32.1 The meaning and purpose of budgets

Question 1

Budgeting

Answer 1

Planning future activities by establishing performance targets, especially financial ones.

Question 2

Budget holder

Answer 2

The individual responsible for the initial setting and achievement of a budget.

Question 3

Variance analysis

Answer 3

Calculation of differences between budgets and actual figures, and analysis of the reasons for such differences.

Question 4

Delegated budgets

Answer 4

Budgets for which junior managers have been given some authority for setting and achieving.

Question 5

Zero budgeting

Answer 5

Sets budgets to zero each year and budget holders have to argue their case for targeting levels to receive any finance.

Question 6

Incremental budgeting

Answer 6

Uses last years budgets as a basis, and a adjustment is made for the coming year.

Question 7

Favourable variance

Answer 7

A change from the budget that leads to a higher than planned profit.

Question 8

Flexible budgeting

Answer 8

Cost budgets for each expense are allowed to vary if sales or output vary from budgeted levels.

Question 9

Adverse variance

Answer 9

A change from the budget that leads to lower than planned profit.