Chapter 9 - Budgetary control

Question 1

What is budgetary control?

Answer 1

Assessing actual performance against budgeted and taking corrective action if necessary

Question 2

What is the control system?

Answer 2

Systematic approach which tells managers whether or not they are achieving what they planned

Question 3

What does the control system focus on?

Answer 3

• Total costs for a department
• Responsibility allocated to an individual
• Individual can either correct or lower cost

Question 4

What are some characterisitics of a business with effective budgetary control?

Answer 4

• Serious attitude taken
• Challenging but achievable targets
• Reports aimed at individual managers
• Timely variance reports

Question 5

What are the 2 types of control system?

Answer 5

• Feedback
• Feedforward

Question 6

What is feedback control?

Answer 6

• Aims to correct problems discovered
• Reactive

Question 7

What is negative feedback?

Answer 7

Corrective action intended to bring actual performance closer to target

Question 8

What is positive feedback?

Answer 8

Corrective action intended to increase difference between actual performance and target

Question 9

What is feedforward control?

Answer 9

• Aim is to anticipate problems
• Proactive
• Compares currently expected results to desired results

Question 10

What does a feedback control report do?

Answer 10

• Looks backwards at performance
• Considers differences from planned performance

Question 11

What does a feedforward control report do?

Answer 11

• Looks forwards and creates expectations about future performance
• Aims to identify potential issues

Question 12

How is the budget cost allowance for each item calculated?

Answer 12

Budgeted FC + (No. of units produced x VC per unit)

Question 13

What is a top-down (imposed budget?

Answer 13

Budget set centrally with little involvement by budget holder?

Question 14

What are the advantages of a top-down budget?

Answer 14

• Improved co-ordination
• Reduces scope for slack
• Senior managers have better overall view
• Budgets prepared with long-term goals in mind

Question 15

What is a bottom up (perspective) budget?

Answer 15

Budget holder is involved in setting the budget

Question 16

What are the advantages of bottom up budgeting?

Answer 16

• More accuracy
• Better motivation
• Management morale

Question 17

What must a budget be in order to have any influence on performance?

Answer 17

• Recipient must be aware of its existence and be committed to achieving it
• Set at right difficulty level to act as motivation

Question 18

How can involving managers in the completion of a budget be beneficial?

Answer 18

• More accurate planning
• Better communication
• Better motivation

Question 19

How can involving managers in the completion of a budget be detrimental?

Answer 19

• Slower co-ordination
• Less accurate evaluation
• Less control over authorisation

Question 20

What are the ethical aspects of bottom up budgeting?

Answer 20

• Inclusion of slack
• Lack of goal congruence
• Over-stating results
• Budget constrained management styles

Question 21

What are the ethical issues of top down budgeting?

Answer 21

• Undue pressure on budget holder
• Pseudo participation
• Budget as a pot of cash