Chapter 9
True / False
1. A strategic plan identifies strategies for future activities and operations, generally covering at least five years.
a. True
b. False
2. Budgets are financial plans for the future.
a. True
b. False
3. The master budget is composed of operating budgets and financial budgets.
a. True
b. False
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4. Control is achieved by comparing actual results with budgeted results on a periodic basis.
a. True
b. False
5. Planning is looking ahead to see what actions should be taken to realize particular goals.
a. True
b. False
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6. Budgets identify objectives and the actions needed to achieve them because they are foresighted financial plans.
a. True
b. False
7. A firm should develop a strategic plan before preparing a budget.
a. True
b. False
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8. A firm acquires information that can be used to improve decision making from a budgetary system.
a. True
b. False
9. Comparing actual results with budgeted results on a periodic basis provides control in a budgetary system.
a. True
b. False
10. A large difference between actual and planned results is feedback that the system is providing adequate control.
a. True
b. False
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11. Communication and coordination are served by budgets.
a. True
b. False
12. The master budget is typically a comprehensive financial plan for the organization for the past fiscal year.
a. True
b. False
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13. A continuous budget is a moving 12-month budget.
a. True
b. False
14. The department manager reviews the budget, provides policy guidelines and budgetary goals, and resolves differences
that arise as the budget is prepared, approves the final budget, and monitors the actual performance of the organization as
the year unfolds.
a. True
b. False
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15. The budget director is the person responsible for directing and coordinating the organization’s overall budgeting
process.
a. True
b. False
16. The first budget to be prepared is the sales budget.
a. True
b. False
17. The production budget is prepared in units and in dollars.
a. True
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b. False
18. The direct materials purchases budget is based on the sales budget.
a. True
b. False
19. There are as many direct materials purchases budgets as there are products.
a. True
b. False
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20. The output of the cost of goods sold budget is entered into the pro forma balance sheet.
a. True
b. False
21. The direct labor budget includes: units to be produced, direct labor time needed per unit, and total direct labor cost for
the period.
a. True
b. False
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22. The selling and administrative expenses budget is part of the operating budgets.
a. True
b. False
23. The sales budget is used directly in the development of the production budget.
a. True
b. False
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24. In preparing the direct labor budget, the average wage rate is used to calculate total direct labor cost.
a. True
b. False
25. If the initial cash budget indicates a cash deficiency, the company must go out of business.
a. True
b. False
26. Cash receipts must be at least as much as sales.
a. True
b. False
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27. The cash budget includes the beginning balance of cash, cash receipts, cash disbursements, and the ending balance of
cash.
a. True
b. False
28. Cash budgets are often prepared monthly or even weekly.
a. True
b. False
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29. A static budget compares actual cost with budgeted costs.
a. True
b. False
30. A static budget is a budget for a particular level of activity.
a. True
b. False
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31. Static budgets are the best benchmarks for preparing a performance report.
a. True
b. False
32. An after-the-fact flexible budget allows managers to generate financial results from a number of potential scenarios.
a. True
b. False
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33. Before-the-fact flexible budgets give expected outcomes for a range of activity levels.
a. True
b. False
34. Individual behavior that is in basic conflict with the goals of the organization is called goal congruence.
a. True
b. False
35. Monetary incentives include salary increases, bonuses, and promotions.
a. True
b. False
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36. Pseudoparticipation is one of the potential problems with participative budgeting.
a. True
b. False
37. Budgets should be based on ideal standards to encourage everyone to reach for the highest level of performance.
a. True
b. False
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38. Ideally, managers are held accountable for controllable costs.
a. True
b. False
39. Myopic behavior is one of the advantages of participative budgeting.
a. True
b. False
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Multiple Choice
40. Which of the following is true of budgeting?
a. Budgeting forces management to plan for the future.
b. Budgeting creates a plan of action only in terms of production units.
c. Budgeting eradicates the need for keeping a buffer against uncertainties in demand.
d. Budgeting relies on the control cycle to design the planning cycle for future action.
e. Budgeting focuses only on long-term objectives as covered by the planning cycle.
41. Which of the following is a use of budgets for control?
a. Plans can be made for the future.
b. If conditions change between the formation of the budget and the current time, budgets can be quickly adapted.
c. Budgets set a standard against which results can be compared.
d. Communication is improved.
e. All of these.
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42. Which of the following budgets can be used for control?
a. Production budget
b. Cash budget
c. Budgeted income statement
d. Selling and administrative expense budget
e. All of these
43. Which of the following is true of a continuous budget?
a. It forces managers to plan ahead constantly.
b. It is broken down into quarterly and monthly budgets.
c. It rules out the comparison of actual data with budgeted data.
d. It is a quarterly budget used only by manufacturing firms.
e. It is a moving 6-month budget.
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44. The ____ is the person responsible for directing and coordinating the organization’s overall budget process.
a. budget master
b. controller
c. chief financial planner
d. budget director
e. chief accountant
45. Looking ahead to see what actions should be taken to realize particular goals is:
a. planning.
b. directing.
c. decision making.
d. coordinating.
e. controlling.
46. Which of the following is true of the master budget?
a. Monthly budgets are derived by dividing the master budget by 12.