Question

Method used – incremental (historically based on prior year's expenses), zero-based, or other? 5. What is the budget period (what "fiscal year" is used)? 6. What negotiations take place in the finalization of the budget? 7. At what levels in the organization are budgets managed? To whom are budget monitoring reports issued? How are budget variances handled?

Answer 1

Answer:

Method Used: Incremental, Zero- Based or Other

Incremental Budget Method( historically based on prior year's expenses) :

In this method the the costs and incomes are considered as per previous periods data and increase and decrease in cost and incomes are calculated by considering incremental basis. It is suitable for long term period as it depicted the trends of cost and income of the entity.

Zero Based Budget Method :

In this method the cash flow will be considered as zero and all expenses for the period is considered and calculate the cost and based on that Sales and Income targets are decided.

It is made for short period as costs and cash flow can be changed as situation changes. It is not suitable for long term period.

Other Budget Methods:

There are various other methods used on the basis of Income targets, future certainties and uncertainties, trends in market etc. The method used is depends on the management policy and goals.

5. The budget period generally taken for long term is up to 5 years and for short term is up to one year.

The fiscal year is used is next year and not current year to which budget is prepared.

6. Following negotiations take place in the finalization of the budget:

1. Income Goals and Price trends

2. Costs covered in Budget

3. Government fiscal policy and anticipation future changes in it

4. trends of the previous years and current market trends

7. In the organization the budgets are managed at Managerial level by  Manager or Management of the department in the organization.

The budget monitoring reports issued to Board of Organization as they have right to approve or reject.

Budget variances are handled by applying methods, techniques or planning for cost reduction , Enhancement of efficiency , Increase in Income , manage production as per demand etc