Budgets

Question 1

First purpose of budgeting

Answer 1

Planning - forces managemenet to think ahead, anticipates problems + solutions

Question 2

Second purpose of budgeting

Answer 2

Co-ordination - managers can control activities in many areas of a complex organisation

Question 3

Third purpose of budgeting

Answer 3

Communication - allows objectives of business to be spoken about with the workforce, may lead to motivation

Question 4

Zero-based budgeting definition

Answer 4

a system of budgeting where no money is allocated for costs or spending unless they can be justified by the fund- holder (tehy are given a zero value

Question 5

Advantages of zero-based budgeting

Answer 5

1) Helps to reuce unnecessary costs + eliminate inefficient practices
2) Allocation of resources should eb improved

Question 6

Disadvantages of zero-based budgeting

Answer 6

1) Time- consuming because the budgeting process involves collection and analysis of detailed information.
2) Skillful decision making is required which may not be available in the organisation

Question 7

Preparation of Plans reason for using budgets

Answer 7

Allows businesses to determine whether targets have been met

Question 8

Comparison of plans with actual results for using budgets

Answer 8

Control will be effective if info is available as quickly as possible

Question 9

Analaysis of variances for using budgets

Answer 9

Allows businesss to identify the difference in actual and budgeted and change/ajust the next one

Question 10

Favourable variance definition

Answer 10

When actual figures are ‘better’ than the budgeted figure

Question 11

Adverse variance definition

Answer 11

when the actual figures are ‘worst’ than the budgeted figures

Question 12

Difficulties of budgeting

Answer 12

1) Motivation - workers left out/not consulted, diffficulty to motivate them
2) Manipulation - can be manipuleted to make department succeed but doesnt help business achieve it’s objectives
3) Rigidity - can constraing business activity which may lead to long-term peformance of the businss suffering

Question 13

3 difficulites of setting budgets

Answer 13

1) problems may arise as budgets are not actual figures
2) if sales data is innacurate, majority of budget willl be off
3) may lead to conflict between departments / staff due to limited funds

Question 14

Budgeting definition

Answer 14

Budgeting is a quantitative conomic plan prepared and agreed in advance