Budgets

Question 1

Define the term budget

Answer 1

A plan expressed in financial term

Question 2

What are the uses of budgets?

Answer 2

• control income and expenditure
• establish priorities and set targets in numerical term
• assign responsibilities to budget holders and allocate resources

Question 3

What are the control functions of budgets?

Answer 3

• budgetary control is the means by which management exercises control over the business’s plans
• financial terminology for managing income and expenditure
• regularly comparing actual income or expenditure or planed income or expenditure to identify whether or not corrective action is required

Question 4

What are the advantages of budgetary control?

Answer 4

• management can compare if the actual performance is in line with what is reflected in the budget
• possible cash flow problems for the future can be looked at and then be avoided

Question 5

Define the term sales budget

Answer 5

A financial plan which shows how the resources should be allocated to achieve forecasted sales

Question 6

What is the purpose of a sales budget?

Answer 6

• to plan for maximum utilization of resources and forecast sales
• enables the business to plan on how customer demands can be met based on past sales information
• detailed schedule used to show the expected sales for the coming months

Question 7

What is a production budget?

Answer 7

Shows the units that must be produced to meet the anticipated sales
- makes it easier to ensure that costs are economically controlled
- prepared based on the required units of production and planned inventory units to have on hand at the end of each month
- helps establish how many products should be produced in order to meet budgeted sales

Question 8

How does a production budget look?

Answer 8

Question 9

Define the term cash budget

Answer 9

Highlights all the anticipated inflow and outflow of cash in the business over a given period of time
- will show whether the business expects to have a cash surplus or cash deficit over a given period

Question 10

What items are excluded from a cash budget?

Answer 10

• discounts
• bad debts
• provision for doubtful debts
• depreciation
• drawings of goods/ non-current assets
• non-cash items (profit/ loss on disposal)

Question 11

How does a cash budget look?

Answer 11

Question 12

Name ways to advise management on appropriate courses of action on the budgeted results

Answer 12