Budget Vacencies

Question 1

What is a budget?

Answer 1

A plan for future concerning the revenues and cost of a buissness

Question 2

What are possible causes of favourable variances?

Answer 2

1. Stronger demand than expected = higher actual revenue
2. Selling prices increased higher than budget
3. Cautious sales and cost assumptions (e.g. cost contingencies)
4. Better than expected productivity or efficiency

Question 3

What is variance analysis?

Answer 3

Variance analysis involves calculating and investigating the differences between actual results and the budget.

Question 4

What is a variance?

Answer 4

A variance arises when there is a difference between actual and budget figures. Variances can be positive (favourable) or adverse (unfavourable).

Question 5

What are favourable variances?

Answer 5

Favourable variances occur when actual figures are better than budgeted figures, such as costs lower than expected or revenue/profits higher than expected.

Question 6

What are adverse variances?

Answer 6

Adverse variances occur when actual figures are worse than budget figures, such as costs higher than expected or revenue/profits lower than expected.

Question 7

What is budgeting?

Answer 7

Budgeting is a process by which financial control is exercised in a business. Budgets for revenues and costs are prepared in advance and then variances are established compared with actual performance.

Question 8

Who is responsible for controllable costs within budgets?

Answer 8

Managers are responsible for controllable costs within their budgets.