BUDGETS Flashcards
1
Q
what is a budget?
A
a budget is a future financial plan concerning the revenues and costs of a business
2
Q
purpose of a budget
A
- planning
- forecasting outcomes
- communication
- motivating empoyees = meet budgets
- allocating resources/responsibiities
3
Q
what is historical budgeting?
A
- last years figures
- considers future actions/circumstances such as an increase in production
4
Q
what is zero based budgeting? and drawbacks?
A
- Sets each department budgets at zero and demands that budget holders justify every pound they ask for
- helps avoid budgets increasing every year
drawbacks
- long time to provide justification
- time consuming for managers sensible to use every few years
5
Q
what is favourable and adverse variance?
A
- favourable = better than expected, costs lower, profits higher
- adverse = worse than expected, costs were higher, profits lower
6
Q
difficulties of budgeting
A
- de-motivating employees = unrealistic targets
- department rivalry = compete for budget
- can result in short term decisions to keep targets and forget long term
- only as good as the data being used
- inflexibility in decision making