Budgeting

Question 1

Budgeting Def

Answer 1

A financial plan for future business accounts

Question 2

Sales Revenue Budgets

Answer 2

These set out a business’ planned revenue from selling its products. Important information includes expected level of sales and the likely selling price of the product

Question 3

Expenditure Budgets

Answer 3

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

Question 4

Advantages of Budgeting

Answer 4

-Controls income and expenditure
-Regulate spending and reduce inefficiencies
-Provide Clear Targets
-Motivate Staff

Question 5

Disadvantages of Budgeting

Answer 5

-Time Consuming; particularly for small businesses
-Can work against motivating staff (IT DEPENDS FACTOR)
-Needs to be accurate to be effective
-Decision making becomes too orientated around the budget

Question 6

Variances

Answer 6

When the actual result is different to the budgeted forecast due to unplanned factors. These can be favourable or adverse.

Question 7

Variances Formula

Answer 7

Actual Sales - Budgeted Sales

Question 8

Zero Budgets

Answer 8

Managers start with a clean sheet and must justify and approve all expenses. This increases the level of control and limits unnecessary budget increases due to the justification.

Question 9

Favourable Sales Variances

Answer 9

These can occur because of:
-An effective bonus scheme for salesmen
-demise of a competitor
-successful advertising

Question 10

Adverse Sales Variances

Answer 10

These can occur because of:
-Success of a competitor
-Ineffective Advertising
-Changes in consumer tastes
-Recession

Question 11

Favourable Cost Variances

Answer 11

These can occur because of:
-Employee training/motivation
-Reduced Import Costs (WIPIDEC)
-Reduced cost of Raw Materials

Question 12

Adverse Cost Variances

Answer 12

These can occur because of:
-Employee Strikes
-Unexpected supplier price rise
-Devaluation of the Pound (£)