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Budgeting and Forecasting
Budgeting and forecasting are business processes essential to a company’s operations. Budgeting involves planning for revenues and expenses. Forecasting is a method of predicting trends based on historical and current events.
1,416 Questions
What are the pros and cons of zero based budgeting?
Advantages of Zero-Based Budgeting
- Efficient allocation of resources, as it is based on needs and benefits.
- Drives managers to find cost effective ways to improve operations.
- Detects inflated budgets.
- Municipal planning departments are exempt from this budgeting practice.
- Useful for service departments where the output is difficult to identify.
- Increases staff motivation by providing greater initiative and responsibility in decision-making.
- Increases communication and coordination within the organization.
- Identifies and eliminates wasteful and obsolete operations.
- Identifies opportunities for outsourcing.
- Forces cost centers to identify their mission and their relationship to overall goals.
Disadvantages of Zero-Based Budgeting
- Difficult to define decision units and decision packages, as it is time-consuming and exhaustive.
- Forced to justify every detail related to expenditure. The R&D department is threatened whereas the production department benefits.
- Necessary to train managers. Zero-based budgeting must be clearly understood by managers at various levels to be successfully implemented. Difficult to administer and communicate the budgeting because more managers are involved in the process.
- In a large organization, the volume of forms may be so large that no one person could read it all. Compressing the information down to a usable size might remove critically important details.
- Honesty of the managers must be reliable and uniform. Any manager that exaggerates skews the results.
What are the Objectives of cost control?
Cost control helps departments meet their budgets. Without cost controls, departments wouldn't meet their budgets and products would have to be overpriced to meet the budget overages.
What should you do before beginning to design your budget?
you should make a plan that's going to fit your budget...
What are the problems of the top-down budgeting approach?
budgeting process are to more difficult to get buy in and leads to low level competition for larger shares of budget
Examples of effects of heat on matter?
Expansion, example the railway tracks. This is because when the metal expands on hot days, the track doesn't bends
What are the problems of using a cash flow forecast?
A forecast is based on assumptions which may not come true. For example, we expect sales to be X and expenses to be Y. When reviewing a forecast it's important o understand the assumptions nad determine whether you think they are reasonable. Analysts are trained in this area.
What is the meaning of ratio analysis types of ratio analysis importance of ratio analysis?
RATIO ANALYSIS Meaning and definition of ratio analysis:
Ratio analysis is a widely used tool of financial analysis. It is defined as the systematic use of ratio to interpret the financial statements so that the strength and weaknesses of a firm as well as its historical performance and current financial condition can be determined. The term ratio refers to the numerical or quantitative relationship between two variables. Significance or Importance of ratio analysis:
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It helps in evaluating the firms performance:
With the help of ratio analysis conclusion can be drawn regarding several aspects such as financial health, profitability and operational efficiency of the undertaking. Ratio points out the operating efficiency of the firm i.e. whether the management has utilized the firm's assets correctly, to increase the investor's wealth. It ensures a fair return to its owners and secures optimum utilization of firms assets •It helps in inter-firm comparison:
Ratio analysis helps in inter-firm comparison by providing necessary data. An interfirm comparison indicates relative position.It provides the relevant data for the comparison of the performance of different departments. If comparison shows a variance, the possible reasons of variations may be identified and if results are negative, the action may be intiated immediately to bring them in line. •It simplifies financial statement:
The information given in the basic financial statements serves no useful Purpose unless it s interrupted and analyzed in some comparable terms. The ratio analysis is one of the tools in the hands of those who want to know something more from the financial statements in the simplified manner.
What does surplus mean within a business?
Surplus mean excess in business. A business can have a surplus of product in its inventory, which isn't good for revenues.
What is the purpose of the adjusted trial balance?
The adjusted trial balance is a document that shows the total amount of debit balances against the total amount of credit balances. This is not considered a financial statement since it is only used as an internal document.
What information from a flexible budget is used to evaluate performance?
Using a Budget to Evaluate Performance
So, what happens when the period's over? At period end, it's time to determine whether we fell in line with our planned expenditures. That's when a flexible budget is used. A flexible budget is a budget with figures that are based on actual output. It's then compared to a company's static budget to get variances (differences) between what level of spending was expected and what actually occurred.
