Ch. 6 Budgets & Responsible Accounting

A budget: A) is the quantitative expression of a proposed plan of action by management B) is an aid to coordinate what needs to be done C) generally includes both financial and nonfinancial aspects of the plan

A budget A) is the quantitative expression of a proposed plan of action. B) aids in coordinating what needs to be done. C) includes both financial and nonfinancial aspects. D) All of these answers are correct.

Budgeting is used to help companies: A) plan to better satisfy customers B) anticipate potential problems C) focus on opportunities D) All of these answers are correct.

A master budget: A) includes only financial aspects of a plan and excludes nonfinancial aspects B) is an aid to coordinating what needs to be done to implement a plan C) includes broad expectations and visionary results D) should not be altered after it has been agreed upon

Operating decisions primarily deal with: A) the use of scarce resources B) how to obtain funds to acquire resources C) acquiring equipment and buildings D) satisfying stockholders

Financing decisions primarily deal with: A) the use of scarce resources B) how to obtain funds to acquire resources C) acquiring equipment and buildings D) preparing financial statements for stockholders

Budgeting provides all of the following EXCEPT: A) a means to communicate the organization's short-term goals to its members B) support for the management functions of planning and coordination C) a means to anticipate problems D) an ethical framework for decision making

If initial budgets prove UNACCEPTABLE, planners achieve the most benefit from: A) planning again in light of feedback and current conditions B) deciding not to budget this year C) accepting an unbalanced budget D) using last year's budget

Operating budgets and financial budgets: A) combined form the master budget B) are prepared before the master budget C) are prepared after the master budget D) have nothing to do with the master budget

A good budgeting system forces managers to examine the business as they plan, so they can: A) detect inaccurate historical records B) set specific expectations against which actual results can be compared C) complete the budgeting task on time D) get promoted for doing a good job

A budget can do all of the following EXCEPT: A) promote coordination among subunits B) determine actual profitability C) motivate managers D) motivate employees

A budget should/can do all of the following EXCEPT: A) be prepared by managers from different functional areas working independently of each other B) be adjusted if new opportunities become available during the year C) help management allocate limited resources D) become the performance standard against which firms can compare the actual results

A limitation of comparing a company's performance against actual results of last year is that: A) it includes adjustments for future conditions B) feedback is no longer a possibility C) past results can contain inefficiencies of the past year D) the budgeting time period is set at one year

Challenging budgets tend to: A) decrease line-management participation in attaining corporate goals B) increase failure C) increase anxiety without motivation D) motivate improved performance

Actual results should NOT be compared against past performance because: A) past results may contain mistakes and substandard performance B) past results will never happen again C) past performance is an indicator of future performance D) future conditions will be similar to past conditions

A company's actual performance should be compared against budgeted amounts for the same accounting period so that: A) adjustments for future conditions can be included B) no feedback is possible C) inefficiencies of the past year can be included D) a rolling budget can be implemented

It is advantageous to coordinate budgets with: A) suppliers B) customers C) the marketing and production departments D) All of these answers are correct.

A budget can help implement: A) strategic planning B) long-run planning C) short-run planning D) All of these answers are correct.

To gain the benefits of budgeting ________ must understand and support the budget. A) senior management B) middle management C) line employees D) All of these answers are correct.

Participation of employees in the budgeting process helps to create: A) greater commitment B) greater anxiety C) less commitment D) better past performance

Line managers who feel that top management does NOT believe in the budget are most likely to: A) pick up the slack and participate in the budgeting process B) be motivated by the budget C) spend little time on the budgeting process D) convert the budget to a shorter more reasonable time period

The time coverage of a budget should be: A) one year B) guided by the purpose of the budget C) cover design through manufacture and sale of the product D) shorter rather than longer

Rolling budgets help management to: A) better review the past calendar year B) deal with a 5-year time frame C) focus on the upcoming budget period D) rigidly administer the budget

Budgets should: A) be flexible B) be administered rigidly C) only be developed for short periods of time D) include only variable costs

