[StratCost] Chapter 4: Budgeting for Planning and Control

The revenues budget is prepared after all other operating budgets are prepared as it is at that point that the amount of projected expenses are known and so a target revenue can be calculated to cover those expenses and provide a target profit.

F

The sales department in any organization is usually a profit center.

F

Which of the following is a reason why top managers want lower-level managers to participate in the budgeting process? A) To benefit from their experience with the day-to-day aspects of running the business. B) To reduce the time and cost expended in the budgeting process. C) To ensure that they do not introduce any budgetary slack. D) To ensure that the budgets are administered rigidly given the changing market conditions.

A

Which of the following is not true of a properly executed budgetary cycle? A) deviations from plan are only investigated at the conclusion of the fiscal year as actual data can be finally compiled B) past performance and market feedback are considered in setting budget amounts C) specific financial and nonfinancial expectations are set D) during the fiscal year, managers investigate deviations from plans

A

Which of the following is true of responsibility accounting? A) It is a system that measures the plans, budgets, actions, and actual results of a responsibility center. B) It is an arrangement of lines of responsibility and authority within a responsibility center. C) It explicitly incorporates continuous improvement and changes due to learning curve. D) It examines how a result will change if the original plan is not achieved.

A

The use of activity-based budgeting is growing because of ________. A) the increased use of activity-based costing B) the increased use of kaizen costing C) increases in work-in-process inventory D) increases in direct materials inventory

A

Which of the following is a component of operating budgets? A) production budget B) budgeted statement of cash flows C) capital expenditures budget D) budgeted balance sheet

A

Which of the following is a financial budget? A) budgeted balance sheet B) cash receivables budget C) production budget D) cost of goods sold budget

A

Activity-based budgeting, with its focus on cost drivers and the cost of activities, provides better decision-making information than budgeting based solely on output-based cost drivers (units produced, units sold, or revenues).

T

Activity-based costing analysis takes a long-run perspective and treats all activity costs as variable costs.

T

Budgeting is a mechanical tool because the budgeting techniques are free of emotions.

T

Companies implementing kaizen budgeting believe that employees who actually do the job have the best knowledge of how the job can be done better.

T

Cost of goods sold budget is calculated as follows: beginning finished-goods inventory +cost of goods manufactured - ending finished-goods inventory

T

Creating a little anxiety among managers and staff with challenging budgets helps employee work harder to achieve goals.

T

Data from the revenues budget is utilized in the production budget.

T

Decentralized operations organized by brand or product line might result in some inefficiencies as support functions may be duplicated.

T

Kaizen budgeting can be applied to activities such as setups with the goal of reducing setup time and setup costs.

T

Omitting basic maintenance expenditures out of a budget could be considered unethical if the risks of a breakdown and loss are substantial.

T

Rolling budgets help in reducing budgetary slack.

T

The manufacturing labor budget depends on wage rates, production methods, and hiring plans.

T

Variances between actual and budgeted amounts inform management about performance relative to the budget.

T

Budgeted financial statements are called pro forma statements.

T

Variances that are calculated frequently and in a timely manner can provide early warnings to management so corrective action can be taken.

T

When administered wisely, budgets promote communication and coordination among the various subunits of the organization.

T

When the operating budget is used as a control device, managers are less likely to be motivated to budget higher sales than actually anticipated.

T

A master budget ________. A) is the initial plan of what the company intends to accomplish in the period and evolves from both the operating and financing decisions B) is only prepared for manufacturers as they are the only type of company with material purchases and work-in-process accounts. C) improves companies' market capitalization and evolves from both the investing and financing decisions D) is another name given to the financial budget

A

A company's actual performance should be compared against budgeted amounts for the same accounting period so that ________. A) adjustments for future conditions can be included B) to avoid any feedback from the budgets due to past miscues C) inefficiencies of the past year can be included D) a rolling budget can be implemented

A

A limitation of using past performance as a basis for judging actual results is that ________. A) future conditions can be different from the past B) any undervaluation of profits in the past period is likely to continue C) any subsequent change in accounting treatment will distort performance evaluation D) they tend to distort results when current and past conditions are similar

A

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 ________. A) the target direct materials ending inventory B) the ratio of direct materials to cost of goods sold C) the beginning direct materials inventory level D) the quantity of direct materials to be purchased

A

Budgets should ________. A) not be so rigid that if conditions change, adjustments in spending can be made B) be administered rigidly C) only be developed for short periods of time such as quarters D) include only variable costs

A

Which of the following is the fundamental purpose of responsibility accounting? A) to penalize managers for inefficiency B) to gather information that will enable future improvement C) to create an efficient and centralized organization D) to evaluate the performance of managers

B

Which of the following is true of master budgets? A) They include only financial aspects of a plan and exclude nonfinancial aspects. B) Includes both financial and nonfinancial aspects of management's plans. C) They aid in quantifying the expectations of all stakeholders. D) They must be administered rigidly after they are committed to.

