Chapter 3

Question 1

acronym for purpose of budgets

Answer 1

Planning
Responsibility
Integration
Motivation
Evaluation

Question 2

benefits of planning

Answer 2

you need to plan how to hit targets to ensure strategic plan is met

Question 3

benefits of responsibility

Answer 3

budgets specify which managers are in control of specific revenue streams - key for motivation

Question 4

benefits of integration

Answer 4

ensures plans do not conflict each other

Question 5

benefits of motivation

Answer 5

if management are involved in setting targets theyll be more likely to meet them

Question 6

benefits of evaluation

Answer 6

trends in performance can be evaluated and variances investigated

Question 7

what is top down budgeting

Answer 7

done by senior management

Question 8

what is bottom up budgeting

Answer 8

local managers prepare their own budgets

Question 9

5 types of budgeting

Answer 9

incremental
zero based
rolling
flexible
activity based

Question 10

advs of incremental budgeting

Answer 10

based on current performance, flexed to actual activity levels

Question 11

disadvs of incremental budgeting

Answer 11

encourages slack

does not consider alternative ways to improve performance

Question 12

advs of ZBB

Answer 12

responds to changes in business environment

requires the business to monitor costs very closely

Question 13

disadv’s of ZBB

Answer 13

requires a lot of management time and effort

requires a participative approach so could be inappropriate depending on culture

questioning of current practises could be threatening

Question 14

Adv’s of rolling budgets

Answer 14

reduces the uncertainty associated with budgeting as its easier to predict short term figures

likely to be more realistic than an annual budget

Question 15

disadvs of rolling

Answer 15

requires time, effort and money to keep updating

constantly changing targets can be demotivating

Question 16

adv’s of flexible budgets

Answer 16

highlights costs of unused capacity

Question 17

disadv’s of flexible budgets

Answer 17

if there is a high level of stability, effort involved produces little extra benefit

Question 18

advs of activity based budgets

Answer 18

recognises that activity drives cost so encourages focus on managing cost drivers

Question 19

disadv’s of activity based budgets

Answer 19

requires a lot of time and effort to prepare so only suited to companies with multiple cost drivers

Question 20

what is a planning variance

Answer 20

variances caused by problems in the budget - not operational managers fault

Question 21

what is a operational variance

Answer 21

variances caused by difference in actual performance and revised budget

Question 22

when should a budget be revised

Answer 22

for items that are beyond the control of the business

Question 23

advs of revising a budget

Answer 23

realistic targets
helps to improve accuracy of future budgets
highlights controllable and non controllable variables

Question 24

disadvs of revising a budget

Answer 24

undermines original as a target

may be biased and manipulated