Deck 6: Incremental Budgeting

Question 1

The focus of an incremental budget is on

A) Control of inputs
B) Control over processes
C) Efficiency
D) Effectiveness
E) All of the above

Answer 1

A

Question 2

Which of the following assumptions are NOT made in incremental budgeting?

A) Production processes are effective
B) Production processes are efficient
C) Inputs are fully employed
D) Output is unstable and unpredictable
E) The product produced is needed or desired by consumers

Answer 2

D

Question 3

The problem with using current year-to-date expenses as the expenditure base for the budget is

A) It does not provide a complete year of information
B) The information it provides is up to two years out-of-date
C) It is forecasted information rather than actual expenses
D) All of the above

Answer 3

A

Question 4

Incremental budgeting requires identifying input price increases, based on the Producer Price Index. Which of the following statements best describes recent inflation rates in health care?

A) Producer prices have increased at similar rates as other industries
B) Producer prices have increased at similar rates for all types of healthcare providers
C) Producer prices have increased at different rates for different types of healthcare providers but at similar rates for the same type of providers,
D) Producer prices have increased at different rates between different types of providers and within particular provider groups
E)g., physicians and hospitals

Question 5

Which expenditure base provides the most up-to-date information to construct a budget?

A) Current year-to-date actual
B) Current year budget
C) Last full year actual
D) A combination of year-to-date actual, current year budget, and the last full year actual

Question 6

The problem with using the last full year actual as the expenditure base is

A) Changes in output
B) Changes in input prices
C) Evolution in production technology
D) All of the above

Question 7

When current year-to-date expenditures encompassing the first seven months of the fiscal year are used as the expenditure base and $35,000 was expended, the projected actual for the entire year would be

A) $60,000
B) $70,000
C) $84,000
D) $100,000
E) None of the above

Question 8

Assume projected actual for labor expense in the current year is $1,000,000 and a 5.0% across-the-board salary increase will be given to employees on the first day of the new fiscal year. How much should be budgeted for salaries and wages in the next fiscal year?

A) $1,000,000
B) $1,000,500
C) $1,005,000
D) $1,050,000
E) None of the above

Question 9

Assume 100,000 units of an input currently costing $2.00 per unit are required to produce the forecasted output and a 10% price increase is expected in the sixth month of the budget year. How much should be budgeted for input for the next fiscal year?

A) $200,000
B) $205,000
C) $210,000
D) $220,000
E) None of the above

Question 10

Assume 30,000 units of an input currently costing $2.00 per unit were consumed to produce 6000 outputs in the first six months of the fiscal year. How much should be budgeted for the next year assuming output remains at 1,000 units per month and a 10% price increase is expected in the first month of the budget year?

A) $66,000
B) $120,000
C) $132,000
D) $220,000
E) None of the above

Question 11

Which of the following can a budget manager do to increase their budget in an incremental budgeting system?

A) Select the expenditure base that produces the highest possible starting point for estimating the next year's budget
B) Select the highest possible inflation factor for estimating next year's input prices
C) Incorporate input price increases in the first month of the budget year
D) All of the above

Question 12

Before a budget is submitted, the budget preparer should

A) Recheck their math to ensure it is free of error
B) Review to ensure it meets budget directives
C) Review the request to ensure increases are reasonable
D) All of the above

Question 13

Which of the following cannot be considered a strength of incremental budgeting?

A) Provides a fixed target for managers to work toward
B) Ease of preparation
C) Focuses managerial attention on use of inputs
D) Focuses managerial attention on the short run
E) All of the above are strengths of incremental budgeting

Question 14

Which of the following cannot be considered a weakness of incremental budgeting?

A) Provides a fixed target for managers to work toward
B) Budget allocations are independent of work performed
C) Institutionalizes past spending patterns
D) Encourages short-term thinking in managers
E) Encourages managers to over-estimate budget year output

Question 15

The idea behind gain sharing is

A) Employees will work harder to reduce costs if they receive a portion of the cost savings
B) Employees will work harder to reduce costs if they receive a portion of profits
C) Employees will work harder if they are paid for piece work rather than on salary
D) Employees will work harder if all employees receive equal wages
E) All of the above

Question 16

An effective gain-sharing program requires all of the following EXCEPT

A) An easy to understand gain-sharing formula
B) Gain-sharing payments are a supplement of (rather than replacement for) current compensation
C) Employees are given a say in establishing targets and gain-sharing payments
D) The majority of cost savings be distributed to workers (rather than owners)

Question 17

The primary measure of superior performance when an incremental budget is used

A) Are total actual expenses less than or equal to the budget
B) Is actual cost per output less than or equal to the budget
C) Is marginal cost per output less than or equal to the budget
D) Is actual cost per outcome less or equal to the budget

Question 18

The primary drawback of incremental budgeting is it encourages mangers to

A) Spend more than they are budgeted
B) Spend their entire budget
C) Adopt cost-increasing technology
D) All of the above

Question 19

Medicare expenditures since 2000 have

A) Increased at a slower rate than GDP
B) Increased at approximately the same rate (plus or minus 0.5%) as GDP
C) Increased at twice the rate of GDP
D) Increased at more than three times the rate of GDP

Question 20

Which component of Medicare has increased at the fastest rate since 2006?

A) Hospital expenditures, Part A
B) Physician and outpatient expenditures, Part B
C) Nursing home expenditures, Part C
D) Pharmaceutical expenditures, Part D

Question 21

An incremental budget is most appropriate when

A) Output and revenue have been stable and are expected to remain stable in the future
B) Operations are relatively efficient
C) Production technology is stable
D) All of the above

Question 22

Which of the following is NOT a challenge of incremental budgeting?

A) Historical expenditures may not capture all necessary expenses
B) Current year expenditures do not reflect full year expenditures
C) Identifying appropriate input price increases for the coming year
D) The emergence of new expenses

Question 23

Incremental budgets are also known as fixed or static budget.

Question 24

Incremental budgets are re-adjusted if actual output does not match forecasted output.

Question 25

Incremental budgets encourage managers to over-estimate output to increase their budgets.

Question 26

Incremental budgets encourage managers to spend less than they are budgeted.

Question 27

A master budget indicates what revenues and expenses will be if budget assumptions are met.