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CHAPTER 10

USING BUDGETS TO ACHIEVE ORGANIZATIONAL OBJECTIVES

TRUE/FALSE

1. Budgeting involves forecasting the demand for flexible resources, intermediate-term


capacity resources, and long-term capacity resources.
a. True
b. False

2. Budgeting helps management anticipate and adjust for trouble spots in advance.
a. True
b. False

3. Budgets can play both planning and control roles for management.
a. True
b. False

4. The usual starting point in budgeting is to make a forecast of net income.


a. True
b. False

5. The sales plan should be based on the production plan.


a. True
b. False

6. If amounts in the sales forecast change, amounts in the production budgets will also change.
a. True
b. False

7. After a budget is agreed upon and finalized by the management team, the amounts should
not be changed for any reason.
a. True
b. False

8. In periodic budgeting, organizations budget continuously.


a. True
b. False

9. Zero-based budgeting requires that proponents of discretionary expenditures justify these


outlays for each budgeting period.
a. True
b. False

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10. Sensitivity analysis is the process of selectively varying the key estimates of a plan or
budget.
a. True
b. False

11. The essence of variance analysis is that it captures a departure from what was expected.
a. True
b. False

12. It is most meaningful to compare cost targets in the master budget to actual cost results.
a. True
b. False

13. A favorable variance indicates management’s attention is not needed.


a. True
b. False

14. An unfavorable variance may be due to poor planning rather than due to inefficiency.
a. True
b. False

15. If standards are lax, cost variances will tend to be favorable.


a. True
b. False

16. To compute the direct material price variance, the actual cost is compared to the amount
budgeted at the beginning of the year for the material.
a. True
b. False

17. The use of high-quality raw materials is likely to result in a favorable usage variance and an
unfavorable price variance.
a. True
b. False

18. The labor rate variance is likely to be favorable if higher-skilled workers are put on a job.
a. True
b. False

19. Planning variances are the focus of cost control.


a. True
b. False

20. The role of budgeting in planning and control is more important in manufacturing than in a
not-for-profit environment.
a. True
b. False

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21. When the operating budget is used as a control device, managers are more likely to be
motivated to budget higher sales than actually anticipated.
a. True
b. False

22. Budgeting slack is most likely to occur when a firm uses the budget only as a planning
device and not for control.
a. True
b. False

23. Authoritative budgeting occurs when a superior simply tells subordinates what their budget
will be.
a. True
b. False

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MULTIPLE CHOICE

24. 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

25. 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

26. Budgeting always includes:


a. control
b. planning of short-term activities
c. evaluating performance
d. preparing pro forma financial statements

27. 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

28. 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 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

29. 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

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30. 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

31. When discussing the roles of budgets, a planning role in the budgeting process includes:
a. measuring outcomes against planned amounts
b. developing the master budget
c. assessing performance
d. reporting actual amounts at the end of the budgeting period

32. When discussing the roles of budgets, a control role includes:


a. identifying organizational objectives and short-term goals
b. developing long-term strategies and short-term plans
c. measuring and assessing performance against budgeted amounts
d. developing the master budget

33. Operating budgets and financial budgets:


a. combined form the master budget
b. are prepared before the master budget
c. are prepared after the master budget
d. have nothing to do with the master budget

34. Operating budgets include all of the following EXCEPT:


a. a sales plan
b. a labor hiring and training plan
c. an administrative and discretionary spending plan
d. expected financial results

35. Operating budgets include the:


a. projected balance sheet
b. projected income statement
c. capital spending plan
d. expected cash flow statement

36. Financial budgets are prepared:


a. to specify expectations for selling, purchasing, and production
b. to evaluate the financial results of the proposed decisions
c. so that financial statements can be prepared for shareholders
d. to plan for production capacity

37. Financial budgets include the:


a. capital spending plan
b. production plan
c. labor hiring and training plan
d. expected cash flow statement

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38. __________ include an expected cash flow statement, the projected balance sheet, and the
projected income statement.
a. Annual reports
b. Financial budgets
c. Operating budgets
d. Capital budgets

39. __________ provide(s) the starting point and the framework for evaluating the budgeting
process.
a. The sales plan
b. Organizational goals
c. The production plan
d. Expected cash flows