Operating budgets include all of the following EXCEPT: A) the revenues budget B) the budgeted income statement C) the administrative costs budget D) the budgeted balance sheet

Operating budgets include the: A) budgeted balance sheet B) budgeted income statement C) capital expenditures budget D) budgeted statement of cash flows

The operating budget process generally concludes with the preparation of the: A) production budget B) distribution budget C) research and development budget D) budgeted income statement

Which budget is NOT necessary to prepare the budgeted balance sheet? A) cash budget B) budgeted statement of cash flows C) budgeted income statement D) revenues budget

Financial budgets include the all of the following EXCEPT: A) capital expenditures budget B) budgeted income statement C) budgeted balance sheet D) budgeted statement of cash flows

________ includes a budgeted statement of cash flows and a budgeted balance sheet. A) An annual report B) The financial budget C) The operating budget D) The capital expenditures budget

The order to follow when preparing the operating budget is: A) revenues budget, production budget, and direct manufacturing labor costs budget B) costs of goods sold budget, production budget, and cash budget C) revenues budget, manufacturing overhead costs budget, and production budget D) cash expenditures budget, revenues budget, and production budget.

The budgeting process is most strongly influenced by: A) the capital budget B) the budgeted statement of cash flows C) the sales forecast D) the production budget

________ is the usual starting point for budgeting. A) The revenues budget B) Net income C) The production budget D) The cash budget

The sales forecast should be primarily based on: A) statistical analysis. B) input from sales managers and sales representatives C) production capacity D) input from the board of directors

The sales forecast is influenced by: A) advertising and sales promotions B) competition C) general economic conditions D) All of these answers are correct

A sales forecast is: A) often the outcome of elaborate information gathering and discussions among sales managers B) developed primarily to prepare next year's marketing campaign C) solely based on sales of the previous year D) a summary of product costs that influence pricing decisions

The revenues budget identifies: A) expected cash flows for each product B) actual sales from last year for each product C) the expected level of sales for the company D) the variance of sales from actual for each product

The number of units in the sales budget and the production budget may differ because of a change in: A) finished goods inventory levels B) overhead charges C) direct material inventory levels D) sales returns and allowances

Production is primarily based on: A) projected inventory levels B) the revenues budget C) the administrative costs budget D) the capital expenditures budget

Budgeted production equals: A) beginning finished goods inventory + budgeted unit sales - targeted ending finished goods inventory B) targeted ending finished goods inventory + beginning finished goods inventory - budgeted unit sales C) budgeted unit sales + targeted ending finished goods inventory - beginning finished goods inventory D) budgeted unit sales + targeted ending finished goods inventory + beginning finished goods inventory

The direct materials usage budget is based on: A) the units to be produced during a period B) budgeted sales dollars C) the predetermined factory overhead rate D) the amount of labor-hours worked

Direct material purchases equal: A) production needs B) production needs plus target ending inventories C) production needs plus beginning inventories D) production needs plus target ending inventories less beginning inventories

Individual budgeted amounts included in the manufacturing overhead costs budget are based on input from: A) operating personnel B) costs incurred in prior years C) cost changes expected in the future D) All of these answers are correct.

The manufacturing overhead costs budget includes budgeted amounts for: A) indirect materials B) indirect manufacturing labor C) depreciation on factory equipment D) All of these answers are correct

Budgeted manufacturing overhead costs include all types of factory expenses EXCEPT: A) fixed items such as depreciation of manufacturing machinery B) variable items such as plant supplies C) indirect labor such as the salary of the plant supervisor D) direct labor and direct materials

The cost of goods sold budget requires all of the following budgets EXCEPT: A) direct material cost budget B) manufacturing overhead cost budget C) distribution cost budget D) direct manufacturing labor cost budget

The use of activity-based budgeting is growing because of: A) the increased use of activity-based costing B) the increased use of kaizen costing C) increases in work-in-process inventory D) increases in direct materials inventory

