33. Budgets

Question 1

Purpose of budgets:

Answer 1

• Control and monitoring
• Planning
• Co-ordination
• Communication
• Efficiency
• Motivation

Question 2

Using budgets:

Answer 2

• Preparation of plans
• Comparison of plans with actual results
• Analysis of variances

Question 3

Difficulties of budgeting:

Answer 3

• Setting budgets
• Motivation
• Manipulation
• Rigidity

Question 4

Budget

Answer 4

A quantitative economic plan prepared and agreed in advance

Question 5

Budgetary control

Answer 5

A business system that involves making future plans, comparing the actual results with the planned results and then investigating the causes of any differences

Question 6

Historical figures

Answer 6

Quantitative information based on past trading records

Question 7

opportunity cost

Answer 7

when choosing between different alternatives, this is the benefit lost from the next best alternative to the one chosen

Question 8

Production cost budget

Answer 8

a firm’s planned production costs for a future period of time

Question 9

sales budget

Answer 9

a firm’s planned sales for a future period of time - can be measured in terms of volume or revenue

Question 10

variance

Answer 10

the difference between actual financial outcomes and those budgeted

Question 11

variance analysis

Answer 11

the process of calculating variances and attempting to identify their causes

Question 12

Zero-based budgeting or zero budgeting

Answer 12

A system of budgeting where no money is allocated for costs or spending unless they can be justified by the fund holder