Planning Techniques: Budgeting & Analysis Flashcards
The goals and objectives upon which an annual profit plan is most effectively based are:
a. Qualitative measures of organizational activity such as product innovation leadership, product quality levels, and product safety.
b. A combination of financial, quantitative, and qualitative measures.
c. Financial and quantitative measures.
d. Quantitative measures such as growth in unit sales, number of employees, and manufacturing capacity.
Choice “b” is correct. The goals and objectives upon which an annual profit plan (also known as budgeted, targeted or estimated financial statements) is most effectively based are a combination of financial, quantitative (number of units), and qualitative (e.g., to be the best) measures. Not all goals and objectives can be quantified.
Which of the following Performance Management Measures integrates both financial and non-financial measures of performance?
a. Balanced Scorecard.
b. Variance Analysis.
c. Control Charts.
d. Return on Investment.
Choice “a” is correct. The balanced scorecard seeks to fully integrate financial measures of performance with non-financial measures of performance.
In analyzing company operations, the controller of the Jason Corporation found a $250,000 favorable flexible-budget revenue variance. The variance was calculated by comparing the actual results with the flexible budget. This variance can be wholly explained by:
a. Changes in the number of units sold.
b. Changes in unit selling prices.
c. The total sales volume variance.
d. The total flexible budget variance.
Choice “b” is correct. A revenue variance (also known as a sales price variance) is due to a change in unit selling prices.
For a company that produces more than one product, the sales volume variance can be divided into which two of the following additional variances?
a. Sales price variance and flexible budget variance.
b. Sales efficiency variance and sales price variance.
c. Sales quantity variance and sales mix variance.
d. Sales mix variance and production volume variance.
Choice “c” is correct. For a company that produces more than one product, the sales volume variance can be divided into sales quantity variance and sales mix variance.
The variance that arises solely because the quantity actually sold differs from the quantity budgeted to be sold is:
a. Sales mix variance.
b. Static budget variance.
c. Sales volume variance.
d. Flexible budget variance.
Choice “c” is correct. Sales volume variance arises solely because the quantity actually sold differs from the quantity budgeted to be sold.
Strategic Business Units (SBUs) are classified into different types based on the responsibility levels assigned to their managers. Which SBU has the least amount of responsibility?
a. Profit SBU.
b. Cost SBU.
c. Revenue SBU.
d. Investment SBU.
Choice “b” is correct. Managers in a cost SBU only have responsibility for one dimension of financial performance and it is one that they control entirely, the level of costs incurred.
The performance measurement tool generally associated with the display of information evaluating multiple dimensions of business outcomes is referred to as the:
a. Balanced scorecard.
b. Kaizen.
c. Return on Investment.
d. Market value added.
Choice “a” is correct. The balanced scorecard reports management information regarding organizational performance as defined by “critical success factors.” These critical success factors are often classified as human resource, business process, customer satisfaction, and financial performance, to demonstrate that no single dimension of organizational performance can be relied upon to evaluate success.
Although there is no single format for the balanced scorecard, the report generally includes a variety of measurements associated with objectives classified by critical success factors. Critical success factors often include:
a. Shareholder satisfaction, customer satisfaction, vendor satisfaction, and employee satisfaction issues.
b. Financial, internal business process, customer, and human resource considerations.
c. Sales, net income, cash flow, and return on investment performance.
d. Throughput and lifecycle times.
Choice “b” is correct. Critical success factors identified in the balanced scorecard generally include human resource aspects, particularly as it relates to harnessing employee innovation, internal business process improvement, customer satisfaction, and financial performance.
Responsibility accounting defines an operating center that is responsible for revenue and costs as a(n):
a. Operating unit.
b. Revenue center.
c. Profit center.
d. Investment center.
Choice “c” is correct. A profit center is responsible for revenue and costs.
Decentralized firms can delegate authority and yet retain control and monitor managers’ performance by structuring the organization into responsibility centers. Which one of the following organizational segments is most like an independent business?
a. Investment center.
b. Profit center.
c. Revenue center.
d. Cost center.
Choice “a” is correct. An investment center is most like an independent business. Investment centers are responsible for revenues, expenses, and invested capital.
A successful responsibility accounting reporting system is dependent upon:
a. The correct allocation of controllable variable costs.
b. A reasonable separation of costs into their fixed and variable components since fixed costs are not controllable and must be eliminated from the responsibility report.
c. Identification of the management level at which all costs are controllable.
d. The proper delegation of responsibility and authority.
Choice “d” is correct. Responsibility for costs, and the authority to do something about them, are necessary for a successful responsibility accounting system.
Which of the following balanced scorecard perspectives examines a company’s success in targeted market segments?
a. Customer.
b. Learning and growth.
c. Financial.
d. Internal business process.
Choice “a” is correct. The customer perspective of a balanced scorecard is concerned with target markets (e.g., low-price leader).
