Chapter 4: Budgeting for Planning and Control

The process of setting standards, receiving feedback on actual performance, and taking corrective action whenever actual performance deviates significantly from planned performance. A. Control B. Monitoring C. Eye balling D. Comparing

A. Control

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

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.

The budgets that are comprehensive financial plans made up of various individual departmental and activity budgets are the: A. Operating budgets B. Master budgets C. Financial budgets D. Continuous budgets

B. Master budgets

The body that has the responsibility to review the budget, provide policy guidelines and budgetary goals, resolve differences that may arise as the budget is prepared, approve the final budget, and monitor the actual performance of the organization as the year unfolds is called the: A. budget director B. budget committee C. controller D. president

B. budget committee

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

Which of the following is the most common starting point in the information gathering process for budgeting? A. the personnel forecast B. the sales forecast C. the production forecast D. the projected income statement

B. the sales forecast

Which of the following statement is correct regarding a continuous budget? 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

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.

The quantitative expression of a plan stated in either physical or financial terms or both is called a: A. Cost of goods sold statement B. Financial statement C. Budget D. Cost of goods manufactured statement

C. Budget

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

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

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.

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 saves time and resources.

D. It saves time and resources.

The budget committee A. has the responsibility to review the budget. B. resolves differences that may arise as the budget is prepared. C. prepares financial statements for the auditor. D. both a and b

D. both a and b

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.

(T/F) Budgeting means to set standards, receive feedback, and executing corrective action.

FALSE

(T/F) Feedback is not important to managers as a measuring tool of their performance.

FALSE

(T/F) Once all the operating budgets have been completed, the net income can be estimated.

FALSE

(T/F) Participative budgeting detracts from a manager's sense of responsibility and creativity.

FALSE

(T/F) Static budgets show costs for varying levels of activities.

FALSE

(T/F) The budgeted income statement depends partly on information in the budgets in the master budget.

FALSE

(T/F) The cash budget is the least priority budget in the master budget.

FALSE

(T/F) The first section of the master budget is the financial budget

FALSE

(T/F) The master budget is composed of the operations budget and the future budget.

FALSE

(T/F) A budget is a financial plan for the future used for planning, controlling, and decision making.

TRUE

(T/F) A continuous budget is a moving twelve-month budget.

TRUE

(T/F) A flexible budget compares actual costs to budgeted costs.

TRUE

(T/F) A flexible budget is sometimes referred to as a variable budget

TRUE

(T/F) A static budget is one developed for a single level of activity.

TRUE

(T/F) Activity-based budgeting recognizes interdependencies among departments.

TRUE

(T/F) An ideal budgeting system is one that achieves goals and encourages managers to achieve goals ethically.

TRUE

(T/F) In a for-profit service firm, the sales budget is also the production budget.

TRUE

(T/F) Incentives are the means used to encourage managers to achieve goals.

TRUE

(T/F) The activity-based budget begins with output and then determines the resources necessary to create that output.

TRUE

(T/F) The budget director is responsible for directing and coordinating the budgeting process.

TRUE

(T/F) The capital expenditures budget is a long-term financial plan.

TRUE

(T/F) The cash excess or deficiency section of the cash budget compares expected available cash to the expected cash needed.

TRUE

(T/F) The production budget describes how many units must be produced in order to meet sales and inventory needs.

TRUE

(T/F) The sales budget shows the expected sales quantity and price of each product or service.

TRUE

(T/F) The sales forecast is the basis for the sales budget.

TRUE

The budgeting that recognizes interdependencies among departments is called __________ budgeting.

activity-based

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

administrative

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

balance sheet

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

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

budgeted

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

budgets

Activity-based budgets also focus on __________ processes.

business

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

cash

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

control

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

flexible; static

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

master budgets

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

receipts

The __________ budget shows the projected sales and prices.

sales

When managers intentionally underestimate or overestimate revenues and costs it is called budgetary __________ .

slack

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

static