budgeting practice test 1

Question 1 - CMA 692 H9 - Planning and Budgeting Concepts

Strategy is a broad term that usually means the selection of overall objectives. Strategic analysis ordinarily excludes the

A. Target product mix and production schedule to be maintained during the year.

B. Forms of organizational structure that would best serve the entity.

C. Trends that will affect the entity's markets.

D. Best ways to invest in research, design, production, distribution, marketing, and administrative activities.

Question 2 - IMA 08-P2-21 - Planning and Budgeting Concepts

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 exceptthat

A. The standards may appear to lack management support.

B. There could be dissatisfaction if the standards contain costs which are not controllable by the unit held responsible.

C. Brennan and Rose may not fully understand Cherry Valley’s manufacturing process, resulting in suboptimal performance.

D. Employees could react negatively since they did not participate in setting the standards.

Question 3 - HOCK CMA P3A H8 - Planning and Budgeting Concepts

It could be argued that the reason a company has succeeded in a very competitive market while its rivals have failed is because:

A. The company has adopted a strategy with a low propensity for risk-taking.

B. The successful company has adopted more steps to its formal strategic planning process.

 C. The strategies that the successful company pursues have a strong impact on its performance relative to its rivals.

D. The company has evolved into a multi-divisional organization.

Question 4 - IMA 08-P2-07 - Planning and Budgeting Concepts

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. Permit the divisional manager to develop the goal for the division that in the manager's view will generate the greatest amount of profits.

B. Have the divisional and senior management jointly develop goals and objectives while constructing the corporation's overall plan of operation.

C. Have the divisional and senior management jointly develop goals and the divisional manager develop the implementation plan.

D. Have senior management develop the overall goals and permit the divisional manager to determine how these goals will be met.

Question 5 - CMA 691 H2 - Planning and Budgeting Concepts

All types of organizations can benefit from budgeting. A major difference between governmental budgeting and business budgeting is that

A. Business budgeting can be used to measure progress in achieving company objectives, whereas governmental budgeting cannot be used to measure progress in achieving objectives.

B. Governmental budgeting usually represents a legal limit on proposed expenditures.

C. Business budgeting is required by the SEC.

D. Governmental budgeting is usually done on a zero-base.

Question 6 - CMA 692 3-13 - Planning and Budgeting Concepts

Ordinarily, the most appropriate basis on which to evaluate the performance of a division manager is the division's

A. Net revenue minus controllable division costs.

B. Contribution margin.

C. Gross profit.

D. Net income minus the division's fixed costs.

Question 7 - IMA 08-P2-29 - Planning and Budgeting Concepts Kaizen budgeting is a budgeting approach that:

A. Adjusts costs to the actual level of output achieved or expected to be achieved during the budget period.

B. Projects expenses from the ground up, as though the budget were being prepared for the first time.

C. Projects costs on the basis of future improvements rather than current practices and methods.

D. Focuses on the costs of activities necessary to produce and sell products and services.

Question 8 - HOCK CMA P3A H3 - Planning and Budgeting Concepts

A company's mission statement is, above all, intended to define:

A. The specific actions that the company should take.

B. The weaknesses of the firm.

C. The company's profit objectives.

D. Why the company exists.

Question 9 - CMA 691 3-2 - Planning and Budgeting Concepts

Each organization plans and budgets its operations for slightly different reasons. Which one of the following is not a significant reason for planning and budgeting?

A. Ensuring profitable operations.

B. Checking progress toward the objectives of the organization.

C. Providing a basis for controlling operations.

D. Forcing managers to consider expected future trends and conditions.

Question 10 - IMA 08-P2-15 - Planning and Budgeting Concepts

Which one of the following items would most likely cause the planning and budgeting system to fail? The lack of:

A. Historical financial data.

B. Adherence to rigid budgets during the year.

C. Input from several levels of management.

D. Top management support.

Question 11 - HOCK CMA P3A H30 - Planning and Budgeting Concepts

Which of the following is nota characteristic of a tactical plan:

A. Top management is responsible for development and overall implementation.

B. It relates to production, materials requirements, inventory, cash flows and income statements.

C. It covers a period of time one year to five years.

D. It is quantitative in focus.

Question 12 - CIA 590 IV-14 - Planning and Budgeting Concepts

One of the primary advantages of budgeting is that it

A. Bases the profit plan on estimates.

B. Does not take the place of management and administration.

C. Is continually adapted to fit changing circumstances.

D. Requires departmental managers to make plans in conjunction with the plans of other

Question 13 - IMA 08-P2-04 - Planning and Budgeting Concepts

Rainbow Inc. recently appointed Margaret Joyce as vice president of finance and asked her to design a new budgeting system. Joyce has changed to a monthly budgeting system by dividing the company’s annual budget by twelve. Joyce then prepared monthly budgets for each department and asked the managers to submit monthly reports comparing actual to budget. A sample monthly report for Department A is shown below.

