Chapter 8 planning and control

Questions for Writing and Discussion


Define the term budget. How are budgets used in planning?
Answer:

Budgets are the quantitative expressions of plans. Budgets are used to transalte the goals and strategies of an organization into operational terms.

Define control. How are budgets used to control?
Answer:

Control is the process of setting standards, receiving feedback on actual performance, and taking corrective action whenever actual performance deviates from planned performance. Budgets are standards, and they are compared with actual costs and revenues to provide feedback.

Explain how both small and large organizations can benefit from budgeting.
Answer:

The planning and control functions of budgeting can benefit all organizations regardless of size. All organizations need to determine what their goals are and how best to attain those goals. This is the planning function of budgeting. In addition, organizations can compare what actually happens with what was planned to see if the plans are unfolding as anticipated. This is the control function of budgeting.

Discuss some of the reasons for budgeting.

Answer:

Budgeting forces managers to plan, provides resource information for decision making, sets benchmarks for control and evaluation, and improves the functions of communication and coordination.

What is a master budget? an operating budget? a financial budget?
Answer:

A master budget is the collection of all individual area and activity budgets. Operating budgets are concerned with the income generating activities of a firm. Financial budgets are concerned with the inflows and outflows of cash and with planned capital expenditures.