Budgeting

Question 1

What is a budget?

Answer 1

A financial plan of the future concerning the revenue

Question 2

What is budget control?

Answer 2

the process by which financial control is exercised within an organisation

Question 3

When may management use a budget?

Answer 3

• establish priorities and set targets
• provide direction and co-ordination
• motivate staff
• control income and expenditure

Question 4

principles of good budgetary control?

Answer 4

-perfomance is monitored against the budget

Question 5

approaces to budgeting?

Answer 5

1) Historical Budgeting
- use last years figures as the basis
2) Zero budgeting
- budget costs are set to zero
- budget based on new proposals for sales and costs

Question 6

When does a variance rise?

Answer 6

When there is a different between actual and budget figures

Question 7

Variances can be two things……?

Answer 7

1) Positive/ favourable (better than expected)

2) Adverse/ Unfavourable (worse than expected)

Question 8

When may an adverse variant be good?

Answer 8

could result fromm something good that has happened in the business. e.g high production costs due to large amount of sales