Different Types of Budgets

Question

Examlex · Accepted Answer

The Answer is Solution to Different Types of Budgets (15 minutes)
If the market for the glue for plywood was viewed as a stable market,then Sticky Company is likely to use long-term budgets.The managers and employees have all been with the Sticky Company for many years,so there is no need to use line-item budgeting and not much need to transfer information.Therefore,incremental budgeting is probably better than zero-based budgeting.Budget lapsing is generally not used in a profit company.Flexible budgets are probably appropriate because the demand for the product depends on the demand for plywood,which is not controlled by the managers of Sticky Company.
If Sticky Company is facing a transition due to the conversion from plywood to chipboard,the company is likely to change its budgeting.There will be a greater focus on short-term budgets because of increased uncertainty about the long run.Line item and fixed budgets may be used more frequently because more control from central administration may be desired in an attempt to adapt to a new environment.Zero-based budgeting may be instituted to increase information flow.

Different Types of Budgets

Definitions: