OPERATIONAL BUDGETING

• A budget that adds a new month when the current month ends is called a - Rolling Budget
• The benefits of budgeting include all of the following:

  • Coordinating activities between departments within the organization.
  • Creating standards for evaluating performance.
  • Assigning responsibility for situations that require corrective action.
• A master budget usually includes all of the following:

  • A sales forecast.
  • A projected tax return.
  • Projected financial statements.
  • A cash budget.
• A master budget can be used as a(n):

  • Aid to planning.
  • Means to coordinate activities.
  • Evaluation tool.
• When budgeted amounts are set at reasonable and achievable levels: Failure to stay within the budget is viewed as an unacceptable level of performance.
• Responsibility budget - A segment of a master budget relating to that portion of a business under the control of a particular manager.
• Sales forecast - element of a master budget would normally be prepared first
• A master budget is a group of related budgets and forecasts which, together, summarize and coordinate all planned activities of a business.
• The number and type of individual budgets and schedules which make up the master budget depend upon the size and the characteristics of the business.
• A flexible budget is used to evaluate costs that should have been incurred for a level of output achieved
• Sales budget - a budget typically serves as a starting point in developing a master budget
• TRUE OR FALSE

  TRUE - A company that is profitable may not have sufficient cash on hand to meet their immediate needs.
• Budgeting process - involves planning, organizing, coordinating, controlling, and evaluating
• Planning - involves setting goals and objectives, determining strategies, and establishing policies
• TRUE OR FALSE

  FALSE - The behavioral approach to budgeting has as its goal the complete elimination of inefficiency.
• TRUE OR FALSE

  FALSE - A budget prepared using the total quality management approach is always achievable by departments within a company.
• TRUE OR FALSE

  TRUE - A master budget is a comprehensive financial plan setting forth the financial and operational goals of a business.
• TRUE OR FALSE

  FALSE - Because a budget is merely a forecast of future events, its benefits are extremely narrow and limited.
• TRUE OR FALSE

  TRUE - In preparing a master budget, budgeted levels for production, manufacturing costs, and operating expenses normally are determined after preparing the sales forecast.
• TRUE OR FALSE

  TRUE - A debt service budget summarizes cash payments required for interest, and includes those required to pay down principal.
• TRUE OR FALSE

  FALSE - If a budget is to provide a basis for evaluating departmental performance, departmental managers should not know what their budget targets are until after the budget period has ended.
• The production schedule in units is dependent upon the sales forecast for the period.
• Decentralization occurs when authority for more important decisions is delegated to lower segments of the organization.
• A major problem in comparing profitability measures among companies is the differences in the accounting methods used by companies.
• Budgetary control involves setting up a system whereby actual results can be compared with planned or expected results.