Question

1. What is Activity-based budgeting? How does it differ from traditional budgeting systems?

2. List and explain 3 benefits of budgeting

3. List and explain 2 of the negative outcomes of budgeting.

4. What information does the sales budget provide for a company?

5. What information does the production budget provide for a company?

6. What information does the direct materials budget provide for a company?

7. What information does the direct labor budget provide for a company?

8. What information does the factory overhead budget provide for a company?

9. What information does the capital expenditures budget provide for a company?

10. What information does the budgeted income statement provide for a company?

11. What is a rolling budget?

Answer 1

1. Activity based budgeting : is the budgeting done on current activities based rather than using the past year's data to prepare the current years budget. Activity based budgeting considers all the current expenditures, incomes and other considerable costs to prepare the budget.

Activity based budgeting is very different from traditional budgeting as traditional budgeting is done based on past year's data/budget where as in activity based costing only current year's data is considered as base and budget is prepared.

2. There are various benefits of budgeting. Some of these benefits are :
Budgeting gives a way to spend and save money i.e it gives control over your own money.
Budgeting helps in management of resources.
Budgeting helps in reaching short as well as long term goals.

3. Negative outcomes of budgeting can be :
Budgeting can sometimes lead to unnecessary spendings.
Budgeting only considers those outcomes which are financial in nature.
Budgeting requires a lot of time for its preparation and is strategically rigid.

4. Sales budget provides the information about the projected sales volume of goods and services which the company wants to sell in future.

5. Production budget provides information about the units to be manufactured and produced for meeting the future sales requirement.

6. Direct material budget provides us the information about the requirement and consumption of direct material based on the future production requirements.

7. Direct labour budget gives us the information about the direct labour costs to be used for the manufacturing of products.

8. Factory overhead budget is related to manufacturing costs and gives us the information about the future manufacturing cost to be needed for the budgeted production.

9. Capital expenditure budgets gives us the information about the future capital expenditure costs to be required to increase the efficiency of the organisation.

10. Budgeted income statement are future forecast of income statements or we can say it is simply a protected income statement. It gives us information about the predited net income.

11. Rolling budget : it is such a budget which keeps on updating continuously after short period of time it in was various incremental extensions of the existing budget model that requires more management attention than static budget.