budgeting Flashcards
1
Q
Budget
A
- financial plan and agreed spending limit within a business
- based on objectives
- managers must think ahead- not spend all
- usually 12 month but readership and development could be longer
2
Q
Why would businesses create a budget
A
- calculate what you spent last year and compare
Why- to stop overspending,for more profit left over for next year, planning - identify problems and develop situations , motivation-for managers- feel responsible for finances, decisions - best position make decisions
3
Q
Historical figure budget
A
- budget set for business using current financial figures
- based on last years figures
4
Q
Pro historical budgets
A
- roughly predict how much they will spends
5
Q
Con historical figures budgets
A
- if you don’t have previous years, difficult to put together
- business is dynamic so figures may be wrong
- people waste money to spend all budget for next year
6
Q
Zero based budget
A
- budget set for business by using figures based on potential performance
7
Q
Pro zero based budget
A
- used by start up and big companies
- have to think about what spending on- focus on what is needed to spend
8
Q
Con zero based budget
A
- slow to respond to changes
- spend a lot of time in market doing
- ignores last years figures
- meeting regularly
- don’t know what is happening next year
9
Q
Benefits of budgets
A
- roughly predict how much they will spend
- stop overspending
- allocations - who is getting what
- help monitor and control operations
-promote forward thinking - shows direction business is going
10
Q
Drawbacks budgets
A
- market is always changing so figures may be wrong
- time, takes a while can’t carry out other tasks
- errors will always remain, hard to predict future
- may cause conflict- difficult choices where budget is spent
11
Q
Favourable variance
A
- manager underspent in department
- success as costs have impact on profit
12
Q
Adverse variance
A
- mama get overspent depends on reasons
E.g need more staff than budgeted for
