Chapter 09 Testbank Questions and Answers

Chapter 09 Testbank
Student: ___________________________________________________________________________
1. The budget is:
A. a short-term plan.
B. more detailed than a strategic plan.
C. not influenced by strategic decisions.
D. a short-term plan AND more detailed than a strategic plan.
2. The five primary purposes of a budget are:
A. planning, allocating resources; facilitating communication and coordination; controlling profit and operations; evaluating
performance and providing incentives.
B. planning; allocating resources; facilitating communication and coordination; controlling profit and operations; and
allocating overhead costs.
C. planning; allocating resources; facilitating communication and coordination; controlling profit and operations; and
evaluating competition.
D. planning; allocating resources; controlling profit and operations; providing incentives; evaluating performance; and
3. The purposes of a budget include:
A. planning.
B. facilitating communication and coordination.
C. controlling profit and operations, and evaluating performance and providing incentives.
D. All of the given answers
4. A company's plan for the acquisition of long-term assets, such as buildings and equipment, is called a
A. capital expenditure budget.
B. master budget.
C. financial budget.
D. profit plan.
5. Which of the following involves decisions about the types of businesses and markets that an organisation operates in,
and about how those businesses and activities will be financed?
A. Sales forecasting
B. Strategic planning
C. Financial statement forecasting
D. Financial planning
6. The annual financial budget is also called a
A. capital budget.
B. master budget.
C. long-range budget.
D. None of the given answers

7. A budget that is continually updated by periodically adding a new incremental time period such as a quarter, and
dropping the period just completed is a
A. short-range budget.
B. long-range budget.
C. capital budget.
D. rolling budget.
8. Budgeted financial statements include:
A. a budgeted profit and loss statement.
B. a budgeted balance sheet.
C. a cash budget.
D. All of the given options
9. Budgets that cover a particular period of time, longer than a year, are
A. short-range budgets.
B. long-range budgets.
C. rolling budgets.
D. continuous budgets.
10. Past sales levels and trends, general economic trends, and political and legal events are all used for
A. sales forecasting.
B. resource allocation.
C. financial budgets.
D. resource budgets.
11. A slightly inaccurate sales forecast, since it comes at the beginning of the budgeting process
A. has an insignificant influence on the other schedules comprising the annual financial budget.
B. should not influence the accuracy of the other schedules comprising the annual financial budget at all.
C. has a distorting effect on the other estimates in the budget.
D. slightly influences the sales figure and the budgeted financial statements and influences no other figures.
12. For a manufacturing business, a production budget, including budgets for direct material, direct labour and
manufacturing overhead are part of the
A. sales budgets.
B. operating budgets.
C. budgeted financial statements.
D. budgeted balance sheets.
13. A manufacturer prepares a production budget. The comparable budget for a retail or wholesale business would be a
budget for
A. sales.
B. purchases.
C. direct materials.
D. direct labour.

14. Based on the production budget, the manufacturer develops budgets for
A. direct labour.
B. direct materials.
C. manufacturing overhead.
15. Which of the following encompasses a detailed plan for using the basic factors of production material, labour and
overhead to produce a product or provide a service?
A. Budget financial statement
B. Sales forecast
C. Operating budget
D. Cash budget
16. Which of the following indicate/s the overall financial results of the organisation's planned operations for the budget
period?
A. Sales forecast
B. Budgeted financial statements
C. Cash budget
17. The typical starting point in the sales forecasting process is
A. the sales level of the preceding year.
B. input from key executives.
C. economic trends.
D. the sales manager's best guess.
18. A cash budget
A. is appropriate for a business in any industry.
B. shows expected cash receipts and planned payments.
C. shows expected sales and planned expenses.
D. is appropriate for a business in any industry AND shows expected cash receipts and planned payments.
19. Which of the following shows the schedule of cash payments for the materials and services the firm purchased on
account, and all cash payments for services that are paid in advance or paid at the time of purchase?
A. Selling and administrative expense budget
B. Cash payments budget
C. Cash receipts budget
D. Overhead budget
20. Which of the following includes the cash receipts and cash payments and discloses a firm's financial plans?
A. Cash budget
B. Selling and administrative expense budget
C. Budgeted financial statement

21. A budget that includes indirect materials, indirect labour and other indirect manufacturing costs is
A. an overhead budget.
B. a cash budget.
C. an administrative expense budget.
D. a summary budget.
22. A budget that includes sales revenue, cost of goods sold, operating expenses and net profit is a
A. budgeted profit and loss statement.
B. budgeted balance sheet.
C. budgeted statement of changes in financial position.
D. budgeted statement of cash flows.
23.
BeActive Sporting Goods sells tandem bicycles. The following data was taken from the most recent quarterly sales forecast.

BeActive's cost for one bicycle is $125. How many units should the company purchase in May?

A. 1478
B. 1672
C. 1575
D. 1562

24.

BeActive's cost for one bicycle is $125. What dollar amount should the company budget for June purchases?

A. $153 125
B. $154 750
C. $204 625
D. $207 875

25.
Vebco manufactures a product requiring 0.5 grams of platinum per unit. The cost of platinum is approximately $360 per gram. Vebco
maintains an ending inventory of platinum equal to 10 per cent of the following month's production. The following data were taken from
the most recent quarterly production budget.
Determine the cost of platinum purchased in August.

A. $195 840
B. $200 160
C. $391 680
D. $400 320

26.
Lee's Appliances forecasts the following sales figures for the next four months.

Cash sales average 10 per cent of total sales and credit sales are collected 50 per cent in the month of sale and 50 per cent in the
month following sale. What are the estimated cash collections in May?

A. $215 000
B. $207 500
C. $195 000
D. $82 500

27.

month following sale. What is Lee's estimated accounts receivable balance on July 31?

A. $150 000
B. $135 000
C. $75 000
D. $67 500

28.
The Grainger Company's Budgeted Profit and Loss Statement reflects the following amounts:

Sales are collected 50 per cent in the month of sale, 30 per cent in the month following sale, 19 per cent in the second month following
sale and 1 per cent is uncollectible. The uncollectible accounts are expensed at the end of the year.
Grainger pays for purchases by the fifth of the month following purchase, to take advantage of the 3 per cent discount allowed.
On January 1, Grainger had a cash balance of $88 000 and an accounts receivable balance of $58 000; $35 000 on account will be
collected in January with the remaining balance to be collected in February. Grainger had an accounts payable balance of $72 000 on
January 1. Invoices are recorded at their gross amount.
The monthly expense figures include $5000 in monthly depreciation. The expenses are paid for in the month incurred.
What is Grainger's expected cash balance at the end of January?

A. $92 000
B. $94 160
C. $87 000
D. $89 160

29.
Telcer & Company had 3000 units in finished goods inventory on December 31. Following is a partial production budget for January to
March.
How many units does the company expect to sell in January?

