CHAPTER 21(6): BUDGETING
1.
The task of preparing a budget should be the sole task of the most important department in an organization.
a.
True
b.
False
2.
A formal written statement of management‘s plans for the future, expressed in financial terms, is called a budget.
a.
True
b.
False
3.
Budgets are normally used only by profit-making businesses.
a.
True
b.
False
4.
The objectives of budgeting are (1) establishing specific goals for future operations, (2) executing plans to
achieve
the goals, and (3) periodically comparing actual results with these goals.
a.
True
b.
False
5.
When budget goals are set too tight, the budget becomes less effective as a tool for planning and
controlling
operations.
a.
True
b.
False
6.
Employees view budgeting more positively when goals are established for them by senior management.
a.
True
b.
False
7.
Budgetary slack can be avoided if lower and mid-level managers are requested to support all of their
spending
requirements with specific operational plans.
a.
True
b.
False
8.
Goal conflict can be avoided if budget goals are carefully designed for consistency across all areas of
the
organization.
a.
True
b.
False
9.
Consulting the persons affected by a budget when it is prepared can provide an effective means of motivation
and
cooperation.
a.
True
b.
False
10.
A budget can be an effective means of communicating management’s plans to the owners of a business.
a.
True
b.
False
11.
Budget preparation is best determined in a top-down managerial approach.
a.
True
b.
False
12.
Past performance is the best overall basis for evaluating current performance and assessing the need for corrective
action.
a.
True
b.
False
13.
The responsibility for coordinating the preparation of a master budget should be assigned to the CEO of a firm.
a.
True
b.
False
14.
The financial budgets of a business include the cash budget, the budgeted income statement, and the
budgeted
balance sheet.
a.
True
b.
False
15.
Part of the cash budget is based on information drawn from the capital expenditures budget.
a.
True
b.
False
16.
The sales budget is derived from the production budget.
a.
True
b.
False
17.
A capital expenditures budget is prepared before the operating budgets.
a.
True
b.
False
18.
The budgeting process is used to effectively communicate planned expectations regarding profits and expenses
to
the entire organization.
a.
True
b.
False
19.
The budget procedures used by a large manufacturer of automobiles would probably not differ from those used
by
a small manufacturer of paper products.
a.
True
b.
False
20.
A budget procedure that provides for the maintenance at all times of a twelve-month projection into the future
is
called continuous budgeting.
a.
True
b.
False
21.
A budget procedure that provides for the maintenance at all times of a twelve-month projection into the future
is
called master budgeting.
a.
True
b.
False
22.
The budget procedure that requires all levels of management to start from zero in estimating sales, production,
and
other operating data is called zero-based budgeting.
a.
True
b.
False
23.
The budget procedure that requires all levels of management to start from zero in estimating sales, production,
and
other operating data is called continuous budgeting.
a.
True
b.
False
24.
Budgets are prepared in the Accounting Department and monitored by various department managers.
a.
True
b.
False
25.
Once a static budget has been determined, it is changed regularly as the underlying activity changes.
a.
True
b.
False
26.
The flexible budget is, in effect, a series of static budgets for different levels of activity.
a.
True
b.
False
27.
Flexible budgeting requires all levels of management to start from zero and estimate sales, production, and
other
operating data as though operations were being started for the first time.
a.
True
b.
False
28.
Flexible budgeting builds the effect of changes in level of activity into the budget system.
a.
True
b.
False
29.
In preparing flexible budgets, the first step is to identify the fixed and variable components of the various costs
and
expenses being budgeted.
a.
True
b.
False
30.
A process whereby the effect of fluctuations in the level of activity is built into the budgeting system is referred
to
as flexible budgeting.
a.
True
b.
False
31.
The master budget of a small manufacturer would normally include all necessary component budgets except
the
capital expenditures budget.
a.
True
b.
False
32.
The master budget of a small manufacturer would normally include all necessary component budgets except
the
budgeted balance sheet.
a.
True
b.
False
33.
The master budget of a small manufacturer would normally include all component budgets that impact on
the
financial statements.
a.
True
b.
False
34.
The first budget to be prepared is usually the sales budget.
a.
True
b.
False
35.
The first budget to be prepared is usually the production budget.
a.
True
b.
False
36.
The first budget to be prepared is usually the cash budget.
a.
True
b.
False
37.
After the sales budget is prepared, the production budget is normally prepared next.
a.
