3.9 Budgets

Question 1

Budget

Answer 1

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

Question 2

Budgetary control

Answer 2

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

Question 3

Contingency fund

Answer 3

reserve budget that is set aside for emergency and back-up use

Question 4

Cost centre

Answer 4

department or unit of a business that incurs costs but is not involved in making any profit
clearly attributed to activities of that department, e.g. salaries, wages

Question 5

Master budget

Answer 5

overall or consolidated budget, comprised of all separate budgets

Question 6

Profit centre

Answer 6

department or unit of a business that incurs both costs and revenues
profit centres tend to be used by large diversified businesses that have a broad product mix

Question 7

Variance

Answer 7

actual outcome - budgeted outcome
favourable = beneficial for the business
adverse = opposite

Question 8

Limitations of budgeting

Answer 8

• As with all forms of quantitative forecasts, there may be unforeseen changes that can cause large differenced between budgeted and actual figures
• time consuming

Question 9

Advantages and disadvantages of cost and profit centres

Answer 9

+ managers are forced to be more accountable –> more accurate, less risky
+ identify areas of weakness
- Data collection is required accurately for all costs and revenues of each cost or profit centre –> time consuming + costly