/40 Welcome to your Budgeting Diploma Exam Read the following articles: Budgeting & Business Planning Budgeting and Forecasting – Best Practices Sales Budget Types of budgets, Definition, and Classification Start the exam ⇓ 1 / 40 In preparing a corporate master budget, which one of the following is most likely to be prepared last? Production budget Cost of goods sold budget Cash budget Sales budget 2 / 40 Which one of the combinations listed correctly depicts the chronological order of preparation for the following budgets? I. Cost of goods sold budget II. Production budget III. Purchases budget IV. Administrative budget I, II, III, IV III, II, IV, I IV, II, III, I II, III, I, IV 3 / 40 Wilson Company uses a comprehensive planning and budgeting system. The proper order for Wilson to prepare certain budget schedules would be: Income statement, balance sheet, statement of cash flows, and cost of goods sold Cost of goods sold, balance sheet, income statement, and statement of cash flows Statement of cash flows, cost of goods sold, income statement, and balance sheet Cost of goods sold, income statement, balance sheet, and statement of cash flows 4 / 40 Ineffective budget control systems are characterized by: Use of budgets as a planning but not a control tool Use of budgets for harassment of individuals rather than motivation Lack of timely feedback in the use of the budget All of the answers are correct 5 / 40 All of the following are considered operating budgets except the: Materials budget Sales budget Capital budget Production budget 6 / 40 A budget helps a company control costs by setting cost guidelines. However, a budget also performs the function(s) of: Motivating All of the answers are correct Communicating Planning 7 / 40 An advantage of participative budgeting is that it: Encourages acceptance of the budget by employees Yields information known to management but not to employees Minimizes the cost of developing budgets Reduces the effect on the budgetary process of employee biases 8 / 40 When budgeting, the items to be considered by a manufacturing firm in going from a sales quantity budget to a production budget would be the: Expected change in the quantity of finished goods and work-in-process inventories Expected change in the quantity of finished goods and raw material inventories Expected change in the availability of raw material without regard to inventory levels Expected change in the quantity of work-in-process inventories 9 / 40 One approach for developing standard costs incorporates communication, bargaining, and interaction among product line managers; the immediate supervisors for whom the standards are being developed; and the accountants and engineers before the standards are accepted by top management. This approach would best be characterized as a(n): Imposed approach Team development approach Centralized top-down approach Engineering approach 10 / 40 Which one of the following best describes the order in which budgets should be prepared when developing the annual master operating budget? Revenue budget, production budget, direct material budget Revenue budget, direct material budget, production budget Production budget, revenue budget, direct material budget Production budget, direct material budget, revenue budget 11 / 40 Which one of the following is not an advantage of activity-based budgeting? Linking of costs to outputs Better identification of resource needs Identification of budgetary slack Reduction of planning uncertainty 12 / 40 When comparing performance report information for top management with that for lower-level management, Lower-level management reports are likely to contain more quantitative data and less financial data Lower-level management reports are typically for longer time periods Top management reports show control over fewer costs Top management reports are more detailed 13 / 40 The budgeting process should be one that motivates managers and employees to work toward organizational goals. Which one of the following is least likely to motivate managers? Setting budget targets at attainable levels Use of management by exception Participation by subordinates in the budgetary process Having top management set budget levels 14 / 40 In an organization that plans by using comprehensive budgeting, the master budget is: A budget of a not-for-profit organization after it is approved by the appropriate authoritative body A compilation of all the separate operational and financial budget schedules of the organization The current budget updated for operations for part of the current year The booklet containing budgeting guidelines, policies and forms to use in the budgeting process 15 / 40 A company uses a type of budgeting that focuses on the cost of the processes required to produce and sell products and services. This type of budgeting is known as: Process budgeting Controllability budgeting Activity-based budgeting Master activity budgeting 16 / 40 The use of the master budget throughout the year as a constant comparison with actual results signifies that the master budget is also a: Flexible budget Static budget Capital budget Zero-base budget 17 / 40 An improperly executed budget process might have the effect(s) of: All of the answers are correct Inflated budget requests Disregard of overall company goals Meeting short-term but not long-term goals 18 / 40 Which budget is prepared after the creation of the cash budget? Production budget Sales budget Capital expenditures budget Budgeted balance sheet 19 / 40 Medico has found that its annual budgets are quickly outdated once actual data is recorded. Sometimes actual preparations have already begun for the period being budgeted by the time the annual budget is finished, which leaves no time to react to changing factors. Medico wants the budget to be as up-to-date as possible, and