Budgeting Process quiz

Top management’s belief in and support of the planning and budgeting process is the single most important element in its success

Joint development of goals is more conducive to motivation, as is allowing divisional managers to develop the implementation plan. Goal congruence is enhanced when senior management is involved in the budgeting process along with division managers

Among other things, the budget is a tool by which management can communicate goals to lower-level employees. It is also a tool for motivating employees to reach those goals. For the budget to function in these communication and motivating roles, top management must be involved in the process. This involvement does not extend to dictating the exact numerical contents of the budget since top management lacks a detailed knowledge of daily operations

One of the behavioral considerations of budgeting is the extent of participation in the process by managers at all levels within the organization. Managers are more motivated to achieve budgeted goals when they are involved in budget preparation. A broad level of participation usually leads to greater support for the budget and the entity as a whole, as well as a greater understanding of what is to be accomplished. Advantages of a participative budget include greater accuracy of budget estimates. Managers with immediate operational responsibility for activities have a better understanding of what results can be achieved and at what costs. Also, managers cannot blame unrealistic objectives as an excuse for not achieving budget expectations when they have helped to establish those objectives.
Despite the involvement of lower level managers, senior management must still participate in the budget process to ensure that the combined objectives of the various departments are consistent with profitability objectives of the company

A budget lays out in specific terms an organization’s expectations about the consumption of resources and the resulting outcomes. Therefore, it identifies the resources and commitments required to fulfill the organization’s goals for the period identified

A budget manual describes how a budget is to be prepared. Items usually included in a budget manual are a planning calendar and distribution instructions for all budget schedules. Distribution instructions are important because, once a schedule is prepared, other departments within the organization will use the schedule to prepare their own budgets. Without distribution instructions, someone who needs a particular schedule may be overlooked

An organizational budget requires a significant commitment of internal resources. The single most important factor in assuring its success is for upper management to demonstrate that they take the project seriously and consider it vital to the organization’s future

Lack of goal congruence can result when attaining a subunit’s budgetary goal results in disregard of overall company goals. Subunit managers may inflate their budget requests to provide operating leeway and then engage in unnecessary spending to avoid future budget cuts. A budget may encourage exclusive concentration on meeting short-term standards at the expense of long-term considerations. A manager fearful of not meeting the budget targets may improperly manipulate allocation of expenses. The manager seeking to stay within the budget may disregard employee morale and poor working conditions. Interunit resentment may develop as a result of competition for scarce funds

Since a top-down budget is imposed by upper management, it has less chance of acceptance (also called buy-in) by those on whom the budget is imposed

This budget process represents a top-down budgeting approach. It is imposed by upper management and therefore has less of a chance of acceptance by those on whom the budget is imposed. It is not a successful budgeting process since there is not a buy-in at all levels. Participative budgeting has a much greater chance of acceptance by those affected and thus of achieving ultimate success than does a budget that is imposed from above

This question is apparently directed toward budgeting. A budget is a realistic plan for the future that is expressed in quantitative terms. It is a planning, control, motivational, and communications tool. A budget promotes goal congruence and coordination among operating units. Unfortunately, a budget does not ensure profitable operations

A budget is a realistic plan for the future expressed in quantitative terms. The process of budgeting forces a company to establish goals, determine the resources necessary to achieve those goals, and anticipate future difficulties in their achievement. A budget is also a control tool because it establishes standards and facilitates
comparison of actual and budgeted performance. Because a budget establishes standards and accountability, it motivates good performance by highlighting the work of effective managers. Moreover, the nature of the budgeting process fosters communication of goals to company subunits and coordination of their efforts. Budgeting activities by entities within the company must be coordinated because they are interdependent. Thus, the sales budget is a necessary input to the formulation of the production budget. In turn, production requirements must be known before purchases and expense budgets can be developed, and all other budgets must be completed before preparation of the cash budget

Information sent to top management is ordinarily more highly aggregated and less timely than that communicated to managers at operational levels. Top managers are concerned with the organization’s overall financial results and long-term prospects and are responsible for the strategic planning function. Lower-level reports contain more quantitative information of an operational nature, e.g., production data

The budget department is responsible for compiling the budget and managing the budget process. The budget director and department are not responsible for actually developing the estimates on which the budget is based. This role is performed by those to whom the resulting budget will be applicable. The budget director has staff, not line, authority. (S)he has a technical and advisory role. The final decision-making responsibility rests with line management

Budgeting plays a role in the overall planning and evaluation process of the company. It includes information that can impact the company’s long-term planning, operational budgets, and strategy. The strategic plan is made up of longterm objectives that make clear the priorities of the organization. Awareness of priorities is crucial for the allocation of resources because it affects the operational and financial budgets

Budget formulation is a planning function; however, budgets are also useful control devices. Budgets provide a basis for control of performance through comparisons of actual with budgeted data. They permit analysis of variations from plans and signal the need for corrective managerial action

Participative (grass-roots) budgeting and standard-setting use input from lower-level and middle-level employees. Participation encourages employees to have a sense of ownership of the output of the process. The result is an acceptance of and commitment to the goals expressed in the budget

Since department managers have the most detailed knowledge about organizational operations, they should use this information as the building blocks of the operating budget

