3.9 Budgets Flashcards

1
Q

profit centers

A

department in a business that generates both revenues and expenditures

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2
Q

cost centers

A

department in a business that generates costs, but no revenue

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3
Q

ways to organise profit centers and cost centers

A
  • function
  • product
  • geography
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4
Q

financial role of profit and cost centers

A
  • see better the performance of different parts of the business
  • managers see the information and construct budgets with greater accuracy
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5
Q

motivational role of profit and cost centers

A
  • provide employees with a greater sense of autonomy over budgets
    (autoonomy improves motivation)
  • better sense on how to allocate funds
  • greater efficiency and problem-solving
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6
Q

organisational role of profit and cost centers

A
  • can make better decisions about future strategy and where to invest
  • can devote more time, money, and energy to build on the profit successed of certain departments or units
  • knowing the relative performance of the different parts of the business informs decision-making
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7
Q

budget

A

financial plan for a defined period of time

helps the planning, control, coordination and monitoring of expenditure

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8
Q

purpose of a budget

A

outline the financial resources available for achieving the objectives of that part of the business

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9
Q

short-term budgets

A

monthly for instance

budgets are usually set over a period of a year or for the duration of a project

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10
Q

two types of budgets

A
  • short-term
  • coordinated
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11
Q

coordinated budgets

A

departmental budgets set after the business’s corporate objectives have been arranged

feed into a centralised budget for the whole business

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12
Q

different ways to decide the size of a budget

A
  • usually based on their budgets for previous years
  • zero-based budgeting
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13
Q

zero-based budgeting

A
  • departments bid for how much money they need for the year (explaining what they need the money for)
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14
Q

format of a budget order

A

income
- sales revenue
- interest earned
total income

costs
- salaries and wages
- materials
- rent
- advertising
- electricity
total costs

net income

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15
Q

variance analysis

A

compares a business’s budgeted sales revenue and costs with the actual figures over a period of time

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16
Q

favourable variance

A

when actual budget situation is better than the forecast

  • actual costs are lower than the budgeted costs
  • actual income is higher than the budgeted income
17
Q

adverse variance

A

when the actual budget situation is worse bthan the forecast

  • actual costs are higher than the budgeted costs
  • actual income is lower than the budgeted income
18
Q

no variance

A

actual budget was the same as the forecasted budget

19
Q

when the actual budget situation is worse than the forecast

A

adverse variance

20
Q

when the actual budget situation is better than the forecast

A

favourable variance

21
Q

actual budget situation was the same as the forecasted budget.

A

no variance

22
Q

variance for income in a budget for cost center

A

no variance

23
Q

benefits of budgeting

A
  • planning
  • control
  • coordination
  • communication
  • motivation
  • measuring performance
24
Q

budgeting benefit: planning

A
  • refines long-term plans
  • assist management in planning for the future
25
Q

budgeting benefit: control

A
  • control business activities
    better decision making
26
Q

budgeting benefit: measuring performance

A
  • performance of a department or manager may be evaluated by measuring their ability to stay within the budget
27
Q

budgeting benefit: motivation

A
  • good budget can motivate department managers to perform within the overall business objective and help them stay within budget
  • however, managers can be demotivated if they don’t have sufficient funds
28
Q

budgeting benefits: communication

A
  • budgets can communicate to different departments how much they are expected to spend in order to achieve their objectives
29
Q

budgeting benefits: coordination

A
  • relationship between departments to ensure departmental plans are integrated