C1F Budgets / Finance

Question 1

Budgeting is….

Answer 1

A financial plan f action covering specific time

Question 2

Process of budgeting..

Answer 2

1. Establish aims/objectives
2. Set production/marketing/financial budgets
3. Break budget down
4. Establish budget monitoring procedures
5. Examine & react to any variances
6. Apply experience/knowledge to following budget

Question 3

3 benefits of budgeting

Answer 3

+improved management control
+ improved financial control
+ ensure resources used efficiently
+ managers aware of responsibilities

Question 4

3 drawbacks of budgeting

Answer 4

• those excluded may be demotivated
• inflexible budgets mean market changes may not be met
• overstating budgets lead to poor allocation of resources

Question 5

What is zero budgeting?

Answer 5

Managers start with a ‘clean sheet’ and justify all expenditure

Question 6

Benefits of zero budgeting

Answer 6

+ improves control
+ helps efficient allocation of resources
+ reduces unnecessary costs
+ motivates to look for alternatives

Question 7

Unplanned change in a budget is called a .

Answer 7

Variance

Question 8

When a budget is better than expected its..

Answer 8

Favourable

Question 9

When a budget is worse than expected its ..

Answer 9

Adverse

Question 10

Internal sources of finance

Answer 10

Owners capital
Reserves
Sale of assets

Question 11

External sources of finance

Answer 11

Overdraft
Bank loan
Commercial mortgage
Venture capitalists
Debt factoring
Hire purchase
Trade credit

Question 12

Net cash flow =

Answer 12

NCF= revenue - expenses

Question 13

Purpose of a cash flow forecast….

Answer 13

To predict how much cash is available/ how much is needed to keep going

Question 14

Problems of a cash flow forecast

Answer 14

• based on predictions
• sales may not be as expected
• costs may increase
• internal factors

Question 15

Uses of a cash flow forecast

Answer 15

• identify issues to be dealt with

- identify if extra finance is needed

Question 16

Liquidity is…

Answer 16

Measure of how available working capital is

Question 17

Liquidity problems

Answer 17

Issue meeting immediate further expenditure (don’t have enough cash)

Question 18

Solutions to long term liquidity problems

Answer 18

Increase revenue
Reduce costs
Delay payment
Extra funding

Question 19

Benefits of a cash flow forecast

Answer 19

+ an accurate forecast = good performance
+ allow to specify when funding is needed
+ inconsistencies can be discovered
+ plan spending

Question 20

Weaknesses of a cash flow forecast

Answer 20

• takes time
• ignores inflation
• longer scales make it less accurate
• needs to be actuate, which is hard to achieve

Question 21

Gross profit indicates…..

Answer 21

How efficient a businesses is at making and selling products

Question 22

Equation for gross profit

Answer 22

GP = sales - cost of sales

Question 23

Net profit is an indicator of….

Answer 23

How efficient overall a business is

Question 24

Equation of net profit

Answer 24

NP = gross profit - total expenses

Question 25

What does trading account show?

Answer 25

Shows sales and direct sales of those (cost of sales)

Question 26

Equation of expenses

Answer 26

Expenses = indirect costs - non direct cost of production

Question 27

What does the appropriation account show?

Answer 27

Shows how profit is distributed

ie via tax, dividend, retained

Question 28

Equation for gross profit margin

Answer 28

GPM%= (goes profit / sales) x 100

Question 29

Equation for net profit margin

Answer 29

NPM% = (net profit / sales) x 100