Chapter 6.4 The Budgeting Process Flashcards
What is the primary purpose of the budget committee?
To oversee and guide the budgeting process, ensuring alignment with strategic goals and financial capabilities.
Who typically comprises the budget committee?
Key stakeholders including top management, department heads, financial experts, and sometimes external consultants.
What role does top management play in the budget committee?
Provides strategic vision.
What insight do department heads provide to the budget committee?
Department-specific needs.
What knowledge do financial experts bring to the budget committee?
Knowledge of financial constraints and opportunities.
What can external consultants contribute to the budget committee?
An objective viewpoint and knowledge of industry benchmarks.
What does the budget committee define for the budgeting process?
Overall objectives, expectations, and timelines.
What is a common budget period that covers a fiscal year?
Annual budget.
What is the advantage of using a quarterly budget?
More frequent opportunities for performance assessment and adjustment.
What is a rolling budget?
A budget that incorporates a new month or quarter as the current one concludes.
What does a zero-based budget require from departments?
To justify all expenses anew.
What are some factors that influence the choice of budget period?
- Industry dynamics
- Organisational goals
- Need for flexibility
What is the purpose of developing budget guidelines?
To provide a framework and principles that guide budget preparations.
What do budget guidelines help ensure in the budgeting process?
Consistency, alignment with strategic objectives, and transparency.
Fill in the blank: The budget period specifies the time frame for which the budget will be _______.
[planned and executed]
True or False: A zero-based budget encourages cost-efficiency.
True
What are the 8 steps of a budgeting process?
- Forming a budget committee
- Choosing a budget period
- Development of budget guidelines
- Identifying limiting factors
- Preparation of an initial budget proposal
- Budget negotiations
- Review and approval
- Revision
What are some INTERNAL limiting factors?
. Resource constraints
. Personnel constraints
. Technology limitations
. Organizational culture
What are some EXTERNAL limiting factors?
. Economic conditions
. Regulatory changes
. Market competition
. Supplier constraints
. Natural disasters and geopolitical events
What 4 steps should be implemented to identify limiting factors to maximise an organisation’s profit?
- Identity the limiting factor
- Calculate the contribution (sales less variable costs) per limiting factors of each type of product (contribution per unit ÷ limiting factor per unit)
- Rank the contributions per unit based on the highest to lowest ranking
- Allocate resources based on the ranking by allocating most of the resources to the highest contribution per limiting factor.