A. 6900
B. 8900
C. 9400
D. 9900

30.
On January 1, Bandy Manufacturing plans to introduce a product called Handy Dandy. The company plans to sell each unit of Handy
Dandy for $25.00. Management has forecast the following in sales units for the first three months.

Each unit of Handy Dandy requires 2 kg of Dingaling and 1 hour of direct labour. Management wants to end each month with a Handy
Dandy inventory level equal to 10 per cent of the following month's sales and a Dingaling inventory equal to 5 per cent of the following
month's production. Dingaling can be purchased for $3 per kg and direct labour costs are estimated to be $5.00 per hour. How many
units should Bandy Manufacturing produce in February?

A. 32 000
B. 27 300
C. 28 000
D. 29 200

31.

Dandy inventory level equal to 10 per cent of the following month's sales, and a Dingaling inventory equal to 5 per cent of the following
kilograms of Dingaling should be purchased in January? Bandy plans to have no inventory of Dingaling on January 1:

A. 78 520
B. 72 800
C. 72 680
D. 78 400

32.

month's production. Dingaling can be purchased for $3 per kg and direct labour costs are estimated to be $5.00 per hour. What amount
should be budgeted for direct labour in February?

A. $160 000
B. $146 000
C. $140 000
D. $134 000

33.
month's production. Dingaling can be purchased for $3 per kg and direct labour costs are estimated to be $5.00 per hour. What are
Bandy Manufacturing's budgeted prime costs in January?

A. $235 560
B. $294 000
C. $385 000

34. The person responsible for managing the budget process
A. is responsible for specifying the process by which budget data will be gathered.
B. collects information and prepares the annual financial budget.
C. communicates budget procedures and deadlines to employees throughout the organisation.

35. Consider the following statements about budget administration.
i. Regardless of size, the budgeting process in all organisations must be a formal process.
ii. The budget manual is prepared to communicate budget procedures and deadlines to employees throughout the
organisation.
iii. Good internal control procedures require that the manager responsible for managing the budget process be an
individual other than the chief accountant.
Which statement/s is/are true?
A. i
B. ii
C. iii
D. i and iii
36. To communicate budget procedures and deadlines to employees throughout the organisation, the manager
responsible for managing the budget often develops and disseminates a
A. budget manual.
B. sales forecast.
C. memorandum.
D. budget schedule.
37. In preparing and using any budget, it is important that managers keep in mind the
A. assumptions and predictions upon which the budget is based.
B. present value of future cash flow.
C. budgeted profit and loss statement.
D. ‘bottom line'.
38. The difference between the revenue or cost projection that a person provides and a realistic estimate of the revenue
or cost is called
A. passing the buck.
B. budgetary slack.
C. participative budgeting.
D. resource allocation processing.
39. People create budgetary slack because
A. their performance will look better if they beat the budget.
B. it helps them cope with uncertainty.
C. they believe their budget requests will be cut.
40. When employees throughout an organisation are meaningfully involved in the budget-setting process, this is referred
to as
A. budgeting slack.
B. participative budgeting.
C. padding the budget.
D. employee-based budgeting.

41. Consider the following statements about zero-base budgeting.
i. The budget for virtually every activity in an organisation is initially set to the level that existed during the previous year.
ii. The budget helps identify areas of waste and redundant activities.
iii. The budget must be justified in terms of its continued usefulness.
A. i, ii and iii
B. i and ii
C. ii and iii
D. iii
42. Program budgeting
A. is similar to line item budgeting.
B. relates budget performance to the achievement of objectives.
C. develops qualitative performance criteria rather than quantitative criteria.
D. focuses on inputs rather than outputs.
43. Which of the following statements are true if optimum benefit is to be derived from the budget process?
A. Employees participate in the development of the budget.
B. Targets should include slack to enable easy achievement.
C. Rewards are not required.
D. Employees participate in the development of the budget AND rewards are not required.
44. The position where the firm's goals and employees' aims coincide is called
A. participative budgeting.
B. goal achievement.
C. goal congruence.
D. budgetary achievement.
45. Which of the following does budget preparation require to achieve optimum outcomes?
i. Top-down budgeting
ii. Bottom-up budgeting
iii. Participative budgeting
A. i
B. ii and iii
C. i and iii
D. i, ii and iii
46. Suppose that the departmental manager deliberately underestimates the level of sales activity by 10 000 units. What
is this practice called?
A. Budgetary participation
B. Appropriate caution
C. Budgetary slack
D. Allowance for uncertainty

47.
The following is the forecast level of inventory (in units) for Aardvark Ltd.
If the company plans to sell 320 000 units, how many will they need to produce during the period?

A. 330 000
B. 315 000
C. 305 000
D. 320 000

48. The usual order of steps in preparing a budget is
A. production budget, sales budget, budgeted income statement.
B. sales budget, production budget, budgeted income statement.
C. budgeted income statement, production budget, sales budget.
D. budgeted income statement, sales budget, production budget.
49.
Budgeted sales for ABC Company are as follows:
All stock is marked up to sell at its invoice cost plus 25 per cent. On average 60 per cent of credit sales are collected in the month of
sale, 35 per cent in the month following sale and the remainder is uncollectable. The budgeted cost of goods sold for the month of
October is:

A. $1 360 000
B. $1 425 000
C. $1 520 000

50.

sale, 35 per cent in the month following sale and the remainder is uncollectible. Budgeted total cash receipts for November are:

A. $1 675 000
B. $1 875 000
C. $1 280 000

51. A production budget
A. is based on projected purchases as disclosed by the purchases budget.
B.
does not make provision for production planning by determining what products will be made.
C. contributes to scheduling labour requirements.
D. is not used to review available production capacity.

52. XYZ has budgeted to sell 100 000 units of P for February 2008. It has an opening inventory of 20 000 units of P and
would like a closing inventory of 30 000 units. Each unit of P requires 2 kg of raw material Y. Inventory of Y at the
beginning of the month is 5000 kg. Assuming the sales budget is met and the desired closing inventory of P is achieved,
how many kilograms of Y need to be purchased during February, in order to have a closing balance of 8000 kg?
A. 113 000
B. 117 000
C. 223 000
D. 183 000
53. Which of the following is not typically a responsibility centre for a manufacturing firm?
A. Cost centre
B. Profit centre
C. Investment centre
D. Inventory centre

54. The Z Company has prepared a sales budget for 40 000 units for a three-month period. The company desires a
closing finished goods inventory of 12 000 units, and closing direct material inventory of 14 000 units at the end of the
quarter. There is no beginning finished goods inventory, but beginning inventory of direct materials is 2000 units. It takes
two units of direct material to make one unit of finished product. The number of units of direct material to be purchased
during the quarter is
A. 52 000.
B. 104 000.
C. 118 000.
D. 116 000.
55.
Sales of 50 000 finished products are budgeted for Tracey Company. Four kilograms of direct material are required for each finished
unit. Actual beginning and desired ending inventories of direct material and finished goods are as follows.
All products are finished at the end of the period, so there is no work in process at the beginning and end of the period. How many
kilograms of direct material is the company planning to purchase?

