budgets

Question 1

budget

Answer 1

financial plan that a business sets about costs and revenue

Question 2

budgeting system

Answer 2

shows how much can be spent per time period

Question 3

how to construct a budget

Answer 3

1. make a judgement of the likely sale revenues for the coming year
2. set a cost ceiling that allows for an acceptable level of profit
3. the budget for the company’s cost is then broken down by division, department or by cost centre

Question 4

variance

Answer 4

amount by which the actual result differs from the budget figure -> measures each month by comparing the actual outcome with the budgeted one

Question 5

favourable variance

Answer 5

leads to higher than expected profit
(revenue up or costs down)

Question 6

adverse variance

Answer 6

reduces profit -> costs being higher than budgeted level

Question 7

expenditure budget

Answer 7

setting a maximum figure for what a department can spend over a period of time

Question 8

income budget

Answer 8

setting a minimum figure for the revenue to be generated by a product, department or manager

Question 9

profit budget

Answer 9

a minimum figure for the profit to be achieved over a period of time

Question 10

zero budgeting

Answer 10

setting future budgets at £0 to force managers to justify the spending levels they say they need in the future