OBJECTIVE A
1. What are the two main categories in a budget?
Income and expenses.
2. If you imagine that a company’s goal is a destination and that the strategies for
accomplishing that goal are directions, then a budget is like a map.
3. Explain the following sentence: Budgets enable managers to make informed
decisions.
Budgets enable managers to make informed decisions because they act as a
guideline as to how to reach certain financial and organizational goals. They help
give managers an idea on what they need to do with the resources they have.
4. How are a company’s goals related to its budget?
A budget should work towards and along with company goals. They should work
in conjunction with one another.
5. Give two reasons that the physical records created by budgets are important.
Physical records of a budget help so that a company has accurate and retrievable
financial information and so to act as a framework for annual financial reports.
6. How does a budget organize business activities?
When a budget is in place, business activities should adhere to the budget.
Departments should only be spending within the allocated budget and everyone
should be working towards the goals in place.
7. How does a manager use a budget to guide operational decisions?
Day to day activities should be decided with questions like what should we do?
How much do we need to spend? How much of x resources do we need? These
questions should be answered using the budget.
8. Give two examples of the kinds of questions that can be answered by using a budget
to evaluate long-term performance.
Has the business grown over the last five years? Is the rate of growth increasing
or decreasing?
9. Explain the process of using a budget to evaluate short-term performance.
A budget can be used to evaluate short term performance. Managers can see if
the new tactics and operations are working in favor or against the budget, and
make adjustments where necessary.
10. For a budget to protect a business from financial crisis, it must include a plan for
savings.
OBJECTIVE B
11. Explain how budget categories are like the branches of a tree.
A budget is like a tree in that it has branches or sub categories for each
department or group in an organization.
12. How do rolling budgets always have a year-long future budget in place?
In rolling budgets each month is added as you go along.
13. Explain the special role of the sales forecast in the budgeting process.
Doing a sales forecast or estimate of the upcoming market can help give a good
estimate on how much or how little should be in the budget.
14. Describe the content of a budget report that a manager might use to evaluate
budgeted and actual figures.
Using the budgeted amount and the actual figures, managers can find the
difference or the variance.
15. Give the titles of two people in a company who are likely to prepare budgets. Give
the titles of two people in a company who are not likely to prepare budgets.
People who are likely to create budgets include inventory manager, project
manager. People who are unlikely to create budgets include cashiers, floor
workers.
16. Discuss one challenge to preparing a well-planned budget.
New competition can make it difficult to make a budget because one is not sure
of the level of competition yet.
17. How can budgets, which are based on estimates, also be realistic?
Using past budgets and financial data can make budgets more realistic because
they are based on something that has happened before.
18. Why should budgets be flexible?
Budgets should be flexible because in the event of an emergency or unexpected
situations, adjustments shouldn’t be difficult to make.
19. How can a budget be used to motivate employees?
Budgets can make employees more cost-conscious and outline exactly how they
contribute to the business.
20. How often does a budget need to be evaluated for it to be effective?
It can vary based on managers' needs.