Question 1

Zero-based budgeting refers to

Accepted Answer

Zero-based budgeting is a budgeting system where all activities are initially set to zero and will not be continued unless they are clearly justified. This means that each department or function must justify every expense they expect to incur, rather than simply assuming that the expenses from the previous year will be sufficient. This system is meant to encourage efficiency and cost-saving measures.

Question 2

Which of the following is/are likely to lead to budget acceptance?
I Targets are developed with employee inputs.
Ii Employees are held responsible for activities that they can control.
Iii Budget is cascaded down from corporate level to the various responsibility centres.

Accepted Answer

Involving employees in the development of targets can improve their buy-in and sense of ownership in the budget, leading to increased acceptance. Holding employees responsible for activities they can control can also increase accountability and motivation. However, cascading the budget down from the corporate level may not necessarily lead to budget acceptance, as it can be seen as a top-down approach without taking into account the specific needs and realities of each responsibility centre. Therefore, option iii alone may not be sufficient to ensure budget acceptance.

Question 3

Managers can window dress their performance by creating budgetary slack. Explain why a manager would do this and support your answer with three examples.

Accepted Answer

The answer of Managers can window dress their performance by...

Question 4

Insurance Plus provides their sales staff with a base salary and commissions. When the various departments' actual performance exceeds the budgeted sales figures an additional bonus is paid. This is an example of

Accepted Answer

The system of providing a base salary, commissions, and performance-based bonuses is a way of evaluating performance and providing incentives to employees to exceed their budgeted sales figures. This system motivates the employees to work harder and helps the company reach its sales goals.

Question 5

Strawman Ltd runs tutoring classes for high school students. The maximum number of students a weekly tutorial class can take is 15. Each tutor, who is paid a per semester salary of $20 000 including on-costs, can manage up to 5 classes per week per semester. Assuming that this semester there are 350 students enrolled. What is the budgeted salary for tutors this semester?

Accepted Answer

Given that each tutor can manage up to 5 classes per week, and each class can take a maximum of 15 students, a single tutor can therefore handle up to 75 students per semester (5 classes * 15 students). With 350 students enrolled this semester, Strawman Ltd would need 350 / 75 = 4.67, which rounds up to 5 tutors to accommodate all students (since you can't hire a fraction of a tutor). Each tutor is paid $20,000, so the total budgeted salary for tutors this semester would be 5 * $20,000 = $100,000.

Question 6

Briefly describe the five primary purposes of the budgeting process.

Accepted Answer

The answer of Briefly describe the five primary purposes of...

Question 7

As the starting point in the budgeting process, managers need to understand the strategy of the organisation, to enable them to formulate a budget that supports the organisation's

Accepted Answer

The strategic plan outlines the organization's goals and objectives, and the budget should align with these goals and objectives. The mission statement and vision are also important, but they do not necessarily provide the detail needed to create a budget. Forecasts are helpful, but they are not the starting point for the budgeting process.

Question 8

Which of the following benefits is not provided by the budgeting process?

Accepted Answer

The budgeting process is primarily focused on the allocation of resources and planning for financial goals. While competitive strategy may be considered during the budgeting process, it is not a direct benefit provided by the process itself.

Question 9

Which of the following budgets is usually prepared at the start of the budgeting process?

Accepted Answer

The sales budget is usually the first budget prepared at the start of the budgeting process as it sets the overall revenue target for the organization. The other budgets such as the production budget, operating budget, and annual budget are based on the sales budget.

Question 10

Christina Wadat is a sales manager at Walter Booksellers. She believes that the sales revenue will most likely to be $500 000 this coming year. However, she decides to build in budget slack of 10 per cent. The amount of sales revenue she inputs into the company's sales budget is

Accepted Answer

Christina Wadat built in budget slack of 10%, which means she adds an additional 10% to her initial estimate of $500 000.

10% of $500 000 = $50 000

Thus, Christina's input to the company's sales budget is:

$500 000 + $50 000 = $550 000

Therefore, the correct answer is C) $550,000.

Question 11

Which of the following external factors would not be considered when forecasting sales for a furniture manufacturer?

Accepted Answer

Increasing foreign aid would not be considered when forecasting sales for a furniture manufacturer as it is not directly related to the industry or the consumers purchasing the furniture. The other options are all external factors that would affect a consumer's decision to buy furniture and the company's sales.

Question 12

EasySleep Inn is a chain of medium-priced hotels. Each year during the budgeting process, the manager of each hotel in the chain has to submit a capital expenditure request, justifying the amounts of expenditure they request. Top management then makes a decision on whether to fund each capital expenditure request. This is an example of which purpose of budgeting?

Accepted Answer

The purpose of budgeting in this scenario is to allocate resources. The capital expenditure requests are evaluated to decide which hotels will receive funding and how much, based on their planned use of the funds. This helps ensure that resources are efficiently and effectively distributed to the hotels in the chain.

Question 13

A 'Rolling Budget' is also known as a

Accepted Answer

A rolling budget, also known as a continuous budget, is one that is continuously updated as time progress. This means that the budget is always for a set period of time and is regularly reviewed and revised to reflect changes in circumstances, such as new opportunities or unexpected expenses.

Question 14

Which of the following is an example of padding the budget?

Accepted Answer

Padding the budget refers to inflating the estimated cost of a project or overestimating the expenses to ensure that enough money is available in case of unexpected events. Overestimating direct material costs is an example of padding the budget as it involves inflating the estimated cost of materials to ensure that enough funds are available.

Question 15

Jasmine Coy is a barista at Tosa Cafe, which is known for its quality coffee. Her manager has set a very difficult cost target. As a result, Jasmine uses lower quality coffee beans which results in poor quality coffee. This is an example of

Accepted Answer

This is an example of goal incongruence because the manager's cost target is in conflict with the cafe's reputation for quality coffee, and Jasmine is sacrificing quality in order to meet the cost target. Budget slack refers to intentionally overestimating expenses in a budget, lack of employee empowerment is not a relevant factor in this scenario, and there is no indication that short range budgeting is the cause of this issue.

Question 16

Discuss how benchmarks are applied to measure performance in responsibility accounting.

Accepted Answer

The answer of Discuss how benchmarks are applied to measure...

Question 17

Top-down budgeting refers to

Accepted Answer

Top-down budgeting is a budgeting system where senior managers impose budget targets on junior managers. This approach assumes that senior management has a better understanding of the big picture and the strategic goals of the organization, and can set appropriate targets for each department or division. It can help to ensure that budgets are aligned with strategic objectives but can lead to less participation from lower-level managers who may feel less ownership over the budget.

Question 18

Discuss how participative budgeting can achieve acceptance of the budget from staff.

Accepted Answer

The answer of Discuss how participative budgeting can achieve acceptance...

Question 19

Zero-based budgeting is too introspective. Discuss this statement.

Accepted Answer

The answer of Zero-based budgeting is too introspective. Discuss this...

Question 20

Which of the following statements is false?

Accepted Answer

A bottom-up budgeting system is actually more likely to result in budget padding because employees may overestimate expenses to ensure they have enough resources, whereas top-down budgeting can impose stricter controls.

Quiz 9: Budgeting Systems