Budgets Flashcards
1
Q
What are the purposes of budgets?
A
Support managers’ decision making
Examples include resource allocation, performance evaluation, and financial planning.
2
Q
List examples of how budgets support managers’ decision making.
A
- Resource allocation
- Performance evaluation
- Financial planning
3
Q
What is a cash budget?
A
A budget that manages cash flow and ensures liquidity
It includes cash inflows and outflows to maintain operational efficiency.
4
Q
Name specific strategies for managing cash through the cash budget.
A
- Monitoring cash inflows
- Controlling cash outflows
- Maintaining cash reserves
5
Q
What are different financial forecasting techniques used in budgeting?
A
- Historical data analysis
- Trend analysis
- Statistical modeling
6
Q
How are financial forecasting techniques used in budgeting?
A
To predict future financial performance and guide budget preparation
These techniques help in setting realistic financial objectives.
7
Q
What is the significance of analyzing budget variances?
A
To assess performance against the budget and identify areas for improvement
Variance analysis helps in understanding discrepancies between planned and actual results.
8
Q
Fill in the blank: Budgeting helps in _______ decision making.
A
[supporting]
9
Q
True or False: A cash budget only includes planned expenditures.
A
False
It includes both cash inflows and outflows.
10
Q
What is a key objective when analyzing budgets?
A
To report variances and describe their implications
This involves comparing actual performance with budgeted expectations.
11
Q
What is the primary focus of Lesson 4?
A
Budgeting
The lesson emphasizes the importance of budgeting in the context of site management.
12
Q
What role does a site manager play in the budgeting process?
A
The site manager collects rents, verifies receipts, and gathers information for forecasting expenses.
This information is crucial for examining and planning the budget.
13
Q
What is the annual operating budget based on?
A
Information about leases and expenses administered by the site manager.
This reflects the financial activities directly related to property management.
14
Q
What types of information does a site manager gather?
A
- Delinquency rates
- Tenant turnovers
- Competing properties
- Maintenance and renovation details
This information aids in financial planning and marketing strategies.
15
Q
What is variance analysis?
A
The comparison of actual income and expenses to budget projections to identify differences.
Variance analysis helps in spotting trends and understanding financial performance discrepancies.
16
Q
What is a budget?
A
A statement of the financial position of a property or company for a defined period based on estimates of income and expenses.
It serves as a management tool for planning and controlling operations.
17
Q
What features are captured in the definition of a budget?
A
- Financial position
- Defined period of time
- Estimates of income and expenses
These features highlight the dynamic nature of budgeting.
18
Q
What are the management responsibilities involved in budgeting?
A
Directing daily operations and controlling costs and expenditures.
The operating budget and cash budget are specifically designed for these purposes.
19
Q
Fill in the blank: A budget is a tool used by management to _____ and _____ a property’s operations.
A
plan and control
Budgeting is essential for effective management and operational efficiency.
20
Q
What does a capital budget deal with?
A
Setting aside and managing funds to assure the future of a business.
Capital budgets are crucial for long-term planning and investment.
21
Q
What does a budget project?
A
Future income and expenses
Budgets can be used to make fairly accurate projections for decision making.
22
Q
What is the first step in the budgeting process?
A
Check to make sure that the fiscal period is appropriate for the budget
This is essential to ensure the budget aligns with the financial reporting period.
23
Q
What should be compared during the budgeting process?
A
Budgeted income and expense items with actual income and expenses
This involves working account by account to assess performance.
24
Q
What action should be taken if there are discrepancies in the budget?
A
Take corrective measures
This may include consolidating accounts or creating new ones to reflect new activity.
25
What should be analyzed after comparing budgeted and actual figures?
Actual income and expenses for the period
## Footnote
This analysis helps in adjusting future projections.
26
What is the purpose of preparing reports for the property owner?
Describe the relation of actual performance to budget goals
## Footnote
Reports should detail reasons for variations in performance.
27
How should the budgeting process be repeated at the end of the budget period?
By maintaining accurate records during the budget period
## Footnote
This ensures a smooth transition into the next budgeting cycle.
28
What is budgeting described as?
An activity, not a clerical task
## Footnote
It is a process for managing property or business effectively.
29
What are some benefits of budgeting for managers?
