Budgets

Question 1

Budgets

Answer 1

A budget is an estimate of income or expenditure for a set period of time

Question 2

Purpose of budgets

Answer 2

1. Planning
2. Forecasting
3. Communication
4. Motivation

Question 3

Historical budget

Answer 3

The previous years income and expenditure are used as a base on which to build the budget figures for the next year

Question 4

Zero based budget

Answer 4

This is a budget set for a business by using figures based on potential performance

Question 5

Favourable variance

Answer 5

the manager has underspent in his department, this would be regarded as a success as any costs cut will have an impact on profit

Question 6

Adverse variance

Answer 6

the manager has overspent and it would depend on the reasons, perhaps they needed more staff than was budgeted for and had to hire during the year

Question 7

Difficulties of budgeting

Answer 7

Budgets are often fixed for a year and as such inflexible, difficult when business is dynamic

Question 8

Limitations of budgeting

Answer 8

Budgets can cause inter- department rivalry as some departments get more money than others