Cornerstones Cost Management 2nd Edition Hansen Mowen
Strategy and the Master Budget
Multiple Choice Questions
1. The master budget for a given accounting period has all of the following except:
A. It consists of a series of operating and financial budgets.
B. It is considered the “grand plan of action” for the upcoming period.
C. It culminates in a set of pro forma financial statements.
D. It is considered an important planning document for many organizations.
E. It is based on the actual level of sales activity for the period.
2. “Budgetary slack” occurs when:
A. Employees refuse to adhere to budgeted plans and operations.
B. The budget is so difficult to meet that employees slack-off from work.
C. An authoritative, or imposed, budgeting process is used.
D. To “meet” budget objectives, employees ask for resources in excess of what they need.
E. Employees ask for fewer resources than they need, in order to continuously improve.
3. A master budget is typically prepared for:
A. Coordinating activities among subunits of an organization.
B. Top management only.
C. Strategic planning purposes only.
D. Strategic business units only.
E. Operating activities only.
4. The successful use of a budgeting system generally involves all of the following except:
A. Acceptance and support by key management people.
B. A sense of ownership by those assigned to carry out the budgeting process.
C. Correct and reasonably accurate budgets.
D. Inclusion of “budgetary slack” in most budgets.
E. Integration among subunit budgets within the master budget.
5. All of the following are ways of setting the budget, except:
A. Negotiation-based budgeting.
B. Two-stage budgeting.
C. Participative budgeting.
D. Authoritative budgeting.
E. All of these answer choices are ways of setting the budget.
6. Revision of a completed and approved budget:
A. Should be conducted whenever actual events differ significantly from those envisioned when the budget was prepared.
B. Reduces employee commitment to achieve budgeted performance.
C. Should be discouraged.
D. May discourage diligence in its initial preparation.
E. Is never needed under Kaizen budgeting.
7. The process of planning business actions in the near future and expressing them as formal plans of action is called:
B. Goal congruence.
C. Budgetary slack.
D. Resource consumption accounting.
E. Financial Accounting.
8. A plan of dollar amounts to be spent on long-term projects is called a:
A. Cash budget.
B. Capital budget.
C. Rolling budget.
D. Research budget.
E. Rolling financial forecast.
9. A plan that shows the cash balance on hand at the beginning of a budget period, expected cash flow from operations, cash flows from investing activities, cash flows from financing activities, and an ending cash balance is called a(n):
A. Capital budget.
B. Financial budget.
C. Operating budget.
D. Cash budget.
E. Cash receipts budget.
10. A comprehensive or overall formal plan for a business that includes specific plans for expected sales, the units of product to be produced, the merchandise (or materials) to be purchased, the manufacturing, selling, administrative, and general expense to be incurred, the long-term assets to be purchased, and the amounts of cash to be borrowed or loans to be repaid, as well as a budgeted income statement and balance sheet, is called a(n):
A. Master budget.
B. Kaizen budget.
C. Capital expenditures budget.
D. Continuous budget.
E. Operating budget.
11. A plan that states the units or cost of merchandise to be purchased by a retailer or wholesaler during the budget period is called a:
A. Production budget.
B. Merchandise purchases budget.
C. Accounts payable budget.
D. Cash payments budget.
E. Cost of goods sold budget.
12. A plan showing the units of goods expected to be sold and the expected revenue from sales is called the:
A. Cash budget.
B. Sales receipts budget.
C. Selling expense budget.
D. Cash receipts budget.
E. Sales budget.
13. The practice of maintaining budgets for the same number of future periods, revising those budgets as each period is completed and adding a new budget each period, is called:
A. Master budgeting.
B. Cyclical budgeting.
C. Zero-based budgeting (ZBB).
D. Rolling budgets (or, rolling financial forecasts).
E. Kaizen (or continuous-improvement) budgeting.
14. An accounting statement that presents predicted amounts of the company’s assets, liabilities, and stockholders’ equity as of the end of the budget period is called a(n):
