TIF 21-3 Communication The city of Milton has an annual budget cycle that begins
ID: 433640 • Letter: T
Question
TIF 21-3 Communication The city of Milton has an annual budget cycle that begins on July 1 and ends on June 30. At the beginning of each budget year, an annual budget is established for each department. The annual budget is divided equally among the 12 months to provide a constant monthly static budget. On June 30, all unspent budgeted monies for the budget year from the various city departments must be "returned" to th heads fail to use their budget by year-end, they will lose it. A budget analyst prepared a chart of the difference between the monthly actual and budgeted amounts for all departments in a recent fiscal year. The chart was as follows eral Fund. Thus, ifExplanation / Answer
The chart depicts the difference b/w the actual amount spent in a month & the budgeted amount for the month. Thus the graph represents following amount for every of months: actual amount spent – budgeted amount of that month.
And budgeted amount for a month = Annual budget/12
1. Chart interpretation: Amounts are negative for months July to April (in April the amount about to zero but negative). This means that the actual amount of money spent by the various city departments is less than the budgeted amount for the months July to April. It is only in the months of May & June that the actual spending is more than the budgeted amount (as amounts are positive in the chart for these 2 months).
The reason why the amount is positive in May & June is that the budget will expire on June 30th & any unspent money will have to be surrendered. This is why there is a last moment rush to spend the allocated money.
2. The Improvement in budget system: The main flaw with the budget is that it is static on a monthly basis i.e. the budgeted amount for every month is static. This is faulty & budget should be flexible. This is because different departments will have different requirements for different months. The requirements will change every month & may not be expected to be static. Volume of activity will be different for every month & the budget for every month should reflect this.
Thus the budget should not be prepared on a static basis but on a flexible basis for every month.
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