Question

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Class is Accounting 240 (Managerial) Chp 8: Master Budgeting; with an emphasis on budgeting (from the perspective of an organization/ manager) and how doing so helps organizations achieve financial goals. With said budgets being created in order to serve the purpose of planning and control, within an organization/ company.

• What is a budget? What is budgetary control?

• Discuss some of the major benefits to be gained from budgeting.

• What is meant by the term responsibility accounting?

• What is a master budget? Briefly describe its contents.

• Why is the sales forecast the starting point in budgeting?

• “As a practical matter, planning and control mean exactly the same thing.” Do you agree? Explain.

• Why is it a good idea to create a “Budgeting Assumptions” tab when creating a master budget in Microsoft Excel?

• What is a self-imposed budget? What are the major advantages of self-imposed budgets? What caution must be exercised in their use?

• How can budgeting assist a company in planning its workforce staffing levels?

• “The principal purpose of the cash budget is to see how much cash the company will have in the bank at the end of the year.” Do you agree? Explain.

Answer 1

1. What is a budget??

Answer : The definition of Budget in Accouting is Quantitative expression of a plan for a defined period of time.

In simple words, budget means a statement of estimation of revenue and expenses over a specified future period of time.This budget can also include planned sales volume and revenues, resource quantities, costs and expenses etc.

2. What is budgetary control?

Answer : Budgetary controls are the system of an entities management control in which all the operations are forecasted and planned in advance to the extend possible and the actual results are compared with the forecasted and planned ones.

In simple words, management carry out budgetary control to understand the varience between planned perfomance and actual perfomance. So the management can take better measures to improve the actual perfomance.

3. Benefits to be gained from Budgeting.

• Budget is an expectation of a future action.Using the budgets to communicate these expectations throughout the organisation has helped many companies to reduce expenses during a severe business recession.
• The process of budgeting starts with Planning. Planning not only motivates employees to attain goals but also improves overall decision making.Becuase during the planning phase of the budget process, all viewpoints are considered, options are identified and cost reductions opportunities are assessed. This process can reveal opportunities or threat that were not know prior to budget planning process.
• Budgeting helps in Directing and Coordinating. Once budgtes are planned, they can be used to direct and coordinate operations in order to achieve the stated targets.
• The actual perfomances of an operation can be compared against the planned targets.This provides prompt feedback to employees about thier perfomances.The employees can use such feedback to adjust their future activities.
• Thus budget helps in achieving the overall o.bjective of the organisation.

4. What is meant by responsibility accounting?

Answer : The budgetary units of an organisation are called responsibility centres.Each responsibility centres is led by a manager who has the authority over and responsibility for the unit's perfomance.

Thus Responsibility Accouting is a system where responsibility centres and their objectives are identified, developing perfomance measurement schemes, and preparing and analyzing perfomance reports of the responsibility centres.

5. Master budget and its Contents.

Answer : A Master Budget is a the central planning tool that a management team uses to direct the activities of a corporation, as well as to judge the performance of its various responsibility centers.

Components of a Master Budget

• Operational Budget
• Financial Budget

6. Why is the sales forecast the starting point in budgeting?

Answer : Sales forecasting is the commencement of budgeting and hence sales budget assumes primary importance.

• The sales forecast helps the firm to decide which produces are to be continued, which ones are to be dropped, which ones are to be added, and which need modification.
• It enables the firm to identify its precise position in the market, this, in turn, facilitates optimum utilization of resources, optimum penetration of markets, and optimum gains from marketing opportunities.
• It is the starting point in budgeting because sales impacts/ drives virtually every aspect of a firm’s activities because sales will determine revenues and direct costs.
• Sales forecasting forms the backbone of marketing. It provides not only the numbers regarding sales, but also vital clues regarding customer’s tastes, preferences, and needs.

7. “As a practical matter, planning and control mean exactly the same thing.”

Answer : I do not agree with this statement. Planning and controlling are inter-related to each other. But they ara not the same thing.

• Planning sets the goals for the organization and controlling ensures their accomplishment.
• Planning decides the control process and controlling provides sound basis for planning.
• In planning the objectives or targets are set in order to achieve these targets control process is needed. So planning precedes control.
• Controlling directs the course of planning. Controlling spots the areas where planning is required.
• In controlling the actual performance is compared to the standards set and records the deviations, if any. The information collected for exercising control is used for planning also.

8. Why is it a good idea to create a “Budgeting Assumptions” tab when creating a master budget in Microsoft Excel?

Answer : Creating a budgeting assumptions tab simplifies the process of determining how changes to a master budget's underlying assumptions which impact all supporting schedules and the projected financial statements.

9. What is a self-imposed budget? What are the major advantages of self-imposed budgets? What caution must be exercised in their use?

Answer : Self-imposed budgets can also be called participatory budgets. These types of budgets assume that there are cooperation and participation from managers at all levels of the organization. It creates a much more harmonious work environment between employees.

Self imposed budgets are prepared with full cooperation and participation of managers at all levels.

Advantages of self-imposed budgets

• Self-imposed budgets helps in creation of a team environment where eeryone values each other.So each and everyone's opinions are considered.
• When a front-line manager assists in the preparation of their own budget, they have working knowledge and are able to more accurately estimate expenses for their area.
• When you, as a manager, get to prepare your own budget, you are more motivated to set goals that are attainable, yet challenging. There is a higher level of commitment when participation is involved.

Caution exercised in use of Self-imposed budgets

Self-imposed budgets sets a chance for each and every managers to act.So review of work of each and every managers will be tough. Especially work of law level managers need to be checked thoroughly.

10. How can budgeting assist a company in planning its workforce staffing levels?

Answer : Budgeting is set to control the cost of a project.Expenses relatind to worforce staffing like direct labour cost can ne identified and used to assist in planning a companies worforce staffing level.

11. “The principal purpose of the cash budget is to see how much cash the company will have in the bank at the end of the year.”

Answer : Cash budget represents the cash requirements of the business during the budget period.It is the plan of receipts and payments of cash for the budget period, analysed to show the monthly flow of cash drawn up in such a way that the balance can be forecasted at regular intervals.

So, i do not agree with the statement.

Although cash budget helps the company to see how much cash will have in bank at the end of the year, this is not the principal purpose of company.