Question 1

The budget committee in a company is often headed by the

Accepted Answer

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

Question 2

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

Accepted Answer

While stockholders may have input and be informed of the budget, their approval is not necessary for the budget to be effective. Acceptance at all levels of management, research and analysis in setting realistic goals, and a sound organizational structure are all essential components for an effective budget.

Question 3

Which is true of budgets?

Accepted Answer

Budgets are often used in performance evaluation to measure actual results against planned or budgeted results. A and B are incorrect as budgets are not voted on by stockholders and are used for both planning and control. C is incorrect as there is no standardized form or structure for budgets as each organization may develop their own unique budgeting approach.

Question 4

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

Accepted Answer

Budgets are more likely to be accepted by the organization if input has been received from all levels of management. This increases buy-in and understanding of the goals and targets set by the budget. top-down budgets from only top management may not take into account the needs and constraints of lower levels of the organization, leading to less acceptance and adherence to the budget.

Question 5

Budgeting is usually most closely associated with which management function?

Accepted Answer

Budgeting is a key aspect of the planning function of management. It involves creating a financial plan and allocating resources based on organizational goals and objectives.

Question 6

A budget is most likely to be effective if

Accepted Answer

A budget is most likely to be effective if it has top management support. When top management supports the budget, it provides a sense of direction and purpose to the organization. It also helps in communicating the budget-related objectives to the employees and ensures that the budget is taken seriously by all levels of the organization.

Question 7

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

The department manager should only be held accountable for controllable variances for their department. It would not be fair to hold them accountable for factors outside of their control that may have caused the variation from budget. However, they should still be responsible for managing the aspects of their department that they can control to prevent controllable variances from occurring.

Question 8

Long-range planning usually encompasses a period of at least

Accepted Answer

Long-range planning typically covers a period of 5 years or more. A period of 1 year or 6 months would be considered short-term planning, while 10 years may be too far into the future to accurately predict and plan for.

Question 9

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

Accepted Answer

While a budget can help guide decisions and promote efficiency, it does not guarantee accomplishment of the profit objective. This is because there are external factors that can impact a company's profitability, such as changes in the market or unexpected expenses.

Question 10

A common starting point in the budgeting process is

Accepted Answer

Past performance is a common starting point in the budgeting process as it provides a basis for projecting future revenues and expenses. By analyzing trends and patterns from previous years, a company can make informed decisions about how to allocate resources and set goals for the upcoming budget period. Expected future net income may also be considered, but this is often based on assumptions and projections rather than concrete data. Motivating the sales force is an important goal of budgeting, but it is not typically the starting point of the process. A clean slate, with no expectations, would not provide any guidance or direction for budget planning.

Question 11

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, where senior management imposes budget targets without proper consultation and input from lower-level managers who have a better understanding of costs and operational realities. This approach may lead to budget targets that are unattainable or unrealistic, which can demotivate employees and cause budget variances. Bottom-up budgeting, by contrast, involves input from all levels of management and tends to result in more accurate and achievable budgets. Developing a budget with performance appraisals in mind may be a factor in creating an unrealistic budget, but it is not the main reason.

Question 12

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 13

If budgets are to be effective, there must be

Accepted Answer

For a budget to be effective, there must be an organizational structure with clearly defined lines of authority and responsibility to ensure that everyone understands their roles and responsibilities in achieving the budget goals. While a history of successful operations and independent verification of goals are also important, they are not as essential as having a clear organizational structure. Excess plant capacity is not necessarily related to budget effectiveness.

Question 14

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

Accepted Answer

A budget committee is typically responsible for coordinating the preparation of a company's budget. This committee may include representatives from various departments and is tasked with gathering information, setting financial goals, and overseeing the overall budgeting process. While the company's independent certified public accountants and internal auditors may have input into the budget, they are not typically responsible for coordinating its preparation. The company's board of directors may approve or reject the budget, but they are not usually responsible for preparing it.

Question 15

The most common budget period is

Accepted Answer

The most common budget period is one year as it aligns with the fiscal year of most organizations and allows for long-term planning and forecasting.

Question 16

It is important that budgets be accepted by

Accepted Answer

Budgets should be accepted by all levels of management involved, including division managers, department heads, and supervisors, to ensure comprehensive oversight and commitment to the budgetary goals.

Question 17

Long-range planning

Accepted Answer

Long-range planning typically involves looking three to five years into the future or beyond, while an annual budget only covers one year. Therefore, long-range planning encompasses a longer period of time than an annual budget. The other options are incorrect as they imply that long-range planning is always more detailed or accurate than an annual budget, which may not necessarily be the case. Additionally, long-range planning is not necessarily prepared on a quarterly basis just because the budget is.

Question 18

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 for ample time to analyze financial data, assess the organization's needs and goals, and make informed projections for the upcoming year's budget.

Question 19

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 20

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

Accepted Answer

Continuous budgeting involves creating a budget for a full year ahead rather than just a static budget for the current year. This allows for adjustments and revisions to be made throughout the year as circumstances change.

Quiz 22: Budgetary Planning