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Also, I must say that Cambridge Accounting Question-Budgeting, can sometimes be very confusing to students.
To address this challenge of many students, we are giving you a suggested answer on a Cambridge International College – Accounting and Finance in Business and Management – Past Question and Answer on Budgeting.
Certainly, there is an exact sample of a Cambridge College question below.
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Cambridge International College-Accounting And Finance In Business And Management-Past Question On Budgeting
Outline and explain the different stages of the budgeting process, and state the benefits of setting budgets.
What are Limiting Factors to a budget? Explain the importance of budgetary control, and describe a method a manager can use to control his budget allocated to his section of “budgetary review”.
To demonstrate how tricky the above question can be, let’s carefully analyze the question above. Indeed, the questions you see above are all considered one question.
Therefore, in a typical Cambridge International College Exams Paper, the above may be a question 1, 2, 3, etc.
Henceforth, you may ask, “How do I answer this Cambridge International College – Accounting and Finance in Business and Management – Past Question and Answer on Budgeting?
Surely, this question has multiple questions under it.
For this reason, let’s break down the entire question into its meaningful components. As a result, we have the following questions:
The Components Of The Accounting And Finance Questions Above
We can break down the above Cambridge into the following components:
- Outline and explain the different stages of the budgeting process
- State what the benefits of setting budgets can be
- Explain the importance of budgetary control
- What are Limiting Factors to a budget?
- Describe a method a manager can use to control his budget allocated to his section of “budgetary review”.
As seen above, the breakdown gives you five strong questions which you are supposed to answer.
For this reason, educareguide will offer you suggestions, solutions, or answers to all of the questions above.
Therefore, I want you to pay attention and read the response to the above questions below:
1 Outline And Explain The Different Stages Of The Budgeting Process
The following are the stages of the budgeting process:
Planning of the process.
It involves the identification of the individuals who would be involved in the preparation of the budget and the coordination of their various efforts.
At this stage also the duration of the budget is set while the period of preparing the budget is also determined.
The various training that personnel need to prepare the budget and the schedule for various meetings to prepare the budget should all be done at this stage.
E.g. the budget would have to involve various representatives of the various departments within the organization. The budget also may have to be prepared to cover the period of 1st January to 31st December 2011.
COMMUNICATION OF THE BUDGET:
Information about the budget should be communicated to all the various groups and individuals within the organization.
People’s responsibilities with regard to the preparation of the budget is communicated to them. Those who have an interest in the budget also communicate their expectations to the budget communication.
E.g. The production department must be informed about the budget for them also to make an input into the budget.
DETERMINING THE OBJECTIVES AND GOALS OF THE BUDGET:
The aims to be achieved by the budget should be set out. For instance, the component for the payment of remuneration should be clearly stated.
Also, the required number of personnel to be used to implement the budget should be made clear.
Information about the various incomes to be earned and the expenses to be paid should be gathered from individuals and departments.
The information gathered is based on the goals and aspirations of the budget. Regular communication is done regularly to ensure that there is no duplication of effort with regards to information gathering.
COMPILATION AND REVISION OF THE BUDGET:
One person then should compile all the information into one budget.
Review by Budget Committee:
This budget should be reviewed and revised regularly to ensure it conforms to changing trends. E.g. If inflation rises steadily, then the expenditure items should be revised to meet current prices.
2 State What The Benefits Of Setting Budgets Can Be
The following are the benefits of setting budget:
ESTABLISHMENT OF SYSTEMS OF CONTROL:
With a well-drafted budget in place a business would be able to compare its budgeted figures with the actual figures to ensure find out if the result is favourable or adverse.
If it is favourable, then investigation is done to find the cause and corrections made thereafter.
CO-ORDINATION OF BUSINESS ACTIVITIES BY MANAGEMENT:
The MASTER BUDGET helps to bring all the smaller budgets prepared under one document and authority.
The top management will through the use of the master budget be able to bring all the activities of the organisation under one umbrella and centralise the organisation’s activities.
