CHIANG KAI SHEK COLLEGE 2

NAME SCORE 5. A budget should/can do all of the following EXCEPT (M1)

COURSE/YEAR
Multiple Choice. Choose the best answer. Write your letter choice in CAPITAL LETTER in the
answer sheet provided above. No erasures allowed.
Planning & Budgeting Process
1. Each organization plans and budgets its operations for slightly different reasons. Which one of
the following is not a significant reason for planning? (M2)
A. Ensuring profitable operations.
B. Providing a basis for controlling operations.
C. Checking progress toward the objectives of the organization. CMA 0691
D. Forcing managers to consider expected future trends and conditions.
2. When an organization prepares a forecast, it: (M1*)
A. consolidates the plans of the separate requests into one overall plan
B. classifies budget requests by activity and estimates the benefits arising from each activity
C. presents a statement of expectations for a period of time but does not present a firm
commitment
D. presents the plan for a range of activity so that the plan can be adjusted for changes in
activity levels
E. divides the activities of individual responsibility centers into a series of packages that are
ranked ordinally CMA adapted
3. One of the primary advantages of budgeting is that it (M2)
A. bases the profit plan on estimates.
B. is continually adapted to fit changing circumstances.
C. does not take the place of management and administration.
D. requires departmental managers to make plans in conjunction with the plans of other
interdependent departments. CIA 0590
4. When developing a budget, an external factor to consider in the planning process is (E*)
A. new product development.
B. the merger of two competitors. CMA 0697
C. the implementation of a new bonus program.
D. a change to a decentralized management system.
A. help management allocate limited resources. Horngren
B. be adjusted if new opportunities become available during the year.
C. become the performance standard against which firms can compare the actual results.
D. be prepared by managers from different functional areas working independently of each
other.
6. Which one of the following best describes the role of top management in the budgeting
process? Top management (E)
A. should be involved only in the approval process.
B. needs to be involved, including using the budget process to communicate goals.
C. lacks the detailed knowledge of the daily operations and should limit their involvement.
D. needs to separate the budgeting process and the business planning process into two
separate processes. CMA 0697
7. The primary role of the budget committee is to: (M2)
A. force the final profit plan to conform to top-management goals
B. justify the budget to the executive committee of the board of directors
C. decide on general policies, compile the budget, and manage the budget process
D. settle disputes among operating executives during the development of the annual
operating plan
E. develop the annual profit plan by selecting the alternatives to be adopted from the
suggestions submitted by the various operating segments CMA adapted
8. When budgets are used for performance evaluation and to set limits on spending, the process
will often result in departments adding something “extra” to insure the budgets will be met.
This “extra” is (E)
A. budgetary slack. C. management by objectives.
B. continuous budgeting. D. strategic planning. CMA 1295
9. The budgets that are based on a very high levels of performance, like expected costs using
ideal standards, (E)
A. can lead to low levels of performance.
B. assist in planning the operations of the company.
C. are helpful in evaluating the performance of managers.
D. motivate people to perform better than they ordinarily would. Bobadilla

Quiz No. 9 Page 1 of 4

CHIANG KAI SHEK COLLEGE 2

10. The major disadvantage of a top-down budgeting process is (E**)
A. the introduction of budgetary slack.
B. inconsistencies of goals with strategic plans.
C. lack of involvement by upper-level management.
D. lack of buy-in by middle and lower-level management. CMA
11. Which of the following statements is true? (E)
A. An imposed budget is the same as a participative budget.
B. Top level support is necessary to achieve budget participation. RPCPA 0580
C. Preparation of the budget would be the accountant’s responsibility.
D. Participation in the budgetary process should be limited to certain levels of management.
Budgeting Methodologies
12. Which of the following is true of activity-based budgeting (ABB)? (M2)
A. ABB uses only activity-based cost drivers; fixed and variable costs are kept in separate
cost pools.
B. ABB uses only activity-based cost drivers; fixed and variable costs are grouped together
in cost pools.
C. ABB uses both volume-based and activity-based cost drivers; fixed and variable costs are
kept in separate cost pools.
D. ABB uses both volume-based and activity-based cost drivers; fixed and variable costs are
grouped together in cost pools. CMA
13. The type of budget that is available on a continuous basis for a specified future period -- by
adding a month, quarter, or year in the future as the month, quarter, or year just ended is
dropped -- is called a(n) (E)
A. Activity-based budget. C. Kaizen budget.
B. Flexible budget. D. Rolling budget. CMA 0205
16. A method of budgeting in which the cost of each program must be justified every year is called:
(E**)
A. continuous budgeting. C. responsibility accounting.
B. operational budgeting. D. zero-based budgeting. CMA adapted
Operating Budgets
17. Which of the following is the correct order of preparing operating budgets? (M2*)
A. Sales budget, production budget, product cost budgets (including direct materials, direct
labor, and factory overhead budgets), and cost of goods sold budget
B. Sales budget, cost of goods sold budget, production budget, and product costs budgets
(including direct materials, direct labor, and factory overhead budgets)
C. Production budget, product cost budget (including direct materials, direct labor, and
factory overhead budgets), sales budget, and cost of goods sold budget
D. Production budget, product cost budget (including direct materials, direct labor, and
factory overhead budgets), cost of goods sold budget, and sales budget CMA
18. The first step in the sales planning process is to: (D)
A. Assemble all the data that are relevant in developing a comprehensive sales plan.
B. Apply management evaluation and judgment to develop a comprehensive sales plan.
C. Prepare a sales forecast consistent with specified forecasting guidelines, including
assumptions.
D. Develop management guidelines specific to sales planning, including the sales planning
process and planning responsibilities. Becker 2009
19. Which one of the following is a sales forecasting technique that can be utilized in preparing the
annual profit plan? (D)
A. Exponential smoothing. C. Queuing theory.
B. Linear programming. D. Standard costing. CMA 1289, 1294