management is willing to revise budgets as needed. Which budgeting solution would be most appropriate for Medico? Flexible budgeting Zero-based budgeting Continuous budgeting Activity-based budgeting 20 / 40 Zero-based budgeting forces managers to: Prepare a budget based on historical costs Estimate a product's revenues and expenses over its expected life cycle Formulate a budget by objective rather than function Justify all expenditures at the beginning of every budget period 21 / 40 A systemized approach known as zero-based budgeting (ZBB) Presents a statement of expectations for a period of time but does not present a firm commitment Classifies budget requests by activity and estimates the benefits arising from each activity Presents the plan for only one level of activity and does not adjust to changes in the level of activity Divides the activities of individual responsibility centers into a series of packages that are prioritized 22 / 40 Which of the following is normally included in the financial budget of a firm? Budgeted balance sheet Sales budget Direct materials budget Selling expense budget 23 / 40 After the goals of the company have been established and communicated, the next step in the planning process is development of the: Direct materials budget Production budget Sales budget Selling and administrative budget 24 / 40 A budget manual, which enhances the operation of a budget system, is most likely to include: A chart of accounts Employee hiring policies Distribution instructions for budget schedules Documentation of the accounting system software 25 / 40 Which one of the following is not a characteristic of a successful budget process? Using market feedback to assist in setting expectations Setting specific expectations to compare to actual results Implementing the budget as the only benchmark for performance evaluation Gaining top management's support. 26 / 40 The major appeal of zero-based budgeting is that it: Solves the problem of measuring program effectiveness Deals with some of the problems of the incremental approach to budgeting Relates performance to resource inputs by an integrated planning and resource-allocation process Reduces significantly the time required to review a budget 27 / 40 Each organization plans and budgets its operations for slightly different reasons. Which one of the following is not a significant reason for planning? Checking progress toward the objectives of the organization Ensuring profitable operations Providing a basis for controlling operations Forcing managers to consider expected future trends and conditions 28 / 40 All of the following are advantages of the budgeting process except that the budget: Establishes benchmarks to identify unsatisfactory organizational performance Allocates resources on an as-needed basis Facilitates communication among organizational units Forces management to assess the future objectives of the company 29 / 40 The foundation of a profit plan is the: Capital budget Production plan Sales forecast Cost and expense budget 30 / 40 The financial budget process includes: The capital budget The cash budget All of the answers are correct The budgeted statement of cash flows 31 / 40 While an operating budget is a key element in planning and control, it is not likely to: Establish a commitment of company resources Set out long-range, strategic concepts Integrate organizational activities Provide subsidiary planning information 32 / 40 One of the primary advantages of budgeting is that it: Requires departmental managers to make plans in conjunction with the plans of other interdependent departments Does not take place of management and administration Bases the profit plan on estimates Is continually adapted to fit changing circumstances 33 / 40 In developing a comprehensive budget for a manufacturing company, which one of the following items should be done first? Determination of manufacturing capacity Development of a sales plan Determination of the advertising budget Development of the capital budget 34 / 40 Which one of the following best describes the role of top management in the budgeting process? Top management: Should be involved only in the approval process Needs to be involved, including using the budget process to communicate goals Lacks the detailed knowledge of the daily operations and should limit their involvement Needs to separate the budgeting process and the business planning process into two separate processes 35 / 40 The preparation of a comprehensive master budget culminates with the preparation of the: Strategic budget Cash management and working capital budget Production budget Capital investment budget 36 / 40 When developing a budget, an external factor to consider in the planning process is: The implementation of a new bonus program A change to a decentralized management system New product development The merger of two competitors 37 / 40 When compared with ideal standards, practical standards: Serve as a better motivating target for manufacturing personnel Produce lower per-unit product costs Incorporate very generous allowance for spoilage and worker inefficiencies Result in a less desirable basis for the development of budgets 38 / 40 The budget that is usually the most difficult to forecast is the: Expense budget Sales budget Production budget Manufacturing overhead budget 39 / 40 All of the following are advantages of the use of budgets in a management control system except that budgets: Provide performance criteria Force management planning Promote communication and coordination within the organization Limit unauthorized expenditures 40 / 40 Which one of the following schedules would be the last item to be prepared in the normal budget preparation process? Direct labor budget Manufacturing overhead budget Cash budget Cost of goods sold budget 0% Restart quiz
