Chapter 6 - budgeting

Question 1

What are the 5 types of budgets a business may prepare?

Answer 1

1. Whole business budgets
2. Depertment budgets
3. Functional budgets (sale, production, expenses)
4. Profit and loss account budgets (to determine future profits)
5. Cash budgets (to determine future cash flow)

Question 2

In what stages are budgets prepared?

Answer 2

1. Long term objectives → _{common goal}
2. Budget comittee → _{made up of management, responsible for communication policy guidlines to people who prepare the budgets and for setting budgets.}
3. Budget manual produced → _{instructions / responsilibities}
4. Limiting factor identified
5. Other functional budgets produced

Question 3

What is a budgeted limiting factor _{<em>(principle budget factor)</em>}?

Answer 3

• 1 factor that limits activity → e.g. sales / laybour skills
• The principle budget factor should be prepeared first.
• It dertines the production budget → other fuctional budgets are prepared after this.

Question 4

After the budget preparation stages what are the final stages?

Answer 4

1. Initial budgets prepared
2. Initial budgets are reviewed
3. Master budget prepared →_{<em> adjustments are made and a master budget is prepared and shown to managers for approval.</em>}
4. Comparisons between budgets and actual results

Question 5

What is ‘budget slack’?

Answer 5

A deliberate over-estimation of costs or under estimation of revenues which makes it easier for managers to achieve targets

Question 6

Sales budget

Prepare the sales budget for next year

Answer 6

Question 7

Answer 7

Question 8

Labour budgets

How are labour budgets calculated?

Answer 8

Number of laybour hours x later rate per hour.

Question 9

Answer 9

Question 10

Using the high-low method calculate fixed costs

Answer 10

Question 11

Answer 11