2.2.4 Budgets

Question 1

What are some purposes of budgets

Answer 1

• To motivate staff within a department
• To ensure no department spends more than the company expects
• To enable spending power to local delegated managers

Question 1

Give the definition of a budget

Answer 1

• A financial plan concerning the business’s costs and revenue in the future.

Question 2

What are some causes of higher favourable variances

Answer 2

• Stronger demand than anticipated
• Better than expected efficiency of productivity
• Selling prices increased higher than budgets

Question 3

Explain what a historical budget is

Answer 3

• Setting budget for upcoming year based on what happened in the previous year

Question 4

What is a zero based budget ?

Answer 4

• Where all spending must be justified
• To eliminate unnecessary spending

Question 5

What are some limitations to budgets ?

Answer 5

• Unrealistic budgets will impact motivation
• Budgets can lead to managers focus on the short term and not the long term