Budgeting Full Topic Flashcards
(38 cards)
🎯 What is the learning curve effect in budgeting and cost estimation?
The learning curve effect shows that as a task is repeated, time or cost per unit decreases. E.g., a new employee at a factory needs 8 hours for the first unit, but less for subsequent units due to improved skill.
🧮 Calculate the time for the 5th unit if the first took 8 hours and learning rate is 80% (index = -0.322).
Use T_n = 8 * 5^(-0.322) ≈ 4.77 hours. Shows that with experience, production time reduces—common in training scenarios like baking or assembly lines.
🧠 What is a budget?
A budget is a financial plan for income and expenses. E.g., a household budgets $200 monthly for groceries to manage spending.
📊 What are the purposes of budgeting?
Purposes include planning, coordination, control, and performance evaluation. E.g., a business uses a budget to ensure spending aligns with revenue.
📘 What is a master budget?
A master budget is a comprehensive plan combining all functional budgets. E.g., it includes sales, production, and cash budgets for a manufacturing firm.
✅ What are the advantages of a master budget?
Provides an overall financial plan and aligns departments. E.g., the sales and production teams work together toward common goals.
📉 What is a flexible budget?
Adjusts according to activity level. E.g., a hotel increases its food cost budget in peak season when guest numbers rise.
✅ What are the advantages of a flexible budget?
It helps control costs at different activity levels. E.g., a bakery manages ingredient costs better with seasonal sales changes.
🚫 What is a fixed budget?
Remains unchanged regardless of activity level. E.g., a library has a fixed monthly budget for utilities.
❌ Disadvantages of a fixed budget?
Does not adjust to actual activity, leading to unrealistic comparisons. E.g., a retail store may overspend during holiday rush.
📋 What is incremental budgeting?
Bases new budgets on previous year’s figures with adjustments. E.g., increasing last year’s training budget by 5%.
✅ Advantages of incremental budgeting?
Simple and stable. E.g., departments easily forecast future expenses with minor adjustments.
❌ Disadvantages of incremental budgeting?
Perpetuates inefficiencies and lacks innovation. E.g., unused budget gets carried forward unnecessarily.
🔍 What is zero-based budgeting (ZBB)?
ZBB requires every cost to be justified from scratch. E.g., a charity must explain every dollar in its yearly budget proposal.
✅ Advantages of ZBB?
Eliminates waste and encourages efficiency. E.g., a business drops underused software subscriptions after review.
❌ Disadvantages of ZBB?
Time-consuming and complex. E.g., a large firm may spend weeks rebuilding each department’s budget.
📆 What is a rolling budget?
Continuously updated by adding a new period as the old one ends. E.g., a company updates its 12-month forecast every month.
📣 What is participative budgeting?
Involves staff in budget setting. E.g., store managers contribute to regional sales targets.
✅ Advantages of participative budgeting?
Improves morale and accuracy. E.g., employees feel more committed to achievable goals.
❌ Disadvantages of participative budgeting?
May lead to budgetary slack. E.g., managers understate revenues to make targets easier.
🧾 What is a cash budget?
Estimates cash inflows and outflows. E.g., a shop forecasts $10,000 in receipts and $7,000 in payments for the month.
📊 What is a capital expenditure budget?
Plans for major investments in assets. E.g., budgeting $100,000 for new delivery vans.
📈 How does budgeting help performance evaluation?
By comparing actual vs. budgeted figures. E.g., a store evaluates why sales were 10% below budget.
📉 What is a variance?
Difference between actual and budgeted results. E.g., budgeted cost = $5,000, actual = $6,000, variance = $1,000 unfavorable.
