2.2.4 VARIANCE ANALYSIS / BUDGETING

Question 1

what’s a budget

Answer 1

a financial pan that is agreed in advance, its a plan not a forecast

Question 2

what are the two types of budgets

Answer 2

1) revenues and earnings budget (in)
2) expenditure budgets (out)

Question 3

what’s a historical budget

Answer 3

tracks past expenditures and revenues to analyse financial performance and inform future financial decisions

Question 4

advantages of historical budgets

Answer 4

• helps asses performance evaluation
• enables trading of financial trends
  -guides strategic decision making
• promotes accountability

Question 5

disadvantages of historical budgets

Answer 5

• may not account for unexpected events
• may not accurately predict
• may hinder innovation
• overemphasis on tradition
• time consuming

Question 6

what’s a zero based budget

Answer 6

starts fresh each budget cycle, requiring all expenses to be justified from scratch

Question 7

advantages of zero based budgets

Answer 7

• promotes cost efficiency
• resources are allocated based on current needs and priorities
• aligns decisions with strategic objectives
• enhances transparency and accountability
• allows flexibility