Under the balanced scorecard concept developed by Kaplan and Norton, employee satisfaction and retention are measures used under which of the following perspectives?
a. Learning and growth.
b. Financial.
c. Customer.
d. Internal business.
Choice “a” is correct. Employee satisfaction and retention measures are used under the “learning and growth” perspective of the balanced scorecard. Employee satisfaction typically correlates with productivity, employee effectiveness, and retention. Retention itself often relates to reduced retraining, increased opportunity for human resource development, and reduced investment in learning curves.
Organizations focus on both financial and non-financial features of their operations to evaluate the degree to which they will be successful in their strategies. These financial and non-financial dimensions of their operations are sometimes referred to as:
a. Benchmarks.
b. Balanced scorecards.
c. The total quality management continuum.
d. Critical success factors.
Choice "d" is correct. Financial and non-financial features of an organization that contribute to its success in achieving strategy are referred to as critical success factors and are normally classified as: Financial solvency and return, Customer satisfaction, Internal business processes, and Human resource innovation.
Strategic Business Units (SBUs) are classified into different types based on the responsibility levels assigned to their managers. Each of the following items are reasons for classifying Strategic Business Units as cost, revenue, profit, or investment, except to:
a. Promote goal congruence.
b. Communicate segment goals to managers for improved operational and financial control.
c. Isolate financial measurement for segment performance.
d. Highlight different responsibility levels among managers in highly centralized organizations.
Choice “d” is correct. Strategic Business Units are established in a decentralized environment not a centralized environment. Highlighting different responsibility levels in centralized environments is not a reason for using cost, revenue, profit and investment SBUs.
Which is not an example of responsibility accounting?
a. Profit center.
b. Cost center.
c. Investment center.
d. Product center.
Choice “d” is correct. Product center does not refer to any responsibility or decision center.
Fairmount, Inc. uses an accounting system that charges costs to the manager who has been delegated the authority to make the decisions incurring the costs. For example, if the sales manager accepts a rush order that will result in higher than normal manufacturing costs, these additional costs are charged to the sales manager because the authority to accept or decline the rush order was given to the sales manager. This type of accounting system is known as:
a. Transfer price accounting.
b. Responsibility accounting.
c. Contribution accounting.
d. Functional accounting.
Choice “b” is correct. Responsibility accounting is a system of accounting that recognizes various responsibility or decision centers throughout an organization and reflects the plans and actions of each of these centers by assigning particular revenues and costs to the one having the responsibility for making decisions about these revenues and costs.
The purpose of identifying manufacturing variances and assigning their responsibility to a person/department should be to:
a. Pinpoint fault for operating problems in the organization.
b. Use the knowledge about the variances to promote learning and continuous improvement in the manufacturing operations.
c. Determine the proper cost of the products produced so that selling prices can be adjusted accordingly.
d. Trace the variances to finished goods so that the inventory can be properly valued at year-end.
Choice “b” is correct. The purpose of identifying and assigning responsibility for a variance to a person/department should be to use the knowledge to promote learning and continuous improvement.
Organic Enterprises cultivates potted plants and hybrids. Management conducted a careful engineering study of product requirements and has developed standards to control production. Standards of this type are also referred to as:
a. Authoritative standards.
b. Ideal standards.
c. Attainable standards.
d. Participative standards.
Choice “a” is correct. Standards imposed by management without employee input are referred to as authoritative standards.
Which of the following is a disadvantage of participative budgeting?
a. It decreases motivation.
b. It decreases acceptance.
c. It is less accurate.
d. It is more time consuming.
Choice “d” is correct. 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.
Which of the following budgets provides information for preparation of the owner’s equity section of a budgeted balance sheet?
a. Cash budget.
b. Capital expenditures budget.
c. Sales budget.
d. Budgeted income statement.
Choice “d” is correct. The budgeted income statement produces anticipated accrual basis net income or loss and is added to beginning owner’s equity to generate the owner’s equity section of the budgeted balance sheet.
Fargo, Mfg., a small business, is developing a budget for next year. Which of the following steps should Fargo perform first?
a. Forecast Fargo’s sales volume.
b. Compute the dollar amount of Fargo’s forecasted sales.
c. Determine the price of Fargo’s products.
d. Identify costs of Fargo’s forecasted sales volume.
Choice “a” is correct. Forecast of sales volume is the first step in the budget development process. Sales volumes will drive product supply requirements and, by extension, purchasing and inventory requirements.
Which of the following would be most impacted by the use of the percentage of sales forecasting method for budgeting purposes?
a. Bonds payable.
b. Common stock.
c. Accounts payable.
d. Mortgages payable.
Choice “c” is correct. Of the items listed, accounts payable would be the most impacted by the use of the percentage of sales forecasting method for budgeting purposes. If sales increased or decreased, purchases would presumably increase or decrease, by whatever percentage was being used in the budgeting process. If purchases increased or decreased, accounts payable would presumably increase or decrease by approximately the same percentage. The other items listed have no relationship at all to sales and would thus not be affected by the method used to forecast sales.