Rainbow, Inc.
Monthly Report for Department A

Actual		Budget Variance
Units	1,000	900	100F
Variable production costs
Direct material	$2,800 $2,700		$100U
Direct labor	4,800	4,500	300U
Variable factoy overhead	4,250	4,050	200U
Fixed costs
Depreciation	3,000	2,700	300U
Taxes	1,000	900	100U
Insurance	1,500	1,350	150U
Administration	1,100	990	110U
Marketing	1,000	900	100U

    Total costs $19,450 $18,090 $1,360U

This monthly budget has been imposed from the top and will create behavior problems. All of the following are causes of such problems except:

A. The lack of consideration for factors such as seasonality

B. The inclusion of noncontrollable costs such as depreciation.

C. The use of a flexible budget rather than a fixed budget.

D. Top management's authoritarian attitude toward the budget process.

Question 14 - IMA 08-P2-27 - Planning and Budgeting Concepts

Pavilion Inc. has implemented a budget process that begins with the analysis of current practices to find improvements and determine changes needed to attain improvements. Then budgets are based on the improved practices or procedures resulting in budget figures that are lower than the previous period. The firm expects to be able to manufacture its product or render its service at a lower cost. The decrease in the budget amounts are the consequence of doing the same activity more efficiently and with higher quality and is not the result of arbitrary cuts. The budget process described is referred to as:

A. Standard cost budgeting.

B. Activity-based budgeting.

C. Zero-based budgeting.

D. Kaizen budgeting.

Question 15 - IMA 08-P3-01 - Planning and Budgeting Concepts

Cerawell Products Company is a ceramics manufacturer that is facing several challenges in its operations.  Which one of the following is subject to the least control by the management of Cerawell in the current fiscal year?

A. Experienced employees have decided to terminate their employment with Cerawell and go to work for the competition.

B. A competitor has achieved an unexpected technological breakthrough that has given them a significant quality advantage, and has caused Cerawell to lose market share.

C. Vendors have asked that the contract price for the goods they supply to Cerawell be renegotiated and adjusted for inflation.

D. A new machine that was purchased this year has not helped reduce Cerawell’s unfavorable labor efficiency variances.

Question 16 - CMA 697 3-20 - Planning and Budgeting Concepts

Which one of the following best describes the role of top management in the budgeting process? Top management

A. Lacks the detailed knowledge of the daily operations and should limit their involvement.

B. Should be involved only in the approval process.

C. Needs to be involved, including using the budget process to communicate goals.

D. Needs to separate the budgeting process and the business planning process into two separate processes.

Question 17 - CIA QZP2B-2 - Planning and Budgeting Concepts

The risk that an auditor's procedures will lead to the conclusion that a material misstatement does not exist in an account balance when, in fact, such misstatement does exist is

A. Detection risk.

B. Inherent risk.

C. Control risk.

D. Audit risk.

Question 18 - CMA 1295 H7 - Planning and Budgeting Concepts

When budgets are used to evaluate performance and to set limits on spending, the process will often result in departments adding something "extra" to ensure the budgets will be met. This "extra" is

A. Continuous budgeting.

B. Budgetary slack.

C. Management by objectives.

D. Strategic planning.

Question 19 - CMA 1295 H8 - Planning and Budgeting Concepts The process of creating a formal plan and translating goals into a quantitative format is

A. Budgeting.

B. Job-order costing.

C. Process costing.

D. Budget manual preparation.

Question 20 - HOCK CMA P3A H5 - Planning and Budgeting Concepts

The method(s) that managers employ to attain one or more of the organization's goals can be defined as:

A. Capital investments.

B. Strategy.

C. Choosing the company's organizational structure.

D. Determining the company's business model.

Question 21 - IMA 08-P2-01 - Planning and Budgeting Concepts

All of the following are advantages of the use of budgets in a management control system except that budgets:

