Chapter 20 - CHAPTER 20(FIN MAN CHAPTER 5(MAN BUDGETING...

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CHAPTER 20 (FIN MAN); CHAPTER 5 (MAN) BUDGETING CLASS DISCUSSION QUESTIONS 1. The three major objectives of budgeting are (1) to establish specific goals for future oper- ations, (2) to direct and coordinate plans to achieve the goals, and (3) to periodically compare actual results with the goals. 2. Managers are given authority and responsib- ility for responsibility center performance. They are then accountable for the perform- ance of the responsibility center. 3. If goals set by the budgets are viewed as un- realistic or unachievable, management may become discouraged and may not be com- mitted to the achievement of the goals, res- ulting in the budget becoming less effective as a planning and control tool. 4. Involving all levels of management and all departments in preparing and submitting budget estimates heightens awareness of each department’s importance to company goals and to the control of operations. It also encourages cooperation both within and among departments. 5. Budgeting more resources for travel than re- quested by department personnel is an ex- ample of budgetary slack. 6. A budget that is set too loosely may fail to mo- tivate managers and other employees to per- form efficiently. In addition, a loose budget may cause a “spend it or lose it” mentality, where excess budget resources are spent in order to protect the budget from future reductions. 7. Conflicting goals can cause employees to act in their own self-interests to the detriment of the organization’s objectives. 8. Zero-based budgeting is used when an or- ganization wishes to take a “clean slate” view of operations. It is often used when the or- ganization wants to cut costs by reevaluating the need for and usefulness of all operations. 9. A static budget is most appropriate in situations where costs are not variable to an underlying activity level. As a result, it is reasonable to plan spending on the basis of a fixed quantity of resources for the year. This will occur in some administrative functions, such as human resources, accounting, or public relations. 10. Computers not only speed up the budgeting process, but they also reduce the cost of budget preparation when large quantities of data need to be processed. In addition, by using computerized simulation models, man- agement can determine the impact of various operating alternatives on the master budget. 11. The first step in preparing a master budget is estimating the sales levels of each product by regions or territories. 12. The production requirements must be care- fully coordinated with the sales budget to en- sure that production and sales are kept in balance during the period. Ideally, manufac- turing operations should be maintained at 100% of capacity, with no idle time or over- time, and there should be neither excessive inventories nor inventories insufficient to fill sales orders.
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