Budgeting

Question 1

what is the purpose of budgeting

Answer 1

planning
control
communication
motivation
coordination
evaluaiton

Question 2

what are the budget types

Answer 2

Flexible - Adjusts for actual activity
Fixed - prepared for one level of output
incremental - adjust priod budget
Zero-based (ZBB) - justifys all cost from zero

Question 3

what is a functional budget layout

Answer 3

Sales → Production → Materials → Labour → Overheads → Cash → Master budget.

Question 4

what is a cash budget

Answer 4

shows expected reciepts/payments
key for liquidity plannign
includes credit terms and non-cash items excluded

Question 5

what are some of the behavioural aspects associated with budgeting?

Answer 5

Participative budgeting increases motivation and ownership but may lead to budgetary slack, where managers deliberately underestimate performance.
Imposed budgets may increase pressure and stress if targets are unrealistic.
Understanding human behaviour helps prevent dysfunctional actions and improve performance.

Question 6

What are the quantitative forecasting methods in budgeting

Answer 6

Forecasting techniques help predict future costs and activity:
The high-low method estimates cost behaviour.
Regression analysis creates a mathematical relationship between variables.
Time-series analysis identifies patterns such as trends and seasonal variations.
Correlation coefficients measure strength of relationships.
Useful for planning future demand and costs.