Budgeting

Question 1

what is budgeting?

Answer 1

financial plans for the future over a given period of time that describes the expected levels of expenditure and revenues

Question 2

what do sales revenue budgets do?

Answer 2

set out a business’ planned revenue from selling its products

Question 3

what do expenditure budgets do?

Answer 3

set out a business’ planned expenditure on labour, raw materials,
fuel and other items essential for production

Question 4

what is a zero budget?

Answer 4

involves managers starting with a clean sheet - don’t rely on previous years budget

Question 5

what are the benefits of zero budgeting?

Answer 5

• improves control
• helps with allocation of resources
• limits the tendency for budgets to increase annually with no real justification for the increase
• reduces unnecessary costs
• motivates managers to look at alternative options

Question 6

what is a variance?

Answer 6

any unplanned change from the budgeted figure

Question 7

what is a favorable variance?

Answer 7

when the difference between the actual and budgeted figures will result in the business enjoying higher profits than shown in the budget

Question 8

what is an adverse variance?

Answer 8

when the difference between the figures in the budget and the
actual figures will lead to the business’ profits being lower than planned

Question 9

what are the ADVANTAGES of budgeting?

Answer 9

• can control income and expenditure