1
Q
Definition of budget
A
A quantitive economic plan prepared and agreed in advance
2
Q
What are the 4 purposes of budgets?
A
- Planning
- Forecasting
- Communication
- Motivation
3
Q
What are the 2 types of budgets?
A
- Sales budget
2. Production cost budget
4
Q
Definition of zero based budget
A
When no money is allocated for costs or spending unless they can be justified by the fund holder (they’re given a zero value)
5
Q
What is the difference between favourable and adverse variance?
A
Favourable variance is when the manager has underspent and adverse variance is when the manager has overspent
6
Q
What are the difficulties of budgeting?
A
- inflexible
- gives a tendency to spend up to the limit
- time consuming
- unrealistic budgets can demotivate
- can make managers become budget driven rather than customer driven
