11 Questions
What is the primary method of communicating agreed-upon objectives throughout an organization?
Budgeting
What is the responsibility of accountants in the budgeting process?
Presenting management's budgeting goals in financial terms
What is a primary benefit of budgeting?
Requiring all levels of management to plan ahead
What is a key aspect of the budgeting process?
Historical accounting data
Who is responsible for the budget and its administration?
Management
What is a budget, according to the text?
A formal written statement of management's plans for a specified future time period
What is the primary role of management in the budgeting process?
To plan and set goals and objectives
What is a key benefit of participative budgeting?
Greater employee motivation and commitment
How does budgeting affect human behavior?
It leads to greater motivation and commitment
What is a key component of the master budget?
All of the above
What is the purpose of a budgeted income statement?
To predict profitability
Study Notes
The Budgeting Process
- Base budget goals on past performance by collecting data from organizational units and developing a budget within a framework of a sales forecast.
- A sales forecast shows potential industry sales and the company's expected share.
- Factors considered in sales forecasting include:
- General economic conditions
- Industry trends
- Market research studies
- Anticipated advertising and promotion
- Previous market share
- Price changes
- Technological developments
Budgeting and Human Behavior
- Participative budgeting involves each level of management participating in the budgeting process.
- Advantages of participative budgeting include:
- More accurate budget estimates due to lower-level managers' detailed knowledge of their area.
- Tendency to perceive the process as fair due to involvement of lower-level management.
- Disadvantages of participative budgeting include:
- Time-consuming and costly process.
- Can foster budgetary "gaming" through budgetary slack.
Budgeting and Long-Range Planning
- Three basic differences between budgeting and long-range planning:
- Time period involved (budgeting is short-term, usually one year, while long-range planning is at least five years).
- Emphasis (budgeting is short-term, while long-range planning is long-term).
- Detail presented (budgeting is more detailed, while long-range planning is more general).
Budgeting Terminology
- Master budget: a set of interrelated budgets that constitutes a plan of action for a specified time period.
- Long-range planning: identifies long-term goals, selects strategies to achieve these goals, and develops policies and plans to implement the strategies.
Effective Budgeting
- Essentials of effective budgeting include:
- Management acceptance
- Research and analysis
- Sound organizational structure
- Budget: a formal written statement of management's plans for a specified future time period, expressed in financial terms.
- Primary benefits of budgeting include:
- Requires all levels of management to plan ahead.
- Promotes efficiency and control.
This quiz covers the essentials of effective budgeting, including setting base budget goals, collecting data, and developing a budget within a sales forecast framework.
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