Motivation, Budget And Resposnibility Accounting

Question 1

Major features of budgets

Answer 1

A budget is the quantitative expression of a proposed plan of action by management for a future time period and an aid to the coordination and implementation of the plan.
It can cover both financial and non-financial aspects.
Budgeting is the most widely used accounting tool for planning and controlling enterprises.

Question 2

Benefits of planning

Answer 2

Budgets compel planning, including the implementation of plans.
They provide performance criteria.
Promote coordination and communication within the organisation

Question 3

Budgeting cycle

Answer 3

Before year starts
- Analyse performance and market feedback
- Anticipate changes
Beginning of the year
- Managers give to subordinate a frame of reference to compare results
During the year
- Management account help managers to investigate deviations and correct them

Question 4

Master budget

Answer 4

It coordinates all financial projections in a single budget for a period of time. Uses both
Operational decisions - acquisition and use of resources
Financial decisions - How to obtain funds to acquire resources

Question 5

Roles of budgeting

Answer 5

Most useful when done as an integral part of an organisations strategy analysis.
Strategy describes how an organisation matches its own capabilities with the opportunities in the marketplace to accomplish its overall objectives.
Objectives of organisations = market opportunities, organisation and financial structures and risks and contingency plans

Question 6

Limitation of budgeting performance measures

Answer 6

• Past results incorporates past misallocations and sub-standard performance.
• The future may be expected to be very different from the past.

Question 7

Coordination

Answer 7

The meshing and balancing of all factors of production or service and of all the departments and business functions so that the company meet its objectives.

Question 8

Communication

Answer 8

Getting those objectives understood and accepted by all the employees in the various departments and functions.

Question 9

Managers x budgeting

Answer 9

Top management has the ultimate responsibility for the budgets of the organisation they manage.
Management at all levels should understand and support the budget and all aspects of the management control system.

Question 10

Time coverage of budgets

Answer 10

Budgets typically have a set time period.
This time period can itself be broken into sub-periods.
The most frequently used budget period is one year.
Businesses are increasingly using rolling budgets.

Question 11

Financial budget

Answer 11

Capital budget
Cash budget
Budgeted balance sheet
Budgeted statement of cash flows

Question 12

Operating budget

Answer 12

Revenue budget 
Production budget in units 
Direct materials purchase budget 
Direct labour budget 
Manufacturing overheads budget 
Closing stock budget 
Costs of goods sold budget
Budgeted PandL account

Question 13

Financial planning models

Answer 13

Represents mathematical interrelationships among operating activities, financial activities and other factors that affect the master budget.
Software packages are now readily available to reduce the computational burden and time require to prepare budgets.
These packages assist managers to do sensitivity analysis.

Question 14

Sensitivity analysis

Answer 14

It is a what if technique that examines how a result will change. If the original predicted data are not achieved or if an underlying assumption changes.
E.g changes in selling price or cost of material.

Question 15

Kaizen budgeting

Answer 15

A budgetary approach that explicitly incorporates continuous improvement into the budget numbers during the budget period.

Question 16

Responsibility accounting

Answer 16

A system for evaluating the performance of managers based on activities under their supervision.
Focuses on information and knowledge, not control.
A responsibility accounting system could exclude all uncontrollable costs from a managers performance report.
In practice, controllability is difficult to pinpoint
A system that measures the plans and actions of each responsibility centre.
Cost centre - managers accountable for costs only
Revenue Centre - managers accountable for revenues only
Profit centre - managers accountable for revenues and costs
Investment centre - managers accountable for investments, revenues and costs

Question 17

Controllability

Answer 17

A degree of influence that a specific manager has over costs, revenues or other items in question.
A controllable cost is any cost that is primarily subject to the influence of a given responsibility centre manager for a given time period.

Question 18

Responsibility

Answer 18

accounting focuses on information and knowledge, not control.
A responsibility accounting system could exclude al controllable costs from a managers performance report.
In practice, controlability is very difficult to pinpoint.

Question 19

Strategy

Answer 19

Can be viewed as describing how an organisation matches its own capabilities with the opportunities that are available in the marketplace to accomplish its overall objectives.