* Easing decision making
* Allowing daily operations to be managed more closely
* Controlling costs and expenditures
* Planning for future goals
## Footnote
These benefits help managers meet their operational and financial goals.
30
What are the necessary parts of a budget?
* Receipts
* Operating expenses
* Financing expenses
* Reserves for replacement
## Footnote
Each part plays a crucial role in the overall financial planning.
31
What do operating budgets focus on?
Normal yearly expenses
## Footnote
They typically do not emphasize capital expenses.
32
What financial goals must be considered in budgeting?
* Rate of return on the investment
* Equity
* Other financial objectives specified by the owner
## Footnote
Understanding these goals helps align the budget with ownership requirements.
33
What are the key components of property management finances?
Maintenance, utilities, payroll, advertising, and taxes
34
What are reserves for replacement?
Funds set aside for improvement or rehabilitation of a property
35
What factors must be considered in budgeting for property management?
Ownership requirements and financial goals of the owner
36
What is the purpose of the annual operating budget?
To forecast annual NOI
37
What does NOI stand for?
Net Operating Income
38
When is the operating budget typically prepared in relation to the cash budget?
Before the cash budget
39
What does the operating budget list?
Planned income and expense amounts for each month and for each account
40
What are operating expenses?
Normal, day-to-day expenses of running a property
41
Which expenses are not considered operating expenses?
* Mortgage payments
* Deductions for capital reserves
* Depreciation for tax purposes
* Personal income tax
42
What is the relationship between the operating budget and capital reserves?
Capital reserves for replacement in an annual budget are for that specific year and may be carried over
43
Fill in the blank: The operating budget is a one-year detailed plan for managing a _______.
property
44
True or False: Fiscal years and calendar years must coincide.
False
45
What is one technique to control or stabilize expenses?
Pacing expenditures with income
## Footnote
This is especially important for the cash budget.
46
What is the purpose of a cash-flow budget?
To determine how much actual cash will be generated and needed for operations and debt service during the next budget period.
47
How does a cash-flow budget differ from an operating budget?
The cash-flow budget forecasts when cash will actually come in and when cash outlays must be made.
48
What is a key factor for a property's financial viability?
The flow of cash through a business.
49
What does a cash-flow budget show?
Inflows and outlays of cash.
50
Fill in the blank: The cash-flow budget is usually set up as a _______.
month-by-month budget.
51
True or False: The cash-flow budget is prepared before the operating budget.
False.
52
What type of trends can cash budgets help monitor?
Trends in income and expenses.
53
What is an example of a cash-flow budget line item?
Air conditioning fee payments.
54
What must be projected in an operating budget before creating a cash budget?
Rents, vacancy, and operating expenses for the year.
55
What does the cash-flow budget function as?
A plan for how cash will be received and disbursed over the budget period.
56
What is the significance of analyzing trends in a cash-flow budget?
It provides quick insights into the business's financial health.
57
What can be included in a cash-flow calculation?
Operating, investing, and financing activities.
58
Fill in the blank: The actual results in a cash budget represent the _______.
receipts and disbursements for various categories of cash.
59
What do variances in a cash budget show?
Differences between budgeted figures and actual results.
60
How often can cash-flow budgets turn up information and trends?
Much more quickly due to their shorter time span.
61
What is the primary purpose of a cash-flow budget?
To determine how much actual cash will be generated during the next budget period and how much cash will be needed for operations and debt service.
62
Why are cash budgets important for a business?
They determine whether the business will remain viable by carefully handling cash.
63
What does a cash-flow budget show?
Inflows and outlays of cash.
64
How does a cash-flow budget differ from an operating budget?
The cash-flow budget forecasts when cash actually will come in and when cash outlays must be made.
65
What time span does a cash-flow budget typically focus on?
A shorter time span, often as short as a month.
66
How is the cash-flow budget typically organized?
As a month-by-month budget.
67
What is the relationship between cash-flow budgets and operating budgets?
Both reflect the same business activities and have the same line items.
68
What can cash-flow budgets quickly reveal?
Information and trends regarding cash inflows and outlays.
69
Fill in the blank: The cash-flow budget shows when cash income and outlays actually will happen, while the operating budget shows _______.
[total fee for the year and monthly breakdown]
70
What must be projected in an operating budget before creating a cash-flow budget?
Rents, vacancy, and operating expenses for the year.
71
What activities can a cash-flow budget show cash flows for?
