11 - Budgeting

Question 1

what are the functions of a budget?

Answer 1

• planning
• coordination and controlling
• communicating resources needed and goals
• motivating sales targets
• performance evaluation

Question 2

what is traditional budgeting?

Answer 2

starts with last year’s funding requirements and focuses on money

Question 3

what is incremental budgeting?

Answer 3

same as traditional budgeting

Question 4

what is a disadvantage of incremental budgeting?

Answer 4

does not consider alternatives to current operations

Question 5

what is a zero-based budget?

Answer 5

• starts with a minimum (or zero) figure for the budget and focuses on goals and objectives
• considers alternatives to achieve same result

Question 6

what is activity-based budgeting?

Answer 6

a budget which determines necessary activities and the required resources

Question 7

what is control?

Answer 7

it is a process of ensuring that firm activities conform to plans and that objectives are met

Question 8

what can budgeting help with?

Answer 8

setting a standard against which mgmt can be measured

Question 9

what does transfer pricing help to achieve?

Answer 9

helps to set parameters between two parts of a company and allow fair pricing of g/s traded between

Question 10

what is an example of an action control?

Answer 10

monitor behavior

Question 11

what is an example of a social control?

Answer 11

governance
work culture

Question 12

what is an example of results control?

Answer 12

reporting work outcomes

Question 13

what do feedback controls do?

Answer 13

they monitor the output to the set standards and takes corrective actions if deviation occurs

Question 14

what do feed-forward controls do?

Answer 14

they predict outputs and evaluates them against standards and take proactive action

Question 15

what are examples of responsibility centres?

Answer 15

• cost/exp
• profit
• revenue
• investment

Question 16

what are cost centres?

Answer 16

mgrs who are responsible for the costs they can control and we look at their spending for performance evaluation

Question 17

what are revenue centres?

Answer 17

solely responsible for generating sales and revenue

Question 18

what are profit centres?

Answer 18

accountable for both revenue and costs and we look at both for performance evaluation

Question 19

what are investment centres?

Answer 19

responsible for revenue, costs, cap inv decisions

Question 20

what does the controllability principle state?

Answer 20

• that performance evaluation must be based only on items the mgr can control
• we adjust for uncontrollable items when doing variance analysis

Question 21

what cost do we use for controllable items?

Answer 21

flexed

Question 22

what cost do we use for non-controllable items?

Answer 22

actual