MBA 620 UPDATED 2026 EXAM QUESTIONS AND
SOLUTIONS RATED A+
✔✔Serves as a blueprint of short-term operations and is designed to help organizations
achieve their goals; often includes schedules that provide planning for sales, production,
selling and administrative expenses, and capital expenditures - ✔✔master budget
✔✔Involves using the master budget to evaluate employee and organizational
performance; comparing the budget with actual results can indicate if the company has
achieved its goals - ✔✔the control phase
✔✔What are two characteristics that make budgeting difficult for multinational
companies? - ✔✔exchange rate fluctuations and unpredictable government activities
✔✔Managers at all levels are involved in budget process, it ensures that employees
understand and buy into their roles in meeting goals - ✔✔participative budget (bottom-
up)
✔✔Top management identifies primary goals and objectives and communicates to
lower management in the budgeting process (aka imposed budget) - ✔✔top-down
budget
✔✔Components of master budget:
Estimates unit sales, price per unit, and total sales revenue (input from sales force,
market research consultant industry data, economic/statistical models, etc.) - ✔✔sales
budget
✔✔Components of master budget:
Estimates units to be produced based on sales projections plus an estimate of desired
ending finished goods inventory less beginning finished goods inventory - ✔✔production
budget
✔✔Components of master budget:
Estimates raw materials needed to achieve a desired level of production - ✔✔direct
materials purchases budget
✔✔Components of master budget:
Estimates direct labor hours and costs necessary to achieve a desired level of
production (no beginning/ending inventory) - ✔✔direct labor budget
✔✔Components of master budget:
Estimates all production costs, other than direct materials and direct labor, necessary to
achieve a desired level of production - ✔✔manufacturing overhead budget
, ✔✔Components of master budget:
Estimates all operating costs outside of production (may have both fixed and variable
costs) - ✔✔selling and administrative budget
✔✔Components of master budget:
Estimates profit for the budgeted period - ✔✔budgeted income statement
✔✔Components of master budget:
Estimates long-term assets to be purchased during the budget period - ✔✔capital
expenditures budget
✔✔Components of master budget:
Estimates the ending balances for all balance sheet accounts - ✔✔budgeted balance
sheet
✔✔Rather than manufacturing goods, merchandising organizations purchase finished
goods no production, so no production budgets
Estimates the units of merchandised purchased and the cost per unit - ✔✔merchandise
purchases budget
✔✔Ethical issues in budgeting:
Budget-based incentives can create inherent conflicts between the planning and control
phases
- _____________ _________: intentional underestimate of revenues or overestimate of
costs
- seen as a disadvantage to participative budgeting - ✔✔budgetary slack
✔✔How can ethical issues in budgeting be mitigated? - ✔✔budget accuracy incentives,
long-term incentives
✔✔The cost (per unit) management expects to incur in production or service -
✔✔standard cost
✔✔Total expected costs at a certain level of activity - ✔✔budgeted cost
✔✔For __________________
Standard quantity: Represents the materials required to complete one good unit of
product (i.e., a product 1/no defect), and includes an allowance for waste and spoilage
Standard Price: Represents the final delivered cost of the materials and includes items
such as shipping and insurance - ✔✔direct materials
✔✔For _____________:
SOLUTIONS RATED A+
✔✔Serves as a blueprint of short-term operations and is designed to help organizations
achieve their goals; often includes schedules that provide planning for sales, production,
selling and administrative expenses, and capital expenditures - ✔✔master budget
✔✔Involves using the master budget to evaluate employee and organizational
performance; comparing the budget with actual results can indicate if the company has
achieved its goals - ✔✔the control phase
✔✔What are two characteristics that make budgeting difficult for multinational
companies? - ✔✔exchange rate fluctuations and unpredictable government activities
✔✔Managers at all levels are involved in budget process, it ensures that employees
understand and buy into their roles in meeting goals - ✔✔participative budget (bottom-
up)
✔✔Top management identifies primary goals and objectives and communicates to
lower management in the budgeting process (aka imposed budget) - ✔✔top-down
budget
✔✔Components of master budget:
Estimates unit sales, price per unit, and total sales revenue (input from sales force,
market research consultant industry data, economic/statistical models, etc.) - ✔✔sales
budget
✔✔Components of master budget:
Estimates units to be produced based on sales projections plus an estimate of desired
ending finished goods inventory less beginning finished goods inventory - ✔✔production
budget
✔✔Components of master budget:
Estimates raw materials needed to achieve a desired level of production - ✔✔direct
materials purchases budget
✔✔Components of master budget:
Estimates direct labor hours and costs necessary to achieve a desired level of
production (no beginning/ending inventory) - ✔✔direct labor budget
✔✔Components of master budget:
Estimates all production costs, other than direct materials and direct labor, necessary to
achieve a desired level of production - ✔✔manufacturing overhead budget
, ✔✔Components of master budget:
Estimates all operating costs outside of production (may have both fixed and variable
costs) - ✔✔selling and administrative budget
✔✔Components of master budget:
Estimates profit for the budgeted period - ✔✔budgeted income statement
✔✔Components of master budget:
Estimates long-term assets to be purchased during the budget period - ✔✔capital
expenditures budget
✔✔Components of master budget:
Estimates the ending balances for all balance sheet accounts - ✔✔budgeted balance
sheet
✔✔Rather than manufacturing goods, merchandising organizations purchase finished
goods no production, so no production budgets
Estimates the units of merchandised purchased and the cost per unit - ✔✔merchandise
purchases budget
✔✔Ethical issues in budgeting:
Budget-based incentives can create inherent conflicts between the planning and control
phases
- _____________ _________: intentional underestimate of revenues or overestimate of
costs
- seen as a disadvantage to participative budgeting - ✔✔budgetary slack
✔✔How can ethical issues in budgeting be mitigated? - ✔✔budget accuracy incentives,
long-term incentives
✔✔The cost (per unit) management expects to incur in production or service -
✔✔standard cost
✔✔Total expected costs at a certain level of activity - ✔✔budgeted cost
✔✔For __________________
Standard quantity: Represents the materials required to complete one good unit of
product (i.e., a product 1/no defect), and includes an allowance for waste and spoilage
Standard Price: Represents the final delivered cost of the materials and includes items
such as shipping and insurance - ✔✔direct materials
✔✔For _____________:
