Budgets

Question 1

What is a budget

Answer 1

• A budget is an agreed plan for future expenditure and income from sales.
• Budgets allocate resources for spending and Investment based on expected business activities.
• Budgets are set out for 12 months

Question 2

Reasons for setting a budget

Answer 2

• Control- budget help managers to measure what they are achieving
• Monitoring- if they are under or over budget management can take steps to correct the position
• Planning- forces businesses to think ahead budgets help anticipate problems and their solutions
• Co-ordination- as a business grows and becomes more complicated with different departments and sites, budgeting helps to co-ordinate the business
• Efficiency- budgeting gives financial control to those workers who are best able to make decisions in the business
• Communication- planning budget should be communicated to employees. employees then have a clear framework within which to operate.

Question 3

Budgets and motivation

Answer 3

• Budgets are a non financial motivator.
• budgets provide workers with targets and standards improving on budget position is an indication of success.
• budgets encourage employees to contribute more towards the overall profitability of the business
• and when budgets are reached it creates a sense of achievement amongst workers.

Question 4

Problems with setting budgets.​

Answer 4

• Using planning figures- planning figures may be inaccurate for example, its difficult to plan sales data for the future. Market research would be needed to assist this.​
• Collecting information- difficult to collect all the data in a large company and getting managers to keep to the budget. Employing a budget officer would resolve this.​
• Conflict- conflict between departments for the same resources for example, investing in more promotion or investing in new machinery.​
• Cost- time spent making budgets could have been spent on other important tasks.​
• Over ambitious objectives- setting targets that are unrealistic and unachievable would decrease motivation as employees wouldn’t be able to meet the targeted budget.​
• External influences- weather, economy, acts of rival businesses can make it difficult to set and keep budgets

Question 5

ZBB- Zero based budgets

Answer 5

These are budgets were all departments have to justify all there spending down to the pound

Question 6

Advantages of ZBB- Zero based budgets

Answer 6

• improves allocation of resources
• will help to reduce costs
• helps to motivate staff

Question 7

Disadvantages of ZBB- Zero based budgets

Answer 7

• really time consuming
• managers may not have the skills to do it
• might affect motivation because of threats to the status quo