Budget Process Steps Quiz
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Questions and Answers

What is the initial step in an ideal budget process?

  • The final budget is approved by line managers
  • Budget participants outside of top management prepare an initial budget draft (correct)
  • Budget participants at all levels discuss and revise the budget draft iteratively
  • The budget draft is revised based on top management input
  • Who approves the final budget in an ideal budget process?

  • Next management level up
  • Budget participants from all levels
  • Top management (correct)
  • Line managers
  • What approach does an ideal budget process blend together?

  • Participative and authoritative approaches (correct)
  • Bottom-up and lateral approaches
  • Democratic and autocratic approaches
  • Collaborative and individualistic approaches
  • What perspective does top management provide in the budget approval process?

    <p>Strategic perspective</p> Signup and view all the answers

    Who is involved in revising the initial budget draft in an ideal budget process?

    <p>Participants from all management levels</p> Signup and view all the answers

    Why does top management play a crucial role in budget approval?

    <p>To ensure alignment with company strategy</p> Signup and view all the answers

    In the text, why is it mentioned that plans in one area may impact the plans in another area?

    <p>To emphasize the importance of inter-department coordination</p> Signup and view all the answers

    Why does sharing the budget with the entire department not facilitate communication and coordination according to the text?

    <p>Sharing the budget does not involve communication with other areas</p> Signup and view all the answers

    What is one key aspect of successful budgeting highlighted in the text?

    <p>Top management's understanding and support</p> Signup and view all the answers

    Based on the text, what role do line managers typically have in the budgeting process?

    <p>They play a crucial role and provide input into budgets</p> Signup and view all the answers

    Why is it important for different areas in an organization to coordinate their activities and plans according to the text?

    <p>To avoid conflicts and inefficiencies</p> Signup and view all the answers

    What does the text imply about budgets created by top management?

    <p>They are generally more successful than other budgets</p> Signup and view all the answers

    What is the reason for the low rate of production during the first 2 hours of work?

    <p>Employees are still adjusting to furnace temperature</p> Signup and view all the answers

    Based on the supervisor's points, how long does it take to produce 1 unit of Tool A?

    <p>30 minutes</p> Signup and view all the answers

    Why did the management representative set a target of 15 units of Tool A per day per worker?

    <p>To monitor negative variance in budgets</p> Signup and view all the answers

    Why is the target set by the management representative considered unrealistic?

    <p>The actual daily production will be lower than the target</p> Signup and view all the answers

    How does selecting the lowest cost vendor each time affect costs over the years?

    <p>Leads to varying costs each year</p> Signup and view all the answers

    What impact would decreasing the percentage of cash sales relative to credit sales have on expected cash disbursements in a cash budget?

    <p>Increase expected cash disbursements</p> Signup and view all the answers

    How do cash sales and credit sales impact expected cash receipts in a cash budget?

    <p>Cash sales decrease expected cash receipts</p> Signup and view all the answers

    In what way do credit sales impact the cash collections in a business?

    <p>Delay cash collections</p> Signup and view all the answers

    What percentage of credit sales does Avery Manufacturing collect in the month following the sale?

    <p>20%</p> Signup and view all the answers

    Which budget provides a summary of budgeted cash inflows and outflows for a specific period?

    <p>Cash budget</p> Signup and view all the answers

    What sources contribute to the cash collections in December for Avery Manufacturing?

    <p>Credit sales made in November and October</p> Signup and view all the answers

    What is the planned production of action figures for December?

    <p>112,575</p> Signup and view all the answers

    How many bikes should Spartan Bicycles manufacture for the month of June?

    <p>14,000</p> Signup and view all the answers

    What does a decrease in desired ending inventory of finished goods inventory do to the units needed to be produced?

    <p>Decreases the units needed to be produced</p> Signup and view all the answers

    If the beginning inventory for December was 30,000 action figures instead of 36,300, what would be the impact on planned production?

    <p>Decreased planned production</p> Signup and view all the answers

    Why is the ending inventory for May equal to the beginning inventory for June?

    <p>To maintain continuity in inventory levels</p> Signup and view all the answers

    What is the impact of an increase in beginning finished goods inventory on the production budget?

    <p>Increases the units needed to be produced</p> Signup and view all the answers

    Study Notes

    Budgeting Process

    • An ideal budget process blends elements of both authoritative (top-down) and participative (bottom-up) approaches.
    • The initial budget draft is revised in an iterative process based on discussion between participants at different management levels.
    • Top management reviews and approves the budget, not line managers.

    Role of Top Management

    • Top management's role in successful budgeting is to ensure the budget is consistent with the company's strategic direction.
    • Top management approving the budget improves it because they have a better perspective.

    Cash Budget

    • A cash budget provides a summary of budgeted cash inflows and outflows from all sources for a given period of time.
    • Cash receipts are mainly from cash sales and the collection of credit sales.
    • Decreasing the percentage of cash sales relative to credit sales would decrease expected cash receipts in a cash budget.

    Budgeting and Communication

    • Budgeting involves setting plans for all areas of the organization.
    • The budgeting process facilitates communication and coordination of organizational activities.
    • Sharing budgets with other departments helps to coordinate plans and activities.

    Successful Budgeting

    • If top management understands and supports a finalized budget, it is more likely to be successful.
    • Budgets created by top management are likely to be more successful than budgets created by line managers.

    Production Budget

    • A production budget is prepared based on the sales forecast and desired inventory levels.
    • The target production level should be realistic and achievable.
    • Unrealistic targets can result in higher negative variance from actual.

    Standards in Budgeting

    • Examples of standards that can be used in budgeting include the time taken to process an invoice or the time taken to produce a unit.
    • These standards help to set realistic targets and prepare budgets.

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    Test your knowledge on the steps involved in an ideal budget process. Determine which steps are included and which ones are not part of the process.

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