With a flexible budget, budgeted dollar values (i.e. costs or selling prices) are multiplied by actual units to determine what particular number will be given to a level of output or sales. This yields the total variable costs involved in production. The second component of the flexible budget is the fixed cost. Typically, the fixed cost does not differ between the static and flexible budgets.
There are tons of variances that can arise in the static budgeting system. The two most basic variances are the flexible budget variance and sales-volume variance. The flexible budget variance compares the flexible budget to actual results to determine the effects that prices or costs have had on operations. The sales volume variance compares the flexible budget to the static budget to determine the effect that a company's level of activity had on its operations. From these two budgets, a company can develop individual flexible and static budgets for any element of its operations. For example, the static budget variance is the difference between the static budget and the company's actual results. The variances are always classified as either favorable or unfavorable.
If sales volume variance is unfavorable (flexible budget is less than static budget), the company's sales (or production with a production volume variance) will turn out to be less than anticipated. If, however, the flexible budget variance was unfavorable (the variance effects eventual cash flows negatively) this would be a result of price or cost. By knowing where the company is falling short or exceeding the mark, managers can do a better job of evaluating the company's performance and use the information to make changes to fu
What is the difference between full costing and full absorption costing?
The two terms are different names for the same costing technique. Full cost refers to the principle that all overheads, fixed and variable, should be treated as product costs and be absorbed, or allocated, to cost objects. Cost objects can be various items but typically are units of product or service.
This principle is distinct from variable costing in which fixed costs are considered to be period costs rather than product costs, and as such are not allocated to products.
Product costs are used to value stocks of unsold products and cost of production so the selection of basis, full cost or variable cost, will affect the profit of individual products and influence management decisions.
What is the modified Jones model?
Hi, Modified Jones Model which is recognized by name a type of old Jones Model that can very useful for measuring nondiscretionary accruals within a regression.
Purchasing Power Parity theory?
it is the theory which determines the power of once country's currency to purchase a particular product in international market
Why is depreciation necessary?
Depreciation is an incentive for investment in equipment. It encourages businesses to buy equipment that will be used to provide employment.
Depreciation is effectively a tax credit. It reduces the profits and therefore the taxes due.
Depreciation cost is a term used to account for the loss of value in an item over time. There are four methods of depreciation that are approved for use under the generally accepted accounting principles or GAAP. The most commonly used methods are straight-line depreciation, declining balance and percentage of use.
Budgetary Control concerns itself with the total costs for each department. Each variance is the responsibility of the official who is in charge of the department in which it arises. This official must then explain the cause of the variance and take to prevent its recurrence.
What happens to you if you allow foreclosure on your home?
If you allow your home to be foreclosed or if you sign a Deed-in-Lieu of Foreclosure. Home owners will take a hit of about 250 points on their FICO score. This means if a their FICO score before foreclosure was 680, it could dip as low as 430. A home owner who wants to buy another home after foreclosure will end up waiting about 24 months before a lender will offer any kind of interest rate that makes sense. During that time you must have a near perfect credit.
The affect of a short sale on a home owner's credit report is much less damaging. The negative on credit may show up as a pre-foreclosure in redemption status, which will result in a loss of around 80 points from the FICO score. It can also simply show up as the loan was paid off and not affect your score at all. This means a short sale with a previous FICO of 680 could possibly see it fall to around 600 or it could remain the same.
There are actually companies that will work with you for free to buy your mortgage away from your mortgage company and avoid your foreclosure. I would advise looking into this first.
A PLS account means Prize Linked Savings account. This is where a savings institute such as a credit union or bank awards a grand prize for people who open and/or contribute to a savings account. It works similar to a lottery to encourage people to save.
Every time someone contribute to their account they are given a ticket. The institute takes the money gained from interest acquired by the loaning of the savings people have and offers it as a whole lump some payout to the person with the winning ticket.
Many states have issues with this because it is seen as a gambling scheme that will affect the states lottery system.
