ch 33 Flashcards
What is meant by the term Budget?
a financial plan prepared and agreed in advance
What is meant by the term Budget Control?
a business system that involves making future plans comparing the actual result with the planned result and the investigating the causes of any difference
What is meant by the term Production cost budget?
a firms planned production costs for a future period of time
What is meant by the term sales budget?
a firms planned sales for a future period of time - can be measured in terms of volume or revenue
What is meant by the term Variance?
the difference between actual finance outcomes and those budgeted
What is meant by the term Variance analysis?
the process of calculating variances and attempting to identify their causes
What is meant by the term zero-based budgeting or zero budgeting?
a system of budgeting where no money is allocated for costs or spending unless they can be justified by the fund holder (they are given a zero value)
What is the purpose of a budgeting?
budgets aim to fulfill the following purposes:
control and monitoring
planning
Co-ordination
Communication
Efficiency
Motivation
What is meant by Sales (Income) Budget?
it links to the marketing targets of the business
it is subdivided into different elements to allow analysis of different sources - particularly in multi-product firms
it helps the business to assess expenditure needs, especially raw materials, staff etc.
it includes other sources of income, such as rent received
What is meant by Production Cost (Expenditure) budget?
the expenditure budget can be more complex than the income budget , as there are many different items of expenditure in a business e.g.
raw materials/components
labor costs
marketing expenditure
administration costs
rent
capital costs
What is meant by Profit budget?
profit budget = income budget - expenditure budget
the profit budget usually as an annual focus to avoid seasonal distortions
it is important for regular review to assess whether budget targets are being hit
What is favourable variance?
when costs are lower than expected or revenue is higher than expected
What is adverse (unfavourable) variance?
when costs are higher than expected or revenue is lower than expected
When would favourable variance happen?
actual income is greater than budgeted income
- actual costs are below budgeted costs
How do you calculate variance?
variance = budget figure - actual figure
- for variance analysis, F is for favourable variances, and A for adverse variances, rather than positive and negative numbers
