Budgeting and Forecasting Flashcards

A flexible budget differs from a static budget in that a flexible budget:

Answer: Adjusts revenues and costs based on actual activity levels

A flexible budget recalculates expected revenues and costs at different levels of activity, allowing meaningful comparison to actual results.

Under zero-based budgeting (ZBB), each budget period requires managers to:

Answer: Justify all expenditures from scratch, regardless of prior spending

ZBB requires every line item to be justified anew each period rather than simply rolling forward prior-period amounts.

A rolling (continuous) budget is best described as one that:

Answer: Adds a new period as the most recent period expires, maintaining a constant planning horizon

A rolling budget continuously extends the planning horizon by adding a new future period each time the nearest period ends.

Which budget is typically prepared first when constructing a master budget for a manufacturing company?

Answer: Sales budget

The sales budget is the starting point of the master budget because all other operating budgets depend on the projected sales volume.

A cash budget is primarily used by management to:

Answer: Forecast periods of cash surplus or shortage to plan financing needs

The cash budget projects cash inflows and outflows over time, enabling management to anticipate shortfalls and arrange financing or identify surplus funds for investment.

Kaizen budgeting is most closely associated with:

Answer: Incorporating continuous improvement targets into the budgeting process

Kaizen budgeting embeds incremental improvement goals (cost reductions, efficiency gains) directly into the budget rather than assuming current standards remain constant.

When actual sales volume differs from budgeted sales volume, the resulting difference in profit is best isolated using a:

Answer: Sales volume variance

The sales volume variance measures the impact on profit of selling more or fewer units than planned, holding prices and costs constant.