M/A - Budgeting Flashcards

1
Q

What are the 4 steps of the decision framework for the budgeting process

A
  1. Identify constraint, potential issue
  2. Gather information
  3. Make a future prediction
  4. Implement the budget and gather feedback
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
2
Q

Explain what the different terms are: Plan, Budget, Pro-forma, Forecast & Projection

A

Plan - It is the set of intended actions and expected outcomes

Budget - Financial plans or estimates, expressed in quantitative terms, to predict the most likely financial consequences of a course of action

Pro format - F/S that anticipates the result of a planned transaction to present the organization’s future financial situation

Forecast - Future-oriented financial information prepared using assumption and judgment regarding management expectation of probable economic

Projection - Future-oriented financial information prepared using assumption and judgment regarding possible future economic conditions, with a long-term horizon

  • Simply the budget is the desired destination, and Rav intends to get to that point
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
3
Q

What is the budget for Non-for profit and public sector organization

A

Cost structure - Profit-oriented organization, cost is engineered. Usually, the number of inputs required for a given unit of output can be determined

Spending flexibility - profit-oriented organization, budget is subject to change as economic conditions change. Managers of NPOs are aware that a change in economic conditions can dramatically affect resource

  • NPO and public sector organizations follow a “revenue-first” policy
  • This requires a commitment to engage in cost-cutting if necessary
  • The goal of the budget committee is to facilitate the exchange of specialized knowledge and reach a consensus on key planning assumption

Budget Lapsing - occurs when funds that have not been spent by year-end do not carry over to the next year

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
4
Q

What are the eight types of budgeting

A
  1. Traditional budget
  2. Priority Budget
  3. Top-down Budget
  4. Participative Budget
  5. Zero-based budget
  6. Activity budget
  7. Static Budget
  8. Flexible Budget
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
5
Q

Explain traditionally based budgeting

A
  • Traditional based budget - classic approach, assign an increase/ decrease % of all line item
    Advan: Simple & easy to implement, little information
    Disadvan: fundamentally, flawed high performing departments can be restricted of funds, damaging to the environment
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
6
Q

Explain what priority budgeting is needed

A
  • Requires a strong understanding of the organization and subunit of contribution to the strategic plan
    Advan: more effective in helping with the organization’s strategic goals
    Disadvan: Difficult for decision to be made
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
7
Q

What is top-down and participative budgeting

A

Top-down Budgeting - Higher level manager impose operating target and or budget on their direct report
Advan: Simple and quick to achieve
Disadvan: does not include co-operation between higher level and lower, level managers, which can cause resentment

Participative budgeting - Top management set an overall operating target based on strategic objectives, and lower-level managers prepare their own department budget
Advan: Providing cooperation between the department
Disadvan: Can easily be manipulated by manager, being relied on by top management to make cost-effectiveness

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
8
Q

Explain what zero-based budgeting is

A
  • Usually takes an incremental approach to budgeting using last year’s actual or budget figures as a starting point and then adjusting them upwards or downwards

Advan: Each area of business must justify its existence and consider how performance might be improved

Disadvan: Time-consuming, benefits are difficult to quantify

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
9
Q

What is the difference between a static and flexible budget

A

Static budgets - are created based on a planned level of sales and or production, and are not adjusted to actual units or activity level

Flexible budget - Adjusted automatically reflect planned cost for the actual level of activity

Benchmarking - Comparison of actual result to best practice of other division of the organization or to competitors in same industry

How well did you know this?
1
Not at all
2
3
4
5
Perfectly