Chapter 5

Question 1

Principal, budget factor

Answer 1

The factor which limits what organisation can achieve. Invariably this will be sales. Once this budget is set the other budgets can then be calculated.

Question 2

The steps involved in the preparation of the functional budgets

Answer 2

Step one - sales budget (PPF)

Step two- production budget

Set three - raw materials, labour, production,  overheads,

Step four - cost of sales budget, selling anticipation, cost, budget, and general and administration cost budget

Master budgets
Step, five - income statement

step, six cash budget (capital expenditure, budget)

Step 7 statement of financial position

Question 3

Cash budget

Answer 3

A detailed budget of estimated cash, inflows and outflows, incorporating both revenue and capital items 

Question 4

Action to take if a potential shortage in cash is identified

Answer 4

Organise an overdraft

Offer customer discount to pay early

Delay, paying suppliers

Raise other finance