2.2.4 Budgets

Question 1

what is a budget?

Answer 1

an estimate of income/expenditure in a set period of time (usually a month or a year of trading)

Question 2

what is the purpose of budgeting?

Answer 2

-planning
-forecasting
-communication
-motivation

Question 3

what are the types of budgeting?

Answer 3

-historical
-zero based

Question 4

what is a historical figures budget?

Answer 4

a budget set using past financial figures

Question 5

what are the strengths of a historical figures budget?

Answer 5

-realistic because it’s based on the previous year’s data

Question 6

what are the drawbacks of a historical figures budget?

Answer 6

-business is dynamic so it may be inaccurate

Question 7

what is a zero based budget?

Answer 7

a budget set by using figures based on potential performance

Question 8

what are the strengths of a zero based budget?

Answer 8

-takes away all historical data assumptions and starts with a clean slate
(new businesses can use it)

Question 9

what are the weaknesses of a zero based budget?

Answer 9

-predictions may be inaccurate

Question 10

what are the drawbacks of budgeting?

Answer 10

-time consuming to prepare, monitor/control
-managers can become short term/ sighted
(may also become budget driven rather than customer driven)
-unrealistic budgets can be demotivating

Question 11

what is variance?

Answer 11

any changes between the budget and actual income/expenditure

Question 12

what are the drawbacks of budgeting?

Answer 12

-time consuming to prepare, monitor/control
-managers can become short term/ sighted
(may also become budget driven rather than customer driven)
-unrealistic budgets can be demotivating

Question 13

what are the drawbacks of budgeting?

Answer 13

-time consuming to prepare, monitor/control
-managers can become short term/ sighted
(may also become budget driven rather than customer driven)
-unrealistic budgets can be demotivating