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Chapter 14 Managing for Results TRUE/FALSE (CHAPTER 14) 1. Zero-based budgeting requires the periodic review of all programs, not just new ones. 2. It is difficult for accountants to have a role beyond auditing the financial statements of governments and not-for-profits. 3. Outputs is a term used to indicate the quantity or units of service provided by an activity. 4. One of the principal disadvantages of zero-based budgeting is that it requires budgetary units to provide information that may never be used in the decision process. 5. Many of the benefits of program budgeting may be ascribed to the organizational selfexamination that it requires at the outset. 6. Most accounting organizations support the notion that performance measures should be included in generalpurpose annual financial reports. 7. The stated objective of the National Partnership for Reinventing Government is to reinvent government to work better, cost less, and to get Americans to care about it. 8. GASB SEA reporting proposals focus on measures of efforts, measures of accomplishments, and measures that relate efforts to accomplishments. 9. Rather than cash inflows, the potential benefits of many capital assets can be expressed as cash savings to governments and not-for-profits. 10. It is widely accepted that capital assets should be financed with resources on hand to achieve interperiod equity. ch14 Page 1 MULTIPLE CHOICE (CHAPTER 14) 1. In which of the following steps of the management cycle of governmental and not-for-profit entities are accountants least involved? a) Performing cost benefit analysis on proposed programs. b) Selecting among alternative programs. c) Preparing financial reports. d) Evaluating efficiency and effectiveness of programs. 2. Accountants are actively involved in collecting and analyzing data to be used by public policy makers. Which of the following other groups might also be involved in the data collection and analysis process? a) Statisticians. b) Economists. c) Program managers. d) All of the above. 3. Which of the following groups is least likely to be involved in evaluating the efficiency and effectiveness of government programs? a) Accountants. b) Legislators. c) Economists. d) Statisticians. 4. Which of the following is a true statement regarding the implementation phase of a government program? a) Internal accountants are not involved; only program managers are involved. b) Internal accountants are actively involved, preparing budgets, controlling costs, and preparing operating reports. c) Internal accountants have only a minor role, preparing reports for external parties. d) Internal accountants have final say in program choices. 5. Which of the following is NOT the role of policy makers in solving social problems? a) Selecting among options b) Developing alternatives. c) Appropriating resources required to implement programs d) Establishing expected goals. 6. All governments and notfor-profit entities should establish goals and objectives. Which of the following is a desirable characteristic of an operational objective? a) An operational objective should be open to interpretation. b) An operational objective should be measurable. c) An operational objective should be a statement of aspirations. d) An operational objective should be accomplishable by an unspecified future date. ch14 Page 2 7. An accounting program has determined that preparing students for careers in public accounting is the program's goal. Which of the following measurements is the best outcomes measurement for this accounting program? a) Number of accounting majors that graduate. b) Number of students that pass the CPA examination. c) Number of students in management positions in public accounting firms ten years after graduation. d) Number of students employed in public accounting within one year of graduation. 8. Which of the following groups are involved in auditing a program? a) Accountants. b) Statisticians. c) Economists. d) All of the above. Use the following information to answer Questions 9 and 10. A piece of federal legislation has as one of its objectives improving the health of older Americans. Title 20 of that legislation provides for granting federal funds to governmental or not-for-profit entities to provide nutritious hot meals to older Americans in congregate settings. Senior Citizens Center, a not-for-profit entity, receives funding under this legislation. The Center determines for one-month period, the following: Number of meals served Total number of individuals participating in the program Total meals costs incurred Average cost per meal 9. The numerical value that best represents outputs of this program is a) 400 b) $4.15 c) $860 d) None of the above. 10. The numerical value that best represents outcomes is a) 400 b) $4.15 c) $860 d) None of the above. 