Deck 8: Zero-Base Budgeting

Question 1

The primary focus of a zero-base budget is on

A) Control of inputs
B) Control over processes
C) Efficiency
D) Effectiveness

Answer 1

C

Question 2

The part of a system that zero-base budgeting focuses on is the

A) Inputs
B) Throughputs
C) Outputs
D) Outcomes
E) Feedback

Answer 2

C

Question 3

The major difference between a flexible and zero-base budget is that the metric used by flexible budgeting is

A) Total cost while zero-base budgeting focuses on average cost
B) Average cost while zero-base budgeting focuses on total cost
C) Average cost while zero-base budgeting focuses on marginal cost
D) Marginal cost while zero-base budgeting focuses on average cost
E) Total cost while zero-base budgeting focuses on marginal cost

Answer 3

C

Question 4

Austin and Cheek identified and diagrammed the three primary questions zero-base budgeting addresses as objectives, methods, and scale. Method is concerned with

A) Planning
B) How operations are run
C) How funds are allocated
D) Alternatives considered and rejected

Question 5

Austin and Cheek identified and diagrammed the three primary questions zero-base budgeting addresses as objectives, methods, and scale. Scale is concerned with

A) Planning
B) How operations are run
C) How funds are allocated
D) Alternatives considered and rejected

Question 6

According to Austin and Cheek, questions such as should current objectives be continued and/or should new objectives be pursued in zero-base budgeting are

A) Planning decisions
B) Organization decisions
C) Allocation decisions
D) Evaluation decisions

Question 7

According to Austin and Cheek, questions such as should current funding be reduced, maintained, or increased in zero-base budgeting are

A) Planning decisions
B) Organization decisions
C) Allocation decisions
D) Evaluation decisions

Question 8

A zero-base decision package describes

A) An activity and its goals
B) How the activity is accomplished and alternative ways of accomplishing the activity
C) The resources the activity requires
D) The benefits of the activity
E) All of the above

Question 9

Which of the following is NOT a component of a zero-base decision package?

A) Activity descriptions and goals
B) Details on how the activity is accomplished and alternative ways of accomplishing the activity
C) The resources the activity requires
D) The benefits of the activity
E) A line item budget

Question 10

The final zero-base budget is determined by ranking decision packages on

A) Total cost per output
B) Average cost per output
C) Average cost per outcome
D) Marginal cost per output
E) Marginal cost per outcome

Question 11

Determining the marginal cost of output (or different activity levels) requires dividing

A) % total output by the % funding at that activity level
B) % total output at that activity level by the % change in funding from the previous activity level
C) % change in total output from the previous activity level by the % funding at that activity level
D) % change in total output from the previous activity level by the % change in funding from the previous activity level

Question 12

Ranking of decision packages in zero-base budgeting is designed to

A) Shift resources from low value-adding activities to higher value activities
B) Encourage managers to focus on the needs of their customers or clients and improve the effectiveness of their operations
C) Encourage managers to focus on alternative production techniques and increase the efficiency of their operations
D) All of the above

Question 13

The cost effectiveness ratio for the current level of the activity below is


$\begin{array}{|l|c|c|}\hline & \text { Total Avoided Infections } & \text { Total Cost } \\\hline \text { Minimal } & 1,00025 \% & \$ 20,00020 \% 1.25 \\\hline \text { Reduced } & 2,00050 \%+25 \% & \$ 45,00045 \%+25 \% 1.00 \\\hline \text { Current } & 4,000100 \%+50 \% & \$ 100,000100 \%+55 \% 0.91 \\\hline \text { Expanded } & 8,000200 \%+100 \% & \$ 250,000250 \%+150 \% 0.67 \\\hline\end{array}$

A) 1.25
B) 1.00
C) 0.91
D) 0.67
E) 0.40

Question 14

Assume each decision package costs $10,000 and you have a budget of $50,000. Based on the cost effectiveness ratios below, which five decision packages should be funded?


$\begin{array}{|l|c|c|}\hline & \text { Activity A } & \text { Activity B } \\\hline \text { Minimal } & 2.00 & 1.75 \\\hline \text { Reduced } & 1.50 & 1.50 \\\hline \text { Current } & 1.00 & 1.25 \\\hline \text { Expanded } & 0.50 & 1.00 \\\hline\end{array}$

A) The expended level of activity A and the minimal level for activity B
B) The current level of activity A and up to the reduced level for activity B
C) The reduced level of activity A and the current level of activity B
D) The minimal level of activity A and the expanded level of activity B

Question 15

Which of the following can a budget manager do to increase their budget in a zero-base budgeting system?

A) Selecting the expenditure base that produces the highest possible starting point for estimating the next year's budget
B) Selecting the highest possible inflation factor for estimating the next year's input prices
C) Incorporating input price increases in the first month of the budget year
D) Over-estimating the cost of output in the minimal level decision package and under-stating the cost of subsequent output increases

Question 16

Which of the following zero-base budgeting techniques is designed to be performed on a rolling basis,

A) Zero-base budgeting
B) Target-base budgeting
C) Zero-base review
D) Zero-base performance audits
E)g., reviews are staggered and every department is reviewed every five years?

Question 17

Target-base budgeting focuses on

A) All department expenditures
B) Only discretionary expenditures
C) Only mandatory expenditures
D) Only capital expenditures
E) Only operating expenditures

Question 18

Which of the following is NOT a strength of zero-base budgeting?

A) Formalizes organizational priorities
B) Develops operational data; what is done, how it is done, and alternative methods
C) Identifies redundant activities
D) Creates competition between programs and an incentive to produce the greatest outcomes at the lowest cost
E) All of the above are strengths of zero-base budgeting

Question 19

Which of the following is NOT a weakness of zero-base budgeting?

A) Requires extensive paperwork and time to prepare
B) Ineffective when managers have limited ability to reduce or eliminate programs
C) Does not produce a fixed budget since the actual budget can only be determined retrospectively after actual output is known
D) Encourages gaming by inflating the cost to provide minimum level and reducing the marginal cost of expansions

Question 20

The primary shift between zero-base budgeting and flexible budgeting is

A) Zero-base budgeting choices are based on average cost per output and presents the possibility of major shifts in resource allocation
B) Zero-base budgeting choices are based on marginal cost per output and presents the possibility of major shifts in resource allocation
C) Zero-base is externally focused while flexible budgeting is internally focused
D) Zero-base budgeting is internally focused while flexible budgeting is externally focused

Question 21

The primary difference between zero-base budgeting and incremental and flexible budgeting is zero-base budgeting does not assume that operations should be continued because they were performed in the past.

Question 22

Zero-base budgeting focuses on department activities as a whole rather than as a set of discrete activities and outputs.

Question 23

Zero-base budgeting is more concerned with the results activities produce outside the organization than either incremental or flexible budgeting.

Question 24

Decision packages in zero-base budgeting are cumulative, lower order decision packages must be funded before higher order packages can be funded, i.e., the minimum package must be funded before a reduced package.

Question 25

Zero-base budgets rely upon average cost per output to rank decision packages.

Question 26

Zero-base budgets are more geared toward planning and senior management than operations and department managers.

Question 27

Zero-base budgets are particularly useful to illuminate budget choices in areas where output is not easily measured in dollars,
e.g., expense centers.