Page 1 > of 2 1. What is a budget? 2. Why do organizations engage in the budgeting process? What are the benefits? Any disadvantages? 3. By whom is a budget prepared? 4. When are budgets prepared? 5. What is the "Operating Budget"? What are the basic parts of an operating budget? 6. What is the "Financial Budget"? What's in that? 7. What is a master budget? What does that include? 8. What's "participative budgeting" or "bottom up budgeting? Do you think that this is desirable? What advantages does it have? Any disadvantages? What's the alternative to this? 9. Which is the first budget prepared and why? 10. Let's say that, based on your marketing projections, industry and economic forecasts, you estimate that you will sell 10,000 chairs in the next month. Your sales price is $100 per chair. What's your sales budget? 11. If you expected no beginning or ending inventories, how many chairs would you plan to produce? 12. Now let's say that, for various reasons, you feel that it's best to hold some extra inventory (known as safety stock). Why might you decide to do this? What are the advantages? What are the disadvantages? 13. For this purpose, at the end of the month you plan to keep safety stock equal to 10% of next month's sales. Next month you expect to sell 12,000 chairs. Assuming that you started with no beginning inventory, NOW how many would you produce? 14. What if, based on your policy above, you planned on having 1,000 chairs in your inventory at the beginning of the month (10,000 chairs x 10%). NOW how many chairs would you budget to produce? ZOOM + Page < 2 of 2 15. Now that you have succeeded in budgeting the amount of production for the upcoming month, what 3 things can we proceed to plan for (budget)? 10 yards of wood @ $2 per yard ($20 per unit) 2 hours of direct labor at $10 per hour ($20 per unit) NOW ASSUME that, according to your calculations, under the expected operating conditions next month (normal operating conditions), one chair should require the following inputs (known as production standards): 16. Ok, based on the standards, how much wood would we need for production in the upcoming month? 17. Might there be any advantages to holding extra inventory of wood, like we did with finished chairs? Any disadvantages? 18. So, of we pretend that we had NO wood on hand at the start of the period, and if we wanted to have 1,000 extra yards on hand at the end, how much wood do we plan to purchase this month? 19. What if we planned to have 2,000 yards of wood on hand at the start of the period.... NOW how much wood do we need to purchase? 20. What would be the budgeted COST of wood for the period? 21. Ok what about direct labor .... How many hours would we plan for the month? What would be our budgeted cost of direct labor for the month? 22. Ok almost there .... What about overhead? Let's say our fixed overhead is estimated to be $50,000 for the month, and variable overhead is estimated to be $15 per direct labor hour. How much TOTAL overhead is budgeted for the month? 23. Do you think that a budget prepared for PLANNING purposes (like above) would be helpful for evaluating individual performance of individuals in an organization? Why or why not? ZOOM +