Budgets/ Budgeting Flashcards
1
Q
What is a budget
A
Monetary target set to enable a business to achieve their corporate objective
2
Q
What is income budget
A
- target for revenues to be received ina given time period
- set sales target for company/ departments/ individuals
- informed by data, seasonality, market research
- used to generate cash flow forecast
3
Q
Why do businesses set targets
A
- provides clear targets for company
- motivates staff
- allows purchasing decision to be made by experts
- enhances credibility of a business plan (gain investment)
4
Q
What is variance analysis
A
Look at what the business budgeted and what they achieved
5
Q
How to determine whether a business is adverse of favourable in revenue & profit
A
If the actual is lower than original = adverse
Actual is higher than original = favourable
6
Q
How to determine the business is adverse or favourable in expenditure
A
If the actual is higher than budget it is adverse = more has been spend on resources
7
Q
What is some adv of budget varian e
A
- allows identification of where departments are underperforming
8
Q
Disadv of budgeting
A
- expenditure : common for business to spend as much as they have budgeted out of fear of reduced expenditure budgets in the next cycle
