Question 1

Budgeting is usually most closely associated with which management function?

Accepted Answer

Budgeting is a key part of the planning process as it involves setting financial goals and creating a roadmap to achieve them. It is an essential tool to ensure that resources are being allocated effectively towards achieving the overall objectives of the organization. While directing, motivating, and controlling are also important management functions, they are not directly related to the budgeting process.

Question 2

Budget development for the coming year usually starts

Accepted Answer

Budget development for the coming year usually starts several months before the end of the current year. This allows enough time to analyze data, review the previous year's budget, and make any necessary adjustments or changes for the upcoming year. Starting a year in advance or in the first month of the year can lead to inaccurate projections and last-minute decisions, while waiting until the last month of the previous year can result in rushed or incomplete budgets.

Question 3

Long-range planning

Accepted Answer

Long-range planning refers to the process of setting goals and objectives for a period of time that is usually beyond the annual budget cycle. It typically covers a period of three to five years or more, whereas an annual budget only covers a specific fiscal year. Therefore, option B is the correct answer. The other options are not true as they either present an incorrect statement or do not provide relevant information.

Question 4

An unrealistic budget is more likely to result when it

Accepted Answer

An unrealistic budget is more likely to result when it has been developed in a top-down fashion because the budget targets are usually set without considering the specific needs and capabilities of each department or level. This can lead to unrealistic expectations and unattainable goals. A bottom-up approach, on the other hand, involves input from all levels of management and is more likely to reflect the reality of each department's needs and capabilities. Developing budgets with performance appraisal usage in mind may result in more accurate budgets as it will take into account the past performance of the department or team.

Question 5

In many companies, responsibility for coordinating the preparation of the budget is assigned to

Accepted Answer

The most common practice is to assign responsibility to a budget committee, which is composed of high-level managers from various departments within the company. This allows for a collaborative process where different perspectives can be taken into account, and ultimately leads to a more comprehensive and accurate budget. Assigning the responsibility to external parties (A and B) or the board of directors (C) may not be practical or efficient, as they may not have the necessary knowledge or understanding of the company's operations and financial needs.

Question 6

The most common budget period is

Accepted Answer

The most common budget period is one year, as this aligns with annual financial statements and allows for better long-term planning and forecasting. However, some businesses may also use shorter budget periods, such as one month or three months, depending on their specific needs and financial cycles. Six months is less common but could be used for mid-year updates or reviews.

Question 7

A budget is most likely to be effective if

Accepted Answer

Top management support is important for the effective implementation and adherence to a budget. It provides a clear message to the organization regarding the importance of the budget and the expectations for following it. Without top management support, employees may not take the budget seriously and may not feel accountable for their spending. A and C are incorrect because blaming or excluding lower-level employees from the process can create a negative culture and hinder collaboration. B is incorrect as a budget is often used to evaluate a manager's performance and provide a benchmark for improvement.

Question 8

A budget period should be

Accepted Answer

A budget period should be long enough to provide an obtainable goal under normal business conditions. This allows for realistic planning and performance evaluation, accommodating for both short-term operations and long-term strategic planning. The specific duration (e.g., monthly, yearly) can vary depending on the context and goals of the budget.

Question 9

If a company has adopted continuous budgeting, the budget will show plans for

Accepted Answer

Continuous budgeting typically involves creating a rolling budget that covers a full year ahead. This allows for ongoing planning and adjustments as needed throughout the year, rather than just setting a budget at the beginning of the year and sticking to it regardless of changing circumstances.

Question 10

A common starting point in the budgeting process is

Accepted Answer

Past performance provides a good starting point for budgeting as it allows for an analysis of trends and patterns in revenue and expenses, and can help identify areas for improvement or cost-cutting measures. Expected future net income may not be accurate or reliable, while motivating the sales force and starting with a clean slate may not provide concrete data for budgeting purposes.

Question 11

If budgets are to be effective, there must be

Accepted Answer

A clearly defined organizational structure with lines of authority and responsibility is crucial for effective budgeting. This helps ensure that everyone knows their role and responsibilities within the budget process and can work together towards achieving the budget goals. The other options are not as directly related to the effectiveness of a budget.

Question 12

The budget committee in a company is often headed by the

Accepted Answer

The answer of The budget committee in a company is...

Question 13

Which of the following items does not follow from the adoption of a budget?

Accepted Answer

A budget does not guarantee the accomplishment of the profit objective as it depends on various internal and external factors such as market conditions, competition, and economic environment.

Question 14

Long-range planning usually encompasses a period of at least

Accepted Answer

Long-range planning typically involves planning for a period of 5 years or more. Choices A and B may be considered short-term planning, while D may be too far into the future to effectively plan for.

Question 15

Top management notices a variation from budget and an investigation of the difference reveals that the department manager could not be expected to have controlled the variation. Which of the following statements is applicable?

Accepted Answer

Department managers should only be held accountable for controllable variances for their departments. This means that if the variation was beyond the department manager's control, they cannot be expected to be responsible for it. It is important to evaluate department managers' performances based on actual results in order to identify areas for improvement and allocate resources effectively. However, managers should not be held accountable for factors outside of their control.

Question 16

Which is true of budgets?

Accepted Answer

Budgets are commonly used in performance evaluation to compare actual results with planned results. Option A is incorrect as budgets are typically approved by management or a board of directors, not stockholders. Option B is incorrect, as budgets are used in both planning and control processes. Option C is also incorrect, as there is no set standard for budget format and structure; it varies based on company and industry.

Question 17

Which of the following statements about budget acceptance in an organization is true?

Accepted Answer

Budgets have a greater chance of acceptance if all levels of management have provided input into the budgeting process. This leads to buy-in from all stakeholders and ensures that the budget aligns with the organization's overall goals and objectives. While top management may ultimately approve or reject the budget, input from department heads and other managers is important for creating a comprehensive and realistic budget.

Question 18

The budget committee would not normally include the

Accepted Answer

The external auditor is not typically part of a company's budget committee because their role is to independently review and audit the company's financial statements, not to be involved in the internal budgeting process.

Question 19

If budgets are to be effective, all of the following must be present except

Accepted Answer

While acceptance at all levels of management, research and analysis in setting realistic goals, and a sound organizational structure are necessary for effective budgets, stockholders' approval of the budget is not always required or even relevant in all organizations. Therefore, the only option that does not need to be present for budgets to be effective is C - stockholders' approval of the budget.

Question 20

It is important that budgets be accepted by

Accepted Answer

Budgets should be accepted by all levels of management, including division managers, department heads, and supervisors. This ensures that there is buy-in and accountability at all levels of the organization, leading to better implementation and adherence to the budget.

Quiz 20: Budgetary Planning