35 Questions
What is the primary purpose of a budget?
To provide a planning and decision-making tool for business owners and managers
What are the three types of budgets included in the Master Budget?
Operating, Capital, and Financial budgets
What is the purpose of the Cash Budget?
To compare expected cash inflows and outflows for the budget period
What is the Capital Budget?
A long-term budget for larger strategic investments
What is Incremental Budgeting?
A form of budgeting that involves increasing the previous period's budget by a fixed amount
What is the philosophy behind Activity-Based Budgeting?
Every company is the sum of its activities
What is the main advantage of Zero-Based Budgeting?
It helps companies avoid basing their budgets on outdated assumptions or past trends.
What is the philosophy behind Value Proposition Budgeting?
Some business activities are more critical than others
What is the focus of Kaizen budgeting?
Continuously improving small areas of the budget
What is the main difference between simple moving average and weighted moving average methods?
Weighted moving average method assumes more recent data is a better predictor of expense amounts.
What is the advantage of using multiple linear regression analysis over simple linear regression analysis?
Multiple linear regression analysis is used when there are two or more drivers for a single cost.
How does Value Proposition Budgeting allocate a budget amount to each expense category?
Based on how critical the category is to the company's success
What is the core principle of the Kaizen method?
Focusing in detail on improving one (or only a few) small areas of the business every year
What factors could be used to determine the incremental increase in Incremental Budgeting?
Inflation, trends from previous years, and anticipated activity levels
Who is responsible for initiating, monitoring, and finalizing the budgeting process?
The Budget Committee
What is the first step in Activity-Based Budgeting?
Identifying all the activities that take place within a company
Which sub-budget is the first to be created?
The Sales Budget
What is the Budgeted Balance Sheet derived from?
The previous time period's Budgeted Balance Sheet, the Budgeted Income Statement, and the Cash Budget
What are some examples of investments that might be included in a Capital Budget?
New Fixed Asset Investments and Multi-Year Projects
Which forecasting model is the easiest and most commonly used?
Straight-line budgeting
When is the Budgeted Balance Sheet prepared?
As the very last step in the budgeting process
What does the Production Budget determine?
The number of units to be produced during the budget period
What happens when a company has limited financial resources according to Value Proposition Budgeting?
The company prioritizes more important business activities
What should the budget be based on?
Reality
Which of the following statements is true about a Capital Budget? (More than one answer might be correct)
Some organizations consider income and expenses in their Capital Budget
What does the Direct Materials Budget calculate?
The total amount and cost of all raw materials needed in order to produce Finished Goods and Services in the budget period
What does the Direct Labor Budget calculate?
The cost of all labor needed in order to produce Finished Goods and Services in the budget period
When is multiple linear regression analysis used?
When there are two or more drivers for a single cost.
What is the purpose of a Budget Review?
All of the above
What does the Production Overheads Budget include?
Production-related expenses not directly allocable to a specific product
What is simple linear regression forecasting?
Simple linear regression analysis creates a trend line using squared and averaged data points.
What does the Target Ending Inventory Budget calculate?
The production costs (or acquisition costs) of all items in storage at the end of the budget period
What does the Selling Expense Budget include?
Overhead costs from marketing and sales activities
What does the Administrative Expense Budget include?
All expenses related to administrative activities throughout the budget period
Which budget is based on day-to-day business activities?
The Operating Budget
Study Notes
- A budget is a planning and decision-making tool for business owners and managers.
- It is also a controlling tool.
- The budget should be as exact as possible and based on reality.
- The Budget Committee makes decisions on net income, working capital, revenues, and cash outflows.
- Different scenarios can be modeled to see which is the most feasible.
- The execution phase begins after the planning phase.
- The budget plan is revisited at the end of the month, quarter, or year.
- Actual numbers are compared to target numbers.
- The budget review identifies what went over budget and what came in under budget.
- The budget review helps in making planning for the next period easier and allows different strategic decisions.
Master the art of budgeting with our insightful quiz! From planning and decision-making to controlling and executing, this quiz covers all the aspects of budgeting for business owners and managers. Test your knowledge and learn essential keywords specific to budgeting to help you succeed in your financial endeavors. Take the quiz now and gain valuable insights to make informed decisions for your business!
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