Budgeting Concepts Quiz

All of the following are advantages of the use of budgets in a management control system except that budget

• Force management planning.

• Provide performance criteria.

• Promote communication and coordination within the organization.

• Limit unauthorized expenditures.

A company pays its production manager an annual bonus based on how well the manager performs against the production department's annual budgets. The production manager has been overestimating budgeted costs the past few years in order to obtain a higher bonus payment. The production manager's actions are best described as

• motivating employee effort

• building budgetary slack

• balancing production costs

• setting budgeted performance.

Which of the following are advantages of having a non-participative (top-down or authoritative) budgeting process as compared to a participative budgeting process?

• Employee motivation is increased.

• Slack in the operational budgets is reduced.

• The budgets produced are more attainable.

• The budgeting process takes more time.

An advantage of using a flexible budget compared to a static budget is that in a flexible budget

• Shortfalls in planned production are clearly presented.

• Standards can easily be changed to adjust to changing circumstances.

• Fixed cost variances are more clearly presented.

• Budgeted costs for a given output level can be compared with actual costs for the same level of output.

The budget that is usually the most difficult to forecast is the

• Production budget.

• Expense budget.

• Sales budget.

• Manufacturing overhead budget.

The major objectives of budgeting are to

• foster the planning of operations, provide a framework for performance evaluation, and promote communication and coordination among the organization's segments

• foster the planning of operations, facilitate the identification of blame for missed budget predictions, and ensure goal congruence between superiors and subordinates

• define responsibility centers, provide a framework for performance evaluation, and promote communication and coordination among the organization's segments

• define responsibility centers, facilitate the identification of blame for missed budget predictions, and ensure goal congruence between superiors and subordinates

A continuous (rolling) budget

• Presents planned activities for a period but does not present a firm commitment.

• Presents the plan for only one level of activity and does not adjust to changes in the level of activity.

• Presents the plan for a range of activity so that the plan can be adjusted for changes in activity.

• Drops the current month or quarter and adds a future month or quarter as the current month or quarter is completed.

In developing the budget for the next year, which one of the following approaches would most likely result in a successful budget with the greatest amount of positive motivation and goal congruence?

• Permit the divisional manager to develop the goal for the division that in the manager's view will generate the greatest amount of profits.

• Have senior management develop the overall goals and permit the divisional manager to determine how these goals will be met.

• Have the divisional and senior management jointly develop goals and objectives while constructing the corporation's overall plan of operation.

• Have the divisional and senior management jointly develop goals and the divisional manager develop the implementation plan.

All of the following are disadvantages of authoritative budgeting as opposed to participatory budgeting, except that it

• may result in a budget that is not possible to achieve

• may limit the acceptance of proposed goals and objectives

• reduces the communication between employees and management

• reduces the time required for budgeting.

A major disadvantage of a static budget is that

• It is more difficult to develop than a flexible budget.

• It is made for only one level of activity.

• Variances tend to be smaller than when flexible budgeting is used.

• Variances are more difficult to compute than when flexible budgeting is used.