Sample Case Study Examination Question

Question:

Three (3) budgets a broker should develop are:

  • Income or Sales Budget
  • Expense Budget
  • Cash Budget

Briefly describe each one and its purpose. (9 marks)

Analyze the Question:

  • There are three (3) types of budgets listed.
  • A brief description of each type of budget and its purpose is required.
  • The mark value is 9 so each type of budget is worth 3 marks.

An appropriate Answer:

  • Income or Sales Budget – details anticipated income receivable from all sources for the planning period (usually one year) with monthly breakdown. It tells the broker what his/her income is likely to be.
  • Expense Budget – details the anticipated expenses during planning period. It tells the broker what his/her expenses are likely to be so that he/she can compare them to income to ensure a positive result.
  • Cash Budget – details anticipated cash available at each month end to cover expenses. If expenses in a particular month will exceed income, then additional monies will have to be found to cover the shortfall. This budget is the leading indicator to the broker that he/she could be in a negative position later in the year unless remedial action is taken.