MARCO, SHIELA E.

BSA 3105

Guide Questions – Short Term Budgeting

Provide a short but concise answer to each of the questions below.
1. Define Budgeting

 It is the act of preparing a Budget (a financial plan of the resources needed to carry
out tasks and meet financial goals).
 Budgeting is the process of making a plan for how you will spend your money. A
budget is the name given to this spending plan. Making this spending plan allows you
to know ahead of time whether you will have enough money to do the things you need
or want to do. Budgeting is simply the process of balancing your expenses and
income.

2. What are the uses of the process of budgeting?

When you are doing something systematic in such a way that it follows certain
process, see to it that every step affiliated on the process has its own uses.
 Communication – it is the most important process of management. It is where the
management articulates the vision, mission, goals, objectives, plans, standards, and
performance evaluation measures in order for the officers and personnel to better
understand each of these.
 Motivation – This process moves people to act in accordance with organizational
goals. As they are made part in conceptualizing the plans, they get involved and
become more committed in attaining plans.
 Standards – After the actions, results should be summarized and evaluated. At the
very onset, the measurement to be used in evaluating performance must be
established. These measures of performance are called “standards”.
 Planning – Plan must be done better after setting of standards. Plans must be
specific to be clear, measurable to be fair in the evaluation process, attainable to
elicit outstanding performance, realistic to allow people to relate to, and time-
bounded to impress urgency and deadlines.
 Organizing and Directing – As plans are framed, resources are organized
accordingly. Policies, systems, operational strategies, methods and means are
devised as activities that are mapped-out and lined-up to execute plans. Also in this
process, People are trained, machines brought in, materials outsourced, systems and
standards strictly implemented, and offline and online performances monitored.
 Controlling and Performance Evaluation – Controls are to be devised and installed
prior to business and operational processes. Controls are also done during the
process. Controls are classified as feedback controls, concurrent controls, and
feedforward controls.
3. What are the functions and composition of budget committee?

 It is normally headed by a Budget Director that administers the budgetary process. It

is concerned at developing the budget manual that includes a budget planning
calendar and distribution instructions for all budget schedules. A budget planning
calendar is the schedule of activities for the development and production of the
budget.
 A budget committee is normally composed of top executives in the administrative,
operational and financial areas of business such as the Vice Presidents for Sales,
Production, Purchasing, Human Resources, Information Technology, Engineering
and Quality, Administration, and most especially, the Finance.

4. What is the relationships between operating and financial budgets?

 The Operating Budget shows the income-generating activities of the firm, including
revenues and expense (Budgeted Income Statement). The Financial Budget shows the
inflows and outflows of cash as well as indicating the assets and liabilities of the firm
(Budgeted Statement of Financial Position and Cash Budget).

5. What are the different types of budget or the major composition of the master
budget? Explain.

 Operating Budget - An operating budget is a forecast of the revenues and expenses

expected for one or more future periods. An operating budget is typically formulated
as a plan by the management team just prior to the beginning of the year, and shows
expected activity levels for the entire year.
 Financial Budget –A financial budget presents a company's strategy for managing
its assets, cash flow, income, and expenses. A financial budget is used to establish a
picture of a company's financial health and present a comprehensive overview of its
spending relative to revenues from core operations.
 Capital Budget – It refers to the process that a business uses to determine which
proposed fixed asset purchases it should accept, and which should be declined.

6. Enumerate the supporting schedules needed in preparing a master budget.

o Schedule of payments to creditors and suppliers

o Schedule of collection from costumers

7. What are the different models of budgeting?

The different budgeting models are:
  Flexible Budgeting – It separates costs as to either variable or fixed.
 Fixed Budgeting – It does not segregate cost into fixed and variable components.
 Continuous Budgeting – It maintains a particular time frame covered in
budgeting.
 Zero-based Budgeting – It does not consider past performances in anticipating
the future.
 Life-Cycle Budgeting – It intends to account for all costs incurred in the stages
of the “value chain”, from research and development to design, production,
marketing, distribution, up to customer services.
 Activity-based Budgeting – It is applied when the activity-based management
system is used.
 Kaizen Budgeting – It assumes the continuous improvement of products or
processes by way of small innovations rather than major changes.
 Governmental Budgeting – It is not only a financial plan but is also an
expression of public policy and a form of control having the force of the law.

8. How are you going to relate budgeting to standard setting, planning and controlling
function of management?

Budgeting is an essential component of the planning and control process.

Planning provides a framework that assists management in developing a
plan of action, estimating future revenues and costs, anticipating future
events, reducing uncertainty about the future, and increasing the chances
of achieving the organization's goals and objectives through plan
coordination. Control is the process of using feedback on actual
performances and results to compare them to the plans, measuring
deviations from plans and policies, and finally taking corrective actions to
bring all future activities in line with the plan (budget). If the deviation is
due to an unrealistic or incorrect plan, the plan (budget) may need to be
revised and updated. Thus, the planning and control process assists
managers in planning how to use resources, including people, to achieve
specific goals and objectives, as well as controlling how those resources
are used to achieve those goals and objectives. Furthermore, as
previously stated, plans identify objectives as well as the actions required
to achieve them. Budgets are the quantitative expressions of these plans,
which can be expressed in physical, financial, or both terms. A budget is a
plan that shows how resources will be acquired and used over a given
time period. Thus, a budget is a method for translating an organization's
goals and strategies into operational terms.