Question 1

aq.si.bud.007_1802
Which of the following is not a characteristic of successful budgeting?
The budget represents forecasts of external and internal factors.
The budget should guide the strategy of the company.
The budget clearly connects to and supports the organization's strategy.
The budget should be motivating for everyone in the organization.
This Answer is Correct
Spending money and investing resources represents the organization's
strategy. Effective budgeting should focus on spending and investing that
clearly ties to the organization's strategic objectives. Budgeting is the natural
translation of strategy into quantifiable terms. Budgeting does not guide the
strategy of the company, but represents the strategy of the company.
Question 2
1B2-W007
How is strategic analysis related to budget development?
Strategic analysis establishes targets for all departments and lists the methods to achieve them.
Strategic analysis provides a detailed and precise estimate about the future which helps an
organization accurately determine resource requirements.
Strategic analysis matches the capabilities of an organization with available marketplace
opportunities to determine the goals of objectives for a particular period.
Strategic analysis determines the overall financial requirements of an organization and also
helps to procure funds at a lower cost.
This Answer is Correct
A prerequisite for budget development is a strategic analysis that matches an
entity's capabilities with available marketplace opportunities. Strategy
addresses the objectives of the organization; locates potential markets;
considers the impact of events, competitors, and the economy; addresses the
structure of the organization; and evaluates the risks of alternative strategies.
Question 3
1B2-AT16
Kallert Manufacturing currently uses the company's budget only as a planning
tool. Management has decided that it would be beneficial to also use budgets
for control purposes. In order to implement this change, the management
accountant must:
synchronize the budgeting and accounting system with the organizational structure.
organize a budget committee.
develop forecasting procedures.
appoint a budget director.
You Answered Correctly!
Control is the process of monitoring the actions of those responsible for
executing the plan, measuring the actions against the plan, and making the
necessary corrections to the actions and/or the plan. Synchronizing the
budgeting and accounting system with the organizational structure would
allow management to use budgets for control purposes.
Question 4
1B2-W003
Which of the following best describes the function of strategic analysis?
Successful strategic analysis is possible with the help of effective budgets as the actual
capacity of an organization can be determined by the variances from budgets.
Strategic analysis is the basis for short-term planning, whereas for long-term planning, the
expertise of management personnel is required for development of budgets.
Strategy addresses the objectives of an organization and evaluates the risks of alternative
strategies.
Strategic analysis calculates the impact of events that led to failure of a budget.
You Answered Correctly!
Strategy addresses the objectives of the organization and evaluates the risks
of alternative strategies.
Question 5
tb.si.bud.028_1809
Which of the following statements concerning budgeting is not correct?
Short-term budgets can be useful in helping to meet long-term strategic objectives even
though they involve different time periods.
Short-term budgets can be useful in helping to meet long-term strategic objectives since short-
term goals can be thought of as milestones toward achieving long-term strategic objectives.
Short-term budgets are useful in helping to meet long-term strategic objectives even though
short-term budgets are related to operational tactics, not strategic objectives.
Short-term budgets can be useful in helping to meet long-term strategic objectives since short-
term goals are typically the same things as long-term strategic objectives.
You Answered Correctly!
Correct. Short-term budgets typically involve operational tactics, not strategic
objectives. Implementing operational tactics should enable the organization
to achieve long-term objectives. While short-term goals are related to
strategic objectives, they are not the same things.
Question 6
aq.si.bud.008_1802
The board of directors of Edith Research Group has prepared the budget for
the next quarter and decided to review the company's performance after
each quarter. At the end of the first quarter, the variances of actual
performance from the budgets were examined and the reasons for the same
were recorded. The company also collected feedback from the employees on
the improvements of budget. Identify the flaw, if any, in the budget cycle of
Edith Research Group.
The company is not revising the plans according to the feedback of employees.
The company is not taking corrective actions to reduce the variance.
The budget is not used by the company to test current results against expectations.
There are no flaws in the given budget.
This Answer is Correct
In a budget cycle, when variance from a budget is discovered, it should be
examined and corrective actions should be taken when possible.
Question 7
1B2-W025
Francisco Corp. is in the business of manufacturing plastic bottles. In the
current quarter, $100,000 was provided for materials procurement and
10,000 bottles were produced against a budgeted production of 8,500 bottles.
