Budgeting

Question 1

Four types of Budgets are Prepared in this Order

Remember “Sales produce direct cash”

Answer 1

1. Sales budget (based on input from mgmt.,)
2. Production budget (how much will we need to produce)
3. Direct materials budget (needed for above production)
4. Cash Disbursements budget

Question 2

Other Names for Master Budget

Answer 2

Annual Business Plan
Static Budget
Profit Plan
Targeting Budget

Question 3

A flexible budget does what

Answer 3

adjusts the budget amounts for different levels of activity. The flexible budget identifies volume components of variances from planned activity

Question 4

Main reason to prepare a Cash Budget

Answer 4

To anticipate cash flow for investment & to minimize external financing.

Question 5

When is the Cash Budget Typically Prepared

Answer 5

After all other budgets are prepared

Question 6

A firm develops an annual cash budget in order to

Answer 6

The main reason for preparing a cash budget is to anticipate cash flows so that excess cash can be invested and to minimize the need for interim financing.

Question 7

Selling and administrative budgets need to be

Answer 7

detailed in order that the key assumptions can be better understood.

Question 8

Capital Budget

Answer 8

Not part of the Financial Budget

plan for the purchase of capital assets, which will only affect the operating budget through their subsequent effect on expense via depreciation.

Question 9

Operating budgets describe the plan for revenue and expenses and the supporting schedules that go with them. Examples include:

Answer 9

sales, materials, labor, overhead, production, purchases and the forecasting of cash that will be necessary to pay for them.

Question 10

Standards imposed by management without employee input are referred to as:

Answer 10

Authoritative standards.

Question 11

Standards developed in collaboration with employees involved with the work are referred to as:

Answer 11

Participative standards. These budgets take longer to produce.

Question 12

Forecast of sales volume is the first step in the budget development process.

Answer 12

Sales volumes
will drive Product Supply requirements and
by extension, Purchasing and Inventory requirements
and Cash disbursements budget.

Question 13

The goals and objectives upon which an annual profit plan (also known as budgeted, targeted or estimated financial statements) is most effectively based are a combination of

Answer 13

financial, quantitative (number of units), and qualitative (e.g., to be the best) measures. Not all goals and objectives can be quantified.