A. 218 000
B. 214 000
C. 186 000
D. 184 000

56.
Carter Manufacturers have budgeted sales for the coming months as follows.

The firm has decided that to avoid losing customers because of production hold-ups it will in future maintain a finished goods inventory
on hand equal to one-fifth of the following month's budgeted sales. At 31 December, the company had in finished goods stock 10 000
units. What is budgeted production for the quarter January–March?

A. 530 000 units
B. 830 000 units
C. 670 000 units
D. 680 000 units

57. Assume for a firm that budgeted production for July and August is 180 000 and 200 000 units respectively. It takes
half a kilogram of direct material to make one unit of finished product. Materials inventory is maintained at 10 per cent of
the next month's budgeted production needs. If the 30 June inventory of materials was 5000 kg, how many kilograms of
direct material should be purchased during July?
A. 105 000 kg
B. 195 000 kg
C. 90 000 kg
D. 95 000 kg
58. Which of the following items should be taken into account when setting budgets?
A. Positive behaviour of employees is more likely to result if the budgetary process is participative.
B. The budget goals should not be so tight that they are unachievable.
C. The goals of the individual sections' budget should be aligned with the firm's goals.
59. Which of the following items would not be taken into account when preparing a firm's cash budget?
A. Depreciation on motor vehicles
B. Provision for doubtful debts
C. Discount allowed
D. Depreciation on motor vehicles AND provision for doubtful debts
60. Which of the following are unlikely to influence the sales forecast?
A. Past sales levels
B. Past production levels
C. Economic trends
D. The pricing policy of the company
61. Strawman Ltd runs tutoring classes for high school students. The maximum number of students a weekly tutorial class
can take is 15. Each tutor, who is paid a per semester salary of $20 000 including on-costs, can manage up to 5 classes
per week per semester. Assuming that this semester there are 350 students enrolled. What is the budgeted salary for
tutors this semester?
A. $100 000
B. $93 333
C. $20 000
D. $6428
62. Top-down budgeting refers to
A. a budgeting system that begins with sales forecasts and works downwards to the raw materials budget.
B. a budgeting systems that begins with budgeting the facility-level costs.
C. a budgeting system where senior managers impose budget targets on junior managers.
D. a budgeting system where there are frequent communications between top and bottom managers.
63. Which of the following statements is false?
A. A top-down budgeting system is more efficient than a bottom-up budgeting system.
B. A top-down budgeting system is more likely to result in unrealistically difficult budget targets.
C. A bottom-up budgeting system is less likely to result in budget padding.
D. A bottom-up budgeting systems is more likely to result in employee empowerment.

64. Jasmine Coy is a barista at Tosa Cafe, which is known for its quality coffee. Her manager has set a very difficult cost
target. As a result, Jasmine uses lower quality coffee beans which results in poor quality coffee. This is an example of
A. Budget slack.
B. Goal incongruence.
C. Lack of employee empowerment.
D. Short range budgeting.
65. EasySleep Inn is a chain of medium-priced hotels. Each year during the budgeting process, the manager of each hotel
in the chain has to submit a capital expenditure request, justifying the amounts of expenditure they request. Top
management then makes a decision on whether to fund each capital expenditure request. This is an example of which
purpose of budgeting?
A. Controlling profit
B. Allocating resources
C. Empowering employees
D. Evaluating performance and providing incentives
66.
Which of the following is/are likely to lead to budget acceptance?
i Targets are developed with employee inputs.
ii Employees are held responsible for activities that they can control.
iii Budget is cascaded down from corporate level to the various responsibility centres.

A. i only
B. i and ii
C. i and iii
D. ii and iii

67. Which of the following is an example of padding the budget?
A. Overestimating sales
B. Underestimating labour costs
C. Overestimating direct material costs
D. Underestimating capital expenditure
68. Christina Wadat is a sales manager at Walter Booksellers. She believes that the sales revenue will most likely to be
$500 000 this coming year. However, she decides to build in budget slack of 10 per cent. The amount of sales revenue
she inputs into the company's sales budget is
A. $450 000.
B. $500 000.
C. $550 000.
D. 600 000.
69. Zero-based budgeting refers to
A. a budgeting system that has very uncertain assumptions.
B. a new budgeting system for a company that has not had a budget before.
C. a budgeting system where all activity costs are based on estimates only.
D. a budgeting system where all activities are initially set to zero and will not be continued unless they are clearly justified.

70. Which of the following benefits is not provided by the budgeting process?
A. Benchmarks
B. Performance evaluation
C. Competitive strategy
D. Facilitates communication
71. Insurance Plus provides their sales staff with a base salary and commissions. When the various departments' actual
performance exceeds the budgeted sales figures an additional bonus is paid. This is an example of
A. facilitating communication and coordination.
B. controlling profit and operations.
C. evaluating performance and providing incentives.
D. allocating resources.
72.
A 'Rolling Budget' is also known as a

A. revised budget.
B. reformed budget.
C. current budget.
D. continuous budget.

73. As the starting point in the budgeting process, managers need to understand the strategy of the organisation, to
enable them to formulate a budget that supports the organisation's
A. mission statement.
B. strategic plan.
C. forecasts.
D. vision.
74. Which of the following external factors would not be considered when forecasting sales for a furniture manufacturer?
A. General economic trends
B. Rising Australian dollar
C. Increasing foreign aid
D. Consumer's disposable income
75. Which of the following budgets is usually prepared at the start of the budgeting process?
A. Production budget
B. Annual budget
C. Operating budget
D. Sales budget

76. Briefly describe the five primary purposes of the budgeting process.

77. Discuss how benchmarks are applied to measure performance in responsibility accounting.

78. Discuss how participative budgeting can achieve acceptance of the budget from staff.

79. Managers can window dress their performance by creating budgetary slack. Explain why a manager would do this and
support your answer with three examples.

80. Zero-based budgeting is too introspective. Discuss this statement.

81. Employees are always motivated to work towards the company's goals when budgets are handed down from top
management as employees rarely have the time or the inclination to become involved in the budgeting process.
True False

82. There should never be inaccuracies when forecasting sales figures as these figures are only affected by internal
factors which management can control.
True False
83. If an organisation were more focused on outputs rather than inputs, they would be advised to use program budgeting
as opposed to other alternatives.
True False
84. Before any steps are taken in the budgeting process, it is essential that all involved in the process familiarise
themselves with the strategic plans of the organisation so they can formulate the budget in light of these plans.
True False
85. Where an organisation elects to incorporate responsibility accounting into the firm, they will establish some common
responsibilities centres such as cost, revenue, investment and expense.
True False
86. Budgets can be used as a benchmark against which to evaluate performance and control costs.
True False
87. Budgets can be broken into three main categories, capital expenditure budgets, operating budgets and continuous
budgets.
True False
88. A problem with participative budgeting is that there will always be a tendency for those participating to build slack into
the budget to ensure a better outcome for their performance assessment.
True False
89.
As all budgets 'hang' off the sales budget, if the sales forecasts are incorrect, chances are all operating budgets will also be inaccurate.

