ACCT 3300 Ch 10(1)

The major disadvantage of a budget produced by means of a top-down process is A. Impairment of goal congruence. B. Lack of involvement by upper-level management. C. Inconsistency with strategic plans. D. Positive motivational effect.

A. Impairment of goal congruence.

Which one of the following is an advantage of using the budgeting process to judge performance? A. Management is able to measure actual performance against predicted performance. B. Past performance can be used to evaluate performance improvements. C. Management believes that past conditions are an indicator of future conditions. D. Company performance can be measured against the performance of others in the same industry.

A. Management is able to measure actual performance against predicted performance.

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. A new machine that was purchased this year has not helped reduce the company's unfavorable labor efficiency variances. B. 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. C. Vendors have asked that the contract price for the goods they supply to the company be renegotiated and adjusted for inflation. D. Experienced employees have decided to terminate their employment with the company and go to work for the competition.

B. 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.

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? A. Imposed budgeting by top management. B. Bottom-up approach. C. Top-down approach. D. Total justification of all activities by operating units.

B. Bottom-up approach.

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 A. Flexible budgeting. B. Budgetary slack. C. Zero-based budgeting. D. Budgetary variance.

B. Budgetary slack.

Which of the following statements regarding budgets is false? A. Budgets present organizational plans in a formal, logical, and integrated manner. B. Budgets are used only as a planning function. C. Budgets may be developed for cash flows or labor usage. D. A budget is a plan that contains a quantitative statement of expected results.

B. Budgets are used only as a planning function.

A budget manual, which enhances the operation of a budget system, is most likely to include A. A chart of accounts. B. Distribution instructions for budget schedules. C. Employee hiring policies. D. Documentation of the accounting system software.

B. Distribution instructions for budget schedules.

Which one of the following is usually not cited as being an advantage of a formal budgetary process? A. Forces management to evaluate the reasonableness of assumptions used and goals identified in the budgetary process. B. Ensures improved cost control within the organization and prevents inefficiencies. C. Provides a formal benchmark to be used for feedback and performance evaluation. D. Serves as a coordination and communication device between management and subordinates.

B. Ensures improved cost control within the organization and prevents inefficiencies.

Which one of the following best describes a reason why a company's budgeting should be based on the company's strategic plans? A. Helps control costs so that products can be sold profitably. B. Identifies resources needed to reach strategic goals. C. Identifies the external factors that have changed from the prior year and those that remain the same. D. Establishes standards to measure employee performance.

B. Identifies resources needed to reach strategic goals.

All of the following are criticisms of the traditional budgeting process except that it A. Makes across-the-board cuts when early budget iterations show that planned expenses are too high. B. Incorporates non-financial measures as well as financial measures into its output. C. Overemphasizes a fixed time horizon, such as one year. D. Is not used until the end of the budget period to evaluate performance.

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

A planning calendar in budgeting is the A. Calendar period covered by the budget. B. Schedule of activities for the development and adoption of the budget. C. Calendar period covered by the annual budget and the long-range plan. D. Sales forecast by months in the annual budget period.

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

An advantage of participatory budgeting is that it A. Minimizes the cost of developing budgets. B. Yields information known to management but not to employees. C. Encourages acceptance of the budget by employees. D. Reduces the effect on the budgetary process of employee biases.

C. Encourages acceptance of the budget by employees.

When properly developed and administered, budgets provide the following advantages to the organization except to A. Provide a structure for measuring performance. B. Motivate managers and other employees. C. Ensure that the organization makes a profit. D. Promote the efficient allocation of resources.

C. Ensure that the organization makes a profit.

The major objectives of any budget system are to A. Define responsibility centers, provide a framework for performance evaluation, and promote communication and coordination among organization segments. B. Define responsibility centers, facilitate the fixing of blame for missed budget predictions, and ensure goal congruence between superiors and subordinates. C. Foster the planning of operations, provide a framework for performance evaluation, and promote communication and coordination among organization segments. D. Foster the planning of operations, facilitate the fixing of blame for missed budget predictions, and ensure goal congruence between superiors and subordinates.

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

Suboptimal decision making is not likely to occur when A. There is little congruence among the overall organization goals, the subunit goals, and the individual goals of decision makers. B. Goals and standards of performance are set by the top management. C. Guidance is given to subunit managers about how standards and goals affect them. D. The subunits in the organization compete with each other for the same input factors or for the same customers.

