3.9 Budgets HL

Question 1

Budget

Answer 1

a budget is a plan for future finances, including the income received and the planned spending
list all predicted income source, predicted expenses for the next week/month/year

Question 2

what can budgeting help with?

Answer 2

• identify any possible problems in the future
• set targets
• make decision over what to spend money on

Question 3

Variances

Answer 3

when there is a difference between the budget number and the actual number

Question 4

adverse/favourable for income and expenditure

Answer 4

income:
actual > budget = favourable
actual < budget = adverse
Expenditure:
actual > budget = adverse
actual < budget = favourable

Question 5

pros of a budget

Answer 5

• planning for the future
• effective allocation of resources
• controlling spending
• assessing performance

Question 6

cons of budgeting

Answer 6

• lack of flexibility
• short-term focus
• may lead to unnecessary spending

Question 7

cost centre

Answer 7

a section of the business to which costs can be allocated

Question 8

profit centre

Answer 8

a section of the business to which revenue AND costs can be allocated

Question 9

why are centres important

Answer 9

• responsibility may improve motivation
• can identify poor performing areas
• used to reward strong performers

Question 10

cons of centres

Answer 10

• managers may focus too much on their part of the business rather than the business as a whole
• some costs can be allocated anywhere (e.g. lighting for hotel sign)