True False

90. A detailed plan that shows the financial consequences of an organisation's operating activities for a specific future
time period is known as a strategic plan.
True False
91. The cash budget assists management in evaluating their financial needs.
True False

92. A budget manual communicates budget procedures and deadlines throughout the organisation.
True False

Chapter 09 Testbank Key

1. The budget is:
A. a short-term plan.
B. more detailed than a strategic plan.
C. not influenced by strategic decisions.
D. a short-term plan AND more detailed than a strategic plan.
AACSB: Reflective
Difficulty: Easy
Learning Objective: 9.01 Understand how the budgeting process fits into the wider strategic planning processes of an organisation
2. The five primary purposes of a budget are:
A. planning, allocating resources; facilitating communication and coordination; controlling profit and operations; evaluating
performance and providing incentives.
B. planning; allocating resources; facilitating communication and coordination; controlling profit and operations; and
C. planning; allocating resources; facilitating communication and coordination; controlling profit and operations; and
evaluating competition.
D. planning; allocating resources; controlling profit and operations; providing incentives; evaluating performance; and
AACSB: Reflective
Difficulty: Easy
Learning Objective: 9.02 Explain the five major purposes of the budgeting process
3. The purposes of a budget include:
A. planning.
B. facilitating communication and coordination.
C. controlling profit and operations, and evaluating performance and providing incentives.
AACSB: Reflective
Difficulty: Easy
4. A company's plan for the acquisition of long-term assets, such as buildings and equipment, is called a
A. capital expenditure budget.
B. master budget.
C. financial budget.
D. profit plan.
AACSB: Reflective
Difficulty: Easy
Learning Objective: 9.04 Understand the various components that make up an annual budget
5. Which of the following involves decisions about the types of businesses and markets that an organisation operates in,
and about how those businesses and activities will be financed?
A. Sales forecasting
B. Strategic planning
C. Financial statement forecasting
D. Financial planning
AACSB: Reflective
Difficulty: Easy
6. The annual financial budget is also called a
A. capital budget.
B. master budget.
C. long-range budget.
AACSB: Reflective
Difficulty: Easy
Learning Objective: 9.03 Understand how budgets are developed and used in responsibility accounting systems
7. A budget that is continually updated by periodically adding a new incremental time period such as a quarter, and
dropping the period just completed is a
A. short-range budget.
B. long-range budget.
C. capital budget.
D. rolling budget.
AACSB: Reflective
Difficulty: Easy
Learning Objective: 9.05 Discuss the importance of assumptions and predictions in budgeting
8. Budgeted financial statements include:
A. a budgeted profit and loss statement.
B. a budgeted balance sheet.
C. a cash budget.
AACSB: Reflective
Difficulty: Easy
9. Budgets that cover a particular period of time, longer than a year, are
A. short-range budgets.
B. long-range budgets.
C. rolling budgets.
D. continuous budgets.
AACSB: Reflective
Difficulty: Easy
10. Past sales levels and trends, general economic trends, and political and legal events are all used for
A. sales forecasting.
B. resource allocation.
C. financial budgets.
D. resource budgets.
AACSB: Reflective
Difficulty: Easy
11. A slightly inaccurate sales forecast, since it comes at the beginning of the budgeting process
A. has an insignificant influence on the other schedules comprising the annual financial budget.
B. should not influence the accuracy of the other schedules comprising the annual financial budget at all.
C. has a distorting effect on the other estimates in the budget.
D. slightly influences the sales figure and the budgeted financial statements and influences no other figures.
AACSB: Reflective
Difficulty: Medium
12. For a manufacturing business, a production budget, including budgets for direct material, direct labour and
manufacturing overhead are part of the
A. sales budgets.
B. operating budgets.
C. budgeted financial statements.
D. budgeted balance sheets.
AACSB: Reflective
Difficulty: Easy
Learning Objective: 9.11 Complete the major budgeting schedules for a manufacturing organisation
13. A manufacturer prepares a production budget. The comparable budget for a retail or wholesale business would be a
budget for
A. sales.
B. purchases.
C. direct materials.
D. direct labour.
AACSB: Reflective
Difficulty: Medium
Learning Objective: 9.06 Describe the similarities and differences in the operating budgets prepared by manufacturers, retailers and wholesalers, and
service firms
14. Based on the production budget, the manufacturer develops budgets for
A. direct labour.
B. direct materials.
C. manufacturing overhead.

AACSB: Reflective
Difficulty: Easy
15. Which of the following encompasses a detailed plan for using the basic factors of production material, labour and
overhead to produce a product or provide a service?
A. Budget financial statement
B. Sales forecast
C. Operating budget
D. Cash budget
AACSB: Reflective
Difficulty: Easy
16. Which of the following indicate/s the overall financial results of the organisation's planned operations for the budget
period?
A. Sales forecast
B. Budgeted financial statements
C. Cash budget
AACSB: Reflective
Difficulty: Easy
17. The typical starting point in the sales forecasting process is
A. the sales level of the preceding year.
B. input from key executives.
C. economic trends.
D. the sales manager's best guess.
AACSB: Reflective
Difficulty: Easy
Learning Objective: 9.07 Complete the major budgeting schedules for a service organisation
18. A cash budget
A. is appropriate for a business in any industry.
B. shows expected cash receipts and planned payments.
C. shows expected sales and planned expenses.
D. is appropriate for a business in any industry AND shows expected cash receipts and planned payments.
AACSB: Reflective
Difficulty: Easy
service firms
19. Which of the following shows the schedule of cash payments for the materials and services the firm purchased on
account, and all cash payments for services that are paid in advance or paid at the time of purchase?
A. Selling and administrative expense budget
B. Cash payments budget
C. Cash receipts budget
D. Overhead budget
AACSB: Reflective
Difficulty: Easy
20. Which of the following includes the cash receipts and cash payments and discloses a firm's financial plans?
A. Cash budget
B. Selling and administrative expense budget
C. Budgeted financial statement
AACSB: Reflective
Difficulty: Easy
21. A budget that includes indirect materials, indirect labour and other indirect manufacturing costs is
A. an overhead budget.
B. a cash budget.
C. an administrative expense budget.
D. a summary budget.
AACSB: Reflective
Difficulty: Easy
22. A budget that includes sales revenue, cost of goods sold, operating expenses and net profit is a
A. budgeted profit and loss statement.
B. budgeted balance sheet.
C. budgeted statement of changes in financial position.
D. budgeted statement of cash flows.
AACSB: Reflective
Difficulty: Easy
23.