11. College professors are evaluated on teaching, research, and service. Which of the following would be a surrogate for the desired operational objective of "engaged in research that expands the horizons of knowledge." a) Value of research grants received. b) Number of publications in peer-reviewed journals. c) Both of the above. d) Neither of the above. 400 25 $860 $4.15 ch14 Page 3 12. At many colleges and universities, students are asked to evaluate the quality of instruction received and course content for all undergraduate courses. The evaluations are used for which of the following? a) As an outcome measure. b) As an output measure. c) As a surrogate for an outcome measure. d) As a surrogate for an output measure. 13. Because of the difficulty of measuring quality teaching, many colleges and universities rely heavily on student evaluations of the quality of instruction and accomplishment of course objectives. Which of the following is (are) a true statement(s)? a) This is a good practice, which may improve the quality of instruction. b) This is a good idea but may have unintended negative consequences by causing faculty to decrease the rigor of a course. c) Both are true. d) Neither is true. 14. Aid for Friends, a not-for-profit entity, provides temporary shelter for the homeless, provides temporary housing and other assistance for victims of spousal abuse, serves meals to the needy in a congregate setting, operates a second-hand clothing store, and operates a food bank to provide food for those temporarily in need. Which of the following is the best statement of operating objectives for Aid for Friends? a) Our objective is to provide food and shelter for the needy. b) Our objective is to provide assistance to those in need. c) Our objective is to provide temporary assistance to those in need. d) Our objective is to help the needy achieve financial independence. 15. Which of the following is NOT an example of a performance budget? a) Program budget. b) Object classification budget. c) Zero-based budget. d) Priority-based budget. 16. Which of the following is true about zero-based budgeting? a) It is a variant of program budgeting. b) It requires activities of the entity to be evaluated over a five-year period. c) It currently is used by most state and local governments. d) It is incremental in approach. ch14 Page 4 17. Help, Inc., a notfor-profit entity dedicated to providing assistance to the needy, has submitted to its governing body a budget that includes the following budgeted expenditures. Nutrition $250,000 Family housing assistance $300,000 Shelter House $200,000 Legal aid $100,000 Medical assistance $150,000 Which of the following best describes the budgeting practices of this entity? a) The entity uses program budgeting techniques. b) The entity uses object classification budgeting techniques. c) The entity uses zero-based budgeting techniques. d) The entity uses priority-based budgeting techniques. 18. Which of the following is true about budgets prepared by entities that use program budgeting techniques? a) The budget package will include information about the object classification expenditures necessary to accomplish a specific goal or objective. b) The budget package will generally include information about the costs of providing a variety of levels of service of the same program. c) The budget package will generally include information about the importance of the activity in accomplishing the entity's objectives, alternatives methods of accomplishing the objective, and the consequences of not performing the activity. d) All of the above can be true. 19. Which of the following is an advantage of program budgeting over traditional budgeting techniques? a) It promotes continuation of existing programs. b) It relates expenditures to objectives. c) It encourages consideration of alternative means of accomplishing the objective. d) Both b) and c). 20. Program budgeting, although highly popular and successful, has many disadvantages or drawbacks. Which of the following is an advantage or benefit of program budgeting? a) It may provide too much information. b) It may be applied perfunctorily after its initial implementation. c) It may not live up to its expectations. d) It may discourage funding at levels other than those that will result in actual increases in results. 21. Which of the following is a reason for governmental and not-for-profit entities to incorporate service efforts and accomplishments (SEA) measures into their management process? a) Measuring and reporting upon helps management determine short-term cash flow requirements. b) SEA measures allow management to make objective assessments about whether the goals of the government are worth achieving. c) SEA reporting fosters sound budgeting and administration. d) SEA fosters budgetary compliance and custodianship of resources. ch14 Page 5 22. Which of the following is not one of the three categories of SEA measures identified by GASB? a) Measures of efforts. b) Measures of financial stewardship. c) Measures of accomplishment. d) Measures that relate efforts to accomplishments. 