[Chapter 4] Budgeting For Planning And Control TB Flashcards
A budget is a financial plan for the future used for planning, controlling, and decision-making.
TRUE
The quantitative expressions of plans stated in either physical or financial terms are called _____________.
BUDGETS
The process of setting standards, reviewing feedback, and taking corrective action whenever performance deviates from standards is called __________________.
CONTROL
The body responsibility for reviewing the budget, providing policy guidelines and budgetary goals, resolving differences that may arise, and approving the final budget is the ______________.
BUDGET COMMITTEE
The comprehensive financial plans made up of departmental and activity budgets are the _____________________.
MASTER BUDGETS
The ______________________ is the culmination of the operating budget.
BUDGETED INCOME STATEMENT
Operating expense budgets include marketing expense budget and _____________________.
ADMINISTRATIVE EXPENSE BUDGET
The ___________ budget shows the projected sales and prices.
SALES
Cash disbursements and cash excess or deficiency are components of the _________________.
CASH BUDGET
The accounts receivable aging schedule aids in determining the timing of _________________.
CASH RECEIPTS
The __________________ shows projected assets, liabilities, and shareholders’ equity at the end of the budget period.
BUDGETED BALANCE SHEET
A ______________ budget is developed around one particular level of activity.
STATIC
Volume variances examine differences between the _____________ budget and the _____________ budget.
FLEXIBLE, STATIC
The budgeting that recognizes interdependencies among departments is called _________________________.
ACTIVITY-BASED BUDGETING
Activity-based budgets are also focused on _______________ processes.
BUSINESS
When managers intentionally underestimate or overestimate revenues and costs it is called __________________________.
BUDGETARY SLACK
Budgeting means to set standards, receive feedback, and executing corrective action
FALSE.
Control means to set standards, receive feedback, and executing corrective action.
The budget director is responsible for directing and coordinating the budgeting process.
TRUE
The master budget is composed of the operations budget and the future budget.
FALSE
A continuous budget is a moving twelve-month budget.
TRUE
The sales forecast is the basis for the sales budget.
TRUE
The sales budget shows the expected sales quantity and price of each product or service.
TRUE
The first section of the master budget is the financial budget.
FALSE.
The first section of the master budget is the sales budget.
The production budget describes how many units must be produced in order to meet sales and inventory needs.
TRUE
In a for-profit service firm, the sales budget is also the production budget.
TRUE
Once all the operating budgets have been completed, the net income can be estimated.
FALSE
The capital expenditures budget is a long-term financial plan.
TRUE
The cash budget is the least priority budget in the master budget.
FALSE
The cash excess or deficiency section of the cash budget compares expected available cash to the expected cash needed.
TRUE
The budgeted income statement depends partly on information in the budgets in the master budget.
FALSE
A static budget is one developed for a single level of activity.
TRUE
Static budgets show costs for varying levels of activities.
FALSE.
Static budget shows costs for one level of activity.
A flexible budget is sometimes referred to as a variable budget
TRUE
A flexible budget compares actual costs to budgeted costs.
TRUE
Activity-based budgeting recognizes interdependencies among departments.
TRUE
The activity-based budget begins with output and then determines the resources necessary to create that output.
TRUE
An ideal budgeting system is one that achieves goals and encourages managers to achieve goals ethically.
TRUE
Feedback is not important to managers as a measuring tool of their performance.
FALSE
Participative budgeting detracts from a manager’s sense of responsibility and creativity.
FALSE
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
BUDGET
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
Budget to Actual Variance Analysis
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
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.
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.
CONTROL is the process of setting standards, receiving feedback on actual performance, and taking corrective action whenever actual performance deviates significantly from plan.
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
the sales forecast
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.
It provides organizational independence.
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
Control
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.
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
A. has the responsibility to review the budget.
B. resolves differences that may arise as the budget is prepared.
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
budget committee
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
Master budgets
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
Operating budgets
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
Financial budgets
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.
concerned with the income-generating activities of a firm.