* Operating activities
* Investing activities
* Financing activities
72
True or False: A cash-flow budget is prepared before the operating budget.
False
73
What is typically attached to external reports to show a property's financial health?
A statement of cash flow.
74
What is the main advantage of cash-flow budgets in monitoring cash?
Controlling cash can be accomplished by analyzing trends in income and expenses.
75
What is an example of a cash-flow budget reflecting actual cash outlays?
Showing $3,000 for air conditioning in June, July, and August.
76
What does the cash budget help to assess in a business?
The business's 'vital signs.'
77
What is the importance of cash management for a company?
It can produce significant additional revenue and affects overall financial health.
78
What is a key aspect of being an effective cash manager?
Knowing the status of cash balances and recent cash flows at all times.
79
What is one of the most obvious ways to manage cash inflows?
Having a system for collecting rent efficiently.
80
How can consolidating bank accounts benefit cash management?
It gives easier access to information and better control of cash.
81
What is commingling of funds?
Paying expenses of one property using cash from another property, which is illegal.
82
What should be done with receivables to optimize cash management?
Collect receivables as quickly as possible and deposit them promptly.
83
What does MBWA stand for?
Management by Wandering Around.
84
What is a practical way to ensure realistic budget projections?
Conduct inspections personally to know your business.
85
Why is it important to maintain accurate records of work done?
To track costs of materials and labor for maintenance, repairs, and refurbishing.
86
What are fixed costs?
Costs that do not change as occupancy rates change and are generally stable.
87
Fill in the blank: _______ is a significant part of the budget in real estate due to physical objects.
Materials and labor for upkeep
88
What is the benefit of observing trends in equipment aging?
It allows for timely replacement and service scheduling, saving money.
89
True or False: Commingling of funds is legal and acceptable.
False
90
What is the importance of observing trends in real estate management?
To anticipate aging and replace equipment and other features on time, saving money.
91
What are fixed costs?
Costs that do not change as occupancy rates change and are stable during the budget period.
## Footnote
Examples include insurance and real estate taxes.
92
What are variable costs?
Costs that change with usage, such as electricity and water.
93
How do fixed and variable costs differ in management techniques?
Each kind of cost calls for different management techniques.
94
What are controllable expenses?
Expenses that can be managed and changed by the real estate manager.
95
What are noncontrollable expenses?
Expenses that cannot be managed and whose changes should be expected.
96
What is long-range budgeting?
A technique for estimating future expenditures and return period, forecasting three to five years ahead.
97
What information can long-range budgeting provide for decision making?
It can help in decisions about selling property, renovation profitability, financing, cost control, rent increases, and capital budgeting.
98
What is zero-based budgeting?
A budgeting method that avoids using past budget figures to determine current figures.
99
Why is zero-based budgeting useful?
It prevents automatic insertion of past expenses and incorporates current information instead.
100
When is zero-based budgeting particularly useful?
When historical information is not available or when past expense projections are unreliable.
101
Fill in the blank: Fixed costs are generally stable during the _______.
[budget period]
102
True or False: Variable costs remain constant regardless of occupancy rates.
False
103
List some examples of variable costs.
* Electricity
* Water
104
What does long-range budgeting allow property managers to predict?
Income and expenses in the near-term future.
105
What does zero-based budgeting help to prevent?
The automatic insertion of past expenses into budgets.
106
Fill in the blank: Noncontrollable expenses are those you cannot _______.
[manage]
107
What is zero-based budgeting?
A method for deemphasizing the historical role of income and expenses in creating the current budget.
108
What does zero-based budgeting avoid?
Using past budget figures to determine current figures.
109
Why is zero-based budgeting preferable when historical information is unavailable?
The budget necessarily begins at zero.
110
What is a key factor indicating zero-based budgeting is appropriate?
When projections from past expenses are likely to be unreliable.
111
What does zero-based budgeting help to smooth out?
Variation and consequent uncertainty in expenses.
112
How does zero-based budgeting prevent mistakes?
It avoids bringing inaccurate records into the budget cycle.
113
What is a rent-up budget?
A budget used for new buildings, rehab projects, and properties with abnormal vacancies to estimate income and expenses.
114
What typically happens to a property's income and expenses during the first year?
Income is typically lower while expenses are higher.
115
How should a rent-up budget be set up?
Month by month to reflect changes as a building comes on the market.
