Ch. 10 Budgetary Planning

Question 1

What is a budget ?

Answer 1

A formal written statement in financial terms of mgt. plans for a specified future time period.

Question 2

Who is responsible for presenting mgt. budgeting goals?

Answer 2

Accountants

Question 3

Benefits of budgeting ?

Answer 3

• Planning ahead
• provides definite objectives for evaluating perf.
• creates early warning system for potential problems
• easier to coordinate activities
• results in greater management awareness of the coy operation
• motivates personnel

Question 4

Is a budget an aid or substitute for management

Answer 4

No it’s an aid

Question 5

what is the length of a budget period

Answer 5

Most common is 1 yr No length can be prepared any period but determined by factors
- The type of budget
- The nature of the organization.
-The need for periodic appraisal.
- Prevailing business conditions.

Question 6

Sales Forecast?

Answer 6

Shows potential sales for the industry and the coy, expected share of sales.

Question 7

responsibility for coordinating the preparation of the budget is assigned to a?

Answer 7

budget committee

Question 8

Three significant differences btwn. budgeting and Long- range planning ?

Answer 8

• Time period; budgeting has short period while LR can cover at least 5 yrs.
• Emphasis; B. focuses on achieving short-term goals while LR focuses on long term goals.
• Details; B. can be very detailed while LR has less details

Question 9

What is master budget/Pro forma?

Answer 9

Set of interrelated budgets that creates a plan of action with 2 classes
- Operating; ind. budgets used to prepare budgeted income statement.
- Financial; capital expenditure budget, cash budgets

Question 10

Types of Budgets

Answer 10

• Long range planning
• Master budget
• Continuous/rolling; update budg. every month

Question 11

A budget must be accepted by some levels of management to be fully effective

Answer 11

No it must be accepted by all levels.

Question 12

Who acts as a review board where managers defend goals and requests?

Answer 12

Budget Committee

Question 13

The bottom-up approach is called what?

Answer 13

Participative Budgeting; each lvl are invited to participate.

Question 14

What is the situation when managers intentionally underestimate revenues/ overestimate expenses so goals can be met easily?

Answer 14

Budgetary slack

Question 15

Budgeted sales revenue used in what ?

Answer 15

Income statement and cash flow budget