Financial Budgeting Approaches and Objectives in Business

What is a common disadvantage of zero-based budgeting?

It requires a lot of documentation and typically takes a long time to execute.

What is the main principle of zero-based budgeting?

It ranks all activities and operations in decision packages according to their relative importance, without applying previous budgets.

How does the zero-based budgeting approach calculate the advertising expense if the current year's budgeted sales are $250,000?

The advertising expense figure is based on certain conditions and assumptions rather than a percentage of sales.

What is the traditional approach to budgeting called?

Incremental-based approach.

How does the incremental-based approach to budgeting work?

It starts with the previous year's budget and adjusts it by adding or subtracting amounts based on anticipated needs.

In the incremental-based approach, what must be justified for an increase in budget?

Any increment added to the budget must be justified to be approved.

What are the three main objectives of financial planning?

Planning, coordination, and control.

How does financial planning assist in the planning objective?

It helps a company determine its objectives and courses of action to become a major player in the industry.

What role does financial planning play in coordination among departments?

It creates a harmonious relationship between different units, allowing departments to communicate and work together.

How does financial planning aid in control within a company?

It enhances and measures performance through summarized reports that compare actual results with planned objectives.

What is a master budget?

The combined budgets of different units in a company, serving as a control measure to determine if objectives are attained.

What are the two categories of the master budget?

Operating budget and financial budget.

What is an example of a zero-based budgeting calculation for advertising expenses?

If last year's advertising expense was P15,000, it would not automatically apply to this year's budget.

What is the significance of justifying budget increments in the incremental-based approach?

It ensures that any increase in budget is necessary and aligns with the company's anticipated needs.

What does financial planning help a company achieve in terms of industry positioning?

It helps the company set clear objectives to position itself effectively in the industry.

What is the purpose of preparing summarized reports in financial planning?

To analyze differences between actual performance and planned objectives for improvements.

Why is zero-based budgeting considered expensive?

Because it requires extensive documentation and a thorough review of all budget items each year.

What is the relationship between financial planning and performance evaluation?

Financial planning provides a basis for evaluating individual performances against set objectives.

How does the master budget function as a control measure?

It helps assess whether the company's objectives are being met through the integration of various unit budgets.

What is the impact of financial planning on departmental coordination?

It fosters communication and collaboration among departments with different functions and objectives.