13.1 Roles of Budgets and the Budgeting Process Flashcards
_____________ is imposed by upper management and therefore has less chance of acceptance by those on whom the budget is imposed. This approach has the advantage of ensuring consistency across functional areas. It is also far less complex and time-consuming than coordinating input from middle and lower levels.
Top-down (authoritative) budgeting
___________ is characterized by general guidance from the highest levels of management, followed by extensive input from middle and lower management. Because of this level of participation within the company, there is usually a greater chance of acceptance and optimal decision making. Disadvantages of this standards setting include its time and money costs. In addition, the quality of participation is affected by the goals, values, and expectations of those involved.
Bottom-up budgeting (participative)
The excess of resources budgeted over the resources necessary to achieve organizational goals. This practice results in the underestimation of revenues and overestimation of expenses. This must be avoided if a budget is to have its desired effects.
budgetary slack
Different purposes of a budget
Planning, control, motivation, communication, and goal congruence
Steps of the planning process for an organization
- Formulate mission statement
- Draw up strategic plan
- Set priorities
- Set short-term objectives
All of the following are advantages of the use of budgets in a management control system except that budgets
A. Limit unauthorized expenditures
B. Promote communication and coordination with the organization
C. Provide performance criteria
D. Force management planning
A. Limit unauthorized expenditures
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
The starting point for any organization’s planning process is the formulation of its
mission statement
_____ plans and budgets most concern senior managers and have time frames of up to 10 years or more
strategic plans
_____ plans and budgets most concern middle managers and have time frames of up to 2 years
Intermediate plans
______ plans and budgets most concern lower-level managers and generally have time frames of 1 month to 1 year
Operational plans
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 consequences of having the standards set by the consulting firm except that
A. There could be dissatisfaction if the standards contain costs that are not controllable by the unit held responsible.
B. The standards may appear to lack management support
C. Employees could react negatively since they did not participate in setting the standards.
D. The consulting firm may not fully understand the manufacturer’s manufacturing process, resulting in suboptimal performance.
B. The standards may appear to lack management support.
Which one of the following statements concerning approaches for the budget development process is correct?
A. 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.
B. The top-down approach to budgeting will ensure adherence to strategic organizational goals.
C. 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. With the information technology available, the role of budgets as an organizational communication device has declined.
C. Since the department managers have the most detailed knowledge about organizational operations, they should use this information as the building blocks of the operating budget.
Which one of the following is an advantage of using the budgeting process to judge performance?
A. Past performance can be used to evaluate performance improvements
B. Management believes that past conditions are an indicator of future conditions
C. Management is able to measure actual performance against predicted performance
D. Company performance can be measured against the performance of others in the same industry
C. Management is able to measure actual performance against predicted performance
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. Provides a formal benchmark to be used for feedback and performance evaluation
C. Ensure improved cost control within the organization and prevents inefficiencies.
D. Serves as a coordination and communication device between management and subordinates
C. Ensure improved cost control within the organization and prevents inefficiencies
When properly developed and administered, budgets provide the following advantages to the organization except to
A. Provide a structure for measuring performance
B. Ensure that the organization makes a profit
C. Motivate managers and other employees
D. Promote the efficient allocation of resources
B. Ensure that the organization makes a profit
What is budgetary slack?
The excess of resources budgeted over the resources necessary to achieve organizational goals.
Budgetary slack results in the underestimation of ___________ and overestimation of ______________
Underestimation of revenues
Overestimation of expenses
_________ is the extent to which a manager can influence activities and related revenues and costs.
Controllability
Controllable costs
Those that are at the discretion of a particular manager
Those that a particular manager can influence or decide.
Noncontrollable costs
Those to which another level of the organization has committed, removing the manager’s discretion.
Those set by a another level in the organization, leaving the manager with no control over them.
Goal congruence exists when
everyone at all levels of the organization is working toward the same goals
Which one of the following is not an advantage of a participatory budgeting process?
A. Coordination between departments
B. Goal congruence
C. Communication between departments
D. Control of uncertainties
D. Control of uncertainties
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. Needs to separate the budgeting process and the business planning process into two separate processes
C. Lacks the detailed knowledge of the daily operations and should limit their involvement
D. Needs to be involved, including using the budget process to communicate goals
D. Needs to be involved, including using the budget process to communicate goals.