116
What does a pro forma budget estimate?
The revenues and expenses of a future project.
117
What is the purpose of a pro forma budget?
To analyze the effects of major changes on a property.
118
What types of variables may be included in a pro forma budget?
* Different floor sizes
* Occupancy rates
* Amenities
* Staffing
119
What is a capital budget?
A budget for planning and controlling a company's capital expenditures.
120
Why must capital budgets be kept separately?
For tax reasons.
121
True or False: Zero-based budgeting allows historical expenses to be automatically included in future budgets.
False
122
Fill in the blank: A rent-up budget estimates income and expenses for the first year of operation or until _______.
[occupancy is stabilized]
123
What is the primary reason for keeping capital budgets separate from other budgets?
For tax reasons.
## Footnote
Capital and capital budgets are distinct concepts; this separation is important for financial reporting and compliance.
124
What is the first step in creating a budget?
Forecasting income and expenses.
## Footnote
This step is crucial for understanding future financial needs and constraints.
125
What should site managers rely on when forecasting future expenses?
Past actual expenses rather than past budgeted expenses.
## Footnote
Actual expenses provide a more accurate basis for future forecasts.
126
What technique is commonly used to arrive at realistic numbers for a forecast?
Averaging.
## Footnote
This technique smooths out fluctuations and helps in making informed predictions.
127
List three tips for effective forecasting.
* Collect information on utility use
* Use zero-based budgeting for payroll expenses
* Keep current tax schedules and rates on file
## Footnote
These tips help maintain accuracy and relevance in budgeting.
128
True or False: Averages should be followed blindly when forecasting expenses.
False.
## Footnote
Averages can be distorted by unusual numbers and should be interpreted carefully.
129
What is a weighted average?
A calculation where certain figures are given proportionally more importance.
## Footnote
This method allows managers to emphasize critical data points in their forecasts.
130
What factors should be examined to forecast future expenses?
* How the expense has changed in the past
* Potential risk factors
* Inflation
## Footnote
Understanding these elements helps in anticipating future costs more accurately.
131
Fill in the blank: Site managers often use _______ to forecast budget figures.
averages.
## Footnote
This method aids in predicting financial performance based on historical data.
132
What are some examples of risk factors that can produce expenses?
* Bad weather
* Nonpaying tenants
* Insurance settlements
## Footnote
These factors can significantly impact budget forecasts and should be considered.
133
Why is it important to factor inflation into forecasts?
Inflation has an enormous effect on costs and expenses over time.
## Footnote
Even in low-inflation periods, ignoring this factor can lead to underestimating future costs.
134
What is a budget variance?
The difference between the amount forecast for an account in a budget and the actual amount spent or earned in the account.
135
What does a favorable variance do to NOI?
Raises NOI.
136
What does an unfavorable variance do to NOI?
Lowers NOI.
137
What is the purpose of variance analysis?
To compare differences between budget figures and actual outlays for a particular budget period.
138
In what types of budgets is variance analysis most often used?
Operating and cash-flow budgets.
139
If the projected electric bill is $2,100 and the actual bill is $2,450, what is the variance?
$350 or 17 percent.
140
Is a variance of $16,000 favorable or unfavorable if the projected rental income is $104,000 and the actual is $120,000?
Favorable.
141
What can budget variances be used to determine?
The causes of differences between actual and forecast amounts.
142
What should be included in a budget variance report?
Budgeted amounts, actual amounts, and budget variances (in dollars and as percentages) for each line item.
143
What does a budget variance report indicate about variances?
All variances should be marked as either favorable (F) or unfavorable (U).
144
What should a narrative in the budget variance report explain?
The rationale for any variances that exceed standards set by the owner or manager.
145
Fill in the blank: A _____ variance decreases NOI.
unfavorable
146
True or False: Variance analysis is only used for preparing new budgets.
False.
147
What is the net total variance if the total favorable variances are greater than the unfavorable ones?
Favorable.
148
What is the purpose of budgets in financial management?
Budgets are foundations for estimating creative action.
149
What should be included in budget reports for better analysis?
A column for approved budget variances.
150
What allows for midyear adjustments in budgeting?
Changes in circumstances or new information.
151
Fill in the blank: The total expenses in the Frostbite Falls Apartments Budget report are _______.
81,996
152
What does NOI stand for in budgeting terms?
