Ch1. Introducing Short Term Budgeting

Question 1

A realistic plan expressed in quantitative terms for a certain future period of time.

Answer 1

Budget

Question 2

Composed of key management persons who are responsible for overall policy matters relating to the budget program and for coordinating the preparation of the budget itself.

Answer 2

Budget Committee

Question 3

What are the advantages of budgeting?

Answer 3

1. Used by top management to communicate the plans and goals throughout the organization.
2. Forces management to think about and plan for the future.
3. Resources are more appropriately allocated.
4. Potential bottlenecks can be discovered.
5. Promotes coordination of the activities of the entire organization.
6. Goals and objectives identified in the budgeting process can serve as benchmarks or standards for evaluating performance.

Question 4

Revised on a regular basis.

Answer 4

Continuous (Rolling) BudgetRevised on a regular basis.

Question 5

Based on only one level of activity (sales or production volume).

Answer 5

Fixed Budget

Question 6

A series of budgets prepared for many levels of activity.

Answer 6

Flexible Budget

Question 7

The current period’s budget is adjusted to allow for changes planned for the coming period.

Answer 7

Incremental Budget

Question 8

Prepared every period from a base of zero, regardless of previous results.

Answer 8

Zero Based Budgeting

Question 9

Revenues and expenses are estimated over the product’s entire life cycle.

Answer 9

Life Cycle Budgeting

Question 10

Applies the ABC principles and procedures.

Answer 10

Activity-Based Budgeting

Question 11

Assumes the continuous improvement of products and processes.

Answer 11

Kaizen Budgeting

Question 12

Governed by government.

Answer 12

Governmental Budgeting

Question 13

What are the types of budgets?

Answer 13

1. Continuous (Rolling Budget)
2. Fixed
3. Flexible
4. Incremental
5. Zero Based Budgeting
6. Life Cycle
7. Activity-Based
8. Kaizen
9. Governmental

Question 14

The process is dependent on the organizational structure and purposes.

Answer 14

budgeting process

Question 15

Encompasses the organization’s operating and financial plans for a certain future period of time.

Answer 15

Master Budget

Question 16

How does the Master Budget process start?

Answer 16

The budgeting process normally starts with the basic question: ‘Is there a market for the business?’ As such, the master budget starts with the preparation of the Sales Budget.

Question 17

The projected amount of units a company anticipates selling in a set period of time and the revenue it could earn.
It is a forecast based on trends and the business environment.

Answer 17

Sales Budget

Question 18

Based on the budgeted sales and inventory policies. Inventory policy is based on the number of units to be sold and the desired level of inventory.

Answer 18

Production Budget

Question 19

Based on the budgeted production.
- Direct materials used budget
- Direct materials purchases budget

Answer 19

Direct Materials Budget

Question 20

Based on the budgeted production and the number of standard direct labor hours needed per unit of production.

Answer 20

Direct Labor Budget

Question 21

Is constant in total and the standard FOH rate is based on normal capacity.

Answer 21

Fixed Overhead

Question 22

FOH rate per unit varies based on the budgeted production. In short term budgeting, the standard FOH rate is considered constant.

Answer 22

Factory Overhead Budget

Question 23

Operating expenses are estimated in detail and separate projections are done for marketing, selling, distribution, research & development, customer service, and administrative expenses.

Answer 23

Budgeted Income Statement

Question 24

The estimated value of assets, liabilities, and equity in the foreseeable future, considering foreseen increases or decreases in assets, e.g., acquisition of fixed assets, depreciation, and write-offs.

Answer 24

Budgeted Statement of Financial Position

Question 25

Shows the foreseen sources of cash inflows and foreseen cash outflows, taking into account capital expenditures (assets purchased have a useful life of one year or more).

Answer 25

Budgeted Statement of Cash Flow

Question 26

Income Statement, Balance Sheet, Statement of Cash Flows generally follow the same format with the actual financial statements except that they contain projected figures.

Answer 26

Budgeted Financial Reports