Budgeting Flashcards
What is a budget?
Financial plan for a business prepared in advance
Advantages of budgets
Planning - makes sure plans are achievable
Communicate and co-ordinate - managers and staff will work together
Decision making - a business can make decisions on output and appropriate changes
Monitor and control - managers can compare actual results and make changes
Limitations of budgets
Benefits must exceed costs - needs to be worth the time preparing it
May not be accurate - if not accurate then it is useless
May be at too low of a level - it might be too easy to achieve and therefore have no benefits
What is principal budgeting factor?
A factor that limits what your budget can attain
What are the two methods used for budgeting and explain them?
Incremental - previous figures are used as a base and a small percentage is added
Zero-based - starts at zero and each item has to be justified
What is a master budget?
Summary of other financial budgets in the form of a budgeted financial statement
Sales budget
an estimate of expected sales in units and monetary terms for the budget period
Production budget
a detailed plan showing the number of units that must be produced during a period in order to meet both sales and inventory demands.
Purchases budget
budget showing the purchases (in units) required in each month to meet the demands of the production budget (or the sales budget) and to keep inventory at desired levels
Labour budget
Shows the number of labour hours required to meet demand
Cash budget
Shows an estimate of future cash income and expenditure
Advantages of zero based budgeting
Avoid over spending
Encourages questioning attitude
Responds to change
Involves more staff
Advantages of incremental budgeting
Quick
Easy
Easily understood
No department conflict
