BUDGETING

Question 1

is a plan, expressed in quantitative terms, on how to acquire and use the resources of an entity during a certain future period of time.

Answer 1

Budget

Question 2

USES OF BUDGETING: (6)

Answer 2

✓ It compels periodic planning.
✓ It provides a means of allocating resources efficiently and effectively.
✓ It enhances cooperation, coordination, communication and motivation.
✓ It provides network for performance evaluation.
✓ It satisfies some legal and contractual requirements.
✓ It directs the activities toward the achievement of organizational goals.

Question 3

LIMITATIONS OF BUDGETING: (5)

Answer 3

✓ Considerable time and costs are required.
✓ Budgets are merely estimates, employing certain amount of judgment, requiring certain modification or revision if necessary.
✓ To be successful, budgetary system requires cooperation of all members of the organization.
✓ Budgets sometimes restrict decision-making process.
✓ The budget program is merely a guide, not a substitute for good management ability.

Question 4

is a comprehensive budget that consolidates the overall plan of the organization within a budget period

Answer 4

Master Budget

Question 5

It consists of all the individual budgets for each of the segments of the organization aggregated or consolidated into one overall budget for the entire firm. (Other terms: pro forma budget, planning budget, forecast budget, master profit plan)

Answer 5

Master Budget

Question 6

Financial Budget (3)

Answer 6

✓ Cash budget
✓ Budgeted balance sheet
✓ Budgeted cash flow statement

Question 7

Operating Budget

Answer 7

✓ Sales budget
✓ Production budget (Direct materials budget, Direct labor budget, Factory overhead budget, Inventory budget)
✓ Budgeted cost of goods sold
✓ Budgeted operating expense
✓ Budgeted operating income
✓ Budgeted net income
✓ Budgeted income statement

Question 8

Appropriation-type budget (4)

Answer 8

✓ Advertising budget
✓ Research and development budget
✓ Joint venture budget
✓ Working capital budget

Question 9

Short-term planning designed to address a specific set of circumstances.

Answer 9

Tactical planning

Question 10

Long-range planning carried out by top management.

Answer 10

Strategic Planning

Question 11

A reporting system wherein the planned level of activity is adjusted to the actual
level of activity before the performance report is prepared. It is also known as variable budget or sliding scale budget.

Answer 11

Flexible Budget

Question 12

A budget prepared for one level of activity within a certain period. It is also known as static budget.

Answer 12

Fixed Budget

Question 13

A budgeting process wherein the current period’s budget is simply adjusted to allow for changes planned for the coming period.

Answer 13

Incremental Budgeting

Question 14

A 12-month budget that rolls forward one month while the current month is
being completed (Other terms: perpetual budget, rolling budget)

Answer 14

Continuous Budget

Question 15

A product’s revenues and expenses are estimated over its entire life cycle (from
research and development to withdrawal of customer support).

Answer 15

Life-Cycle Budget

Question 16

The process of developing budget estimates by requiring all levels of
management to estimate sales, production, and other operating data as though operations were
being initiated for the first time.

Answer 16

Zero-Based Budget

Question 17

A process wherein expenditures are budgeted by purpose.

Answer 17

Program Budgeting

Question 18

A budget plan for annual fixed costs that arises from top management
decisions directly reflecting corporate policy

Answer 18

Discretionary Budget

Question 19

A budgeting that applies the Activity-Based Costing (ABC) principles
and procedures to budgeting.

Answer 19

Activity-Based Budgeting

Question 20

A budget that identifies revenues and costs with an individual controlling
their incurrence

Answer 20

Responsibility Budget

Question 21

A process wherein budgets are prepared by top management with little or
no inputs from operating personnel.

Answer 21

Imposed Budgeting

Question 22

Assumes the continuous improvement of products and processes; the effects of improvement and the costs of their implementation are estimated.

Answer 22

Kaizen Budgeting

Question 23

A group of key management persons (usually composed of the sales
manager, production manager, chief engineer, treasurer and controller) responsible for over-all policy
matters relating to the budget program and for coordinating the budget preparation.

Answer 23

Budget Committee

Question 24

Budgeting process in which information flows top down and bottom up.

Answer 24

Participatory Budgeting

Question 25

It shows a comparison of the actual and budget performance. The budget
variances are also shown on the report.

Answer 25

Budget Report

Question 26

This describes how a budget is prepared and includes a planning calendar
distribution for all budget schedules.

Answer 26

Budget Manual

Question 27

Results when revenues are intentionally underestimated or expenses are
intentionally overestimated during the budgeting process.

Answer 27

Budgetary Slack

Question 28

BENEFITS OF A WELL-PREPARED BUDGET: (5)

Answer 28

1. The budget helps managers align activities and resource allocations with organizational goals.
2. The budget can help promote employee participation, cooperation, and departmental
   coordination.
3. The budget enhances conduct of the managerial functions of planning, controlling, problem
   solving, and performance evaluation.
4. The budget can sharpen management’s responsiveness to changes in both external and internal
   factors.
5. The budget is a model of future performance of a business in time to consider alternative
   measures.