40. A demand forecast is:


a. an estimate of sales demand at a specified product price
b. developed primarily to prepare next year’s marketing campaign
c. an estimate of market demand based on the amount sold in the previous year
d. a summary of product costs that influence pricing decisions

41. The budgeting process is MOST strongly influenced by the:


a. capital spending plan
b. statement of expected cash flows
c. demand forecasts
d. production plan

42. In which order are the following developed?


A = Production plan B = Materials purchasing plan
C = Demand forecast D = Sales plan
a. first to last: A, B, C, D
b. first to last: C, D, A, B
c. first to last: D, C, B, A
d. first to last: C, A, D, B

43. The __________ provides the foundation for the production plans.
a. inventory policy
b. sales plan
c. administrative and discretionary spending plan
d. capital spending plan

44. The sales plan identifies:


a. expected cash flows from the sales of each product
b. actual sales from last year for each product
c. the budgeted level of sales
d. the variance of sales from actual for each product

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45. The __________ summarizes planned revenues from each product.
a. capital spending plan
b. production plan
c. administrative and discretionary spending plan
d. sales plan

46. Which of the following statements is TRUE regarding capacity resources?


a. Raw materials and supplies are examples of intermediate-term resources.
b. Long-term capacity usually varies directly with production levels.
c. Flexible resources are usually purchased to acquire intermediate-term capacity.
d. Long-term capacity resources are expensive and referred to as “committed” resources.

47. __________ specifies when items such as acquisitions for buildings and special-purpose
equipment must be made to meet activity objectives.
a. The capital-spending plan
b. The production plan
c. The materials purchasing plan
d. The administrative and discretionary spending plan

48. The sales plan is matched with inventory policy and capacity levels and __________ is
determined.
a. an aggregate plan
b. a new sales plan
c. a materials purchasing plan
d. an administrative and discretionary spending plan

49. Aggregate planning:


a. determines the projected financial statements
b. compares the sales plan with the demand forecast
c. assesses the feasibility of the proposed production plan
d. provides a detailed production schedule for all product lines

50. Discretionary expenditures:


a. are usually planned for first
b. are amounts paid for the use of flexible resources
c. are not determined by the organization’s level of production
d. increase in amount during periods of greater activity

51. __________ summarizes expenditures for advertising and research and development.
a. The labor hiring and training plan
b. The production plan
c. The administrative and discretionary spending plan
d. The aggregate plan

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52. All of the following are true regarding the labor hiring and training plan EXCEPT that it:
a. may include retraining plans to redeploy employees to other parts of the organization
b. determines discretionary spending for research and development
c. works backward from the date when personnel are needed
d. can include plans for both expansion and contraction

53. Financial analysts use the projected cash flow statement to do all of the following
EXCEPT:
a. plan for when excess cash is generated
b. plan for short-term cash investments
c. project cash shortages and plan a strategy to deal with the shortages
d. project sales

54. The cash flow statement does NOT include:


a. cash inflows from the collection of receivables
b. cash outflows paid toward committed resources
c. all sales revenues
d. interest paid and collected

55. The financing section of the cash flow statement includes:


a. cash flows from retail sales
b. borrowing made and repaid
c. amounts paid for advertising costs
d. cash outflows for flexible resources

THE FOLLOWING INFORMATION APPLIES TO QUESTIONS 56 THROUGH 59.


For the next six months, Brett Company projects the following information (in units).

Jan Feb Mar April May June


Retail demand 200 200 300 300 400 400
Dealer demand 400 500 600 700 800 900
Shop capacity 1,000 1,000 1,000 1,000 1,000 1,000
Painting capacity 700 700 700 1,200 1,200 1,200

Demand drives production for that month and cannot be carried over from one month to another.
Retail customers are satisfied first.

56. The production for January is projected to be:


a. 200 units
b. 600 units
c. 700 units
d. 1,000 units

57. The number of dealer units that will be produced and sold in March is:
a. 600 units
b. 700 units
c. 1,000 units
d. 400 units

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58. Painting capacity appears to be:
a. short-term capacity
b. intermediate-term capacity
c. long-term capacity
d. total demand

59. In May, production appears to be limited by:


a. short-term capacity
b. intermediate-term capacity
c. long-term capacity
d. total demand

THE FOLLOWING INFORMATION APPLIES TO QUESTIONS 60 THROUGH 65.