Net Operating Income
153
What is calculated by the formula (Actual - Budget)?
Variance
154
True or False: The budget variance report includes both positive and negative variances.
True
155
What does a positive variance indicate?
Actual performance exceeded the budget.
156
What does a negative variance indicate?
Actual performance fell short of the budget.
157
What is the formula to calculate percentage change in budgeting?
(Actual / Budget) × 100
158
Fill in the blank: The effective gross income in the budget report is _______.
763,008
159
What should you do after completing activities 5 and 6 in the workbook?
Check your answers in the lesson 4 activity answer section.
160
What is the cash flow in the Frostbite Falls Apartments Budget report?
79,032
161
What is the impact of a variance labeled as 'F'?
Favorable variance
162
What is the impact of a variance labeled as 'U'?
Unfavorable variance
163
What should be reviewed after checking answers in the workbook?
The learning summary questions.
164
Fill in the blank: The total income in the Frostbite Falls Apartments Budget report is _______.
796,860
165
What is the purpose of the learning activity assignments?
To reinforce understanding of budgeting concepts.
166
What are some notable characteristics of a budget?
Characteristics of a budget include:
* Goal setting
* Decision-making aid
* Resource allocation
* Performance evaluation
* Financial planning
## Footnote
Notable characteristics help in managing finances effectively.
167
What are the basic purposes and uses of an operating budget?
The basic purposes and uses of an operating budget are:
* Planning for revenue and expenses
* Monitoring financial performance
* Guiding day-to-day operations
* Ensuring resource availability
## Footnote
Operating budgets are essential for maintaining financial health.
168
How does a cash budget resemble and differ from an operating budget?
A cash budget resembles and differs from an operating budget in the following ways:
* Resembles: Both are financial plans
* Differs: Cash budget focuses on cash inflows and outflows, while operating budget includes all income and expenses
## Footnote
Understanding these differences is crucial for financial planning.
169
What is zero-based budgeting, and what are some of its advantages?
Zero-based budgeting is a budgeting method where every expense must be justified for each new period. Advantages include:
* Increased accountability
* More efficient resource allocation
* Focus on current needs rather than past expenditures
## Footnote
Zero-based budgeting can lead to cost savings and better financial management.
170
What is the purpose of a pro forma budget?
The purpose of a pro forma budget is to project future financial performance based on hypothetical scenarios.
## Footnote
Pro forma budgets are often used for planning and forecasting.
171
What are unfavorable and favorable budget variances?
Unfavorable and favorable budget variances are:
* Unfavorable variance: Actual expenses exceed budgeted expenses
* Favorable variance: Actual expenses are less than budgeted expenses
## Footnote
Variances affect Net Operating Income (NOI) and indicate financial performance.
172
Fill in the blank: The primary goal of a budget is to aid in _______.
[decision making]
173
True or False: A cash budget includes all income and expenses.
False
174
What is a budget?
A statement of the financial position of a property or company for a defined period of time based on estimates of income and expenses.
175
What is the purpose of budgeting?
To gather information and monitor activities that help managers meet their goals by easing decision making, managing daily operations, controlling costs, and planning for future financial goals.
176
What are necessary parts of a budget?
* Receipts
* Disbursements
* Financing expenses
* Reserves for replacement or rehabilitation of a property
* Financial goals
177
What is the annual operating budget?
A one-year detailed plan for managing a property, forecasting annual NOI, and governing the setup of the cash budget.
178
What does the operating budget include?
* Planned income
* Expense amounts for each month and account
* Variances between budget estimates and actual results
179
What is the difference between the operating budget and the cash-flow budget?
The operating budget forecasts income and expenses, while the cash-flow budget forecasts when cash will come in and out.
180
What is zero-based budgeting?
A budgeting method that starts each account at zero and does not use past budget figures to determine current figures.
181
What is the significance of zero-based budgeting?
It prevents automatic insertion of past expenses into current budgets, which is important if past numbers may be inaccurate.
182
What is a pro forma budget?
A projection used to estimate revenues and expenses of a future project and analyze the effects of major changes on a property.
183
Who can compile a pro forma budget?
* Property manager
* Owner
* Architect
* Contractor
184
What does variance analysis compare?
Differences between budget figures and actual outlays for a particular budget period.
185
What is a budget variance?
