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MULTIPLE CHOICE QUESTIONS

1. Generally speaking, budgets are not used to:A. identify a company's most profitable products.

B. evaluate performance.C. create a plan of action.D. assist in te control of profit and operations.!. facilitate communication and coordinate activities.

Ans"er: A #$: 1 %ype: &C

. (ic of te follo"ing coices correctly denotes managerial functions tat are commonlyassociated "it budgeting)

*lanning*erformance!valuation

Coordinationof Activities

A. +es +es o

B. +es +es +esC. +es o oD. +es o +es!. o +es o

Ans"er: B #$: 1 %ype: &C

-. A formal budget program "ill almost al"ays result in:A. iger sales.B. more cas inflo"s tan cas outflo"s.C. decreased epenses.D. improved profits.

!. a detailed plan against "ic actual results can be compared.

Ans"er: ! #$: 1 %ype: &C,

/. A budget serves as a bencmark against "ic:A. actual results can be compared.B. allocated results can be compared.C. actual results become inconse0uential.D. allocated results become inconse0uential.!. cas balances can be compared to epense totals.

Ans"er: A #$: 1 %ype: &C

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. %e compreensive set of budgets tat serves as a company's overall financial plan is commonlykno"n as:A. an integrated budget.B. a pro2forma budget.

C. a master budget.D. a financial budget.!. a rolling budget.

Ans"er: C #$: 1 %ype: &C

3. A company's plan for te ac0uisition of long2lived assets, suc as buildings and e0uipment, iscommonly called a:A. pro2forma budget.B. master budget.C. financial budget.D. profit plan.

!. capital budget.

Ans"er: ! #$: 1 %ype: &C

4. (ilson Corporation is budgeting its e0uipment needs on an on2going basis, "it a ne" 0uarterbeing added to te budget as te current 0uarter is completed. %is type of budget is mostcommonly kno"n as a:A. capital budget.B. rolling budget.C. revised budget.D. pro2forma budget.!. financial budget.


5. An organi6ation's budgets "ill often be prepared to cover:A. one mont.B. one 0uarter.C. one year.D. periods longer tan one year.!. all of te above.

Ans"er: ! #$: 1 %ype: &C

7. A manufacturing firm "ould begin preparation of its master budget by constructing a:A. sales budget.B. production budget.C. cas budget.D. capital budget.!. set of pro2forma financial statements.

Ans"er: A #$: 1, / %ype: &C

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18. (ic of te follo"ing budgets is based on many oter master2budget components)A. Direct labor budget.B. $veread budget.C. 9ales budget.

D. Cas budget.!. 9elling and administrative epense budget.

Ans"er: D #$: 1, / %ype:

11. %e budgeted income statement, budgeted balance seet, and budgeted statement of cas flo"scomprise:A. te final portion of te master budget.B. te depiction of an organi6ation's overall actual financial results.C. te first step of te master budget.D. te portion of te master budget prepared after te sales forecast and before te remainder of

te operational budgets.

!. te second step of te master budget.

Ans"er: A #$: 1, / %ype: &C

1. (ic of te follo"ing budgets is prepared at te end of te budget2construction cycle)A. 9ales budget.B. *roduction budget.C. Budgeted financial statements.D. Cas budget.!. $veread budget.

Ans"er: C #$: 1, / %ype:

1-. (ic of te follo"ing "ould depict te logical order for preparing 1; a production budget, ; acas budget, -; a sales budget, and /; a direct2labor budget)A. 12-2/2.B. 2-212/.C. 212-2/.D. -212/2.!. -2122/.

Ans"er: D #$: 1, / %ype:

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1/. %e master budget contains te follo"ing components, among oters: 1; direct2material budget,; budgeted balance seet, -; production budget, and /; cas budget. (ic of tesecomponents "ould be prepared first and "ic "ould be prepared last)

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15. (ic of te follo"ing organi6ations is not likely to use budgets)A. =anufacturing firms.B. =ercandising firms.C.