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

The best explanation of how the efficient allocation of organizational resources is planned during the budgeting process is that a budget A. Demonstrates how important it is to have additional spare resources on hand in case the actual results vary from the budget. B. Demonstrates how a company can pull resources from bottlenecks to apply them to other areas to attain goals. C. Identifies the resources and commitments required to fulfill the organization's goals for the period identified. D. Is a process for evaluating projects needed and related external financing required to meet resource requirements.

C. Identifies the resources and commitments required to fulfill the organization's goals for the period identified.

All of the following are advantages of top-down budgeting as opposed to participatory budgeting, except that it A. Increases coordination of divisional objectives. B. Reduces the time required for budgeting. C. May limit the acceptance of proposed goals and objectives. D. Facilitates implementation of strategic plans.

C. 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 A. Should be involved only in the approval process. B. Lacks the detailed knowledge of the daily operations and should limit their involvement. C. Needs to be involved, including using the budget process to communicate goals. D. Needs to separate the budgeting process and the business planning process into two separate processes.

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

Budgeting problems where departmental managers are repeatedly achieving easy goals or failing to achieve demanding goals can be best minimized by establishing A. Preventive controls. B. A policy that allows managers to build slack into the budget. C. Participative budgeting where managers pursue objectives consistent with those set by top management. D. Better communication whereby managers discuss budget matters daily with their superiors.

C. Participative budgeting where managers pursue objectives consistent with those set by top management.

Which one of the following statements best describes budgetary slack? A. The practice of management assigning relaxed budgetary goals after the company achieves the first several months of the annual budget. B. The total amount that actual expenses are below budgeted expenses and actual revenues exceed budgeted revenues. C. The practice of understating budgeted revenues or overestimating budgeted costs to make budgeted targets more achievable. D. The margin of error assigned to each cost center to encourage the manager to budget accurately and consistently.

C. The practice of understating budgeted revenues or overestimating budgeted costs to make budgeted targets more achievable.

Which one of the following items would most likely cause the planning and budgeting system to fail? The lack of A. Historical financial data. B. Input from several levels of management. C. Top management support. D. Adherence to rigid budgets during the year.

C. Top management support.

A corporation's vice president of planning has seen and heard it all. She has told the corporate controller that she is "....very upset with the degree of slack that veteran managers use when preparing their budgets." The vice president has considered implementing some of the following activities during the budgeting process. Develop the budgets by top management and issue them to lower-level operating units. Study the actual revenues and expenses of previous periods in detail. Have the budgets developed by operating units and accept them as submitted by a company-wide budget committee. Share the budgets with all employees as a means to reach company goals and objectives. Use an iterative budgeting process that has several "rounds" of changes initiated by operating units and/or senior managers. 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? A. 1 only. B. 2 and 3. C. 2 and 4. D. 2, 4, and 5.

D. 2, 4, and 5.

A budget helps a company control costs by setting cost guidelines. However, a budget also performs the function(s) of A. Planning. B. Motivating. C. Communicating. D. All of the answers are correct.

D. All of the answers are correct.

An improperly executed budget process might have the effect(s) of A. Disregard of overall company goals. B. Inflated budget requests. C. Meeting short-term but not long-term goals. D. All of the answers are correct.

D. All of the answers are correct.

Ineffective budget control systems are characterized by A. Use of budgets as a planning but not a control tool. B. Use of budgets for harassment of individuals rather than motivation. C. Lack of timely feedback in the use of the budget. D. All of the answers are correct.

D. All of the answers are correct.

All of the following are advantages of the budgeting process except that the budget A. Forces management to assess the future objectives of the company. B. Establishes benchmarks to identify unsatisfactory organizational performance. C. Facilitates communication among organizational units. D. Allocates resources on an as-needed basis.

D. Allocates resources on an as-needed basis.

The budgeting technique that is most likely to motivate managers is A. Top-down budgeting. B. Zero-based budgeting. C. Program budgeting and review technique. D. Bottom-up budgeting.

D. Bottom-up budgeting.

The primary role of the budget director and the budgeting department is to A. Settle disputes among operating executives during the development of the annual operating plan. B. Develop the annual profit plan by selecting the alternatives to be adopted from the suggestions submitted by the various operating segments. C. Justify the budget to the executive committee of the board of directors. D. Compile the budget and manage the budget process.