23. Which of the following is an example of a cost-outcome measure? a) Cost per passenger-mile on public transit. b) Cost per hot meal served. c) Cost per legal case handled. d) Cost per client placed in gainful employment. 24. Which of the following is an example of an efficiency measure? a) Cost per client placed in an appropriate job. b) Cost per ton of garbage collected. c) Cost per gallon of water suitable for drinking. d) Cost per child reading at grade level. 25. With regard to audits of SEA, which of the following might be appropriate for an auditor to do? a) Assess the appropriateness of the organizations basic objectives. b) Verify that the government selected the correct indicators to gauge whether its objectives were achieved. c) Evaluate whether SEA data is fairly presented. d) Evaluate the usefulness of SEA data. Use the following information to answer Questions 26 through 29. The City Swimming Pool is considering several options for maintaining the grounds around the pool area over the next ten years. One option is to buy a tractor with equipment for cleaning the underbrush and cutting the grass. A second option is to contract out with a local Garden and Nursery Center that provides this kind of service. A third option is to hire many local youths to do most of the work by hand. The City already has several small lawnmowers and grass-cutting equipment. Option #1 Cost of tractor and equipment (useful life 10 years) $110,000 Salvage value of tractor in 10 years 10,000 Yearly cost of operator 3,000 Yearly maintenance and upkeep, supplies, etc. 1,500 Option #2 Yearly fees $ 18,000 Option #3 Yearly cost of part-time labor $ 16,000 Yearly cost of supplies, equipment repair, etc. 500 Present value factors @ 6% $1 due in ten years .55839 Annuity of $1 for 10 years 7.36009 ch14 Page 6 26. What is the present value of Option #1? a) $110,000. b) $137,536. c) $148,704. d) $216,721. 27. What is the present value of Option #2? a) $ 10,051. b) $ 18,000. c) $132,482. d) $142,533. 28. What is the present value of Option #3? a) $ 9,213. b) $117,761. c) $118,040. d) $121,441. 29. Which option should the City select based solely on cost? a) Option #1 b) Option #2 c) Option #3 d) Unable to determine. 30. Due to limited resources, Johnson City must select from among the following capital projects. Which project should the City select? a) Court-ordered improvements to the City Jail. b) Repairing the roof on City Hall. c) Replacing an inefficient data processing system with a more efficient system. d) Adding two new cars police to the fleet. 31. Which the of following best describes the role of benefit-cost analysis in the capital budgeting process by governmental and not-for-profit entities? a) It may be used to enhance the objectivity of decision-making. b) Because all costs and all benefits can be quantified, it removes subjectivity from the decision process. c) It eliminates the role of value judgments in the decision-making process. d) It ensures that decisions about capital asset acquisition will be consistent with organizational goals and objectives. ch14 Page 7 PROBLEMS (CHAPTER 14) 1. The City of Greensville is considering automating a process in their accounting department that has been labor-intensive. The equipment currently used in the department can be sold. The new equipment will have a projected useful life of 10 years. The old equipment has a remaining useful life of 10 years. The following data are available to be used in making the decision. Should the City invest in the new equipment? Support your answer with appropriate calculations. Current equipment Current equipment book value Annual depreciation charges Current estimated disposal value New equipment Cost Annual depreciation charge Expected disposal value Labor savings each year Present Value @ 6% $1 due in 10 years Annuity of $1 for 10 years $ 30,000 3,000 4,000 $120,000 10,000 20,000 $ 40,000 .55839 7.36009 2. For each of the following entities or departments, propose at least one measure of outputs and two of outcomes. a) State University Department of Accounting b) City Parks and Recreation Department c) Habitat for Humanity d) American Cancer Society e) University Foundation for support of athletics 3. The City Parks and Recreation Department has determined the following costs related to its very popular 12-week summer youth program. The number of participants in the program has grown significantly over the past few years to 100 participants last year and the Director is preparing for another 10% increase in participants next summer. How much should the Director request for next year? Calculate and defend at least three different budget requests. Direct variable costs for a group of 10 children (group worker and supplies) Number of participants last summer Fixed costs for the summer program Allocated fixed overhead, 25% is directly associated with the program, 75% would not be eliminated if the program were eliminated. Allocated based on number of groups $ 4,500 100 $25,000 $20,000 [Continues on next