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CHAPTER 21 BUDGETING CLASS DISCUSSION QUESTIONS 1. The three major objectives of budgeting are (1) to establish specific goals for future op- erations, (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 respons- ibility 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 unrealistic or unachievable, management may become discouraged and may not be committed to the achievement of the goals, resulting in the budget becoming less effect- ive 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 motivate managers and other employees to perform 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 reduc- tions. 7. Conflicting goals can cause employees to act in their own self-interests to the detri- ment 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 organization wants to cut costs by reevalu- ating the need for and usefulness of all op- erations. 9. A static budget is most appropriate in situ- ations where costs are not variable to an un- derlying activity level. As a result, it is reason- able to plan spending on the basis of a fixed quantity of resources for the year. This will oc- cur in some administrative functions, such as human resources, accounting, or public rela- tions. 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, management 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 ensure 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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This note was uploaded on 01/15/2012 for the course ACC 305 taught by Professor Williams during the Spring '11 term at University of Phoenix.

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