Deck 5: Planning Budgeting and Behaviour

Question 1

It is important that the budgeting process incorporates both financial and non-financial impacts of alternative decisions.

Answer 1

A

Question 2

Determining what level of profits should be distributed to equity holders is an example of a strategic budgeting question relating to the income cycle.

Answer 2

B

Question 3

Budgeting helps organisations make strategic decisions about resource allocations.

Answer 3

A

Question 4

A key metric for the income cycle is the working capital ratio.

Question 5

Strategic budgeting is best considered in the context of organizational strategy.

Question 6

Decisions that have long term consequences should be excluded from the budgeting process because there are too many uncertainties that cannot be anticipated.

Question 7

Capital budgeting has no effect on the income cycle because it only affects items in the statement of financial position.

Question 8

In engineered cost centres there is a standard against which actual performance can be measured and variances can be identified and managed accordingly.

Question 9

A key metric to evaluate the elements in the statement of financial position is return on equity.

Question 10

The operating cycle relates to relationships between inventory, sales, accounts receivable and the collection of cash.

Question 11

In considering the outcomes for alternative decisions it is not necessary to include changes in discretionary costs.

Question 12

A key assumption of strategic budgeting is that there are no interrelationships between the cash cycle and the asset cycle.

Question 13

A key element of the cash cycle is the cash flow statement.

Question 14

The starting point for budgeting should be estimating overheads because companies need to know much cash to borrow to cover their expenses.

Question 15

The asset cycle relates to the extent to which company assets generate returns for shareholders and company growth.

Question 16

A cost centre where the relationship between inputs and outputs is NOT readily measurable is known as an engineered cost centre.

Question 17

Typically, support departments such as accounting, human resources and maintenance are classified as cost centres.

Question 18

Having excessive cash tied up in accounts receivable and inventory can cause organisations to experience cash flow shortages.

Question 19

One method for estimating sales revenue is external market research.

Question 20

Cost centres are organisational units where the manager is deemed responsible for the costs of the unit.

Question 21

Kaizen budgeting is based on the premise that prices will decline over time and targets cost reductions to accommodate this.

Question 22

Updating rolling budgets with recent results means that changes can be incorporated into budget targets for future periods.

Question 23

Rolling budgets can only be used in conjunction with zero based budgeting.

Question 24

To ensure proper accountability it is essential that once a budget is set it should not be changed.

Question 25

It is difficult to measure the relationship between inputs and outputs in discretionary cost centres because the organizational output is not directed related to the activities in the individual cost centre.

Question 26

In activity based budgeting a budget is developed for each activity.

Question 27

Continuous quality improvements are a characteristic of activity based budgeting.

Question 28

Program budgeting requires manager to justify expenditure based on the programs or projects to be conducted.

Question 29

Managers which know that next year's budget is likely to be based on their use of this year's allocated funds have incentives to ensure that all of their budgeted funds are used in full each year.

Question 30

Rolling budgets reflect planning changes and can be prepared monthly or quarterly.

Question 31

Planning this year's expenditure based solely on last year's expenditure provides managers with incentives to be efficient with their use of organisational resources.

Question 32

Program budgets originate from private sector organisations which used job costing.

Question 33

Zero based budgeted can encourage managers to cut costs and focus on desired outcomes.

Question 34

Zero based budgeting requires managers to justify budgeted expenditure as if no information about budgets or costs from prior budget cycles was available.

Question 35

A manufacturer using an activity based budgeting system would budget for costs attached to activities such as assembly, machine set up or painting.

Question 36

Activity based budgeting is a system used for products that tend to have decreasing prices or increasing quality across time.

Question 37

The starting point for program budgeting is last year's expenditure.

Question 38

One means of responding to a fast based business environment is to adopt rolling budgets.

Question 39

A major advantage of zero based budgeting is that is quick and efficient to prepare.

Question 40

To achieve the best results for the organisation, budgets should be designed to promote cooperation amongst employees.

Question 41

Strategic budgeting assists in which of the following?

A) Determining the best choice between alternative decisions.
B) Making resource allocation decisions.
C) Obtaining understanding of financial and non-financial business factors.
D) All of the above.

Question 42

Excessive reliance on achieving budget targets does not usually result in the best outcome for the organisation.

Question 43

Beyond Budgeting advocates setting aspirational goals for continuous relative improvement and rewarding success based on relative performance.

Question 44

Relative performance evaluation relies on direct comparison with budgetary targets.

Question 45

Beyond Budgeting is characterised by extreme centralisation of decision making.

Question 46

An example of strategic budgeting is:

A) Planning a new facility to manufacture a new product.
B) Planning employees' work rosters.
C) Preparing a budget for material purchases.
D) All of the above.

Question 47

To motivate managers and employees budgets should be attainable but challenging.

Question 48

Multiple budgets can be used to indicate best case and worst case outcomes.

Question 49

Employees are recruited for organisations adopting a Beyond Budgeting approach based on their fit with a customer intimacy philosophy.

Question 50

The Beyond Budgeting philosophy requires the preparation of localised income statements and balance sheets.

