BUDGET AS A CONTROLLING TECHNIQUE

Other Chapters

• Q1: Define Budget.
  Ans: A Budget is a financial plan that estimates the expected income, expenditure, and resources for a specific period to achieve organizational goals.
• Q2: State the characteristics of the Budget.
  Ans: The characteristics of a Budget are as follows:

  • ➔ It is a written plan for future financial activities
  • ➔ Covers a specific period of time
  • ➔ Estimates income and expenses
  • ➔ Helps in controlling costs and resources
  • ➔ Guides decision-making and resource allocation
• Q3: What is the purpose of defining a Budget?
  Ans: The purpose of defining a Budget is to plan, coordinate, and control financial resources effectively and to ensure that organizational objectives are achieved efficiently.
• Q4: Briefly discuss Budget as a Controlling Technique.
  Ans: Budget acts as a controlling technique by comparing actual performance with planned targets. It helps identify deviations, control expenses, and ensure resources are used efficiently.
• Q5: State the characteristics of Budgetary Control.
  Ans: The characteristics of Budgetary Control are as follows:

  • ➔ Establishes standards for income and expenditure
  • ➔ Compares actual performance with budgeted figures
  • ➔ Identifies variances and corrective actions
  • ➔ Involves all levels of management
• Q6: State the objectives of Budgetary Control.
  Ans: The objectives of Budgetary Control are as follows:

  • ➔ Control costs and expenditures
  • ➔ Improve efficiency of resources
  • ➔ Ensure financial planning and discipline
  • ➔ Provide data for decision-making
• Q7: State the importance of Budgetary Control.
  Ans: The importance of Budgetary Control is as follows:

  • ➔ Helps in achieving financial goals
  • ➔ Reduces wastage and unnecessary expenses
  • ➔ Improves efficiency and productivity
  • ➔ Provides guidance for planning and decision-making
• Q8: State four advantages of Budgetary Control.
  Ans: The advantages of Budgetary Control are as follows:

  • ➔ Better financial planning
  • ➔ Cost control and reduced wastage
  • ➔ Improved resource utilization
  • ➔ Facilitates decision-making and coordination
• Q9: State the types of Budgets.
  Ans: The types of Budgets are as follows:

  • ➔ Sales Budget
  • ➔ Production Budget
  • ➔ Labour Budget
  • ➔ Production Overhead Budget
  • ➔ Raw Material Budget
  • ➔ Purchase Budget
  • ➔ Overhead Cost Budget
  • ➔ Selling Cost Budget
  • ➔ Administrative Cost Budget
  • ➔ Cash Budget
  • ➔ Flexible Budget
  • ➔ Fixed Budget
  • ➔ Zero Base Budget
  • ➔ Master Budget
• Q10: Define Sales Budget.
  Ans: Sales Budget is an estimate of expected sales revenue for a specific period, based on market conditions and sales targets.
• Q11: Define Production Budget.
  Ans: Production Budget is a plan that estimates the number of units to be produced in a period to meet sales and inventory requirements.
• Q12: Define Labour Budget.
  Ans: Labour Budget estimates the cost and number of workers required for production during a specific period.
• Q13: Define Production Overhead Budget.
  Ans: Production Overhead Budget is an estimate of all indirect production costs, such as maintenance, utilities, and factory expenses.
• Q14: Define Raw Material Budget.
  Ans: Raw Material Budget estimates the quantity and cost of materials required for production during a specific period.
• Q15: Define Purchase Budget.
  Ans: Purchase Budget is a plan that estimates the quantity and cost of materials, supplies, and goods to be purchased to meet production needs.
• Q16: Define Overhead Cost Budget.
  Ans: Overhead Cost Budget estimates all indirect costs of production, such as factory overhead, administrative expenses, and utilities.
• Q17: Define Selling Cost Budget.
  Ans: Selling Cost Budget estimates the expenses related to selling and marketing products, including advertising, sales commission, and distribution costs.
• Q18: Define Administrative Cost Budget.
  Ans: Administrative Cost Budget is an estimate of costs incurred for management, office expenses, and other administrative activities.
• Q19: Define Cash Budget.
  Ans: Cash Budget is a plan that estimates the cash inflows and outflows of an organization to ensure sufficient liquidity for operations.
• Q20: State the importance of Cash Budget.
  Ans: The importance of Cash Budget is as follows:

  • ➔ Ensures availability of cash for operations
  • ➔ Helps avoid cash shortages
  • ➔ Helps plan for investments and borrowing
  • ➔ Improves financial control and decision-making
• Q21: Define Flexible Budget.
  Ans: Flexible Budget is a budget that adjusts according to changes in production levels or business activity.
• Q22: When is the Flexible Budget adopted?
  Ans: Flexible Budget is adopted when production levels or sales vary frequently, making fixed budgets less effective.
• Q23: Define Fixed Budget.
  Ans: Fixed Budget is a budget prepared for a specific level of activity or production that does not change regardless of actual performance.
• Q24: Define Zero Base Budget.
  Ans: Zero Base Budget is a budgeting technique where every expense must be justified from zero for each period, instead of using past budgets as a reference.
• Q25: Define Master Budget.
  Ans: Master Budget is a comprehensive financial plan that combines all individual budgets, such as sales, production, and cash budgets, into a single overall budget.
• Q26: Define Inventory Policy.
  Ans: Inventory Policy is a set of guidelines and rules that determine the quantity, timing, and management of stock to ensure smooth production and avoid shortages or excesses.