Budgeting for Planning and Controlling
Solution to Chapter 8: Budgeting for Planning and Controlling
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CHAPTER 8 QUESTIONS FOR WRITING AND DISCUSSION 1. Budgets are the quantitative expressions of plans. Budgets are used to translate the goals and strategies of an organization into operational terms. 2. Control is the process of setting standards, receiving feedback on actual performance, and taking corrective action whenever actual performance deviates from planned performance. Budgets are standards, and they are compared with actual costs and revenues to provide feedback. 3. The planning and control functions of budgeting can benefit all organizations regardless of size. All organizations need to determine what their goals are and how best to attain those goals. This is the planning function of budgeting. In addition, organizations can compare what actually happens with what was planned to see if the plans are unfolding as anticipated. This is the control function of budgeting. 4. Budgeting forces managers to plan, provides resource information for decision making, sets benchmarks for control and evaluation, and improves the functions of communication and coordination. 5. A master budget is the collection of all individual area and activity budgets. Operating budgets are concerned with the incomegenerating activities of a firm. Financial budgets are concerned with the inflows and outflows of cash and with planned capital expenditures. 6. The sales forecast is a critical input for building the sales budget. However, it is not necessarily equivalent to the sales budget. Upon receiving the sales forecast, management may decide that the firm can do better than the forecast indicates. Consequently, actions may be taken to increase the sales potential for the coming year (e.g., increasing advertising). This adjusted forecast then becomes the sales budget. 7. Yes. All budgets are founded on the sales budget. Before a production budget can be
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CHAPTER 8 QUESTIONS FOR WRITING AND DISCUSSION 1. Budgets are the quantitative expressions of plans. Budgets are used to translate the goals and strategies of an organization into operational terms. 2. Control is the process of setting standards, receiving feedback on actual performance, and taking corrective action whenever actual performance deviates from planned performance. Budgets are standards, and they are compared with actual costs and revenues to provide feedback. 3. The planning and control functions of budgeting can benefit all organizations regardless of size. All organizations need to determine what their goals are and how best to attain those goals. This is the planning function of budgeting. In addition, organizations can compare what actually happens with what was planned to see if the plans are unfolding as anticipated. This is the control function of budgeting. 4. Budgeting forces managers to plan, provides resource information for decision making, sets benchmarks for control and evaluation, and improves the functions of communication and coordination. 5. A master budget is the collection of all individual area and activity budgets. Operating budgets are concerned with the incomegenerating activities of a firm. Financial budgets are concerned with the inflows and outflows of cash and with planned capital expenditures. 6. The sales forecast is a critical input for building the sales budget. However, it is not necessarily equivalent to the sales budget. Upon receiving the sales forecast, management may decide that the firm can do better than the forecast indicates. Consequently, actions may be taken to increase the sales potential for the coming year (e.g., increasing advertising). This adjusted forecast then becomes the sales budget. 7. Yes. All budgets are founded on the sales budget. Before a production budget can be