2.2.4 Budget

Question 1

Definition Budget

Answer 1

an estimate of income or expenditure for a set period of time

Question 2

busgets explained

Answer 2

what buisness will make through sales: income budget
what business will lose through costs: expenditure budget
measure actual income and expenditure against budget –> any changes: variance

Question 3

purposes of budgets

Answer 3

1. control
   –>control for business finances and allocate funds appropriately to diffrent departments
2. planning
   –> new staff, investments, plan for future, innovation, nerw products
3. Coordination
   –> allocation of financial resources, people, departments
4. Efficiency
   –> (just completely necessary costs on budget
5. Communication
   –> to suppliers, employees, shareholder, stakeholders, customers, government
6. Motivation
   new targets like target for future expenses more staff, bonuses (staff work harder),

Question 4

main approaches to budgeting

Answer 4

Historical budget (budget set using current financial figures and based in historical performance of buiness)
Zero-based budget (budget set by usinf figures based onpotential performance)

Question 5

Managers

Answer 5

are responsible for controllable costs within their business
take remedial action if the adverse variances are regarded as excessive

Question 6

Historical based budgeting +/-

Answer 6

+ not time consuming
+easy
+based on actual results
+predictability

• lacks efficiency
• circumstances can change –> outdated
• lack of scrunitc –> constructive critisism

Question 7

Zero based budgeting +/-

Answer 7

+ more efficient
+ optimize rescource allocation –> justification of values

• data inaccurate
• need specialist
• time consuming
• short term focus

Question 8

3 types of budgeting

Answer 8

1. revenue budget
   –> expected revenues and sales + more details
2. cost budget
   –> expected costs based on sales budget + overheads and othre fixed costs
3. profit budget
   –> based on sales and cost budget + great interest to stakeholders + inform business of performance bonuses

Question 9

budgeting is a process

Answer 9

preocess by which financial control is exercised in a business

Question 10

budget difficulties

Answer 10

harder when in dynamic market with rapid change
start up firm find hard to estimate sales and putcomes
competitor action is difficult to predict
likely there are unexpected costs
costs vary based on revenue budget
external shocks /external factors can impact costs

Question 11

budget limitations

Answer 11

only as good as data that is put in
leads to inflexibility
change as circumstances change
time consuming
short-term desicion making