BUDGETS

Question 1

What is budget

Answer 1

Budget: A monetary target set to enable a business to achieve their corporate objectives.

Question 2

What can budget be based on

Answer 2

A budget can be based on:

Expenditure - Amount to be spent

Income - Amount to be received

Profit - Amount of surplus acquired from sales revenue after all expenses have been payed

Question 3

What is “income budget”

Answer 3

A monetary target for revenues to be received in a given period of time

Question 4

What are income budgets used for

Answer 4

Used to set sales targets for the company, departments and individuals

Informed by past data, seasonality and market research

Can be used to generate cash flow forecast

Question 5

What is “expenditure budget”

Answer 5

A monetary target for all costs to be spent in a given period of time

Question 6

What are expenditure budgets used for

Answer 6

Set clear expenditure targets for different cost centres within the business (i.e. marketing/ north eastern area)

Informed by past data and predicted sales

Can be used to generate the cash flow forecast

Question 7

What is profit budget

Answer 7

A monetary target set for the surplus revenue to be earned over expenditure in a given period of time

Question 8

What can profit budget be used for

Answer 8

Can be used as part of a business plan to secure investment

Question 9

Why do businesses set budgets

Answer 9

Provides clear targets for the company, teams and individuals

Motivational for staff (if the budget can be achieved, then it will be a good target for the staff to work towards)

Allows purchasing decisions to be made by the experts in that area

Enhances the credibility of a business plan (helps gain investors or bank loans etc)

Allows for performance to be reviews through variance analysis, to see if the budgets have been adhered to - That shoulds make the future process of setting budgets easier