A. Force management planning.

B. Limit unauthorized expenditures.

C. Promote communication and coordination within the organization.

D. Provide performance criteria.

Question 22 - CMA 691 3-28 - Planning and Budgeting Concepts

The basic purpose of a responsibility accounting system is

A. Authority.

B. Motivation.

C. Variance analysis.

D. Budgeting.

Question 23 - CMA 1290 3-13 - Planning and Budgeting Concepts

Budgetary slack can best be described as

A. A plug number used to achieve a pre-set level of operating income.

B. The elimination of certain expenses to enhance budgeted income.

C. The planned underestimation of budgeted expenses.

D. The planned overestimation of budgeted expenses.

Question 24 - CIA 1188 IV-51 - Planning and Budgeting Concepts Budgets are a necessary component of financial decision making because they help provide a(n)

A. Means to use all the firm's resources.

B. Means to check managerial discretion.

C. Efficient allocation of resources.

D. Automatic corrective mechanism for errors.

Question 25 - HOCK CMA P3A H37 - Planning and Budgeting Concepts

One of the steps in the the strategic planning process is analyzing external factors in order to identify the organization's opportunities and threats. Which of the following is not a part of external analysis?

A. Analysis of the macroenvironment.

B. Analysis of the national environment in which the company operates.

C. Examination of the industry in which the company operates.

D. Identification of the company's strengths and weaknesses.

Question 26 - IMA 08-P2-17 - Planning and Budgeting Concepts

Suboptimal decision making is notlikely to occur when:

A. There is little congruence among the overall organization goals, the subunit goals, and the individual goals of decision makers.

B. Guidance is given to subunit managers about how standards and goals affect them.

C. The subunits in the organization compete with each other for the same input factors or for the same customers.

D. Goals and standards of performance are set by the top-management.

Question 27 - IMA 08-P2-22 - Planning and Budgeting Concepts

Jura Corporation is developing standards for the next year. Currently XZ-26, one of the material components, is being purchased for $36.45 per unit. It is expected that the component’s cost will increase by approximately 10% next year and the price could range from $38.75 to $44.18 per unit depending on the quantity purchased. The appropriate standard for XZ-26 for next year should be set at the

A. price agreed upon by the purchasing manager and the appropriate level of company management.

B. current actual cost plus the forecasted 10% price increase.

C. highest price in the anticipated range to insure that there are only favorable purchase price variances.

D. lowest purchase price in the anticipated range to keep pressure on purchasing to always buy in the lowest price range.

Question 28 - IMA 08-P2-30 - Planning and Budgeting Concepts

The type of budget system that projects costs based on future improvements rather than current practices and methods is called:

A. Zero-based budgeting.

B. Activity-based budgeting.

C. Kaizen budgeting.

D. Flexible budgeting.

Question 29 - CMA 1290 3-14 - Planning and Budgeting Concepts

The use of budgetary slack does not allow the preparer to

A. Project actual expenses.

B. Be flexible under unexpected circumstances.

C. Increase the probability of achieving budgeted performance.

D. Use the budget to control subordinate performance.

Question 30 - CMA 1296 H1 - Planning and Budgeting Concepts Which one of the following reasons is not a significant reason for planning in an organization?

A. Forcing managers to consider expected future trends and conditions.

B. Monitoring profitable operations.

C. Developing a basis for controlling operations.

D. Promoting coordination among operating units.

Question 31 - CMA 692 3-11 - Planning and Budgeting Concepts Which one of the following is usually not cited as being an advantage of a formal budgetary process?

A. Ensures improved cost control within the organization and prevents inefficiencies.

B. Serves as a coordination and communication device between management and subordinates.

C. Forces management to evaluate the reasonableness of assumptions used and goals identified in the budgetary process.

D. Provides a formal benchmark to be used for feedback and performance evaluation.

Question 32 - CMA 691 3-27 - Planning and Budgeting Concepts

A controllable expense

A. Is an expected future expense that will be different under various alternatives.

B. Is an expense that will remain semivariable in total over the relevant range in a given time period.

C. Is one that is directly influenced at a given level of managerial authority within a given time period.

D. Is an expense whose actual amount will not normally differ from the standard (budget) amount.

Question 33 - CMA 1290 3-16 - Planning and Budgeting Concepts

All of the following are characteristics of the strategic planning process except the

