Chapter 9

An organization's budgets will often be prepared to cover: A. one month. B. one quarter. C. one year. D. periods longer than one year. E. all of the above.

E. all of the above.

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? A. Batch-level costs: Production setup. B. Unit-level costs: Depreciation. C. Unit-level costs: Maintenance. D. Product-level costs: Insurance and property taxes. E. Facility and general operations-level costs: Indirect material.

A. Batch-level costs: Production setup.

A budget serves as a benchmark against which: A. actual results can be compared. B. allocated results can be compared. C. actual results become inconsequential. D. allocated results become inconsequential. E. cash balances can be compared to expense totals.

A. actual results can be compared.

Generally speaking, budgets are not used to: A. identify a company's most profitable products. B. evaluate performance. C. create a plan of action. D. assist in the control of profit and operations. E. facilitate communication and coordinate activities.

A. identify a company's most profitable products.

A manufacturing firm would begin preparation of its master budget by constructing a: A. sales budget. B. production budget. C. cash budget. D. capital budget. E. set of pro-forma financial statements.

A. sales budget.

The budgeted income statement, budgeted balance sheet, and budgeted statement of cash flows comprise: A. the final portion of the master budget. B. the depiction of an organization's overall actual financial results. C. the first step of the master budget. D. the portion of the master budget prepared after the sales forecast and before the remainder of the operational budgets. E. the second step of the master budget.

A. the final portion of the master budget.

If a manager builds slack into a budget, how would that manager handle estimates of revenues and expenses? Revenues Expenses A. Underestimate Underestimate B. Underestimate Overestimate C. Overestimate Underestimate D. Overestimate Overestimate E. Estimate correctly Estimate correctly

B. Underestimate Overestimate

Which of the following choices correctly denotes managerial functions that are commonly associated with budgeting? Planning Performance Evaluation Coordination of Activities A. Yes Yes No B. Yes Yes Yes C. Yes No No D. Yes No Yes E. No Yes No

B. Yes Yes Yes

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? A. 1-2-3. B. 2-1-3. C. 2-3-1. D. 3-1-2. E. 3-2-1.

B. 2-1-3.

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? A. I only. B. II only. C. III only. D. I and II. E. I and III.

B. II only.

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? A. Media advertising. B. Retail outlet sales commissions. C. Salaries of web-site maintenance personnel. D. Administrative salaries. E. Salary of sales manager employed at store no. 23.

B. Retail outlet sales commissions.

The difference between the revenue or cost projection that a person provides, and a realistic estimate of the revenue or cost, is called: A. passing the buck. B. budgetary slack. C. false budgeting. D. participative budgeting. E. resource allocation processing.

B. budgetary slack.

When an organization involves its many employees in the budgeting process in a meaningful way, the organization is said to be using: A. budgetary slack. B. participative budgeting. C. budget padding. D. imposed budgeting. E. employee-based budgeting.

B. participative budgeting.

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: A. capital budget. B. rolling budget. C. revised budget. D. pro-forma budget. E. financial budget.

B. rolling budget.

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? A. A's employees will likely be more motivated to achieve budgetary goals than the employees of Company B. B. B's employees may be somewhat disenchanted because although they will be evaluated against a budget, they really had little say in budget development. C. Budget padding will likely be a greater problem at Company B. D. Budget preparation time will likely be longer at Company A. E. Ethical issues are more likely to arise at Company A, especially when the budget is used as a basis for performance appraisal.

C. 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? A. Sales budget. B. Production budget. C. Budgeted financial statements. D. Cash budget. E. Overhead budget.

C. Budgeted financial statements.

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? A. I only. B. II only. C. III only. D. I and II. E. II and III.

C. III only.

A formal budget program will almost always result in: A. higher sales. B. more cash inflows than cash outflows. C. decreased expenses. D. improved profits. E. a detailed plan against which actual results can be compared.

E. a detailed plan against which actual results can be compared.

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? A. Sales volume and labor hours. B. Contribution margin and cash payments. C. Production volume and management judgment. D. Labor hours and management judgment. E. Management judgment and indirect labor cost.

