2.2.4 Budgets

Question 1

What is a budget?

Answer 1

A financial plan that has been made in advance.

Question 2

What are some purposes of a budget?

Answer 2

• Helps to gain investment or finance.
• Financial control.
• Improve staff performance and better accuracy.
• Monitoring and review.
• Allows firms to establish their priorities.
• Assign responsibility to budget holders.

Question 3

What are historical budgets?

Answer 3

Figures are based on past data.

Question 4

What are zero based budgets?

Answer 4

Budgets start at zero and the budget holder must justify any necessary expenditure.
- Method is time consuming and requires skillful decision making.

Question 5

What is variance? What is favourable and adverse?

Answer 5

The difference between the budgeted and the actual figure.
Favourable- costs are less than expected or revenue is more.
Adverse- Costs are more than expected or revenue is less.

Question 6

what are the pros and cons of budgets?

Answer 6

Pros:
- Provide direction and objectives.
- Performance measurement.
- Efficiency, removes overspending.
- Planning can improve performance.

Cons:
- Budgets may be unrealistic.
- Research problems and accuracy.
- Unforeseen changes.
- Time consuming.