M5-Budgeting: Part 1 Flashcards
The annual business plan process typically begins with operating budgets that are driven by sales budgets that, in turn, provide the required variables for production, selling and personnel budgets. Financial budgets including pro forma financial statements and cash budgets come at the end of the process and are prepared last. Cash budgets are typically derived from the operating budget that assume accrual basis assumptions (e.g., credit sales and credit purchases) (true or false)
true
A static budget is based on costs at one level of output. Static budgets thus include budgeted costs for budgeted output. They are not based on or adjusted for actual performance. (true or false)
true
Budgeted costs for actual output are the basis for flexible budget computations and would not be part of a static budget. (true or false)
true
Selling and administrative budgets, like any budgets, need to be detailed in order that the key assumptions are better understood. (true or false)
true
Participative budgeting requires input from multiple stakeholders and spreads the decision-making process over multiple layers of managers and individuals. Implementing this approach effectively is time consuming. Authoritative (top down) budgeting is faster. (true or false)
true
Participative budgeting will:
- increase motivation
- it increases acceptance
- tends to be more accurate
Standards imposed by management without employees input are referred to as authoritative standards. (true or false)
true
Standards developed in collaboration with employees involved with the work are referred to as participative standards. (true or false)
true
Forecast of sales volume is the first step in the budget development process. Sales volume will drive product supply requirements and, by extension, purchasing and inventory requirements. (true or false)
true
The production budget is based on the sales budget (or forecast), with modification for increases or decreases in inventory levels. (true or false)
true
The master budget is based on one production level and a flexible budget is designed to reflect any production level within a relevant range of production activities. (true or false)
true
Manufacturing industries such as mass production are typical areas where standard cost systems are used. However, service industries may also use a standard cost system. (true or false)
true
The first step in developing a comprehensive budget is development of a sales budget. (true or false)
true
The best basis for setting standards is engineering standards based on attainable performance. Tight standards are good, but if unattainable, employees will not be motivated. (true or false)
true
Budgeting is the process of creating a formal plan and translating goals into a quantitative format. (true or false)
true
The first step in the sales planning process is to develop management guidelines specific to sales planning, including sales planning process and planning responsibilities. (true or false)
true
