Accounting Planning

1. What is the difference between a budget and a plan?

A budget is a kind of guideline that should be followed by a company on regard to spending during a defined period that should be not very long, usually one year. It categorizes the different expenses that are planned for that period and ads them up to a total, which then can be used in comparison with the total income planned for the period, in order to identify if there are expenses that must not take place, to lower the budget.

A financial plan on the other hand, is used to achieve long-term financial objectives of the company. It is similar to the budget in that it categorizes the expenses, but it is much more oriented in the goals of the company. Another difference of financial plans from the budget, is that they focus more on income and assets, such as bank accounts, equity, pensions; as well as on what will be the income from stocks, bonds and shared funds.

2. What is flexible budgeting? What are the three causes of variances?

Considering the fact that the initial budget that is planned for a defined period, e.g. one year, does not always turn out to be identical to the actual results at the end of the year. Therefore, there is a need for a technique for analyzing this type of variances, which is achieved with flexible budgeting. So what this technique basically does is to compare the budget for planned levels of output with the budget for actual level of output. In other words, it estimates what would the budget planned in the beginning of the period, if it would be known what the actual output volume would be.

The three main causes of variances in the planned budget from the actual results are:

* Volume

* Price

* Efficiency

All of these aspects of production might be higher or lower than planned, and this will cause variances.

3. List subtypes of transfer prices! Which transfer price should be used within DaimlerChrysler when delivering trucks that are produced in department A to department B? Explain your suggestion!

There are three different ways for calculating the prices for transfer of products between the divisions of a company:

* Market Price,

* Marginal Cost, and

* Cost Price Plus

In case of DaimlerChrysler Company, when delivering trucks produced in department A, to department B, I think that Cost Price Plus method should be used. If Market Price is used, the department B might have to pay a high amount, which should not be the case for a truck, as it is not a very widely produced good. On the other hand, using Marginal Cost would mean not profit for department