The following is responsible for directing and coordinating the overall budgeting process:
A. budget committee
B. budget director
C. president
D. treasurer
budget director
The type of budget that is a moving twelve-month budget is called the:
A. zero-based budget
B. flexible budget
C. continuous budget
D. both a and b
continuous budget
Which of the following is an operating budget?
A. budgeted statement of cash flows
B. capital expenditures budget
C. budgeted income statement
D. cash budget
budgeted income statement
Which of the following is NOT a responsibility of the budget committee?
A. prepare actual financial statements
B. provide policy guidelines
C. provide budgeting goals
D. resolve differences that may arise as the budget is prepared
prepare actual financial statements
In a merchandising organization, the merchandise purchases budget replaces what budget from a manufacturing firm?
A. the administrative expense budget
B. the pro-forma income statement
C. the production budget
D. the cost of goods sold budget
the production budget
What is the formula used to compute the units to be produced?
A. Units produced = Units sold
B. Units produced = Units sold + Units in beginning inventory + Units in ending inventory
C. Units produced = Units sold + Units in beginning inventory – Units in ending inventory
D. Units Produced = Units sold – Units in beginning inventory + Units in ending inventory
Units Produced = Units sold – Units in beginning inventory + Units in ending inventory
Which of the following is a financial budget?
A. capital expenditures budget
B. sales budget
C. budgeted income statement
D. overhead budget
capital expenditures budget
Which of the following is NOT a component of the Cash Budget?
A. Sales forecast
B. Cash Disbursements
C. Financing
D. Cash excess or deficiency
Sales forecast
Which of the following is a financial budget?
A. cost of goods sold budget
B. budgeted balance sheet
C. marketing expense budget
D. production budget
budgeted balance sheet
A budget that is developed around one particular level of activity is
A. a static budget.
B. a continuous budget.
C. an incremental budget.
D. none of these.
a static budget.
The budget most appropriate for control purposes is the
A. static budget.
B. flexible budget.
C. continuous budget.
D. incremental budget.
flexible budget.
Flexible budgets do NOT provide
A. expected costs for a range of activity.
B. budgeted costs for the actual level of activity.
C. budgeted costs for a predetermined level of activity.
D. expected costs for the actual performance level.
budgeted costs for a predetermined level of activity.
If a static budget forecasted 100,000 units to be sold in the fiscal year and actual units sold amounted to 120,000, what assumption could be made under a flexible budget process?
A. Since the actual volume exceeds the budgeted volume, there is an unfavorable volume variance for output.
B. Fixed costs would increase in the flexible budget due to the volume change.
C. The effectiveness of the manager is in question.
D. Variable costs will be higher than projected in the static budget due to the volume variance.
Variable costs will be higher than projected in the static budget due to the volume variance.
Volume variances examine differences between
A. the static budget and actual costs.
B. the flexible budget and static budget.
C. the static budget and the rolling budget.
D. none of these.
the flexible budget and static budget.
Activity-based budgets
A. use the knowledge of cost behavior to split the functional-based line items into fixed and variable components.
B. start with output and then determine the resources necessary to create that output.
C. rely on the use of functional-based line items.
D. work in environments where the products are homogenous and the production process is simple.
start with output and then determine the resources necessary to create that output.
Activity-based budgeting is most useful when
A. output is homogeneous.
B. production processes are simple.
C. diverse products are produced.
D. volume levels are stable.
diverse products are produced.
With an activity flexible budget, a budget variance is calculated
A. based on a flexible budget based on cost for actual units produced.
B. based on a flexible budget based on various activity drivers for actual units produced.
C. based on a flexible budget based on flexible manufacturing.
D. based on a flexible budget based on committed resources for actual units produced.
based on a flexible budget based on various activity drivers for actual units produced.
Which is NOT one of the four steps needed to build an activity-based budget?
A. Determine output level.
B. Determine the activities and their drivers needed to produce output.
C. Estimate the demand for each activity to produce the output.
D. Estimate the committed capacity.
Estimate the committed capacity.
