MODULE 8 - BUDGETING D. It provides organizational independence.
THEORIES: 4. Which of the following is least likely a reason why a company prepa
Basic Concepts A. To provide a basis for comparison of actual performance
1. The concept of “management by exception” refers to management’s consideration of B. To communicate the company’s plans throughout the entire bu
A. only those items that vary materially from expectations. C. To control income and expenditure in a particular period.
B. only rare events. D. To make sure the company expands its operations.
C. samples selected at random.
D. only significant unfavorable deviations. 5. Which of the following does not contribute to an effective budgeting
A. Top management is involved in budgeting.
8. A formal written statement of management’s plans for the future, packaged in financial B. To give each manager a free hand in the preparation of the
terms, is a: master budget are flexible.
A. Responsibility report. C. Cost of production report. C. The organization is divided into responsibility units.
B. Performance report. D. Budget. D. There is communication of results.
2. Budgets are related to which of the following management functions? 6. The budgets that are based on a very high levels of performance
A. Planning C. Control ideal standards,
B. Performance evaluation D. all of these A. assist in planning the operations of the company
B. stimulate people to perform better than they ordinarily would
22. Budgeting supports the planning process by encouraging all of the following activities C. are helpful in evaluating the performance of managers
except: D. can lead to low levels of performance
A. Requiring all organizational units to establish their goals for the coming period.
B. Increasing the motivation of managers and employees by providing agreed-upon 7. Which of the following statements is incorrect?
expectations. A. An imposed budget is the same as a participative budget.
C. Improving overall decision making by considering all viewpoints, options, and cost B. Preparation of the budget would be the responsibility of each re
control programs. C. Top management’s support is necessary to promote budget pa
D. Directing and coordinating operations during the period. D. The top management should review and approve each respon
3. Which of the following advantages does a budget mostly provide? 9. The primary role of the budget director and the budgeting departm
A. Coordination is increased. A. Settle disputes among operating executives during the d
B. Planning is emphasized. operating plan.
C. Communication is continuous. B. Develop the annual profit plan by selecting the alternative
D. Comparison of actual versus budgeted data. suggestions submitted by the various operating segments.
C. Compile the budget and manage the budget process.
24. Which of the following is NOT an advantage of budgeting? D. Justify the budget to the corporate planning committee of the
A. It forces managers to plan.
B. It provides resource information that can be used to improve decision making. 10. The primary variable affecting active participation and commitm
C. It aids in the use of resources and employees by setting a benchmark that can be used control system is
for the subsequent evaluation of performance. A. Management efforts to achieve the budget rather than optimiz
433
, B. The rigid adherence to the budget without recognizing changing conditions.
C. Top management involvement in support of the budget. 11. The process of developing budget estimates by requiring all
D. The opportunity budgeting gives to risk-taker managers for department growth. estimate sales, production, and other operating data as thou
initiated for the first time is referred to as:
12. A variant of fiscal-year budgeting whereby a twelve-month projections into the future is A. Forecasting. C. Continuous bu
maintained at all times: B. Zero-based budgeting. D. Program budge
A. Forecasting. C. Continuous budgeting.
B. Zero-based budgeting. D. Calendar budgeting. 38. Which of the following is a contemporary approach to budgeting?
A. incremental approach C. baseline appro
35. The method of budgeting which adds one month’s budget to the end of the plan when the B. zero-based approach D. both a and b a
current month’s budget is dropped from the plan refers to
A. Long-term budget C. Incremental budget 51. Zero-base budgeting requires managers to
B. Operations budget D. Continuous budget A. Justify expenditures that are increases over the prior period’s
B. Justify all expenditures, not just increases over last year’s am
27. A continuous budget C. Maintain a full-year budget intact at all times.
A. is a budget that is revised monthly or quarterly. D. Maintain a budget with zero increases over the prior period.
B. is a medium term plan that consists of more than 2 years’ projections.
C. is appropriate only for use of a not-for-profit entity. 13. Zero-based budgeting:
D. works best for an entity that can reliably forecast events a year or more into the future. A. involves the review of changes made to an organization’s orig
B. does not provide a summary of annual projections.
37. “Incremental budgeting” refers to C. involves the review of each cost component from a cost/bene
A. line-by-line approval of expenditures D. emphasizes the relationship of effort to projected annual reve
B. setting budget allowances based on prior year expenditures
C. requiring top management approval of increases in budgets 18. A systematized approach known as zero-based budgeting:
D. using incremental revenues and costs in budgeting A. Classifies the budget by the prior year’s activity and estimate
each activity.