However, the extra production of 1,500 bottles had to be sold immediately at
a price lower than the market price. Identify the most likely flaw in the budget
prepared by Francisco Corp. which led to a sale at lower prices.
The sale price was overestimated.
The storage capacity required was underestimated.
The funds allocated were not adequate.
The production capacity was underestimated.
This Answer is Correct
Due to a lack of storage space, the extra production of bottles had to be sold
immediately at a lower price.
Question 8
tb.si.bud.009_1805
A budget that is based on research and analysis will likely result in a budget
that has which characteristic?
It has too much budgetary slack.
Lower-level management believes it contains unreachable goals.
It can predict market returns.
It closely represents the company's actual cash flow.
This Answer is Correct
Conducting research and analysis will most likely yield realistic information
about a company's opportunities, operations, and industry. Basing a budget
on realistic information will likely result in a budget that closely represents the
company's actual cash flow. Therefore, this is the correct answer.
Question 9
1B2-AT20
Which one of the following is generally not cited as being an advantage of a
formal budgetary process?
It provides management with a means of dealing with uncertainty.
It serves as a coordination and communication device between management and subordinates.
It forces management to evaluate the reasonableness of assumptions used and goals identified
in the budgetary process.
It ensures improved cost control within the organization and prevents inefficiencies.
This Answer is Correct
A formal budgetary process does not ensure improved cost control within the
organization nor does it necessarily prevent inefficiencies. The formal process
is merely a tool that moves the organization in the directions of improved cost
control and efficiency.
Question 10
tb.si.bud.012_1805
A managerial accounting team is working with a production manager to
determine the cause of unexpected production delays. Based on the analysis,
the manager is able to revise the production process, thus avoiding future
delays. This is an example of how managerial accounting does which of the
following?
Ensures compliance with GAAP
 Helps a manager control the company
Helps the company meet legal requirements
Assists with financial reporting
This Answer is Correct
Controlling a company's activities entails determining whether a company's
actual performance is consistent with its budgeted performance. Analyzing
data and revising a production process based on the analysis is one example
of how managerial accounting helps managers control a company's activities.
Therefore, this is the correct answer.
Question 11
tb.si.bud.013_1805
As an accountant, you were asked to collect financial data for the past three
years from the sales, production, research, and marketing departments.
Based on this information, at what point is the company in its budgeting
process?
In the middle
At the end
At the beginning
At the comparative
stage.
This Answer is Correct
To build an accurate and useful budget requires information from all aspects
of an organization's operations. This information is most useful at the
beginning of the budgeting process as it will be used to establish basic
assumptions that will form the budget's foundation. Collecting financial data
for the past three years from the sales, production, research, and marketing
departments should yield information that can be used at the beginning of
the budget process to establish basic assumptions that will form the budget's
foundation. Therefore, this is the correct answer.
Question 12
1B2-AT05
The process of creating a formal plan and translating goals into a quantitative
format is:
process costing.
budgeting.
activity-based
costing.
job order costing.
This Answer is Correct
A budget is a plan expressed in dollar terms.
Question 13
tb.si.bud.005_1805
If a company planned on creating a more realistic budget, which approach
could it follow?
Top-down approach
Incremental approach
Strategic approach
 Bottom-up approach
This Answer is Correct
To create a realistic budget, a company needs to have realistic information
about its operations and industry. The best source for this information is likely
the people heavily involved in the day-to-day operations. A bottom-up
approach to budgeting means information from the lower levels of a
company, the bottom, is shared with higher levels, the top. This is the
approach most likely to create a more realistic budget. Therefore, this is the
correct answer.
Question 14
1C1-AT01
Richmond Enterprises is reviewing its policies and procedures in an effort to
enhance goal congruence throughout the organization. The processes that
are most likely to encourage this behavior are:
cost-based transfer pricing, imposed budgeting, and activity-based costing.
participatory budgeting, reciprocal cost allocation, and management-by-objective performance
evaluation.
management-by-objective performance (MBO) evaluation and participatory budgeting.
reciprocal cost allocation, zero-base budgeting, and standard costing.
This Answer is Correct
Goal congruence is enhanced by lower management participation in
budgeting and by MBO. MBO identifies managers' areas of responsibility and
ties performance measurements to the areas. It pushes responsibilities for
meeting goals and objectives down to the lowest possible management levels
and encourages participation.
