Page 1 of 3 | MANAGEMENT ADVISORY SERVICES Handouts No.
05
BUDGETING- CONSULTATION HO
RHAD VIC F. ESTOQUE, CPA, MBA, CAT, MICB, RCA, CMA
Budgeting
RHAD VIC F. ESTOQUE, CPA, MBA, CAT, MICB, RCA, CMA
Feasibility Study and Budgets
A project feasibility study simulates the operations of a proposed business. It intends to help investors determine
if the study will be profitable under some limiting assumption. The same budgeting and forecasting methods used and
processes are utilized in preparing the forecasted financial statements of Feasibility Studies. The Feasibility Study is
composed of the following major aspects, Marketing, Management, Technical, Financial, and Socio Economic aspect.
DRILLS
1. Which one of the following is not an advantage of a participatory budgeting process?
A. Control of uncertainties. C. Communication between departments.
B. Coordination between departments. D. Goal congruence.
2. The budgeting technique that is most likely to motivate managers is
A. bottom-up budgeting. C. program budgeting and review technique.
B. zero-base budgeting. D. top-down budgeting.
3. Country Ovens is a family restaurant chain. Due to an unexpected road construction project, traffic passing by the
Country Ovens restaurant in Newtown has significantly increased. As a result, restaurant volume has similarly increased
well beyond the level expected. Which type of budget would be most appropriate in helping the restaurant manager plan
for restaurant labor costs?
A. Zero-based budget. B. Flexible budget. C. Rolling budget. D. Activity-based budget.
4. Which one of the following is not considered to be a benefit of participative budgeting?
A. Managers are more motivated to reach the budget goals since they participated in setting them.
B. The budget estimates are prepared by those in direct contact with various activities.
C. When managers set the final targets for the budget, top management need not be concerned with the overall
profitability of current operations.
D. Individuals at all organizational levels are recognized as being part of the team; this results in greater support of the
organization.
5. In developing the budget for the next year, which one of the following approaches would produce the greatest amount
of positive motivation and goal congruence?
A. Have the divisional and senior management jointly develop goals and the divisional manager develop the
implementation plan.
B. Have senior management develop the overall goals and permit the divisional manager to determine how these goals
will be met.
C. Permit the divisional manager to develop the goal for the division that in the manager's view will generate the greatest
amount of profits.
D. Have the divisional and senior management jointly develop goals and objectives while constructing the corporation's
overall plan of operation.
REO CPA REVIEW PHILIPPINES Effectiveness. Efficiency. Convenience
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Page 2 of 3 | MANAGEMENT ADVISORY SERVICES Handouts No. 05
RHAD VIC F. ESTOQUE, CPA MBA, CAT, MICB, RCA, CMA
BUDGETING
6. The use of budgetary slack does not allow the preparer to
A. Increase the probability of achieving budgeted performance.
B. Project actual expenses.
C. Be flexible under unexpected circumstances.
D. Use the budget to control subordinate performance.
7. Which one of the following statements concerning approaches for the budget development process is correct?
A. To prevent ambiguity, once departmental budgeted goals have been developed, they should remain fixed even if the
sales forecast upon which they are based proves to be wrong in the middle of the fiscal year.
B. With the information technology available, the role of budgets as an organizational communication device has declined.
C. The top-down approach to budgeting will not ensure adherence to strategic organizational goals.
D. Since department managers have the most detailed knowledge about organizational operations, they should use this
information as the building blocks of the operating budget.
8. The process of creating a formal plan and translating goals into a quantitative format is
A. Budget manual preparation. B. Process costing. C. Budgeting. D. Job-order costing.
9. 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 correct concerning the financial budget?
Included in the Financial Budget, respectively:
Capital Budget, Master Budget Balance Sheet, Cash Budget
A. No, No, No
B. Yes, Yes, Yes
C. No, Yes, No
D. Yes, No, Yes
10. Suboptimal decision making is not likely to occur when:
A. Guidance is given to subunit managers about how standards and goals affect them.
B. Goals and standards of performance are set by the top-management.
C. There is little congruence among the overall organization goals, the subunit goals, and the individual goals of decision
makers.
