Question

4.     Definition of budgeting and types of budgets

5.     Top down budgets versus bottom-up

6.     Conventional versus zero based budgets

7.     Static versus flexible budget

8.     Variance analysis, including flexible budget and actual budget. Why and how?

Answer 1

4. Budget is a plan usually made in the beginning of any operation so that the actual can be compared withe the expected or the targets.

5.

Top down budget is given by the management to the employees which has to be followed. in bottom up employees are a part while making the budget.

6. Conventional budgeting starts from a previous reference or a plan. However, zero budgeting starts from the scratch. Traditional takes previous expenses and revenues as the base.

7. A flexible budget adjustswith changes in volume or any otther activities. The static budget remains constant and does not change.

8. You prepare a flexible budget at actual level of output and calculate flexible budget variances. Since revenues and variable costs differ with number of units, we find  budgeted price and variable costs per unit by dividing static amounts by budgeted units.