Module21Solutions

Financial & Managerial Accounting for MBAs 2nd

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©Cambridge Business Publishers, 2010 Solutions Manual, Module 21 21-1 Module 21 OPERATIONAL BUDGETING AND PROFIT PLANNING QUESTIONS Q21-1. Planning is the process of forecasting future operating activities, whereas budgeting places the plans in financial terms based upon the related revenues and expenses. Control relates to evaluating the plans and budgets in comparison with the actual activities. Q21-2. Except in small organizations, budgeting requires formal planning because of the need to coordinate the budget among various levels of the organization. Advantages of formal planning include: improved communication and coordination, provides a guide to action, and provides a basis for performance evaluation. Q21-3. Advantages of the incremental approach stem from the fact that this approach simplifies the budget process, reduces the time to prepare the budget, focuses on changes from the previous budget or previous actual results, and is easy to implement. The disadvantages include not detecting previous inefficiencies in the budget and a tendency to use the previous budget as a base for the next budget. Q21-4. The minimum level approach establishes a base amount for budget items and requires explanation of justification for any budgeted amount above the minimum. Q21-5. A cost objective’s budget is predicted based on the anticipated
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©Cambridge Business Publishers, 2010 21-2 consumption of cost drivers.
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©Cambridge Business Publishers, 2010 Solutions Manual, Module 21 21-3 Q21-6. The continuous improvement budgeting concept establishes a budget that has improvements built-in throughout the budgeting period. For a given cost category, the expenditures to provide that cost may be reduced each month of the budget period. Q21-7. The cash budget tends to bring together all of the other budgets. Every budget affects either cash receipts or disbursements directly or indirectly. While not all budget schedules tie directly to cash, somewhere in the system the economic transaction interfaces with either cash inflows or outflows. Q21-8.
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Module21Solutions - Module 21 OPERATIONAL BUDGETING AND...

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