Module 4 : Budgeting

Question 1

Budget

Answer 1

• is the quantitative expression of a company’s action plan for a future/specific period
• aid to cordinate what needs to be done to implement the plan

Question 2

Purpose of a budget

Answer 2

• Coordination of activities
• Stimulation of plans
• Authorization of actions (state, non-profit, organizations)
  1) –> planning

2) Communication

• Motivation
• Controlling
• Performance judgement

3) –> target setting

Question 3

What does the budget cover ?

Answer 3

both financial and non-financial aspects of the action plan and serves as a company’s roadmap for a specific period.

Question 4

Translation of Strategy into Operational Planning

Answer 4

Strategy –> Long run Planning (Strategic plan) –> Long run Budget

Short run Planning (operating plan) –> short run Budget

page 7

Question 5

Consequences of Budgeting

Answer 5

• expansion
  -reduction

Question 6

Budgetin - cycle (3 Steps)

Answer 6

step 1: analyse company past performance and market feedback, and try to anticipate future changes to derive a budget for the next period.

step 2 : Plans are broken down and divided among the individual divisions of a company
–> Frame of Reference: Specific financial and non- financial expectations that subordinate managers use to compare actual results

Step 3: Controllers support management in analyzing deviations from plans –> corrective actions

Question 7

Master budget

Answer 7

is an expression of a managements operating and financial plans for a specified period – usually a fiscal year --> quantification of the managers qualitative goals for a period.

Question 8

Master budegt contains two types, which ones ?

Answer 8

Operating and Financial Budget

Question 9

Operating Budget

Answer 9

deal with the best possible use of an organization’s limited resources

Question 10

Financial Budget

Answer 10

deal with fundraising for the acquisition of resources

Question 11

Planning Variants (3 types)

Answer 11

1. Top Down Planning
2. Bottom Up Planning
3. Countercurrent

Question 12

Budget Types (Budget according to planning rhythm)

Answer 12

1. Principle of the subsequent planing
2. Principle of rolling planning

Question 13

Functions and Benefits of Budgeting

Answer 13

1. Coordination and Communication
2. Framework for judging performance
   and facilitating learning
3. Motivation

Question 14

Problems with sales forecasts (page 30)

Answer 14

• Seasonal fluctuation in sales
  -Unpredictability of general economic developments
  -Success of advertising
  campaigns
• Quality of sales staff

Question 15

Behavioral aspects (Problem with sales forecast)

Answer 15

• Unethical behavior when creating the budget
  -Strengthen departmental thinking
  -Inappropriate replacement of leadership with financial figures (budgets)

Question 16

Cost and benefits (Problem with sales forecast)

Answer 16

• Time and resource intensive creation
  -Lack of flexibility due to fixed plans /
  budgets
  -Waste of resources (due to fixed cost budget)

Question 17

Other challenges (Problem with sales forecast)

Answer 17

• Production capacity
  -Pricing policy

Question 18

Budgeting and Responsibility Accounting

Answer 18

voir graphique page 31

Responsibility center :

-Each manager, regardless of level, is in charge of a responsibility center

• A responsibility center is a part, segment, or subunit of an organization whose manager is
  accountable for a specified set of activities
• Responsibility accounting is a system that measures the plans, budgets, actions, and actual results of each responsibility center

Question 19

Budgetary slack

Answer 19

is the practice of underestimating budgeted revenues or overestimating budgeted costs to make budgeted targets easier to achieve

Question 20

Stretch targets

Answer 20

are challenging but achievable levels of expected performance, intended to create a little discomfort

Question 21

Kaizen budgeting

Answer 21

explicitly incorporates continuous improvement anticipated during the budget period in the budget numbers

Question 22

long run budgeting

Answer 22

strategic plan –> more than a year

Question 23

Short run budgeting

Answer 23

a year or shorter than a year

Question 24

Top Down Planning

Answer 24

the planning process starts at the top levels of the organization (executives or senior management) and cascades downward

Question 25

Bottom-Up Planning

Answer 25

bottom-up planning starts at the operational level, with employees or teams who are closest to the action providing input and suggestions for the plan

Question 26

Countercurrent Planning

Answer 26

This is a hybrid approach that combines elements of both top-down and bottom-up planning. Senior management sets the overall strategic objectives, while lower levels of the organization contribute their insights and feedback.

Question 27

Principle of Subsequent Planning

Answer 27

the budget is created for a fixed period, typically a year, and remains unchanged throughout that period.

Question 28

Principle of Rolling Planning

Answer 28

Rolling planning involves continuously updating the budget at regular intervals (e.g., monthly or quarterly)

Question 29

four types of responsibility center

Answer 29

- Cost center: accountable for costs only -Profit center: accountable for revenues and costs - Revenue center: accountable for revenues only -Investment center: accountable for investments, revenues, and costs

Question 30

Human aspects of budgeting

Answer 30

-budget slack -strech targets -kaizen budget