Question 1

What is return on investment (ROI)?

Accepted Answer

Return on investment (ROI) is calculated by dividing the net operating income by the average operating assets. This gives an indication of how effectively a company is utilizing its assets to generate profits. Choice A is the correct formula for calculating ROI.

Question 2

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

Accepted Answer

A fixed budget is the simplest to construct and refers to one level of business activity as it is based on a predetermined level of output or sales. It remains constant regardless of changes in activity level, making it easy to understand and implement.

Question 3

Why is zero-based budgeting used?

Accepted Answer

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.

Accepted Answer

Fixed costs remain constant in total dollar amount regardless of changes in the level of activity or volume of production, so as sales increase, the percentage of fixed costs relative to sales decreases.

Question 5

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

Accepted Answer

The controller is responsible for establishing control mechanisms used by management to safeguard its resources and investments.

Question 6

On a balance sheet, assets equal:

Accepted Answer

Assets equal liabilities plus owner's equity on a balance sheet, as the total value of assets must be funded either by borrowing (liabilities) or by investments of the owners (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:

Accepted Answer

A budget is a plan that outlines specific actions to achieve particular financial outcomes, incorporating controls to manage resources effectively.

Question 8

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

Accepted Answer

A high balance of current assets over current liabilities might suggest that a company has excess cash that it is not using effectively to generate higher returns, indicating potential inefficiencies in managing its working capital or investment strategies.

Question 9

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

Accepted Answer

The current ratio formula is commonly expressed as current assets divided by current liabilities, which gives an indication of a company's ability to cover its short-term liabilities with its current assets. Therefore, the correct choice is A.

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

Accepted Answer

The budgeted balance sheet can be presented in both the account format (assets = liabilities plus owner's equity) and the report format (assets less liabilities = owner's equity), as these are standard ways of organizing financial statements.

Question 11

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

Accepted Answer

Staff training is an internal factor that impacts the budget as it is a cost that the organization incurs to improve its employees' skills and knowledge. Depending on the amount of training required, this can impact the organization's overall budget and financial resources available.

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.

Accepted Answer

The statement is true, as a business's past performance can be influenced by both external factors and internal management policies/procedures.

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.

Accepted Answer

When the rate of return exceeds the marginal cost, it means that the investment will bring in more profits than the cost of producing the additional products or services. Therefore, the restaurant will benefit financially from investing the additional capital.

Question 14

An example of a fixed cost is food.

Accepted Answer

A fixed cost is a cost that does not change with the level of production or sales. Food is a variable cost as it varies based on consumption or production levels. Examples of fixed costs include rent, salaries, and insurance.

Question 15

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

Accepted Answer

The food and beverage controller primarily focuses on cost control, inventory management, and financial reporting, rather than direct operational decision-making, which is usually the responsibility of operational managers or the general manager.

Question 16

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

Accepted Answer

Zero-based budgeting techniques classify expenses into two categories - discretionary and nondiscretionary. Discretionary expenses are those that can be adjusted or eliminated without affecting the basic operations of the organization, while nondiscretionary expenses are essential for the organization's operations and cannot be eliminated.

Question 17

What is a continuous or perpetual budget cycle?

Accepted Answer

A continuous or perpetual budget cycle involves adding one month (or quarter) to the end of the budget as each month (or quarter) comes to a close. This allows for ongoing monitoring, adjusting, and planning, as opposed to a fixed budget that remains unchanged for the entire period.

Question 18

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

Accepted Answer

The relationship between current assets and current liabilities is known as the current ratio. It is used to determine a company's ability to pay its short-term obligations. The formula for calculating the current ratio is current assets divided by current liabilities. A higher current ratio indicates that the company has more current assets to cover its current liabilities, which is generally considered to be a good sign for investors and creditors.

Question 19

Differentiate a forecast from a budget.

Accepted Answer

The answer of 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:

Accepted Answer

The annual budget is a crucial aspect of safeguarding resources and investments, and the controller is responsible for its development. The other options are not directly related to establishing control mechanisms for resources and investments.

Quiz 16: Budgeting and Manager ROI

What is return on investment (ROI) ?