The following information pertains to the January operating budget for Casey Corporation.
• Budgeted sales for January $100,000 and February $200,000.
• Collections for sales are 60% in the month of sale and 40% the next month.
• Gross margin is 30% of sales.
• Administrative costs are $10,000 each month.
• Beginning accounts receivable $20,000.
• Beginning inventory $14,000.
• Beginning accounts payable $60,000. (All from inventory purchases.)
• Purchases are paid in full the following month.
• Desired ending inventory is 20% of next month’s cost of goods sold (COGS).

60. For January, budgeted cash collections are:


a. $20,000
b. $60,000
c. $80,000
d. None of the above is correct.

61. At the end of January, budgeted accounts receivable is:


a. $20,000
b. $40,000
c. $60,000
d. None of the above is correct.

62. For January, budgeted cost of goods sold is:


a. $20,000
b. $30,000
c. $40,000
d. None of the above is correct.

63. For January, budgeted net income is:


a. $20,000
b. $30,000
c. $40,000
d. None of the above is correct.

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64. For January, budgeted cash payments for purchases are:
a. $14,000
b. $60,000
c. $70,000
d. None of the above is correct.

65. At the end of January, budgeted ending inventory is:


a. $20,000
b. $28,000
c. $40,000
d. None of the above is correct.

THE FOLLOWING INFORMATION APPLIES TO QUESTIONS 66 THROUGH 69.


The following information pertains to Tiffany Company:

Month Sales Purchases


January $30,000 $16,000
February $40,000 $20,000
March $50,000 $28,000

• Cash is collected from customers in the following manner:


Month of sale 30%
Month following the sale 70%

• 40% of purchases are paid for in cash in the month of purchase, and the balance is paid
the following month.

• Labor costs are 20% of sales. Other operating costs are $15,000 per month (including
$4,000 of depreciation). Both of these are paid in the month incurred.

• The cash balance on March 1 is $4,000. A minimum cash balance of $3,000 is required at
the end of the month. Money can be borrowed in multiples of $1,000.

66. How much cash will be collected from customers in March?


a. $43,000
b. $47,000
c. $50,000
d. None of the above is correct.

67. How much cash will be paid to suppliers in March?


a. $23,200
b. $28,000
c. $44,000
d. None of the above is correct.

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68. How much cash will be disbursed for labor and operating costs in March?
a. $21,000
b. $25,000
c. $44,200
d. $48,200

69. What is the ending cash balance for March?


a. ($25,000)
b. $3,000
c. $3,200
d. $3,800

70. In __________, as one budget period passes, planners delete that budget period from the
master budget and add another one.
a. zero-based budgeting
b. periodic budgeting
c. incremental budgeting
d. continuous budgeting

71. Although planners update or revise the budgets during the period, __________ is typically
performed once per year.
a. zero-based budgeting
b. periodic budgeting
c. incremental budgeting
d. continuous budgeting

72. __________ requires that each discretionary expenditure be justified.


a. Zero-based budgeting
b. Periodic budgeting
c. Incremental budgeting
d. Continuous budgeting

73. __________ bases a period's expenditure level for a discretionary item on the amount spent
on that item during the previous period.
a. Zero-based budgeting
b. Periodic budgeting
c. Incremental budgeting
d. Continuous budgeting

74. In zero-based budgeting:


a. the prior year’s budgeted amounts or actual results are used to build the new operating
budget
b. the budget is prepared by the top managers
c. managers must justify each item within the operating budget as if it were a new
budget item
d. the budget is updated every month

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75. __________ is the process of varying key estimates to identify those estimates that are the
most critical to a decision.
a. A demand forecast
b. A sensitivity analysis
c. A pro forma income statement
d. The cash flow statement

76. Assume only the specified parameters change in a sensitivity analysis. If the contribution
margin increases by $2 per unit then operating profits will:
a. also increase by $2 per unit
b. increase by less than $2 per unit
c. decrease by $2 per unit
d. be indeterminable