Several planning assumptions should be made at the beginning of the budget process. Some of these assumptions are internal factors; others are external to the company. External factors include general economic conditions and their expected trend, governmental regulatory measures, the labor market in the locale of the company’s facilities, and activities of competitors, including the effects of mergers

Uncertainties can be prepared for, but they cannot be subjected to human control through any budget process

Traditional budgeting focuses strictly on financial measures

An organization must complete its strategic plan before any specific budgeting can begin. The strategic plan lays out the means by which a firm expects to fulfill its stated mission

Implementing the budget as the only benchmark for performance evaluation is not a characteristic of a successful budget process. Decisions about a firm’s strategy, and in turn about its budget, are dependent upon general economic conditions and their expected trends as well as the availability of financial resources. Industry information is also a crucial aspect of benchmarking performance

The budget planning calendar is the schedule of activities for the development and adoption of the budget. It should include a list of dates indicating when specific information is to be provided by each information source to others. The preparation of a master budget usually takes several months. For instance, many firms start the budget for the next calendar year some time in September in hopes of having it completed by December 1. Because all of the individual departmental budgets are based on forecasts prepared by others and the budgets of other departments, it is essential to have a planning calendar to ensure the proper integration of the entire process

A budget is potentially a good motivational tool. If lower-level managers have participated in preparing the budget, instead of simply receiving a budget imposed by top management, they are more likely to understand and share the goals of top management and to work to keep costs within the budget. Participation and understanding are also likely to result in budgets that are reasonably attainable and viewed as realistic. However, a budget is also a motivator in the sense that managers are accountable for variances in controllable costs but are rewarded for good performance. Moreover, budgeting coupled with analysis of variances tends to improve motivation by allowing upper-level  managers to concentrate on problems (exceptions) rather than engaging in routine supervision of subordinates, which may be viewed as unnecessarily intrusive and unwelcome

A budget promotes goal congruence within a company. Departments must coordinate their activities with other interdependent departments in planning and developing the budget

MBO managers believe that employees are committed to achieving objectives, working hard to receive the rewards of achievement, and striving for self-actualization. The MBO view is that employees enjoy work, need little supervision, seek responsibility, and are imaginative problem solvers

Since a top-down budget is coordinated from above, it is less time-consuming than obtaining lower-level input

Budgets serve many roles. They force management to plan ahead, communicate organizational goals throughout the organization, and provide criteria for future performance evaluations

Ineffective budget control systems are characterized by each of the items noted. The use of budgets for planning only is a problem that must be resolved through the education process. Management must be educated to use the budget documents for control, not just planning. Management must learn that budgets can motivate and help individuals achieve professional growth as well as the goals of the firm. Ignoring budgets obviously contributes to the ineffectiveness of the budget system. Finally, feedback must be timely or lower management and employees will soon recognize that budget feedback is so late it provides no information, making the budget a worthless device

Management of the division is responsible for setting the sales forecast. As production manager, Jarrett has the responsibility of ensuring the products are ready on schedule and in the right quantities

Bottom-up budgeting is the best way of motivating managers to meet budget estimates because it permits participation in the budget process. Lower level managers who take part in budgeting decisions are more likely to support the result and less likely to feel that the budget has been imposed from above

Budgets provide a means for coordinating the plans of all organizational subunits. Thus, budgets are a way to promote goal congruence. Although budgets should be consistent with the strategic plans of top management, they should also be based on input from lower-level managers since the latter have detailed knowledge of operating activities. Successful budgets are therefore a compromise. In a top-down process, however, budgets are imposed on subordinates without their participation. This lack of participation may impair the coordination of the goals of subunits with those of the organization (goal congruence) since lower-level managers will tend not to have an understanding of and support for the top-down budget

A budget is a realistic plan for the future expressed in quantitative terms. It is useful for planning, control, motivation, communication, and achieving goal congruence. As a planning tool, a budget forces management to evaluate the reasonableness of assumptions used and goals identified in the budgetary process. As a control tool, the budget provides a formal benchmark to be used for feedback and performance evaluation. As a communication tool, a budget serves to coordinate activities between management and subordinates and provides management with a means of dealing with uncertainty. Despite its advantages, a budget neither ensures improved cost control nor prevents inefficiencies

This is an advantage of using the budgeting process to judge performance. Comparing actual results to the budget allows the organization as a whole to evaluate performance and allows managers to do the same on an individual level

Participative budgeting is a practical means of setting realistic, achievable budget goals

Budgetary slack is the practice of understating budgeted revenues or overestimating budgeted costs to make budgeted targets more achievable. The natural tendency of a manager is to negotiate for a less stringent measure of performance to avoid unfavorable variances from expectations

A budget is a realistic plan for the future expressed in quantitative terms. It is a planning tool that establishes goals and permits a company to anticipate problems and to plan for decisions. A budget can be a motivator, especially if it sets reasonable standards, has some flexibility, and was prepared with the participation of those affected. A budget is a communication tool because it informs employees about the goals the company is striving to attain and thus enhances goal congruence. A budget is also a means of coordinating the company’s various activities. The company’s overall budget consists of many smaller budgets