T1. Ch11 Pg 189 - 191 Doyle 3

Question 1

What are the key advantages of budgeting?

Answer 1

Provides a business with objectives to be met (e.g., A1 Driving School plans cash needs monthly).
Identifies potential problems, such as future cash shortages.
Helps coordinate business activities across different sections.
Motivates employees to achieve set objectives.
Evaluates performance by comparing actual vs. expected results (e.g., A1 Driving School’s unexpected insurance costs).

Question 2

What is a master budget?

Answer 2

A full set of budgets prepared by a business for a period of time.
Can range from a simple cash budget (small business) to a complex set of budgets (large businesses).
Divided into two areas:
Operating Budgets
Financial Budgets

Question 3

Operating Budgets
Q: What do operating budgets include for a manufacturing business?

Answer 3

Sales budget
Production budget (number of products to be made)
Raw materials budget
Direct labor cost budget
Cost of sales budget
Other expenses budget
Budgeted income statement

Question 4

What is the purpose of a cash budget?

Answer 4

Shows current cash balance, future cash inflows and outflows, and expected cash balance at the end of the period.
Can be prepared for different timeframes (e.g., monthly or yearly).

Question 5

What do financial budgets include?

Answer 5

Cash budget
Budgeted balance sheet
Capital expenditure budget – Lists the type and cost of non-current assets needed for business objectives.