8 Budgeting Flashcards
What are six types of budgeting systems?
- Top down vs bottom up budgeting
- Incremental budgeting
- Zero based budgeting
- Rolling budgets
- Activity based budgeting
- Feed-forward control
What does imposed style top down budgeting?
Budget allowance set without permitting the ultimate budget holder to have a say.
What are the advantages of an imposed style budget?
- Involving managers is time consuming
- Managers may not have the skills or motivation
- Senior managers have a better understanding
- May build budgetary slack or bias into the budget
- Fresh perspective is managers don’t get involved
What is a participative budget?
All budget holders are given the opportunity to participate in setting their own budget
What advantages are there to participative budgeting?
- managers feel their opinions matter
- more likely to make achievable plans
- lower level managers will have more knowledge
What are the 8 reasons for a budget?
- Planning
- Control
- Communication
- Co-ordination towards goal
- Evaluation
- Motivation
- Authorisation
- Delegation
Three levels of the performance hierarchy?
Strategic planning, tactical planning, operation planning
What is strategic planning?
Strategic planning is long term, looks at the whole organisation and
defines resource requirements
What is tactical planning?
Tactical planning is medium term, looks at the department/divisional
level and specifies how to use resources
What is operational planning?
Operational planning is very short term, very detailed and is mainly
concerned with control
What are hopwoods three management styles?
Budget constrained style
Profit conscious style
Non accounting style
What is budget constrained style in terms of performance evaluation?
Manager evaluated on
ability to achieve budget
in the short term
What is profit conscious style in terms of performance evaluation?
Manager evaluated on
ability to reduce costs
and increase profit in
the long term
What is non-accounting style in terms of performance evaluation?
Manager evaluated mainly on non accounting performance indicators such as quality and customer satisfaction
What are the behavioural aspects of budget constrained style?
- Job related pressure
- may result in short term decision making at the expense of long term goals
- Can result in poor working relations with colleagues,
- can result in manipulation of data
What are the behavioural aspects of profit conscious style?
- Less job pressure
- better working relations
- Less manipulation of data
What are the behavioural aspects of non accounting style?
- Similar to profit conscious style but there is less concern for accounting information - Requires significant and stringent monitoring of performance against budget
What is an expectation budget?
An expectations budget is a budget set at current achievable levels. This is unlikely to motivate managers to improve but may give more accurate forecasts for resource planning, control and performance evaluation.
What is an aspirations budget?
An aspirations budget is a budget set at a level which exceeds the level currently achieved. This may motivate managers to improve if it is seen as attainable but may also result in an adverse variance if it is too difficult to achieve
What is an imposed budget?
An imposed/topdown budget is ‘a budget allowance which is set without permitting the ultimate budget holder to have the opportunity to participate in the budgeting process
What is a participative budget?
Participative/bottom up budgeting is ‘A budgeting system in which all budget holders are given the opportunity to participate in setting their own budget
What is an incremental budget?
An incremental budget starts with the previous period’s budget or actual results and adds (or subtracts) an incremental amount to cover inflation and other known changes
What are the stages of zero based budgeting?
)Managers should specify, for their responsibility centres, those activities that can be individually evaluated.
(2) Each of the individual activities is then described in a decision package. The decision package should state the costs and revenues expected from the given activity.
(3) Each decision package is evaluated and ranked usually using cost/benefit analysis.(4)The resources are then allocated to the various packages
What is a rolling budget?
A budget (usually annual) kept continuously up to date by adding another accounting period (e.g. month or quarter) when the earliest accounting period has expired.
