budgets

Question 1

what is the purpose of budgets

Answer 1

ensures no department spends more than company expects
motivates staff
gives spending power to local managers
stops overspending which must be financed through borrowing
plan for any future expenses

Question 2

what is a historical budget

Answer 2

looks at previous years income and expenditure which are used as a base to build budget figures

Question 3

what is a zero based budget

Answer 3

figures based on potential performance

Question 4

what is variance analysis

Answer 4

process of comparing actual performance with forecast performance over a period of time

Question 5

what is favourable results

Answer 5

results that are better than expected

Question 6

what are adverse results

Answer 6

worse than expected

Question 7

what are the difficulties budgeting

Answer 7

budgets are fixed for a year so are inflexible which is difficult when business is dynamic
tendency for managers to spend up to the budget
time consuming
can create inter department rivalry
hard to plan ahead due to unplanned changes
could be demotivating
budgets may be unrealistic which can make workers not want to work