Budgeting

Question 1

What is a budget?

Answer 1

Budgets are plans of action for future periods

Question 2

What are the functions of budgeting?

Answer 2

Planning annual operations
Coordinating activities of various parts of an organisation
Communicating plans
Motivating managers
Controlling activities
Evaluating manager performance

Question 3

What is a conventional budget?

Question 4

What is a zero based budget?

Question 5

What are activity based budgets?

Question 6

What are the stages in the budgeting process?

Answer 6

1. Communicate objectives and strategy to those responsible for preparing the budget
2. Communicate procedures
3. Determine factors that restrict performance
4. Initial budget preparation
5. Negotiation
6. Coordination and review of budgets
7. Final agreement of budgets
8. Review of budgets

Question 7

What is the difference between the top down and bottom up approach in budget preparation

Question 8

What is the sales budget?

Answer 8

The sales budget shows the planned quantities of each product to be sold and the intended selling price

Question 9

What is the production budget?

Answer 9

Ensures that production is sufficient to meet sales demand and maintain economic inventory levels

Question 10

What is the material usage budget?

Question 11

What is the purchase budget

Answer 11

Used to purchase the planned quantities of raw materials necessary to meet production requirements

Question 12

What is the labour cost budget

Answer 12

Provides the estimates of department labour hours required to meet planned production

Question 13

What is the factory overhead budget

Question 14

What is the selling and distribution cost budget

Question 15

What is the cash budget

Answer 15

Translates plans into cash flows

Question 16

What is the capital expenditure budget

Question 17

What is the master budget

Answer 17

The summary of a company’s plans that sets targets for sales, production, distribution and financing activities

Question 18

What is a fixed budget

Question 19

What is a flexible budget

Question 20

What is a rolling budget

Question 21

What are the strengths and weaknesses of using spreadsheets?

Question 22

What are the behavioural aspects of budgeting?

Question 23

What is incremental budgeting?

Question 24

What are the limitations of traditional budgeting?

Question 25

What is activity-based budgeting?

Answer 25

Authorises the supply of the resources only needed to perform activities that will meet budgeted production and sales volume

Question 26

What are the steps of activity-based budgeting?

Answer 26

1. Estimate the production and sales volume by products and customers
2. Estimate the demand for organisational activities
3. Determine the resources that are required to perform organisational activities
4. Estimate the quantity that must be supplied to meet the demand for each resource
5. Adjust the capacity of resources to match the projected supply

Question 27

What is zero-based budgeting?

Answer 27

Requires that projected expenditure for existing activities should start from zero rather than last year’s budget

Question 28

What are the steps of zero-based budgeting?

Answer 28

1. Describe each organisational activity in a decision package
2. Evaluate and rank decision packages in order of priority
3. Allocate resources based on order of priority up to the spending cut-off

Question 29

What are the criticisms of budgeting?

Answer 29

Time-consuming
Expensive in terms of staff time
Out of touch with manager needs
Focuses on central command and control
It contains fixed targets and incentives which affect behaviour

Question 30

What are the benefits of beyond budgeting?

Answer 30

Adaptive process
Decentralised
Encompasses the entire performance management process