MAS_HORNGEN CHAPTER 6: MASTER BUDGET AND RESPONSIBILITY ACCOUNTING TRUE/FALSE 1. plan.

Few businesses plan to fail, but many of those that flop have failed to Answer: True Difficulty: 1 Objective: 1

2. The master budget reflects the impact of operating decisions, but not fi nancing decisions. Answer: False Difficulty: 1 Objective: 1 The master budget reflects the impact of operating decisions and financi ng decisions. 3. ts. Budgeted financial statements are also referred to as pro forma statemen Answer: True Difficulty: 1 Objective: 1

4. Budgeting includes only the financial aspects of the plan and not any no nfinancial aspects such as the number of physical units manufactured. Answer: False Difficulty: 2 Objective: 1 Budgeting includes both financial and nonfinancial aspects of the plan. 5. Budgeting helps management anticipate and adjust for trouble spots in ad vance. Answer: True 6. Difficulty: 1 Objective: 1

Budgets can play both planning and control roles for management. Answer: True Difficulty: 1 Objective: 1

7. To create greater commitment to the budget, top-management should create the budget and then share it with lower-level managers. Answer: False Difficulty: 3 Objective: 2 To create greater commitment to the budget, lower-level managers should participate in creating the budget. 8. After a budget is agreed upon and finalized by the management team, the amounts should not be changed for any reason. Answer: False Difficulty: 2 Objective: 2 Budgets should not be administered rigidly, but rather should be adjuste d for changing conditions. 9. Even in the face of changing conditions, attaining the original budget i s critical. Answer: False Difficulty: 3 Objective: 2 Changing conditions usually call for a change in plans. Attaining the bu dget should not be an end in itself. 10. A four-quarter rolling budget encourages management to be thinking about the next 12 months.

Answer: True

Difficulty:

Objective:

11. Research has shown that challenging budgets (rather than budgets that ca n be easily attained) are energizing and improve performance. Answer: True Difficulty: 2 Objective: 2 s actual performanc

12. It is best to compare this year e rather than this year s budget.

s performance with last year

Answer: False Difficulty: 3 Objective: 2 It is best to compare this year s performance with this year s budget because in efficiencies and different conditions may be reflected in last year s actual perform ance amounts. 13. Budgets have the potential to compel strategic planning and the implemen tation of plans. Answer: True Difficulty: 2 Objective: 2

14. When administered wisely, budgets promote communication and coordination among the various subunits of the organization. Answer: True Difficulty: 2 Objective: 2

15. Preparation of the budgeted income statement is the final step in prepar ing the operating budget. Answer: True Difficulty: 1 Objective: 3 16. The sales forecast should primarily be based on statistical analysis wit h secondary input from sales managers and sales representatives. Answer: False Difficulty: 3 Objective: 3 The sales forecast should be primarily based on input from sales manager s and sales representatives with secondary input from statistical analysis. 17. The usual starting point in budgeting is to forecast net income. Answer: False Difficulty: 2 Objective: 3 The usual starting point in budgeting is to forecast sales demand and re venues. 18. The revenues budget should be based on the production budget. Answer: False Difficulty: 1 Objective: 3 The production budget should be based on the revenues budget. 19. The operating budget is that part of the master budget that includes the capital expenditures budget, cash budget, budgeted balance sheet, and the budge ted statement of cash flows. Answer: False Difficulty: 1 Objective: 3 Described is the financial budget part of the master budget, not the ope rating budget. 20. If budgeted amounts change, the kaizen approach can be used to examine c hanges in the budgeted results. Answer: False Difficulty: 2 Objective: 4 If budgeted amounts change, sensitivity analysis can be used to examine

changes in the budgeted results. 21. Computer-based financial planning models are mathematical statements of the interrelationships among operating activities, financial activities, and oth er factors that affect the budget. Answer: True Difficulty: 1 Objective: 4

22. Most computer-based financial planning models have difficulty incorporat ing sensitivity (what-if) analysis. Answer: False Difficulty: 2 Objective: 4 Computer-based financial planning models assist management with sensitiv ity (what-if) analysis. 23. Sensitivity analysis incorporates continuous improvement into budgeted a mounts. Answer: False Difficulty: 1 Objective: 5 Kaizen budgeting incorporates continuous improvement into budgeted amoun ts. 24. The Japanese use kaizen to mean financing alternatives. Answer: False Difficulty: 1 Objective: 5 The Japanese use kaizen to mean continuous improvement. Kaizen budgeting does not make sense for profit centers. Answer: False Difficulty: 2 Objective: 5 Kaizen budgeting can be used in any type of responsibility center. 26. Kaizen budgeting encourages small incremental changes, rather than major improvements. Answer: True Difficulty: 1 Objective: 5

25.

27. Activity-based budgeting provides better decision-making information tha n budgeting based solely on output-based cost drivers (units produced, units sol d, or revenues). Answer: True Difficulty: 2 Objective: 6

28. Activity-based costing analysis takes a long-run perspective and treats all activity costs as variable costs. Answer: True Difficulty: 3 Objective: 6

29. Activity-based budgeting (ABB) focuses on the budgeting cost of activiti es necessary to produce and sell products and services. Answer: True Difficulty: 1 Objective: 6

30. A responsibility center is a part, segment, or subunit of an organizatio n, whose manager is accountable for a specified set of activities. Answer: True Difficulty: 1 Objective: 7