5 - Budgets Flashcards
What Are Budgets?
Forecasts or plans for the future finances of a business.
What Are All The Types Of Budgets?
(3 Points)
~ Income.
~ Expenditure.
~ Profit.
What Are Income Budgets?
Target set for the amount of revenue to be achieved in a set time period.
What Are Expenditure Budgets?
A limit on the amount to be spent in a given period of time.
What Do Expenditure Budgets Allow For The Monitoring Of?
Monitoring of under spending and over spending.
What Are Disadvantages In Setting Budgets?
(4 Points)
~ Managers may lack experience.
~ Dependent upon predictions and forecasts.
~ Actions of competitors are unknown.
~ Takes time and effort, which has an associated opportunity cost.
What Are Profit Budgets?
Target set for the surplus between income and expenditure in a given period of time.
What Are Some Advantages Of Setting Budgets?
(5 Points)
~ Finance control.
~ Performance measurement.
~ Strategic planning.
~ Improved decision making.
~ Motivation and coordination.
What Is A Variance?
Difference between the actual income, expenditure and profit and the figure that has been budgeted.
What Is Variance Analysis?
Process of calculating and interpreting these variances.
What Can Variances Be?
(2 Points)
~ Adverse.
~ Favourable.
What Is An Adverse Variance?
(4 Points)
~ Bad for the business.
~ Expenditure is higher than budget.
~ Income is lower than budget.
~ Profit is lower than budget.
What Is A Favourable Variance?
(4 Points)
~ One that is good for the business.
~ Expenditure is lower than the budget.
~ Income is higher than the budget.
~ Profit is higher than the budget.
What Are The Possible Causes Of Variances?
(4 Points)
~ Actions of suppliers.
~ Actions of competitors.
~ Internal efficiency.
~ Internal decision making.
