Budgeting

Question 1

Budget

Answer 1

Financial plan of expected revenue and/or expenditure for a defined period of time in the future.

Question 2

Budgetary control

Answer 2

comparison of budgeted figures

Question 3

Advantages of budgets

Answer 3

• creates plan for future
• recognises future problems
• improves communication between colleagues and departments
• motivates staff w/ goals and targets

Question 4

Types of budget

Answer 4

1. Sales budget
2. Production budget
3. Labour budget
4. Overhead budget

Question 5

Sales budget

Answer 5

Prepared by sales manager, forecasts sales

Question 6

Production budget

Answer 6

Prepared by production manager, determines the no. of finished goods that must be produced

Question 7

Labour budget

Answer 7

Prepared by production manager, forecasts labour hours

Question 8

Overhead budget

Answer 8

Prepared by production manager, forecasts variable and fixed indirect expenses

Question 9

Factors to consider when preparing a sales budget

Answer 9

• last years sales
• competition
• state of economy
• price to be charged

Question 10

Principal budget factor

Answer 10

Limits expansion by finding the largest extent of output

Question 11

Master budget

Answer 11

Summary of all budgets

Question 12

Cash budget

Answer 12

Forecasts expected inflows and outflows of cash for a period in the future, prepared by a financial accountant

Question 13

Advantages of preparing a cash budget

Answer 13

Knowing future cash deficits and surpluses will allow the business to know what to do with money in the future and if they will have enough for day-to-day spending

Question 14

Advice for a business when a cash shortage is foreseen

Answer 14

• hire equipment over buying
• negotiate lower prices from suppliers
• change cr. terms, i.e. offer 6% discount for cash payments
• examine wage bill and v. overheads and reduce in any way possible

Question 15

Flexible budget

Answer 15

Compares budgeted v actual costs at same level of activity

Question 16

Controllable costs

Answer 16

Costs that can be controlled by the manager, e.g. commission of sales staff

Question 17

Uncontrollable costs

Answer 17

Costs that the manager has no control over, e.g. rates to the local authority

Question 18

Adverse variance

Answer 18

When actual costs are greater than budgeted costs

Question 19

Favourable variance

Answer 19

When budgeted costs are greater than actual costs