1. What is a budget?

Budget is a planning device that helps a company set goals and that serves as a gauge against which actual results can be measured. 2. What are the advantages of using budgets in a business setting? It encompasses the coordination and control of every significant item in the balance sheet and income statement. It is used to help the company reach its long-term and short-term objectives. 3. What are 6 principles of business budgeting? 1. Clearly defined objectives 2. Realistic and possible to attain goals 3. The budget must carefully consider economic developments, the general business climate, and the condition of the industry, along with changes and trends that may influence sales and costs, because the budgeting process involves looking to the future. Historical data should be used only as a stepping-off point for projections in the future. 4. There must be a plan, consistently followed, to constantly analyze the actual results as compared with the budget. 5. Flexible Budget 6. Clearly defined responsibility for forecasting costs. 4. What is a continuous budget, and why is it useful? Continuous budget is a Rolling budget that rolls forward so that as one month or quarter is completed a new month or quarter is added at the end of the budget. It is useful because it results in a budget that is always one year in advance. 5. Give 3 examples of each operating budgets and financial budgets. Operating Budgets: 1. Sales Budget 2. Cost of Goods Sold Budget Production Budget Direct Materials Budget Direct Labor Budget Factory Overhead Budget 3. Selling and Administrative Expense Budget 4. Budgeted Income Statement Financial Budgets: 1. Cash Budget 2. Capital Expenditures Budget 3. Budgeted Balance Sheet 4. Budgeted Retained Earnings Statement 5. Budgeted Cash Flows Statement 6. Which budget must be prepared before the other? Why? Sales Budget. It will serve as a basis for preparing all other budgets. It projects the volume of sales in both units and dollars.

7. What is demand software, and where in the budgeting process is it useful? Demand Software new aid in budgeting for sales that takes numerous variables into consideration when forecasting sales, such as projected economic conditions in the industry and in the economy as a whole, population trends, and predicted weather patterns. It is useful in preparing sales budgeting process. 8. Why is it important to have front-line managers participate in the budgeting process? To initiate the budgeting process for their areas. Front-line managers are the ones closest to the individual sales territory or production department situation. This is known as Participative budgeting or bottom-up budgeting. 9. If the sales forecast estimates that 50,000 units of product will be sold during the following year, should the factory plan on manufacturing 50,000 units in the coming year? Explain. No, because in order to have a final decision on manufacturing units for the coming year, there are several things a company must take into consideration. The company must also provide detailed information on both operating and financial budgets that might help the company to forecast a feasible manufacturing process projection. 10. What are the advantages and disadvantages of each of the following for a company that has greatly fluctuating sales during the year? a. A stable production policy Advantages: b. A stable inventory policy 11. What 3 manufacturing budgets can be prepared subsequent to preparation of the production budget? Direct Materials Budget Direct Labor Budget Factory Overhead Budget 12. What does the Japanese term kaizen mean, and how it is used in the budgeting process? Kaizen means continuous improvement. It is used in the practice of building continuous improvement into the budget numbers. It effect by adjusting the labor time into a smaller time knowing that the workers are more proficient in completing a task than of the former time. 13. What are the 3 budgets that are needed in order to prepare the budgeted income statement? Cost of Goods Sold Budget Selling Expenses Budget and Administrative Expenses Budget Financial Budget 14. What might Web-based budgeting be more useful than using spreadsheets to budget? Web-based budgeting is where employees can input the data for which they are responsible at the budget Web site. This precludes them from having to prepare individual spreadsheets for their area of responsibility, which then have to uploaded and coordinated.

15. What is a flexible budget? Flexible Budget prepared after the fact to compare the actual operating results to what should have occurred, give the level of operations achieved for the period. 16. Why is flexible budget better than a master budget for comparing actual results to budgeted expectations? Because it would indicate the budgeted direct materials cost for the units of production achieved. This would enable management to determine how well direct materials costs were controlled, given the actual level of production attained. 17. Why is it important to distinguish between variable costs and fixed costs for budgeting purposes? 18. Why is the concept of relevant range important when preparing a flexible budget? 19. In comparing actual sales revenue to flexible budget sales revenue, would it be possible to have a favorable variance and still not have met revenue expectations? 20. How would you define the following? a. Theoretical capacity b. Practical capacity c. Normal capacity 21. Is it possible for a factory to operate at more than 100% of normal capacity? 22. If a factory operates at 100% of capacity one month, 90% of capacity the next month, 105% of capacity the next month, will a different cost per unit be charged to work in process each month for factory overhead assuming that a predetermined annual overhead rate is used? 23. How is the standard cost per unit for factory overhead determined?