77. Assume that only the specified parameters change in a sensitivity analysis. The contribution
margin ratio increases when:
a. total capacity-related (fixed) costs increase
b. total capacity-related (fixed) costs decrease
c. flexible (variable) costs per unit increase
d. flexible (variable) costs per unit decrease

78. The break-even point decreases if the:


a. flexible (variable) cost per unit increases
b. total capacity-related (fixed) costs decrease
c. contribution margin per unit decreases
d. selling price per unit decreases

79. (CPA adapted, November 1992) The strategy MOST LIKELY to reduce the break-even
point would be to:
a. increase both the capacity-related (fixed) costs and the contribution margin
b. decrease both the capacity-related (fixed) costs and the contribution margin
c. decrease the capacity-related (fixed) costs and increase the contribution margin
d. increase the capacity-related (fixed) costs and decrease the contribution margin

THE FOLLOWING INFORMATION APPLIES TO QUESTIONS 80 THROUGH 82.


Cathy Manufacturing produces a single product that sells for $80. Variable (flexible) costs per
unit equal $32. The company expects the total fixed (capacity-related) costs to be $72,000 for
the next month at the projected sales level of 2,000 units. In an attempt to improve performance,
management is considering a number of alternative actions. Each situation is to be evaluated
separately.

80. What is the current break-even point in terms of number of units?


a. 1,500 units
b. 2,250 units
c. 3,333 units
d. None of the above is correct.

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81. Suppose that Cathy Manufacturing’s management believes that a $16,000 increase in the
monthly advertising expense will result in a considerable increase in sales. How much must
sales increase to justify this additional expenditure?
a. 200 units
b. 334 units
c. 500 units
d. None of the above is correct.

82. Suppose that Cathy Manufacturing's management believes that a 10% reduction in the
selling price will result in a 10% increase in sales. If this proposed reduction in selling
price is implemented, then:
a. profit will decrease by $8,000
b. profit will increase by $8,000
c. profit will decrease by $16,000
d. profit will increase by $16,000

83. The PRIMARY reason for using cost variances is:


a. that they diagnose the cause of a problem and what should be done to correct it
b. for superiors to communicate expectations to lower level employees
c. to administer appropriate disciplinary action
d. for financial control of operating activities

84. A favorable cost variance of significant magnitude:


a. is the result of good planning
b. may lead to improved production methods if it is investigated
c. indicates that management does not need to be concerned about lax standards
d. does not need to be investigated

85. The variances that should be investigated by management include:


a. only unfavorable variances
b. only favorable variances
c. all variances, both favorable and unfavorable
d. both favorable and unfavorable variances that are considered significant in amount for
the company

86. A flexible budget contains:


a. cost targets for actual output
b. cost targets for planned output
c. the difference between planned and actual output
d. actual costs for actual output

87. All of the following are true of flexible budgets EXCEPT that they:
a. use the same flexible (variable) cost per unit as the master budget
b. result in higher total costs for greater levels of production
c. allow comparison of actual results to targets based on the achieved level of
production
d. reflect the same level of production as the master budget

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88. The variance that LEAST affects cost control is the __________ variance.
a. flexible budget
b. direct material price
c. planning
d. direct labor efficiency

89. A flexible budget variance is $800 favorable for unit-related costs. This indicates that:
a. costs were $800 more than the master budget
b. costs were $800 less than standard for the achieved level of activity
c. the sum of the planning and efficiency variances totals $800
d. costs were $800 less than for the planned level of activity

90. A favorable price variance for direct materials indicates that:


a. a lower price than expected was paid for materials
b. a higher price than expected was paid for materials
c. less material was used during production than planned for actual output
d. more material was used during production than planned for actual output

91. A favorable efficiency variance for direct labor indicates that:


a. a lower wage rate than expected was paid for direct labor
b. a higher wage rate than expected was paid for direct labor
c. less direct labor hours were used during production than expected for actual output
d. more direct labor hours were used during production than expected for actual output

92. A favorable wage rate variance for direct labor might indicate that:
a. employees were paid more than planned
b. a corporate-wide wage adjustment was implemented
c. less skilled and qualified employees are being hired
d. an efficient labor force

93. An organization planned to use $82 of material per unit of activity but it actually used $80
of material per unit of activity, and it planned to make 1,200 units but it actually made
1,000 units. The flexible budget amount is:
a. $80,000
b. $82,000
c. $96,000
d. $98,400

