budget types

Question 1

top down budget

Answer 1

prepared by upper management

given to operating units

Question 2

example of a top down budget

Answer 2

activity based budgeting

Question 3

what is activity based budgeting?

Answer 3

the company sets targets or outputs

the company determines required ‘ACTIVITIES’ to reach targets or outputs

the company determines the cost of these ‘ACTIVITIES’

Question 4

bottom-up budget

Answer 4

each unit is responsible for preparing a budget

unit is responsible for sending budget to upper management

Question 5

baseline budget

Answer 5

based on previous created budget

adjusts to whatever is the current companies situation

Question 6

what 3 things does the zero based budget determines?

Answer 6

determines…
cost
outlay
inflows

Question 7

the zero based budget does not depend on what?

Answer 7

it does not depend on a baseline budget

Question 8

definition for zero based budget

Answer 8

manager has to JUSTIFY every purchase/expense

nothing is automatically approved.. WHY? b/c the company does not want to spend $$$ on anything that is not necessary

Question 9

which budget is the most time consuming to have as a company?

Answer 9

zero based budget

Question 10

fixed budget aka…

Answer 10

aka static budget

Question 11

definition for fixed budget

Answer 11

does not change as the company changes

when the company business increases (aka theyre making more money) the company does not allocate money to its own company

so as the company makes more money it keeps more profit and does not invest the profit towards the company

Question 12

flexible budget

Answer 12

constantly changes depending on the companies performance $$$

Question 13

flexible budget is based on what?

Answer 13

rate per unit of activity THIS measures efficiency

ex: how many shirts can be made in 1 hr with x amount of employees

Question 14

what can a flexible budget measure?

Answer 14

EFFICIENCY

Question 15

incremental budget

Answer 15

there is a set amount of $$$ that is added to the existing budget

Question 16

which budget can be inefficient?

Answer 16

incremental budget

why? b/c there is a set amount of $$$ that is added to the existing budget NOT considering inflation

so what happens? too. much money or not enough money is added to the base budget, b/c its always a SET AMOUNT

Question 17

what is ‘value proposition budgeting’?

Answer 17

aka being smart with the companies money

critically thinking about where money is being allocated and why

not meant to create strict guidelines, but to make smart financial decisions as a company