BH 3.9

Budgets are forward-looking __________ plans for a fixed period of time. Budgets are most commonly used for expected sales revenues and _________.

• Cash flow, profits

• Expenditures, financial

• Financial, expenditures

• Profits, cash flow

Which of the following is not a valid limitation of budgeting?

• It is time consuming to create them accurately

• It tends to lead to overspending

• Managers competing for larger budgets may lead to conflict

• They tend to be static and inflexible, rather than dynamically implemented

A ____________ is a division or unit within an organization that generates revenue and is accountable for its own costs.

• Budget holder

• Cost centre

• Profit centre

• Strategic business unit

Identify the most appropriate description of a cost centre.

• A division of an organization that is accountable for incurring costs, but not revenues

• A division of an organization that is accountable for incurring revenues as well as costs

• Any strategic business unit of a larger company

• The highest-cost division within an organization

Identify the least likely example of a profit centre.

• A management consulting firm

• A retail outlet

• An advertising team

• An insurance sales team

Identify a difference between a cost and a profit centre.

• Cost centres are always smaller than profit centres

• Functional business departments can only be cost centres

• Only cost centres include costs in their budgets

• Only profit centres will include revenues in their budgets

Identify the least common method to divide budgets across an organization.

• By function

• By geographic location

• By product

• By size

Identify a limitation of dividing an organization’s budgets into cost and profit centres.

• Accountability

• Assessing success

• Benchmarking

• The indirect allocation of costs

Identify the most common length for a master budget for an entire organization.

• 1 month

• 6 months

• 1 year

• 5 years

Identify the correct formula used to calculate a budget variance.

• Actual outcome – Budgeted outcome

• Actual outcome + Budgeted outcome

• Actual outcome / Budgeted outcome

• (Actual outcome / Budgeted outcome) × 100