49. A budget plan for annual fixed costs that arises from top management decisions directly B. Commence with either the current level of spending or projecte
reflecting corporate policy. C. Presents planned activities for a period of time but does not pre
A. Flexible budget. C. Discretionary budget. D. Divides the activities of individual responsibility centers into a
B. Static budget. D. Program budget. prioritized.
36. The term “decision package” relates to 20. Which of the following statements about Zero-based budgeting is in
A. comprehensive budgeting C. program budgeting A. All activities in the company are organized into break-up units c
B. zero-based budgeting D. line budgeting B. All costs have to be justified every budgeting period.
C. The process is not time consuming since justification of costs
41. The budget approach that is more relevant when the continuance of an activity or operation matter.
must be justified on the basis of its need or usefulness to the organization. D. Zero-based budgeting includes variable costs only.
A. the incremental approach C. the baseline approach
B. the zero-based approach D. both a and b are true 34. Budgeting expenditures by purpose is called
434
, A. program budgeting C. zero-based budgeting A. Flexible budget considers only variable costs but a master bu
B. line budgeting D. flexible budgeting B. Flexible budget allows management latitude in meeting goals
is based on a fixed standard.
28. A static budget is not appropriate in evaluating a manager's effectiveness if a company has C. Master budget is for an entire production facility but a flexi
A. substantial fixed costs. single department only.
B. substantial variable costs. D. Master budget is based on one specific level of production an
C. planned activity levels that match actual activity levels. prepared for any production level within a relevant range
D. no variable costs.
47. Which of the following is a difference between a static budget and
45. Flexible budgeting is a reporting system wherein the A. A flexible budget includes only variable costs; a static budget
A. Budget standards may be adjusted at management’s discretion. B. A flexible budget includes all costs, a static budget includes o
B. Planned level of activity is adjusted to the actual level of activity before the performance C. A flexible budget gives different allowances for different levels
report is prepared. does not.
C. Reporting dates vary according to the managerial levels of the users. D. There is no difference between the two.
D. Packages of activities vary from period to period.
17. A system that classifies budget requests by activity and estimate
15. A budget that presents the plan for a range of activity so that the plan can be adjusted for each activity:
changes in activity levels is referred to as: A. Incremental budgeting system.
A. Zero-based budgeting. B. Static budgeting system.
B. Continuous budgeting. C. Program planning and budgeting system.
C. Flexible budgeting. D. Participative system.
D. Program planning and budgeting system.
21. A budget that identifies revenues and costs with an individual contr
16. A flexible budget is A. Master budget C. Product budget
A. one that can be changed whenever a manager so desires B. Responsibility budget D. None of the ab
B. adjusted to reflect expected costs at the actual level of activity
C. one that uses the formula total costs = cost per unit x units produced 25. The difference between an individual's submitted budget proje
D. the same as a continuous budget estimate of the item being projected is an example of
A. padding the budget
26. A series of budgets for varying levels of activity is a: B. adhering to zero-based budgeting assumptions
A. Variable cost budget. C. Master budget. C. creating budgetary slack
B. Flexible budget. D. Zero-based budget. D. being incongruent with participative budgeting
48. If a company wishes to establish a factory overhead budget system in which estimated costs 43. Budget slack is a condition in which
can be derived directly from estimates of activity levels, it should prepare a A. Demand is low at various times of the year
A. flexible budget. C. Discretionary budget. B. Excess machine capacity exists in some areas of the plant
B. Program budget. D. Manufacturing budget. C. There is an intentional overestimate of expenses or an under
D. Managers grant favored employees extra time-off
46. The basic difference between a master budget and a flexible budget is that a
435
THEORIES: 4. Which of the following is least likely a reason why a company prepa
Basic Concepts A. To provide a basis for comparison of actual performance
1. The concept of “management by exception” refers to management’s consideration of B. To communicate the company’s plans throughout the entire bu
