MAGLALANG, DANIEL Y.

ACCM01B
BAOM 201 October 17, 2021

MIDTERM ACTIVITY

INSTRUCTIONS: ANSWER THE FOLLOWING QUESTIONS:

1. What is a budget?
- A budget is a financial plan which includes both financial and non-financial
information for a defined period. Its most obvious features are a projection of revenue
and expenses over a specified future period of time which is normally a yearly period to
greatly enhance the success of any financial undertaking utilized by individuals,
businesses, and governments.
2. What are the advantages of budgeting?

The advantages of budgeting are as follows:

 Planning orientation – The process of developing a budget pushes management to

think beyond the short-term, day-to-day operations of the company. This is really the
ultimate purpose of budgeting, even if management fails to meet its goals as described
in the budget, at the very least it is evaluating the firm's economic and competitive
situation as well as how to strengthen it.
 Profitability review – During the rush of day-to-day operations, it is easy to lose
track about where a company makes the majority of its revenue. A properly structured
budget reveals which areas of a firm generate revenue as well as which ones spend it,
forcing organizations to assess if certain areas of the company should be eliminated
whereas others expanded.
 Assumptions’ review – The process of budgeting encourages management to
evaluate why the company exists, including its key assumptions about corporate
environment. A frequent re-evaluation of these challenges may lead to different
assumptions, which might also change how administration chooses to run the company.
 Performance evaluations – One may collaborate with staff to define their budgeting
objectives and possibly attach incentives or other rewards to how they achieve. One
could then generate budget compared to real reports to provide staff with feedback on
how they are performing towards their objectives. This method is mainly used for
financial objectives, although operational goals such as lowering the products reworking
rate can also be included with the budget for performance review objectives and this
evaluation technique is known as responsibility accounting.
 Funding planning – A well-constructed budget should determine the amount of
funds which will be rolled off required to support operations. The treasurer uses this
information to plan for the company's financing requirements. This data may also be
utilized for financial investments, allowing the treasurer to determine whether to put
extra funds in short-term or long-term alternative investments.
 Cash allocation – There is just a limited amount of cash available to spend in fixed
assets and working capital, as well as the budgeting process compels administration
choose which resources will be most valuable to invest in.
 Bottleneck analysis – Mostly every company seems to have a bottleneck
everywhere, and the budgeting process can be utilized to focused about what can be
done whether to increase capacity of that bottleneck or move labor around it.

3. Illustrate the overview of the master budget.

A master budget is a comprehensive financial planning document that contains all of

an organization's lower-level budgets, cash flow projections, planned financial
statements, and financial plans. The master budget is often given monthly or quarterly
and includes the complete fiscal year of a corporation. An explanation statement that
outlines the company's strategic orientation, how the master budget will help achieve
certain goals, and the management measures required to meet the budget may be
included with the master budget. There may also be a discussion of the necessary
personnel modifications to meet the budget.
 Revenues Budget

Ending Inventory Production

Budget Budget

Direct Manufacturing
Direct Material Costs Manufacturing Labor Overhead Costs
Budget Costs Budget Budget

Cost of Goods Sold

Budget

R&D/Design Costs
Budget
OPERATING
BUDGET
Marketing Costs
Budget

Distribution Costs
Budget

Budgeted Income
FINANCIAL Statement
BUDGET
CAPITAL EXPENDITURES BUDGETED BUDGETED STATEMENT
BUDGET CASH BUDGET BALANCE SHEET OF CASH FLOWS