Budgets are quantitative expressions of plans that are used for planning and control. For planning, budgets ensure spending follows a plan and supports objectives. For control, budgets provide standards to evaluate performance against. As the head of budgeting, one would not be overly influenced by pessimistic or optimistic individuals, but use reasonable assumptions to develop an accurate master budget. Even small firms create cash budgets because cash flow is critically important. Static budgets can mislead if not adjusted for changes, while flexible and activity-based budgets improve accuracy.

1. Nama : Elis
NPM: 1642209
Dosen Pembimbing:
Santi Yopie, SE., MM., CMA., Project+., CIBA., CPA., BKP.
BUDGETING FOR PLANNING ANDCONTROL

2. Define budget. how are budgets used in planning ?
• Budgets are the quantitative expressions of plans.
• In business, budget can be defined as a plan for an
organization's outgoing expenses and incoming revenues for
a specific time period.
• Budget used in planning is ensure that spending follows a
plan, supports business objectives, stays within preset limits,
and does not exceed available funds.

3. Define control. How are budgets used to control ?
• Control is the process of setting standards, receiving feedback on
actual performance, and taking corrective action
• 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. Discuss some of the reasons for budgeting
• Budgeting forces managers to plan, provides resource information for
decision making, sets benchmarks for control and evaluation, and
improves the functions of communication and coordination.
• Budget to make sure you are able to live on what you earn.
• Budgeting will help you reduce debt.
• It helps you prepare for emergencies.

5. What is the master budget? An operating budget?
A financial budget?
• The master budget is the collection of all individual area and activity
budgets.
• Operating budgets are concerned with the income- generating
activities of a firm.
• Financial budgets are concerned with the inflows and outflows of cash
and with planned capital expenditures.

6. Explain the role of a sales forecast in budgeting. What is
the difference sales forecast and sales budget
• Role of a sales forecast in budgeting is a key element in conduting budget. It’s
predict of future performance based on available information about past
performance
• Sales Budget: How much we'd like to pull in during a given period of time, usually
prepared on a yearly basis.
• Sales Forecast: How much we think we'll actually pull in during a given period of
time, usually prepared on a monthly or quarterly basis.
• Difference: Sales Budget is the number you really hope to get from sales. This is
where you *want* to go - your ultimate sales goal. Sales Forecast is how you're
actually tracking on that number - will you make your budget goal? Exceeded it?
Sales Forecast tells you if you're trending toward or away from your goal.

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
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 of sales is a particulary pessimistic individual, people
will think that he or she will underestimate or not underestimate the sales
for upcoming sales, but as a charge of developing the master budget we
must always be cool in develop that we must increase or decrease the
budget cause the master budget is the master plan that encapsules all of the
budgets for your organization, so we must be carefull.

9. 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 (etc : 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 budgeting? What
specific budgets might be affected? (Hint: Refer to Chapter 3 for
material on the learningcurve.)
• The 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. 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 ?
• 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

12. Discuss the shortcomings of the traditional master budget. In
what situations wouldthe master budget performwell?
• It does not recognize the interdependencies among departments
• It is static
• It is results rather than process oriented.

13. Define static budget. Give an example that shows how reliance on
a static budget couldmislead 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 leve can mislead managers about
efficiency

14. What are the two meanings of a flexible budget? How is the first
type of flexiblebudget used? The second type ?
• Budget for various levels of activity.
The first type of flexible budget is used for planning and sensitivity
analysis.
• Budget for the actual level of activity.
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?
Howdo these steps differentiate the ABB fromthe master budget?
• The activity-based budgeting process can be simplified into a three-
step process. First, relevant activities are identified. These cost drivers
are the items responsible for incurring revenue or expenses. Second,
the number of units related to each activity is determined as the
baseline for the calculation. Finally, the cost per unit of activity is
determined and multiplied against the activity level
• The difference between ABB and the master budget is ABB only
budgeting for certain activities. But master budget is budgeting for all
activities of organization goal to make profit.

16. Thank You