Part I

Short-Answer Questions

1. What are the three main purposes of budgeting?
2. What are the purposes of master, planned operating, and financial budgets?
3. How does the management by exception concept relate to budgeting?
4. What are five basic principles, which, if followed, should improve the probability of preparing a meaningful budget? Why is each important?
5. Define and explain a budget variance.
   1. What is a favorable variance?
   2. What is an unfavorable variance?
   3. What is the purpose of computing variances?
6. Distinguish between a master budget and a responsibility budget.
7. The budget established at the beginning of a given period carried an item for supplies expense in the amount of $40,000. At the end of the period, the supplies used amounted to $44,000. Can it be concluded from these data that there was an inefficient use of supplies or that care was not exercised in purchasing the supplies?
8. Management must make certain assumptions about the business environment when preparing a budget. What areas should be considered?
9. Why is budgeted performance better than past performance as a basis for judging actual results?