Chapter 11Multiple ChoiceChoose the letter of the best answer to the questions listed


Chapter 11

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Multiple Choice

Choose the letter of the best answer to the questions listed


I.Which of the following is not an advantage of preparing and using a budget?

a It allows managers to anticipate and prepare for future business conditions

b.It provides managers defined standards used to develop and enforce appropriate cost

control systems

c.It ensures that the first department to request additional funding will receive it

d.It helps managers periodically carry out a self-evaluation of the organization and its

progress toward its financial objectives

2.A budget’s horizon refers to_

a.The amount of profit projected for the business

b.The amount of revenue projected for the business

C.The level of management consulted in preparing the budget

d.The time period included in the budget

3.A long-range budget typically covers_

a.One month

b.One week

c.Five years

d.One year

4.A weekly plan for the number of servers needed in a restaurant and their estimated wages is

an example of a(n)

a.Achievement budget

b.Cash budget

C.Long-range budget

d.Capital budget

5.What type of budget is management’s estimate of all(or any portion of)the income statement?a.Cash budget

b.Operations budget

C.Standards budget

d.Capital budget

6.What type of budget is developed by management to estimate the actual impact on cashbalances that will result from operating,investing,and financing activities?

a.Cash budget

b.Operations budget

c.Standards budget

d.Capital budget

Which of the following is not essential information to have when preparing an operations


a.Knowledge of the organization’s financial objectives

b.Assumptions about the next period’s operations

C.Information from prior periods

d.Knowledge of industry standards for similar operations

8.Forecasting revenues for an operations budget is critical because

a.If revenues are high,the business will be profitable

b.Expected revenues will determine how much the owner will pay in taxes

c.All forecasted expenses and profits will be based on revenue forecasts

d.It is impossible to forecast profits

9.Which of the following types of costs are not included in an operations budget?

a.Mixed costs

b.Fixed costs

C.Variable costs

d.Capitalization costs

10.Bonuses,sick leave,and employee meals are examples of_

a.Payroll allocations

b.Payroll taxes

C.Salary deductions

d.Tax-free income

11.Which of the following is not part of the operations budget monitoring process?

a.Compare actual results to the operations budget

b.Use a bidding process to ensure the best price

c.Identify significant variances

d.Take corrective action or modify the budget

12.Which of the following is not a characteristic of an effective management control system?a.Emphasis on protecting company assets

b.Placing a trusted employee in charge of all financial transactions

C.Cost effectiveness

d.Separation of responsibilities


Choose the letter of the best answer to the questions listed below.

13.An annual budget always includes 12 one-month periods.




Chapter 12

Multiple Choice

hoose the letter of the best answer to the questions listed below.

I.Capital budgets are used to

a.Plan and evaluate purchases of fixed assets

b.Plan and evaluate hiring of new employees

c.Plan and evaluate revenues and expenses associated with the everyday running of a


d.Both a and c

2.The concept that money has different values at different points in time is called

a.Income deferral

b.Time value of money

C.Return on investment

d.Capital investment

3.What is the best definition of compounding?

a.The process of determining the discounted value of money

b.The process of evaluating the risk of an investment

c.The process of money earning interest and growing to a future value

d.Taking inflation into account when evaluating an investment

4.Maximum returns on money invested(ROI)are achieved by utilizing which of the followinginvestment strategies?

a.Increasing the length of time money is invested

b.Defer(delay)any cash flow into the future

c.Increasing the annual rate of return on the investment

d.Both a and c

5.An owner’s ROI can be calculated as follows:

a.Funds invested/Money earned on funds invested

b.Funds invested/Net operating income

C.Net operating income/Funds invested

d.Money earned on funds invested/Funds invested

6.The relationship between the annual savings achieved by an investment and the initial capitalinvested is called the

a.Savings rate of return

b.Book value of the investment

c.Money earned on funds invested

d.Payback period

The length of time it will take to recover 100% of an amount invested is called the_

a.Payout period

b.Return threshold

c.Payback period

d.Savings rate of return

8.In the hospitality industry,

are utilized to compare the price of entering

a business(the investment)with the anticipated,but not guaranteed,returns from that

investment(net operating income).

a.Profit ratios

b.Capitalization rates

C.Book values

d.Property values

9.When investors raise money by selling a portion of ownership in the company,they areutilizing_

a.Capitalization rates

b.Debt financing

C.Property values

d.Equity financing

10.What is the debt coverage ratio?

a.A measure of how much of the investor’s funding comes from debt

b.A measure of how likely the business is to actually have the funds necessary for loan


c.The ratio of the outstanding debt on a property to the market value of that property

d.The ratio of the debt financing on a property to the equity financing

11.Which of the following is not an advantage of leasing capital equipment?

a.Low cost tax advantages


C.Property can be used as collateral for loans

d.Improved return on investment


is generally defined as gross income adjusted for various

deductions allowable by law.

a.Taxable income

b.Accumulated depreciation

c.Realized capital gains

d.Total taxable assessment


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