Questions:
1. While many small firms do not put together a complete master budget, nearly every firm creates a cash budget. Why do you think that is so?
2. Discuss the shortcomings of the traditional master budget. In what situations would the master budget perform well?
3. Define static budget. Give an example that shows how reliance on a static budget could mislead management.
4. What are the two meanings of a flexible budget? How is the first type of flexible budget used? The second type?
5. What are the steps involved in building an activity-based budget? How do these steps differentiate the ABB from the master budget?