AGBU 2389- AG Finance Exam #3 fully
solved graded A+ passed
Purpose & uses of Partial Budgeting - correct answer ✔✔-"fine-tuning" of an existing farm plan
-to evaluate a production change to see it's financial effect on the overall farm business
-calculate the expected change in profit from a proposed change in farm business
*compare current situation to the expected situation*
4 Questions to ask for Partial Budgeting: - correct answer ✔✔1) What new/additional costs will
be incurred?
2) What current cost will be reduced/eliminated?
3) What new or additional revenue will be received?
4) What current revenue will be lost or reduced?
Additional Costs - correct answer ✔✔-costs that do not exist at the current time with the
current plan
-variable or fixed costs
Additional Costs are incurred because: - correct answer ✔✔-a new/expanded enterprise
requires additional parts
-increasing the current level of input use
-substituting more of one input for another
Reduced Revenue - correct answer ✔✔-revenue currently being received that will be
lost/reduced if alternative is adopted
-accurate estimates are important
,-examples: yields, BW & GW, output selling prices
Reduced Revenue may be reduced if: - correct answer ✔✔-an enterprise is eliminate or reduced
in size
-the change causes a reduction in fields or production levels
-the selling price will decrease
Additional Revenue - correct answer ✔✔-revenue that will be received only if the alternative is
adopted
-accurate estimates are important
-examples: yields, BW & GW, output selling prices
Additional Revenue can be received if: - correct answer ✔✔-a new enterprise is added
-there is no increase in size of a current enterprise
-the change will cause yields, production levels, or selling price to increase
Reduced Costs - correct answer ✔✔-costs that are now being incurred that will no longer exist if
the alternative is adopted
-variable fixed costs
Reduced Costs can result from: - correct answer ✔✔-eliminating an enterprise
-reducing the size of an enterprise
-reducing input use
-substituting more of one input for another
-being able to purchase inputs at a lower price
, Limitations for Partial Budgeting: - correct answer ✔✔-it can only compare the present
management plan with 1 alternative at a time
-requires man budgets
-time consuming
-expected average
Financial risks of partial budgeting - correct answer ✔✔-is the additional average profit worth
the additional risk/variability of profit?
-is the capital available or can it be borrowed?
-how will borrowing affect the financial structure of the business?
Purpose & uses of Cash Flow Budgeting: - correct answer ✔✔-method for analyzing the
availability of cash to meet ongoing obligations
-used for both forward planning & ongoing analysis
Features of a Cash Flow Budget - correct answer ✔✔-only contains actual cash movement
(money entries entering or leaving a business)
-divided into logical time units
-shows when a business will need to borrow money for working capital, & when it can pay back
-cash inflow
-cash outflows
Cash Inflow examples: - correct answer ✔✔-revenue
-loans
-sales of assets
Cash Outflow examples: - correct answer ✔✔-expenses
solved graded A+ passed
Purpose & uses of Partial Budgeting - correct answer ✔✔-"fine-tuning" of an existing farm plan
-to evaluate a production change to see it's financial effect on the overall farm business
-calculate the expected change in profit from a proposed change in farm business
*compare current situation to the expected situation*
4 Questions to ask for Partial Budgeting: - correct answer ✔✔1) What new/additional costs will
be incurred?
2) What current cost will be reduced/eliminated?
3) What new or additional revenue will be received?
4) What current revenue will be lost or reduced?
Additional Costs - correct answer ✔✔-costs that do not exist at the current time with the
current plan
-variable or fixed costs
Additional Costs are incurred because: - correct answer ✔✔-a new/expanded enterprise
requires additional parts
-increasing the current level of input use
-substituting more of one input for another
Reduced Revenue - correct answer ✔✔-revenue currently being received that will be
lost/reduced if alternative is adopted
-accurate estimates are important
,-examples: yields, BW & GW, output selling prices
Reduced Revenue may be reduced if: - correct answer ✔✔-an enterprise is eliminate or reduced
in size
-the change causes a reduction in fields or production levels
-the selling price will decrease
Additional Revenue - correct answer ✔✔-revenue that will be received only if the alternative is
adopted
-accurate estimates are important
-examples: yields, BW & GW, output selling prices
Additional Revenue can be received if: - correct answer ✔✔-a new enterprise is added
-there is no increase in size of a current enterprise
-the change will cause yields, production levels, or selling price to increase
Reduced Costs - correct answer ✔✔-costs that are now being incurred that will no longer exist if
the alternative is adopted
-variable fixed costs
Reduced Costs can result from: - correct answer ✔✔-eliminating an enterprise
-reducing the size of an enterprise
-reducing input use
-substituting more of one input for another
-being able to purchase inputs at a lower price
, Limitations for Partial Budgeting: - correct answer ✔✔-it can only compare the present
management plan with 1 alternative at a time
-requires man budgets
-time consuming
-expected average
Financial risks of partial budgeting - correct answer ✔✔-is the additional average profit worth
the additional risk/variability of profit?
-is the capital available or can it be borrowed?
-how will borrowing affect the financial structure of the business?
Purpose & uses of Cash Flow Budgeting: - correct answer ✔✔-method for analyzing the
availability of cash to meet ongoing obligations
-used for both forward planning & ongoing analysis
Features of a Cash Flow Budget - correct answer ✔✔-only contains actual cash movement
(money entries entering or leaving a business)
-divided into logical time units
-shows when a business will need to borrow money for working capital, & when it can pay back
-cash inflow
-cash outflows
Cash Inflow examples: - correct answer ✔✔-revenue
-loans
-sales of assets
Cash Outflow examples: - correct answer ✔✔-expenses
