Module 9

Question 1

What are the areas a budget helps a business?

Answer 1

• planning
• -communicating
• coordinating
• controlling
• motivating
• evaluating

Question 2

What is usually the first step in the budget process?

Answer 2

creating a sales budget

then production budget,
overheads,
R&D,
admin,
master budget

Question 3

What are the criticisms of traditional budgets?

Answer 3

-reliance on past
-seen as oppressive, reducing resources etc
-

Question 4

What is budget padding?

Answer 4

the deliberate underestimate of future sales or overestimate of costs

Question 5

What is the budgetary slack?

Answer 5

the additional amount added on

Question 6

How can a budget be effective?

Answer 6

• links to strategy
• have top management show support
• involvement from those responsible i.e. participative budgeting
• use budget as a control tool during budget period
• remember it is human process
• balance financial and non-financial (e.g. time)

Question 7

What is incremental budgeting?

Answer 7

taking historical and updating by an incremental amount each period

Question 8

What is the disadvantage of incremental budgeting?

Answer 8

-perpetuates past inefficiencies.

Question 9

What is zero based budgeting?

Answer 9

budget starts at zero
budget centre must then proposed and the more money required, the more detail.
proposals review by senior management and selected/approved

Question 10

What are the advantages of zero based budgeting?

Answer 10

• allocated on need
• increased participation
• focus on value for money

Question 11

What are the disadvantages of zero based budgeting?

Answer 11

• time consuming and difficult
• unnecessary
• unsettling for staff

Question 12

How is ZBB usually used?

Answer 12

-in a hybrid form e.g. every five years or a sample every year

Question 13

What is Kaizen costing?

Answer 13

Based on continual improvement through small incremental changes
This years production cost should be less than last year

Question 14

What is the time period of Kaizen costing?

Answer 14

targets are are set and applied monthly and continuous improvement are applied at all times

Question 15

What is a rolling budget?

Answer 15

continuously updated at the end of each control period, typically monthly or quarterly but could be daily.

Question 16

What are the advantages of rolling budget?

Answer 16

more realistic

reduce padding

Question 17

What are the disadvantages of rolling budget?

Answer 17

encourage slack to give impression of continual improvement

Question 18

what is the cross functional approach to budgeting?

Answer 18

total life cycle budgeting clarifies the implications of decisions made in one part of he organisation for the rest

Question 19

What is top down budgeting?

Answer 19

management agrees to take on a project then deciding on a budget for the project and divided amongst the departments and then further divided amongst the different areas of the dept

Question 20

What is bottom up budgeting?

Answer 20

starts by estimating the costs of individual tasks and then adding them together until a final budget is arrived at.

Question 21

What is activity based budgeting?

Answer 21

created based on the major activities of the business
often called product based
focuses on value adding and non value adding

Question 22

What are the advantages of activity based budgeting?

Answer 22

• realistic
• identification of resource needs
• linking of costs to output
• linkage of costs to staff responsibilities
• identification of budgetary slack

Question 23

What factors should be considered when evaluating a budget or designing a new one?

Answer 23

• what horizon do we use
• how frequently do we report to managers
• how do we deal with the human factors
• what techniques
• how have business strategies been incorporated