A. Review of the attributes and behavior of the organization's competition.

B. Emphasis on the long run.

C. Analysis and review of departmental budgets.

D. Analysis of external economic factors.

Question 34 - HOCK CMA P3A H9 - Planning and Budgeting Concepts

When the organization develops a plan or plans to prepare for future, often unpredictable events, it is called:

A. Long-term business planning.

B. Contingency planning.

C. Short-term business planning.

D. Capital budgeting.

Question 35 - CMA 691 H1 - Planning and Budgeting Concepts

Kallert Manufacturing currently uses the company's budget only as a planning tool. The company decided that it would be beneficial to also use budgets for control purposes. In order to implement this change, the management accountant must

A. Synchronize the budgeting and accounting system with the organizational structure.

B. Appoint a budget director.

C. Organize a budget committee.

D. Develop forecasting procedures.

Question 36 - CMA 1292 3-23 - Planning and Budgeting Concepts

The budgeting technique that is most likely to motivate managers is

A. Zero-base budgeting.

B. Top-down budgeting.

C. Bottom-up budgeting.

D. Program budgeting and review technique.

Question 37 - IMA 08-P2-39 - Planning and Budgeting Concepts

Hannon Retailing Company prices its products by adding 30% to its cost. Hannon anticipates sales of $715,000 in July, $728,000 in August, and $624,000 in September. Hannon's policy is to have on hand enough inventory at the end of the month to cover 25% of the next month's sales. What will be the cost of the inventory that Hannon should budget for purchase in August?

A. $509,600

B. $540,000

C. $560,000

D. $680,000

Question 38 - HOCK CMA P3A H7 - Planning and Budgeting Concepts

Which one of the following management considerations does the company usually address first in strategic planning?

A. Overall objectives of the company.

B. Outsourcing.

C. Recent annual budgets.

D. Structure of the organization.

Question 39 - IMA 08-P2-19 - Planning and Budgeting Concepts

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.

B. Team development approach.

C. Imposed approach.

D. Engineering approach.

Question 40 - IMA 08-P2-06 - Planning and Budgeting Concepts

All of the following are advantages of top-down budgeting as opposed to participatory budgeting, except that it:

A. Increases coordination of divisional objectives.

B. Reduces the time required for budgeting.

C. May limit the acceptance of proposed goals and objectives.

D. Facilitates implementation of strategic plans.

Question 41 - IMA 08-P2-35 - Planning and Budgeting Concepts

Stumphouse Cheese is in the process of implementing a cost improvement system with kaizen costing as the basis for budgeting all manufacturing activities. This will be utilized over the next four years in an attempt to become more profitable. The target reduction rate has been set at 5% of fixed overhead costs. Total fixed overhead costs for this year were $900,000. What is the budgeted amount for the next two years using kaizen costing?

Current Year +1, Current Year +2

A. $855,000, $812,250.

B. $900,000, $855,000.

C. $855,000, Unable to determine.

D. $855,000, $810,000.

Question 42 - CMA 692 3-9 - Planning and Budgeting Concepts

The preparation of a comprehensive master budget culminates with the preparation of the

A. Production budget.

B. Cash management and working capital budget.

C. Strategic budget.

D. Capital investment budget.

Question 43 - CMA 1294 H6 - Planning and Budgeting Concepts

The goals and objectives upon which an annual profit plan is most effectively based are

A. Quantitative measures such as growth in unit sales, number of employees, and manufacturing capacity.

B. A combination of financial, quantitative, and qualitative measures.

C. Financial measures such as net income, return on investment, and earnings per share.

D. Qualitative measures of organizational activity such as product innovation leadership, product quality levels, and product safety.

Question 44 - CMA 1290 3-15 - Planning and Budgeting Concepts

From the perspective of corporate management, the use of budgetary slack

A. Increases the probability that budgets will not be achieved.

B. Increases the effectiveness of the corporate planning process.

C. Increases the likelihood of inefficient resource allocation.

D. Increases the ability to identify potential budget weaknesses.

Question 45 - IMA 08-P2-18 - Planning and Budgeting Concepts All of the following statements concerning standard costs are correct except that:

A. Time and motion studies are often used to determine standard costs.

B. Standard costs can be used in costing inventory accounts.

C. Standard costs are usually set for one year.

D. Standard costs are usually stated in total, while budgeted costs are usually stated on a per-unit basis.

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