3.9 Budgeting

Question 1

What is the importance of budgets?

Answer 1

• Planning and guidance.
• Coordination.
• Control.
• Motivation

Question 2

Cost centre

Answer 2

a unit of a business that incurs costs but does not make any profit. These
costs are clearly attributed to the activities of that department.
- e.g. marketing department

Question 3

Profit centre

Answer 3

a unit of a business that incurs both costs and revenues.

Question 4

Variance

Answer 4

exists when there is a difference between the budgeted figures and
the actual outcome

Variance = Actual outcome−Budgeted outcome

Question 5

Favourable variance

Answer 5

exists when discrepancies are financially beneficial to
the organisation (i.e., when the actual figures are higher than the estimate).

Question 6

Adverse variance

Answer 6

exist when the discrepancies are financially detrimental to
the organisation.
- They occur when actual costs are higher than expected, or when actual revenue is lower than budgeted (i.e., underselling)

Question 7

Budget

Answer 7

financial plan of estimated revenues and expenditures for a future time period.
- accounts for costs and revenues

Question 8

Budget holder

Answer 8

formulate budget(s) and are in charge of their achievement

Question 9

master budget

Answer 9

overall budget of all budgets in any organisation

Question 10

How can variances be expressed?

Answer 10

monetary value

Question 11

Budget format

Answer 11