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THEORIES:
Basic Concepts
1. The concept of management by exception refers to managements consideration of
A. only those items that vary materially from expectations.
B. only rare events.
C. samples selected at random.
D. only significant unfavorable deviations.
8. A formal written statement of managements plans for the future, packaged in financial terms, is a:
A. Responsibility report. C. Cost of production report.
B. Performance report. D. Budget.
22. Budgeting supports the planning process by encouraging all of the following activities except:
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 expectations.
C. Improving overall decision making by considering all viewpoints, options, and cost control programs.
D. Directing and coordinating operations during the period.
4. Which of the following is least likely a reason why a company prepares its budget?
A. To provide a basis for comparison of actual performance
B. To communicate the companys plans throughout the entire business organization
C. To control income and expenditure in a particular period.
D. To make sure the company expands its operations.
6. The budgets that are based on a very high levels of performance, like expected costs using ideal standards,
A. assist in planning the operations of the company
B. stimulate people to perform better than they ordinarily would
C. are helpful in evaluating the performance of managers
D. can lead to low levels of performance
9. The primary role of the budget director and the budgeting department is to
A. Settle disputes among operating executives during the development of the annual operating plan.
B. Develop the annual profit plan by selecting the alternatives to be adopted form the suggestions submitted
by the various operating segments.
C. Compile the budget and manage the budget process.
D. Justify the budget to the corporate planning committee of the board of directors.
10. The primary variable affecting active participation and commitment to the budget and the control system is
A. Management efforts to achieve the budget rather than optimize results.
B. The rigid adherence to the budget without recognizing changing conditions.
C. Top management involvement in support of the budget.
D. The opportunity budgeting gives to risk-taker managers for department growth.
12. A variant of fiscal-year budgeting whereby a twelve-month projections into the future is maintained at all
times:
A. Forecasting. C. Continuous budgeting.
B. Zero-based budgeting. D. Calendar budgeting.
35. The method of budgeting which adds one months budget to the end of the plan when the current months
budget is dropped from the plan refers to
A. Long-term budget C. Incremental budget
B. Operations budget D. Continuous budget
49. A budget plan for annual fixed costs that arises from top management decisions directly reflecting corporate
policy.
A. Flexible budget. C. Discretionary budget.
B. Static budget. D. Program budget.
36. The term decision package relates to
A. comprehensive budgeting C. program budgeting
B. zero-based budgeting D. line budgeting
41. The budget approach that is more relevant when the continuance of an activity or operation must be justified
on the basis of its need or usefulness to the organization.
A. the incremental approach C. the baseline approach
B. the zero-based approach D. both a and b are true
11. The process of developing budget estimates by requiring all levels of management to estimate sales,
production, and other operating data as though operations were being initiated for the first time is referred to
as:
A. Forecasting. C. Continuous budgeting.
B. Zero-based budgeting. D. Program budgeting.
28. A static budget is not appropriate in evaluating a manager's effectiveness if a company has
A. substantial fixed costs.
B. substantial variable costs.
C. planned activity levels that match actual activity levels.
D. no variable costs.
15. A budget that presents the plan for a range of activity so that the plan can be adjusted for changes in activity
levels is referred to as:
A. Zero-based budgeting.
B. Continuous budgeting.
C. Flexible budgeting.
D. Program planning and budgeting system.
48. If a company wishes to establish a factory overhead budget system in which estimated costs can be derived
directly from estimates of activity levels, it should prepare a
A. flexible budget. C. Discretionary budget.
B. Program budget. D. Manufacturing budget.
46. The basic difference between a master budget and a flexible budget is that a
A. Flexible budget considers only variable costs but a master budget considers all costs.
B. Flexible budget allows management latitude in meeting goals whereas a master budget is based on a
fixed standard.
C. Master budget is for an entire production facility but a flexible budget is applicable to single department only.
D. Master budget is based on one specific level of production and a flexible budget can be prepared for any
production level within a relevant range
47. Which of the following is a difference between a static budget and a flexible budgets?
A. A flexible budget includes only variable costs; a static budget includes only fixed costs.
B. A flexible budget includes all costs, a static budget includes only fixed costs.
C. A flexible budget gives different allowances for different levels of activity, a static budget does not.
D. There is no difference between the two.
17. A system that classifies budget requests by activity and estimates the benefits arising from each activity:
A. Incremental budgeting system.
B. Static budgeting system.
C. Program planning and budgeting system.
D. Participative system.
21. A budget that identifies revenues and costs with an individual controlling their incurrence is
A. Master budget C. Product budget
B. Responsibility budget D. None of the above
25. The difference between an individual's submitted budget projection and his or her best estimate of the item
being projected is an example of
A. padding the budget
B. adhering to zero-based budgeting assumptions
C. creating budgetary slack
D. being incongruent with participative budgeting
39. The procedure for setting profit objectives in which the determination of profit objectives is subordinated to the
planning, and the objectives emerge as the product of the planning itself is the
A. a priori method C. practical method
B. theoretical method D. a posteriori method
40. The procedure for setting profit objectives in which management specifies a given rate of return that it seeks
to realize in the long run by means of planning toward that end is the
A. a priori method C. pragmatic method
B. theoretical method D. ad hoc method
50. Budgeting process in which information flows top down and bottom up is referred to as:
A. Continuous budgeting. C. Perpetual budgeting
B. Participative budgeting D. Joint budgeting
42. Which of the following is not a potential problem with participative budgeting?
A. setting standards that are either too high or too low
B. padding the budget
C. build slack into the budget
D. all of the above are potential problems
57. Which one of the following is an external factor that would need to be considered in forming an initial budget
proposal?
A. changes in product design
B. introduction of a new product
C. competitors' actions
D. adoption of a new manufacturing process
29. In estimating the sales volume for a master budget, which of the following techniques may be used to improve
the projections?
A. Brainstorming.
B. Statistical analysis.
C. Estimating from previous sales volume.
D. All of these are useful.
30. Using the concept of expected value in sales forecasting means that the sales forecast to be used is
A. developed using the indicator method
B. the sum of the sales expected by individual managers
C. based on expected selling prices of the products
D. based on probabilities
31. Several sales forecasts are available from different sources and the managers have good ideas about their
likelihoods. This situation call for the use of
A. the expected value concept C. indicator methods
B. historical analysis D. a scatter diagram
56. Which of the following budgets provides the data for the preparation of the direct labor cost budget?
A. Direct materials purchase budget. C. Sales budget.
B. Cash budget. D. Production budget.
55. The increased use of automation and less use of the work force in companies has caused a trend towards an
increase in
A. both variable and fixed costs.
B. fixed costs and a decrease in variable costs.
C. variable costs and a decrease in fixed costs.
D. variable costs and no change in fixed costs.
32. In preparing a cash budget, which of the following is normally the starting point for projecting cash
requirements?
A. Fixed assets. C. Accounts receivable.
B. Sales. D. Inventories.