ACC 241: Exam 3 Study Guide
Question and answers correctly
solved 2025/2026
Describe how and why managers use budgets - correct answer ✔Helps managers determine how to
use resources and estimate future costs and revenues.
- Budgets are planning tools, helps quantify goals. Helps coordinate the activities of the organization.
- Forces managers to plan provides information that can be used to improve decision making, provides a
standard for performance evaluation, and improves communication and coordination.
Understand the advantages of budgeting and understand the behavioral dimensions of budgeting
(participative vs top-down approach) - correct answer ✔Authoritative vs Participative Budgeting
- Authoritative (Top-Down): Involves upper level management
- Participative (Bottom-Up): Involves many levels of management
*Benefits* - Lower Level Manages closer to action and more likely to be motivated by a budget they
helped create.
*Cons* - More complex and time consuming and may intentionally build slack
Be able to calculate a production budget and recognize how it relates to the material purchases, direct
labor, and manufacturing overhead budgets. (i.e. flow of budgets) - correct answer ✔Sales Budget --->
Production Budget or Selling and Admin Budget ---> Ending Inventory Budget or DL, DM, or MOH
Budgets ---> Cash Budgets ---> Budgeted Income Statement or Budgeted Balance Sheet
Sales Budget:
Budgeted unit sales x Selling price per unit = Total Sales
, Schedule of Expected Cash Collections:
x% collected in month of sale; x% collected in following
Production Budget:
Month following unit sales x x% = desired inventory
Following month unit sales x x% = end desired inv
DM Budget:
required production x Dm per unit = production needs
DL Budget:
same thing as DM
MOH Budget:
same as DM and DL but with variable MOH rate
Understand the importance of budgeting for cash and be able to calculate expected cash receipts and
cash disbursements - correct answer ✔
Know the primary advantages and disadvantages of centralization and decentralization. - correct
answer ✔Centralization - Owner/Manager (small scope of operations)
*Advantages*: Avoids duplication of costs and simplifies goal congruence
*Disadvantages*: Limits management time, managers knowledge is limited, customer relations strained,
costly training for one, and decreases managers' motivation and retention
Decentralization - Delegated to unit managers (business characteristic - geographic area, product line,
customer base, business function, other)
Question and answers correctly
solved 2025/2026
Describe how and why managers use budgets - correct answer ✔Helps managers determine how to
use resources and estimate future costs and revenues.
- Budgets are planning tools, helps quantify goals. Helps coordinate the activities of the organization.
- Forces managers to plan provides information that can be used to improve decision making, provides a
standard for performance evaluation, and improves communication and coordination.
Understand the advantages of budgeting and understand the behavioral dimensions of budgeting
(participative vs top-down approach) - correct answer ✔Authoritative vs Participative Budgeting
- Authoritative (Top-Down): Involves upper level management
- Participative (Bottom-Up): Involves many levels of management
*Benefits* - Lower Level Manages closer to action and more likely to be motivated by a budget they
helped create.
*Cons* - More complex and time consuming and may intentionally build slack
Be able to calculate a production budget and recognize how it relates to the material purchases, direct
labor, and manufacturing overhead budgets. (i.e. flow of budgets) - correct answer ✔Sales Budget --->
Production Budget or Selling and Admin Budget ---> Ending Inventory Budget or DL, DM, or MOH
Budgets ---> Cash Budgets ---> Budgeted Income Statement or Budgeted Balance Sheet
Sales Budget:
Budgeted unit sales x Selling price per unit = Total Sales
, Schedule of Expected Cash Collections:
x% collected in month of sale; x% collected in following
Production Budget:
Month following unit sales x x% = desired inventory
Following month unit sales x x% = end desired inv
DM Budget:
required production x Dm per unit = production needs
DL Budget:
same thing as DM
MOH Budget:
same as DM and DL but with variable MOH rate
Understand the importance of budgeting for cash and be able to calculate expected cash receipts and
cash disbursements - correct answer ✔
Know the primary advantages and disadvantages of centralization and decentralization. - correct
answer ✔Centralization - Owner/Manager (small scope of operations)
*Advantages*: Avoids duplication of costs and simplifies goal congruence
*Disadvantages*: Limits management time, managers knowledge is limited, customer relations strained,
costly training for one, and decreases managers' motivation and retention
Decentralization - Delegated to unit managers (business characteristic - geographic area, product line,
customer base, business function, other)
