MA 1 Budgeting - Big Picture Flashcards

1
Q

Common types of budgets

A

Master budget, which includes:

  • operating budget
  • financing
  • cash flow
  • budgeted financial statements

specific purpose, such as:

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

4 steps for creating budgets

A
  1. identify constraints, potential issues and areas of uncertainty
  2. gather info
  3. make future predictions
  4. implement and gather feedback
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
3
Q

budgets allow organizations to improve planning and enhance management control in 5 ways

A
  • predict financial consequences of plans
  • compare resource requirements with available resources
  • allocate constrained resources to most profitable uses
  • communicate financial and operating objectives
  • assign responsibility and establish control
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
4
Q

Common form of budget manipulation

A

creating slack by underestimating revenues or oversetimating expenses, making results easier to achieve

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

Reason for manipulation (3)

A
  • portray company in better light, to obtain financing perhaps
  • appease higher-level managers who have more aggressive goals
  • make it easier to achieve performance evaluation targets
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
6
Q

Define traditional budgeting

+/-

A
org gets an assigned increase or decrease % across the board
\+ easy to do
\+ cost-efficient
- can allocate resources ineffectively
- can cut high performing departments
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
7
Q

Define static budgets

+/-

A

created based upon planned level of sales and/or production, and not adjusted if actual units or activity levels differ.
+ allow for high-level analysis
- not accurate when actual vs estimate is different

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

Define flexible budgets

+/-

A

Flexible budgets adjusted automatically for actual level of activity
+ separates cost control from activity control

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

Define priority budgeting

+/-

A

Resources allocated based upon their importance to the strategic plan
+ can effecitvely prioritize
- difficult to allocate sometimes

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
10
Q

Top-down vs participative budgets

A

Top-down - upper management sets budget

Participative - line managers take active role in shaping their budget

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
11
Q

Zero-based budgeting

+/-

A

All line items start at zero, and all expenses have to be justified
+ effective at weeding out slack
- very time-consuming and costly

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
12
Q

Activity-based budgeting

A

Each actitivty is analysed then a budgeted cost per unit of actitivy is used to develop costs y function / product / service.
+ more accurate
+ helps identify resource needs
+ links budgeted costs to activity levels

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
13
Q

Forecasting definition and use

A

process of predicting future financial and/or non-financial resutls based upon one or more sets of assumptions
used for strategic managements, operational planning, and budgeting

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