The difference between the forecasted amount for an account in a budget and the actual amount spent or earned.
186
What is a favorable variance?
A variance that raises NOI.
187
What is an unfavorable variance?
A variance that lowers NOI.
188
Fill in the blank: A budget captures a swiftly changing _______.
[financial situation]
189
True or False: The cash-flow budget has a longer time span than the annual operating budget.
False
190
What should developers have available for budget creation?
Architectural drawings and plans
## Footnote
Developers should also have an idea of attractive brands and features for the market.
191
Where can a company's purchasing procedures typically be found?
Employee or policy manual
## Footnote
These procedures detail how purchasing should be conducted within the company.
192
What is a common practice for large purchases in companies?
Competitive bidding
## Footnote
Companies often require site managers to seek more than one bid for major purchases.
193
What do companies typically maintain for purchasing?
Lists of preferred suppliers
## Footnote
Preferred suppliers often provide better discounts and extra services due to established relationships.
194
Fill in the blank: Companies may require the site manager to seek more than one ______ on major purchases.
bid
195
What item is being requested in the bid request to suppliers?
Refrigerators
## Footnote
The bid request specifies a quantity of 32 refrigerators with certain features.
196
What are the preferred brands for the requested refrigerators?
Coldaura, Yukon Gold, Glacial Aire
197
What required features should the requested refrigerators have?
Two-door, frost-free, freezer on top, white, 16 cubic feet of capacity, with ice makers
198
True or False: Companies often have a working relationship with their preferred suppliers.
True
199
Fill in the blank: A company can approach several ______ for durable goods.
vendors
200
What should developers have available for budget creation?
Architectural drawings and plans
## Footnote
Developers should also have an idea of attractive brands and features for the market.
201
Where can a company's purchasing procedures typically be found?
Employee or policy manual
## Footnote
These procedures detail how purchasing should be conducted within the company.
202
What is a common practice for large purchases in companies?
Competitive bidding
## Footnote
Companies often require site managers to seek more than one bid for major purchases.
203
What do companies typically maintain for purchasing?
Lists of preferred suppliers
## Footnote
Preferred suppliers often provide better discounts and extra services due to established relationships.
204
Fill in the blank: Companies may require the site manager to seek more than one ______ on major purchases.
bid
205
What item is being requested in the bid request to suppliers?
Refrigerators
## Footnote
The bid request specifies a quantity of 32 refrigerators with certain features.
206
What are the preferred brands for the requested refrigerators?
Coldaura, Yukon Gold, Glacial Aire
207
What required features should the requested refrigerators have?
Two-door, frost-free, freezer on top, white, 16 cubic feet of capacity, with ice makers
208
True or False: Companies often have a working relationship with their preferred suppliers.
True
209
Fill in the blank: A company can approach several ______ for durable goods.
vendors
210
What is the formula to calculate the average increase in expenses?
Average increase = expense × increase expressed as a decimal
211
What was the calculated expense for year 5?
$15,434.64
212
What is more reliable in calculations, actual figures or percentages?
Actual figures are generally more reliable
213
What is often more convenient and vivid in calculations?
Percentages
214
What has been the average yearly increase in the cost of electricity over the past three years?
6.08 percent
215
What should be considered if the cost of electricity rises by 6 percent?
Institute conservation programs
216
What might be a strategy if the property is in a state with deregulated electricity?
Shopping for a better deal
217
What are the common-area costs for year 4?
$179,500
218
What was the dollar change from year 3 to year 4 in common-area costs?
$42,700
219
What is the percentage change from year 3 to year 4 in common-area costs?
31.2%
220
What is the weighted average calculation for the expected increase?
$19,260
221
What is the expected percentage increase based on the weighted average?
10.7%
222
What is the formula to forecast next year's common-area costs?
Forecast = year 4 expense + expected increase
223
What is the forecasted annual expense for year 5?
$198,760
224
What technique might be used to avoid distortion in the decision-making process due to large figures?
Zero-based budgeting
225
What does zero-based budgeting involve?
Creating budgets from zero rather than relying on historical figures
226
What is zero-based budgeting?
A budgeting approach that questions all figures in previous budgets
## Footnote
It requires justifying every expense rather than using the previous year's budget as a baseline.
227
What are some expenses that may be separated out in budgeting due to exceptional circumstances?
