budgets

Question 1

what are budgets?

Answer 1

a financial plan that a business (or department in the business) sets about costs and revenue

Question 2

what are two methods of budgeting?

Answer 2

• historical figure budgets
• zero based budgeting

Question 3

what is a historical figure budgeting?

Answer 3

usually based on historical data (e.g. sales and costs data from previous years) and allow for factors such as Inflation and other relevant economic indicators

Question 4

what is zero based budgeting?

Answer 4

requires all spending to be justified, which means that many unnecessary costs can be eliminated

Question 5

why is zero based budgeting useful?

Answer 5

• useful where a business needs to control costs closely
• unnecessary costs can be eliminated

Question 6

what is a budget variance?

Answer 6

budget variance is a difference between a figure budgeted and the actual figure achieved by the end of the budgetary period

Question 7

difficulties of budgeting

Answer 7

• take time and skill to make
• data can be inaccurate
• can have negative motivations if too ambitious
• conflicts may arise