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. =ay *roduction Company, "ic uses activity2based budgeting, is in te process of preparing amanufacturing overead budget. (ic of te follo"ing "ould likely appear on tat budget)A. Batc2level costs: *roduction setup.B. nit2level costs: Depreciation.

C. nit2level costs: =aintenance.D. *roduct2level costs: nsurance and property taes.!.

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3. 9"anson plans to sell 18,888 units of a particular product during uly, and epects sales toincrease at te rate of 18 per mont during te remainder of te year. %e une -8 and9eptember -8 ending inventories are anticipated to be 1,188 units and 78 units, respectively. $nte basis of tis information, o" many units sould 9"anson purcase for te 0uarter ended

9eptember -8)A. -1,58.B. -,18.C. -,78.D. --,8.!. 9ome oter amount.

Ans"er: C #$: / %ype: A,

4. +ork Corporation plans to sell /1,888 units of its single product in =arc. %e company as,588 units in its =arc 1 finised2goods inventory and anticipates aving ,/88 completed unitsin inventory on =arc -1. $n te basis of tis information, o" many units does +ork plan to

produce during =arc)A. /8,388.B. /1,/88.C. /-,588.D. /3,88.!. 9ome oter amount.

Ans"er: A #$: / %ype: A

5. Coleman, nc., anticipates sales of 8,888 units, /5,888 units, and 1,888 units in uly, August,and 9eptember, respectively. Company policy is to maintain an ending finised2goods inventorye0ual to /8 of te follo"ing mont's sales. $n te basis of tis information, o" many units

"ould te company plan to produce in August)A. /3,588.B. /7,88.C. /7,588.D. ,88.!. 9ome oter amount.

Ans"er: B #$: / %ype: A

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7. %elcer E Company ad -,888 units in finised2goods inventory on December -1. %e follo"ingdata are available for te upcoming year:

anuary

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-. guyen plans to sell /8,888 units of product no. 4 in une, and eac of tese units re0uires fives0uare feet of ra" material. *ertinent data follo".

*roduct o. 4 &a" =aterial

Actual une 1 inventory ,88 15,888 s0uare feet!stimated une -8 inventory /,-88 ) s0uare feet

f te company purcases 81,888 s0uare feet of ra" material during te mont, te estimatedra"2material inventory on une -8 "ould be:A. 11,888 s0uare feet.B. 1-,888 s0uare feet.C. -,888 s0uare feet.D. ,888 s0uare feet.!. some oter amount.

Ans"er: D #$: / %ype: A

se te follo"ing to ans"er 0uestions --2-/:

ort"est manufactures a product re0uiring 8. ounces of platinum per unit. %e cost of platinum isapproimately -38 per ounceH te company maintains an ending platinum inventory e0ual to 18 of tefollo"ing mont's production usage. %e follo"ing data "ere taken from te most recent 0uarterlyproduction budget:

uly August 9eptember

*lanned production in units 1,888 1,188 758

--. %e cost of platinum to be purcased to support August production is:

A. 17,5/8.B. 175,888.C. 88,138.D. -71,358.!. 9ome oter amount.

Ans"er: A #$: / %ype: A

-/. f it takes t"o direct labor ours to produce eac unit and ort"est's cost per labor our is 1,direct labor cost for August "ould be budgeted at:A. 13,88.B. -1,88.

C. --,888.D. -/,588.!. 9ome oter amount.

Ans"er: C #$: / %ype: A

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-. no makes all sales on account, sub@ect to te follo"ing collection pattern: -8 are collected inte mont of saleH 38 are collected in te first mont after saleH and 18 are collected in tesecond mont after sale. f sales for $ctober, ovember, and December "ere 48,888, 58,888,and 38,888, respectively, "at "ere te firm's budgeted collections for December)

A. 15,888.B. 33,888.C. 4-,888.D. 4/,888.!. 9ome oter amount.

Ans"er: C #$: / %ype: A

-3. Iern's makes all sales on account, sub@ect to te follo"ing collection pattern: 8 are collected inte mont of saleH 48 are collected in te first mont after saleH and 18 are collected in tesecond mont after sale. f sales for $ctober, ovember, and December "ere 48,888, 38,888,and 8,888, respectively, "at "as te budgeted receivables balance on December -1)

