Question and Answer

1. BY: CLAUDIA (1642122)
LECTURER : SANTI YOPIE, SE.,
MM., CMA., PROJECT+., CIBA.,
CPA., BKP
BUDGETING FOR PLANNING AND
CONTROL

2. DEFINE BUDGET, HOW ARE BUDGETS USED IN
PLANNING?
 A budget is a quantitative plan used as a tool for deciding which
activities will be chosen for a future time period. In a business,
the budgeting for operations will include the following: preparing
estimates of future sales, preparing estimates of future cash
collections and disbursements.
 A budget is used for planning and performance measurement
purposes, which can involve spending for fixed assets, rolling out
new products, training employees, setting up bonus plans,
controlling operations, and so forth. At the most minimal level,
a budget contains an estimated income statement for future
periods.

3. DEFINE CONTROL, HOW ARE BUDGET USED IN
CONTROLLING?
 Control is the process of setting standards, receiving feedback on
actual performance, and taking corrective action whenever actual
performance deviates significantly from planned performance.
Thus, budgets can be used to compare actual outcomes with
planned outcomes, and they can steer operations back on course,
if necessary.

4. DISCUSS SOME OF THE REASONS FOR BUDGETTING!
 Budgetting forces managers to plan, provides resource information
for decision making, set benchmarks for control and evaluation,
and improves the functions of communication and coordination.
 A budget help you gain control of your finances.
 A budget reveals areas where you’re spending too much money so
you can refocus on your most important goals.
 A good budget keeps you honest.
 Budgeting helps improve habits.
 Budgeting help you avoid debt and improve credit.

5. WHATIS MASTERBUDGET?
AN OPERATING BUDGET?
A FINANCIAL BUDGET?
 Master budget is a comprehensive financial plan for the year and
is made up of various individual departmental and activity budgets.
 Operating budgets are concerned with the income generating
activities of a firm: sales, production, and finished goods inventories.
The result is a budgeted income statement operating budget is
actually comprosed of eight supporting budget planning schedules.
 Financial budgets are concerned with the inflows and outflows of
cash and with financial position. Planned cash inflows and outflows
are detailed in a cash budget, and expected financial position at the
end of the budget period is shown in a budgeted, or proforma,
balance sheet.

6. EXPLAIN THE ROLE OF A SALES FORECAST IN BUDGETTING. WHAT IS THE
DIFFERENCE BETWEEN A SALES FORECAST AND A SALES BUDGET?
 The sales forecast is a critical input for building the sales budget. It,
however, is not necessarily equivalent to the sales budget. Upon
receiving the sales forecast, management may decide that the firm
can do better or needs to do better than the forecast is indicating.
Consequently, actions may be taken to increase the sales potential
for the coming year (e.g., increasing advertising). This adjustment
then becomes the sales budget.
 The difference between sales forecast and a sales budget is Sales
Budget is the number you really hope to get from sales. This is where
your ultimate sales goal. Sales forecast is how you’re actually tracking
on that number-will you make your budget goal? Sales Forecast tells
you if you’re trending toward or away

7. ALL BUDGET DEPEND ON THE SALES BUDGET. IS IT TRUE?
EXPLAIN!
 Yes. All budgets essentially are founded on the sales budget. The
production budget depends on the level of planned sales. The
manufacturing budgets, in turn, depend on the production budget.
The same
 is true for the financial budgets since sales is a critical input for
budgets in that category.

8. SUPPOSE THAT THE VICE PRESIDENT OF SALES IS A PARTICULARLY PESSIMISTICINDIVIDUAL.
IF YOU WERE IN CHARGE OF DEVELOPING THE MASTER BUDGET, HOW, IF AT ALL, WOULD
YOU BE INFLUENCED BY THIS KNOWLEDGE?
 If the vice president of sales is a pessimistic individual, one might
expect that she or he would underestimate sales for the coming
year. In your role as head of the budget process, you might
increase the budgeted sales figure to take out the individual bias.

