Topic 3 - Budgeting and forecasting

Question 1

5 reasons for preparing budgets

Answer 1

Planning
Responsibility
Intregation and co-ordination
Motivation
Evaluation and control

Question 2

What is the budget committee and who is it made of?

Answer 2

Co-ordination body in the preparation and administration of budgets, senior management team

Question 3

What is the budget manual?

Answer 3

A collection of instructions governing responsibilities of persons and procedures, relating to the prepartion and use of budgetary data

Question 4

What is master budget made up of?

Answer 4

• budgeted income statement
• budgeted balance sheet
• cash budget

Question 5

Advantages and disadvantages of top-down style budgeting

Answer 5

• enhances co-ordination and incorporation of stratgetic objectives
• effectively uses senior management expereinces
• diassatisfaction,defensiveness and low morale amongst employees
• budgets may be unachievable

Question 6

Advantages and disadvantages of bottom-up style of budgeting

Answer 6

• increased commitment to objectives
• based on up to date information
• morale and motivation improved
• time consuming negotiations required
• managers may introduce budget slack