A. /8,888.B. /3,888.C. /7,888.D. 7,888.!. 9ome oter amount.


-4. Drago makes all sales on account, sub@ect to te follo"ing collection pattern: -8 are collectedin te mont of saleH 38 are collected in te first mont after saleH and 18 are collected in tesecond mont after sale. f sales for une uly, and August "ere 18,888, 138,888, and8,888, respectively, "at "ere te firmFs budgeted collections for August and te companyFs

budgeted receivables balance on August -1)August

CollectionsAugust -1

&eceivables BalanceA. 13,888 15,888B. 14/,888 148,888C. 178,888 1/,888D. 3,888 5,888!. 9ome oter combination of figures not listed above.



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-5. Diego makes all purcases on account, sub@ect to te follo"ing payment pattern:

*aid in te mont of purcase: -8*aid in te first mont follo"ing purcase: 38

*aid in te second mont follo"ing purcase: 18

f purcases for anuary,

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/8. (olfe, nc., began operations on anuary 1 of te current year "it a 1,888 cas balance.

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/1. Grainger's epected cas balance at te end of anuary is:A. 54,888.B. 57,138.C. 7,888.

D. 7/,138.!. 11-,138.

Ans"er: D #$: / %ype: A

/. Grainger's budgeted cas receipts in

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/3. Consider te follo"ing statements about budget administration:

.&egardless of si6e, te budgeting process is a very formal process in all organi6ations..%e budget manual is prepared to communicate budget procedures and deadlines to employees

trougout an organi6ation..!ffective internal control procedures re0uire tat te budget director be an individual oter

tan te controller.

(ic of te above statements is are; true)A. only.B. only.C. only.D. and .!. and .

Ans"er: B #$: 3 %ype:

/4. (ic of te follo"ing statements concerning te budget director is false)A. %e budget director is often te organi6ation's controller.B. %e budget director as te responsibility of specifying te process by "ic budget data "ill

be gatered.C. %e budget director collects information and participates in preparing te master budget.D. %e budget director communicates budget procedures and deadlines to employees trougout

te organi6ation.!. %e budget director usually as te autority to give final approval to te master budget.

Ans"er: ! #$: 3 %ype: &C

/5. !2budgeting:A. often uses speciali6ed soft"are to streamline te budgeting process.B. is an nternet2based budgeting procedure.C. re0uires significant net"ork security provisions.D. is becoming more commonplace as businesses epand teir operations trougout te "orld.!. possesses all of te above attributes.

Ans"er: ! #$: 3 %ype: &C


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/7. Consider te follo"ing statements about 6ero2base budgeting:

.%e budget for virtually every activity in an organi6ation is initially set to te level tat eistedduring te previous year.

.%e budget forces management to retink eac pase of an organi6ation's operations beforeresources are allocated.

.%o receive funding for te upcoming period, individual activities must be @ustified in terms ofcontinued usefulness to te organi6ation.

(ic of te above statements is are; true)A. only.B. only.C. and .D. and .!. , , and .

Ans"er: D #$: 3 %ype: &C

8. Consider te follo"ing statements about companies tat are involved "it internationaloperations:

.Budgeting for tese firms is often very involved because of fluctuating values in foreigncurrencies.

.=ultinational firms may encounter yperinflationary economies..9uc organi6ations often face canging la"s and political climates tat affect business activity.

(ic of te above statements is are; true)A. only.

B. only.C. and .D. and .!. , , and .

Ans"er: ! #$: 3 %ype: &C

1. %e budgeting tecni0ue tat focuses on different pases of a product suc as planning andconcept design, testing, manufacturing, and distribution and customer service is kno"n as:A. cas2flo" budgeting.B. 6ero2base budgeting.C. base budgeting.

