Management Information - 100 Marks

Q-1) Define forecast and budget. [ND10]

Q-2) How does forecast and budget differ from each other? [ND10]
Q-3) What are the essential of budgeting?[ND10]
Q-4) What are the reasons for preparing budget?
Q-5) What is budget committee?
Q-6) What are the functions of budget committee?
Q-7) What is budget manual?
Q-8) What are the contents of budget manual?
Q-9) What are the steps in the preparation of budget?
Q-10) What are the contents of master budget?
Q-11) What is high-low method?
Q-12) What are the contents of master budget?
Q-13) What is linier regression analysis?
Q-14) What is correlation?
Q-15) What are the degrees of correlation?
Q-16) What are styles of budgeting?
Q-17) What is imposed or top-down budgeting?
Q-18) What are the advantages of imposed or top-down budgeting?
Q-19) What are the disadvantages of imposed or top-down budgeting?
Q-20) What is participative or bottom-up style of budgeting?
Q-21) What are the advantages of participative or bottom-up style of budgeting?
Q-22) What are the disadvantages of participative or bottom-up style of budgeting?
Q-23) What is incremental budgeting?
Q-24) What do you mean by zero-based budgeting?[ND10]
Q-25) How zero-based budget is prepared? [ND10]
Q-26) What are advantages of zero-based budgeting? [ND10]
Q-27) What is rolling budget?
Q-28) What is product based budget?
Q-29) What is responsibility based budget?
Q-30) What is activity based budget?
Management Information 2
Chapter # 6: Budgeting

Q-1) Define forecast and budget. (vi) Monitoring budgeting process comparing
[ND10] actual and budgeted results

A forecast is a prediction of what is likely to Q-7) What is budget manual?

happen in future, given a certain
circumstances. The budget manual is collection of instructions
governing the responsibilities of persons and
the procedures, forms and records relating to
Q-2) How does forecast and budget differ the preparation and use of budgetary data.
from each other? [ND10]

Q-3) What are the essential of Q-8) What are the contents of budget
budgeting?[ND10] manual?

Q-4) What are the reasons for preparing
budget?
An organization’s budget fulfills many roles.
Here are some of the reasons why budgets are
used.
(a) Compel planning,
(b) Communicate ideas and plans,
(c) Coordinate activities,
(d) Means of allocating resources,
(e) Authorization,
(f) Provide a framework for responsibility
accounting,
(g) Establish a system of control,
(h) Provide a means of performance
evaluation,
(i) Motivate employees to improve their
performance,
Q-5) What is budget committee?
The budget committee is coordinating body in
the preparation and administration of budget.
The budget committee is usually headed up by
the managing director (as chairman) who is
assisted by a budget officer, who is usually the
finance director or another accountant. Every
part of organization should be representative
on the committee, so there should be a
representative from sales, production,
marketing and so on.
Q-6) What are the functions of budget
committee?
(a) An explanation of the objectives of the
budgetary process
(b) Organizational structure
(c) An outline of the principle budget and
relationship between them
(d) Administrative detail of budget
preparation
(e) Procedural matter
Q-9) What are the steps in the
preparation of budget?
(a) identifying the principal budget factor
(b) the order of budget preparation,
(c) preparing functional budget,
Q-10) What are the contents of master
budget?
The master budget provides a consolidation of
all the subsidiary budgets and normally
comprises-
- a budgeted income statement,
- a budgeted balance sheet,
- a cash budget.
Q-11) What is high-low method?
The high-low method is a technique for
analyzing the fixed and variable elements of a
semi variable cost and thus predicting the cost
to be incurred at any activity level within the
relevant range.

