Week 2

Question 1

What is Budgeting?

Answer 1

Budgeting is a process of creating a plan in financial terms that outlines an organization’s objectives and provides a roadmap for achieving them. It involves the estimation of revenues, expenses, and allocation of resources for a specific period

Question 2

Why is Budgeting Important?

Answer 2

Budgeting is important because it helps organizations plan their activities, allocate resources efficiently, coordinate departments, and ensure that goals are met. It also provides a mechanism for performance evaluation, motivation, and control​

Question 3

Advantages of Budgeting

Answer 3

Resource Allocation: Ensures optimal allocation of resources across different departments.
Coordination: Helps coordinate activities across various parts of the organization.
Planning: Forces managers to think ahead and plan for future operations.
Control: Acts as a tool for monitoring performance and controlling organizational activities​

Question 4

What is a Rolling Budget?

Answer 4

A rolling budget is a budget that is continuously updated by adding a new budgeting period (like a month or quarter) as the current period ends, ensuring that the organization always has a budget that extends into the future​

Question 5

What is a Static Budget?

Answer 5

A static budget is one that is prepared for a specific, planned level of activity and does not change, regardless of actual activity levels. It is often used for fixed costs but may not reflect variances in actual performance

Question 6

What is a flexible budget?

Answer 6

A flexible budget adjusts for changes in the volume of activity. It shows revenues and expenses that should have occurred at the actual level of activity​

Question 7

How Do Budgets Help in Planning and Control, and Are They Relevant in Today’s Environment?

Answer 7

Budgets help in planning by setting financial and operational targets for future periods, ensuring that resources are allocated effectively. They support control by providing benchmarks to compare actual performance against planned targets. In today’s environment, budgets remain relevant as they help organizations adapt to changing conditions through rolling and flexible budgets​

Question 8

Advantages and Disadvantages of Budgeting (How Does Budgeting Help with Control)?

Answer 8

Advantages:
Improves Control: Budgets act as a control tool by highlighting variances between actual and planned performance.
Performance Evaluation: Helps in evaluating managerial performance by comparing actual results to budgeted targets.
Motivation: Can motivate managers to achieve set goals.
Disadvantages:
Time-Consuming: Budgeting can be a lengthy process requiring significant time.
Inflexibility: Static budgets may not adapt well to unexpected changes in the business environment