D. Compile the budget and manage the budget process.

Which one of the following is not an advantage of a participatory budgeting process? A. Coordination between departments. B. Communication between departments. C. Goal congruence. D. Control of uncertainties.

D. Control of uncertainties.

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? A. Permit the divisional manager to develop the goal for the division that in the manager's view will generate the greatest amount of profits. B. Have senior management develop the overall goals and permit the divisional manager to determine how these goals will be met. C. Have the divisional and senior management jointly develop goals and objectives while constructing the corporation's overall plan of operation. D. Have the divisional and senior management jointly develop goals and the divisional manager develop the implementation plan.

D. 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? A. Setting budget targets at attainable levels. B. Participation by subordinates in the budgetary process. C. Use of management by exception. D. Having top management set budget levels.

D. Having top management set budget levels.

Which one of the following is not a characteristic of a successful budget process? A. Setting specific expectations to compare to actual results. B. Gaining top management's support. C. Using market feedback to assist in setting expectations. D. Implementing the budget as the only benchmark for performance evaluation.

D. Implementing the budget as the only benchmark for performance evaluation.

All of the following are advantages of the use of budgets in a management control system except that budgets A. Force management planning. B. Provide performance criteria. C. Promote communication and coordination within the organization. D. Limit unauthorized expenditures.

D. Limit unauthorized expenditures.

A company's annual budget provides information that can impact the company's A. Long-term planning only. B. Long-term planning and operational budgets only. C. Operational budgets and strategy only. D. Long-term planning, operational budgets, and strategy.

D. Long-term planning, operational budgets, and strategy.

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 A. A successful budgeting process because it will be a very useful tool to hold people accountable for overspending. B. A successful budgeting process because it will encourage the associates to work their hardest to meet the goals. C. Not a successful budgeting process because management has left too much room for strategic unknowns. D. Not a successful budgeting process because it has not been widely accepted by the employees.

D. Not a successful budgeting process because it has not been widely accepted by the employees.

All of the following are disadvantages of top-down budgeting as opposed to participatory budgeting, except that it A. May result in a budget that is not possible to achieve. B. May limit the acceptance of proposed goals and objectives. C. Reduces the communication between employees and management. D. Reduces the time required for budgeting.

D. Reduces the time required for budgeting.

One of the primary advantages of budgeting is that it A. Does not take the place of management and administration. B. Bases the profit plan on estimates. C. Is continually adapted to fit changing circumstances. D. Requires departmental managers to make plans in conjunction with the plans of other interdependent departments.

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

Which one of the following statements concerning approaches for the budget development process is correct? A. The top-down approach to budgeting will ensure adherence to strategic organizational goals. B. To prevent ambiguity, once departmental budgeted goals have been developed, they should remain fixed even if the sales forecast upon which they are based proves to be wrong in the middle of the fiscal year. C. With the information technology available, the role of budgets as an organizational communication device has declined. D. Since department managers have the most detailed knowledge about organizational operations, they should use this information as the building blocks of the operating budget.

D. 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? A. Sales budget. B. Financial budget. C. Cost management plan. D. Strategic plan.

D. Strategic plan.

When developing a budget, an external factor to consider in the planning process is A. A change to a decentralized management system. B. The implementation of a new bonus program. C. New product development. D. The merger of two competitors.

D. The merger of two competitors.

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 A. The consulting firm may not fully understand the manufacturer's manufacturing process, resulting in suboptimal performance. B. Employees could react negatively since they did not participate in setting the standards. C. There could be dissatisfaction if the standards contain costs that are not controllable by the unit held responsible. D. The standards may appear to lack management support.

D. The standards may appear to lack management support.

Which one of the following is most important to a successful budgeting effort? A. Experienced analysts. B. Integrated budget software. C. Reliable forecasts and trend analyses. D. Top management support.

D. Top management support.

Which one of the following is not considered to be a benefit of participative budgeting? A. Individuals at all organizational levels are recognized as being part of the team; this results in greater support of the organization. B. The budget estimates are prepared by those in direct contact with various activities. C. Managers are more motivated to reach the budget objectives since they participated in setting them. D. When managers set the final targets for the budget, senior management need not be concerned with the overall profitability of current operations.

D. When managers set the final targets for the budget, senior management need not be concerned with the overall profitability of current operations.