2.2 Budgeting

• What is the definition of budgeting?

  Creating a detailed financial plan
• Budgeting provides a roadmap for resource allocation
• Budgeting improves financial control.
• A company might budget $500,000 for marketing to increase brand awareness
• Match the budget type with its purpose:

  Operating Budgets ↔️ Plan short-term operations

  Capital Expenditure Budgets ↔️ Manage major capital outlays

  Financial Budgets ↔️ Ensure financial stability
• Steps in the budgeting process:

  1️⃣ Define Objectives

  2️⃣ Gather Data

  3️⃣ Prepare Estimates

  4️⃣ Draft Budget

  5️⃣ Review and Revise

  6️⃣ Approve Budget

  7️⃣ Monitor and Control
• Regular variance analysis helps identify areas needing attention in the budgeting process.
• Forecasting is a crucial part of the budgeting process
• Match the forecasting method with its description:

  Time Series Analysis ↔️ Predicts based on historical data

  Regression Analysis ↔️ Analyzes relationships between variables
• Regression analysis can predict sales based on marketing expenditure.
• Budgeting involves creating a detailed financial plan to achieve specific goals
• What do operating budgets focus on?

  Estimating revenues and expenses
• Investing in new machinery falls under a capital expenditure budget.
• The first step in the budgeting process is to define objectives
• Monitoring and controlling is the final step in the budgeting process.
• Steps in time series analysis:

  1️⃣ Collect historical data

  2️⃣ Identify trends

  3️⃣ Forecast future values
• What is the purpose of regression analysis in forecasting?

  To analyze variable relationships
• In the regression analysis formula $y =$$mx +$$c$, what does $m$ represent?


  Slope
• The regression analysis formula $y =$$mx +$$c$ uses $x$ to represent the independent variable.
• Time series analysis uses historical data to identify trends and patterns over time.
• What does $a$ represent in the time series analysis formula $S_{t} =$$a +$$bt$?


  Intercept
• The regression analysis formula $y =$$mx +$$c$ uses $y$ to represent the dependent variable.
• Businesses use budgets to plan and manage their finances effectively.
• Match the budget type with its purpose:

  Sales Budget ↔️ Forecasts sales revenue

  Production Budget ↔️ Determines goods to produce

  Cash Budget ↔️ Ensures sufficient liquidity
• What is the formula for calculating total sales in a sales budget?

  $Units Sold *$$Price per Unit$
• In a cash budget, net cash flow is calculated as cash inflows minus cash outflows.
• Budgeting ensures efficient resource management and enhances decision-making.
• How does budgeting align with strategic objectives?

  Supports company goals
• A company might budget $500,000</latex> for marketing to increase brand awareness and sales.
• Operating budgets are used to plan short-term operations by estimating revenues and expenses.
• What is the purpose of financial budgets in a company?

  Ensure financial stability
• Capital expenditure budgets help businesses manage large capital outlays.
• Operating budgets are designed to plan short-term operations by estimating revenues and expenses.
• What are the three main types of budgets?

  Operating, Capital Expenditure, Financial
• Operating budgets estimate revenues and expenses for a specific period
• Capital expenditure budgets plan investments in short-term assets.

  False
• What do financial budgets track?

  Cash flow and financing
• Steps in the budgeting process

  1️⃣ Define objectives

  2️⃣ Gather data

  3️⃣ Prepare estimates

  4️⃣ Draft budget

  5️⃣ Review and revise

  6️⃣ Approve budget

  7️⃣ Monitor and control
• What is the first step in the budgeting process?

  Define objectives
• Monitoring and control involves tracking performance against the budget.