Cash Budgeting (PART B)

Question 1

what is a budget?

Answer 1

• a plan expressed in money
• plan of action for every department, shows income and spending
• a plan that every department needs to achieve
• forward looking document, prepared prior to the period

Question 2

what is the long term planning process?

Answer 2

1 - mission statement
2 - corporate objectives - what its trying to do
3 - corporate strategies - how its going to get there
4 - business plan

Question 3

how does the annual budgeting process link to the long term planning process?

Answer 3

it is the next steps after, implementing medium term plan
5 - implement medium term plan in form of annual budget
6 - monitor actual results (compare plan to actual)
7 - respond to divergencies from plan (which departments are not on track or if the plan is wrong)

Question 4

what is budgeting?

Answer 4

• medium term planning identifies the broad direction that top management intend to follow
• budget implements the business s[lan for one year ahead (shorter in some enviro)
• precise and detailed, broken into monthly control periods

enables businesses to track if they are on track to achieve business plan

Question 5

what is the difference between a budget and a forecast?

Answer 5

a forecast is a prediction of what is likely to happen, budget is a quantified plan of what organisation intend to happen (what should happen), ore nailed down but is based on what is forecasted to happen

Question 6

what is the cycle of events budgeting goes through?

Answer 6

1) formulate plans (set targets)
2) monitor/easure actual progress (just setting targets is not enough so we have to monitor to make sure setting)
3) compare actual performance to plan, see where the variances are occurring
4) take corrective action (if plan doesn’t measure up)
5) restatement or change plan in light of 4 (plan may be at fault)

budget plan is not enough, you have to manage it effectively in order for it to be effective

Question 7

what are the purpose of budgeting?

Answer 7

• planning
• control
• communication
• coordination
• motivation
• evaluation

all of the things that a budget is going to provide to an organisation, hopefully should be goods things

Question 8

why does budgeting enable planning?

Answer 8

forces managers to- look ahead for one year

• set measurable targets
• force problems that might come up in year ahead - giver direction for the company to follow if you don’t have a pan how can you expect employees to know what they should achieve

Question 9

why does budgeting enable control?

Answer 9

• measure actual performance
• compare budget regularly
• variance - respond by seeing which departments aren’t on track
• corrective action or revise plans
  (either departmental fault or plan)

Question 10

how does budgeting enable communication

Answer 10

• communicating from top management
• senior management expectations to responsibility managers
• way in which managers can communicate with each department
• lay down top management expectations

Question 11

how does the budget enable coordination?

Answer 11

• master budget for whole company compromises a whole series of sub budgets
• all sub budgets must fit together to make master budget
• goal congruence = working towards the same goal
• if theres a budget put in place you are controlling departments working in the same direction rather than letting each manager in each department do what they like

Question 12

how does budgeting enable motivation?

Answer 12

• final budget is an expression of axpectation for each area/manager over the budget period
• expectation > challenge > motivation
• way of expressing what top management want each dartement wants them to achieve
• people be motivated o achieve goals
• must be a balance between challenging and easy

Question 13

how is a budget an evaluation tool?

Answer 13

allows them to compare plan and actual spending

evaluate managers and employees charged with meeting the budgeting outcomes

evaluate who has had the repsosnsibility to achieve them

can then decide on managerial response

Question 14

what are some types of managerial reposes?

Answer 14

positive - promotion, rise in pay

negative - dies-line, retraining, revise plan

Question 15

what are some problems with budgeting?

Answer 15

• lack of flexibility
• dysfunctional motivational consequences
• must spend budget/stop on target
• budget slack
• time consuming

Question 16

why does budgeting lack flexibility?

Answer 16

fast changing business environments, plan that has been made may be already out of date

Question 17

other than the challenge of budget, why might motivation be affected?

Answer 17

if managers in departments aren’t consulted, the more interaction that takes place, the more people will be motivated

Question 18

what is meant by budget slack?

Answer 18

if you involve staff in the budget process they may try to build in budgetary slack in that they make it easier for department to reach targets, must watch out for the level of involvement you give staff

Question 19

how can you create an effective budgetary control?

Answer 19

• clear areas f managerial repsonsbibikty (know what they are responsible for)
• clear timetable (when and what should be achieved)
• targets challenging yet achievable
• short reporting periods
• variances taken seriously
• whole system of annual budgeting, interactive process, motivated