page.] ch14 Page 8 4. The Kayla Public Library District currently prepares its budget on an object classification basis. Last year s budgeted expenditures included these line items: Salaries Collection purchases Library maintenance Supplies Equipment maintenance Employee benefits Equipment purchases Dues and subscriptions Utilities Bookmobile maintenance The District has decided to use program-based budgeting in the future. Based on your knowledge of libraries, what are three programs that might be included in the District s budget? Establish a program objective for each of those three programs. What are possible measures of inputs, outputs, and outcomes for each program? ch14 Page 9 ESSAYS (CHAPTER 14) 1. One goal of State University is to prepare students to become valuable, contributing members of society. One goal of the Department of Accounting of State University is to prepare students for meaningful careers as professional accountants. What are goals and objectives? How do they differ and how are they similar? What are outputs and outcomes? What are the outputs and the outcomes directly associated with the goals adopted by the University and the Department? How would the University and the Department measure achievement of these goals? 2. GASB has encouraged governmental entities to publish service efforts and accomplishments data. What is the role of auditors in attesting to service efforts and accomplishment data? 3. Many governments use performance budgets in place of, or as a supplement to, the traditional object classification budget. What is a performance budget? What are the advantages and what are the disadvantages of performance budgets over traditional budgets? 4. The Patton Landfill Authority decides to use zero-based budgeting for the first time. Assume that you are asked to prepare the budget decision package for a proposal to establish a 24hour drop off location for large refuse (such as for old appliances, furniture and so forth). Patton County, in which the Authority is located, has recently experienced a surge in the level of illegal dumping. What are four elements that should be included in your budget decision package for the proposed program? ch14 Page 10 ANSWERS TO TRUE/FALSE (CHAPTER 14) 1. 2. 3. 4. 5. 6. 7. 8. 9. 10. T F T T T F F T T F ch14 Page 11 ANSWERS TO MULTIPLE CHOICE (CHAPTER 14) 1. 2. 3. 4. 5. 6. 7. 8. 9. 10. 11. 12. 13. 14. 15. 16. 17. 18. 19. 20. 21. 22. 23. 24. 25. 26. 27. 28. 29. 30. 31. B D B B C B C D A D C C B C B A A D D D C B D B C B C D C A A ch14 Page 12 ANSWERS TO PROBLEMS (CHAPTER 14) Problem 1 Buy new equipment ($120,000) = 1.00000 x $120,000 11,168 = .55839 x $ 20,000 4,000 = 1.00000 x $ 4,000 294,404 = 7.36009 x $ 40,000 $189,572 Purchase price of new equipment Disposal value of new equipment in ten years. Disposal value of old equipment. Cost savings over the ten years. Because the net present value is positive, this is a project that should be undertaken. Problem 2 [Students will have a variety of answers. Remember that outputs measure quantity of service provided while outcomes measure accomplishments.] a) Output: Number of graduates Outcomes: Number of students passing the CPA Exam Number of graduates satisfied in their accounting employment after ten years b) Output: Number of children participating in the summer youth program. Outcomes: Reduction in juvenile crime rates Number of adults satisfied with the youth recreation programs. c) Output: Number of houses built. Outcomes: Reduction in number of families living in substandard housing. Reduction in number of families seeking public assistance for housing. d) Output: Number of brochures mailed. Outcomes: Reduction in the number of deaths related to cancer. Increase in the number of people seeking medical exams for cancer. e) Output: Amount spent in support of athletic programs. Outcomes: Increase in the graduation rate among athletes. Increase in the number of games won. ch14 Page 13 Problem 3 [Students may have a variety of answers but at least one should be a projection based on average cost.] Average Cost Projection $25,000 Fixed costs $45,000 Direct Costs for 10 groups ($4,500 x 10) $20,000 Allocated fixed costs $90,000 / 100 children = $900 average cost per child $900 x 110 children = $99,000 Variable Cost Projection $49,500 ($4,500 x 11 groups) $25,000 Fixed costs $22,000 Allocated fixed costs ($20,000 x 1.10) $96,500 $49,500 ($4,500 x 11 groups) $25,000 Fixed costs $20,500 [$15,000 + ($5,000 x 1.10)] $95,000 Problem 4 [Note: Students will provide a variety of answers to this question.] Possible program categories might include: Bookmobile Teen reading Senior (large-print) reading Children s reading Library district/school district combined programs Community outreach Administrative support. ch14 Page 14 ANSWERS TO ESSAYS (CHAPTER 14) 1. One problem with goals such as these is that accomplishment is difficult to measure. How does one measure "valuable, contributing member of society"? How does one measure "meaningful career as a