14. Which of the following budgeting systems focuses on improving operations? (E) 20. The budget that is usually the most difficult to forecast is the (E)
A. Activity-based budgeting. C. Operational budgeting. A. expense budget. C. production budget.
B. Kaizen budgeting. D. Responsibility budgeting. Wiley 2012 B. manufacturing overhead budget. D. sales budget. CMA 0692
21. Which of the following legislative actions is likely to cause a maker of auto part to revise its
15. The budgeting tool or process in which estimates of revenues and expenses are prepared for
sales forecast upward? (D)
each product beginning with the product’s research and development phase and traced
A. Making repairs of personal autos tax deductible.
through to its customer support phase is a(n) (M1)
B. Raising the import quotas for foreign car makers. L&H
A. activity-based budget. C. master budget.
C. Requiring that new license plates be purchased semiannually rather than annually.
B. life-cycle budget. D. zero-base budget. CMA 0696
D. Prohibiting auto makers from giving warranties on new cars for more than one year.
Quiz No. 9 Page 2 of 4
CHIANG KAI SHEK COLLEGE 2

22. A production plan should be based on (E) 27. All of the following are part of a capital investment budget except (E*)
A. linear regression. CMA 1289 A. factory machine purchase price. CMA
B. exponential smoothing. B. research and development costs.
C. economic order quantities and reorder points. C. installation of the factory machine.
D. a sales forecast adjusted for projected inventory levels. D. cost of disposing of old machine being replaced.

23. The number of units in the sales budget and the production budget may differ because of a 28. Which of the following is LEAST likely to affect a cash budget for the period January through
change in (E**) December, 20x2? (E)
A. direct material inventory levels. C. overhead charges. A. The interest rate on short-term loans increases.
B. finished goods inventory levels. D. sales returns and allowances. Horngren B. The company increases its minimum desired cash balance.
C. The company changes payment periods on accounts payable.
24. Which of the following correctly describes the materials purchase budget calculation? (E**) D. The company switches from straight-line depreciation to sum-of-the-years’-digits
A. (Sales forecast (in units) x direct materials per unit x direct materials cost) + beginning depreciation. L&H
direct materials inventory - desired ending direct materials inventory
B. (Sales forecast (in units) x direct materials per unit x direct materials cost) + desired 29. Which one of the following items would have to be included for a company preparing a
ending direct materials inventory - beginning direct materials inventory schedule of cash receipts and disbursements for Calendar Year 1? (M1**)
C. (Number of units to be produced x direct materials per unit x direct materials cost) + A. The amount of uncollectible customer accounts for Year 1.
beginning direct materials inventory - desired ending direct materials inventory B. A purchase order issued in December Year 1 for items to be delivered in February Year 2.
D. (Number of units to be produced x direct materials per unit x direct materials cost) + C. Dividends declared in November Year 1 to be paid in January Year 2 to shareholders of
desired ending direct materials inventory - beginning direct materials inventory CMA record as of December Year 1.
D. The borrowing of funds from a bank on a note payable taken out in June Year 1 with an
25. Adams Manufacturing, Inc. produces farm tractors. The details of its budgeted cost of goods agreement to pay the principal and interest in June Year 2. CMA 1296
manufactured schedule should come from which of the following schedules? (E)
A. Purchases, raw material, work-in-process, and finished goods. CMA 0691 30. The primary reason that managers impose a minimum cash balance in the cash budget is
B. Cost of goods sold plus or minus the change planned in finished goods. (M1*)
C. Direct materials used, direct labor, manufacturing overhead, and work-in-process. A. managers lack discipline to control their spending.
D. Purchases, direct labor, manufacturing overhead, finished goods, and work-in-process. B. that it makes the financial statements look more appealing to creditors.
C. that it protects the organization from the uncertainty of the budgeting process. Barfield
Financial Budget D. because management needs discretionary cash for unforeseen business opportunities.
26. Many companies use comprehensive budgeting in planning for the next year’s activities. When
both an operating budget and a financial budget are prepared, which one of the following is Pro Forma Financial Statements
correct concerning the financial budget? (E) 31. If a company is earning a profit, its (D) L&H
CMA 0408 Included in the Financial Budget A. inventory is increasing. C. might have to borrow money.
Capital Budget Pro-forma Balance Sheet Cash Budget B. cash balance is increasing. D. monthly cash disbursements will be stable.
A. No No No
B. No Yes No 32. The budgeted cost of products to be sold in a future period would be found in the (D*)
C. Yes No Yes A. pro forma income statement. C. purchases budget.
D. Yes Yes Yes B. production budget. D. sales budget. Barfield