A. only those items that vary materially from expectations. C. To control income and expenditure in a particular period.
B. only rare events. D. To make sure the company expands its operations.
C. samples selected at random.
D. only significant unfavorable deviations. 5. Which of the following does not contribute to an effective budgeting
A. Top management is involved in budgeting.
8. A formal written statement of management’s plans for the future, packaged in financial B. To give each manager a free hand in the preparation of the
terms, is a: master budget are flexible.
A. Responsibility report. C. Cost of production report. C. The organization is divided into responsibility units.
B. Performance report. D. Budget. D. There is communication of results.
2. Budgets are related to which of the following management functions? 6. The budgets that are based on a very high levels of performance
A. Planning C. Control ideal standards,
B. Performance evaluation D. all of these A. assist in planning the operations of the company
B. stimulate people to perform better than they ordinarily would
22. Budgeting supports the planning process by encouraging all of the following activities C. are helpful in evaluating the performance of managers
except: D. can lead to low levels of performance
A. Requiring all organizational units to establish their goals for the coming period.
B. Increasing the motivation of managers and employees by providing agreed-upon 7. Which of the following statements is incorrect?
expectations. A. An imposed budget is the same as a participative budget.
C. Improving overall decision making by considering all viewpoints, options, and cost B. Preparation of the budget would be the responsibility of each re
control programs. C. Top management’s support is necessary to promote budget pa
D. Directing and coordinating operations during the period. D. The top management should review and approve each respon
3. Which of the following advantages does a budget mostly provide? 9. The primary role of the budget director and the budgeting departm
A. Coordination is increased. A. Settle disputes among operating executives during the d
B. Planning is emphasized. operating plan.
C. Communication is continuous. B. Develop the annual profit plan by selecting the alternative
D. Comparison of actual versus budgeted data. suggestions submitted by the various operating segments.
C. Compile the budget and manage the budget process.
24. Which of the following is NOT an advantage of budgeting? D. Justify the budget to the corporate planning committee of the
A. It forces managers to plan.
B. It provides resource information that can be used to improve decision making. 10. The primary variable affecting active participation and commitm
C. It aids in the use of resources and employees by setting a benchmark that can be used control system is
for the subsequent evaluation of performance. A. Management efforts to achieve the budget rather than optimiz
433
, B. The rigid adherence to the budget without recognizing changing conditions.
C. Top management involvement in support of the budget. 11. The process of developing budget estimates by requiring all
D. The opportunity budgeting gives to risk-taker managers for department growth. estimate sales, production, and other operating data as thou
initiated for the first time is referred to as:
12. A variant of fiscal-year budgeting whereby a twelve-month projections into the future is A. Forecasting. C. Continuous bu
maintained at all times: B. Zero-based budgeting. D. Program budge
A. Forecasting. C. Continuous budgeting.
B. Zero-based budgeting. D. Calendar budgeting. 38. Which of the following is a contemporary approach to budgeting?
A. incremental approach C. baseline appro
35. The method of budgeting which adds one month’s budget to the end of the plan when the B. zero-based approach D. both a and b a
current month’s budget is dropped from the plan refers to
A. Long-term budget C. Incremental budget 51. Zero-base budgeting requires managers to
B. Operations budget D. Continuous budget A. Justify expenditures that are increases over the prior period’s
B. Justify all expenditures, not just increases over last year’s am
27. A continuous budget C. Maintain a full-year budget intact at all times.
A. is a budget that is revised monthly or quarterly. D. Maintain a budget with zero increases over the prior period.
B. is a medium term plan that consists of more than 2 years’ projections.
C. is appropriate only for use of a not-for-profit entity. 13. Zero-based budgeting:
D. works best for an entity that can reliably forecast events a year or more into the future. A. involves the review of changes made to an organization’s orig
B. does not provide a summary of annual projections.
37. “Incremental budgeting” refers to C. involves the review of each cost component from a cost/bene
A. line-by-line approval of expenditures D. emphasizes the relationship of effort to projected annual reve
B. setting budget allowances based on prior year expenditures
C. requiring top management approval of increases in budgets 18. A systematized approach known as zero-based budgeting:
D. using incremental revenues and costs in budgeting A. Classifies the budget by the prior year’s activity and estimate
each activity.
