Jake Palermo has prepared the following list of statements about budgetary contr

Question

Jake Palermo has prepared the following list of statements about budgetary control. Identify each statement as true or false. If false, indicate how to correct the statement.
1. Budget reports compare actual results with planned objectives.
2. All budget reports are prepared on a weekly basis.
3. Management uses budget reports to analyze differences between actual and planned results and determine their causes.
4. As a result of analyzing budget reports, management may either take corrective action or modify future plans.
5. Budgetary control works best when a company has an informal reporting system.
6. The primary recipient of the scrap report is the production manager.
7. A static budget is a projection of budget data at one level of activity.
8. Top management’s reaction to unfavorable differences is not influenced by the materiality of the difference.
9. A static budget is not appropriate in evaluating a manager’s effectiveness in controlling costs unless the actual activity level approximates the static budget activity level or the behavior of the costs is fixed.

Explanation / Answer

1. Budget reports compare actual results with planned objectives. False - Variance reports compare actual results with planned objectives 2. All budget reports are prepared on a weekly basis. False - Budget reports are prepared on a weekly basis, monthly, quaterly or annual basis 3. Management uses budget reports to analyze differences between actual and planned results and determine their causes.False - Management uses variance reports to analyze differences between actual and planned results and determine their causes 4. As a result of analyzing budget reports, management may either take corrective action or modify future plans. True 5. Budgetary control works best when a company has an informal reporting system.False . Budgetary control works best when a company has a formal reporting system 6. The primary recipient of the scrap report is the production manager. True 7. A static budget is a projection of budget data at one level of activity. True 8. Top management’s reaction to unfavorable differences is not influenced by the materiality of the difference. False - Top management’s reaction to unfavorable differences is influenced by the materiality of the difference 9. A static budget is not appropriate in evaluating a manager’s effectiveness in controlling costs unless the actual activity level approximates the static budget activity level or the behavior of the costs is fixed. True Happy to help

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