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Chapter 22: Q1TI (page 1187)

Match the following statements to the appropriate budgeting objective or benefit: developing strategies, planning, directing, controlling, coordinating and communicating, and benchmarking.

1. Managers are required to think about future business activities.

2. Managers use feedback to identify corrective action.

3. Managers use results to evaluate employees’ performance.

4. Managers work with managers in other divisions.

Short Answer

Expert verified
  1. Planning
  2. Controlling
  3. Benchmarking
  4. Coordinating and communicating

Step by step solution

01

Planning is a budgeting benefit

Managers are required to think about future business activities in a systematic way so that the decisions can be taken as per formalized plan and haphazard decision making can be avoided.

02

Controlling is a budgeting objective

Managers use feedback to identify corrective action.The controlling step is not the end but a start to developing strategies step.

03

 Step 3: Benchmarking is a budgeting benefit

Managersuse results to evaluate employees’ performanceby comparing them with the benchmarks set by the company.

04

Coordinating and communicating is a budgeting benefit

Managers work with managers in other divisions so thatthey can work together to make a single, unified, comprehensive plan for the business.

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Most popular questions from this chapter

Question: List the four budgeting objectives.

Preparing an operating budget—sales budget Brown Company manufactures luggage sets. Brown sells its luggage sets to department stores. Brown expects to sell 1,700 luggage sets for \(180 each in January and 2,050 luggage sets for \)180 each in February. All sales are cash only. Prepare the sales budget for January and February.

Patrick works for McGill’s Computer Repair, owned and operated by Frank McGill. As a computer technician, Patrick has grown accustomed to friends and family members asking for assistance with their personal computers. In an effort to increase his income, Patrick started a personal computer repair business that he operates out of his home on a part-time basis, working evenings and weekends. Because Patrick is doing this “on the side” for friends and family, he does not want to charge as much as McGill’s charges its customers. When Frank McGill assigned Patrick the task of developing the budget for his department, Patrick increased the amount budgeted for computer parts. When the budget was approved, Patrick purchased as many parts as the budget allowed, even when they were not needed. He then took the extra parts home to use in his personal business in an effort to keep his costs down and profits up. So far, no one at McGill’s has asked about the parts expense because Patrick has not allowed the actual amount spent to exceed the budgeted amount.

Requirements

1. Why would Patrick’s actions be considered fraudulent?

2. What can a company do to protect against this kind of business risk?

Preparing an operating budget—cost of goods sold budget Butler Company expects to sell 1,650 units in January and 1,550 units in February. The company expects to incur the following product costs:

Direct materials cost per unit \( 85

Direct labor cost per unit 60

Manufacturing overhead cost per unit 55

The beginning balance in Finished Goods Inventory is 250 units at \)200 each for a total of $50,000. Butler uses FIFO inventory costing method. Prepare the cost of goods sold budget for Butler for January and February.

Southeast Suites operates a regional hotel chain. Each hotel is operated by a manager and an assistant manager/controller. Many of the staff who run the front desk, clean the rooms, and prepare the breakfast buffet work part-time or have a second job, so employee turnover is high.

Assistant Manager/Controller Terry Dunn asked the new bookkeeper to help prepare the hotel’s master budget. The master budget is prepared once a year and is submitted to company headquarters for approval. Once approved, the master budget is used to evaluate the hotel’s performance. These performance evaluations affect hotel managers’ bonuses, and they also affect company decisions on which hotels deserve extra funds for capital improvements.

When the budget was almost complete, Dunn asked the bookkeeper to increase the amounts budgeted for labor and supplies by 15%. When asked why, Dunn responded that hotel manager Clay Murry told her to do this when she began working at the hotel. Murry explained that this budgetary cushion gave him flexibility in running the hotel. For example, because company headquarters tightly control capital improvement funds, Murry can use the extra money budgeted for labor and supplies to replace broken televisions or pay “bonuses” to keep valued employees. Dunn initially accepted this explanation because she had observed similar behavior at the hotel where she worked previously.

Requirements Put yourself in Dunn’s position. In deciding how to deal with the situation, answer the following questions:

1. What is the ethical issue?

2. What are the options?

3. What are the possible consequences?

4. What should you do?
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