B

Which of the following statements is true about activity-based budgeting? A) activity-based budgeting estimates total costs more accurately than cost-based budgeting B) activity-based budgeting provides more detailed information than cost-based budgeting C) activity-based budgeting is cheaper than cost-based budgeting D) activity-based budgeting is simpler to implement than cost-based budgeting

B

________ include a budgeted statement of cash flows and a budgeted balance sheet. A) Revenue budgets B) Financial budgets C) Operating budgets D) Production budgets

B

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? A) rent and taxes paid on by the company B) cost of materials used in manufacture C) direct labor cost D) cost of power consumed by the plant

C

A manager of a revenue center is responsible ________. A) for only the profits of his center B) for investments, revenues, and costs C) for only the sales and fees generated by his center D) for the revenues,costs, and profits of his center

C

A primary consideration in assigning a cost to a responsibility center is ________. A) whether the cost is fixed or variable B) whether the cost is direct or indirect C) who can best control the change in that cost D) where in the organizational structure the cost was incurred

C

A quality control manager of a golf ball maker is most likely to be responsible for a(n) ________. A) revenue center B) investment center C) cost center D) profit center

C

Activity-based budgeting ________. A) uses one cost driver such as direct labor-hours B) uses only output-based cost drivers such as units sold C) focuses on activities necessary to produce and sell products and services D) classifies costs by functional area within the value chain

C

Activity-based budgeting makes it easier to ________. A) determine a rolling budget B) prepare pro forma financial statements C) determine how to reduce costs D) execute a financial budget

C

Activity-based budgeting would separately estimate ________. A) the cost of overhead for a department B) a plant-wide cost-driver rate C) the cost of a setup activity D) All of these answers are correct.

C

A budget is an end product of negotiations among senior and subordinate mangers because ________. A) budgeting is their mutual responsibility B) senior managers alone cannot spare the time required for the budgeting process C) senior managers are responsible for providing information on competitors performance and subordinate managers are responsible for information on external market conditions D) senior managers want very challenging targets, while subordinates may want targets that are relatively easier to achieve.

D

Budgets incorporate managements goals and A) are a strategic long range plan B) are both a short range and long range profit plan C) includes only financial aspects of an operation as those are the only items that can be quantified in a profit plan D) express management's operating and financial plan for a specified period - usually a fiscal year

D

Costs such as supervision, plant and equipment (production) depreciation, maintenance, supplies, and power. are included in the ________. A) capital expenditures budget B) distribution costs budget C) revenues budget D) manufacturing overhead budget

D

The ________ is a component of financial budgets. A) cost of goods sold budget B) budgeted income statement C) direct materials budget D) budgeted statement of cash flows

D

The operating budget process generally concludes with the preparation of the ________. A) production budget B) cash flow statement C) balance sheet D) budgeted income statement

D

Which of the following is most likely to be a cost driver for the variable portion of marketing costs? A) percentage of markup on cost B) number of units produced C) increase in revenues attributable to such marketing D) number of units units sold

D

Preparation of the budgeted balance sheet is the final step in preparing the operating budget.

F

Research shows that the performance of employees falls when they are asked to adhere to challenging budgets.

F

In general, which of the following budgets is prepared first? A) sales budget B) production budget C) direct labor budget D) overhead budget

A

Kaizen refers to incorporating cost reductions ________. A) in each successive budgeting period B) in each successive sales forecast C) in all customer service centers D) in all areas of the organization

A

Operating decisions primarily deal with ________. A) the best use of scarce resources B) how to obtain funds to acquire resources C) acquiring equipment and buildings D) satisfying stockholders

A

Participation of employees in the budgeting process helps ________. A) create greater commitment towards the budget B) create demanding but achievable budget C) decrease deviations from the budget D) secure communication of sensitive information

