Distinguish among line- item, responsibility center, and program budgets.

3- 1. Are there any limits on government taxation or spending? Explain.

3- 2. Distinguish among line- item, responsibility center, and program budgets.

3- 3. The Museum of New Art traditionally offers a new exhibit each month, in addition to its permanent collection. Mary Moser, the new museum director, has found that the number of exhibits must be reduced because of financial constraints. The muse-um has always used a line- item budget, but Mary has asked for a program budget for each of the proposed exhibits for the coming year. Explain the difference between the line- item and program budget, and why Mary wants the latter.

3- 4. Distinguish between a top- down and bottom- up budget process.

3- 5. The advantage of a centralized approach to budgeting is that staff has more involvement in setting organizational priorities. True or false?

3- 6. In the past year, a major factory closed in Parsons City. Following the closure, a number of residents moved from the town. Property values are falling, and the mayor believes that a tax cut is necessary to avoid further exodus. He believes that the high unemployment rate will place a substantially increased demand for some public services. On the other hand, the declining population may reduce demand for other services. What budget approach would make the most sense for the city for the coming year? Why?

3- 7. What are the two main categories of functional budgets? Why do you think this might be a useful way to budget?

3- 8. Distinguish between a mandate and an entitlement.

3- 9. What is performance budgeting? What does it try to accomplish? How does the method work?

3- 10. Performance budgeting is concerned more with reducing costs than monitoring outcomes. True or false?

3- 11. Describe zero- based budgeting.

3- 12. Which of the following is not true about zero- based budgeting?

a. generally more costly to prepare

b. reevaluates all program activities every year

c. most commonly used budget method d. reduces “ slack” in budgets

3- 13. What is a flexible budget?

3- 14. Many managers simply average historical data to get a forecast of future results. Is that approach adequate?

3- 15. What is the principal advantage of curvilinear forecasting?

3- 16. A carefully done computerized analysis should be sufficient for most forecasts. True or false? Why?

3- 17. What are two forecasting techniques that can be used if no historical data are available?

3- 18. What do functional financial statements do?

Questions for Discussion – Chapter Four

4- 1. What is a “cost objective”?

4- 2. Distinguish among full, direct, and indirect costs.

4- 3. Distinguish among average, fixed, and variable costs.

4- 4. What are marginal costs?

4- 5. What are several reasons that a financial manager says “it depends” rather than directly answering a question about how much something costs?

4- 6. What are some direct and indirect costs of elementary school education? Clearly specify your cost objective.

4- 7. Why is the relevant range the key to the difference between variable and marginal costs?

4- 8. What is an allocation base, and how is it used in set-ting allocation rates?

4- 9. What is the focus of ABC (activity-based costing)?

4- 10. What approach should be taken in evaluating make-or- buy decisions? That is, should an organization provide a service itself, or outsource it to another organization?

4- 11. What can a manager do if a break- even analysis indicates that a venture will lose money?

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