lecturer: Santi yopie, SE., MM., CMA., Project+., CIBA., CPA., BKP. arranged by: Eria Astuti 1642194 Universitas Internasional Batam

1. Budgeting for Planning and control
Eria Astuti (1642194)
Lecturer :
Santi Yopie, SE., MM., CMA., Project+,. CIBA., CPA.,BKP.

2. Budgets are the quantitative expressions of these plans, stated
in either physical or financial terms or both. When used for
planning, a budget is a method for translating the goals and
strategies of an organization into operational terms.
Define budget, how are budets used in planning ?

3. Define budget, how are budets used in planning ?
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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
operation back on course, if necessary.

4. Discuss some of the reasons for budgeting ?
1. Budgeting forces managers to plan, provides resource information for
decision making, set benchmarks for control and evaluation, and
improves the functions of communication and coordination.
2. A budget help you gain control of your finances.
3. A budget reveals areas where you’re spending too much money so
you can refocus on you most important goals.
4. A good budget keeps you honest.
5. Budgeting helps improve habits.
6. Budgeting help you avoid debt and improve credit.

5. Explain the role of a sales forecast in budgeting.
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.

6. All budgets depend on the sales budget. Is this 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.

7. Suppose that the vice president of sales is a particularly
pessimistic individual. 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 is a pessimistic individual, he/she will not have a high
expectation for his/ her results; therefore, I would count or show him/her the
amount of sales budget and make him/her a better individual,

8. Suppose that the controller of your company’s largest factory is
a particularly optimistic individual. If you were in charge of
developing the master budget, how, if at all, would you be
influenced by this knowledge?
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.

9. What impact does the learning curve have on budgeting? What
specific budgets might be affected? (Hint: Refer to Chapter 3
for material on the learning curve.)
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.

10. 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?
Small firms often do not engage in a comprehensive master budgeting
process. (Personally, we believe that is a mistake. The budgeting process helps
management more fully understand the business and helps them to plan for
the coming year.)
Even small businesses create cash budgets, however, because cash flow is
critically important.
For example, it is possible to have positive operating income, but negative
cash flow (e.g., if sales on account are high, but customers are slow to pay).
Negative cash flow could put a company out of business in short order.

11. Discuss the shortcomings of the traditional master budget. In
what situations would the master budget perform well?
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

12. 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.

13. What are the two meanings of a flexible budget? How is the
first type of flexible budget used? The second type?
1. Provides expected costs for a range of activity = is used for planning and
sensitivity analysis.
2. Provides budgeted costs for the actual level of activity = is used for control,
since actual cost of the actual level of activity can be compared with the
planned cost for the actual level of activity.

14. 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.

15. Thank You