BS5- Budgets And Variance Flashcards
What are budgets?
A budget is a financial plan for a defined period, often one year.
List 3 reasons why managers use budgets
Helps to not over spend for the year
Can evaluate the performance of employees and departments
Can compare at the end of the year to see if met targets
Identify 3 principles for good budgetary control
Setting standards to coordinate and control the budget process (policies and procedures).
Recording and measuring current financial performance (preparing budgets).
Making comparisons between actual and budgeted results (variance analysis).
What is variance analysis?
In budgeting, a variance is the difference between a budgeted, planned, or standard cost and the actual amount incurred/sold. Variances can be computed for both costs and revenues.
A variance can be either…..
Favourable and unfavourable
When actual results are better than expected results given variance is described as favorable variance. …
When actual results are worse than expected results given variance is described as adverse variance, or unfavourable variance.
What is zero budgeting
Zero-based budgeting is a method of budgeting in which all expenses must be justified and approved for each new period.
What are flexible budgets?
A flexible budget is one based on different volumes of sales. A flexible budget flexes the static budget for each anticipated level of production
Explain a favourable variance
where actual income is more than budget, or actual expenditure is less than budget.
Explain an adverse variance
where actual income is less than budget, or actual expenditure is more than budget.
List 3 possible causes of a favourable variance
Over calculated costs
Under buying of stock
A price drop in stock
List 3 possible causes of an adverse variance
A rise in cost
Underestimated costs
Bad previous data 
