Budgeting

Question 1

Purpose of Budgeting

Answer 1

• Planning
• Facilitating Communication and Coordination
• Allocating Resources
• Controlling Profit and Operations
• Evaluating Performance and Providing Incentives

Question 2

What makes up the master budget?

Answer 2

• Capital Budget
• Cash Budget
• Operational Budgets
• Sales Budget

Question 3

Capital Budget

Answer 3

a plan for the acquisition of capital assets, such as buildings and equipment

Question 4

Cash Budget

Answer 4

• summarizes the various cash inflows and outflows from operations
• plays a critical role in planning the pharmacy organization’s cash needs especially when there is a mismatch of cash in/out-flow

Question 5

Operational Budget

Answer 5

• Budget for production
• Budget for merchandise
• Budget for services
• Cash budget
• Financial statement budget

Question 6

Sales Budget

Answer 6

• Evaluate past sales levels and trends
• General economic trends
• Economic trends in the pharmaceutical industry
• Other factors expected to affect sales in the industry
• Political and legal events
• The intended pricing policy of the pharmacy
• Planned advertising and product promotion
• Expected actions of competitors
• New services contemplated by the pharmacy
• Market research studies

Question 7

T/F; For evaluating past sales levels and trends, the sales budget is used for the pharmacy developing the forecast only.

Answer 7

F; it is used for both the pharmacy developing the forecast and the entire industry

Question 8

Flexible Budgets

Answer 8

• a budget that adjusts or flexes for changes in the volume of activity
• the flexible budget is more sophisticated and useful than a static budget, which remains at one amount regardless of the volume of activity
• anticipate a set sales point and operationalize for that sales point

Question 9

What are the two types of behavioral implications in budgeting?

Answer 9

• budget slack

- participative budgeting

Question 10

budget slack

Answer 10

tendency of people to pad budgets which does not present an accurate picture of expected revenue and expenses

Question 11

participative budgeting

Answer 11

• employees are consulted and involved in setting the budget goal
• gives employees the feeling that it is also their budget
• can be effective but can have shortcomings (i.e. too much participation, too much people involved -> many opinions -> disagreement)

Question 12

What must you take into consideration when preparing a cash budget?

Answer 12

cash flow