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• 1 Training 1

• What is a budget?

  A budget provides a comprehensive overview of planned company operations.

• What are benefits of budgets?

  • Budgets provide an opportunity to re-evaluate existing activities and evaluate new ones.
    
  • They aid managers in communicating objectives and coordinating actions across the organization
  • Budgeting provides benchmarks to evaluate subsequent performance

• What are the factors that limit the advantages of budgeting?

  1. Low levels of participation in the budget and  a lack of acceptance of responsibility for the final budget.
     
  2. Incentives to lie and cheat in the budget process. (dysfunctional incentives)
  3. Difficulties in obtaining accurate sales forecasts

• What are dysfunctional incentives?

  Lyring, cheating: budgetary slack

• What is budgetary slack?

  Is the overstatement of budgeted costs to create a goal that is easier to achieve

• What is a sales forecast?

  Is a prediction of  sales under a given set of conditions.

• 2 Training 2

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• Name the several types of different types of budgets.

  1. Strategic plan (5 years)
     
  2. Long-range planning
  3. Master budget (1 year)
  4. Capital budget
  5. Continuous budget 1 year (-1 month+1 month)

• What is a strategic plan?

  This sets the overall goals and objectives of the organization. THe strategic plan leads to long-range planning, which produces forecasted financial statements for five- to ten -year periods.

• What is a long-range plan?

  Therse are coordinated with capital budgets, which detail the planned expenditures for facilities, equipment, new products and other long-term investments.

• What is the master budget?

  The master budget is a detailed and comprehensive analysis of the first year of the long-range plan. It summarized the planned activities of all subunits of an organization.