Chapter 3.9 - Budgets

Question 1

Adverse variances

Answer 1

Discrepancies between actual outcomes and budgeted outcomes that are detrimental to an organization, such as production costs being higher than expected

Question 2

Budget

Answer 2

A financial plan of expected revenue and expenditure for a department or an organization, for a given period of time

Question 3

Budgetary control

Answer 3

Refers to the use of corrective measures taken to ensure that actual outcomes equal the budgeted outcomes, by systematic monitoring of budgets and investigating the reasons for any variances

Question 4

Cost center

Answer 4

A department or division of a business that incurs costs that are clearly attributed to the activities of that unit of the organization

Question 5

Favorable variances

Answer 5

Discrepancies between actual outcomes and budgeted outcomes that benefit an organization
(sales revenues being higher than expected)

Question 6

Profit center

Answer 6

A department or division of a business that incurs both costs and revenues. Profit centers tend to be used by large and diversified firms that have a broad product range

Question 7

Variance

Answer 7

Refers to any discrepancy between actual outcomes and budgeted outcomes

Question 8

Variance analysis

Answer 8

The management process of comparing planned and actual costs and revenues in order to measure and compare the degree of budgetary success. It also helps managers to monitor and control budgets