Budgeting Flashcards
Define “participative budget”.
A method of preparing budgets in which managers prepare their own budgets. These budgets are then reviewed by the managers’ supervisor, and any issues are resolved by mutual agreement. This method is widely considered a positive behavioral approach.
Define “strategic budgeting”.
Strategic budgeting is a top-down process, starting with the goals and mission the organization wants to achieve and allocating resources in proportion to priorities.
Define “rolling budget”.
An incremental budget that adds the current period and drops the oldest period. Kaizen (continues improvement) type companies typically use rolling budgets.
Which budget must be down first - production or purchases?
Production must be done first. The production budget establishes how many units must be produced to achieve projected sales volume and inventory level targets.
Define “budgetary slack”.
The deliberate overestimation of expenses or underestimation of revenue for a project.
Budgetary slack may be built into a project for a cushion in case targets are not met.
Define “zero-based budgeting”.
A process of starting over each budget period by justifying each item budgeted. This requires additional work over an incremental approach but may provide more accuracy.
Define “master budget”.
A comprehensive plan for all activities of a company (sales, production, cash management, etc.); this is a static budget: it provides a basis for comparison at a planked level of sales and production and is not usually changed to conform to actual events.
