Budgeting

Question 1

What are the functions of budgets?

Answer 1

• Planning
• Communicating plans
• Motivating Managers
• Controlling activities
• Evaluating performance of managers

Question 2

What are the two main types of Budget?

Answer 2

Master budgets and sub-budgets

Question 3

Sketch a sales revenue budget:

Answer 3

• Should have 4 quarters and a TOTAL column along the top
• Down the left hand side there should be: Sales volume, sales revenue

Question 4

Sketch a production budget:

Answer 4

• Should have 4 quarters and a TOTAL column along the top
• Down the left hand side there should be: Sales volume, Add closing stock, less opening stock, production

Question 5

Sketch a labour budget:

Answer 5

• Should have 4 quarters and a TOTAL column along the top
• Down the left hand side there should be: Production, Labour Hours, subsequent labour cost

Question 6

Sketch a materials use budget:

Answer 6

• Should have 4 quarters and a TOTAL column along the top
• Down the left hand side there should be: Production, Materials use, Subsequent Materials cost

Question 7

Sketch a production cost budget:

Answer 7

• Should have 4 quarters and a TOTAL column along the top
• Down the left hand side there should be: Output, labour cost, materials cost, fixed overhead spread across quarters, total cost

Question 8

Sketch a CASH BUDGET:

Answer 8

• Along the top there should be 4 quarters and a TOTAL column
• Down the left hand side there should be: Cash receipts (R), Total receipts, Cash Payments (P), Total Payments, Total R less Total P, less closing balance, Add Opening Balance, = closing balance

Question 9

What are the steps in preparing a cash/ cash flow budget?

Answer 9

1 - Calculate cash received from sales
2 - Identify any other cash receipts
3 - Determine amount and timings of payments to suppliers
4 - Identify any other cash payments
5 - Build cash budget and determine closing balances

Question 10

How can cash budgets be used strategically (proactively)?

Answer 10

• Arrange short-term funding
• Arrange investment of cash surpluses
• Arrange for investments to mature when needed
• Arrange for long-term funding

Question 11

How can cash budgets be used reactively?

Answer 11

• Postpone investment projects/ debt repayment
• Delay payments to creditors
• Cut overtime/ layoff staff
• Sell assets
• Cut stocks/ dividends/ r&d

Question 12

List 5 possible sources of cash flow problems?

Answer 12

1. Making losses
2. Asset replacement
3. Effect of inflation
4. Business growth