3.9 Budgets

Question 1

Budget

Answer 1

A detailed financial plan for the future

Question 2

Benefits of a budget

Answer 2

• Planning for future
• Effective allocation of resources
• Controlling spending for businesses
• Assessing performance on effectiveness of budget usage

Question 3

Limitations of a budget

Answer 3

• Lack of flexibility
• Short term focus, firms might think to only focus for budget of this year
• May lead to unnecessary spending

Question 4

The difference between cost and profit centres (AO2)

Answer 4

Cost Centre:
- A section of the business to which costs can be allocated
E.g. Hotel – Restaurant, cleaning, bar, reception

Profit Centre:
- A section of the business to which revenue and costs can be allocated

Question 5

Budgetary control and Variance Analysis:

Answer 5

Variance = Actual outcome – budgeted outcome

Question 6

Varience AO4

Answer 6