Lecture 6

Question 1

What is the definition fo planning?

Answer 1

Planning -involves developing objectives and preparing various budgets to achieve these objectives.

Question 2

What is the definition of control?

Answer 2

Control - involves the steps taken by management that attempt to ensure the objectives are attained.

Question 3

What is the definition of a budget?

Answer 3

a detailed plan which sets out, in money terms, the plans for income and expenditure in respect of a future period of time. It is prepared in advance of the time period and is based on the agreed objectives for that period of time, together with the strategy planned to achieve those objectives.

Question 4

What are the benfits of budgeting?

Answer 4

To quantify the strategy of the business

Control

Compare actual outcome with budget

Draw attention to areas not meeting the budget at an early stage

• Performance Evaluation

Shows which departments are meeting or exceeding budget and which are not, therefore can review the performance of staff in each department

Payment of bonuses

Promotion possibilities

Penalties

Question 5

what is a master budget?

Answer 5

The Master Budget consists of a number of separate but interdependent budgets that sets specific targets for sales, production, distribution and financing activities.

It generally leads to a cash budget, a budgeted income statement, and a budgeted financial position statement.
It represents a comprehensive expression of management’s plans for the future and how these plans are to be accomplished

Question 6

what are the three main parts of the master budget?

Answer 6

Budgeted Income Statement

Budgeted statement of Financial Position

Budgeted Cash
Flow Statement

Question 7

what the equation for units to produce in an production budget?

Answer 7

Units to produce = Budgeted sales + Closing inventory- Opening Inventory