A

The district director of 5 mortgage origination offices staffed by bank associates who cold call potential customers in an attempt to gain home mortgage and home equity loan business is most likely responsible for a(n) ________. A) revenue center B) investment center C) cost center D) profit center

A

The number of units in the sales budget and the production budget may differ because of a change in ________. A) ending finished goods inventory levels B) total overhead charges for the year C) beginning direct material inventory levels D) sales returns and allowances

A

The order to follow when preparing the operating budget is ________. A) revenues budget, production budget, direct manufacturing labor costs budget , and cost of goods sold B) revenues costs of goods sold budget, production budget, and cash budget C) revenues budget, manufacturing overhead costs budget, and production budget D) cash expenditures budget, revenues budget, and production budget

A

Which of the following statements is true of budgets? A) Master budgets express management's operating and financial plans. B) Financial budgets are prepared before the master budget is prepared. C) Operating budgets are prepared independently of the master budget. D) The budgeted balance sheet is the first budget prepared as management is very much concerned with projected financial position

A

________ is the usual starting point for budgeting. A) The revenues budget B) The estimated net income C) The production budget D) The cash budget

A

A controllable cost is any cost that can be ________ by a responsibility center manager for a period of time. A) controlled B) influenced C) segregated D) excluded

B

A regional manager of a restaurant chain in charge of finding additional locations for expansion is most likely responsible for a(n) ________. A) revenue center B) investment center C) cost center D) profit center

B

A stretch budget is a budget that ________. A) crosses more than one responsibility center B) represents a challenging, but achievable level of performance C) is impossible to implement in a cost center D) is designed to include the effects of exchange rate fluctuations

B

Activity-based-costing analysis makes no distinction between ________. A) direct-materials inventory and work-in-process inventory B) short-run variable costs and short-run fixed costs C) parts of the supply chain D) components of the value chain

B

Annette has been recently promoted to head of her department. She is responsible for activities that influence revenues and is responsible for controlling the expenses of her department. She is held responsible for maximizing the profits of the department and to ensure that the earnings are ploughed back into the business. Annette is most likely to head a (n) ________. A) revenue center B) investment center C) cost center D) profit center

B

Financing decisions primarily deal with ________. A) the use of scarce resources B) how to obtain funds to acquire resources C) acquiring equipment and buildings D) preparing financial statements for stockholders

B

In which order are the following developed? First to last: A = Production budget B = Direct materials costs budget C = Budgeted income statement D = Revenues budget A) ABDC B) DABC C) DCAB D) CABD

B

Kaizen budgeting is driven by ________. A) management B) employees C) stockholders D) creditors

B

One of the benefits of a well implemented and executed budget is communication. Which of the following best describes communication within the budgetary cycle? A) meshing and balancing of all aspects of production or service B) making each manager aware of the plan and allowing each manager to understand the importance of the plan C) allocation of scarce resources across all functional areas of the company D) the calculation of deviations from plan

B

Responsibility accounting ________. A) emphasizes controllability B) focuses on who should be asked about the information C) attempts to assign blame for problems to a specific manager D) attempts to create a decentralized organization

B

The preparation of all the budgets in the master budget forces managers to think about their business operations and to formulate plans, while: A) detecting inaccurate historical records to avoid errors in budgets B) setting expectations against which actual results can be compared C) completing the budgeting tasks with minimal cross functional feedback D) ignoring financial risks and opportunities

B

The sales forecast should be primarily based on ________. A) statistical analysis B) input from sales managers and sales representatives C) production capacity D) input from the board of directors

B

To prepare the direct materials labor costs budget, which of the following budget must be prepared first? A) direct material purchase budget B) production budget C) direct material usage budget D) budgeted manufacturing overhead

B

To reduce budgetary slack management may ________. A) incorporate stretch or challenge targets B) use external benchmark performance measures C) award bonuses for achieving budgeted amounts D) reduce projected cost targets by 10% across all areas

B

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 ________. A) activity based budgeting B) kaizen budgeting C) zero-based budgeting D) cost-based budgeting

B

Which of the following best describes a rolling budget? A) It is a budget that continually outlines the amount required to roll over debt in a future period. B) It is created continually by adding a month, quarter, or year to the period just ended C) It is a budget that outlines budgeted expenses while utilizing a moving average D) It is a budget that is submitted to a bank at the beginning of every month as per a loan covenant.

