CGA-MA1-Asgns7答案.doc

LESSON 7 Suggested solutions Question 1 (15 marks) a. (5 marks) A budget is a detailed plan outlining the acquisition and use of financial and other resources over some given time period. As such, it represents a plan for the future expressed in formal quantitative terms. Budgetary control involves the use of budgets to control the actual activities of a firm. b. (5 marks) A budgeting requires managers to give planning top priority among their duties. Budgeting provides a vehicle for communicating management’s plans in an orderly way throughout an entire organization Budgeting requires managers to formalize their planning efforts Budgeting provides a benchmark against which to measure subsequent performance Budgeting coordinates the activities of the entire organization, by integrating the plans and objectives of the various parts. Budgeting uncovers potential bottlenecks before they occur. c. (5 marks) A self-imposed budget exists in those situations where persons with responsibility over cost control prepare their own budget estimates (that is, the budget is not imposed from above). The major advantages are: (1) the views and judgments of persons from all levels of an organization are represented in the final budget document; (2) budget estimates generally are more accurate and reliable, since they are prepared by those who are closest to the problems; (3) managers generally are more motivated to fill goals which they have set for themselves; (4) self-imposed budgets reduce the amount of upward “blaming” resulting from inability to meet budget goals. One caution that must be exercised in the use of self-imposed budgets is to have a system of formal budget reviews, which managers establish for themselves, to prevent them from creating needlessly “loose” budget data. Question 2 (12 marks) Multiple choice (1 mark each) a. 3) b. 2) c. 4) d. 1) e. 2) f. 3) g. 1) h. 4) i. 2) j. 1) k. 4) l. 3) Question 3 (18 marks) Multiple choice (2 marks each) a. 3) (€228,000 ( 0.