Sherrin Tjandra 1642093 4AKMA

1. S A N T I Y O P I E , S E . , M M . , C M A . , P R O J E C T + . , C I B A . ,
C PA . , B K P.
BUDGETING FOR PLANNING AND
CONTROL
ASSIGNMENT : CHAPTER 8
Sherrin Tjandra (1642093)

2. (Q1) DEFINE BUDGET. HOW ARE
BUDGETS USED IN PLANNING ?
• Budget : An estimate of costs, revenues, and resources over a specified period,
reflecting a reading of future financial conditions and goals.
A budget is a plan to:
• control your finances
• ensure you can continue to fund your current commitments
• enable you to make confident financial decisions and meet your objectives
• ensure you have enough money for your future projects
It outlines what you will spend your money on and how that spending will be
financed. However, it is not a forecast. A forecast is a prediction of the future
whereas a budget is a planned outcome of the future - defined by your plan
that your business wants to achieve.

3. (Q2) DEFINE CONTROL. HOW ARE
BUDGETS USED TO CONTROL ?
• Control : Control is the process of setting standards,
receiving feedback on actual performance, and taking
corrective action whenever actual performance deviates
from planned performance
Budgeting as a Control Tool
• A budget serves as a control tool to provide standards for evaluating performance. A
budget can cover any of the following:
• 1. Profit planning – forecast of revenues and expenses
• 2. Cash budgeting – forecast of cash needs and sources
• 3. Balance sheet forecasting – anticipating future assets, liability
and net worth position of the business

4. (Q3) DISCUSS SOME OF REASONS FOR
BUDGETING ?
• A budget is a guide that tells you whether you're going in the
direction you want to be headed in financially. A budget lets you
control your money instead of your money controlling you.
• A budget can help you meet your savings goals. It includes a
mechanism for setting aside money for savings and investments.
• A budget helps you prepare for emergencies or large or
unanticipated expenses that might otherwise knock you for a loop
financially.
• A budget reveals areas where you're spending too much money so
you can refocus on your most important goals.
• A budget can keep you out of debt or help you get out of debt.

5. (Q4) WHAT IS THE MASTER BUDGET ? AN OPERATING
BUDGETS? A FINANCIAL BUDGETS?
• Master Budget : A master budget is an expensive business strategy that documents
expected future sales, productions levels, purchases, future expenses incurred,
capital investments, and even loads to be acquired and repaid. In other words, the
master budget includes all other financial budgets as wells as a budgeted income
statement and balance sheet.
• Operating Budget : An operating budget shows the company's projected revenue
and associated expenses for an upcoming period -- usually the next year -- and is
often presented in an income statement format.
• Financial Budget : A financial budget is a projection of incomes and outflows of the
organization for the long-term as well as short-term.

6. (Q5) EXPLAIN THE ROLE OF A SALES FORECAST IN BUDGETING.
WHAT IS DIFFERENCE BETWEEN A SALES FORECAST AND A
SALES BUDGET ?
• The sales forecast is a critical input for building the sales budget. However,
it is not necessarily equivalent to sales forecast, management may decide
that the firm can do better than then forecast indicates.
Difference between sales forecast and a sales budget
• Sales forecast ; calculated from historical information , we can use last
month or last three months to show you the expected growth rate to indicate
the future
• Sales Budget ; come from management with a view increasing profits and
encourage increasing the sales revenues

7. (Q6) ALL BUDGETS DEPEND ON THE
SALES BUDGET. IS IT TRUE? EXPLAIN.
• One of the reasons that sales budgets are so important
is because all of the other business budgets are based
on this one document. Without the sales budget, you
cannot forecast anything else that will go on your
business. You do not know how much you should spend
on advertising, how much you should spend on
production or any other component of your business.
While you know your fixed expenses like rent and
utilities, the rest of the expenses will largely depend on
how much you sell.

8. (Q7) SUPPOSE THAT THE VICE PRESIDENT OF SALES IS A
PARTICULARLY PESSIMISTIC INDIVIDUAL. IF YOU WERE CHARGE OF
DEVELOPING THE MASTER BUDGET, HOW, IF AT ALL, WOULD YOU BE
INFLUENCED BY THIS KNOWLEDGE ?
• Most likely the pessimistic vice president will think lowly
of sales and the budget will be tighten to the lowest point
which could be a dangerous move for a business.