BeActive's cost for one bicycle is $125. How many units should the company purchase in May?

A. 1478
B. 1672
C. 1575
D. 1562

AACSB: Analytical
Difficulty: Medium
24.

BeActive's cost for one bicycle is $125. What dollar amount should the company budget for June purchases?

A. $153 125
B. $154 750
C. $204 625
D. $207 875

AACSB: Analytical
Difficulty: Medium
25.
Vebco manufactures a product requiring 0.5 grams of platinum per unit. The cost of platinum is approximately $360 per gram. Vebco
maintains an ending inventory of platinum equal to 10 per cent of the following month's production. The following data were taken from
the most recent quarterly production budget.
Determine the cost of platinum purchased in August.

A. $195 840
B. $200 160
C. $391 680
D. $400 320

AACSB: Analytical
Difficulty: Hard
26.

month following sale. What are the estimated cash collections in May?

A. $215 000
B. $207 500
C. $195 000
D. $82 500

AACSB: Analytical
Difficulty: Medium
27.

month following sale. What is Lee's estimated accounts receivable balance on July 31?

A. $150 000
B. $135 000
C. $75 000
D. $67 500

AACSB: Analytical
Difficulty: Medium
28.
The Grainger Company's Budgeted Profit and Loss Statement reflects the following amounts:

Sales are collected 50 per cent in the month of sale, 30 per cent in the month following sale, 19 per cent in the second month following
sale and 1 per cent is uncollectible. The uncollectible accounts are expensed at the end of the year.
Grainger pays for purchases by the fifth of the month following purchase, to take advantage of the 3 per cent discount allowed.
On January 1, Grainger had a cash balance of $88 000 and an accounts receivable balance of $58 000; $35 000 on account will be
collected in January with the remaining balance to be collected in February. Grainger had an accounts payable balance of $72 000 on
January 1. Invoices are recorded at their gross amount.
The monthly expense figures include $5000 in monthly depreciation. The expenses are paid for in the month incurred.
What is Grainger's expected cash balance at the end of January?

A. $92 000
B. $94 160
C. $87 000
D. $89 160

AACSB: Analytical
Difficulty: Hard
29.
Telcer & Company had 3000 units in finished goods inventory on December 31. Following is a partial production budget for January to
March.
How many units does the company expect to sell in January?

A. 6900
B. 8900
C. 9400
D. 9900

AACSB: Analytical
Difficulty: Medium
30.

Dandy inventory level equal to 10 per cent of the following month's sales and a Dingaling inventory equal to 5 per cent of the following
units should Bandy Manufacturing produce in February?

A. 32 000
B. 27 300
C. 28 000
D. 29 200

AACSB: Analytical
Difficulty: Medium
31.

kilograms of Dingaling should be purchased in January? Bandy plans to have no inventory of Dingaling on January 1:

A. 78 520
B. 72 800
C. 72 680
D. 78 400

AACSB: Analytical
Difficulty: Medium
32.

month's production. Dingaling can be purchased for $3 per kg and direct labour costs are estimated to be $5.00 per hour. What amount
should be budgeted for direct labour in February?

A. $160 000
B. $146 000
C. $140 000
D. $134 000

AACSB: Analytical
Difficulty: Medium
33.
month's production. Dingaling can be purchased for $3 per kg and direct labour costs are estimated to be $5.00 per hour. What are
Bandy Manufacturing's budgeted prime costs in January?

A. $235 560
B. $294 000
C. $385 000

AACSB: Analytical
Difficulty: Hard
34. The person responsible for managing the budget process
A. is responsible for specifying the process by which budget data will be gathered.
B. collects information and prepares the annual financial budget.
C. communicates budget procedures and deadlines to employees throughout the organisation.
AACSB: Reflective
Difficulty: Medium
Learning Objective: 9.08 Describe a typical organisation's process of budget administration
35. Consider the following statements about budget administration.
i. Regardless of size, the budgeting process in all organisations must be a formal process.
ii. The budget manual is prepared to communicate budget procedures and deadlines to employees throughout the
organisation.
iii. Good internal control procedures require that the manager responsible for managing the budget process be an
individual other than the chief accountant.
A. i
B. ii
C. iii
D. i and iii
AACSB: Reflective
Difficulty: Medium
36. To communicate budget procedures and deadlines to employees throughout the organisation, the manager
responsible for managing the budget often develops and disseminates a
A. budget manual.
B. sales forecast.
C. memorandum.
D. budget schedule.
AACSB: Reflective
Difficulty: Easy
37. In preparing and using any budget, it is important that managers keep in mind the
A. assumptions and predictions upon which the budget is based.
B. present value of future cash flow.
C. budgeted profit and loss statement.
D. ‘bottom line'.
AACSB: Reflective
Difficulty: Easy
38. The difference between the revenue or cost projection that a person provides and a realistic estimate of the revenue
or cost is called
A. passing the buck.
B. budgetary slack.
C. participative budgeting.
D. resource allocation processing.
AACSB: Reflective
Difficulty: Easy
Learning Objective: 9.09 Discuss the behavioural consequences of budgets: participative budgeting, budgetary slack and budget difficulty
39. People create budgetary slack because
A. their performance will look better if they beat the budget.
B. it helps them cope with uncertainty.
C. they believe their budget requests will be cut.
AACSB: Reflective
Difficulty: Medium
40. When employees throughout an organisation are meaningfully involved in the budget-setting process, this is referred
to as
A. budgeting slack.
B. participative budgeting.
C. padding the budget.
D. employee-based budgeting.
AACSB: Reflective
Difficulty: Medium
41. Consider the following statements about zero-base budgeting.
i. The budget for virtually every activity in an organisation is initially set to the level that existed during the previous year.
ii. The budget helps identify areas of waste and redundant activities.
iii. The budget must be justified in terms of its continued usefulness.
A. i, ii and iii
B. i and ii
C. ii and iii
D. iii
AACSB: Reflective
Difficulty: Medium
Learning Objective: 9.10 Understand zero-base budgeting and program budgeting
42. Program budgeting
A. is similar to line item budgeting.
B. relates budget performance to the achievement of objectives.
C. develops qualitative performance criteria rather than quantitative criteria.
D. focuses on inputs rather than outputs.
AACSB: Reflective
Difficulty: Easy
43. Which of the following statements are true if optimum benefit is to be derived from the budget process?
A. Employees participate in the development of the budget.
B. Targets should include slack to enable easy achievement.
C. Rewards are not required.
D. Employees participate in the development of the budget AND rewards are not required.
AACSB: Reflective
Difficulty: Easy
44. The position where the firm's goals and employees' aims coincide is called
A. participative budgeting.
B. goal achievement.
C. goal congruence.
D. budgetary achievement.
AACSB: Reflective
Difficulty: Easy
45. Which of the following does budget preparation require to achieve optimum outcomes?
i. Top-down budgeting
ii. Bottom-up budgeting
iii. Participative budgeting
A. i
B. ii and iii
C. i and iii
D. i, ii and iii
AACSB: Reflective
Difficulty: Easy
46. Suppose that the departmental manager deliberately underestimates the level of sales activity by 10 000 units. What
is this practice called?
A. Budgetary participation
B. Appropriate caution
C. Budgetary slack
D. Allowance for uncertainty
AACSB: Reflective
Difficulty: Easy
47.
The following is the forecast level of inventory (in units) for Aardvark Ltd.
If the company plans to sell 320 000 units, how many will they need to produce during the period?