Expenses specifically resulting from storms, such as:
* Snow plowing
* Repair to damaged fountains
* Replacement of plants
## Footnote
These costs can skew the overall budget and may need separate analysis.
228
What is the budgeted effective gross figure for River City Residences?
$107,000
## Footnote
This figure represents the expected income before expenses.
229
What was the actual amount collected in income for River City Residences in May?
$113,000
## Footnote
This amount is $6,000 more than the budgeted amount.
230
How much did real estate taxes increase for the month of May?
$5,000
## Footnote
This leads to an annual tax increase projection of $60,000.
231
What is a common management practice regarding real estate tax increases?
Most management companies have policies for appealing tax increases
## Footnote
Appeals often require preparation but can be successful.
232
Fill in the blank: The variance in cash received from rent was ______.
+$8,000
## Footnote
This increase is attributed to a campaign to increase rents.
233
What was the variance for administrative expenses?
-$10,000
## Footnote
This reflects a decrease in administrative costs compared to the budget.
234
What does D.N.A. stand for in the context of budget variances?
Did Not Apply
## Footnote
This indicates that certain factors did not affect the budgeted figures.
235
What is the total variance in cash received from parking?
-$3,000
## Footnote
This decrease is related to the closing of part of the parking lot for repairs.
236
What effect did the conservation program have on the utilities budget?
+$5,000
## Footnote
This indicates savings or reduced costs due to the program.
237
How can exceptional costs impact budgeting?
They can skew overall budget figures and need separate analysis
## Footnote
Ignoring these costs may lead to inaccurate financial planning.
238
What is the total expense for year 1?
$110,000
239
What is the total expense for year 2?
$125,600
240
What is the total expense for year 3?
$136,800
241
What is the total expense for year 4?
$179,500
242
What is the dollar change in expenses from year 1 to year 2?
[$15,600
243
What is the dollar change in expenses from year 2 to year 3?
[$11,200
244
What is the dollar change in expenses from year 3 to year 4?
[$42,700
245
What is the percentage change in expenses from year 1 to year 2?
14.2%
246
What is the percentage change in expenses from year 2 to year 3?
8.9%
247
What is the percentage change in expenses from year 3 to year 4?
31.2%
248
What is one method for calculating the budget for year 5?
Weighted averages
249
What is zero-based budgeting?
Setting each line item at zero and recalculating costs and expenses
250
Which categories can be used to calculate the budget for year 5?
* maintenance
* supplies
* repair (parking)
* snow plowing
* landscaping
251
What should be set aside when calculating the budget for year 5?
Repairs to fountains
252
What is the average for maintenance, supplies, and repair?
$6,500
253
What is the average for snow plowing?
$3,000
254
What is the average for landscaping?
$4,000
255
Fill in the blank: The average yearly increase in parking lot repairs is _______.
$1,333.33
256
What might extraordinary repairs to the fountains be better classified as?
Part of the capital budget
257
What is the year 5 budget forecast using simple averages?
$177,333
## Footnote
This forecast uses simple averages of year 4 figures.
258
What is the year 5 budget forecast using weighted averages?
$198,760
## Footnote
This figure reflects a calculation that accounts for more weight on unusual expenses.
259
What maintenance budget is forecasted for year 5?
$96,000
260
What supplies budget is forecasted for year 5?
$26,000
261
What is the forecasted cost for repair of the parking lot in year 5?
$10,333
262
What is the year 5 forecasted amount for snow plowing?
$19,000
263
What landscaping expense is forecasted for year 5?
$26,000
264
What is the total budget forecast for year 5?
$179,500
265
What was the snow plowing expense in year 3?
$8,000
266
What was the landscaping expense in year 3?
$12,000
267
True or False: The year 5 snow plowing forecast reflects the unusual actual figures from year 4.
True
268
If year 5 is assumed to be less tumultuous, what would be a more appropriate budget for snow plowing?
$8,000
269
What may be a better budget for landscaping in year 5 if major expenses are not expected?
$12,000
270
How much could the year 5 total budget drop to if adjustments are made for snow plowing and landscaping?
$152,333
271
What is zero-based budgeting?
A budgeting method where current information is incorporated instead of historical expenses.
272
What sources does a site manager use for zero-based budgeting?
* Contractors
* Vendors
* Utility companies
* IREM Income/Expense Analysis Reports
273
What extraordinary expense should not be included in the budget figures?
