Ch. 10 Strategy and the Master Budget

A company's policy is to have 10% of the estimated sales for the following month on hand as ending inventory. Projected sales for January, February, and March, respectively, are as follows: 100 units; 120 units; 90 units. Scheduled production for February is ______ units.

117 Reason: 117 = 120 + (10% × 90) - (10% × 120) = 120 + 9 - 12

The required production for a period in which estimated sales demand = 100 units, the beginning inventory = 5 units, and the desired ending inventory = 3 units is ______ units.

98 Reason: (100 + 3) - 5 = 98 units

Which of the following segregates costs required for the budgeted output into homogeneous activity cost pools?

Activity-based budgeting (ABB)

Which of the following budgeting-related items (or factors) does not likely affect the amount of goal congruence in conjunction with budgeting?

Choice of budgetary period (e.g., month, quarter, or year).

True or false: A merchandise purchases budget is prepared only by manufacturing firms.

False

True or false: In practice, the planning horizon for most firms (for budgeting purposes) is a single year.

False

True or false: The selling and administrative budget identifies both total expenses and total cash expenses in order to properly prepare the pro forma balance sheet.

False

True or false: An organization's capacity is a result of capital investments made in prior budgeting period.

True

True or false: Budgeting for service firms is similar to budgeting for manufacturing and merchandising firms.

True

Which of the following procedures can be used in Excel to deal with uncertainty in terms of the budget-preparation process?

What-if analysis Sensitivity analysis Scenario analysis

When top management prepares the budget for the entire organization, the process is often referred to as top-down or BLANK budgeting.

authoritative

For public companies, the group or individual having ultimate responsibility for approving the organization's budget is the company's ______.

board of directors

A plan of action, expressed either in financial or non-financial terms, is a(n) ______.

budget

Both financial and non-financial aspects of planned operations and project are included in a(n)

budget

The group within an organization that typically has ultimate responsibility for the budgeting process is the ______ committee.

budget

In a traditional budgeting process, the BLANK BLANK is responsible for providing initial budget guidelines that set the tone for the budget and govern its preparation.

budget committee

In a traditional budgeting process, the ______ is (are) responsible for providing initial budget guidelines that set the tone for the budget and govern its preparation.

budget committee

The process of "padding the budget" is called ______.

budgetary slack

A direct materials usage budget includes ______.

budgeted units of direct material per unit of output budgeted direct materials cost per unit budgeted production for the period

To balance costs and benefits, zero-based budgeting (ZBB) ______.

can be implemented across organizational subunits on a rotating basis

The process of evaluating, selecting, and financing major projects of an organization is referred to as BLANK budgeting

capital

The budget that summarizes changes to the cash account for a given period is the ______.

cash budget

Details of cash collections from operating activities are reported on the ______.

cash receipts budget

The cash receipts budget includes ______.

cash sales collections of credit sales

The use of planned capacity to establish cost-driver rates under both ABC and TDABC systems allows management to better estimate the ______ for each resource supplied.

cost of unused capacity

The number of units to be produced each period is equal to ______.

desired ending inventory of finished units + budgeted sales (in units) - beginning inventory of finished units

Initial budget proposals are examined by the ______.

executives of budget units

Conventional master budgeting systems produce a budget covering the coming ______.

fiscal year

An incentive plan that links compensation to the difference between actual and budgeted results (operating profit, sales, etc.) is a(n) ______.

fixed-performance contract

A likely negative consequence associated with the use of fixed-performance contracts is ______.

gaming the performance measure

The compatibility of goals for individuals (managers and employees) and the organization as a whole is referred to as

goal congruence

Research shows that a(n) ______ budget target serves quite well in most organizations.

highly achievable

The difference between the total cost of resources supplied and the cost of resources used equals the cost of

idle capacity

Budgeting for service firms ______.

includes personnel planning as a focal point is conceptually similar to budgeting for manufacturing or merchandising firms consists of an integrated set of plans for an upcoming period

The budgeted balance sheet ______.

includes the effects of all operations and cash flows during the budget period starts with the expected financial position at the beginning of the budget period is usually the last step in the budget preparation cycle

If the results shown on the budgeted (pro forma) BLANK BLANK fall short of the prespecified goal, management can investigate actions to improve results.

income statement

The budgeted (pro forma) BLANK BLANK details expected net income for an upcoming period.

income statement

The primary focus on Kaizen budgeting, relative to a traditional approach to budgeting, is ______.

its focus on continuous improvement of activities, costs, and processes

The approach to budgeting the incorporates continuous-improvement expectations in the budget is called BLANK budgeting.

kaizen

The sales budget is typically viewed as the cornerstone in master budgeting process because ______.

many other budgets are directly or indirectly affected by it

The collection of all short-term budgets is called the ______ budget.

master

A budget target that is too easy to attain ______.

may not encourage employees to put forth their best effort

A cash budget includes three major sections: net cash flows from BLANK activities, BLANK activities and BLANK activities.

operating, investing, financing

Scenario analysis ______.

presents an idea of how good or bad things might be in terms of budgeted performance can be enhanced by assigning probabilities to each scenario may benefit from the use of a cross-functional team

The last step in a budget-preparation cycle is usually to prepare the ______.

pro forma balance sheet

The final step of the master budgeting process is budgeted ______.

pro forma financial statements

Planned output for a given period is shown on the ______ budget.

production

The merchandise purchases budget for a merchandising firm has the same basic format as the BLANK budget for a manufacturing firm.

production

The level (or extent) of lower-level employee participation in the budgeting process ______.

refers to the use of authoritative vs. participative budgeting.

Possible negative consequences of using fixed-performance contracts include ______.

rewarding managers for performance over which they had no control inclusion of budgetary slack in the budgets managerial actions that do not add value to the firm

For most profit-seeking organizations, the starting point in the master budgeting process is preparation of the ______.

sales budget

The managerial tool used to estimate the extent to which a change in the forecasted value of one or more budgetary inputs affects individual budgets is ______ analysis.

sensitivity

A tool used by budget planners to determine the extent to which a change in the forecasted value of one or more budgetary inputs affects individual budgets and the set of pro forma financial statements produced as part of the master budgeting process is called

sensitivity analysis

Spreadsheet software can be used to deal with uncertainty associated with budget-preparation by performing what-if analysis, BLANK analysis, and BLANK analysis.

sensitivity, scenario

The budget committee ______.

sets overall budget goals reviews operating results at the end of the period resolves budget preparation conflicts monitors operations during the year

The selling and administrative expenses budget for a manufacturing firm ______.

shows planned spending on non-manufacturing costs (i.e., operating expenses)

Knowingly including higher expenditures or lower revenues in the budget than expected is called budgetary

slack

Even though it is extremely important for planning and budgeting, many organizations fail to link their budget to their

strategy

One primary fault or limitation of traditional budgeting systems is ______.

the failure to link budgets to organizational strategy and goals

Scenario analysis is characterized by ______.

the use of a small number of realistic combinations of planning-model inputs the ability to capture/model the effects of interrelationships among input variables

The budget that shows the amount and budgeted cost of direct materials required for production is the direct materials ______ budget.

usage

Traditional budgeting and activity-based budgeting are conceptually ______.

very different

Answering the question "What would be the impact on the production budget of a 20% reduction in targeted end-of-month inventory?" is an example of ______ analysis.

what-if

Examining the effect of a change in one or more budgetary input items (e.g., selling price per unit) on a budget of interest (e.g., the sales budget) is ______.

what-if analysis

The process that requires in-depth reviews of activities and functions prior to each budget period is ______ budgeting.

zero-base