B

Which of the following is required to arrive at the budgeted units to be produced in a year? A) estimated direct materials inventory required at the end of the year B) estimated finished goods inventory required at the end of the year C) amount of direct materials to be used during the year D) amount of manufacturing overhead to be incurred

B

Which of the following is the basic formula of the direct materials usage budget? A) Ending inventory of direct materials + direct materials purchased and used during the period = direct materials to be used this period B) Beginning inventory of direct materials + direct materials purchased and used during the period = direct materials to be used this period C) units used in production + target ending inventory - beginning inventory = purchases to be made for the budget period D) units used in production + target beginning inventory - ending inventory = purchases to be made for the budget period

B

Kaizen budgeting involves ________. A) large cost reductions B) management directed improvements C) continual small cost reductions D) continual small revenue increases

C

A rolling budget is the same as a continuous budget.

T

Budgeted production equals ________. A) beginning finished goods inventory + budgeted unit sales - targeted ending finished goods inventory B) targeted ending finished goods inventory + beginning finished goods inventory - budgeted unit sales C) budgeted unit sales + targeted ending finished goods inventory - beginning finished goods inventory D) budgeted unit sales + targeted ending finished goods inventory + beginning finished goods inventory

C

Activity-based budgeting would permit the use of multiple drivers and multiple cost pools in the budgeting process.

T

Managers who feel that top management does not believe in the budget are most likely to ________. A) pick up the slack and participate in the budgeting process B) to face little interference in the day-to-day aspects of running the business C) be less engaged participants in the budgeting process and less committed to achieving budgeted targets D) convert the budget to a shorter more reasonable time period that will help with real time reporting

C

The Japanese use the term kaizen when referring to________. A) scarce resources B) pro forma financial statements C) continuous improvement D) the sales forecast

C

The budgeting process is most strongly influenced by ________. A) the capital budget B) the budgeted statement of cash flows C) the sales forecast D) the production budget

C

The major objectives of a budgeting process should include all of the following EXCEPT: A) providing coordination among the subunits B) providing communication among the subunits C) providing unyielding commitment to targets as a means to achieve a target profit D) providing a framework for judging performance and facilitating learning

C

The revenues budget reveals A) expected cash flows for each product B) actual unit sales from last year multiplied by the budget period's expected selling prices for each product C) the expected level of unit sales multiplied by expected unit selling prices for company products D) the variance of sales from actual for each product

C

Which of the following departments is most likely to be a cost center? A) sales department of a company selling industrial tools B) call center of a company that serves customers and cross-sells other products C) maintenance department of a luxury resort D) research department of a company providing consultancy services

C

Which of the following information is required by a company's manager while preparing a manufacturing overhead costs budget? A) estimated incentives to be paid to marketing personnel B) estimated expense for office supplies C) estimated expense for maintenance of factory building D) rent expense for lease of office building

C

Which of the following is a limitation of using past performance as a basis for judging actual results? A) It does not account for productivity increases over the periods. B) It increases the incentive for managers to introduce budgetary slack. C) It assumes inefficiencies of previous periods without considering possible efficiencies of the budget period. D) It increases the tendency of senior managers exaggerating changes in future conditions as opposed to changes in current conditions.

C

Which of the following is true of budgets when they are administered thoughtfully? A) They eliminate subjectivity in performance evaluation. B) They can eliminate the uncertainty faced by a company. C) They promote coordination within the subunits of a company. D) They are a substitute the planning and coordination functions of management.

C

Which one of the following budgets would be prepared using activity based budgeting techniques? A) direct materials purchase budget B) revenues budget C) manufacturing overhead cost budget D) production budget

C

The practice of developing reasonably challenging budgets tend to help: A) discourage out-of-the-box and creative thinking as there is very little room for error B) set unrealistic expectations and are perceived as overly ambitious and unachievable C) increase anxiety without motivation not meeting them is viewed as a failure D) motivate improved performance as employees work more intensely to avoid failure

D

Which of the following best describes a bill of materials? A) It is a document that is prepared by a vendor to invoice a manufacturer for a purchase of materials B) It is a document that is used to order materials C) It is a document that requests materials be removed from the warehouse and put into production D) It is a document that identifies how each product is manufactured, specifying materials and components and the quantities of materials in each finished good

D

Which of the following departments is most likely to be a profit center? A) the accounting department of a company that also assists in budgeting process B) the research and development department of a company C) the sales department of a company whose objective is to maximize the revenues D) the consulting department of a law firm