Question 15
tb.si.bud.024_1805
Which of the following is an example of using budgets to measure
performance against established goals?
Comparing actual travel costs in the current year to budgeted travel costs for the current year
Comparing actual sales revenue in the current year to a competitor's actual sales revenue for
the current year
Comparing actual units produced in the current year to actual units produced for the previous
year
Comparing actual sales revenue in the current year to actual sales revenue for the previous
year
You Answered Correctly!
Budgets express quantitatively how an organization plans to achieve its short-
term and long-term goals. An organization can compare actual results relative
to these goals to gauge performance toward achieving these goals.
Comparing actual travel costs in the current year to budgeted travel costs for
the current year is an example of using budgets to measure performance
against established goals because budgeted travel costs for the current year
is a goal established in the budget; therefore, this is the correct answer.
Question 16
tb.si.bud.022_1805
Which of the following is not an example of using budgets to measure
performance against established goals?
Comparing actual units produced in the current year to budgeted units produced for the current
year
Comparing actual units produced in the current year to actual units produced for the previous
year
Comparing actual hours worked in the current year to budgeted hours worked for the current
year
Comparing actual warranty costs in the current year to budgeted warranty costs for the current
year
This Answer is Correct
Budgets express quantitatively how an organization plans to achieve its short-
term and long-term goals. An organization can compare actual results relative
to these goals to gauge performance toward achieving these goals.
Comparing actual units produced in the current year to actual units produced
for the previous year is not an example of using budgets to measure
performance against established goals because actual units produced for the
previous year is not a goal established in the budget; therefore, this is the
correct answer.
Question 17
tb.si.bud.023_1805
Which of the following is not an example of using budgets to measure
performance against established goals?
Comparing actual travel costs in the current year to budgeted travel costs for the current year
Comparing actual sales revenue in the current year to a competitor's actual sales revenue for
the current year
Comparing actual administrative costs in the current year to budgeted administrative costs for
the current year
Comparing actual material purchases in the current year to budgeted material purchases for the
current year
This Answer is Correct
Budgets express quantitatively how an organization plans to achieve its short-
term and long-term goals. An organization can compare actual results relative
to these goals to gauge performance toward achieving these goals.
Comparing actual sales revenue in the current year to a competitor's actual
sales revenue for the current year is not an example of using budgets to
measure performance against established goals because a competitor's
actual sales revenue for the current year is not a goal established in the
budget; therefore, this is the correct answer.
Question 18
tb.si.bud.003_1805
Why is budgetary planning useful for an organization?
It enables the organization to meet its projected earnings every quarter.
It enables the organization to recognize opportunities for growth and expansion and identify
how to best use its resources.
It results in the lowest levels of inventory in the industry.
It expands its access to equity markets at low cost.
This Answer is Correct
Budgetary planning can provide an organization with many benefits. In
general, budgeting can help an organization implement its strategic plan,
plan its operations, and ensure that adequate cash is available. More
specifically, benefits include helping an organization identify the best uses of
limited resources and identify opportunities for growth and expansion.
Therefore, this is the correct answer.
Question 19
tb.si.bud.021_1805
Which of the following is not an example of using budgets to measure
performance against established goals?
Comparing actual sales revenue in the current year to budgeted sales revenue for the current
year
Comparing actual sales revenue in the current year to actual sales revenue for the previous
year
Comparing actual material costs in the current year to budgeted material costs for the current
year
Comparing actual labor costs in the current year to budgeted labor costs for the current year
You Answered Correctly!
Budgets express quantitatively how an organization plans to achieve its short-
term and long-term goals. An organization can compare actual results relative
to these goals to gauge performance toward achieving these goals.
Comparing actual sales revenue in the current year to actual sales revenue
for the previous year is not an example of using budgets to measure
performance against established goals because actual sales revenue for the
previous year is not a goal established in the budget; therefore, this is the
correct answer.
Question 20
tb.si.bud.020_1805
Which of the following statements concerning budgeting is not correct?
Organizations can measure actual results relative to short-term goals established in budgets to
gauge performance toward achieving those goals.
Organizations can measure actual results relative to long-term goals established in budgets to
gauge performance toward achieving those goals.
