Q1TI - Horngren'S Financial And Managerial Accounting

Question

Match the following business activities to the steps in capital budgeting process.

Steps in the capital budgeting process:

a. Develop strategies

b. Plan

c. Direct

d. Control

Business activities:

1. A manager evaluates progress one year into the project.

2. Employees submit suggestions for new investments.

3. The company builds a new factory.

4. Top management attends a retreat to set long-term goals.

5. Proposed investments are analyzed.

6. Proposed investments are ranked.

7. New equipment is purchased.

Step-by-Step Solution

Answer

1.	A manager evaluates progress one year into the project.	Control
2.	Employees submit suggestions for new investments.	Plan
3.	The company builds a new factory.	Direct
4.	Top management attends a retreat to set long-term goals.	Develop strategies
5.	Proposed investments are analyzed.	Plan
6.	Proposed investments are ranked.	Plan
7.	New equipment is purchased.	Direct

Step 1:

A manager evaluates progress one year into the project- Under Control, subsequent to obtaining and utilizing the capital assets, companies compare the actual outcomes from the investments to the projected outcomes.

Step 2:

Employees submit suggestions for new investments- A plan is first to recognize potential capital investments.

Step 3:

The company builds a new factory- Under direct, the assets are utilized to produce income and contribute to company profits, and managers must direct the utilization of the assets.

Step 4:

Top management attends a retreat to set long-term goals- Developing strategies are the business's long-term goals, like expanding global activities or being a value leader in one market while channelizing into other market sectors.

Step 5:

Proposed investments are analyzed- The subsequent sub-step of the plan is to analyze the investments utilizing one or more capital budgeting techniques.

Step 6:

Proposed investments are ranked- In planning, capital rationing is the process of ranking and choosing among elective capital investments based on the accessibility of funds.

Step 7:

New equipment is purchased- Direct to acquire and utilize the capital assets selected in the capital rationing process.