9.  If the factory controller is a particularly optimistic individual, it is
possible that the costs for direct materials, direct labor, and
overhead could be underestimated.
 For example, an optimistic person might assume that everything
will go well (e.g., that there will be no problems in obtaining an
adequate supply of materials at the lowest possible price). As
head of the budget process, you might allow for somewhat
higher costs to more accurately reflect reality.

10. WHAT IMPACT DOES THE LEARNING CURVE HAVE ON BUDGETTING?
WHAT SPECIFIC BUDGETS MIGHT BE AFFECTED?
 The learning curve is the relationship between unit costs of
production and increasing number of units. As time goes on, the
number of units produced in a time period will increase and the
cost per unit will decrease. The budgets affected will be the direct
materials purchases budget, the direct labor budget, and the
overhead budget.

11. WHILE MANY SMALL FIRMS DO NOT PUT TOGETHER A COMPLETE MASTER BUDGET,
NEARLY EVERY FIRM CREATES A CASH BUDGET. WHY DO YOU THINK THAT IS SO?
 Many small businesses find it helpful to prepare monthly cash
budgets and to analyze any variances between the budgeted and
actual amounts on a monthly basis. This enables small business
owners and managers to stay on top of any unexpected cash uses.

12. DISCUSS THE SHORTCOMINGS OF THE TRADITIONAL MASTER BUDGET. IN
WHAT SITUATIONS WOULD THE MASTER BUDGET PERFORM WELL?
 Whether big companies or small companies, they create cash
budget because we will know whether we have any account
receivables or account payable.
 The master budget has been criticized for the following reasons: it
does not recognize the interdependencies among departments, it is
static, and it is results rather than process oriented. These
criticisms are especially apparent when companies are in a
competitive, dynamic environment. When the environment changes
slowly, if at all, the master budget would do a good job of both
planning and control

13. DEFINE STATIC BUDGET. GIVE AN EXAMPLE THAT SHOWS HOW RELIANCE ON
A STATIC BUDGET COULD MISLEAD MANAGEMENT.
 A static budget is one that is not adjusted for changes in activity.
Using a static budget for control can be a real problem.
 For example, suppose that the master (static) budget is based on
the production and sale of 100,000 units, but that only 90,000 units
are actually produced and sold. Further suppose that the budgeted
variable cost of goods sold was $2,000,000, and that the actual
variable cost of goods sold was $1,890,000. It looks as if the
company spent less than expected for variable manufacturing
costs. However, the budgeted variable cost was $20 per unit
($2,000,000/100,000), and the actual variable cost per unit is $21
per unit ($1,890,000/90,000). Not adjusting the budget for changes
in activity level can mislead managers about efficiency.

14. WHAT ARE THE TWO MEANINGS OF A FLEXIBLE BUDGET? HOW IS THE
FIRST TYPE OF FLEXIBLE BUDGET? THE SECOND TYPE?
 A flexible budget is
(1) a budget for various levels of activity or
(2) a budget for the actual level of activity.
 The first type of flexible budget is used for planning and sensitivity
analysis.
 The second type of budget is used for control, since the actual
costs of the actual level of activity can be compared with the
planned costs for the actual level of activity.

15. WHAT ARE THE STEPS INVOLVED IN BUILDING AN ACTIVITY-BASED-BUDGET?
HOW DO THESE STEPS DIFFERENTIATE THE ABB FROM THE MASTER BUDGET?
 The activity-based budget starts with output, determines the
activities necessary to create that output, and then determines the
resources necessary to support the activities.
 This differs from the traditional master budgeting process in that the
master budget leaps directly from output to resources. Some of the
resource levels are assumed to be fixed. This makes them
independent of volume changes and hides the drivers that actually
do affect the fixed resources. As a result, the budget format does
not support the creation of value and the thinking that would go into
determining the sources of waste.

16. Thank you