Budgeting Flashcards

1
Q

What is a budget?

A

Budgets are plans of action for future periods

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2
Q

What are the functions of budgeting?

A

Planning annual operations
Coordinating activities of various parts of an organisation
Communicating plans
Motivating managers
Controlling activities
Evaluating manager performance

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3
Q

What is a conventional budget?

A
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4
Q

What is a zero based budget?

A
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5
Q

What are activity based budgets?

A
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6
Q

What are the stages in the budgeting process?

A
  1. Communicate objectives and strategy to those responsible for preparing the budget
  2. Communicate procedures
  3. Determine factors that restrict performance
  4. Initial budget preparation
  5. Negotiation
  6. Coordination and review of budgets
  7. Final agreement of budgets
  8. Review of budgets
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7
Q

What is the difference between the top down and bottom up approach in budget preparation

A
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8
Q

What is the sales budget?

A

The sales budget shows the planned quantities of each product to be sold and the intended selling price

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9
Q

What is the production budget?

A

Ensures that production is sufficient to meet sales demand and maintain economic inventory levels

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10
Q

What is the material usage budget?

A
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11
Q

What is the purchase budget

A

Used to purchase the planned quantities of raw materials necessary to meet production requirements

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12
Q

What is the labour cost budget

A

Provides the estimates of department labour hours required to meet planned production

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13
Q

What is the factory overhead budget

A
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14
Q

What is the selling and distribution cost budget

A
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15
Q

What is the cash budget

A

Translates plans into cash flows

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16
Q

What is the capital expenditure budget

A
17
Q

What is the master budget

A

The summary of a company’s plans that sets targets for sales, production, distribution and financing activities

18
Q

What is a fixed budget

A
19
Q

What is a flexible budget

A
20
Q

What is a rolling budget

A
21
Q

What are the strengths and weaknesses of using spreadsheets?

A
22
Q

What are the behavioural aspects of budgeting?

A
23
Q

What is incremental budgeting?

A
24
Q

What are the limitations of traditional budgeting?

A
25
Q

What is activity-based budgeting?

A

Authorises the supply of the resources only needed to perform activities that will meet budgeted production and sales volume

26
Q

What are the steps of activity-based budgeting?

A
  1. Estimate the production and sales volume by products and customers
  2. Estimate the demand for organisational activities
  3. Determine the resources that are required to perform organisational activities
  4. Estimate the quantity that must be supplied to meet the demand for each resource
  5. Adjust the capacity of resources to match the projected supply
27
Q

What is zero-based budgeting?

A

Requires that projected expenditure for existing activities should start from zero rather than last year’s budget

28
Q

What are the steps of zero-based budgeting?

A
  1. Describe each organisational activity in a decision package
  2. Evaluate and rank decision packages in order of priority
  3. Allocate resources based on order of priority up to the spending cut-off
29
Q

What are the criticisms of budgeting?

A

Time-consuming
Expensive in terms of staff time
Out of touch with manager needs
Focuses on central command and control
It contains fixed targets and incentives which affect behaviour

30
Q

What are the benefits of beyond budgeting?

A

Adaptive process
Decentralised
Encompasses the entire performance management process