94. An organization planned to use $82 of material per unit of activity but it actually used $80
of material per unit of activity, and it planned to make 1,200 units but it actually made
1,000 units. The flexible budget variance is:
a. $2,000 favorable
b. $14,000 unfavorable
c. $16,400 unfavorable
d. $2,400 favorable

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95. An organization planned to use $82 of material per unit of activity but it actually used $80
of material per unit of activity, and it planned to make 1,200 units but it actually made
1,000 units. The planning variance is:
a. $2,000
b. $14,000
c. $16,400
d. $2,400

THE FOLLOWING INFORMATION APPLIES TO QUESTIONS 96 THROUGH 99.


These questions refer to flexible budget variance formulas with the following descriptions for the
variables: A = Actual; P = Price; Q = Quantity; S = Standard.

96. The best label for the formula (AQ – SQ) x SP is the:
a. quantity variance
b. price variance
c. total cost variance
d. wage rate variance

97. The best label for the formula (AP – SP) x AQ is the:
a. quantity variance
b. price variance
c. total cost variance
d. efficiency variance

98. The best label for the formula [(AP) x (AQ)– (SP) x (AQ)] is the:
a. quantity variance
b. price variance
c. total cost variance
d. efficiency variance

99. The best label for the formula [(AP) x (AQ)– (SP) x (SQ)] is the:
a. quantity variance
b. price variance
c. total cost variance
d. efficiency variance

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THE FOLLOWING INFORMATION APPLIES TO QUESTIONS 100 THROUGH 105.
Triglobal Industries, Inc., (TII) developed the following standard costs for direct material and
direct labor for one of their major products, the 10-gallon plastic container.

Standard quantity Standard price


Direct materials 0.10 pounds $30 per pound
Direct labor 0.05 hours $15 per hour

During June, TII produced and sold 5,000 containers using 490 pounds of direct materials at an
average cost per pound of $32 and 250 direct labor hours at an average wage of $15.25 per hour.

100. June’s direct material cost variance was:


a. $980 unfavorable
b. $300 favorable
c. $680 unfavorable
d. None of the above is correct.

101. June’s direct material price variance was:


a. $980 unfavorable
b. $300 favorable
c. $680 favorable
d. None of the above is correct.

102. June’s direct material quantity variance was:


a. $980 unfavorable
b. $300 favorable
c. $680 favorable
d. None of the above is correct.

103. June’s direct material planning variance was:


a. $134,320 favorable
b. $135,300 unfavorable
c. $680 unfavorable
d. indeterminable using the above information

104. June’s direct labor rate variance was:


a. $62.50 unfavorable
b. $62.50 favorable
c. $71,187.50 favorable
d. None of the above is correct.

105. June’s direct labor efficiency variance was:


a. $62.50 unfavorable
b. $62.50 favorable
c. $71,187.50 favorable
d. None of the above is correct.

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THE FOLLOWING INFORMATION APPLIES TO QUESTIONS 106 THROUGH 111.
Sanders Industries, Inc., developed the following standard costs for direct material and direct
labor for one of their major products, the 30-gallon heavy-duty plastic container.

Standard quantity Standard price


Direct materials 0.20 pounds $25 per pound
Direct labor 0.10 hours $15 per hour

During July, Sanders produced and sold 10,000 containers using 2,200 pounds of direct materials
at an average cost per pound of $24 and 1,050 direct labor hours at an average wage of $14.75
per hour.

106. July’s direct material price variance was:


a. $2,800 favorable
b. $2,200 favorable
c. $5,000 unfavorable
d. None of the above is correct.

107. July’s direct material quantity variance was:


a. $2,800 unfavorable
b. $2,200 favorable
c. $5,000 unfavorable
d. None of the above is correct.