D. compreensive budgeting.!. life2cycle budgeting.

Ans"er: ! #$: 4 %ype: &C

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. Consider te follo"ing statements about budgeting and a product's life cycle:

.Budgets sould focus on costs tat are incurred only after a product as been introduced to temarketplace.

.#ife2cycle costs "ould include tose related to product planning, preliminary design, detaileddesign and testing, production, and distribution and customer service.

.(en a life cycle is sort, companies must make certain tat before a commitment is made toa product, te product's life2cycle costs are covered.


Ans"er: D #$: 4 %ype: &C

-. %e difference bet"een te revenue or cost pro@ection tat a person provides, and a realisticestimate of te revenue or cost, is called:A. passing te buck.B. budgetary slack.C. false budgeting.D. participative budgeting.!. resource allocation processing.


/. f a manager builds slack into a budget, o" "ould tat manager andle estimates of revenuesand epenses)

&evenues !pensesA. nderestimate nderestimate

B. nderestimate $verestimateC. $verestimate nderestimateD. $verestimate $verestimate

!. !stimate correctly !stimate correctly



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%e follo"ing events took place "en =anagers A, B, and C "ere preparing budgets for teupcoming period:

.=anager A increased property ta ependitures by "en se "as informed of a recent rate

ike by local autorities..=anager B reduced sales revenues by / "en informed of recent aggressive actions by a ne"

competitor..=anager C, "o supervises employees "it "idely varying skill levels, used te igest "age

rate in te department "en preparing te labor budget.

Assuming tat te percentage amounts given are reasonable, "ic of te preceding cases is are;an eample of building slack in budgets)A. only.B. only.C. only.D. and .

!. and .

Ans"er: C #$: 5 %ype:

3. Consider te follo"ing statements about budgetary slack:

.=anagers build slack into a budget so tat tey stand a greater cance of receiving favorableperformance evaluations.

.Budgetary slack is used by managers to guard against uncertainty and unforeseen events..Budgetary slack is used by managers to guard against dollar cuts by top management in te

resource allocation process.


Ans"er: ! #$: 5 %ype: &C

4. (en an organi6ation involves its many employees in te budgeting process in a meaningful"ay, te organi6ation is said to be using:A. budgetary slack.

B. participative budgeting.C. budget padding.D. imposed budgeting.!. employee2based budgeting.


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5. (ic of te follo"ing outcomes is are; sometimes associated "it participative budgeting)A. !mployees make little effort to acieve budgetary goals.B. Budget preparation time can be some"at lengty.C. %e problem of budget padding may arise.

D.

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Ans"er:A. %otal student body: 1,888 K 1,888 ; L 1,388H

%uition2paying students: 1,388 2 18 L 1,/8Henrollments> per year 1 credit ours semesters M - creditours per class;. %us, 13,888 >enrollments> 1,388 students 18; must be covered.

Classes to be taugt: 13,888 M -8 students per class L /,88 classesH

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"ire!t#Materia$ Pur!%ases Budget

3. %urbo =anufacturing plans to produce 8,888 units, /,888 units, and -8,888 units, respectively,in $ctober, ovember, and December. !ac of tese units re0uires four units of part no. 547,

"ic te company can purcase for 4 eac. %urbo as -,888 units of part no. 547 in stock on9eptember -8.

&e0uired:*repare a direct2material purcases budget for $ctober and ovember if management desires tomaintain an ending ra"2material inventory e0ual to /8 of te follo"ing mont's productionusage.

#$: / %ype: A

Ans"er:$ctober ovember

*lanned production 8,888 /,888nits of part no. 547 / /nits of part no. 547 used in production 58,888 73,888Add: Desired ending inventoryJ -5,/88 /5,888%otal units of part no. 547 needed 115,/88 1//,888#ess: Beginning inventory of part no. 547 -,888 -5,/88nits of part no. 547 to be purcased 5-,/88 18,388Cost per unit 4 4Cost of direct material purcases

J$ctober: /,888 / /8H ovember: -8,888 / /8

5-,588 4-7,88


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Produ!tion and "ire!t#Materia$ Pur!%ases Budgets

3-. 9cot Company plans to sell /88,888 units of finised product in uly 81. =anagement 1;anticipates a gro"t rate in sales of per mont tereafter and ; desires a montly ending

finised2goods inventory in units; of 58 of te follo"ing mont's estimated sales. %ere are-88,888 completed units in te une -8, 81 inventory.

