2.2.4 budgets

Question 1

what are budgets?

Answer 1

a budget is a detailed plan of income and expenses over a certain period of time

Question 2

what is the purpose of setting a budget?

Answer 2

• ensure efficiency in spending

- helps a business achieve its financial and wider objectives

Question 3

budgets can be…

Answer 3

budgets can be either income budgets(revenue and earnings) or expenditure budgets

Question 4

what are the two types of budgets?

Answer 4

historical and zero-based budgeting

Question 5

what is historical budgeting?

Answer 5

• setting budgets based on previous years and adjusted based on estimations

Question 6

what is zero-based budgeting?

Answer 6

• any spending has to be justified with the budget holder. it can be time-consuming but is flexible and can reduce waste

Question 7

what is variance?

Answer 7

compares the actual figures to what’s been budgeted

Question 8

what can cause variances?

Answer 8

• changes in economy
• action of competitors
• action of suppliers
• internal inefficiency

Question 9

what are the difficulties of budgeting?

Answer 9

• costs are subject to change
• action of competitors are unknown
• can be biased
• managers may lack experience