BU1002/BU1902 – Accounting for Decision Making Solutions - Topic 8, 2019
Topic 8
Chapter 9 - Budgeting
Questions from Chapter 9
9.3 Differentiate between strategic planning and operational budgeting.
Strategic planning relates to the longer-term planning (such as three to five years) of the organisation’s
activities. It is usually carried out by senior management, and commonly relates to broader issues such as:
business takeovers, expansion plans, deleting business segments and radical product/service development.
Operational Budgeting is a process which focuses on the short-term, commonly one-year, and results in the
production of budgets which set the financial framework for that period.
9.4 Discuss the benefits to an entity in preparing a budget for the coming financial year.
Some benefits discussed by students may include:
• compels planning
• provides performance criteria
• promotes coordination and communication within organisation
• allocates scarce resources
• provides feedback to managers about the likely effects
• of their strategic plans e.g. idea sounds good but will it increase the entity’s wealth.
9.8 State the different types of budgets that may be prepared to construct the master budget.
Different budgets include: sales or fees budget; operating expenses budget; production and inventory
budgets; budgeted statement of profit or loss; cash budget; budgeted balance sheet; and the capital
budget.
9.15 Explain the benefits of preparing a cash budget for an entity.
The preparation of the cash budget is an important part of the planning process. Once prepared, the cash
budget can be used for monitoring cash performance, commonly referred to as the control process. A cash
budget prepared on a month-by-month basis is much more useful for this purpose than one prepared on a
quarterly or yearly basis.
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Topic 8
Chapter 9 - Budgeting
Questions from Chapter 9
9.3 Differentiate between strategic planning and operational budgeting.
Strategic planning relates to the longer-term planning (such as three to five years) of the organisation’s
activities. It is usually carried out by senior management, and commonly relates to broader issues such as:
business takeovers, expansion plans, deleting business segments and radical product/service development.
Operational Budgeting is a process which focuses on the short-term, commonly one-year, and results in the
production of budgets which set the financial framework for that period.
9.4 Discuss the benefits to an entity in preparing a budget for the coming financial year.
Some benefits discussed by students may include:
• compels planning
• provides performance criteria
• promotes coordination and communication within organisation
• allocates scarce resources
• provides feedback to managers about the likely effects
• of their strategic plans e.g. idea sounds good but will it increase the entity’s wealth.
9.8 State the different types of budgets that may be prepared to construct the master budget.
Different budgets include: sales or fees budget; operating expenses budget; production and inventory
budgets; budgeted statement of profit or loss; cash budget; budgeted balance sheet; and the capital
budget.
9.15 Explain the benefits of preparing a cash budget for an entity.
The preparation of the cash budget is an important part of the planning process. Once prepared, the cash
budget can be used for monitoring cash performance, commonly referred to as the control process. A cash
budget prepared on a month-by-month basis is much more useful for this purpose than one prepared on a
quarterly or yearly basis.
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