Activity-based budgeting would separately estimate: A) the cost of overhead for a department B) a plant-wide cost-driver rate C) the cost of a setup activity D) All of these answers are correct

Activity-based-costing analysis makes no distinction between: A) direct-materials inventory and work-in-process inventory B) short-run variable costs and short-run fixed costs C) parts of the supply chain D) components of the value chain

Activity-based budgeting makes it easier to: A) determine a rolling budget B) prepare pro forma financial statements C) determine how to reduce costs D) execute a financial budget

Activity-based budgeting does NOT require: A) knowledge of the organization's activities B) specialized expertise in financial management and control C) knowledge about how activities affect costs D) the ability to see how the organization's different activities fit together

Activity-based budgeting: A) uses one cost driver such as direct labor-hours B) uses only output-based cost drivers such as units sold C) focuses on activities necessary to produce and sell products and services D) classifies costs by functional area within the value chain

Activity-based budgeting includes all the following steps EXCEPT: A) determining demands for activities from sales and production targets B) computing the cost of performing activities C) determining a separate cost-driver rate for each department D) describing the budget as costs of activities rather than costs of functions

Financial planning models: A) are not used in the budgeting process B) are not useful for sensitivity analysis C) are mathematical representations of the relationships affecting the budget process D) are used for nonfinancial aspects of budgeting

Financial planning software packages assist management with: A) assigning responsibility to various levels of management B) identifying the target customer C) sensitivity analysis in their planning and budgeting activities D) achieving greater commitment from lower management

________ uses a "what-if" technique that examines how results will change if the originally predicted data changes. A) A sales forecast B) A sensitivity analysis C) A pro forma financial statement D) The statement of cash flows

When performing a sensitivity analysis, if the selling price per unit is increased, then the: A) per unit fixed administrative costs will increase B) per unit direct materials purchase price will increase C) total volume of sales will increase D) total costs for sales commissions and other nonmanufacturing variable costs will increase

Sensitivity analysis is useful for examining all of the following EXCEPT: A) changes in employee satisfaction B) changes in direct material cost C) changes in sales price D) changes in direct labor cost

Responsibility accounting: A) is a system that measures the plans, budgets, actions, and actual results of a responsibility center B) is an arrangement of lines of responsibility within the organization C) explicitly incorporates continuous improvement anticipated during the budget period D) examines how a result will change if the original plan is not achieved

Responsibility centers include all of the following EXCEPT: A) cost B) revenue C) customers D) investment

Variances between actual and budgeted amounts can be used to: A) alert managers to potential problems and available opportunities B) inform managers about how well the company has implemented its strategies C) signal that company strategies are ineffective D) All of these answers are correct.

A maintenance manager is most likely responsible for a(n): A) revenue center B) investment center C) cost center D) profit center

The regional sales office manager of a national firm is most likely responsible for a(n): A) revenue center B) investment center C) cost center D) profit center

A regional manager of a restaurant chain in charge of finding additional locations for expansion is most likely responsible for a(n): A) revenue center B) investment center C) cost center D) profit center

The manager of a hobby store that is part of a chain of stores is most likely responsible for a(n): A) revenue center B) investment center C) cost center D) profit center

A manager of a revenue center is responsible for all of the following EXCEPT: A) service quality and units sold B) the acquisition cost of the product or service sold C) price, product mix, and promotional activities D) investments of excess cash

A manager of a profit center is responsible for all of the following EXCEPT: A) sales revenue B) the cost of merchandise purchased for resale C) expanding into new geographic areas D) selling and marketing costs

A controllable cost is any cost that can be ________ by a responsibility center manager for a period of time. A) controlled B) influenced C) segregated D) excluded

A responsibility accounting system could: A) exclude all uncontrollable costs B) exclude controllable costs C) segregate uncontrollable costs from controllable costs D) Both A and C are correct.