A. Master balance sheet.
B. Budgeted income statement.
C. Pro forma balance sheet.
D. Pro forma cash flow statement.
E. Operating balance sheet.
15. Which of the following budgets is not a financial budget?
A. Sales budget.
B. Cash receipts budget.
C. Budgeted cash-flow statement.
D. Budgeted balance sheet.
16. Which of the following is not a potential benefit of having a sound budgeting process?
A. Improved decision-making.
B. Improved performance-evaluation process.
C. Improved coordination of business activities.
D. Improved motivation for company employees.
E. Lower acceptance rate for capital budgeting projects.
17. Which of the following budgets must be completed before preparing a cash budget?
A. Cash receipts budget.
B. Rolling budget.
C. Cash financing budget.
D. Pro forma balance sheet.
E. Pro forma income statement.
18. Which of the following statements about budgeting is not true?
A. Budgeting is designed to be an aid to planning and control.
B. Budgets create standards for performance evaluation.
C. Budgets help coordinate the activities of the entire organization.
D. Budgeting forces managers to think ahead and to formalize long-range objectives.
E. Budgeting eliminates the need for day-to-day monitoring of operations.
19. Which of the following factors is least likely to be considered in preparing a sales budget?
A. Plant (factory) capacity.
B. General economic and industry conditions.
C. Past sales volume.
D. The cash budget.
E. Proposed advertising expenses.
20. A sales forecast is the first step in the budgeting process of a merchandising firm because:
A. The revenue data are easiest to generate.
B. Sales information is precise in amount.
C. Sales personnel have the quickest access to data.
D. Sales forecasts are the most objective of all budgeted activities.
E. Almost all activities of a firm emanate from (i.e., are linked to) estimated sales demand.
21. Sales forecasting by its nature is:
B. Deterministic in nature.
D. Somewhat subjective.
22. Budgeting for production (i.e., units to be produced in an upcoming budget period):
A. Is simply an extension of the sales forecast.
B. Is prepared after the materials purchases budget is prepared.
C. Involves the sales budget and both beginning and ending finished goods inventory amounts.
D. Is not needed under a JIT production philosophy.
E. Is normally the first major step in the master budgeting process.
23. Maintaining a constant production level in a firm has the advantage of:
A. Minimizing the amount of inventory held.
B. Allowing a stable employment level.
C. Meeting customers’ changing expectations in terms of demand volume.
D. Supporting the organization’s move to JIT (just-in-time).
E. Allowing the firm to compete successfully as a differentiator.
24. The budgeted income statement and budgeted balance sheet benefit a business primarily in terms of the ability of the organization to:
A. Meet stockholder requests for planning information from the organization.
B. Narrow the range of budgeted estimates to a manageable subset.
C. Deal with uncertainty inherent in the budgeting process.
D. Summarize the financial impact of the firm’s financial and operating activities for an upcoming period.
E. Satisfy the disclosure requirements of generally accepted accounting principles (GAAP).
25. The focal point in budgeting for a service organization is likely to be:
A. Capital assets acquisition.
B. Raw material utilization.
C. Human resource (i.e., personnel) planning.
D. Cost minimization.
E. The process of mission development and goal specification.
26. Which of the following is not an alternative approach to traditional budgeting practices?
A. Kaizen budgeting.
B. Zero-based budgeting (ZBB)
C. Activity-based budgeting (ABB)
D. Time-driven activity based budgeting (TDABB)
E. Operations budgeting
27. Zero-base budgeting (ZBB) differs from traditional budgeting in terms of its requirement to:
A. Justify all budgeted operations and associated spending.
B. Consider the time-value of money in the budgeting process.
C. Start the budgeting process from the lowest level of the organization.
D. Incorporate continuous-improvement standards in the set of financial and operating budgets.
E. Minimize the existence of “budgetary slack.”
28. A “participative” budget is a(n):
A. Good two-way communication device.
B. Relatively inexpensive and efficient approach to budget preparation.
C. “Top down” management approach.
D. “Zero-based” approach to planning.
E. Alternative budgeting approach to traditional budgeting.
29. Unless properly controlled, a “bottom-up” budgeting process can lead to:
A. Excessively tight (i.e., difficult-to-achieve) budgets.
B. Easy budget targets.
C. Excessive downward communication.
D. Reduced incentives for participation.
E. Reduced levels of “budgetary slack.”