Quiz No. 9 Page 3 of 4

CHIANG KAI SHEK COLLEGE 2

33. Of the following items, the one item that would not be considered in evaluating the adequacy 38. The budgeting process should be one that motivates managers and employees to work toward
of the budgeted annual operating income for a company is (D) organizational goals. Which one of the following is least likely to motivate managers? (M1**)
A. Earnings per share. C. Internal rate of return. A. Use of management by exception.
B. Industry average for earnings on sales. D. Price-earnings ratio. CMA 1294 B. Having top management set budget levels.
C. Participation by subordinates in the budgetary process.
Sensitivity Analysis D. Holding subordinates accountable for the items they control. CMA1296
34. When performing a sensitivity analysis, if the selling price per unit is increased, then the (E**)
A. total volume of sales will increase. 39. About which of the following are the vice presidents of finance, manufacturing, and sales most
B. per unit fixed administrative costs will increase. likely to have conflicting views? (M2*)
C. per unit direct materials purchase price will increase. Horngren A. The company’s depreciation policy. C. The company’s inventory policy.
D. total costs for sales commissions and other nonmanufacturing variable costs will increase. B. The company’s desired minimum cash. D. The company’s pricing policy. L&H

35. Ball Company has a policy of maintaining an inventory of finished goods equal to 30 percent of
the following month's sales. For the forthcoming month of March, Ball has budgeted the
beginning inventory at 30,000 units and the ending inventory at 33,000 units. This suggests
that (E*)
A. March sales are budgeted at 3,000 units less than April sales.
B. March sales are budgeted at 10,000 units less than April sales.
C. February sales are budgeted at 3,000 units less than March sales.
D. February sales are budgeted at 10,000 units less than March sales. Barfield
Comprehensive
40. Which of the following is true of budgets? (M1**)
A. Weekly reports on the cash balance are not needed.
B. The cash budget is not affected by the capital budget.
C. The item most likely to be prepared last is the pro forma balance sheet. L&H
D. The accounting department should prepare all budgets, with managers of operating
departments later giving them careful review and criticism.

36. If a company produces the same quantity of product each month, even though its sales Answer Sheet
fluctuate, (E**) 1. A 11. B 21. A 31. C
A. it will have fluctuating inventories.
B. its cash collections will be relatively stable. 2. C 12. C 22. D 32. A
C. its cash disbursements will fluctuate widely. 3. D 13. D 23. B 33. C
D. it will not need to borrow money as often as it would if it tied production to sales. L&H
4. B 14. B 24. D 34. D
37. The amount of raw material purchased in a period may be different than the amount of
material used that period because (M2*) 5. D 15. B 25. C 35. B
A. finished goods inventory may fluctuate during the period. 6. B 16. D 26. D 36. A
B. companies often pay for material in the period after it is purchased.
C. the raw material inventory may increase/decrease during the period. 7. C 17. A 27. B 37. C
D. the number of units sold may be different from the number of units produced. Barfield
8. A 18. D 28. D 38. B
9. A 19. A 29. D 39. C
10. D 20. D 30. C 40. C

Quiz No. 9 Page 4 of 4