

162. Which of the following is NOT an advantage of participative budgeting? a. encourages incrementalism b. encourages communication c. encourages responsibility d. encourages creativity

a. encourages incrementalism

78. A capital expenditures budget is included in a(n) a. financial budget. b. flexible budget. c. production budget. d. operating budget.

a. financial budget.

42. Which of the following is NOT a responsibility of the budget committee? a. prepare actual financial statements b. provide policy guidelines c. provide budgeting goals d. resolve differences that may arise as the budget is prepared

a. prepare actual financial statements

100. Which of the following budgets is developed for a single level of activity? a. static budget b. incremental budget c. zero-base budget d. dynamic budget

a. static budget

126. A master budget is an example of a(n) a. static budget. b. flexible budget. c. zero-based budget. d. incremental budget.

a. static budget.

29. Control can be defined as a. the process of setting standards, receiving feedback on actual performance, and taking corrective action whenever actual performance deviates significantly from plan. b. a quantification of plans, stated in either physical or financial terms, or both. c. identification of corporate objectives. d. a comprehensive financial plan.

a. the process of setting standards, receiving feedback on actual performance, and taking corrective action whenever actual performance deviates significantly from plan.

165. Which of the following is NOT a potential disadvantage of participative budgeting? a. pseudoparticipation b. performance feedback c. unrealistic standards d. budgetary slack

b. performance feedback

30. Which of the following is the basis for all operating budgets and most financial budgets? a. delivery forecast b. sales forecast c. technical forecast d. labor forecast

b. sales forecast

161. Which of the following is NOT a key feature of an ideal budgetary system? a. controllable costs b. single measure for performance c. incentives d. frequent feedback

b. single measure for performance

133. With an activity-based flexible budget, a budget variance is calculated based on a flexible budget based on a. cost for actual units produced. b. various activity drivers for actual units produced. c. flexible manufacturing. d. committed resources for actual units produced.

b. various activity drivers for actual units produced.

179. The budgeted __________ shows projected assets, liabilities, and shareholders' equity at the end at the budget period.

balance sheet

132. Which of the following budgets is useful to firms with high product diversity? a. operations-based budget b. production-based budget c. activity-based budget d. static-based budget

c. activity-based budget

26. Which of the following refers to quantitative plans for the future, stated in physical terms, financial terms, or both? a. statement of owner's equity b. income statement c. budget d. balance sheet

c. budget

167. The condition that exists when managers deliberately underestimate revenues or overestimate costs to provide flexibility is called a. realistic standards. b. monetary incentives. c. budgetary slack. d. management by exception.

c. budgetary slack.

101. When budgets are used for control, a. budgeted amounts from different years are compared. b. actual amounts from different years are compared. c. budgeted amounts are compared to actual amounts. d. None of these choices

c. budgeted amounts are compared to actual amounts.

128. Flexible budgets do NOT provide a. expected costs for a range of activity. b. budgeted costs for the actual level of activity. c. budgeted costs for a predetermined level of activity. d. expected costs for the actual performance level.

c. budgeted costs for a predetermined level of activity.

38. The budgets that are concerned with the inflows and outflows of cash and with financial position are called the a. operating budgets. b. master budgets. c. financial budgets. d. continuous budgets.

c. financial budgets.

45. The budgeted income statement is a component of the a. cash budget. b. overhead budget. c. operating budget. d. investing budget.

c. operating budget.

76. In a merchandising organization, the merchandise purchases budget replaces what budget from a manufacturing firm? a. administrative expense budget b. pro-forma income statement c. production budget d. cost of goods sold budget

c. production budget

158. The practice in which top management assumes total control of the budgeting process, seeking only superficial participation from lower-level managers, is referred to as a. budgetary slack. b. participative budgeting. c. pseudoparticipation. d. myopic behavior.

c. pseudoparticipation.

41. The type of budget that is a moving 12-month budget is called a. the zero-based budget. b. the flexible budget. c. the continuous budget. d. both the zero-based budget and the flexible budget.

c. the continuous budget.

177. Cash disbursements and cash excess or deficiency are components of the __________ budget.

cash

171. The process of setting standards, receiving feedback, and taking corrective action whenever performance deviates from standards is called __________.

control

77. What is the formula used to compute the units to be produced? a. Units produced = Units sold b. Units produced = Units sold + Units in beginning inventory + Units in ending inventory c. Units produced = Units sold + Units in beginning inventory − Units in ending inventory d. Units Produced = Units sold − Units in beginning inventory + Units in ending inventory

d. Units Produced = Units sold − Units in beginning inventory + Units in ending inventory

129. If a static budget forecasted 100,000 units to be sold in the fiscal year and actual units sold amounted to 120,000, what assumption could be made under a flexible budget process? a. Since the actual volume exceeds the budgeted volume, there is an unfavorable volume variance for output. b. Fixed costs would increase in the flexible budget due to the volume change. c. The effectiveness of the manager is in question. d. Variable costs will be higher than projected in the static bu

d. Variable costs will be higher than projected in the static budget due to the volume variance.

169. Controllable costs are those that a manager a. has no authority over. b. cannot avoid. c. does not participate in authorizing. d. can influence through decision making.

d. can influence through decision making.

39. Operating budgets are a. a forecast of expected operating expenses. b. a forecast of operating expenses and related revenues. c. a forecast of units of production. d. concerned with the income-generating activities of a firm.

d. concerned with the income-generating activities of a firm.

164. An example of a negative incentive is a. promotion. b. nonfinancial incentive. c. feedback reports. d. termination of employment.

d. termination of employment.