Budgeting Interview Preparation Guide
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Budgeting related Frequently Asked Questions by expert members with experience in Budgeting. These questions and answers will help you strengthen your technical skills, prepare for the new job test and quickly revise the concepts

25 Budgeting Questions and Answers:

1 :: Define Budgetary Control?

Budgetary Control is establishment of budgets and the continuous comparison of actual results with the planned results. It computes the variances and after that management takes necessary actions to maintain favorable variations, through revision of the budgets.

2 :: List the requirements for the successful implementation of Budgetary Control?

★ First a Budget Centre which is that section of the organisation for which the budget will be prepared should be clearly defined.
★ Budget Period or the time period for which the budget will be prepared and operated should be decided carefully. It should neither be too long nor too short.
★ An efficient and proper system of accounting should be established so that the information required for the proper implementation for the budgetary control can be available on time.
★ A proper organisational chart should be prepared properly, clearly depicting the responsibilities and duties of each level of executive.
★ A budget manual, an important document in relation to the budgetary control. It should be well written, indexed and divided into sections. It should include principles and objectives of budgetary control, duties and responsibilities of each executive in the organisation, accounts codes, budget diagrams, etc.
★ A budget key factor should be assessed before preparing other functional budgets to ensure that other functional budgets are capable of fulfilment.

3 :: What is cash budget?

Cash budget is the budget which is prepared under the finance budget. It is an estimation of the expected cash receipts and cash payments during the budget period. By preparing cash budget it becomes possible for the organisation to predict whether at any point of time there will be excess or shortage of cash. Two main points should be remembered before preparing cash budget: Time period of the cash budget and the items to be included in the cash budget.

4 :: Which methods are used to prepare cash budget?

Following methods are used to prepare cash budget:
★ Receipts and payments method: This method is useful for short term estimations. Under this method items should be categorized in two ways- Operating Cash Flows and Non Operating Cash Flows.
★ Balance Sheet method: This method is useful for long term estimations.
★ Adjusted Profits/Losses Method: This method is useful for long term estimations.

5 :: Explain the difference between fixed and flexible budgets?

1. A fixed budget is established for a specific level of activity whereas flexible budget is prepared for various levels of activity.

2. Fixed budget cannot be changed after the period commences, whereas a flexible budget can be changed after the period commence.

3. Fixed budget is more suitable for fixed expenses whereas flexible budget takes both fixed as well as variable expenses in account.

4. Fixed budget includes only fixed costs, whereas a flexible budget includes fixed costs, variable costs and semi variable costs.

5. Fixed budget is mainly used in planning stage whereas flexible budget is used in controlling stage.

6 :: Which budgets are prepared under the production budget?

Material Budget to estimate the material cost
★ Direct Labour Cost Budget to estimate the labour cost which are required to product the quantity as specified in the production budget.

Overhead Budget to estimate production overheads.
★ Production budget is prepared after taking various budgets into consideration. For a proper estimation of various costs associated with the production process makes it important to prepare production budget for the period in which production will take place.

7 :: Define production budget?

Production budget is a forecast of production for the budget period. It is prepared from two angles: In terms of quantity and in terms of money.

8 :: Described Budget Manual?

Budget Manual is a document which standardized methods and procedures required in relation to budgetary control. It also sets out the responsibility of persons engaged in the process.

9 :: Described the principles and objectives of the budgetary control?

★ Duties and responsibilities of the various executives
★ Organisation chart
★ Duties of budget office and budget committee
★ Accounts codes and budget centre codes
★ Budget diagrams

10 :: Described purchase budget?

Purchase budget is a forecast of quantity and value of materials required to purchase during the budget period. This budget is closely connected to the production budget.