2SE - Horngren'S Financial And Managerial Accounting

Question

Budgeting types Consider the following budgets and budget types. 

                                Cash                           Cost of Goods Sold                                            

                                Flexible                      Master 

                                Operational               Sales 

                                Static                         Strategic

Which budget or budget type should be used to meet the following needs? 

a. Upper management is planning for the next five years. 

b. A store manager wants to plan for different levels of sales. 

c. The accountant wants to determine if the company will have sufficient funds to pay expenses. 

d. The CEO wants to make companywide plans for the next year.

Step-by-Step Solution

Answer

1. Strategic budget
2. Flexible budget
3. Operational budget
4. Master budget

Step 1: Upper management is planning for the next five years

The upper management’s need for planning for the next five years is a long-term goal that requires a strategic budget

Step 2: A store manager wants to make a plan for different levels of sales.

If the store manager wants to plan for a different level of sales, then he should prepare a flexible budget.

Step 3: The accountant wants to determine if the company will have sufficient funds to pay expenses.

To determine if the company will have sufficient funds to pay expenses the accountant should prepare an operational budget.

Step 4: The CEO wants to make companywide plans for the next year

If the CEO wants to make companywide plans for the next year they should prepare a master budget.