9. (Q8) SUPPOSE THAT THE CONTROLLER OF YOUR COMPANY’S LARGEST FACTORY IS
PARTICULARLY OPTIMISTIC INDIVIDUAL. IF YOU WERE IN CHARGE OF DEVELOPING THE
MASTER BUDGET, HOW, IF AT ALL, WOULD YOU BE AFFECT THIS KNOWLEDGE ?
• Due to its optimistic attitude, he/she will underestimate
the DM, DL and OH because of a mindset that
everything will run smoothly which that kind of thinking
only occurs with optimistic individuals. As the person in
charge, I must increase those cost and make it as
realistic as possible

10. (Q9) WHAT IMPACT DOES LEARNING CURVE HAVE ON
BUDGETING? WHAT SPECIFIC BUDGETS MIGHT BE AFFECTED ?
• learning curve is the relationship between unit cost of
production and increasing number of units. As the time
go on, the number of units produced in the 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. (Q10) WHILE MANY SMALL FIRMS DO NOT PUT TOGETHER A
COMPLETE MASTER BUDGET, NEARLY EVERY FIRM CREATES A CASH
BUDGET. WHY DO YOU THINKS THAT IS SO ?
• The preparation of cash budget is an important management
task. While some small businesses may be able to survive for
a time without budgeting, savvy business owners will realize
its importance. A cash budget can protect a company from
being unprepared for seasonal fluctuations in cash flow or
prepare a company to take advantage of unexpected quantity
discounts from suppliers. Many small businesses find it
helpful to prepare monthly cash budgets and to analyze any
variances between the budgeted and actual amount on a
monthly basis. This enables small business owners and
managers to stay on top of any unexpected cash uses.

12. (Q11) DISCUSS THE SHORTCOMING OF TRADITIONAL MASTER
BUDGET. IN WHAT SITUATIONS WOULD THE MASTER BUDGET
PERFORM WELL ?
• Criticisms of the master budget can be classified into
several categories. The traditional master budget is :
• 1. Department oriented and does not recognize the
interdependencies among department.
• 2. Static, not dynamic.
• 3. Results, not process, oriented.

13. (Q12) DEFINE STATIC BUDGET. GIVE AN EXAMPLE
THAT SHOWS HOW RELIANCE ON A STATIC BUDGET
COULD MISLEAD MANAGEMENT.
• Static Budget : A static budget is fixed for the entire period
covered by the budget, with no changes based on actual
activity.
• The problem with a static budget is the absence of flexibility to
adjust to unpredictable changes. In industry, fixed budgets are
appropriate for those departments whose workload does not
have a direct current relationship to sales, production, or
some other volume determinant related to the department’s
operations. The work of the departments is determined by
management decision rather than by sales volume.

14. (Q13) WHAT ARE THE TWO MEANING OF A FLEXIBLE
BUDGET? HOW IS THE FIRST TYPE OF FLEXIBLE
BUDGET USED?THE SECOND TYPE ?
• 1. A flexible budget shows costs for varying levels of
activity.
• Useful for planning
• Useful for sensitivity analysis.
• 2. A flexible budget can be constructed for the actual
level of activity
• Useful for control
• Compares actual costs to budgeted amounts for actual level of
activity.

15. (Q14) WHAT ARE THE STEPS INVOLVED IN BUILDING
AN ACTIVITY-BASED BUDGET ? HOW DO THESE
STEPS DIFFERENT THE ABB FROM MASTER BUDGET?
• The activity-based budget begins with output and then determines
the resources necessary to create that output. Ideally, the
organization translates its vision into a strategy with definable
objectives in order to create value. Ways of creating value include
growing market share, improving sales rates, reducing expenses,
increasing profit margin, increasing productivity, and reducing the
cost of capital. We can see how clearly ABB is related to
performance evaluation and, in particular, to economic value added.
We can look at a department’s budget from three perspectives: a
traditional approach, a flexible budgeting relies on the use of line
items, such as salaries, supplies, depreciation on equipment, and so
on. The flexible budget uses knowledge of cost behavior to split the
line items into fixed and variable components. The activity-based
budget works backward from activities and their drivers to the
underlying costs.