budgeting

Question 1

what is a budget?

Answer 1

a financial plan that is agreed in advance

Question 2

what are 3 purposes of budgets?

Answer 2

• motivation: provides workers with targets and standards
• planning: forces manegment to think ahead
• communication: planning allows the objectives of the businesses be communicated by the workforce

Question 3

what are the 2 key types of budget?

Answer 3

• sales budget
• production cost budget

Question 4

what is a sales budget?

Answer 4

a firms planned sales for a future period of time - can be measured in volume or revenue

Question 5

what is a production cost budget?

Answer 5

planned production costs over a period of time

Question 6

what are historical figures?

Answer 6

quantitative information based on past records

Question 7

what is zero based budgeting?

Answer 7

when you make a budget based on no past data, and money has to be justified by the fund holder, often used with new businesses

Question 8

ignore

Answer 8

1. allocation of resources is improved
2. a questioning attitude is developed, meaning unecessary costs and inefficient practices are reduced

Question 9

list 3 advantages of zero based budgeting

Answer 9

1. allocation of resources is improved
2. a questioning attitude is developed, meaning unecessary costs and inefficient practices are reduced
3. encourages managers to look for alternatives

Question 10

list 3 disadvantages of zero based budgeting

Answer 10

• time consuming - process involves gathering data from different sources etc
• skillful decision making is required, which is hard to find and decisions may be subjective
• managers may not want to spend in some areas, meaning money may not be allocated to areas that will benefit the business

Question 11

define budgetary control

Answer 11

when a business compares actual results with planned results and investigates the differences

Question 12

4 difficulties of budgeting

Answer 12

• setting budgets
• motivation
• short termism
• manipulation

Question 13

difficulties of budgeting

setting budgets

Answer 13

• budgets are a prediction based on historical data
• if data is inaccurate, then the budget is also inaccurate
• time spent settinf budgets can be spent on other tasks

Question 14

difficulties of budgeting

motivation

Answer 14

some workers are left out of the planning process, which can decrease motivation

Question 15

difficulties of budgeting

short termism

Answer 15

some managers may be too focused on the current budget, which can lead to actions being taken that undermine the future performance of the business

Question 16

difficulties of budgeting

manipulation

Answer 16

budgets can be manipulated by managers, meaning they might set a budget that is easy to achieve, but it won’t help the business meet its objectives