Basic Concepts

1. The concept of “management by exception” refers to management’s consideration of

A. only those items that vary materially from expectations.
B. only rare events.
C. samples selected at random.
D. only significant unfavorable deviations.

8. A formal written statement of management’s plans for the future, packaged in financial terms, is a:
A. Responsibility report. C. Cost of production report.
B. Performance report. D. Budget.

2. Budgets are related to which of the following management functions?

A. Planning C. Control
B. Performance evaluation D. all of these

22. Budgeting supports the planning process by encouraging all of the following activities except:
A. Requiring all organizational units to establish their goals for the coming period.
B. Increasing the motivation of managers and employees by providing agreed-upon expectations.
C. Improving overall decision making by considering all viewpoints, options, and cost control programs.
D. Directing and coordinating operations during the period.

3. Which of the following advantages does a budget mostly provide?

A. Coordination is increased.
B. Planning is emphasized.
C. Communication is continuous.
D. Comparison of actual versus budgeted data.

24. Which of the following is NOT an advantage of budgeting?

A. It forces managers to plan.
B. It provides resource information that can be used to improve decision making.
C. It aids in the use of resources and employees by setting a benchmark that can be used for the
subsequent evaluation of performance.
D. It provides organizational independence.

4. Which of the following is least likely a reason why a company prepares its budget?
A. To provide a basis for comparison of actual performance
B. To communicate the company’s plans throughout the entire business organization
C. To control income and expenditure in a particular period.
D. To make sure the company expands its operations.

5. Which of the following does not contribute to an effective budgeting?

A. Top management is involved in budgeting.
B. To give each manager a free hand in the preparation of the budget, the data within the master budget are
flexible.
C. The organization is divided into responsibility units.
D. There is communication of results.

6. The budgets that are based on a very high levels of performance, like expected costs using ideal standards,
A. assist in planning the operations of the company
B. stimulate people to perform better than they ordinarily would
C. are helpful in evaluating the performance of managers
 D. can lead to low levels of performance

7. Which of the following statements is incorrect?

A. An imposed budget is the same as a participative budget.
B. Preparation of the budget would be the responsibility of each responsibility unit.
C. Top management’s support is necessary to promote budget participation.
D. The top management should review and approve each responsibility unit’s budget.

9. The primary role of the budget director and the budgeting department is to
A. Settle disputes among operating executives during the development of the annual operating plan.
B. Develop the annual profit plan by selecting the alternatives to be adopted form the suggestions submitted
by the various operating segments.
C. Compile the budget and manage the budget process.
D. Justify the budget to the corporate planning committee of the board of directors.

10. The primary variable affecting active participation and commitment to the budget and the control system is
A. Management efforts to achieve the budget rather than optimize results.