Accounting Ch. 20 – Flashcards

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Most companies prepare long-term strategic plans spanning _____________. They then fine-tune them in preparing medium-term and short-term plans.
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5 to 10 years
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The _______________ can be inexact, given its long-term focus. Medium- and short-term plans are more operational and translate strategic plans into actions. These action plans are fairly concrete and consist of defined objectives and goals.
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strategic plan
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Short-term financial plans are called _______ and typically cover a _______ period.
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budgets, one-year
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A ______ is a formal statement of a company's future plans usually expressed in monetary terms.
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budget
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_____________ is the process of planning future business actions and expressing them as formal plans.
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Budgeting
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Budgeting makes planning an explicit ________________ responsibility.
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management
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Evaluation involves comparing actual results against one of two usual alternatives: (1) ____________________ or (2) _______________________.
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past performance, expected performance
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An _______________ assists management in identifying problems and taking corrective actions if necessary.
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evaluation
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Evaluation using expected, or ______________, performance is potentially superior to using past performance to decide whether actual results trigger a need for corrective actions. This is so because past performance fails to consider several changes that can affect current and future activities.
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budgeted,
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_________________ provides standards for evaluating performance and can affect the attitudes of employees evaluated by them.
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Budgeting
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Budgeted levels of performance must be realistic to avoid ______________ employees.
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discouraging
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Personnel who will be evaluated should be consulted and involved in preparing the budget to increase their ______________ to meeting it. Performance evaluations must allow the affected employees to ___________ the reasons for apparent performance deficiencies.
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commitment, explain
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The practice of involving employees in the budgeting process is known as ________________________.
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participatory budgeting
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The budgeting process has three important guidelines: (1) Employees affected by a budget should be _____________ when it is prepared (participatory budgeting), (2) goals reflected in a budget should be ____________, and (3) evaluations should be made carefully with opportunities to _______ any failures.
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consulted, attainable, explain
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Under participatory budgeting, some employees might understate sales budgets and overstate expense budgets to allow them a cushion, or __________________, to aid in meeting targets.
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budgetary slack
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Pressure to meet budgeted results might lead employees to engage in _________________ or commit _______.
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unethical behavior, fraud
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Some employees might always spend their budgeted amounts, even on unnecessary items, to ensure their budgets aren't _________ for the next period.
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reduced
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A company's budget, or operating plan, is based on its ___________.
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objectives
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A company's operating plan starts with the ____________, which drives all other budgets including production, materials, labor, and overhead. The budgeting process coordinates the activities of these various departments to meet the company's overall goals.
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sales budget
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A _________ budget is preferred and can inform employees in all types of organizations about management's plans. The budget can also communicate management's specific action plans for the employees in the budget period.
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written
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Budget figures and budget estimates developed through a _____________ process usually are more useful. Without active employee involvement in preparing budget figures, there is a risk these employees will feel that the numbers fail to reflect their special problems and needs.
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bottom-up
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Most budgets should be developed by a _________ process, but the budgeting system requires ________________.
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bottom-up, central guidance
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The budget period usually coincides with the _______________ period.
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accounting
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Managers can compare actual results to budgeted amounts in a report a difference is called a __________.
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variance
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Management examines ____________, particularly large ones, to identify areas for improvement and corrective action.
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variances
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Many companies apply continuous budgeting by preparing _______________.
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rolling budgets
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____________________: Practice of preparing budgets for a selected number of future periods and revising those budgets as each period is completed.
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Continuous budgeting
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__________________: New set of budgets a firm adds for the next period (with revisions) to replace the ones that have lapsed.
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Rolling budget
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For large companies, three groups usually determine or influence the budgets:
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creditors, directors, management
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The annual budget process often begins _____________ or more before the budget is due to the board of directors.
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six months
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__________________: Comprehensive business plan that includes specific plans for expected sales, product units to be produced, merchandise (or materials) to be purchased, expenses to be incurred, plant assets to be purchased, and amounts of cash to be borrowed or loans to be repaid, as well as a budgeted income statement and balance sheet.
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Master budget
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A __________________ is a formal, comprehensive plan for a company's future.
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master budget
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A ________________ contains several individual budgets that are linked with each other to form a coordinated plan.
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master budget
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The master budget typically includes
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individual budgets for sales, purchases, production, various expenses, capital expenditures, cash
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Some budgets require the input of ________________. For example, the merchandise purchases budget cannot be prepared until the sales budget has been prepared because the number of units to be purchased depends on how many units are expected to be sold.
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other budgets
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Order of budget preparation:
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Operating Budgets (Sales budget, Production or Purchases budget, Mfg/Selling/G&A budgets) => CapX Budget => Financial Budgets (Cash budget, Budgeted Income statement, Budgeted balance sheet)
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________________: Plan showing the units of goods to be sold or services to be provided; the starting point in the budgeting process for most departments.
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Sales budget
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A company's sales personnel are usually asked to develop predictions of sales for each territory and department because people normally feel a greater commitment to goals they help set. Another advantage to this participatory budgeting approach is that it draws on knowledge and experience of people _____________ in the activity.
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involved
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The number of units added to inventory depends on _________________________.
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budgeted sales volume
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Managers of just-in-time (JIT) inventory systems use sales budgets for short periods (often as few as one or two days) to order ________________ merchandise or materials to satisfy the immediate sales demand.
