Question 1

Budgeting and long-range planning differ in the emphasis and the time period involved.

Accepted Answer

Budgeting focuses on short-term financial plans, typically for one year, and is focused on achieving specific goals and objectives. Long-range planning, on the other hand, focuses on strategic planning for multiple years into the future and is intended to ensure the organization is on track to achieve its long-term goals.

Question 2

Budgets promote efficiency and serve as a deterrent to waste.

Accepted Answer

Budgets provide a clear outline of financial goals and limits, which encourages individuals and organizations to use resources more efficiently and avoid unnecessary expenses. Knowing that there is a limited amount of funds available often serves as a deterrent to overspending or wasting resources.

Question 3

Upper level managers are responsible for preparing the entire budget.

Accepted Answer

Upper level managers typically oversee the budget process and approve the final budget, but the preparation involves input from various departments and lower-level managers.

Question 4

A budget is more beneficial if accepted by lower level management.

Accepted Answer

Lower level management is usually more involved in day-to-day operations and can more accurately assess the costs and resources needed for a budget to be successful. When they are involved in the budgeting process, they are more likely to feel ownership and accountability for achieving the budget goals, leading to greater motivation and success in implementing the budget plan.

Question 5

A budget facilitates coordination of activities within the business but is a poor tool for evaluating performance.

Accepted Answer

A budget is designed to not only facilitate coordination of activities but also to evaluate performance by comparing actual results with budgeted targets. This comparison helps managers identify areas of the business where performance is satisfactory and areas where performance needs improvement.

Question 6

The master budget consists of a plan of action for a specified time period.

Accepted Answer

The statement is true. The master budget is a comprehensive financial plan that sets out the expected outcomes and results of an organization's activities over a specified period of time. It typically consists of several different budgets, including the sales budget, production budget, and cash budget, all of which are integrated into a single cohesive plan. The master budget is an essential tool for managing an organization's resources and achieving its strategic goals and objectives.

Question 7

The last step in the budgeting process is developing a sales forecast.

Accepted Answer

The last step in the budgeting process is typically creating a cash budget, which is used to plan for the inflow and outflow of money. Developing a sales forecast would likely occur earlier in the budgeting process.

Question 8

The shorter the budget period, the more reliable the estimates of future outcomes.

Accepted Answer

Shorter budget periods allow for more accurate forecasting as they involve less uncertainty and are easier to predict. Additionally, shorter periods enable organizations to be more agile and adjust their strategies and budgets more frequently based on current market trends and performance.

Question 9

A budget can be a means of communicating a company's objectives to external parties.

Accepted Answer

The answer of A budget can be a means of...

Question 10

Budgets, by their very nature, create a negative effect on human behaviour within companies because they imply that management is trying to control.

Accepted Answer

Budgets are tools for planning and control, but they do not inherently create negative effects. Their impact on behavior depends on how they are implemented and perceived within the company.

Question 11

Budgets represent management's plans in financial terms.

Accepted Answer

Budgets are financial plans developed by management which represent the organization's goals and objectives in monetary terms.

Question 12

Long-range plans reflect management's long-term plans encompassing five years or more.

Accepted Answer

Long-range plans usually cover a period of five years or more, reflecting a company's long-term goals and strategies.

Question 13

The production budget must be completed before the materials purchases budget because the number of units to be produced must be known to determine how much material to buy.

Accepted Answer

The production budget determines the number of units to be produced, which is then used to calculate the materials purchases budget. Therefore, the production budget must be completed before the materials purchases budget.

Question 14

Operating budgets must be completed before the financial budgets can be prepared.

Accepted Answer

Operating budgets calculate the projected income and expenses for a specific period of time, which provides the basis for creating the financial budgets such as cash flow, capital expenditures, and balance sheets. Consequently, the operating budgets should be finished before creating other financial budgets.

Question 15

Long-range plans are used primarily as an evaluation of specific results to be achieved.

Accepted Answer

Long-range plans are used to set goals and identify strategies and resources needed to achieve those goals, rather than simply to evaluate specific results.

Question 16

A budget committee coordinates the budget activities of a company.

Accepted Answer

A budget committee is responsible for organizing and overseeing the budgeting process of a company, including developing, monitoring, and adjusting budgets.

Question 17

The budget itself and the administration of the budget are the responsibility of management.

Accepted Answer

The budget and its administration are key functions of management. The management team is responsible for developing the budget, monitoring actual results against budgeted amounts, and making any necessary adjustments to stay on track.

Question 18

The flow of input data for budgeting should be from the lowest levels of responsibility to the highest level.

Accepted Answer

This ensures that those who are directly involved in carrying out the budgeted activities have a say in the setting of their budget, and that their input is considered by higher-level managers responsible for overall budget decisions.

Question 19

A sales budget should be prepared before the production budget.

Accepted Answer

A sales budget outlines the expected sales revenue for a specific period, and this information is needed in order to plan the production budget. Therefore, a sales budget should be prepared before the production budget.

Question 20

The most common budget period is one year.

Accepted Answer

The most common budget period is indeed one year. However, there are budget periods that can be shorter or longer depending on the organization's needs and goals.

Quiz 10: Budgetary Planning