managerial accounting

Question 1

Benefits of using budgets (7)

Answer 1

• Target setting
• Improved planning
• Control
• Monitoring and calculating variances
• Communication
• Coordination between departments and employees
• Improved decision-making

Question 2

Limitations of budgets (5)

Answer 2

• The figures may be inaccurate, especially levels of sales
• Budgets can be restrictive and prevent improved business performance
• Budgets can demotivate staff
• Budgets can be time consuming to prepare and monitor
• They can increase cost in the short term, especially if computerised

Question 3

Advantages of zero-based budgeting

Answer 3

• Avoids budgets automatically creeping upwards each year, even though extra funds may not actually be needed
• Provides flexibility to make funds available when genuinely needed