A variance represents the difference between actual performance and budgeted performance.
Variance analysis is appropriate at the end of an accounting period to assess performance but
not appropriate during an accounting period to assess performance.
This Answer is Correct
Budgets express quantitatively how an organization plans to achieve its short-
term and long-term goals. An organization can compare actual results relative
to these goals to gauge performance toward achieving these goals. The
difference between actual performance and budgeted performance is known
as a variance. Information on variances can be used at the end of an
accounting period and during an accounting period to make adjustments to
processes. In fact, making changes during a period is preferable to waiting
until the end of a period to make changes as it is too late to improve
performance for that period once the period is over; therefore, this is the
correct answer.
Question 21
1B5-LS23
Which of the following is not a quality of a direct labor budget?
A direct labor budget can smooth out production over the year to keep work force size
consistent.
A direct labor budget allows firms with unions to notify the union before changes are needed.
A direct labor budget can be broken down into fixed and variable direct labor.
A direct labor budget can be broken down by categories such as semiskilled, unskilled, and
skilled.
This Answer is Correct
Direct labor budgets are not broken down into fixed and variable direct labor
because all direct labor is variable.
Question 22
tb.si.bud.015_1805
Madison is the CEO of a large company. He has always produced the master
budget with the help of the CFO. As his company has grown, his employees
and managers seem more resistant to adhering to the budget. What would
you suggest to help Madison's company have an effective budget?
Madison should employ a bottom-to-top approach in planning the budget.
Madison should use research and analysis to help plan the budget.
Madison should prepare a continuous budget rather than a static budget.
Madison should begin his budget planning with the most recent sales forecasts.
This Answer is Correct
A bottom-to-top approach to planning a budget is one in which all levels of an
organization take part in developing a budget, not just the top levels. One
advantage of this process over a top-to-bottom process is that employees and
managers are more likely to “buy into” the budget and adhere to it because
they were involved in developing the budget. Since employees and managers
are not involved in developing a budget in a top-to-bottom process, they may
be less likely to “buy into” the budget and adhere to it. Therefore, this is the
correct answer.
Question 23
tb.si.bud.011_1805
A regional sales manager noticed a decrease in sales over the previous
month. The manager meets with the managerial accounting team, and based
on their analysis of the data, the manager makes adjustments in several
stores. The following month, regional sales are again meeting expectations.
This is an example of how managerial accounting helps managers do which of
the following?
Fulfill their responsibility to control the company's activities
Ensure the company is in compliance with GAAP
Fulfill their responsibility to plan the company's objectives
Prepare the company's income statements and tax returns
This Answer is Correct
Controlling a company's activities entails determining whether a company's
actual performance is consistent with its budgeted performance. Analyzing
data and adjusting performance based on the analysis is one example of how
managerial accounting helps managers control a company's activities.
Therefore, this is the correct answer.
Question 24
tb.si.bud.010_1805
Rowan Catering is a service company that employs 12 full-time chefs and 150
part-time servers. The company frequently caters 50 parties each week in a
large metro area; however, with the downturn in the economy, they have only
been averaging 28 parties per week. How will this affect their direct labor
budget?
Their direct labor budget will increase because they will be paying employees who have no
work to do.
Their direct labor budget will not be affected.
Their direct labor budget will increase, which means they will have to increase their prices to
pay their employees adequately.
Their direct labor budget will decrease, which means they will likely need to lay off some
employees.
This Answer is Correct
Direct labor is a variable cost, meaning that the total amount budgeted for
direct labor changes in direct proportion to changes in expected volume. As
the number of parties per week decreases, less direct labor will be needed.
This means the direct labor budget will decrease and some employees will
likely need to be laid off. Therefore, this is the correct answer.
Question 25
aq.si.bud.005_1802
Which of the following statements reflects specifically the given function of
planning process?
It provides insight into better ways to achieve goals that have already been established.
It promotes communication and coordination of efforts within an organization.
It compares the actual results for a period to the budgeted results for the period.
It allows the organization to communicate its goals to everyone in an organization.
This Answer is Correct
The planning process may generate new ideas for an organization's direction,
or it may provide insight into better ways to achieve goals that have already
been established.
Question 26
aq.si.bud.002_1802
Which of the following is not involved in the budget performance evaluation
process of an organization?