Activity-based budgets compare costs for items based on activities such as
A. direct material.
B. direct labor.
C. setups.
D. power.
setups.
A flexible-based budgeting system
A. uses functional-based line items.
B. splits costs into variable and fixed components.
C. prepares budgets for a range of activity levels.
D. all of these.
All of these:
A. uses functional-based line items.
B. splits costs into variable and fixed components.
C. prepares budgets for a range of activity levels.
A functional-based approach to budgeting compares costs for functional line items such as
A. setups.
B. direct materials.
C. ordering.
D. inspections.
direct materials
A functional-based approach to budgeting compares costs for functional line items such as
A. setups.
B. direct materials.
C. ordering.
D. inspections.
direct materials
Goal congruence means
A. there is alignment of organizational and managerial goals.
B. the organization is aligned to the needs of the environment.
C. the organization is aligned to shareholder goals.
D. there is no divergence between organization and stockholder goals.
there is alignment of organizational and managerial goals.
The ideal budget system creates
A. extreme caution in managers.
B. drive and risk avoidance in managers.
C. drive and goal congruence in managers.
D. none of these.
drive and goal congruence in managers.
When budgets are used to evaluate performance, which factor might NOT have a significant behavioral effect?
A. concern for status
B. concern for financial matters
C. concern for career
D. concern for company profit
concern for company profit
Analysis that fosters management by exception is
A. value analysis.
B. process analysis.
C. sensitivity analysis.
D. variance analysis.
variance analysis.
When the reaction to a budget is negative, resulting in managerial behavior that is negative for the organization, the resulting behavior is known as
A. dysfunctional behavior.
B. psychopathic behavior.
C. congruent behavior.
D. sociopathic behavior.
dysfunctional behavior.
Which of the following is NOT a key feature of an ideal budgetary system?
A. participation
B. incentives
C. accountability for noncontrollable costs
D. feedback on performance
accountability for noncontrollable costs
Which of the following is NOT a key feature of an ideal budgetary system?
A. controllable costs
B. single measure for performance
C. incentives
D. frequent feedback
single measure for performance
Which of the following is NOT an advantage of participative budgeting?
A. encourages incrementalism
B. encourages communication
C. encourages responsibility
D. encourages creativity
encourages incrementalism
Myopic behavior occurs when
A. actions improve budgetary performance in the short-run but are harmful in the long run.
B. there is uncertainty.
C. there is focus on immediate costs.
D. actions improve budgetary performance in the distant time horizon.
actions improve budgetary performance in the short-run but are harmful in the long run.
An example of a negative incentive is
A. promotion.
B. nonfinancial incentive.
C. feedback reports.
D. termination of employment.
termination of employment.
Which of the following is NOT a potential disadvantage of participative budgeting?
A. pseudoparticipation
B. performance feedback
C. unrealistic standards
D. budgetary slack
performance feedback
Participative budgeting has which of the following potential problems?
A. building slack into a budget
B. encourages individual behavior that is in basic conflict with the goals of the organization
C. using budgets as a part of performance evaluations could lead to unethical behavior
D. managers take action that will improve performance in the short run but has long-term consequences
building slack into a budget
The condition that exists when managers deliberately underestimate revenues or overestimate costs to provide flexibility is called:
A. Realistic standards
B. Monetary incentives
C. Budgetary slack
D. Management by exception
Budgetary slack
Realistic budgets reflect
A. actual levels of activity, full capacity usage, efficiencies, and general economic trends.
B. actual levels of activity, seasonal variations, efficiencies, and general economic trends.
C. ideal levels of activity, full capacity usage, efficiencies, and general economic trends.
D. ideal levels of activity, full capacity usage, and efficiencies.
actual levels of activity, seasonal variations, efficiencies, and general economic trends.
Controllable costs are those that a manager
A. has no authority over.
B. cannot avoid.
C. does not participate in authorizing.
D. can influence through decision making.
can influence through decision making.
