Chapter 15 - Budgeting Process

Question 1

What must there be for budgets to be successful?

Answer 1

An organisational structure with clearly defined lines of authority and responsibility

Question 2

When might a manager defer a shipment until the next period?

Answer 2

When there is no chance of meeting this year’s budgeted income, but a good chance next year OR when this year’s budgeted income has already been met

Question 3

What is a business plan?

Answer 3

A set of documents prepared by a firm’s management to sum up its operational and financial objectives for the future as well as how they will be achieved

Question 4

Components of a business plan

Answer 4

Executive summary
Description of business & target market
Analysis of competition
Description of management team
Marketing strategy

Question 5

When is a static budget prepared?

Answer 5

For a single level of activity

Question 6

When is a flexible budget prepared?

Answer 6

For any level of activity within the relevant future - can be divided into variable and fixed components

Question 7

Behavioral impact of budgets on managers

Answer 7

If managers bonus is tied into meeting budgeted targets then they may pad their budgets and shift income between periods to increase overall compensation