108. July’s direct labor cost variance was:


a. $750.00 unfavorable
b. $262.50 favorable
c. $487.50 unfavorable
d. indeterminable using the above information

109. July’s direct labor rate variance was:


a. $750.00 unfavorable
b. $262.50 favorable
c. $487.50 favorable
d. indeterminable using the above information

110. July’s direct labor efficiency variance was:


a. $750.00 unfavorable
b. $262.50 favorable
c. $487.50 favorable
d. indeterminable using the above information

111. July’s direct labor planning variance was:


a. $134,512.50 favorable
b. $ 487.50 favorable
c. $ 487.50 unfavorable
d. indeterminable using the above information

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THE FOLLOWING INFORMATION APPLIES TO QUESTIONS 112 THROUGH 115.
The actual information pertains to the month of August. As part of the budgeting process, Dale’s
Fencing Company developed the following master budget for August. Dale is in the process of
preparing the flexible budget and understanding the results.

Master Flexible Actual


Budget Budget Results
Sales volume (in units) # 25,000 # 20,000
========
Sales revenues $1,250,000 $ $1,000,000
Flexible (variable) costs 600,000 $ _________ 512,000

Contribution margin 650,000 $ 488,000

Capacity-related (fixed) costs 450,000 $ _________ 458,000


Operating profit $ 200,000 $ $ 30,000

112. The flexible budget will report $__________ for the flexible (variable) costs.
a. $512,000
b. $600,000
c. $480,000
d. $640,000

113. The flexible budget will report $__________ for the capacity-related (fixed) costs.
a. $458,000
b. $450,000
c. $360,000
d. $572,500

114. The flexible (variable) cost variance is:


a. $32,000 unfavorable
b. $120,000 unfavorable
c. $32,000 favorable
d. $120,000 favorable

115. The PRIMARY reason for low operating profits was:


a. the flexible (variable) cost variance
b. increased capacity-related (fixed) costs
c. a poor management accounting system
d. lower sales volume than planned

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THE FOLLOWING INFORMATION APPLIES TO QUESTIONS 116 THROUGH 117.
Lynn’s Camera Shop has prepared the following flexible budget for September and it is in the
process of interpreting the variances. F denotes a favorable variance and U denotes an
unfavorable variance.
Flexible ------------Variances-------------
Budget Price/Rate Use/Efficiency
Material A $20,000 $1,000 F $3,000 U
Material B 30,000 500 U 1,500 F
Direct labor 40,000 500 U 2,500 F

116. The MOST LIKELY explanation of the above variances for Material A is that:
a. a lower price than expected was paid for Material A
b. higher quality raw materials were used than were planned
d. the company used a new supplier
d. Material A used during September was $2,000 less than expected

117. The MOST LIKELY explanation of the above direct labor variances is that:
a. the average wage rate paid to employees was less than expected
b. employees did not work as efficiently as expected to accomplish the job
c. the company may have assigned more experienced employees this month than
originally planned
d. management may have a problem with budget slack and may be using lax standards
for both labor wage rates and expected efficiency

118. In the service sector, __________ rather than machines usually represent(s) the capacity
constraint, which underscores the importance of budgeting even in nonmanufacturing
organizations.
a. people
b. knowledge
c. familiarity with processes
d. potential for sales

119. _________ occur(s) when a superior simply tells subordinates what their budget will be.
a. Authoritative budgeting
b. Stretch targets
c. Consultative budgeting
d. Budget slack

120. _________ mean(s) that the organization will attempt to reach much higher goals with the
current budget.
a. Authoritative budgeting
b. Stretch targets
c. Consultative budgeting
d. Budget slack

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121. _________ occur(s) when managers ask subordinates to discuss their ideas about the
budget, but no joint decision-making occurs.
a. Authoritative budgeting
b. Stretch targets
c. Consultative budgeting
d. Budget slack

122. _________ involve(s) a joint decision-making process in which all parties agree about
setting the budget targets.
a. The pseudo-participation
b. Budgeting games
c. Budget slack
d. The participation method

123. _________ occur(s) when subordinates ask for excess resources above and beyond what
they need to accomplish budget objectives.
a. Pseudo participation
b. Effective budgeting
c. Budget slack
d. Participative budgeting

124. The BEST description of participative budgeting is that:


a. lower-level managers and employees initially prepare the budget
b. managers and employees at many levels are involved with the budgeting process
c. the budget is prepared by the top managers
d. top management sets figures for all operating activities and these amounts are not
negotiable

AKY 4E Test Bank Chapter 10 Page 20 Schoenebeck


AKY 4E Test Bank Chapter 10 Page 21 Schoenebeck