2.2.4 Budgets

Question 1

Define budget

Answer 1

This is a financial plan for the future, should drive many decisions across the functional area of a business

Question 2

What are historical budgets

Answer 2

This is when you use data previously available when adjusted based on future events and estimation

Question 3

What is zero based budgeting

Answer 3

This is when you have no budget and instead every purchase has to be justified
Good for minimising unnecessary costs but it is also time consuming

Question 4

What are some problems with budgets

Answer 4

• a budget is only accurate as the data on which it is based
• past trends can be poor indicator for the future
• new decisions taken by government and public bodies can affect budget
• when a budget is unrealistic it loses all value as a motivation tool

Question 5

What is variance analysis

Answer 5

This is when you compare the forecast data to the actual figures
- used to judge accuracy of a process