Budgets

Question 1

What is the purpose of budgeting ?

Answer 1

The purpose is to ensure efficiency in spending

Question 2

What is a historical budget ?

Answer 2

A budget that is based on previous information and prior data

Question 3

What is a zero-based budget ?

Answer 3

A budget not based on previous data.

Question 4

Limitations of budgets

Answer 4

• A budget is only as accurate as the data being used
• Unexpected changes in processes
• When a budget is unrealistic it loses all value as a motivational tool

Question 5

What is variance analysis ?

Answer 5

This compares the forecast data to the actual figures. This can be used to analyse the accuracy of the budgeting process and help make decisions about budgeting adjustments.

Question 6

What is an adverse variance ?

Answer 6

where actual income is less than budget, or actual expenditure is more than budget. This is the same as a deficit where expenditure exceeds the available income.

Question 7

What is a favourable variance ?

Answer 7

A favourable variance is where actual income is more than budget, or actual expenditure is less than budget.