Which statement about controllability is NOT true: A) few costs are clearly under the sole influence of one manager B) holds managers responsible for uncontrollable costs C) with a long enough time span, all costs will come under somebody's control D) describes the degree of influence that managers have over a particular item

Controllability may be difficult to pinpoint because of all the following EXCEPT: A) some costs depend on market conditions B) current managers may have inherited inefficiencies of a previous manager C) the current use of stretch or challenge targets D) few costs are under the sole influence of one manager

Responsibility accounting: A) emphasizes controllability B) focuses on whom should be asked about the information C) attempts to assign blame for problems to a specific manager D) All of these answers are correct.

A primary consideration in assigning a cost to a responsibility center is: A) whether the cost is fixed or variable B) whether the cost is direct or indirect C) who can best control the change in that cost D) where in the organizational structure the cost was incurred

The Japanese use the term kaizen when referring to: A) scarce resources B) pro forma financial statements C) continuous improvement D) the sales forecast

Kaizen refers to incorporating cost reductions: A) in each successive budgeting period B) in each successive sales forecast C) in all customer service centers D) All of these answers are correct.

All of the following are encouraged with kaizen budgeting EXCEPT: A) better interactions with suppliers B) large discontinuous improvements C) cost reductions during manufacturing D) systematic monthly cost reductions

Kaizen budgeting involves: A) large cost reductions B) management directed improvements C) continual small cost reductions D) continual small revenue increases

Kaizen budgeting is driven by: A) management B) employees C) stockholders D) creditors

Building in budgetary slack includes: A) overestimating budgeted revenues B) underestimating budgeted costs C) making budgeted targets more easily achievable D) All of these answers are correct.

To reduce budgetary slack management may: A) incorporate stretch or challenge targets B) use external benchmark performance measures C) award bonuses for achieving budgeted amounts D) reduce projected cost targets by 10% across all areas

A stretch budget is a budget that: A) crosses more than one responsibility center B) represents a challenging, but achievable level of performance C) is impossible to implement in a cost center D) is designed to include the effects of exchange rate fluctuations

Multinational budgeting is more complex than budgeting in a domestic environment due to the possibility of: A) exchange rate fluctuations B) sophisticated techniques used by multinationals such as forward, future, and options contracts C) different political, legal, and economic environments faced by multinationals D) All of these answers are correct.

Multinational budgeting is useful for everything EXCEPT: A) comparing actual to budget in volatile conditions B) helping managers learn and adapt to changing conditions C) determining the impact of currency fluctuations D) determining how well managers adapt to uncertain environments

To prepare the cash budget, all of the following budgets are required EXCEPT: A) capital expenditures budget B) cost of goods sold budget C) budgeted balance sheet D) revenue budget

Financial analysts use the projected cash flow statement to do all of the following EXCEPT: A) plan for when excess cash is generated B) plan for short-term cash investments C) project cash shortages and plan a strategy to deal with the shortages D) project depreciation expense

The cash flow statement does NOT include: A) cash inflows from the collection of receivables B) cash outflows paid toward raw material purchases C) all sales revenues D) interest paid and received

The cash budget is a schedule of expected cash receipts and disbursements that: A) requires an aging of accounts receivable and accounts payable B) is a self-liquidating cycle C) is prepared immediately after the sales forecast D) predicts the effect on the cash position at given levels of operations

Basile Corporation has budgeted sales of 36,000 units, target ending finished goods inventory of 6,000 units, and beginning finished goods inventory of 1,800 units. How many units should be produced next year? A) 43,800 units B) 40,200 units C) 31,800 units D) 36,000 units

For next year, Manzo, Inc., has budgeted sales of 30,000 units, target ending finished goods inventory of 1,500 units, and beginning finished goods inventory of 900 units. All other inventories are zero. How many units should be produced next year? A) 29,400 units B) 30,000 units C) 30,600 units D) 32,400 units

Wilcox Company has budgeted sales volume of 60,000 units and budgeted production of 54,000 units, while 10,000 units are in beginning finished goods inventory. How many units are targeted for ending finished goods inventory? A) 10,000 units B) 16,000 units C) 6,000 units D) 4,000 units