!ac unit of finised product re0uires four pounds of direct material at a cost of 1.8 per pound.%ere are 1,388,888 pounds of direct material in inventory on une -8, 81.

&e0uired:A. *repare a production budget for te 0uarter ended 9eptember -8, 81. ote: A> and part >B> of tis problem, prepare your budget on a 0uarterly not montly; basis.B. ndependent of your ans"er to part >A,> assume tat 9cot plans to produce 1,88,888 units of

finised product for te 0uarter ended 9eptember -8. f te firm desires to stock directmaterials at te end of tis period e0ual to of current production usage, compute te cost

of direct material purcases for te 0uarter.

#$: / %ype: A

Ans"er:A. *ro@ected sales:

uly /88,888August /88,888 1.8; /8,8889eptember /8,888 1.8; //1,888Nuarterly total 1,31,888

%otal 0uarterly sales 1,31,888

Add: Desired 7O-8 inventory /3-,88J 58; -48,//8%otal units needed 1,3-1,//8#ess: 3O-8 inventory -88,888%otal 0uarterly production re0uirement 1,--1,//8

J$ctober sales: //1,888 1.8 L /3-,88

B. =aterial to be used in production 1,88,888 / pounds; /,588,888Add: Desired 7O-8 inventory /,588,888 ; 1,88,888Direct materials needed 3,888,888#ess: 3O-8 inventory 1,388,888*ounds to be purcased during te 0uarter /,/88,888

Direct material cost per pound 1.8%otal 0uarterly cost of purcases 3,388,888

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Budget Lin&ages' Produ!tion( Materia$s( Labor( Ba$an!e S%eet

3/. Atlantic Corporation assembles bicycles by purcasing frames, "eels, and oter parts fromvarious suppliers. Consider te follo"ing data:%e company plans to sell ,888 bicycles during eac mont of te year's first 0uarter.A revie" of te accounting records disclosed a finised2goods inventory of 1,/88 bicycles on

anuary 1 and an epected finised2goods inventory of 1,58 bicycles on anuary -1.Atlantic as /,-88 "eels in inventory on anuary 1, a level tat is epected to drop by at

mont2end.Assembly time totals -8 minutes per bicycle, and "orkers are paid 1/ per our.

Atlantic accounts for employee benefits as a component of direct labor cost. *ension and

insurance costs average per our total;H additionally, te company pays 9ocial 9ecuritytaes tat amount to 5 of gross "ages earned.

&e0uired:

A.Po" many bicycles does Atlantic epect to produce i.e., assemble; in anuary)

B. Po" many "eels must be purcased to satisfy production needs)C. Compute Atlantic's total direct labor cost.D. Briefly eplain o" te company's purcasing activity "ould affect te end2of2period balance

seet.

#$: / %ype: A,

Ans"er:A.

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Produ!tion( Materia$s( and Labor Budgets

3. acobs manufactures t"o products: A and B. %e firm predicts a sales volume of 18,888 units forproduct A and ending finised2goods inventory of ,888 units. %ese numbers for product B are

1,888 and -,888, respectively. acobs currently as 4,888 units of A in inventory and 7,888 unitsof B.

%e follo"ing ra" materials are re0uired to manufacture tese products:

&e0uired for *roduct&a" =aterial Cost per *ound A B

Q .88 pounds+ .8 1 pound 1 poundR 1. - pounds

*roduct A re0uires tree ours of cutting time and t"o ours of finising timeH B re0uires one

our and tree ours, respectively. %e direct labor rate for cutting is 18 per our and 15 perour for finising.

&e0uired:

A. *repare a production budget in units.B. *repare a materials usage budget in pounds and dollars.C. *repare a direct labor budget in ours and dollars for product A.