E.g. When budgets like the production budget, cash budget, selling and distribution budgets are prepared, they are brought under one document known as the master budget.
IT ENABLES MANAGEMENT BY EXCEPTION:
Management through the use of the budget would be able to identify problematic areas and unproblematic areas within the organisation.
Product and/or departments that are not performing could thus be scrapped-off or improved in the future whiles profitable ones would be made more profitable.
E.g., If product A does not yield the expected profit over specific periods, then a comprehensive could be made to improve it either or eliminate it from the business’ product line.
BUDGET GUIDES TO MANAGEMENT AND STAFF:
Budgets help the employees of the organization to know which expenses they are permitted to incur and those they are not permitted to do so.
E.g. A production manager will not spend on general overhauling of a machine if it is planned for in the budget.
3 Explain The Importance Of Budgetary Control
Budgetary control is the use of a budget to control and regulate the vital activities of a business organisation.
There are so many importance that budgetary control offers to a business organisation.
Importance Of Budgetary Control
- Activities not conform to the budget would be known and dealt with. Any expense incurred that does not fall in line with the budget of the organisation is made known and the necessary remedy is applied on it.
PREVENTION OF REPETITION OF FAILURE:
If any area of the business activities could not be efficiently run and success attained from there, then the budgetary control would help the business to prevent such occurrence in the future.
Sometimes these targets could not be achieved as a result of changes in circumstances in the future of the organisation.
- It helps to know areas that are not well budgeted for so that in future preparation of budgets, proper allocation could be made to those areas of the business’ activities.
- Example, if the business realises that it budget for the marketing department was so low, and that contributed to low sales made during a certain year, then it will allocate more fund for promotional activities next time in order to address such a problem.
4 What Are Limiting Factors To A Budget?
LIMITING FACTORS OF A BUDGET:
They determine how far the collection of enterprise activities may travel and be achieved. These factors can thus determine the success or otherwise of an enterprise’s activities.
These limiting factors could either be internal or external. The most prominent among them are:
Types of Limiting Factors
- The size of an enterprise demands and
- The productive capacity of the enterprise.
Depending on the business, where it operates, it range of activities, other factors may include
- Delays in getting raw materials;
- Inadequate storage and selling space;
- Shortage of labor;
- Less availability of capital, etc.
5 Describe A Method A manager Can Use To Control His Budget Allocated To His Section Of “Budgetary Review”.
Budgetary Review refers to comparing the budgeted figures of a given period to that of the actual to find any difference(variance) in it.
To do this the person involved should be able to obtain all the budgeted figures and the derive equivalence in four weeks intervals.
This is arrived by dividing every budgeted item by 52. The same procedure would be employed for the actual figures. The comparison is then done on four week intervals.
A difference between the budgeted result and the actual result is called variance. The variance may be adverse or favourable.
If, an organisation budget for an advertisement expenditure of $2000 and it spends an actual of $1000, then the variance is favourable because the business has spent below the budget and thus has saved money.
When a variances occurs, it is investigated. If it is an adverse, then actions are taken to prevent it next time.
If for example the business exceeds its advertising expenses, then probably the budget was exceeded because more sales were being made for the period which warranted the advertisement expenditure.
Here, even though the advertisement expenses are exceeded the budgeted expenditure, the variance is judged to be reasonable.
How A Manager Can Use Budgetary Review To Control The Budget Allocated To His Section
A manager may use budget to control the budget allocated to his department by using the following method:
- Rewarding of workers who act according to the budget. The departmental manager can adopt a policy whereby any workers who performs in accordance of the budget of the budget would be dully recognised and rewarded appropriately.
- Any misunderstanding of workers in relation to budget is tackled and addressed by the management. If the workers are able ask questions about the budget and these questions and answered appropriately, then all their doubts about the budget is put to rest and efficiency would be guaranteed.
- The manager can meet with the members of his department to have an interactions on the budget of that department. The workers will does have a personal commitment to the budget as they would be aware that the success or otherwise of the department depends on the pursuance of the budget.
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