Chapter 32: Budgets

Question 1

Define budget holder

Answer 1

Budget holder: individual responsible for the initial setting and achievement of a budget.

Question 2

Define variance analysis

Answer 2

Variance analysis: calculating differences between budgets and actual performance, and analysing reasons for such differences.

Question 3

Define budget

Answer 3

Budget: a detailed financial plan for the future.

Question 4

Define delegated budgets

Answer 4

Delegated budgets: giving some delegated authority over the setting and achievement of budgets to junior managers.

Question 5

Define incremental budget

Answer 5

Incremental budgeting: uses last year’s budget as a basis and an adjustment is made for the coming year.

Question 6

Define flexible budget

Answer 6

Flexible budgeting: cost budgets for each expense are allowed to vary if sales or production vary from budgeted levels.

Question 7

Define zero budgeting

Answer 7

Zero budgeting: setting budgets to zero each year and budget holders have to argue their case to receive any finance.

Question 8

Define adverse variance

Answer 8

Adverse variance: exists when the difference between the budgeted and actual figure leads to a lower-than-expected profit

Question 9

Define favorable variance

Answer 9

Favourable variance: exists when the difference between the budgeted and actual figure leads to a higher- than-expected profit.