Jiam_Mgrl_4e_SolutionsManual_Ch10 - Chapter 10 Budgetary...

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Chapter 10 Budgetary Planning and Control Chapter 10 Budgetary Planning and Control QUESTIONS 1. Budgets are useful in the planning process because they increase communication and coordination. Also, they force managers to carefully consider their goals and means to achieve them. 2. Budgets are useful in the control process because they provide benchmarks for evaluating performance. 3. In a top-down approach, budgets are prepared by high level managers without much input from subordinates. In a bottom-up approach, budgets are set with substantial input from subordinates. 4. In a zero-based budget, expenses are justified afresh in each budgeting period. Thus, no continuing project or activity receives funding automatically. 5. A spreadsheet allows you to change assumptions quickly and easily, facilitating “what-if” analysis. You can set up the spreadsheet with formulas representing your assumptions. Then you can change the assumptions in one cell and the spreadsheet will update automatically. 6. Cash receipt and disbursement budgets are prepared so that necessary loans can be arranged to deal with cash shortages (or so that the company can plan to deal with cash surpluses). 7. A static budget is a budget for one anticipated level of business activity. A flexible budget is a set of budget relationships that can be used to prepare budgets for various activity levels. 8. The costs of spoilage, rework, warranty repairs, and returns are some of the financial measures that capture the effect of defects in a process. 9. In absence of budgets, performance in a period might be compared to performance in prior periods to evaluate positive or negative trends. 10. Effective planning requires that managers provide truthful information and estimates for setting budgets. However, because a manager’s performance may be evaluated in comparison to a budget, he or she has an incentive to provide biased information so that budget goals are easier to achieve. Thus, there is inherent conflict between the planning and control uses of budgets. 10-1
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Jiambalvo Managerial Accounting EXERCISES E1. LO 4 If a manager knows that income will exceed the upper bound, he/she may shift income to the next period to increase budget-based compensation in that period. If a manager knows that income will be below the lower bound, he/she may shift income from the next period to obtain the hurdle and variable bonus. E2. LO 4 Budgetary slack can be created by decreasing revenue estimates and increasing expense estimates. Slack makes it more likely that a manager will receive the hurdle bonus and the maximum variable bonus. E3. LO 1 The following features are listed on the Hyperion Web site. Ensure accuracy—validate forecasts with integrated, best-in-class analytics
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This note was uploaded on 04/06/2012 for the course BUS 5601 taught by Professor Muth during the Spring '09 term at FIT.

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Jiam_Mgrl_4e_SolutionsManual_Ch10 - Chapter 10 Budgetary...

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