Functions of budget committee include the

followings: Q-12) What the contents of master
budget?
(i) Coordination and allocation of
responsibility for the preparation of The master budget provides a consolidation of
budget, all subsidiary budgets and normally comprises
(ii) Issuing budget manual, (i) Budgeted income statement
(iii) Timetabling, (ii) Budgeted balance sheet
(iv) Provision of information in the (iii) Cash budget
preparation of budget,
(v) Communication of final budget to the
appropriate managers, Q-13) What is linier regression analysis?
Management Information
Chapter # 6: Budgeting
Linier regression is a statistical technique for
establishing a straight line equation to
represent a set of data.
Linier regression analysis is superior to high-
low method because it takes account of all sets
of recorded data, rather than only the highest
and lowest activity.
Q-14) What is correlation?
Correlation is the degree to which one variable
is related to another, i.e. the degree of
interdependence.
Q-15) What are the degrees of
correlation?
(i) Perfect correlation
(ii) No correlation
(iii) Non-liner or curvilinear
correlation
Q-16) What are styles of budgeting?
(i) Imposed or top-down style of
budgeting
(ii) Participative or bottom-up
budgeting
Q-17) What is imposed or top-down
budgeting?
In this approach to budgeting, top
management prepare a budget with little or no
input from operating personnel, which is
imposed upon the employees who have to
work to the budgeted figures.
Q-18) Where imposed or top-down
budgets are effective?
(i)In newly-form organization
(ii)In very small organization
(iii)During period of economic hardship
(iv) When operational mangers lack
budgeting skill
(v) When the organization’s require
precise coordination
Q-19) What are the advantages of
imposed or top-down budgeting?
(i) Strategic plans are likely to be
incorporated into planned activities
(ii) They enhance the co-ordination
between the plans and objectives of
divisions.
(iii) They use senior manger’s awareness
of total resources availability.
3
(iv)They decrease the input from
inexperienced or uninformed lower-
level employees.
(v) They decrease the period of time to
taken draw up the budgets.
Q-20) What are the disadvantages of
imposed or top-down budgeting?
(i) Dissatisfaction, defensiveness, and low
morale amongst employees.
(ii) The feeling of team spirit may
disappear
(iii) The acceptance of organizational goals
and objectives could be limited.
(iv) The budget may be viewed as a
punitive device.
(v) Lower level management may be
stifled
Q-21) What is participative or bottom-up
style of budgeting?
In this approach to budgeting, budgets are
developed by lower-level mangers who then
submit the budgets to their superiors. The
budgets are based on the lower level manger’s
perceptions of what is achievable and the
associated necessary resources.
Q-22) What are the advantages of
participative or bottom-up style of
budgeting?
(i) They are based on information from
the employees most familiar with
department
(ii) Morale and motivation is improved
(iii) They increases operational manger’s
commitment to organizational
objectives
(iv) In general they are more realistic
(v) Co-ordination between unit is
improved
(vi) Specific resource requirements are
included
Q-23) What are the disadvantages of
participative or bottom-up style of
budgeting?
(i) They consume more time.
(ii) May cause dissatisfaction
(iii) Budgets may be unachievable or much
too soft
(iv) They may cause mangers to introduce
budget slack and budget bias
(v) They can support ‘empire building’ by
subordinates
(vi) An earlier start to the budgeting
process could be required
Management Information 4
Chapter # 6: Budgeting

Q-24) What is incremental budgeting? Q-32) What is responsibility based

budget?
The traditional approach to budgeting is to
base the forthcoming year’s budget on the Responsibility based budget systems
current year’s result modified for changes in segregate budgeted revenues and costs into
the activity level. This approach is known as areas of personal responsibility in order to
incremental budgeting since it is concerned monitor and assess the performance of each
mainly with the increments in the costs and part of an organization.
revenues which will occur in the coming
period.
Q-33) What is activity based budget?

Q-25) What do you mean by zero-based
budgeting?[ND10]
Q-26) How zero-based budget is prepared?
[ND10]
Q-27) What are advantages of zero-based
budgeting? [ND10]
Activity based budgets are based on a
framework of activities, and cost drivers are
used as a basis for preparing budgets.
The budget for each activity is derived from
the quantity of the activity’s cost driver X the
appropriate cost driver rate.

Q-28) What is rolling budget?

Rolling budgets are sometimes called

continuous budgets. They are particularly
useful when an organization is facing a period
of uncertainty so that it is difficult to prepare
accurate plans and budgets.
Rolling budgets are an attempt to prepare
targets and plans that are more realistic and
certain, particularly with a regard to price
level, by shortening the period between
preparing budgets.

Q-29) What are advantages of rolling

budget?

(i) They educe the element of uncertainty

in budgeting
(ii) They force mangers to reassess the
budget regularly and to produce
(iii) Planning and control will be based on a
recent plan
(iv) There is always a budget that extends
for several months ahead.

Q-30) What are the disadvantages of

rolling budget?

(i) More time, effort and money required

in budget preparation
(ii) Frequent budgeting might have an off-
putting effect on mangers

Q-31) What is product based budget?

Product based budgets are drawn up by

preparing separate budgets for each product.