professional accountant"? Generally, an entity should write its mission statement and then set forth goals and objectives. Goals are generalized statements of aspirations. Operational objectives are specific soughtafter results. Objectives are derived from the organization's mission and its goals, and should be the basis for allocating resources, managing day-to-day activities, and distributing rewards and reprimands. Operational objectives should be doable, measurable, and accomplishable. Outputs indicate the quantity or units of service provided by an activity or entity. Outcomes represent the results of an activity. Outcomes are generally more difficult to measure than outputs. In the absence of measures indicative of true outcomes, organizations often resort to surrogates. The University will probably not be able to measure the desired outcome "valuable, contributing member of society." Outcomes would be very subjective. What makes one a contributing member of society? Is a man or a woman a contributing member of society because he or she becomes a parent, or is his or her contribution measured rather on the contribution made by the children they raise? Are people contributing members of society because they are gainfully employed, because they vote, or because they become leaders in their profession? These are value-driven questions. Perhaps the University will find surrogates, outputs, to measure what appears to be unmeasurable. Output measures might be graduation rates (probably not a good output measure for this goal), employment rates (maybe a slightly better measure). The Department will probably find it somewhat easier to measure outcomes. Surveys of graduates ten years after graduation might well identify the success the students have had in the accounting careers. One would expect that in ten years, graduates who have meaningful careers would be at a supervisory level within their organization. Percentage of graduates in supervisory positions would be an output measure probably. The individual graduate can only define what constitutes a meaningful career. What is meaningful to one graduate may not be meaningful to another. ch14 Page 15 2. The role of auditors in attesting to reports on service efforts and accomplishments (SEA) can be similar to that in expressing an opinion on traditional financial statements. If the SEA data can be measured and reported upon, auditors can verify the measurements. Auditors can be involved not only in verifying the data, but also in evaluating the quality of the internal control system used to collect the SEA data. Auditors are trained in evaluative techniques that transcend the underlying data. We tend to think of auditors as auditors of financial statements, but they can audit almost anything if there are objective standards against which to measure. As SEA data becomes more available, citizens will want the same level of credibility attached to the SEA data as is currently attached to financial statements that have been attested to by a professional. 3. Performance budgets explicitly relate expenditures to operational objectives. Program budgets, the most common type of performance budgets, allocate funds by programs rather than by objects. Programs are composed of activities that are directed toward a common goal. Zero-based budgeting (priority-based budgeting) is a type of program budget. The advantages of program budgeting include the following: a) Relates expenditures to objectives. b) Encourages explicit consideration both of alternative means of achieving the same objective and of whether the objective even needs to be achieved. c) Promotes analysis of the behavior of costs and discourages funding at levels other than those that will result in actual increases in results. d) Invites periodic review of all programs and activities to assure that they are consistent with the entity's current objectives. The main disadvantages of program budgeting include the following: a) May provoke conflict over organizational objectives. b) Encourages governing boards to establish and make known their funding priorities. c) Links dollar expenditures with anticipated outcomes. d) May be prepared conscientiously in the first year and perfunctorily thereafter. e) May be imposed from above and resented by the entity. f) May require adjustments to the computer system to capture the data. g) May present managers with an overwhelming amount of data. h) May not live up to its expectations. i) Decisionmakers may ignore rankings made by program officials. 4. [Note: Students will provide a variety of answers to this question. However, the key elements of any zero-base budget decision package should include:] a) b) c) d) A statement of the activity s objectives; The consequences of not performing the activity; Alternative means of accomplishing the same objective; Expected inputs, outputs and outcomes at various levels of funding. ch14 Page 16 ... View Full Document

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