BUDGETS Flashcards

1
Q

what is a budget?

A

a budget is a future financial plan concerning the revenues and costs of a business

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2
Q

purpose of a budget

A
  • planning
  • forecasting outcomes
  • communication
  • motivating empoyees = meet budgets
  • allocating resources/responsibiities
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3
Q

what is historical budgeting?

A
  • last years figures
  • considers future actions/circumstances such as an increase in production
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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

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5
Q

what is favourable and adverse variance?

A
  1. favourable = better than expected, costs lower, profits higher
  2. adverse = worse than expected, costs were higher, profits lower
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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
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