Week 3-4 - Budgeting Process Flashcards
What is the definition of a master budget?
A budget that expresses managements operating and financial plans for a period and includes a set of budgeted financial statements
What is the definition of a rolling budget?
It’s a budget that is always available by adding a period every time one has ended.
What purpose does budgeting serve?
- Used in strategic planning
- To use resources efficiently
- Maintains focus and discipline
How does budgeting fit into the overall planning and control framework?
Because planning involves looking ahead whilst controlling involves looking back
What are the multiple functions of budgeting?
- Planning operations
- Coordinating activities
- Communicating plans
- Motivating managers
- Controlling activities
- Evaluating performance
What are the 2 types of budgeting?
Annual budget (12 month budget) and rolling budget
What are the various stages in the budgeting process?
Top management, mid-level management and operational level staffs
What is a Master Budget?
A summary of the financial projections of the organisations budgets
What is incremental budgeting?
Adjusting the previous years budget by adding/subtracting a percentage to account for changes
What is zero-based budgeting?
Requires justification for all expenses for each budgeting cycle. starts from zero
What is a Sensitivity Analysis?
A technique used to examine how a result would change if budgets aren’t met etc
What is Activity-based budgeting?
Budgeting based on activities that drive them rather than traditional cost categories
What is Kaizen budgeting?
Incorporating continuous improvement into budgeting by setting lower cost targets
What are a few behavioural consequences of budgeting?
- Motivates employees to reach targets
- Encourages accountability and performance tracking
- Superiors may dominate the budget process
What are a few criticisms of traditional budgeting?
- Ties the company into a year long commitment
- Often based on the lowest targets
- Encourages spending what’s in the budget even though it may not be necessary
