Budgets Flashcards
Principle Budget Factor
The factor which limits what an organisation can achieve, invariably this will be sales. It must be identified and an appropriate budget set before other budgets can be calculated
Cash budgets
A detailed estimate of cash inflows and outflows incorporating both revenue and capital items. It is used to identify periods with a cash surplus or shortage
Cash shortage
DOOR
Incremental budgeting
Take the current period and add on a bit to account for anticipated inflation and growth. Resources are therefore allocated broadly in line with current period allocations
Advantages/Disadvantages of Incremental budgeting
GSEC-ASO
Advantages/Disadvantages of rolling budgets
MUP - GB
Rolling budgets
prepared every so many months where each budget covers the next x amount of months, hence extending the current budget by another period.
Zero based budgets
Starts at nil every period and requires manners to justify every item from scratch. Each item is called a decision package which are ranked on importance until resources are used up
Advantages/disadvantages of zero based budgets
EMI - DTF
ABB
Based on an activity framework which utilises cost driver data in budget setting and variance feedback.
It identifies the activities that are the true causes of costs rather than assuming they are all incurred on a functional basis
Advantages/disadvantages of ABB
FE - NT
Fixed buget
Set prior to the control period and is not subsequently changed in response to changes in activity, costs or revenue. It may serve as a benchmark in performance valuation
Flexible budget
A budget which, by recognising the different between fixed, semi-fixed and variable costs, is designed to change in relation to the level of activity attained (i.e. it is prepared for a range)
Flexed budget
Involves flexing variable costs from original budgeted levels to allowances permitted for actual volume achieved whilst maintaining fixed costs at original budgeted levels.
