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Chapter 22: 5RQ (page 1228)

Explain the difference between strategic and operational budgets

Short Answer

Expert verified

The strategic budget is for three to ten years, whereas the span of the operational budget is less than or equal to one year.

Step by step solution

01

Meaning of Strategic Budget

A budget prepared forthree to ten years to achieve long-term goals by the company is known as a strategic budget.

02

Difference between strategic and operational budgets

Basis

Strategic Budget

Operational Budget

  1. Meaning

Strategic budget are long-term financial plans designed to manage the activities needed to achieve the long-term term goals of the organization.

Operational budget are short-term financial plans designed to manage the activities needed to achieve the short-term term goals of the organization.

2. Time span

Its period is between 3 to 10 years

Generally less than or equal to one year.

3. Type

Strategic budgets are not very detailed.

Operational budgets are very detailed.

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Most popular questions from this chapter

What are the three sections of the cash budget?

Match the budget types to the definitions.

Budget Types Definitions

5. Financial a. Includes sales, production, and cost of goods sold budgets

6. Flexible b. Long-term budgets

7. Operating c. Includes only one level of sales volume

8. Operational d. Includes various levels of sales volumes

9. Static e. Short-term budgets

10. Strategic f. Includes the budgeted financial statements

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.

Describing master budget components

Sarah Edwards, division manager for Pillows Plus, is speaking to the controller, Diana Rothman, about the budgeting process. Sarah states, 鈥淚鈥檓 not an accountant, so can you explain the three main parts of the master budget to me and tell me their purpose?鈥� Answer Sarah鈥檚 question.

Understanding the components of the master budgetThe following are some of the components included in the master budget of amerchandising company.

a. Budgeted balance sheet

b. Sales budget

c. Capital expenditures budget

d. Budgeted income statement

e. Cash budget

f. Inventory, purchases, and cost of goods sold budget

g. Selling and administrative expense budget

List the items of the master budget in order of preparation.
See all solutions

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