A. 330 000
B. 315 000
C. 305 000
D. 320 000

AACSB: Analytical
Difficulty: Medium
48. The usual order of steps in preparing a budget is
A. production budget, sales budget, budgeted income statement.
B. sales budget, production budget, budgeted income statement.
C. budgeted income statement, production budget, sales budget.
D. budgeted income statement, sales budget, production budget.
AACSB: Reflective
Difficulty: Easy
49.
sale, 35 per cent in the month following sale and the remainder is uncollectable. The budgeted cost of goods sold for the month of
October is:

A. $1 360 000
B. $1 425 000
C. $1 520 000

AACSB: Analytical
Difficulty: Easy
50.

sale, 35 per cent in the month following sale and the remainder is uncollectible. Budgeted total cash receipts for November are:

A. $1 675 000
B. $1 875 000
C. $1 280 000

AACSB: Analytical
Difficulty: Medium
51. A production budget
A. is based on projected purchases as disclosed by the purchases budget.
B.
does not make provision for production planning by determining what products will be made.
C. contributes to scheduling labour requirements.
D. is not used to review available production capacity.

AACSB: Reflective
Difficulty: Medium
52. XYZ has budgeted to sell 100 000 units of P for February 2008. It has an opening inventory of 20 000 units of P and
would like a closing inventory of 30 000 units. Each unit of P requires 2 kg of raw material Y. Inventory of Y at the
beginning of the month is 5000 kg. Assuming the sales budget is met and the desired closing inventory of P is achieved,
how many kilograms of Y need to be purchased during February, in order to have a closing balance of 8000 kg?
A. 113 000
B. 117 000
C. 223 000
D. 183 000
AACSB: Analytical
Difficulty: Medium
53. Which of the following is not typically a responsibility centre for a manufacturing firm?
A. Cost centre
B. Profit centre
C. Investment centre
D. Inventory centre
AACSB: Reflective
Difficulty: Easy
54. The Z Company has prepared a sales budget for 40 000 units for a three-month period. The company desires a
closing finished goods inventory of 12 000 units, and closing direct material inventory of 14 000 units at the end of the
quarter. There is no beginning finished goods inventory, but beginning inventory of direct materials is 2000 units. It takes
two units of direct material to make one unit of finished product. The number of units of direct material to be purchased
during the quarter is
A. 52 000.
B. 104 000.
C. 118 000.
D. 116 000.
AACSB: Analytical
Difficulty: Medium
55.
Sales of 50 000 finished products are budgeted for Tracey Company. Four kilograms of direct material are required for each finished
unit. Actual beginning and desired ending inventories of direct material and finished goods are as follows.
All products are finished at the end of the period, so there is no work in process at the beginning and end of the period. How many
kilograms of direct material is the company planning to purchase?

A. 218 000
B. 214 000
C. 186 000
D. 184 000

AACSB: Analytical
Difficulty: Medium
56.
Carter Manufacturers have budgeted sales for the coming months as follows.

The firm has decided that to avoid losing customers because of production hold-ups it will in future maintain a finished goods inventory
on hand equal to one-fifth of the following month's budgeted sales. At 31 December, the company had in finished goods stock 10 000
units. What is budgeted production for the quarter January–March?

A. 530 000 units
B. 830 000 units
C. 670 000 units
D. 680 000 units

AACSB: Analytical
Difficulty: Hard
57. Assume for a firm that budgeted production for July and August is 180 000 and 200 000 units respectively. It takes
half a kilogram of direct material to make one unit of finished product. Materials inventory is maintained at 10 per cent of
the next month's budgeted production needs. If the 30 June inventory of materials was 5000 kg, how many kilograms of
direct material should be purchased during July?
A. 105 000 kg
B. 195 000 kg
C. 90 000 kg
D. 95 000 kg
AACSB: Analytical
Difficulty: Hard
58. Which of the following items should be taken into account when setting budgets?
A. Positive behaviour of employees is more likely to result if the budgetary process is participative.
B. The budget goals should not be so tight that they are unachievable.
C. The goals of the individual sections' budget should be aligned with the firm's goals.
AACSB: Reflective
Difficulty: Medium
59. Which of the following items would not be taken into account when preparing a firm's cash budget?
A. Depreciation on motor vehicles
B. Provision for doubtful debts
C. Discount allowed
D. Depreciation on motor vehicles AND provision for doubtful debts
AACSB: Reflective
Difficulty: Medium
60. Which of the following are unlikely to influence the sales forecast?
A. Past sales levels
B. Past production levels
C. Economic trends
D. The pricing policy of the company
AACSB: Reflective
Difficulty: Easy
service firms
61. Strawman Ltd runs tutoring classes for high school students. The maximum number of students a weekly tutorial class
can take is 15. Each tutor, who is paid a per semester salary of $20 000 including on-costs, can manage up to 5 classes
per week per semester. Assuming that this semester there are 350 students enrolled. What is the budgeted salary for
tutors this semester?
A. $100 000
B. $93 333
C. $20 000
D. $6428
AACSB: Analytical
Difficulty: Medium
62. Top-down budgeting refers to
A. a budgeting system that begins with sales forecasts and works downwards to the raw materials budget.
B. a budgeting systems that begins with budgeting the facility-level costs.
C. a budgeting system where senior managers impose budget targets on junior managers.
D. a budgeting system where there are frequent communications between top and bottom managers.
AACSB: Reflective
Difficulty: Easy
63. Which of the following statements is false?
A. A top-down budgeting system is more efficient than a bottom-up budgeting system.
B. A top-down budgeting system is more likely to result in unrealistically difficult budget targets.
C. A bottom-up budgeting system is less likely to result in budget padding.
D. A bottom-up budgeting systems is more likely to result in employee empowerment.
AACSB: Reflective
Difficulty: Medium
64. Jasmine Coy is a barista at Tosa Cafe, which is known for its quality coffee. Her manager has set a very difficult cost
target. As a result, Jasmine uses lower quality coffee beans which results in poor quality coffee. This is an example of
A. Budget slack.
B. Goal incongruence.
C. Lack of employee empowerment.
D. Short range budgeting.
AACSB: Reflective
Difficulty: Medium
65. EasySleep Inn is a chain of medium-priced hotels. Each year during the budgeting process, the manager of each hotel
in the chain has to submit a capital expenditure request, justifying the amounts of expenditure they request. Top
management then makes a decision on whether to fund each capital expenditure request. This is an example of which
purpose of budgeting?
A. Controlling profit
B. Allocating resources
C. Empowering employees
D. Evaluating performance and providing incentives
AACSB: Reflective
Difficulty: Medium
66.
Which of the following is/are likely to lead to budget acceptance?
i Targets are developed with employee inputs.
ii Employees are held responsible for activities that they can control.
iii Budget is cascaded down from corporate level to the various responsibility centres.