#$: / %ype: A

Ans"er:

A. A B9ales volume in units 18,888 1,888Add: !nding finised2goods inventory ,888 -,888%otal units re0uired 1,888 1,888#ess: Beginning finised2goods inventory 4,888 7,888%otal units to be produced ,888 3,888

B. &a" =aterial sage A BQ: pounds ,888 18,888+: 1 pound ,888H 1 pound 3,888 ,888 3,888R: - pounds 3,888 15,888

Q: 18,888 pounds .88 8,888+: ,888 K 3,888; pounds .8 4,88R: 15,888 pounds 1. ,88%otal cost 48,888

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C. Cutting*roduction in units ,888Direct labor ours per unit -sage in direct labor ours 1,888

Direct labor rate 18Direct labor cost 18,888

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Ans"er:A. =ont of 9ale $ctober Collections

uly -8,888 / L 1,88August -,888 18 L -,88

9eptember /8,888 1 L 3,888$ctober /,888 48 L -1,88%otal /,88

B. Credit Amount Collected=ont of 9ale 9ales $ctober ovember December uly -8,888 1,88August -,888 -,88 1,/889eptember /8,888 3,888 /,888 1,388$ctober /,888 -1,88 3,48 /,88ovember 8,888 -,888 4,88

December /,88 7,48%otal /,88 /,88 /4,18 /-,-8

%otal collections in te fourt 0uarter 1-,488

Cas% In)$o*s and Cas% Manage+ent

34. %e accounting records of Backspace, nc., revealed an accounts receivable balance of 17,888on anuary 1, 83.

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&e0uired:

A. Compute te company's cas inflo"s for anuary and

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Cas% Budgeting

35. &enson Corporation, a "olesaler, provided te follo"ing information:

=ont=ercandise

*urcases 9alesanuary 1/,888 14,888

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Inter,retation o) Budget "ata

37. 9tiles !nterprises reported te follo"ing cas collections in uly and August from credit sales:

uly August

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Cas% and t%e Budgeting Pro!ess

48. 9erman Company provides services in te retail flooring industry. %e follo"ing information isavailable for 8:

%"enty percent of te firmFs services are for cas and te remaining 58 are on account. $fte credit services, /8 are collected in te mont tat te service is provided, "it teremaining 38 collected in te follo"ing mont.

9ervices provided in anuary are epected to total 8,888 and gro" at te rate of per

mont tereafter.

anuaryFs cas collections are epected to be /8,/88, and mont2end receivables are

forecast at 18,888.

=ontly cas operating costs and depreciation during te first 0uarter of te year are

approimated at 8,888 and 1,888, respectively.

9ermanFs December -1, 8/ balance seet revealed accounts payable balances of 5,888.

%is amount is related to te companyFs operating costs and is epected to gro" to -3,888

by te end of 8Fs first 0uarter. All operating costs are paid "itin -8 days of incurrence. Company policy re0uires tat a 8,888 minimum cas balance be maintained, and

9ermanFs 8/ year2end balance seet so"ed tat te firm "as in compliance "it policyby aving cas of -,888.

&e0uired:A. Determine te sales revenue earned tat "ill appear on te income statement for te 0uarter

ended =arc -1, 8.B. Compute te companyFs first20uarter cas collections.C. Compute te cas balance tat "ould appear on te =arc -1, 8 balance seet.D. (at are some possible actions te company could pursue if, at any time during te 0uarter, it

finds tat te cas balance as fallen belo" te stated minimum.

#$: / %ype: A,

Ans"er:A. %e income statement "ill report revenues earned of 455,1 S8,888 K 8,888 1.8

L 3,88; K 3,88 1.8 L 4,3;T.

B. Collections for te first 0uarter total 433, /8,/88 K 3,88 K 37,-;:

anuary:Given /8,/88

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C. %e ending cas balance is /4,: -,888 anuary 1 balance; K 433, collections; 25,888 December payables; 2 48,888 montly cas epenses -; K -3,888 =arcpayables;.