49. A budget plan for annual fixed costs that arises from top management decisions directly B. Commence with either the current level of spending or projecte
reflecting corporate policy. C. Presents planned activities for a period of time but does not pre
A. Flexible budget. C. Discretionary budget. D. Divides the activities of individual responsibility centers into a
B. Static budget. D. Program budget. prioritized.
36. The term “decision package” relates to 20. Which of the following statements about Zero-based budgeting is in
A. comprehensive budgeting C. program budgeting A. All activities in the company are organized into break-up units c
B. zero-based budgeting D. line budgeting B. All costs have to be justified every budgeting period.
C. The process is not time consuming since justification of costs
41. The budget approach that is more relevant when the continuance of an activity or operation matter.
must be justified on the basis of its need or usefulness to the organization. D. Zero-based budgeting includes variable costs only.
A. the incremental approach C. the baseline approach
B. the zero-based approach D. both a and b are true 34. Budgeting expenditures by purpose is called
434
, A. program budgeting C. zero-based budgeting A. Flexible budget considers only variable costs but a master bu
B. line budgeting D. flexible budgeting B. Flexible budget allows management latitude in meeting goals
is based on a fixed standard.
28. A static budget is not appropriate in evaluating a manager's effectiveness if a company has C. Master budget is for an entire production facility but a flexi
A. substantial fixed costs. single department only.
B. substantial variable costs. D. Master budget is based on one specific level of production an
C. planned activity levels that match actual activity levels. prepared for any production level within a relevant range
D. no variable costs.
47. Which of the following is a difference between a static budget and
45. Flexible budgeting is a reporting system wherein the A. A flexible budget includes only variable costs; a static budget
A. Budget standards may be adjusted at management’s discretion. B. A flexible budget includes all costs, a static budget includes o
B. Planned level of activity is adjusted to the actual level of activity before the performance C. A flexible budget gives different allowances for different levels
report is prepared. does not.
C. Reporting dates vary according to the managerial levels of the users. D. There is no difference between the two.
D. Packages of activities vary from period to period.
17. A system that classifies budget requests by activity and estimate
15. A budget that presents the plan for a range of activity so that the plan can be adjusted for each activity:
changes in activity levels is referred to as: A. Incremental budgeting system.
A. Zero-based budgeting. B. Static budgeting system.
B. Continuous budgeting. C. Program planning and budgeting system.
C. Flexible budgeting. D. Participative system.
D. Program planning and budgeting system.
21. A budget that identifies revenues and costs with an individual contr
16. A flexible budget is A. Master budget C. Product budget
A. one that can be changed whenever a manager so desires B. Responsibility budget D. None of the ab
B. adjusted to reflect expected costs at the actual level of activity
C. one that uses the formula total costs = cost per unit x units produced 25. The difference between an individual's submitted budget proje
D. the same as a continuous budget estimate of the item being projected is an example of
A. padding the budget
26. A series of budgets for varying levels of activity is a: B. adhering to zero-based budgeting assumptions
A. Variable cost budget. C. Master budget. C. creating budgetary slack
B. Flexible budget. D. Zero-based budget. D. being incongruent with participative budgeting
48. If a company wishes to establish a factory overhead budget system in which estimated costs 43. Budget slack is a condition in which
can be derived directly from estimates of activity levels, it should prepare a A. Demand is low at various times of the year
A. flexible budget. C. Discretionary budget. B. Excess machine capacity exists in some areas of the plant
B. Program budget. D. Manufacturing budget. C. There is an intentional overestimate of expenses or an under
D. Managers grant favored employees extra time-off
46. The basic difference between a master budget and a flexible budget is that a
435
