Budgeting Flashcards
What is incremental budgeting?
Process where budgets are produced using previous budget or actual performance. You then add the amounts that are relevant for the new budget.
What is zero-based budgeting?
Process of preparing a budget from a base of zero. No reference to previous budget or performance. Every department function is reviewed comprehensively.
What are the 3 stages of zero-based budgeting?
1) Identification
2) Ranking
3) Allocation
What is the identification stage?
Activities are identified by managers which are then described and prepared.
What is the ranking stage?
The managers rank the packages in order of decreasing benefits to the organisation.
What is the allocation stage?
Resources are allocated based on order of priority up to the spending level.
What are the 6 processes for the budgetary control system?
1) To compel planning.
2) To co-ordinate activities.
3) To communicate activities.
4) To motivate managers to perform well.
5) To establish a system of control.
6) To evaluate performance.
What are the 5 stages of the product life?
- Product development.
- Introduction.
- Growth.
- Maturity.
- Decline.
What are the 10 stages of the budgetary process?
1) Review the organisations objectives.
2) Review the organisations strategy to achieve their objectives.
3) Identify the organisations current limiting factors.
4) Identify the key budget factor.
5) Prepare the budget for area of key factor.
6) Prepare draft budgets for all other areas.
7) Review and co-ordinate budgets.
8) Communicate budgets to interest parties.
9) Prepare the master budget.
10) Monitor actual performance relative to the budget.
What do budgets help achieve?
- Promotes forward thinking.
- Identification of short-term problems.
- Provides a system of authorisation.
- Motivates managers.
- Provides a basis for a system of control.
- Can help communication between functions.
- Helps to co-ordinate the various functions of a business.
What are the different types of budgets?
- Rolling.
- Participative.
- Non-participative.
- Flexed.
- Incremental.
- Zero-based budgeting.
- Periodic.
What are the advantages of zero-based budgeting?
- inefficient operations can be identified and discontinued.
- Creates a questioning attitude.
- Managers are forced to consider alternative methods of achieving their objectives.
- Leads to increased staff involvement at all levels.
- Resources should be allocated efficiently and economically.
What are the disadvantages of zero-based budgeting?
- Takes time.
- Costly.
- Uses up more resources.
