Budgetting

Question 1

Define variance

Answer 1

difference between the budgeted and actual figure

Question 2

Define zero-based budgeting

Answer 2

Not based on last year’s budget

Budget holder has to negotiate and justify for every amount of money they need for their budget

Question 3

Name advantages of budgeting

Answer 3

Gives a target: gives company something to aim for.
+ Should prevent overspending
+ Keeps you in a limit/ costs are controlled

+ Helps to anticipate whether there are going to be financial problems

+ Motivating staff: teams and individuals are encouraged by the responsibility and recognition gained from meeting budget targets

Question 4

Name disadvantages of budgeting

Answer 4

• only a forecast - is influenced by external factors
• if budget is set too low, it will demotivate and not everything will be possible
• budget may be imposed: often set by senior management who may not know enough about the department
• bad decisions: some decisions to save money in the short-term can have negative long-term effects e.g. cuts in product development