D. 9everal possible actions include securing a sort2term loan or line of credit, "orking "itclients in an attempt to accelerate inflo"s, and "orking "it vendors to temporarily delaypayments. %e goal is to ave added funds on and so tat operations continue smootly andare not disrupted because of sporadic or ongoing sortages.

Budgeted In!o+e State+ent- Partia$ Ba$an!e S%eet

41. %e follo"ing information relates to D

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"ISCUSSION QUESTIONS

Pur,oses o) Budgeting Sste+s

4. Discuss te importance of budgeting and identify five purposes of budgeting systems.

#$: 1 %ype: &C

Ans"er:Budgets aid in determining o" to ac0uire resources, and "en and o" tese resources souldbe used. n plain and simple terms, a formal budgeting program is a key ingredient to effectivemanagement. %e five purposes of budgeting are to:1. develop a plan of action.. facilitate communication of te plan and coordinate various vie"s "itin an

organi6ation.-. allocate limited resources effectively and efficiently.

/. serve as a bencmark to control profit and operations.. evaluate performance and provide incentives to managers.

Sa$es .ore!ast

4-. #ist several factors tat an organi6ation migt consider "en developing a sales forecast.

#$: 1 %ype: &C

Ans"er: *ast sales levels and economic trends for te firm as "ell as for te industry as a

"ole

General conditions in te economy suc as gro"t or decline, recession or boom, etc. !ternal forces suc as "eater or potential strikes

*olitical or legal factors suc as litigation or ne" legislation

*ricing policies of te organi6ation

Advertising and promotion plans

Competitors' actions

*otential for ne" product lines

=arket researc studies


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Budgetar S$a!&

4/. %ara *ineno, ne"2accounts manager at !ast Bank of Clarion, as been asked to pro@ect o" manyne" accounts se "ill open during 8. %e local economy as been gro"ing, and te bank as

eperienced a 18 increase in te number of ne" accounts over eac of te past five years. n81, te bank ad 18,888 accounts.

%ara is paid a salary, plus a bonus of 8 for every ne" account above te budgeted amount.%us, if te annual budget calls for 1,888 ne" accounts, and 1,858 ne" accounts are obtained, erbonus "ill be 1,388 58 8;.

*ineno believes tat te local economy "ill continue to gro" at te same rate in 8 as it as inrecent years. 9e decided to submit a pro@ection of 488 ne" accounts for 8.

&e0uired:+our consulting firm as been ired by te bank president to make recommendations for

improving te bank's operation. (rite a memorandum to te president defining and eplainingte negative conse0uences of budgetary slack. Also discuss te bank's bonus system for te ne"2accounts manager and o" te bonus program tends to encourage budgetary slack.

#$: 5 %ype: &C

Ans"er:=emorandumDate: %oday%o: *resident, !ast Bank of Clarion

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Parti!i,ative Budgeting

4. ames Corporation, ead0uartered in Cicago, as a manufacturing plant in Dallas. *lantmanagers desire to participate in te company's budget efforts, "ic, for te past 18 years, ave

been andled solely by top eecutives in Cicago. Dallas managers feel tat by becominginvolved, tey can make great strides in terms of improving operating performance of teir agingfacility.

&e0uired:Briefly discuss tis situation, focusing on te benefits and problems of letting Dallas managersparticipate in te company's budgetary efforts.

#$: 5 %ype: &C,

Ans"er:*articipative budgets "ill make te plant managers feel tat teir opinions are valued by top

management and, generally speaking, te plant managers "ill ave a better attitude about tryingto acieve te budget. Additionally, it is possible in tis case tat te participative approac "illresult in a more realistic budget document. Cicago personnel may be too far removed fromdaily activities in Dallas to get an accurate picture of on2going operations.

$n te negative side, a participative budget may take longer to prepare and may lead to somelocal in2figting "en compared "it one tat is imposed from corporate ead0uarters. Also,participative budgets may ave some padding or slack, as te Dallas managers are faced "it anaging facility. %is facility may be inefficient and, "it teir participation, managers may bendte numbers a bit to improve appearance.


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