Current budgets are prepared for the current operations of the business. The planning period of a budget generally in months or weeks. As per ICMA London, “Current budget is a budget which is established for use over a short period of time and related to current conditions.” … Read the rest
budgetary control system
A master budget is projected financial plan. It displays the consolidation of the functional budgets to present the overall impact of the projected operational activities on the profitability of the organization as whole. It is a statement showing the estimation of revenue, costs and profit (loss) for the organization during the budget period.
The following… Read the rest
A budget key factor or principal budget factor is described by the CIMA London terminology as: “a factor which will limit the activities of an undertaking and which is taken into account in preparing budgets”. The limiting factor is usually the level of demand for the products or services of the undertaking but it could be a shortage of one … Read the rest
Plant Utilization Budget is budget prepared for the estimation of plant capacity to meet the budgeted production during the budgeted period. It is a forecast of plant capacities available for fulfilling production requirements as specified in the production budget. This budget is expressed in working hours or other convenient units.
Budgetary slack is the process by which managers seeks to obtain budget targets that can easily be achieved by understating revenues and/or overstating costs.
The following are ways in which budgetary slack arise:
manager avoid risky but profitable projects
managers negotiate for lower targets
managers dispute performance assessment results… Read the rest
Cash budget is the budget which present expected cash inflow and outflow of the entity for the designated time period. Cash budget is prepared for purpose of cash planning and control.
The following are advantages of using a cash budget as management control tool:
Cash budget help to determine whether cash balance remain sufficient to … Read the rest
A flexible budget is a budget that takes into account changes in sales volume and other cost driver activities.
The budget incorporates the effects on each cost and revenue as a result of the change in activity. It determines the variability of the cost along with the level of activity, which will be then used as a control tool. The … Read the rest