Budget & Budgetary Control

Question 1

Efficiency Ratio

Answer 1

Standard hrs/Actual hrs x 100

Question 2

Activity Ratio

Answer 2

Standard hrs/Budgeted Hrs x 100

Question 3

Calender Ratio

Answer 3

Available working days/Bud working days x 100

Question 4

Standard Capacity Usage Ratio

Answer 4

Bud Hrs / Max possible Hrs in Bud period x 100

Question 5

Actual Capacity usage ratio

Answer 5

Actual hrs worked/Max possible hrs in a period x 100

Question 6

Actual usage of Budgeted capacity ratio

Answer 6

Actual working hrs/Budgeted working hrs x 100

Question 7

Maximum capcity

Answer 7

max no of days in period x no or workers
or
max no of hrs x no or workers
or
max units that can be manufactured/produce in a perid

Question 8

Practical capacity

Answer 8

Max capacity - sunday,holidays,normal maint/idle time

Question 9

Normal capacity

Answer 9

Average of past 3 years Normal performance (exluding abnormal data)

Question 10

Princinpal Budget Factor

Answer 10

Factors that limits the activities of The Functional Budgets of the Organization

Question 11

What is Flexible budget and give an orgn example

Answer 11

• recognizes diff between fixed/semi vari/variable cost
• it is designed to change in relation to level of activity
• eg ; seasonal product - soft drink industry
  make to order industry
  industry always new products

Question 12

Advantages / Limitations of ZBB

Answer 12

Advantage

• systematic approach to evaluate different activity and rank for resource allocation
• Ensure various functions critical to orgn are performed in best way
• Opportunity to mgt to allocate resoruces after doing proper cost benefit analysis
• Wasteful expenditure easily identified /eliminated
• dept budgets are linked to corp objectives
• can be used for implementing managemet by objective

Limitations of ABB

• many operation problem to implement this technique
• Top management support required
• It is time consuming and costly
• must have trained staff

Question 13

Steps involved in ZBB/process of ZBB

Answer 13

• Determination of set of objects is pre-requisite and essential step
• Deciding application of ZBB whether all areas of orgn on specific areas
• Identify areas where decision are to be taken
• Develop decision package and rank In order of performance
• Preparation of budget that translates decision package into practicable units/items and allocate fin resoruces

ZBB is simply extension of cost benefit analysis to area of corporate planning and budgeting

Question 14

Because single budget system is used to serve several purpose there is danger that they may conflict with each other …pls discuss

Answer 14

single budget system may be conflicting in

• planning and motivation
• planning and performance evaluation roles

planning and motivation
- demanding budgets appropriate for motivation but not for planning . must have easier targets

planning and performance evaluation
- for planning budget are set in advance of budget period based on anticipated circumstances
but performance evaluation should be based on active performance with adjusted budget to understand circumstance under which management operate

Question 15

state with reason whether ZBB or Traditional budgeting will be suitable
- A company producing a certain product has done extensive ZBB exercise in year 1 . The activity level is expected to marginally increase in year 2

Answer 15

since extensive ZBB done in year 1, traditional may be used for year 2

Question 16

state with reason whether ZBB or Traditional budgeting will be suitable
The sales manager of a company selling 3 products has intuitive feeling that in year 2 sales will increase for one product and decrease for other two. His expectation cannot be substantiated with figures

Answer 16

in Traditional budgeting system budgets are prepared on the basis of previous years budget figures with expected change in level of activity and corresponding adjustment to cost and prices
Zero based budgeting the estiamtions or projections are converted into figures. Since sales manager in unable to substantiate his expectations into figures so traditional budgeting will be preffered against zero based budgeting

Question 17

state with reason whether ZBB or Traditional budgeting will be suitable

The top management would like to delegate responsibility to functional managers for their results during year 2

Answer 17

ZBB would be appropriate as ZBB allows top level strategic goals to be implemented into the budgeting process by tying them to specific functional areas of the organization. where costs can be first grouped, then measured against previous results and current expectations

Question 18

Resources are heavily constrained and allocation for budget requirements are very strict

Answer 18

ZBB allocates resources based on order or priority upto the spending cut off level ( max level upto which spending can be made). In an organization where resources are constrained and budget is allocated on requirement basis , ZBB is more appropriate method

Question 19

Difference between traditional budgeting and ZBB

Answer 19

1. Traditional budgeting is ACCOUNTING oriented
   - main stress on previous level of expenditure
   Zero based budgeting is decision oriented approach
   - rational in nature and requires all programs to compete for scare resoruces
2. TB - first reference to past level spending, then inflation/ new programs
   in ZBB decision unit is broken into decision packages
   which are ranked according to top mgt and focus only on decision packages with priority
3. TB - Deliberate inflation of budget so that after cut they still get what they want.
   ZBB -rationale analysis of buget proposal
   manager who inflate are exposed
   approval only to carefully calculated amount
4. TB not as responsive as ZBB
5. TB - top mgt decide whether particular amount to be spent on a decision unit
   in ZBB responsibility shifted from top mgt to decision making unit
6. TB - is a routing approach
   ZBB - straightforward approach - and identifies decision packages that enjoy priority over others

Question 20

Performance based budgeting

Answer 20

PB

• Meaningful relationship between estimated inputs and expected output
• it presents the purpose and objectives for which funds are required
• it presents costs of the programmed proposed or achiving the objectives
• it presents quantities data measuring the accomplishment and work performed under each programme
• PB is a technique of presenting budgets for costs and revenues in terms of functions
• Programmes and activities are correlating the physical and financial aspect of individual items comprising the budget