Chapter 8

Question 1

A budget

Answer 1

is a detailed plan for acquiring and using financial and other resources over a specified period

Question 2

Planning,

Answer 2

Planning, which includes developing future objectives and preparing various detailed budgets to achieve those objectives.

Question 3

Control,

Answer 3

which involves the steps taken by management to attain the objectives set down at the planning stage.

Question 4

ADVANTAGES OF BUDGETING

Answer 4

• Budgets communicate management’s plans throughout the organization.
• Budgeting forces managers to give planning top priority.
• Budgets provide a means of allocating resources to their most effective uses.
• Budgeting uncovers potential bottlenecks.
• Budgeting coordinates the activities of the entire organization.
• Budgeting provides goals that serve as benchmarks for evaluating subsequent performance.

Question 5

On the income statement we always add beginning inventory

Answer 5

to purchases and then subtract ending inventory. Whereas, in production and purchasing budgets we subtract beginning inventories and add ending inventories.

Question 6

purchasing budget is based on

Answer 6

production needs whereas production budget is based on sales.

Question 7

Ending inventories are based on the next period. Beginning inventories are

Answer 7

the current period which also equal prior period’s ending inventory.