Chapter 30, Budgets and variance

Question 1

Reasons for budgeting

Answer 1

• measuring money entering and leaving the business
• giving information on the productivity levels of the business
• providing information for shareholders
• ensuring cash flow is adequate to meet day to day needs
• strategic perspective

Question 2

Overdraft facility

Answer 2

an agreement with the bank to be able to withdraw from an account up to a stated limit

Question 3

reasons for Cashflow information

Answer 3

• need for liquidity
• improving liquidity
• Dealing with banks or other lenders
• Making changes

Question 4

Delegation

Answer 4

the passing on of responsibility, usually to someone at a lower level in the organisation

Question 5

Zero Budgeting

Answer 5

sets all budgets at zero and requires managers to justify any requirements for funds. This ensures money is only used where there is need

Question 6

Flexible Budgets

Answer 6

allows a business to make allowances for changes in the level of sales volume so that adverse variances are avoided

Question 7

Variance Analysis

Answer 7

the difference between the actual financial results for an item and the amount in the budget. Variance can be adverse or favourable.

Question 8

Historic information

Answer 8

information that already exists from past years