Budgets/Budgeting

Question 1

Profit Centre

Answer 1

Part of a business to which costs and revenue can be allocated to.

Question 2

Cost Centre

Answer 2

Sections of a business that are distinct from others and which costs can be attributed to.

Question 3

Adverse Variance

Answer 3

The difference between the budgeted and the actual figure which has a negative impact on profit.

Question 4

Favourable Variance

Answer 4

The difference between the budget and the actual figure which has a positive impact on profit.

Question 5

Budget

Answer 5

Financial targets for the future covering revenue and expenditure over a period of time.

Question 6

Inventory

Answer 6

The stock of goods held for re-sale. The current assets of a business.

Question 7

Limiting factor

Answer 7

A constraint upon a businesses budget. Determining which budget is drawn up first.

Question 8

Over-trading

Answer 8

The rapid growth which places a significant burden on a firms ability to to meet its debts.

Question 9

Sensitivity Analysis

Answer 9

Technique used to reduce the uncertainty in decision making, adjusting and assessing the impact of the change on break-even output.

Question 10

Variable Costs

Answer 10

These costs change as a result of changes in output only, e.g raw materials.

Question 11

Zero-Budgeting

Answer 11

Where budgets are set at 0 and managers have to fully justify their spending levels.