Budgets

Question 1

Budget defo?

Answer 1

a target for costs or revenues that a firm or department must aim to reach over a given period

Question 2

What are the purposes of budgets?

Answer 2

• ensure that no department or individual spends more than the company expects, preventing surprises
• provide yardstick against managers success
• enable spending power to be delagted to local managers
• help motivate staff to hit target (rewards)

Question 3

WHat are the two things budgets are set for?

Answer 3

income - target for value of sales

expenditure - limit costs

Question 4

WHat are the two types of budget?

Answer 4

historical budget,

zero- based budget

Question 5

What is a historical budget?

Answer 5

using last years budget to help determine this years

Question 6

What is a zero based budget?

Answer 6

sets department budget at 0 and the budget holder has to justify every pound they require

Question 7

What is a variance analysis?

Answer 7

looking back to calculate the differance between a budgeted figure and the actual figure that occured

Question 8

What is favourable variance?

Answer 8

one that leads to a higher then expected profit

Question 9

WHat is adverse variance

Answer 9

one that reduces the profit

Question 10

What are some difficulties of setting a budget?

Answer 10

• hard to ensure they are realistic
• may creep up over time
• imposing budgets is demotivating

Question 11

What is an income budget?

Answer 11

• sets a minimum target

Question 12

What is an expenditure budget?

Answer 12

sets a maximum target for costs