A. i only
B. i and ii
C. i and iii
D. ii and iii

AACSB: Reflective
Difficulty: Easy
67. Which of the following is an example of padding the budget?
A. Overestimating sales
B. Underestimating labour costs
C. Overestimating direct material costs
D. Underestimating capital expenditure
AACSB: Reflective
Difficulty: Medium
68. Christina Wadat is a sales manager at Walter Booksellers. She believes that the sales revenue will most likely to be
$500 000 this coming year. However, she decides to build in budget slack of 10 per cent. The amount of sales revenue
she inputs into the company's sales budget is
A. $450 000.
B. $500 000.
C. $550 000.
D. 600 000.
AACSB: Analytical
Difficulty: Medium
69. Zero-based budgeting refers to
A. a budgeting system that has very uncertain assumptions.
B. a new budgeting system for a company that has not had a budget before.
C. a budgeting system where all activity costs are based on estimates only.
D. a budgeting system where all activities are initially set to zero and will not be continued unless they are clearly justified.
AACSB: Reflective
Difficulty: Easy
70. Which of the following benefits is not provided by the budgeting process?
A. Benchmarks
B. Performance evaluation
C. Competitive strategy
D. Facilitates communication
AACSB: Reflective
Difficulty: Medium
71. Insurance Plus provides their sales staff with a base salary and commissions. When the various departments' actual
performance exceeds the budgeted sales figures an additional bonus is paid. This is an example of
A. facilitating communication and coordination.
B. controlling profit and operations.
C. evaluating performance and providing incentives.
D. allocating resources.
AACSB: Reflective
Difficulty: Easy
72.
A 'Rolling Budget' is also known as a

