PM - Ch. 9

Which of the following describes a flexed budget?

• 1. One that is set prior to the control period and not subsequently changed in response to changes in activity, costs or revenues

• 1. One that is continuously updated by adding a further accounting period when the earliest accounting period has expired

• 1. One that is changed in response to changes in the level of activity

• 1. One that is changed in response to changes in costs

Which of the following definitions best describes Zero-Based Budgeting?

• 1. A method of budgeting whereby all activities are re-evaluated each time a budget is formulated

• 1. A method of budgeting where an attempt is made to make each cost heading as close to zero as possible

• 1. A method of budgeting which recognises the difference between the behaviour of fixed and variable costs with respect to changes in output and is designed to change appropriately with such fluctuations

• 1. A method of budgeting where the sum of revenues and expenditures in each cost centre must equal zero

Jaitinder Co has decided to change from a top-down system of budgeting to a bottom-up system of budgeting.

Which of the following is Jaitinder Co likely to face as a result of this change?

• 1. More likelihood of unachievable budgets being set

• 1. More coordination being needed between different departments

• 1. Less opportunity for management below senior management to exercise initiaitve

• 1. Less budgetary slack being bulit in

The following statements have been made about Beyond Budgeting:

1. 1. It focuses on financial targets.

2. 2. It involves the use of stretch goals.

3. 3. It emphasises strong central planning.

4. 4. It gives resource decisions to front-line teams.

Which of the above statements are correct?

• 1. 1 and 2

• 1. 1 and 3

• 1. 2 and 4

• 1. 3 and 4

Which THREE of the following statements about a flexible budget are correct?

• 1. It allows managers to plan for alternative contingencies

• 1. It makes no differentiation between fixed and variable costs

• 1. It assists in identifying limiting factors

• 1. It provides useful control information

• 1. Managers constantly change the budget if it is too hard to achieve

The following statements have been made about different types of budgets:

1. A.An annual budget that can be broken down into monthly budgets, which differ depending on the number of working days in each month, is called a flexible budget.

2. B.An annual budget set before the start of a year based on estimated sales and production volumes is called a fixed budget.

Which of the above statements is/are true?

• Statement 1 - True

  Statement 2 - False

• Statement 1 - False

  Statement 2 - True

• Statement 1 - False

  Statement 2 - False

• Statement 1 - True

  Statement 2 - True

X Co uses rolling budgeting, updating its budgets on a quarterly basis. After carrying out the last quarter’s update to the cash budget, it projected a forecast cash deficit of $400,000 at the end of the year. Consequently, the planned purchase of new capital equipment has been postponed.

Which of the following types of control is the sales manager’s actions an example of?

• 1. Feedforward control

• 1. Negative feedback control

• 1. Positive feedback control

• 1. Double loop feedback control

The following statements have been made about zero based budgeting:

1. 1. Employees will focus on eliminating wasteful expenditure

2. 2. Short-term benefits could be emphasised over long-term benefits

Which of the above statements is/are true?

• 1. 1 only

• 1. 2 only

• 1. Neither 1 nor 2

• 1. Both 1 and 2

The following statements have been made about changing budgetary systems:

1. 1. The costs of implementation may outweigh the benefits

2. 2. Employees will always welcome any new system which improves planning and control within the organisation

Which of the above statements is/are true?

• 1. 1 only

• 1. 2 only

• 1. Neither 1 nor 2

• 1. Both 1 and 2

Bright Co produces quarterly rolling budgets and had forecast the costs of material purchases for the next four quarters (Q1, Q2, Q3 and Q4). Purchases for Q1 were budgeted to be $220,000 and it was anticipated that the cost of materials would rise at a rate of 2% per quarter.

At the end of Q1:

• 1. Actual material purchases were recorded at $210,000. This was due to a change of material supplier during the quarter.

• 2. A revised estimate for the increase in material purchase costs was made. The rise was now predicted to be only 1% per quarter.

• 3. The budget was updated.

What estimate for total annual material purchases should be recorded in the updated budget?

• 1. $852,684

• 1. $861,211

• 1. $896,754

• 1. $1,071,211