Lecture 10: Budgeting 1

Question 1

What is a budget?

Answer 1

A budget is a “Quantitative expression of a detailed plan for defined period of time. It may include planned sales volumes and revenues; resource quantities, costs and expenses; assets, liabilities and cash flows.”

Question 2

What are the six functions of budgets?

Answer 2

the six functions of budgets are to help with:

1) Planning
2) Coordinating
3) Communicating
4) Motivating
5) Controlling
6) Evaluating

Question 3

What are the eight stages of building a budget?

Answer 3

1) Communicate objectives and strategy
2) Communicate procedures
3) Determine the limiting factors
4) Prepare a first set of budgets
5) Negotiation (participative process)
6) Co-ordination & review of budgets
7) Final agreement of budgets
8) Ongoing review of budgets

Question 4

What is interesting about the production budget?

Answer 4

The production buget is only in units never in dollars

Question 5

Whats the two equations needed for a production budget?

Answer 5

units needed for sales + desired ending inventory = total needed units

total units needed- unist in begig invesntory =- units to produce

Question 6

What is the basic format for the production budget?

Answer 6

Units needed for sales

+ Desired ending/closing inventory

= Total units needed

• Units in beginning/opening inventory

= Units to produce

Question 7

what are the main types of budget?

Answer 7

1) sales budget
2) production budget
3) purchase budget
4) Direct labour budget
5) Master Budget
6) cash budget

Question 8

what is the fornat for direct material purchase budget?

Answer 8

Quantity necessary to meet production requirements as per material usage budget

+ planned closing inventory

• Planned opening inventory

= Total Units to purchased
@ planned unit purchase price

= total purchased

Question 9

what is the format for a direct labor budget?

Answer 9

Direct Labour Budget
Budgeted production Units
X hours per unit

= Total budgeted hours

X budgeted wage rte per hour
= Total wages

Question 10

what is the format for a Cash Budget?

Answer 10

Cash budget for the year:

Opening Cash balance

+ cash receipts from debtors
- cash payments (purchase of raw materials, wages, other costs and expenses)

= Excess (deficiency) of cash available over payments

+ Borrowings (bank loans)
- Repayments and Interest

= Closing Cash balance,