Repairs to fountains
274
What is the purpose of using fresh figures in budget creation?
To organize them into a budget.
275
What is the price for an order of 32 refrigerators from Logan Discount Furniture?
$16,384.00
276
What is the favorable variance for Logan Discount Furniture?
$2,816.00 (F)
277
What does a favorable variance indicate in terms of budget?
It raises NOI.
278
Which vendor offers the lowest price for refrigerators?
Logan Discount Furniture.
279
What are the two main considerations when choosing a vendor besides price?
* Owner's comments
* Marketing considerations
280
What is the total budgeted cash received for River City Residences?
$104,000
281
What is the total actual cash received for River City Residences?
$104,000
282
What is the variance for cash received from parking in River City Residences?
-$3,000
283
What is the cash budgeted for rent in River City Residences?
$96,000
284
Fill in the blank: The Logan Discount Furniture bid is the best choice from an economic standpoint because it is the _______.
lowest
285
What is the variance for cash received from laundry in River City Residences?
+$1,000
286
True or False: A variance can be both favorable and unfavorable.
True
287
What is the unfavorable variance for the Coldaura Ultrafrosti refrigerators?
$800.00 (U)
288
What does 'NOI' stand for in budgeting terms?
Net Operating Income
289
What is the total actual cash paid for expenses in River City Residences?
Not provided in the text
290
Which vendor has a favorable variance of $2,080.00?
Icestorm
291
What is the favorable variance for the Ultrafrosti refrigerators?
$800.00 (F)
292
What is the total amount for Parking expenses?
$6,000
## Footnote
Represents a specific expense category in budget analysis.
293
What is the total amount for Administrative expenses?
$26,000
## Footnote
Part of the overall budget analysis.
294
What is the total amount for Maintenance expenses?
$47,000
## Footnote
Indicates a significant cost in the budget.
295
What is the total amount for Taxes?
$35,000
## Footnote
Fixed cost that impacts the net operating income.
296
What is the total amount for Utilities?
$40,000
## Footnote
Another variable cost in the budget.
297
What is the net change in the budget indicated by the figures?
+$1,000
## Footnote
Reflects overall financial adjustments.
298
What are the two types of costs mentioned in analyzing figures?
* Variable costs
* Fixed costs
## Footnote
Variable costs change with use; fixed costs are set in advance.
299
True or False: An increase in rents raises NOI.
True
## Footnote
Indicates that cash inflows positively affect net operating income.
300
Fill in the blank: An increase in maintenance costs lowers _______.
NOI
## Footnote
NOI stands for Net Operating Income.
301
Which expenses are classified as variable costs?
* Administrative
* Maintenance
* Utilities
## Footnote
These costs fluctuate based on usage.
302
Which expense is classified as a fixed cost?
Taxes
## Footnote
Fixed costs remain constant regardless of usage.
303
What key financial information goes into a budget?
Several kinds of accounts:
* Receipts
* Disbursements
* Financing expenses
* Reserves for replacement
## Footnote
Receipts include rent, fees, and other miscellaneous sources. Disbursements include operating expenses such as maintenance, utilities, payroll, advertising, and taxes. Financing expenses involve debt service as well as loans for equipment or furniture. Reserves for replacement are funds for property improvement.
304
Why must you always work from actual figures in preparing budgets?
Budgets are predictions and may not reflect actual financial outcomes. Actual figures are better building blocks for new budgets.
## Footnote
Actual figures are likely to differ from budget figures.
305
What is the difference between a fiscal year and a calendar year?
A calendar year begins on January 1st; a fiscal year is a twelve-month period chosen by a company.
## Footnote
The choice of fiscal year often depends on the type of business.
306
What major financial measure of performance does the annual operating budget forecast?
Net operating income (NOI).
307
Do the financial categories or accounts on an operating budget differ from those on a cash-flow budget?
No, both budgets have the same categories and accounts.
308
How are the different weights in a weighted average determined?
Based on facts and past experience; weights must add up to 1.
## Footnote
Weighting is used to minimize variations and consider the influence of important factors, but cannot eliminate inconvenient figures or trends.
309
Fill in the blank: A budget includes accounts for receipts, disbursements, financing expenses, and _______.
reserves for replacement.
310
True or False: The fiscal year and calendar year are always the same for individuals.
False.
311