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just enough
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________________: Quantity of inventory or materials over the minimum needed to satisfy budgeted demand.
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Safety stock
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_____________________________: Plan that shows the units or costs of merchandise to be purchased by a merchandising company during the budget period.
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Merchandise purchases budget
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General Formula for a Merchandise Purchases Budget:
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Inventory to be purchased = Budgeted Ending Inventory + Budgeted cost of sales for the period - Budgeted beginning inventory
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Assume Hockey Den adopts a JIT system in purchasing merchandise. How will its sales budget differ from its merchandise purchases budget? Answer: The two budgets will be similar because future inventory should be near _______.
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zero
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_____________________: Plan that lists the types and amounts of selling expenses expected in the budget period
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Selling expense budget
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The _____________________ is normally created to provide sufficient selling expenses to meet sales goals reflected in the sales budget. Its initial responsibility usually rests with the vice president of marketing or an equivalent sales manager.
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selling expense budget
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_________________________________: Plan that shows predicted operating expenses not included in the selling expenses budget.
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General and administrative expense budget
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General and administrative expenses can be either ____________ or _______ with respect to sales volume.
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variable, fixed
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The office manager responsible for general administration often is responsible for preparing the initial _______________________________.
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general and administrative expense budget
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Interest expense and income tax expense are often classified as ____________________________ in published income statements but normally cannot be _____________ at this stage of the budgeting process.
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general and administrative expenses, planned
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The prediction of interest expense follows the preparation of the ____________ and the decisions regarding debt. The predicted income tax expense depends on the budgeted amount of __________.
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cash budget, pretax income
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Both ________ and _____________ are not used in comparison to the budget to evaluate that person's performance.
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interest, income taxes
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_________________________: Plan that lists dollar amounts to be both received from disposal of plant assets and spent to purchase plant assets.
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Capital expenditures budget
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Since a company's plant assets determine its productive capacity, the capX budget is usually affected by _____________ plans for the business.
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long-range
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_____________________ is the process of evaluating and planning for capital (plant asset) expenditures. This is an important management task because these expenditures often involve long-run commitments of large amounts, affect predicted cash flows, and impact future debt and equity financing.
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Capital budgeting
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The capital expenditures budget is often linked with management's evaluation of the company's ability to ________________________.
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take on more debt
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After developing budgets for sales, merchandise purchases, expenses, and capital expenditures, the next step is to prepare the _____________
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cash budget
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_________________: Plan that shows expected cash inflows and outflows during the budget period, including receipts from loans needed to maintain a minimum cash balance and repayments of such loans.
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Cash budget
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By preparing a cash budget, management can prearrange loans to cover _______________________ before they are needed.
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anticipated cash shortages
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A cash budget also helps management avoid a cash balance that is too large. Too much cash is undesirable because it earns a __________________ return.
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relatively low
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General formula for the cash budget:
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Beginning Cash Balance + Budgeted Cash Receipts - Budgeted Cash Disbursements = Preliminary Cash Balance
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When preparing a cash budget, we add __________________________ to the _____________________________ and deduct _____________________________.
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expected cash receipts, beginning cash balance, expected cash disbursements
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If the expected (preliminary) ending cash balance is too low, additional cash requirements appear in the budget as planned increases from ______________________.
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short-term loans
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If the expected ____________________ exceeds the __________________, the excess is used to repay loans or to acquire short-term investments.
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ending cash balance, desired balance
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Information for preparing the cash budget is mainly taken from the _____________ and _______________________ budgets.
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operating, capital expenditures
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A _________________ provides "flexibility and security," important in navigating uncertain economic times.
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cash cushion
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The ___________________________ is a managerial accounting report showing predicted amounts of sales and expenses for the budget period.
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budgeted income statement
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Information needed for preparing a budgeted income statement is primarily taken from __________________ budgets.
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already prepared
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The final step in preparing the master budget is summarizing the company's financial position through the _________________________.
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budgeted balance sheet
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The budgeted balance sheet shows _________________ for the company's assets, liabilities, and equity as of the end of the budget period.
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predicted amounts
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In preparing a budgeted balance sheet, ______________ are determined by analyzing the capital expenditures budget and the balance sheet from the beginning of the budget period
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plant assets
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Activity-based budgeting (ABB) is a budget system based on ____________________.
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expected activities
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Unlike a merchandising company, a manufacturer must prepare a _____________________ instead of a merchandise purchases budget.
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production budget
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A ______________________, which shows the number of units to be produced each month, is similar to merchandise purchases budgets except that the number of units to be purchased each month is replaced by the number of units to be manufactured each month.
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production budget
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A production budget does not show costs; it is always expressed in ___________________.
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units of product
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A manufacturing budget shows the budgeted costs for direct materials, direct labor, and overhead. It is based on the ____________________________ from the production budget.
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budgeted production volume
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The manufacturing budget for most companies consists of three individual budgets: __________________ budget, _____________ budget, and _____________ budget.
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direct materials, direct labor, overhead
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Budgeting is the process management uses to _____________ its plans.
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formalize
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At least three aspects are important:
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budget committee, budget reporting, and budget timing
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Activity-based budgeting requires management to identify _____________ performed by departments, plan necessary activity _________, identify _____________ required to perform these activities, and ____________ the resources.
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activities, levels, resources, budget
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