Topic 3 Budgets: Control Purpose

1. A budget serves as a benchmark against which:

A. actual results can be compared.
B. allocated results can be compared.
C. actual results become inconsequential.
D. allocated results become inconsequential.
E. cash balances can be compared to expense totals.
2. The difference between the revenue or cost projection that a person provides, and a
realistic estimate of the revenue or cost, is called:
A. passing the buck.
B. budgetary slack.
C. false budgeting.
D. participative budgeting.
E. resource allocation processing.
3. People create budgetary slack because:
A. Their performance will look better if they beat the budget.
B. There is no incentive to provide accurate forecasts.
C. It helps them cope with uncertainty.
D. They believe their budget requests will be cut.
E. All of the above.
4. The budget is:
A. a short-term plan.
B. more detailed than a strategic plan.
C. not influenced by strategic decisions.
D. a short-term plan AND more detailed than
E. None of the above.

a strategic plan.

5. The starting point in developing budget guidelines is the firm's:

A. short-term goals.
B. long-term goals.
C. strategy.
D. resources available for the period.
E. Strengths and weaknesses.

6. The purposes of a budget include:

A. Planning and forecasting
B. Facilitating communication and coordination
C. Controlling profit and operations, and evaluating performance and providing
incentives
D. Resource allocation
E. All of the above
7. The authorization function of budgets is especially important for government and notfor-profit organizations where budgeted amounts often serve both as approvals of
activities and as:
A.
measures of quality.
B.
indicators of performance.
C.
certification of action.
D.
ceilings for expenditures.
E.
All of the above answers are correct.
8. Suppose that the sales manager deliberately underestimates the level of sales activity
by 10 000 units. What is this practice called?
A. Budgetary participation
B. Appropriate caution
C. Budgetary slack
D. Allowance for uncertainty
9. A "participative" budget is a:
A. good communication device.
B. poor communication device.
C. "top down" approach.
D. "bottom up" approach.
E. Answer A and D are both correct.