Concept explainers
Both the budget process and budgets themselves can impact management actions, both positively and negatively. For instance, a common practice among not-for-profit organizations and government agencies is for management to spend any amounts remaining in a budget at the end of the budget period, a practice often called ‘’use it or lose it” The view is that if a department manager does not spend the budgeted amount, top management will reduce next year’s budget by the amount not spent To avoid losing budget dollars, department managers often spend all budgeted amounts regardless of the value added to products or services. All of us pay for the costs associated with this budget system
Required
Write a half-page report to a local not-for-profit organization or government agency offering a solution to the “use it or lose it” budgeting problem.
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Chapter 22 Solutions
FUNDAMENTAL ACCOUNTING PRINCIPLES
- Many managers complain about the budgeting process. They claim it takes too long, requires too much management time, encourages managers to "pad the budget" because of uncertainties, and creates unnecessary tension among managers. As a result of these charges, some managers and business leaders have called for an abandonment of traditional budgeting practices. However, regardless of budgeting's failures, it continues to be widely used across all types of businesses and not-for-profit enterprises. One reason for the continued use of budgeting is the belief that a competent management team can plan for, manage, and control in large measure the relevant variables that dominate the life of a business. Managers must grapple with uncertainties regardless of whether or not they have a budget. 1 Ask a. Are the managers' complaints about the budgeting process Realistic or Unrealistic? O Realistic O Unrealistic b. Do these complaints create costs for organizations? O Yes O No Mc Graw Prev 1 of…arrow_forwardWhich of the following statements is incorrect concerning budget preparation? A. The rolling budget approach is not often used in practice because it requires that management be in perpetual budgeting mode. B. If a zero-based budgeting approach is used, the annual budgeting process begins with a review of the results of the prior operating period. C. If a participative approach is used to prepare budgets, all levels of management are involved in the budgeting process. D. The preparation of the sales budget is the starting point in the budgeting process for all companies. E. Participative budgeting increases the risk that employees will create budgetary slack.arrow_forwardJim Thome has prepared the following list of statements about budgetary control. Identify each statement as true or false. 2. 3. 4. 5. 6. 7. 8. 9. 10. Budget reports compare actual results with planned objectives. All budget reports are prepared on a weekly basis. Management uses budget reports to analyze differences between actual and planned results and determine their causes. As a result of analyzing budget reports, management may either take corrective action or modify future plans. Budgetary control works best when a company has an informal reporting system. The primary recipients of the sales report are the sales manager and the vice-president of production. The primary recipient of the scrap report is the production manager. A static budget is a projection of budget data at one level of activity. Top management's reaction to unfavourable differences is not influenced by the materiality of the difference. A static budget is not appropriate in evaluating a manager's effectiveness…arrow_forward
- Which one of the following is not considered to be a benefit of participative budgeting? When managers set the final targets for the budget, top management need not be concerned with the overall profitability of current operations. Managers are more motivated to reach the budget goals because they participated in setting them. Individuals at all organizational levels are recognized as being part of the team; this results in greater support of the organization. The budget estimates are prepared by those in direct contact with various activities.arrow_forwardSince budgets affect many people in an organization, they can have significant behavioural implications. Allowing people to participate in setting their own budget targets may improve commitment those targets but create the incentive to build budgetary slack into budget estimates. Required: Explain three disadvantages of budgetary slack from the point of view of The business unit managers who must achieve the budget Corporate managementarrow_forwardWhich of the following statements relating to budgeting is NOT true? a) A budget is a formal document that quantifies a company’s plans for achieving its goals. b) Budgets are useful in the control process because they provide a basis for evaluating performance. c) A bottom-up approach to budgeting involves substantial input from lower level managers. d) Most managers believe that budgeting is more successful when a top-down approach rather than a bottom-up approach is used.arrow_forward
- All of the following are necessary for budgets to be effective except Select one: a. Employees affected by a budget should be consulted when it is prepared. b. All budgeted amounts must be spent to ensure that budgets arent reduced for the next period c Coals should be challenging and attainable O d Managers must be aware of potential negative outcomes of budgeting. such as budgetary slackarrow_forwardWhich of the following statements is false? Select one: a. According to responsibility accounting, all managers should be held responsible for all asbects of the master budget. o b. Budgets helps uncover potential bottlenecks. c. Budgeting forces managers to think about and plan for the future. o d. One benefit of following a well-designed budgeting process is Improved performance evaluations. e. Budgeted cash collections typically consist of collections on sales made to customers in prior periods plus collections on sales made in the current budget period. Which of the following activities would be classified as a batch-level activity? Select one: a. none of the given answer. b. Designing a new product. c. Milling a part required for the final product. d. Setting up equipment. e. Training employees.arrow_forwardIf a manager is not able to meet the budget and it has been ________________ , the manager can alwayssay that the budget was unreasonable or unrealistic to start with, and therefore was impossibleto meet.arrow_forward
- A budget is most likely to be effective if it is not used to evaluate a manager's performance. employees and managers at the lower levels do not get involved in the budgeting process. it is used to assess blame when things do not occur according to plans. it has top management support.arrow_forwardIs it important for a company to follow a strict budget even though they may be experiencing phenomenal profits? Do you think that there will be a bias towards greed when creating the budget for this company? Explain. How does management greed influence budget decisions? Please consider each of the questions separately in this post. It is important for you to understand the value of the budget as a blueprint for the business – even in times of exceptional “good news”. It is also important to consider the role of greed within the budgeting process of the firm. Perhaps you might want to think about the budget as a communication to employees about what ownership and management believes is its focus. You might even want to see if any other of the exceptional “bad boys” in the business world were reflecting their greed even within their budgeting documents.arrow_forwardWith one exception, the following objectives are accomplished by budgeting. Which of these statements is NOT true about budgeting objectives? Shows management's operating plans for the coming period. O Locks in company spending for the period. O Forces all levels of management to think ahead, anticipate results, and take action to remedy poor results. O Formalizes management's plans in quantitative terms.arrow_forward
- Cornerstones of Cost Management (Cornerstones Ser...AccountingISBN:9781305970663Author:Don R. Hansen, Maryanne M. MowenPublisher:Cengage Learning
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