Objective 1

1) Once authorized, discretionary spending budgets are committed or fixed and do not vary with levels of production or service.

2) A budget is a qualitative expression of the cash inflows and outflows that show whether the current operating plan will meet the firm’s organizational objectives.

3) A budget should/can do all of the following EXCEPT that it:

A) should be prepared by managers from different functional areas working independently of each other.

B) should be adjusted if new opportunities become available during the year.

C) can help management allocate limited resources.

D) can become the performance standard against which firms can compare the actual results.

4) Budgeting provides all of the following EXCEPT:

A) a means to communicate the organization’s short-term goals to its members.

B) support for the management functions of planning and coordination.

C) a means to anticipate problems.

D) an ethical framework for decision making.

5) Which of the following is NOT a role of budgeting in organizations?

A) performance evaluation.

B) historical financial statements.

C) allocation of resources.

D) motivation of employees.

6) Budgeting does NOT require:

A) knowledge of the organization’s activities.

B) specialized expertise in financial management and control.

C) knowledge about how activities affect costs.

D) the ability to see how the organization’s different activities fit together.

7) All of the following are true statements about the role of budgets and budgeting EXCEPT that:

A) a budget is a quantitative summary of the expected allocations and financial consequences of the organization’s short-term operating activities.

B) budgeting includes the process of estimating money inflows and outflows to determine a financial plan that will meet an organization’s objectives.

C) the difference between actual results and the budget plan are called variances.

D) budgeting solves most business challenges because it coordinates activities and communicates the organization’s short-term goals to its members.

8) In regard to the amount of detail, a budget should:

A) show the detail for each product.

B) group products into pools of products.

C) strike a balance between detail and aggregated information.

D) not consider the cost of gathering the information.

9) If initial budgets prove unacceptable, planners achieve the MOST benefit from:

A) repeating the budgeting cycle with a new set of decisions.

B) deciding not to budget this year.

C) accepting an unbalanced budget.

D) using last year’s budget.

10) What is budgeting? What is its role?


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