A. revised budget.
B. reformed budget.
C. current budget.
D. continuous budget.

AACSB: Reflective
Difficulty: Easy
73. As the starting point in the budgeting process, managers need to understand the strategy of the organisation, to
enable them to formulate a budget that supports the organisation's
A. mission statement.
B. strategic plan.
C. forecasts.
D. vision.
AACSB: Reflective
Difficulty: Medium
74. Which of the following external factors would not be considered when forecasting sales for a furniture manufacturer?
A. General economic trends
B. Rising Australian dollar
C. Increasing foreign aid
D. Consumer's disposable income
AACSB: Reflective
Difficulty: Medium
service firms
75. Which of the following budgets is usually prepared at the start of the budgeting process?
A. Production budget
B. Annual budget
C. Operating budget
D. Sales budget
AACSB: Reflective
Difficulty: Easy
service firms
76. Briefly describe the five primary purposes of the budgeting process.
1 Planning. The most obvious purpose of a budget is to express a plan of action in financial terms. The budgeting process forces the
individuals within a business to plan. For example, in formulating a quarterly budget the various managers must work together to plan
for the expected sales demand, as well as the staffing and supplies needed to meet the anticipated demand. These decisions will drive
the estimation of revenues and costs.
2 Facilitating communication and coordination. For a business to plan operations effectively there must be good communication and
coordination between all managers. The budgeting process provides a formal mechanism to enable this to take place. The budgeting
process pulls together the plans developed by each manager across the organisation.
3 Allocating resources. Generally, a firm's resources are limited, and budgets provide one way of allocating resources among
competing uses. In an organisation various departments/ divisions would be competing for resources and senior management would
use the budgeting process to consider the many alternative uses that could be made of the limited resources available to the company.
The budgeting process provides a forum for evaluating alternative uses of those limited resources.
4 Controlling profit and operations. The budget can serve as a benchmark to allow a comparison against actual financial results at all
levels of a business. For example, within a sales department, a report that compares actual sales to budgeted sales may be prepared
on a weekly basis to help sales staff exercise some control over total sales. In addition, the budgeted costs of a customer service
department may be compared with actual costs each month to highlight areas where there needs to be greater cost control. As part of
the budgeting process, standard costs are often developed for major production inputs (such as direct materials used in production) or
activities. These ideal costs provide benchmarks to help managers control financial resources.
5 Evaluating performance and providing incentives. Comparing actual results with budgeted results also helps managers to evaluate
the performance of individuals, departments, divisions or the entire company. Since budgets are used to evaluate performance, they
can also be used to provide incentives for people to perform well. For example, in many companies, managers and other employees
may have part of their salary based on whether they exceed their budget target
AACSB: Communication
Difficulty: Medium
77. Discuss how benchmarks are applied to measure performance in responsibility accounting.
Responsibility accounting is the term used to describe the practice of holding managers responsible for the activities and
performance of their area of the business. For example, a particular manager might be held responsible for the activities
and results of the accounting department, the personnel department or a production department. A senior manager might
be responsible for a complete business unit, which may include many departments. The budget can be used as a
benchmark to measure the performance of people and departments.
As part of the budgeting process, the managers of various departments or other sections of a business are often required
to develop their own budget estimates for the costs, revenue or profits of their areas. These same managers are then held
responsible for meeting budget targets when actual operations commence.
Difficulty: Medium
78. Discuss how participative budgeting can achieve acceptance of the budget from staff.
The process of gaining acceptance of the budget involves negotiation and subsequent revision of budget estimates. This lengthy and
time-consuming process, called participative budgeting, allows managers at all levels to develop their own initial estimates for
budgeted sales, costs and so on.
Top-down budgeting describes the system where senior managers impose budget targets on more junior managers—there is little
participation or consultation in the budget-setting process. Budgets may be set at the corporate level and then cascaded down to the
various responsibility centres—profit centres and cost centres—throughout the organisation. This may be a cost-effective and timely
way of setting budgets, but there are two major disadvantages. First, senior managers may have less knowledge of the local business
environment than do those managers working directly in the particular responsibility centres. Budget targets may not embody this
knowledge and may be unrealistic. Second, limited involvement in setting budget targets can result in a lack of commitment by middle
and junior managers to achieving the budget targets.
The term bottom-up budgeting is used to describe the participative process in which people at the lower managerial and operational
levels play an active role in setting their own budget. Budgets are collected at the lowest responsibility centres of the business and are
consolidated and fed up to senior management. This budgeting process operates in a bottom-up manner. Under this approach, we
would still expect a certain amount of review and negotiation to take place before budgets are approved by senior managers.
Participative budgeting can encourage coordination and communication between managers and a greater understanding and
appreciation of the objectives and strategy of the wider organisation. Accuracy of the budget estimates may be enhanced because
those people close to operations have the best knowledge of the likely sales in their region or the likely costs of running their
responsibility centre.
It is generally believed that most people will perform better and try harder to achieve a budget goal if they have been consulted in
setting that budget. Such participation can give employees the feeling that ‘this is my budget', rather than the common feeling that ‘this
is the budget you imposed on me'.
Difficulty: Medium
79. Managers can window dress their performance by creating budgetary slack. Explain why a manager would do this and
support your answer with three examples.
There are three primary reasons why people create budgetary slack. First, people often believe that their performance will look better to
their superiors if they can ‘beat the budget'. Second, budgetary slack is often used to cope with uncertainty. A departmental supervisor
may feel reasonably confident of the cost projections in the departmental budget, but may also feel that some unforeseen event during
the budgetary period could result in unanticipated costs. (For example, an unexpected machine breakdown could occur.) One way of
allowing for that unforeseen event is to pad the budget. If nothing goes wrong, the supervisor can beat the cost budget. If some
unfortunate event does occur, the budgetary slack will absorb the impact of the event and the budget will still be met.
The third reason for padding budgets is that managers are competing for limited resources, and it is common for their initial budget
requests to be cut by their manager or the budget review committee. Thus we have a vicious circle: budgetary projections are padded
because they are likely to be cut, and they are cut because they are likely to be padded.
If the evaluation of a regional sales manager's performance is based on whether his or her sales budget for the territory is exceeded, it
encourages the sales manager to provide a conservative, or low, sales estimate.
When a supervisor provides a departmental cost estimate to their manager to be used in the budget, there is an incentive to
overestimate costs. When the actual cost incurred in the department is found to be less than the inflated cost projection, the manager
may conclude that the supervisor has managed the department in a cost-effective way.
These illustrations are examples of padding the budget. Budget padding means underestimating revenue or overestimating costs.
The difference between the revenue or cost projection that a person provides, and a realistic estimate of the revenue or cost, is called
budgetary slack. For example, if a plant manager believes that the annual electricity cost will be $18 000, but estimates a budget of
$20 000, then the manager has built $2000 of slack into the budget.
Difficulty: Medium
80. Zero-based budgeting is too introspective. Discuss this statement.
When managers focus on their own part of the business, they can overlook the interactions with other departments and
the relevance of their operations to overall business objectives and strategies. Thus, zero-base budgeting may not be very
useful in helping businesses to manage costs or improve their performance. It has also been claimed that it does not help
in identifying areas of waste, redundant activities, communication barriers or opportunities for more effectively deploying
resources to support business needs. In the modern business environment, there are more sophisticated techniques,
such as value analysis, that allow businesses to consider the viability of activities in terms of whether they add value to
the customer and, therefore, to the business.
Difficulty: Easy
81. Employees are always motivated to work towards the company's goals when budgets are handed down from top
management as employees rarely have the time or the inclination to become involved in the budgeting process.
FALSE
AACSB: Reflective
Difficulty: Medium
82. There should never be inaccuracies when forecasting sales figures as these figures are only affected by internal
factors which management can control.
FALSE
AACSB: Reflective
Difficulty: Easy
service firms
83. If an organisation were more focused on outputs rather than inputs, they would be advised to use program budgeting
as opposed to other alternatives.
TRUE
AACSB: Reflective
Difficulty: Medium
84. Before any steps are taken in the budgeting process, it is essential that all involved in the process familiarise
themselves with the strategic plans of the organisation so they can formulate the budget in light of these plans.
TRUE
AACSB: Reflective
Difficulty: Easy
85. Where an organisation elects to incorporate responsibility accounting into the firm, they will establish some common
responsibilities centres such as cost, revenue, investment and expense.
TRUE
AACSB: Reflective
Difficulty: Easy
86. Budgets can be used as a benchmark against which to evaluate performance and control costs.
TRUE
AACSB: Reflective
Difficulty: Easy
87. Budgets can be broken into three main categories, capital expenditure budgets, operating budgets and continuous
budgets.
FALSE
AACSB: Reflective
Difficulty: Easy
88. A problem with participative budgeting is that there will always be a tendency for those participating to build slack into
the budget to ensure a better outcome for their performance assessment.
TRUE
AACSB: Reflective
Difficulty: Easy
89.
As all budgets 'hang' off the sales budget, if the sales forecasts are incorrect, chances are all operating budgets will also be inaccurate.

TRUE

AACSB: Reflective
Difficulty: Easy
service firms
90. A detailed plan that shows the financial consequences of an organisation's operating activities for a specific future
time period is known as a strategic plan.
FALSE
AACSB: Reflective
Difficulty: Medium
91. The cash budget assists management in evaluating their financial needs.
TRUE
AACSB: Reflective
Difficulty: Easy
92. A budget manual communicates budget procedures and deadlines throughout the organisation.
TRUE
AACSB: Reflective
Difficulty: Easy
Chapter 09 Testbank Summary
Category # of Quest
ions
AACSB: Analytical 21
AACSB: Communication 5
AACSB: Reflective 66
Difficulty: Easy 48
Difficulty: Hard 5
Difficulty: Medium 39
Learning Objective: 9.01 Understand how the budgeting process fits into the wider strategic planning processes of an o 4
rganisation
Learning Objective: 9.02 Explain the five major purposes of the budgeting process 7
Learning Objective: 9.03 Understand how budgets are developed and used in responsibility accounting systems 4
Learning Objective: 9.04 Understand the various components that make up an annual budget 7
Learning Objective: 9.05 Discuss the importance of assumptions and predictions in budgeting 4
Learning Objective: 9.06 Describe the similarities and differences in the operating budgets prepared by manufacturers, 7
retailers and wholesalers, and service firms
Learning Objective: 9.07 Complete the major budgeting schedules for a service organisation 16
Learning Objective: 9.08 Describe a typical organisation's process of budget administration 4
Learning Objective: 9.09 Discuss the behavioural consequences of budgets: participative budgeting, budgetary slack a 18
nd budget difficulty
Learning Objective: 9.10 Understand zero-base budgeting and program budgeting 5
Learning Objective: 9.11 Complete the major budgeting schedules for a manufacturing organisation 16

Chapter 09 Testbank Questions and Answers

Uploaded by

Document Information

Original Title

Copyright

Available Formats

Share this document

Share or Embed Document

Sharing Options

Did you find this document useful?

Is this content inappropriate?

Copyright:

Available Formats

Chapter 09 Testbank Questions and Answers

Uploaded by

Copyright:

Available Formats

Chapter 09 Testbank

You might also like