Unit 7 - Budgets

Question 1

Name the stages in planning process.

Answer 1

1. Identify the objective of the organization.
2. Identify potential strategies
3. Evaluate alternative strategic options.
4. Select course of action.
5. Implement the long term plan in form of the annual budget.
6. Monitor actual results.
7. Respond to divergences from plan.

Question 2

What are some purpose of budgets?

Answer 2

1. Planning of annual operation.
2. Coordinate
3. Motivate
4. Communicate plans
5. To control activities
6. Evaluate the performance of managers

Question 3

Name the stages in the budgeting process.

Answer 3

1. Communicate details of budget policy and guide to those people responsible for preparing the budget.
2. Determine the factor that restricts output.
3. Preparation of sales budget.
4. Initial preparation of budgets.
5. Negotiation of budgets with higher management.
6. Co-ordination and review of budgets.
7. Final acceptance of budgets.
8. Ongoing review of the budgets.

Question 4

What is computerized budgeting?

Answer 4

Computer based financial model that are mathematical statements of the inputs and output relationships that affect the budget. These models allow management to conduct sensitivity analysis to ascertain the effects on the master budget of changes in the original predicted data or changes in the assumptions that were used to prepare the budgets.

Question 5

What are line item budgets?

Answer 5

Expenditures are expressed in considerable detail, but the activities being undertaken are given little attention. It shows the nature of the spending but not the purpose.

Question 6

What is activity based budgeting?

Answer 6

Conventional budgeting, normally based on previous year’s budget plus adjustment for inflation. It aims to manage costs more effectively.

Question 7

Stages of activity based budgeting (ABB).

Answer 7

1. Estimate the production and sales volume by individual products and customers.
2. Estimate the demand for organizational activities.
3. Determine the resources that are required to perform organizational activities.
4. Estimate for each resource the quantity that must be supplied to meet the demand.
5. Take action to adjust the capacity of resources to match the projected supply.

Question 8

What is zero based budgeting?

Answer 8

A method of budgeting that is mainly used in non-profit organizations but it can also be applied to discretionary costs and support activities in profit organizations. It works from the premise that projected expenditure for existing programs should start from base zero, with each year’s budgets being compiled as if the programs were being launched for the first time.