budgets

Question 1

what is the purpose of budgeting

Answer 1

ensures no department spends more than company expects
motivates staff
gives spending powers to middle managers
stops overspending which has to be financed through borrowing
to plan for any expenses

Question 2

what are the types of budgets

Answer 2

historical - looks at previous years income and expenditure which are used as a base to build figures
zero based budget - figures based on potential performance

Question 3

what is variance analysis

Answer 3

process of company actual performance with forecast performance
favourable - better than expected
adverse - worse than expected

Question 4

what are the difficulties with budgeting

Answer 4

budgets are fixed for a year so are inflexible
difficult when business is dynamic
managers spend up to the limit
time consuming
managers become budget driven
could be demotivating
budgets might be unrealistic making workers not want to work