Deck 16: Budgeting and Manager ROI

Question 1

What is return on investment (ROI)?

A) net operating income divided by average operating assets
B) gross operating income divided by average operating assets
C) liability divided by average operating assets
D) net operating income divided by inventory

Answer 1

A

Question 2

The type of budget that is simplest to construct and refers to one level of business activity is the:

A) variable budget
B) zero-based budget
C) fixed budget
D) cash-flow budget

Answer 2

C

Question 3

Why is zero-based budgeting used?

Answer 3

The following are definitive strengths of zero-based budgeting, and can help to encourage its use:
• Good planning and the establishment of goals are required to approve or deny costs or to pay for new or old items or programs.
• Management must systematically review and evaluate activities and rank them in order of importance.
• Follow-up evaluation of the approved expenses or activities is heavily encouraged.
• The controller and management have more control over the operation because they must monitor more closely the ongoing expense activities and their results; and there is improved communication among managers within the functions and throughout the organization's management levels.

Question 4

Fixed costs are fixed in dollars, and thus the fixed cost percentage decreases as sales increase.

Question 5

The controller is not responsible for establishing control mechanisms used by management to safeguard its resources and investments.

Question 6

On a balance sheet, assets equal:

A) owner's equity minus liabilities
B) liabilities plus owner's equity
C) liabilities
D) owner's equity

Question 7

A plan that calls for a series of actions to produce certain outcomes, with effective controls incorporated into these actions is a:

A) budget
B) forecast
C) feasibility analysis
D) corporate policy

Question 8

A high balance of current assets over current liabilities may indicate that you are not investing excess cash wisely.

Question 9

Current ratio is a measure of the liquidity of the company. It is derived as follows:

A) current ratio = current assets/current liabilities
B) current ratio = current liability/current assets
C) current ratio = current inventory/current liabilities
D) current ratio = current assets/current payables

Question 10

The budgeted balance sheet is usually not presented in one of the following formats:
• Account format: assets = liabilities plus owner's equity
• Report format: assets less liability = owner's equity

Question 11

One example of an internal factor impacting the budget would be staff training costs to be incurred.

Question 12

A business's past performance is guided by two sets of effects on your operations: those due to external business conditions-such as levels of tourism, natural disasters, terrorism, and local events-and those caused by internal management policies and procedures, such as system and product changes.

Question 13

When the rate of return exceeds the marginal cost, then it is in the restaurant's financial interest to invest the additional capital.

Question 14

An example of a fixed cost is food.

Question 15

In a large operation, the food and beverage controller has direct responsibilities for operational decision making.

Question 16

Zero-based budgeting techniques define expenses as discretionary or nondiscretionary.

Question 17

What is a continuous or perpetual budget cycle?

A) twelve-month budget
B) one month (or quarter) is added to the end of the budget as each month (or quarter) comes to a close
C) five-year budget
D) fixed budget

Question 18

The relationship between current assets and current liabilities is referred to as the:

A) liquid asset
B) current ratio
C) budget and forecast
D) profit

Question 19

Differentiate a forecast from a budget.

Question 20

The controller is responsible for establishing control mechanisms used by management to safeguard its resources and investments. Therefore, in that role you will also take the lead in developing the:

A) sanitation plan
B) employees schedule
C) annual budget
D) food recipe

Question 21

Describe the treatment of labor in variable budgeting.

Question 22

When performing variable budgeting, if total fixed costs for the month are $10,000, food cost per cover is $2.35, beverage cost per cover is $.85, labor cost per cost is $1.85, and other costs per cover are $.65, what is the total budgeted expense if 3,000 covers are forecast?

Question 23

Why is it important, especially in writing a variable budget, to differentiate fixed from variable costs?

Question 24

What is a capital budget?

Question 25

What role does the controller play in budget preparation and how does it differ from the department head?

Question 26

Describe the treatment of labor in zero-based budgeting.

Question 27

When performing variable budgeting, if total fixed costs for the month are $10,000, food cost per cover is $2.35, beverage cost per cover is $.85, labor cost per cost is $1.85, and other costs per cover are $.65, what is the total budgeted expense if 15,000 covers are forecast?

Question 28

How does successful budgeting benefit the company?