True
b.
False
38.
The master budget is an integrated set of budgets that tie together a company’s operating, financing and investing
activities into an integrated plan for the coming year.
a.
True
b.
False
39.
After the sales budget is prepared, the capital expenditures budget is normally prepared next.
a.
True
b.
False
40.
The budgeted volume of production is based on the sum of (1) the expected sales volume and (2) the desired
ending
inventory, less (3) the estimated beginning inventory.
a.
True
b.
False
41.
The budgeted volume of production is normally computed as the sum of (1) the expected sales volume and (2)
the
desired ending inventory.
a.
True
b.
False
42.
If Division Inc. expects to sell 200,000 units in the current year, desires ending inventory of 24,000 units, and
has
22,000 units on hand as of the beginning of the year, the budgeted volume of production for the year is
202,000
units.
a.
True
b.
False
43.
If Division Inc. expects to sell 200,000 units in the current year, desires ending inventory of 24,000 units, and
has
22,000 units on hand as of the beginning of the year, the budgeted volume of production for the year is
198,000
units.
a.
True
b.
False
44.
The budgeted direct materials purchases is based on the sum of (1) the materials needed for production and (2) the
desired ending materials inventory, less (3) the estimated beginning materials inventory.
a.
True
b.
False
45.
The budgeted direct materials purchases is normally computed as the sum of (1) the materials for production and (2)
the desired ending inventory.
a.
True
b.
False
46.
The production budget is the starting point for preparation of the direct labor cost budget.
a.
True
b.
False
47.
The sales budget is the starting point for preparation of the direct labor cost budget.
a.
True
b.
False
48.
Supervisor salaries, maintenance, and indirect factory wages would normally appear in the factory overhead
cost
budget.
a.
True
b.
False
49.
Supervisor salaries, maintenance, and indirect factory wages would normally appear in the operating
expenses
budget.
a.
True
b.
False
50.
Supervisor salaries and indirect factory wages would normally appear in the direct labor cost budget.
a.
True
b.
False
51.
Detailed supplemental schedules based on department responsibility are often prepared for major items in
the
operating expenses budget.
a.
True
b.
False
52.
The capital expenditures budget details future plans for acquisition of fixed assets.
a.
True
b.
False
53.
The cash budget summarizes future plans for acquisition of fixed assets.
a.
True
b.
False
54.
The cash budget is affected by the sales budget, the various budgets for manufacturing costs and
operating
expenses, and the capital expenditures budget.
a.
True
b.
False
55.
The cash budget presents the expected inflow and outflow of cash for a specified period of time.
a.
True
b.
False
56.
The budgeted balance sheet assumes that all operating and financing plans are met.
a.
True
b.
False
57.
The capital expenditures budget is part of the planned investing activities of a company.
a.
True
b.
False
58.
A formal written statement of management‘s plans for the future, expressed in financial terms, is a
a.
gross profit report
b.
responsibility report
c.
budget
d.
performance report
59.
The budget process involves doing all of the following except
a.
establishing specific goals
b.
executing plans to achieve the goals
c.
periodically comparing actual results with the goals
d.
dismissing all managers who fail to achieve operational goals specified in the budget
60.
The budgetary unit of an organization which is led by a manager who has both the authority over and
responsibility
for the unit’s performance is known as a
a.
control center
b.
budgetary area
c.
responsibility center
d.
managerial department
61.
The benefits of comparing actual performance of the operations against planned goals include all of the following
except
a.
providing prompt feedback to employees about their performance relative to the goal
b.
preventing unplanned expenditures
c.
helping to establish spending priorities
d.
determining how managers are performing against prior years’ actual operating results
62.
Budgeting supports the planning process by encouraging all of the following activities except
a.
requiring all organizational units to establish their goals for the upcoming period
b.
increasing the motivation of managers and employees by providing agreed-upon expectations
c.
directing and coordinating operations during the period
d.
improving overall decision making by considering all viewpoints, options, and cost reduction possibilities
63.
When management seeks to achieve personal departmental objectives that may work to the detriment of the
entire
company, the manager is experiencing
a.
budgetary slack
b.
padding
c.
goal conflict
d.
cushions
64.
The budgeting process does not involve which of the following activities?
a.
Specific goals are established.
b.
Periodic comparison of actual results to goals.
c.
Execution of plans to achieve goals.
d.
Increase in sales by increasing marketing efforts.