3.9 Budgeting

Question 1

Adverse variances

Answer 1

are discrepancies between actual outcomes and budgeted outcomes that are detrimental to an organisation. Such as production costs being higher than expected.

Question 2

Budget

Answer 2

Is a financial plan of expected revenue and expenditure for a department or an organisation, for a given period of time

Question 3

Budgetary control

Answer 3

refers to the use of corrective measures taken to ensure that the actual outcomes equal the budgeted outcomes, by systematic monitoring of budgets and investigating the reasons for any variances

Question 4

Cost centre

Answer 4

is a department or division of a business that incurs costs that are clearly attributed to the activities of that unit of the organisation

Question 5

Favourable variances

Answer 5

are discrepancies between the actual outcomes and the budgeted outcomes that benefit an organisation, such as sales revenue being higher than expected

Question 6

Profit centre

Answer 6

is a department or division of a business that incurs both costs and revenues. Profit centres tend to be used by large and diversified firms that have a broad product range

Question 7

Variance

Answer 7

refers to any discrepancy between actual outcomes and budgeted outcomes

Question 7

Variance analysis

Answer 7

is the management process of comparing planned and actual costs and revenues, in order to measure and compare the degree of budgetary success. It also helps managers to monitor and control budgets.