CHAPTER 6: OPERATIONAL AND FINANCIAL BUDGETING
Multiple Choice
a 1. The starting point in preparing a comprehensive budget is
a. the sales forecast.
b. the cash budget.
c. the budgeted income statement.
d. the flexible expense budget.
d 2. Budgets are related to which of the following management
functions?
a. Planning.
b. Control.
c. Performance evaluation.
d. All of the above.
d 3. Which of the following should be used to forecast sales?
a. Regression analysis.
b. The scatter diagram.
c. The judgment of the most experienced managers.
d. Whatever method produces the most accurate forecast.
a 4. A critical factor for using indicator methods to forecast sales
is
a. the availability of a forecasted value for the indicator.
1
, b. an upward trend in the value of the indicator.
c. governmental collection of data for computing and reporting
the value of the indicator.
d. the availability of an indicator that covers the entire
country.
d 5. Which of the following equations can be used to budget
purchases? (BI = beginning inventory, EI = ending inventory
desired, CGS = budgeted cost of goods sold)
a. Budgeted purchases = CGS + BI - EI
b. Budgeted purchases = CGS + BI
c. Budgeted purchases = CGS + EI + BI
d. Budgeted purchases = CGS + EI - BI
b 6. A flexible budget is
a. one that can be changed whenever a manager so desires.
b. adjusted to reflect expected costs at the actual level of
activity.
c. one that uses the formula total cost = cost per unit x units
produced.
d. the same as a continuous budget.
b 7. The use of flexible (as opposed to static) budget allowances is
LEAST important for which of the following?
a. Costs of the production department.
b. Costs of the general accounting department.
c. Costs of the product shipping department.
d. Costs of the material receiving department.
2
,d 8. Budgets set at very high levels of performance (i.e., very low
costs)
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.
c 9. Inventory policy is most critical in the budgeting of
a. sales.
b. cost of goods sold.
c. purchases.
d. expenses.
a 10. Budgeting expenditures by purpose is called
a. program budgeting.
b. zero-based budgeting.
c. line budgeting.
d. flexible budgeting.
c 11. Which of the following is a difference between a static budget
and a flexible budget?
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. None of the above.
a 12. A static budget is most appropriate for a department
a. with only fixed costs.
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, b. with only variable costs.
c. with mostly mixed costs.
d. with any of the above characteristics.
d 13. Which of the following is NOT an advantage of budgeting?
a. It requires managers to state their objectives.
b. It facilitates control by permitting comparisons of budgeted
and actual results.
c. It facilitates performance evaluation by permitting
comparisons of budgeted and actual results.
d. It provides a check-up device that allows managers to keep
close tabs on their subordinates.
b 14. An imposed budget
a. is the same as a static budget.
b. can lead to poor performance.
c. is best for planning purposes.
d. eliminates the need for a sales forecast.
b 15. Prohibiting managers from overspending budget allowances
a. improves company performance.
b. can harm company performance.
c. eliminates the need for comparisons of budgeted and actual
amounts.
d. usually reduces the need to prepare a cash budget.
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Multiple Choice
a 1. The starting point in preparing a comprehensive budget is
a. the sales forecast.
b. the cash budget.
c. the budgeted income statement.
d. the flexible expense budget.
d 2. Budgets are related to which of the following management
functions?
a. Planning.
b. Control.
c. Performance evaluation.
d. All of the above.
d 3. Which of the following should be used to forecast sales?
a. Regression analysis.
b. The scatter diagram.
c. The judgment of the most experienced managers.
d. Whatever method produces the most accurate forecast.
a 4. A critical factor for using indicator methods to forecast sales
is
a. the availability of a forecasted value for the indicator.
1
, b. an upward trend in the value of the indicator.
c. governmental collection of data for computing and reporting
the value of the indicator.
d. the availability of an indicator that covers the entire
country.
d 5. Which of the following equations can be used to budget
purchases? (BI = beginning inventory, EI = ending inventory
desired, CGS = budgeted cost of goods sold)
a. Budgeted purchases = CGS + BI - EI
b. Budgeted purchases = CGS + BI
c. Budgeted purchases = CGS + EI + BI
d. Budgeted purchases = CGS + EI - BI
b 6. A flexible budget is
a. one that can be changed whenever a manager so desires.
b. adjusted to reflect expected costs at the actual level of
activity.
c. one that uses the formula total cost = cost per unit x units
produced.
d. the same as a continuous budget.
b 7. The use of flexible (as opposed to static) budget allowances is
LEAST important for which of the following?
a. Costs of the production department.
b. Costs of the general accounting department.
c. Costs of the product shipping department.
d. Costs of the material receiving department.
2
,d 8. Budgets set at very high levels of performance (i.e., very low
costs)
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.
c 9. Inventory policy is most critical in the budgeting of
a. sales.
b. cost of goods sold.
c. purchases.
d. expenses.
a 10. Budgeting expenditures by purpose is called
a. program budgeting.
b. zero-based budgeting.
c. line budgeting.
d. flexible budgeting.
c 11. Which of the following is a difference between a static budget
and a flexible budget?
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. None of the above.
a 12. A static budget is most appropriate for a department
a. with only fixed costs.
3
, b. with only variable costs.
c. with mostly mixed costs.
d. with any of the above characteristics.
d 13. Which of the following is NOT an advantage of budgeting?
a. It requires managers to state their objectives.
b. It facilitates control by permitting comparisons of budgeted
and actual results.
c. It facilitates performance evaluation by permitting
comparisons of budgeted and actual results.
d. It provides a check-up device that allows managers to keep
close tabs on their subordinates.
b 14. An imposed budget
a. is the same as a static budget.
b. can lead to poor performance.
c. is best for planning purposes.
d. eliminates the need for a sales forecast.
b 15. Prohibiting managers from overspending budget allowances
a. improves company performance.
b. can harm company performance.
c. eliminates the need for comparisons of budgeted and actual
amounts.
d. usually reduces the need to prepare a cash budget.
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