Budgetary Control

Question 1

It shows how the cash level will change over the following months.

Answer 1

Cash Budget

Question 2

What is the goal of the cash budget?

Answer 2

To provide management the information on cash surplus or shortages so that management can make decisions to finance any deficit or invest any cash surplus.

Question 3

It is an example of Feedforward Control

Answer 3

Forecasting Cash Flow

Question 4

Four Sections of a Cash Budget

Answer 4

1. Receipts Section
2. Disbursement Section
3. Net Cash Excess or Deficiency
4. Financing Section

Question 5

Steps in Preparing a Cash Budget

Answer 5

1. Prepare the pro-forma cash budget
2. Calculate the projected sales receipts using the sales figures in the sales budget.
3. Calculate the projected cash payments using the purchases figures in the production budget.

Question 6

It consolidates all subsidiary budgets and is normally part of the budgeted income statement.

Answer 6

Master Budget

Question 7

What happens when a master budget is approved?

Answer 7

It acts as instruction and authorization to managers to act to achieve their budgets.

Question 8

What happens when a master budget is not approved?

Answer 8

It will be returned to the budget committee for amendment.

Question 9

What is called when actual results are compared regularly with budgeted results?

Answer 9

Budgetary Control

Question 10

It is prepared based on estimate sales and production volume during planning.

Answer 10

Fixed Budget

Question 11

It is set before the control period and does not subsequently change in response to changes in activity or costs.

Answer 11

Fixed Budget

Question 12

Designed at the planning stage to vary with activity levels.

Answer 12

Flexible Budget

Question 13

Used to show different results from possible activity levels.

Answer 13

Flexible Budget

Question 14

Designed to change as the volume of activity changes.

Answer 14

Flexible Budget

Question 15

A revised budget that reflects the actual activity levels achieved in the budgetary period.

Answer 15

Flexed Budget

Question 16

Formula for Budgeted Cost

Answer 16

BC = BFC + (No. of Units x VCPU)

BC = Budgeted Cost
BFC = Budgeted Fixed Cost
VCPU = Variable Cost Per Unit

Question 17

It is the difference between the budgeted amounts and the actual costs or revenues

Answer 17

Variance

Question 18

It is more detailed than a flexible budget variance analysis.

Answer 18

Standard Costing Variance Analysis

Question 19

It is based on a system of budget centers.

Answer 19

Budgetary Control

Question 20

Features of a Control System

Answer 20

1. Hierarchy of budget centers
2. Clearly identified responsibilities for achieving budget targets
3. Responsibilities for revenues, costs, and use of capital

Question 21

It is a system of accounting that segregates financial information according to responsibility centers.

Answer 21

Responsibility Accounting

Question 22

Types of Responsibility Centers

Answer 22

Cost Centers
Revenue Centers
Profit Centers
Investment Centers

Question 23

It aims to ensure that managers who take responsibility for controlling costs can control them.

Answer 23

Responsibility Accounting

Question 24

It takes place by comparing actual results against the desired figure (budgeted figures), revealing variances between the two, and taking control where variances have occurred, whether favorable or unfavorable.

Answer 24

Feedback Control

Question 25

What feedback is given if the variance is favorable?

Answer 25

Positive

Question 26

What happens if there is positive feedback?

Answer 26

Manager is given credit for encouragement.

Question 27

What feedback is given if the variance is unfavorable?

Answer 27

Negative

Question 28

What happens if there is negative feedback?

Answer 28

A control action is initiated to bring future performance back on target.

Question 29

Example of Feedback Control

Answer 29

Variance Analysis

Question 30

It is a mechanism in the control system that encourages the prevention of problems.

Answer 30

Feedforward Control

Question 31

There is a control action that anticipates what could go wrong, making sure adverse variances do not occur in the first place.

Answer 31

Feedforward Control

Question 32

Behavioral Problems from using Control System

Answer 32

1. Managers may not be involved in the budgeting process. 2. Organization's goals as a whole may not be congruent with the personal goals of the individual manager. 3. Control is exercised at different levels by different managers.

Question 33

Negative Attitudes in Preparing Budgets | Managers may...

Answer 33

1. Feel that they are too busy to spend time budgeting 2. Build slack into their budgets to protect themselves in the future so that variances will always be favorable 3. Feel that a budget plan is too restricting and that they must be given more flexibility in the decisions they make 4. Set their budgets for their budget center without coordinating with other budget centers 5. Become conservative by planning their budgets based on past results instead of looking at opportunities and planning for new ideas

Question 34

Negative Attitudes in Implementing Budgets

Answer 34

1. Managers may put only just enough effort to achieve budget targets without achieving to beat the targets 2. A formal budget may encourage rigidity and discourage flexibility 3. Short-term planning in a budget can provide a myopic view and draw attention away from the long-term consequences of decisions 4. Minimal communication between managers 5. Managers may feel that they need to spend their budgeted allowance full

Question 35

Negative Attitudes Towards the Control Information | Managers may...

Answer 35

1. Feel they have more important work than reviewing accounting control reports 2. Resent the control reports, seeing them as a system of finding fault 3. Not understand accounting control reports 4. Have different set of objectives or beliefs 5. Not trust the reliability of the accounting control reports if there is a flaw in the system 6. Receive delayed accounting control reports 7. Feel they are responsible for variances that are outside their control

Question 36

It is a negative attitude towards budgeting wherein the managers tend to focus on the short-term at the expense of long-term performance.

Answer 36

Short-termism