Using the insight gained to inform the planning stage for the next operational cycle
Analyzing results to understand why objectives were met or not
Rewarding performance
Resources are committed for the next operational cycle
This Answer is Correct
This is not a part of the budget performance evaluation process. This step will
take place in the planning process of the next operational cycle.
Question 27
tb.si.bud.019_1805
Which of the following statements concerning budgeting is correct?
Short-term budgets are not useful in helping to meet long-term strategic objectives since they
involve different time periods.
Short-term budgets can be useful in helping to meet long-term strategic objectives since short-
term goals can be thought of as milestones toward achieving long-term strategic objectives.
Short-term budgets are not useful in helping to meet long-term strategic objectives since short-
term budgets are related to operational tactics, not strategic objectives.
Short-term budgets can be useful in helping to meet long-term strategic objectives since short-
term goals are typically the same things as long-term strategic objectives.
You Answered Correctly!
Short-term budgets typically cover time periods of one year or less, while
strategic objectives typically cover time periods greater than one year. They
are still related despite the different time periods they cover as short-term
budgets should be based on short-term plans that will enable the organization
to achieve long-term objectives. The short-term goals can be thought of as
milestones toward achieving long-term strategic objectives; therefore, this is
the correct answer.
Question 28
tb.si.bud.026_1809
Which of the following statements concerning the role of budgets in
monitoring and controlling expenditures to meet strategic objectives is true?
If an organization's budget is aligned with its strategic objectives, monitoring and controlling
expenditures will help the organization achieve its objectives.
If an organization's budget is not aligned with its strategic objectives, monitoring and
controlling expenditures will help the organization achieve its objectives.
If an organization's budget is aligned with its strategic objectives, monitoring and controlling
expenditures will not help the organization achieve its objectives.
If an organization's budget is aligned with its strategic objectives, not monitoring and
controlling expenditures will help the organization achieve its objectives.
This Answer is Correct
Correct. Aligning an organization's budget to its strategic objectives is a best
practice that organizations should follow. This alignment helps increase the
likelihood of achieving strategic objectives as actions that will lead to
achieving these objectives will most likely receive adequate funding.
Monitoring and controlling these expenditures will likely increase the
probability of achieving these objectives since the monitoring and controlling
will ensure the funds are spent on the actions.
Question 29
tb.si.bud.014_1805
Michael was asked to collect the financial data from all the different
departments so that top management could determine if they met their
goals. At what point is the company in its budgeting process?
In the middle of the budgeting process.
At the end of the budgeting process.
At the beginning of the budgeting process.
At the end of the budget period.
This Answer is Correct
Collecting financial data from all the different departments so that top
management could determine if they met their goals is done at the end of a
budget period as actual performance is not known until the period is over.
This is an example of management performing control activities. Therefore,
this is the correct answer.
Question 30
tb.si.bud.008_1805
Which of the following is most likely to result in a budget that will closely
represent the company's actual cash flow?
A budget that is the same as the previous period's budget.
A budget that is identical to a competitor's budget
A budget based on research and analysis
A budget that is developed solely by company executives
This Answer is Correct
To create a realistic budget that will closely represent the company's actual
cash flow, a company needs to have realistic information about its
opportunities, operations, and industry. Conducting research and analysis is
the most likely way to obtain this information. Therefore, this is the correct
answer.
Question 31
tb.si.bud.007_1805
Budgets are:
Closely associated with the management function of directing
A deterrent to waste
Voted on and approved by shareholders
A guarantee for accomplishing the profit objective
You Answered Correctly!
Budgets can provide many benefits to an organization. One benefit is to
establish expectations and limits for spending. By establishing limits on
spending, the likelihood of wasteful spending is decreased. Therefore, this is
the correct answer.
Question 32
aq.si.bud.004_1802
Identify which of the following statements is most accurate in regard to
budgeting and strategy implementation:
Budgeting is entirely focused on long-term objectives. Long-term objectives and processes
must be constantly evaluated and adjusted to ensure alignment with the overall strategy.
Budgeting is entirely focused on short-term objectives, and is not involved in long-term
objectives. Short-term objectives and processes must be constantly evaluated and adjusted to
ensure alignment with the overall strategy.
