budgets

Question 1

purpose of budget

Answer 1

produce cash flow forecast
plan loans
ensure they don’t go further in debt
give job security, know whether employees will be kept on or made redundant

Question 2

what is a budget

Answer 2

a financial plan and agreed spending limit within a business

fits in 12 months of accounting period

Question 3

what is a budget based on

Answer 3

business objectives

Question 4

how can budgets motivate

Answer 4

managers in control of budget

feel trusted by business

Question 5

zero based budgeting

Answer 5

based on potential performance
takes away historical data
for start up business

Question 6

historical figures

Answer 6

budgets set for business based on previous years figures
realistic
dynamic businesses could cause figures to be wrong

Question 7

favourable variance

Answer 7

manager has under spent in his department
regarded as success
cut costs will impact profit

Question 8

adverse variance

Answer 8

manager has over spent

Question 9

limitations of budget

Answer 9

does not prepare for unexpected changes
doesn't predict fluctuations in demand
doesn't predict stepped fixed costs
doesn't show profit/loss
unrealistic can be demotivating
time consuming to prepare
inter rivalry between departments
managers become budget driven rather than consumer driven
seasons affect costs e.g fruit