D. The subunits in the organization compete with each other for the same input factors or for the same customers.
11. One approach for developing standard costs incorporates communication, bargaining, and interaction among product
line managers; the immediate supervisors for whom the standards are being developed; and the accountants and
engineers before the standards are accepted by top management. This approach would best be characterized as a(n):
A. Centralized top-down approach. C. Engineering approach.
B. Imposed approach. D. Team development approach.
12. All of the following are advantages of top-down budgeting as opposed to participatory budgeting, except that it:
A. Facilitates implementation of strategic plans.
B. May limit the acceptance of proposed goals and objectives.
C. Increases coordination of divisional objectives.
D. Reduces the time required for budgeting.
13. Which one of the following best describes the role of top management in the budgeting process? Top management
A. needs to be involved, including using the budget process to communicate goals.
B. needs to separate the budgeting process and the business planning process into two separate processes.
C. should be involved only in the approval process.
D. lacks the detailed knowledge of the daily operations and should limit their involvement.
REO CPA REVIEW PHILIPPINES Effectiveness. Efficiency. Convenience
www.realexcellenceonline.com.ph REAL EXCELLENCE ONLINE CPA REVIEW
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Page 3 of 3 | MANAGEMENT ADVISORY SERVICES Handouts No. 05
RHAD VIC F. ESTOQUE, CPA MBA, CAT, MICB, RCA, CMA
BUDGETING
14. A flexible budget is a quantitative expression of a plan that
A. focuses on the costs of activities necessary to produce and sell products and services for a budget period.
B. is developed for the actual level of output achieved for the budget period.
C. projects costs on the basis of future improvements in existing practices and procedures during a budget period.
D. is comprised of the budgeted income statement and its supporting schedules for a budget period.
15. The preparation of a comprehensive master budget culminates with the preparation of the
A. Capital investment budget. C. Cash management and working capital budget.
B. Production budget. D. Strategic budget.
16. All of the following are disadvantages of top-down budgeting as opposed to participatory budgeting, except that it:
A. Reduces the communication between employees and management.
B. Reduces the time required for budgeting.
C. May limit the acceptance of proposed goals and objectives.
D. May result in a budget that is not possible to achieve.
17. Which one of the following will allow a better use of standard costs and variance analysis to help improve managerial
decision-making?
A. Company C investigates only negative variances.
B. Company D constantly revises standards to reflect learning curves.
C. Company B uses the prior year's average actual cost as the current year's standard.
D. Company A does not differentiate between variable and fixed overhead in calculating its overhead variances.
18. Diana Stinson, Cherry Valley Inc.'s factory manager, had lost her patience. Six months ago, she had appointed a team
from the production and service departments to finalize the allocation of costs and setting of standard costs. They were
still feuding, and so she had hired Brennan and Rose, a large consulting firm, to resolve the matter. All of the following are
potential consequences of having the standards set by Brennan and Rose except that
A. The standards may appear to lack management support.
B. Brennan and Rose may not fully understand Cherry Valley's manufacturing process, resulting in suboptimal
performance.
C. Employees could react negatively since they did not participate in setting the standards.
D. There could be dissatisfaction if the standards contain costs which are not controllable by the unit held responsible.
19. All types of organizations can benefit from budgeting. A major difference between governmental budgeting and
business budgeting is that
A. Business budgeting is required by the SEC.
B. Business budgeting can be used to measure progress in achieving company objectives, whereas governmental
budgeting cannot be used to measure progress in achieving objectives.
C. Governmental budgeting is usually done on a zero-base.
D. Governmental budgeting usually represents a legal limit on proposed expenditures.
20. All of the following statements concerning standard costs are correct except that:
A. Standard costs can be used in costing inventory accounts.
B. Standard costs are usually set for one year.
C. Standard costs are usually stated in total, while budgeted costs are usually stated on a per-unit basis.
D. Time and motion studies are often used to determine standard costs.
21. Which one of the following items would most likely cause the planning and budgeting system to fail? The lack of
A. top management support. C. input from several levels of management.
B. historical financial data. D. adherence to rigid budgets during the year.
--- END OF HANDOUTS ---
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