C. Production volume and management judgment.

The comprehensive set of budgets that serves as a company's overall financial plan is commonly known as: A. an integrated budget. B. a pro-forma budget. C. a master budget. D. a financial budget. E. a rolling budget.

C. a master budget.

A company's plan for the acquisition of long-lived assets, such as buildings and equipment, is commonly called a: A. pro-forma budget. B. master budget. C. financial budget. D. profit plan. E. capital budget.

C. financial budget.

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 Last A. 1 4 B. 1 2 C. 3 4 D. 3 2 E. 4 1

D. 3 2

Which of the following would be considered when preparing a company's sales forecast? Anticipated Advertising Campaigns General Economic Trends Expected Competitive Actions A. Yes Yes No B. Yes No Yes C. Yes No No D. Yes Yes Yes E. No No Yes

D. Yes Yes Yes

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? A. 1-3-4-2. B. 2-3-1-4. C. 2-1-3-4. D. 3-1-4-2. E. 3-1-2-4.

D. 3-1-4-2.

Which of the following budgets is based on many other master-budget components? A. Direct labor budget. B. Overhead budget. C. Sales budget. D. Cash budget. E. Selling and administrative expense budget.

D. Cash budget.

Which of the following statements about financial planning models (FPMs) is (are) false? A. FPMs express a company's financial and operating relationships in mathematical terms. B. FPMs allow a user to explore the impact of changes in variables. C. FPMs are commonly known as "what-if" models. D. FPMs have become less popular in recent years because of computers and spreadsheets. E. Statements "C" and "D" are both false.

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

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? A. I only. B. II only. C. I and II. D. II and III. E. I, II, and III.

D. 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? A. II only. B. III only. C. I and II. D. II and III. E. I, II, and III.

D. II and III.

End-of-period figures for accounts receivable and payables to suppliers would be found on the: A. cash budget. B. budgeted schedule of cost of goods manufactured. C. budgeted income statement. D. budgeted balance sheet. E. budgeted statement of cash flows.

D. budgeted balance sheet.

A company's sales forecast would likely consider all of the following factors except: A. political and legal events. B. advertising and pricing policies. C. general economic and industry trends. D. top management's attitude toward decentralized operating structures. E. competition.

D. top management's attitude toward decentralized operating structures.

Which of the following outcomes is (are) sometimes associated with participative budgeting? A. Employees make little effort to achieve budgetary goals. B. Budget preparation time can be somewhat lengthy. C. The problem of budget padding may arise. D. Financial modeling becomes much more difficult to undertake. E. Budget preparation time can be somewhat lengthy and budget padding may arise.

E. Budget preparation time can be somewhat lengthy and budget padding may arise.

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? A. I only. B. II only. C. I and II. D. II and III. E. I, II, and III.

E. 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? A. I only. B. III only. C. I and II. D. II and III. E. I, II, and III.

E. I, II, and III.

Which of the following organizations is not likely to use budgets? A. Manufacturing firms. B. Merchandising firms. C. Firms in service industries. D. Nonprofit organizations. E. None of the above, as all are likely to use budgets.

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

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.

Which of the following statements concerning the budget director is false? A. The budget director is often the organization's controller. B. The budget director has the responsibility of specifying the process by which budget data will be gathered. C. The budget director collects information and participates in preparing the master budget. D. The budget director communicates budget procedures and deadlines to employees throughout the organization. E. The budget director usually has the authority to give final approval to the master budget.

E. 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? A. The sales forecast is typically completed after completion of the master budget. B. The sales forecast is typically completed approximately halfway through the master-budget process. C. The sales forecast is typically completed before the master budget and has no impact on the master budget. D. The sales forecast is typically completed before the master budget and has little impact on the master budget. E. The sales forecast is typically completed before the master budget and has significant impact on the master budget.

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

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

E. is best described by choices "A" and "D" above.

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: A. cash-flow budgeting. B. zero-base budgeting. C. base budgeting. D. comprehensive budgeting. E. life-cycle budgeting.

E. life-cycle budgeting.

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. possesses all of the above attributes.