Chapter 22, Problem 1QS

Budget motivation
C1

For each of the following items 1 through 5, indicate yes if the kern is an important budgeting guideline or no if it is not.

______1.Employees should have the opportunity to explain differences from budgeted amounts.
______2.Budgets should include budgetary slack.
______3.Employees impacted by a budget should be consulted when it is prepared.
______4.Goals in a budget should be set low so targets can be reached.
______5.Budgetary goals should be attainable.

To determine

Introduction:

Budgeting is very important process in managing future financing affairs of a business entity. Budgeting is refers to better estimations about possible inflows & outflows of funds in the business. In same manner budgeting guidelines are the directions that need to be followed in budgeting process.

To choose:

We have to select out of yes or no for given statements with reference to budgeting guidelines.

1. ........Employees should have the opportunity to explain differences from budgeted amounts.

2.........Budgets should include budgetary slack.

3.........Employees impacted by a budget should be consulted when it is prepared.

4.........Goals in a budget should be set low so targets can be reached.

5.........Budgetary goals should be attainable.

Answer to Problem 1QS

Solution:

1. No....Employees should have the opportunity to explain differences from budgeted amounts.

2. Yes...Budgets should include budgetary slack.

3. Yes...Employees impacted by a budget should be consulted when it is prepared.

4. No.....Goals in a budget should be set low so targets can be reached.

5. Yes...Budgetary goals should be attainable.

Explanation for correct answer:

2. Budgets should include budgetary slack, this is also a budgeting guideline because budgeting slacks are very helpful in making proper provisions in case of bigger ups & downs in the prospective revenues.

3. Employees impacted by a budget should be consulted when it is prepared, this is a budgeting guideline because it will be helpful in preparation of more accurate budgets.

5. Budgetary goals should be attainable; this is a guideline for budgeting because if pre-determined goals in budgeting are not attainable then whole budgeting will be irrelevant.

Explanation of Solution

Explanation for incorrect answer:

1. Employees should have the opportunity to explain differences from budgeted amounts, this is not the budgeting guideline because every associated employee may have opportunity to explain differences from budgeted amount but this is done at the end of budgeting process or after occurrence of actual business activities.

4. Goals in a budget should be set low so targets can be reached, this is not a budgeting guideline because goals should be proper & attainable not should be low. Low goals will result into more inefficiency.

Conclusion

Budgeting guidelines are the base for preparation of more accurate &relevant budgets hence those factors which are helpful in preparing more relevant budgets are known as guidelines or vice versa.