Budgeting is focused on short-term objectives. Short-term objectives and processes must be
constantly evaluated and adjusted to ensure alignment with long-term objectives and the
organization's overall strategy.
Budgeting does not support short-term weekly objectives. Budgeting is more focused on
annual operating objectives.
This Answer is Correct
This statement is true.
Question 33
tb.si.bud.006_1805
As compared to a bottom-up budget, a top-down budget is ________.
less likely to be realistic
more likely to be realistic
less likely to employ an incremental approach
more likely to employ an incremental approach
You Answered Correctly!
A company needs to have realistic information about its operations and
industry to create a realistic budget. The best source for this information is
likely the people heavily involved in the company's day-to-day operations. A
bottom-up approach to budgeting means information from lower levels of a
company, the bottom, is shared with higher levels, the top. In a top-down
approach, the higher levels of a company create budgets that are then
distributed to the lower levels of the company to be implemented. Since
upper management is not likely to have the most realistic information about
operations and the industry, a top-down approach is less likely than a bottom-
up approach to create a more realistic budget. Therefore, this is the correct
answer.
Question 34
1B2-AT21
Which of the following refers to a quantitative expression of proposed
management actions for a set period of time?
Budgets.
Cost of goods manufactured statements.
Cost of goods sold statements.
Financial statements.
You Answered Correctly!
A budget is a plan, expressed in financial terms, and is for a set period of
time.
Question 35
tb.si.bud.016_1805
Jeremy is the CFO of a growing company. When the company was smaller,
Jeremy developed the master budget on his own with input from the CEO.
Now that the company is larger, he feels that both he and the CEO are too far
removed from the day-to-day operations to accurately develop a budget.
What would you suggest to help Jeremy develop an effective budget?
The company should allow lower-level managers to develop the budget without input from the
CFO and CEO.
The company should develop a budget committee to receive input from department managers
for their own portion of the budget.
The CFO and CEO should continue to develop the budget but include budgetary slack since
they do not keep up with day-to-day activities.
The CFO and CEO should use long-range planning rather than budgeting to develop company
goals because that is more effective for larger companies.
This Answer is Correct
In smaller companies the CFO and CEO often are able to develop budgets
effectively since they can be “close” to day-to-day operations. That is not
often the case as an organization grows. To get this information a company
can form a budget committee comprising managers from each department as
well as top executives. This committee receives input from department
managers concerning its activities and operations and then develops budgets
for the departments based on this information. The input the budget
committee receives increases the likelihood that the budget will be effective.
Therefore, this is the correct answer.
Question 36
tb.si.bud.001_1805
Budgets are a management tool used to do which of the following?
Maximize the company's stock price.
Maximize incentives paid out to employees and managers.
Minimize the company's costs.
Plan and control the direction of a company's operations.
You Answered Correctly!
A company uses budgets to allocate resources to different areas of the
company, ensure that sufficient resources are available, signal strategic
priorities, and establish performance expectations. Budgets enable a
company to plan and control the direction of the company's operations.
Therefore, this is the correct answer.
Question 37
1B4-LS14
All of the following are criticisms of the traditional budgeting process except
that it:

* Source: Retired ICMA CMA Exam Questions.

incorporates non-financial measures as well as financial measures into its output.
makes across-the-board cuts when early budget iterations show that planned expenses are too
high.
overemphasizes a fixed time horizon such as one year.
is not used until the end of the budget period to evaluate performance.
You Answered Correctly!
Many of the criticisms of the traditional budgeting process include: making
across-the-board cuts when early budget iterations show that planned
expenses are too high; overemphasizing a fixed time horizon such as one
year; and is not used until the end of the budget period to evaluate
performance. Traditional budgeting does not use non-financial measures.
Question 38
tb.si.bud.027_1809
Which of the following statements concerning economic and industry
conditions and the planning process is correct?
Economic conditions and industry conditions are both important factors for an organization to
consider in its planning process.
 Economic conditions are an important factor for an organization to consider in its planning
process but industry conditions are not.
Industry conditions are an important factor for an organization to consider in its planning
process but economic conditions are not.
Neither economic conditions nor industry conditions are important.
You Answered Correctly!
