AS2 TP11 Flashcards
what is a budget
plan used in a business which sets a target for costs and revenue
advantages of a budget
provides benchmark for future trading from which budgeting performance can be measured against actual performance
clarifies roles of all staff
helps to predict and plan ahead and set targets
disadvantages of budgets
can be affected by government decisions making the budget obsolete
can become a benchmark - opportunities may become missed if budget limits are applied
may lead to demotivated staff if they don’t get the budget they wanted
what is a flexible budget
budget that can be changed during the year in response to changing circumstances
what is a fixed budget
budget set at start of the year which is not changed during yer even if the circumstances under which it was drawn up change
advantages of a fixed budget
based on historical data and current financial state of business therefor easy to prepare
allow business to measure profit in circumstances where profit measurement is more difficult due to budget fluctuations
encourages those who measure budgets to become more efficient
disadvantage of a fixed budget
lack of agreement of budget goals
for managers the budget could become meaningless and act as a demotivator
can’t change circumstances as it may make it impossible for managers to stay within budget