D

Which of the following is referred to as the bottom-up aspect of the budgeting process? A) lower-level managers setting their individual targets that aggregate to be the company-wide target B) senior managers consulting middle- and lower-level managers to investigate any deviations from the budget C) lower-level managers implementing the budgets with senior managers monitoring progress and investigating deviations D) lower-level managers providing inputs to the budgeting process based on their specialized knowledge and familiarity of the operation

D

Which of the following is the most frequently used budget periods used in business? A) a basic budget period of 1 year often subdivided into semi-annual periods B) a basic budget period of 2 years often subdivided into quarters and semi-annual periods C) A basic budget period of 2 years subdivided into monthly periods D) a basic budget period of 1 year often subdivided into quarters and months

D

Which of the following is true of a budget? A) Budgets are used to express only the operational plans and not the strategic plans of a company. B) Budgets do not account for nonfinancial aspects of the upcoming period. C) Budgets are most useful when they are planned independent of the company's strategic plans. D) Budgets help managers to revise their plans and strategies.

D

Which of the following statements is true about responsibility accounting statements? A) Responsibility accounting excludes controllable costs. B) Responsibility accounting segregates fixed costs and variable costs. C) Responsibility accounting excludes fixed costs and variable costs. D) Responsibility accounting segregates uncontrollable costs from controllable costs.

D

A budget generally includes only the financial aspects of management's plan.

F

A company usually prepares a budget for nonmanufacturing costs after preparing all operating budgets.

F

A packaging department is most likely a profit center.

F

Administration of budgets is free of emotions as budgets are mechanical tools.

F

After a budget is agreed upon and finalized by the management team, the amounts should NOT be changed for any reason.

F

As budgeting is not a cross-functional activity, it tends to be accurate and reliable with regard to forecasts.

F

Bottom-up budgets entrusts senior managers to prepare budgets and lower-level managers to execute them.

F

Budgetary slack is the practice of underestimating costs so as to project an optimistic future outlook.

F

Budgetary slack results because management sets challenging but achievable levels of expected performance.

F

Budgeting based on cost for specific activities is a key building block of the master budget for companies that use the Kaizen approach.

F

Budgeting includes only the financial aspects of the plan and NOT any nonfinancial aspects such as the number of physical units manufactured or the hours that the direct laborers are expected to work.

F

Budgets are sometimes called targets or commitments by some companies and as such are "set in stone" to provide effective benchmarks for management.

F

Cost-based budgeting is a budgeting method that focuses on the budgeted cost of the activities necessary to produce and sell products and services.

F

Even in the face of changing conditions, attaining the original budget is critical and is the only true measure of success.

F

Financing decisions deal with how to best use the limited resources of an organization.

F

In a revenue center, a manager is responsible for investments, revenues, and costs.

F

It is best to compare this year's performance with last year's actual performance rather than this year's budget.

F

Kaizen budgeting allows for budgeting of small incremental increases in costs each budgeting period to allow for the effects of normal inflation.

F

Kaizen budgeting does NOT make sense for cost centers.

F

Kaizen budgeting encourages dramatic improvements and substantial reduction in costs.

F

Management will most likely behave the same way if a department is structured as a cost center or if the same department is structured as a profit center.

F

Most ethical issues related to budgetary decisions are clear cut because at no point should pressure for performance influence budgetary decisions.

F

Operating plans are generally expressed through long-run budgets.

F

Responsibility accounting focuses on control, NOT on information and knowledge.

F

The Japanese use kaizen to mean financing alternatives.

F

The benefit of engaging lower level management in the budget preparation process is that it helps to streamline the budget process.

F

The cost of goods sold budget is calculated by deducting beginning finished-goods from cost of goods available for sale.

F

The production cost budget identifies how each product is manufactured and specifies all the materials, the quantity of materials in each finished product, and the work centers where the operations will be performed.

F

A budget is a communication aid, informing staff of expectations and providing information that is essential to coordinating what needs to be done to implement the proposed plan.

T

A budget is the quantitative expression of a proposed plan of action by management for a specified period.

T

A budgeting process can facilitate learning in that feedback from budgets can lead to changes in plans and strategies.

T

A responsibility center is a part, segment, or subunit of an organization whose manager is accountable for a specified set of activities.

T

A responsibility center is a part, segment, or subunit of an organization, whose manager is accountable for a specified set of activities that impact revenues, costs, or profits and in the case of an investment center, profits.

T