Correct. Economic conditions and industry conditions are related to each
other. Economic conditions such as the state of the economy should be taken
into consideration during an organization's planning process as these
conditions are likely to impact the organization's ability to achieve its goals
and objectives. In addition, industry conditions such as the organization's
competitive position should be taken into consideration during an
organization's planning process as these conditions are likely to impact the
organization's ability to achieve its goals and objectives.
Question 39
1B2-LS38
Cerawell Products Company is a ceramics manufacturer that is facing several
challenges in its operations due to economic and industry conditions. The
company is currently preparing its annual plan and budget. Which one of the
following is subject to the least control by the management of Cerawell in the
current fiscal year?

* Source: ICMA CMA® Retired Exam Questions.

Experienced employees have decided to terminate their employment with Cerawell and go to
work for the competition.
A competitor has achieved an unexpected technological breakthrough that has given them a
significant quality advantage, and has caused Cerawell to lose market share.
Vendors have asked that the contract price for the goods they supply to Cerawell be
renegotiated and adjusted for inflation.
A new machine that was purchased this year has not helped reduce Cerawell's unfavorable
labor efficiency variances.
This Answer is Correct
When an analysis takes place in the preparation of the annual plan and
budget, the organization needs to analyze those factors that they can control
to plan and budget for future events. In this case, a competitor achieving an
unexpected technological breakthrough that has given them a significant
quality advantage, and has caused Cerawell to lose market share is
something beyond Cerawell's control. However, they can prioritize certain
areas of their business operations to overcome those obstacles presented by
this technological breakthrough by the competition.
Question 40
aq.si.bud.001_1802
What role does budgeting play in controlling operational processes to meet
strategic objectives?
Controlling operational processes requires that (1) expectations are established and
incentivized, (2) results are gathered and reported, (3) variances from the budget are
computed, and (4) performance is rewarded.
 Controlling operational processes requires that (1) expectations are established and
incentivized, (2) results are gathered and reported, and (3) variances from the budget are
computed.
Controlling operational processes requires that (1) performance is rewarded, (2) results are
analyzed to understand why objectives were met or not, and (3) insight gained is used to
inform the planning stage of the upcoming operational cycle.
Controlling operational processes requires that (1) the strategy is defined into operational
objectives, (2) performance measures are set, and (3) resources are committed.
You Answered Correctly!
This statement correctly describes the role that budgeting plays in controlling
operational processes to meet strategic objectives.
Question 41
tb.si.bud.025_1805
Pearl River Rafting Company is a service company that takes customers on
white water rafting and canoe trips. They employ eight full-time guides, three
part-time store employees, and two full-time managers. On average, the
company books 18 white-water rafting trips each week; however, a new
university has opened nearby, and they now average 25 white-water rafting
trips each week. How will this affect their direct labor budget?
Their direct labor budget will increase, which means they will likely need to hire more guides.
Their direct labor budget will increase, which means they will likely need to hire more
managers.
Their direct labor budget will decrease, which means they will need to lay off a store
employee.
Their direct labor budget will not be affected.
This Answer is Correct
Direct labor is a variable cost, meaning that the total amount budgeted for
direct labor changes in direct proportion to changes in expected volume. As
the number of rafting trips per week increases, more direct labor will be
needed. This means the direct labor budget will increase and more guides
likely will need to be hired. Therefore, this is the correct answer.
Question 42
1B2-LS31
Which of the following is not a main reason for budgeting:
improving communications within the organization.
micromanaging an organization.
effective evaluation of its employees.
monitoring progress of an organization.
You Answered Correctly!
There are four main reasons a company creates a budget: planning
(examining the future), improving communications and coordination of efforts
in the organization, monitoring the progress of the organization in meeting its
goals, and evaluation of key players and their performance in relation to the
budget.
Question 43
aq.si.bud.009_1802
During the analysis of the previous year's performance, the board of directors
of Emanuel Corp. realized that the actual rate of production was 10 units per
day per laborer. However, for the current year's budget, the production
manager set the daily target as 15 units per day per laborer to increase the
production. How will the decision of the production manager affect the current
year's actual performance of the laborers?
The employee turnover will decrease.
The labor efficiency variance will be lower than the previous year.
The current year's performance will improve compared to the previous year.
Variances from budgets could be high.
This Answer is Correct
If the benchmark for employees is set too high, they may not strive to
achieve targets they view as unrealistic. As a result, the variances from
budgets will be high.