Question 51

One of the most important principles of the Beyond Budgeting is that every day is different.

Question 52

The process of considering the effect of alternative courses of action on profits, assets and cash flow management is known as:

A) operational budgeting
B) strategic budgeting
C) zero based budgeting
D) activity based budgeting

Question 53

A participatory approach to setting budget targets may improve the accuracy of the budgets.

Question 54

Building slack into budgetary targets is one way to prevent dysfunctional behaviour.

Question 55

The Beyond Budgeting approach believes that employees are primarily motivated by financial rewards.

Question 56

In strategic budgeting the income cycle corresponds to the:

A) Statement of Profit or Loss
B) Cash Flow Statement
C) Statement of Changes in Owners' Equity
D) Statement of Financial Position

Question 57

Power struggles, blame shifting and game playing often accompany the budgeting process.

Question 58

Linking rewards to budget achievement should always be avoided.

Question 59

The cash cycle is concerned with:

A) returns on operations
B) debt leveraging.
C) cash collections and payments
D) profitability

Question 60

The process of strategic budgeting may include:
B)

A) Benchmarking against competitors' business practices.
B) Market research to determine product demand.
C) Employing new employees to meet demand.
D) Both A and

Question 61

Changes in operating expenses are influenced primarily by:

A) changes in revenue estimation
B) economic conditions
C) changes to product specifications
D) All of the above.

Question 62

Depending on the organisation direct labour can be categorised as:

A) committed cost
B) discretionary cost
C) Both A and B
D) None of the above

Question 63

Zero-based budgeting can be used in:

A) Manufacturing environments
B) Service industries
C) Public sector contexts
D) All of the above.

Question 64

The key independent variable for strategic budgeting is:

A) profit
B) expenses
C) sales
D) cash flow

Question 65

A budgeting approach that requires a cost centre to plan its expenditure specifically around the programs or projects conducted by the cost centre is known as:

A) Discrete budgeting
B) Kaizen budgeting
C) Flexible budgeting
D) Program budgeting

Question 66

Zero-based budgeting is particularly useful when:

A) Economic conditions are difficult.
B) There is significant and rapid technological change.
C) There is a high turnover of staff.
D) A and B

Question 67

What feature differentiates Kaizen budgeting from other forms of budgeting?

A) Cost reduction and quality improvement goals are embedded in the budgets
B) It is used only in Japan
C) It is used for products with increasing prices
D) It is normally found in companies also using zero-based budgeting

Question 68

A cost centre in which it is difficult to identify the relationship between inputs and outputs is known as a:

A) Engineered cost centre
B) Committed cost centre
C) Discretionary cost centre
D) Individual cost centre

Question 69

Budgeting which makes an adjustment to last year's cost centre expenditure is known as:

A) Incremental Budgeting
B) Rolling Budgeting
C) Engineered Budgeting
D) Program Budgeting

Question 70

Revenue estimation is typically done using:

A) existing and past data about sales and sales mix
B) market analysis
C) competitor analysis
D) All of the above

Question 71

The statement that is true in relation to engineered cost centres is:

A) Planning is more difficult in engineered cost centres than in discretionary cost centres
B) The research and development department of an organisation is likely to be an engineered cost centre
C) Service departments where there are repetitive activities are performed are more likely to be engineered cost centres
D) It is difficult to link the service or product to the cost centre.

Question 72

A key question that relates to the asset cycle is:

A) Will an increase in cost impact competitive advantage?
B) What are the returns generated by investment in the business?
C) What is the borrowing capacity of the organisation?
D) What is the cost of holding inventory?

Question 73

Under which of the following types of budgeting must managers justify their budget requests each year as if prior information did not exist?

A) Activity-based budgeting
B) Zero-based budgeting
C) Kaizen budgeting
D) Flexible budgeting

Question 74

The most likely example of a discretionary cost item is:

A) taxation
B) council rates
C) research and development costs
D) management salaries

Question 75

The most likely example of a committed cost item is:

A) employee training
B) rent for plant premises
C) depreciation on buildings and equipment
D) B and C

Question 76

A common type of cost centre is:

A) Committed
B) Standard
C) Overhead
D) Engineered

Question 77

Identifying and justifying linkages between the objectives of the organisation and the cost centre expenditure is a key element of:

A) Program Budgeting
B) Kaizen Budgeting
C) Rolling Budgeting
D) Activity based budgeting

Question 78

A budget that continually reflects the most recent results and is updated to incorporate changes in strategy and the economy is called a:

A) Flexible budget
B) Static budget
C) Rolling budget
D) Zero-based budget

Question 79

When an organisation implements activity-based budgeting, managers must identify activities for:

A) Production activities
B) Support activities
C) Both production activities and support activities
D) Neither production activities nor support activities, as long as cost drivers are clearly specified

Question 80

Incremental budgeting has been criticised because it:

A) Encourages managers to continually reduce costs at the expense of quality
B) Does not encourage managers to seek ways to use the organisation's resources more efficiently
C) Encourages managers to used fixed costs instead of variable costs.
D) All of the above