Budgeting

Question 1

Define budgeting

Answer 1

A financial plan for the future setting out targets for sales,revenue and targets for expenditure (to cover costs)

Question 2

State 5 benefits to having a budget

Answer 2

Control of costs, Monitoring of expenditure, Motivation, Communication and Coordination

Question 3

Explain the benefit of control of costs

Answer 3

Departments have a plan to work with and can avoid overspending. If costs are controlled effectively easier to build bigger profit margin

Question 4

Explain benefit of monitoring expenditure

Answer 4

Expenditure can be monitored against budget to avoid departments are not causing too large costs. If they are corrective action can be taken to avoid overspending and maintain an overall positive cash flow

Question 5

Explain how motivation occurs and is a benefit

Answer 5

Empowers budget holders as they are responsible for achieving the budget plans. Clear targets can help motivate as they seek to meet them. V + P + L or MBO

Question 6

Explain the benefit of communication

Answer 6

Communication is improved over the business as it helps make objectives clearer and this is easily communicated to all staff. Developing and finalising budgets helps communication as different departments involved

Question 7

Explain the benefit of coordination

Answer 7

Improved as budgets are set for every aspect that’s involved expenditure or sales so managers can develop a bigger picture and can use their assets together