Question 44
tb.si.bud.018_1805
Which of the following statements concerning economic and industry
conditions and the planning process is correct?
Managers should take economic conditions and industry conditions into consideration when
developing plans and objectives.
Managers should take economic conditions but not industry conditions into consideration
when developing plans and objectives.
Managers should take industry conditions but not economic conditions into consideration
when developing plans and objectives.
Managers should not take economic conditions or industry conditions into consideration when
developing plans and objectives.
This Answer is Correct
Economic conditions and industry conditions are related to each other.
Economic conditions such as the state of the economy should be taken into
consideration during an organization's planning process as these conditions
are likely to impact the organization's ability to achieve its goals and
objectives. In addition, industry conditions such as the organization's
competitive position should be taken into consideration during an
organization's planning process as these conditions are likely to impact the
organization's ability to achieve its goals and objectives. Therefore, this is the
correct answer.
Question 45
aq.si.bud.003_1802
In which of the following situations is it not appropriate to adjust the budget?
The government passes new regulation causing a substantial increase in the cost to produce the
company's highest selling good.
During the course of the year, several new competitors entered the market and gained a
substantial market share.
A production department has been much less efficient this year compared to prior years.
A new invention makes it possible to produce the company's highest selling good in a third of
the historical time.
This Answer is Correct
This is not an appropriate reason to adjust the budget. Employees,
departments, and divisions should be able to depend on a budget that makes
firm commitments on resources that will be available, and that firmly
establishes expectations on performance.
Question 46
1B2-LS30
During a planning process, which of the following activities would be
completed last?
Tactical goals.
Operational plans.
Strategic
objectives.
Vision and mission.
This Answer is Correct
The logical order for the activities listed is 1) vision and mission, 2) strategic
objectives, 3) tactical goals, and 4) operational plans. An operational plan
formulates specific goals for each SBU, with detailed revenue and expense
budgets.
Question 47
1B2-LS40
All of the following are advantages of the use of budgets in a management
control system except that budgets:

* Source: Retired ICMA CMA Exam Questions.

provide performance criteria.
force management planning.
limit unauthorized expenditures.
promote communication and coordination within the organization.
This Answer is Correct
Advantages of management control systems include the forcing of
management to plan, providing performance criteria, and the promotion of
communications and coordination within the organization.
Question 48
1B2-AT18
All types of organizations can benefit from budgeting. A major difference
between governmental budgeting and business budgeting is that:
business budgeting is required by the SEC.
governmental budgeting usually represents a legal limit on proposed expenditures.
business budgeting can be used to measure progress in achieving company objectives whereas
governmental budgeting cannot be used to measure progress in achieving objectives.
governmental budgeting is usually done on a zero-base.
This Answer is Correct
In governmental bodies, expenditures are based upon legislative
appropriations. These appropriations create legal limits on expenditures.
Question 49
aq.si.bud.006_1802
Which of the following is not a characteristic of successful budgeting?
The budget has a good balance of firmness and flexibility.
The results of every budgeting cycle should be assessed and that insight should inform and
improve the next budgeting cycle.
Everyone in the organization understands and commits to the budget.
The budget should not establish expectations of performance. This should be the responsibility
of each division manager.
This Answer is Correct
A good budget must be both firm and flexible. Employees, departments, and
divisions should be able to depend on a budget that makes firm commitments
on resources that will be available, and that firmly establishes expectations
on performance.
Question 50
tb.si.bud.002_1805
When a firm makes adjustments to its strategic plan, the firm will do which of
the following?
It will also need to make adjustments to its budget, because the budget shows how the firm's
resources will be operationalized in an attempt to implement the strategic plan.
It will not need to make adjustments to its budget, because the budget is essentially an
operating plan and therefore unrelated to the strategic plan.
It will also need to make adjustments to its budget, because the strategic plan affects a firm's
cash flows even though it has no direct bearing on the firm's operations.
It will not need to make adjustments to its budget, because the strategic plan affects only a
firm's operations and not its cash flows.
You Answered Correctly!
One use of a budget is to show how an organization will use its resources to
implement its strategic plan. If an organization adjusts its strategic plan, its
budget will also need to be modified so that resources are shifted toward the
new strategic priorities. Therefore, this is the correct answer.